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, 1999
Commission file number 1-9553
VIACOM INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2949533
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
1515 Broadway, New York, New York 10036
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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 28, 1999:
Class A Common Stock, par value $.01 per share - 138,563,497
Class B Common Stock, par value $.01 per share - 558,085,682
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions, except per share amounts)
<TABLE>
<CAPTION>
Three months ended
June 30,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Revenues ..................................................... $ 3,003.3 $ 2,779.3
Expenses:
Operating ................................................. 1,935.4 2,309.4
Selling, general and administrative ....................... 585.6 503.4
Depreciation and amortization ............................. 200.0 191.9
--------- ---------
Total expenses .................................. 2,721.0 3,004.7
--------- ---------
Operating income (loss) ...................................... 282.3 (225.4)
Other income (expense):
Interest expense, net ..................................... (106.1) (156.6)
Other items, net .......................................... 6.6 (8.1)
--------- ---------
Earnings (loss) from continuing operations before income taxes 182.8 (390.1)
Benefit (provision) for income taxes ...................... (105.1) 133.0
Equity in loss of affiliated companies, net of tax ........ (18.2) (10.6)
Minority interest ......................................... (0.2) 0.4
--------- ---------
Earnings (loss) from continuing operations ................... 59.3 (267.3)
Discontinued operations (Note 5):
Loss, net of tax .......................................... -- (13.7)
Gain on dispositions ...................................... -- 0.3
--------- ---------
Net earnings (loss) .......................................... 59.3 (280.7)
Cumulative convertible preferred stock dividend requirement -- (15.0)
--------- ---------
Net earnings (loss) attributable to common stock ............. $ 59.3 $ (295.7)
========= =========
Earnings (loss) per common share:
Basic:
Net earnings (loss) from continuing operations ............ $ 0.09 $ (0.40)
Net earnings (loss) ....................................... $ 0.09 $ (0.41)
Diluted:
Net earnings (loss) from continuing operations ............ $ 0.08 $ (0.40)
Net earnings (loss) ....................................... $ 0.08 $ (0.41)
Weighted average number of common shares:
Basic ..................................................... 690.6 713.2
Diluted ................................................... 705.0 713.2
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions, except per share amounts)
<TABLE>
<CAPTION>
Six months ended
June 30,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Revenues ..................................................... $ 5,954.4 $ 5,464.9
Expenses:
Operating ................................................. 3,887.6 4,113.6
Selling, general and administrative ....................... 1,109.9 924.6
Depreciation and amortization ............................. 397.1 378.7
--------- ---------
Total expenses .................................. 5,394.6 5,416.9
--------- ---------
Operating income ............................................. 559.8 48.0
Other income (expense):
Interest expense, net ..................................... (200.4) (310.7)
Other items, net .......................................... 5.3 (4.5)
--------- ---------
Earnings (loss) from continuing operations before income taxes 364.7 (267.2)
Benefit (provision) for income taxes ...................... (202.4) 65.2
Equity in loss of affiliated companies, net of tax ........ (34.3) (18.3)
Minority interest ......................................... (0.3) 0.6
--------- ---------
Earnings (loss) from continuing operations ................... 127.7 (219.7)
Discontinued operations (Note 5):
Loss, net of tax .......................................... -- (59.9)
Gain on dispositions ...................................... -- 0.3
--------- ---------
Net earnings (loss) before extraordinary loss ................ 127.7 (279.3)
Extraordinary loss, net of tax ............................ (23.5) --
--------- ---------
Net earnings (loss) .......................................... 104.2 (279.3)
Cumulative convertible preferred stock dividend requirement (0.4) (30.0)
Premium on repurchase of preferred stock .................. (12.0) --
--------- ---------
Net earnings (loss) attributable to common stock ............. $ 91.8 $ (309.3)
========= =========
Earnings (loss) per common share:
Basic:
Net earnings (loss) from continuing operations ............ $ 0.17 $ (0.35)
Net earnings (loss) ....................................... $ 0.13 $ (0.43)
Diluted:
Net earnings (loss) from continuing operations ............ $ 0.16 $ (0.35)
Net earnings (loss) ....................................... $ 0.13 $ (0.43)
Weighted average number of common shares:
Basic ..................................................... 693.4 711.8
Diluted ................................................... 708.1 711.8
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------- ---------
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents ............................................ $ 616.0 $ 767.3
Receivables, less allowances of $109.7 (1999) and
$98.7 (1998) ...................................................... 1,577.6 1,759.1
Inventory (Note 6) ................................................... 1,738.5 1,805.5
Other current assets ................................................. 883.2 732.6
--------- ---------
Total current assets ........................................... 4,815.3 5,064.5
--------- ---------
Property and equipment, at cost ........................................ 4,912.7 4,537.0
Less accumulated depreciation ........................................ 1,663.9 1,457.5
--------- ---------
Net property and equipment .................................... 3,248.8 3,079.5
--------- ---------
Inventory (Note 6) ..................................................... 2,667.6 2,470.8
Intangibles, at amortized cost ......................................... 11,489.7 11,557.3
Other assets ........................................................... 1,582.0 1,441.0
--------- ---------
$23,803.4 $23,613.1
========= =========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable ..................................................... $ 420.7 $ 499.2
Accrued compensation ................................................. 287.7 410.3
Participants' share, residuals and royalties payable ................. 1,094.3 1,227.5
Income tax payable ................................................... 195.5 526.5
Current portion of long-term debt (Note 7) ........................... 328.2 377.2
Accrued expenses and other ........................................... 1,961.1 2,591.9
--------- ---------
Total current liabilities ..................................... 4,287.5 5,632.6
--------- ---------
Long-term debt (Note 7) ................................................ 6,424.3 3,813.4
Other liabilities ...................................................... 1,876.8 2,117.5
Commitments and contingencies (Note 8)
Shareholders' Equity:
Convertible Preferred Stock, par value $.01 per share; 200.0 shares
authorized; 12.0 (1998) shares issued and outstanding ............. -- 600.0
Class A Common Stock, par value $.01 per share; 200.0 shares
authorized; 140.5 (1999) and 141.6 (1998) shares issued ........... 1.4 1.4
Class B Common Stock, par value $.01 per share; 1,000.0 shares
authorized; 594.8 (1999) and 591.9 (1998) shares issued .......... 5.9 5.9
Additional paid-in capital ........................................... 10,593.2 10,574.7
Retained earnings .................................................... 2,017.9 1,932.9
Accumulated other comprehensive loss (Note 1) ........................ (42.5) (67.1)
--------- ---------
12,575.9 13,047.8
Less treasury stock, at cost; 46.8 (1999) and 38.5 (1998) shares ....... 1,361.1 998.2
--------- ---------
Total shareholders' equity .................................... 11,214.8 12,049.6
--------- ---------
$23,803.4 $23,613.1
========= =========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
VIACOM INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited; in millions)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1999 1998
---- ----
<S> <C> <C>
Operating Activities:
Net earnings (loss) ............................................................. $ 104.2 $ (279.3)
Adjustments to reconcile net earnings (loss) to net cash flow from operating
activities:
Depreciation and amortization ................................................. 397.1 464.9
Distribution from affiliated companies ........................................ 14.4 10.2
Gain on sale of investment .................................................... -- (10.7)
Equity in loss of affiliated companies ........................................ 34.3 18.3
Change in operating assets and liabilities:
Decrease in receivables ................................................... 181.5 455.5
Decrease (increase) in inventory and related programming liabilities, net (266.6) 244.7
Increase in prepaid expenses and other current assets ..................... (167.2) (15.3)
Decrease (increase) in unbilled receivables ............................... (14.3) 46.5
Decrease in accounts payable and accrued expenses ......................... (835.3) (365.0)
Decrease in taxes payable and deferred income taxes, net .................. (351.4) (738.3)
Increase in deferred income ............................................... 38.2 15.0
Other, net ................................................................ (40.8) 86.1
-------- --------
Net cash flow from operating activities ......................................... (905.9) (67.4)
-------- --------
Investing Activities:
Capital expenditures ......................................................... (320.4) (264.0)
Acquisitions, net of cash acquired ........................................... (277.4) (72.8)
Investments in and advances to affiliated companies .......................... (84.4) (51.0)
Proceeds from sales of short-term investments ................................ 222.5 53.4
Purchases of short-term investments .......................................... (215.3) (48.8)
Other, net ................................................................... -- 4.0
-------- --------
Net cash flow from investing activities ......................................... (675.0) (379.2)
-------- --------
Financing Activities:
Borrowings from banks, net ................................................... 2,776.6 883.9
Repurchase of Preferred Stock ................................................ (612.0) --
Purchase of treasury stock and warrants ...................................... (402.3) --
Repayment of notes and debentures ............................................ (323.1) (400.0)
Payment of capital lease obligations ......................................... (44.5) (35.6)
Proceeds from exercise of stock options and warrants ......................... 42.4 71.7
Other, net ................................................................... (7.5) (29.8)
-------- --------
Net cash flow from financing activities ......................................... 1,429.6 490.2
-------- --------
Net increase (decrease) in cash and cash equivalents ......................... (151.3) 43.6
Cash and cash equivalents at beginning of the period ......................... 767.3 292.3
-------- --------
Cash and cash equivalents at end of period ...................................... $ 616.0 $ 335.9
======== ========
Supplemental cash flow information:
Cash payments for interest, net of amounts capitalized ....................... $ 236.5 $ 315.1
Cash payments for income taxes ............................................... $ 524.3 $ 620.2
Non cash investing and financing activities:
Property and equipment acquired under capitalized leases ..................... $ 117.5 $ 17.6
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in millions, except per share amounts)
1) BASIS OF PRESENTATION
Viacom Inc. (the "Company") is a diversified entertainment company with
operations in six segments: (i) Networks, (ii) Entertainment, (iii) Video, (iv)
Parks, (v) Publishing and (vi) Online. See Note 5 regarding the presentation of
discontinued operations.
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.
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.
Use of Estimates - 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 (Loss) per Common Share - Basic earnings per share ("EPS") is
computed by dividing the net earnings applicable to common shares by the
weighted average of common shares outstanding during the period. Diluted EPS
adjusts the basic weighted average of common shares outstanding by the assumed
conversion of convertible securities and exercise of stock options only in the
periods in which such effect would have been dilutive. Prior period amounts have
been adjusted to reflect the effect of the 2-for-1 stock split (see Note 3). The
table below presents a reconciliation of weighted average shares used in the
calculation of basic and diluted EPS:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares for basic EPS ......... 690.6 713.2 693.4 711.8
Incremental shares for stock options & warrants 14.4 -- 14.7 --
----- ----- ----- -----
Weighted average shares for diluted EPS ....... 705.0 713.2 708.1 711.8
===== ===== ===== =====
</TABLE>
Comprehensive Income (Loss) -- Total comprehensive income (loss) for the Company
includes net income and other comprehensive income items including unrealized
gain (loss) on securities, cumulative translation adjustments and minimum
pension liability adjustments. Total comprehensive income (loss) for the three
months ended June 30, 1999 and 1998 was $62.1 million and $(297.8) million,
respectively,
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<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
and for the six months ended June 30, 1999 and 1998 was $128.8 million and
$(277.8) million, respectively.
2) SUBSEQUENT EVENTS
On July 19, 1999, Blockbuster Inc., a wholly owned subsidiary of the Company,
amended a previously filed registration statement on Form S-1 with the
Securities and Exchange Commission for a proposed initial public offering of 31
million shares of Blockbuster's Class A common stock, representing approximately
17.7% of its shares. The underwriters will be granted an option to acquire up to
an additional 4.65 million shares to cover over-allotments. It is currently
estimated that the initial public offering price will be between $16 and $18 per
share. Blockbuster will use the net proceeds of the offering to repay
outstanding indebtedness under its credit agreement.
On July 7, 1999, the Viacom Five-Year Warrants expired. The Company received
proceeds of approximately $317 million and issued approximately 9.0 million
shares of its Class B Common Stock in connection with the exercise of 4.5
million warrants issued as part of the 1994 acquisition of Paramount
Communications.
3) STOCK TRANSACTIONS AND ACQUISITIONS
On March 24, 1999, the Company initiated a repurchase program which was
subsequently expanded, to acquire up to $600 million of the Company's common
stock and warrants. As of June 30, 1999, the Company had repurchased 25,000
shares of Class A Common Stock, 8,825,800 shares of Class B Common Stock and
1,095,900 Viacom Five-Year Warrants, which expired July 7, 1999, for $393.1
million in the aggregate. During the period June 30 through July 28, 1999, the
Company repurchased 690,000 shares of Class B Common Stock and the cumulative
repurchase program totaled $423.4 million in the aggregate.
The Board of Directors of the Company declared a 2-for-1 common stock split in
the form of a dividend. The additional shares were issued on March 31, 1999 to
shareholders of record on March 15, 1999. All common share and per share amounts
have been adjusted to reflect the stock split for all periods presented.
On June 21, 1999, the Company completed its tender offer for all outstanding
shares of Spelling Entertainment Group Inc. ("Spelling") common stock that it
did not already own for $9.75 per share in cash. The tendered shares, along with
the shares already owned by the Company, represented approximately 97% of all of
the issued and outstanding shares of Spelling. The tender offer was made under
the terms of a merger agreement between the Company and Spelling. On June 23,
1999, the Company acquired the remaining outstanding shares of Spelling,
approximately 3%, through a merger of Spelling and a wholly owned subsidiary of
the Company. As a result of the
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<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
merger, each share of Spelling common stock was also converted into the right to
receive $9.75 in cash. The total consideration for tendered shares and merger
was approximately $176 million. The Company has begun the process of integrating
certain operations of Spelling into Paramount Television.
4) RECEIVABLES
As of June 30, 1999, the Company had an aggregate of $363.3 million outstanding
under revolving receivable securitization programs. Proceeds from the sale of
these receivables were used to reduce outstanding borrowings. The resulting loss
on the sale of receivables was not material to the Company's financial position
and results of operations.
5) DISCONTINUED OPERATIONS
In accordance with Accounting Principles Board Opinion 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 its educational, professional and
reference publishing businesses ("Non-Consumer Publishing") and its music retail
stores ("Music") as discontinued operations, as these businesses were sold on
November 27, 1998 and October 26, 1998, respectively.
The gain on dispositions for the three and six months ended June 30, 1998
represents the reversal of cable split-off reserves that were no longer
required.
Summarized financial results of discontinued operations are as follows:
<TABLE>
<CAPTION>
Non-Consumer
Publishing Music Total
---------- ----- -----
<S> <C> <C> <C>
For the three months ended June 30, 1998:
Revenues ................................ $ 422.0 $ 122.6 $ 544.6
Loss from operations before income taxes (21.6) (6.8) (28.4)
Benefit for income taxes ................ 12.1 2.6 14.7
Net loss ................................ (9.5) (4.2) (13.7)
For the six months ended June 30, 1998:
Revenues ................................ $ 690.5 $ 255.9 $ 946.4
Loss from operations before income taxes (113.1) (16.4) (129.5)
Benefit for income taxes ................ 63.3 6.3 69.6
Net loss ................................ (49.8) (10.1) (59.9)
</TABLE>
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<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
6) INVENTORY
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Merchandise inventory, including sell-through
videocassettes ............................. $ 303.9 $ 381.9
Videocassette rental inventory .............. 457.8 404.1
Publishing:
Finished goods ............................. 68.9 59.7
Work in process ............................ 6.6 6.9
Raw materials .............................. 3.6 2.5
Other ....................................... 28.8 17.7
-------- --------
869.6 872.8
Less current portion ...................... 411.8 468.7
-------- --------
457.8 404.1
-------- --------
Theatrical and television inventory:
Theatrical and television productions:
Released ................................. 1,828.1 1,800.4
Completed, not released .................. 38.5 35.9
In process and other ..................... 381.8 321.0
Program rights .............................. 1,288.1 1,246.2
-------- --------
3,536.5 3,403.5
Less current portion ........................ 1,326.7 1,336.8
-------- --------
2,209.8 2,066.7
-------- --------
Total Current Inventory ...................... $1,738.5 $1,805.5
======== ========
Total Non-Current Inventory .................. $2,667.6 $2,470.8
======== ========
</TABLE>
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<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
7) LONG-TERM DEBT
The following table sets forth the Company's long-term debt, net of current
portion:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Notes payable to banks ................................................. $3,646.8 $ 868.5
5.875% Senior Notes due 2000, net of unamortized discount
of $.1 (1999) and $.2 (1998) ........................................ 149.9 149.8
7.5% Senior Notes due 2002, net of unamortized discount
of $1.1 (1999) and $1.3 (1998) ...................................... 248.9 248.7
6.75% Senior Notes due 2003, net of unamortized discount
of $.2 (1999 and 1998) .............................................. 349.8 349.8
7.75% Senior Notes due 2005, net of unamortized discount
of $5.5 (1999) and $5.9 (1998) ...................................... 965.5 965.0
7.625% Senior Debentures due 2016, net of unamortized
discount of $1.2 (1999 and 1998) .................................... 198.8 198.7
8.25% Senior Debentures due 2022, net of unamortized
discount of $2.5 (1999) and $2.6 (1998) ............................. 247.5 247.4
7.5% Senior Debentures due 2023, net of unamortized
discount of $.4 (1999) and $.5 (1998) ............................... 149.6 149.5
10.25% Senior Subordinated Notes due 2001 .............................. 35.3 36.3
8.0% Merger Debentures due 2006, net of unamortized
discount of $15.8 (1999) and $44.1 (1998) ........................... 194.2 475.2
Other Notes ............................................................ -- .3
Obligations under capital leases ....................................... 566.2 501.4
-------- --------
6,752.5 4,190.6
Less current portion ................................................... 328.2 377.2
-------- --------
$6,424.3 $3,813.4
======== ========
</TABLE>
On July 7, 1999, the Company completed the redemption of the remaining $210
million principal amount of its 8.0% Merger Debentures.
On June 21, 1999, Blockbuster Inc. entered into a $1.9 billion unsecured credit
agreement (the "Blockbuster Credit Agreement") with a syndicate of banks. The
Blockbuster Credit Agreement is comprised of a $700 million revolving loan due
July 1, 2004, a $600 million term loan due in quarterly installments beginning
April 1, 2002 and ending July 1, 2004, and a $600 million revolving loan due
June 19, 2000. A varying commitment fee is charged on the unused amount of the
revolving loans. Interest rates are based on the prime rate or LIBOR at
Blockbuster's option at the time of borrowing.
-10-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
The Blockbuster Credit Agreement contains covenants, which, among other things,
relates to the payment of dividends, repurchase of Blockbuster's common stock or
other distributions and also requires compliance with financial covenants with
respect to a maximum leverage ratio and a minimum fixed charge ratio.
On June 23, 1999, Blockbuster Inc. borrowed $1.6 billion, comprised of $400
million borrowed under the long-term revolving loan, $600 million borrowed under
the term loan, and $600 million under the short-term revolving loan. The
weighted average interest rates at June 30, 1999 for these borrowings are 6.9%,
6.9%, and 6.8%, respectively. The proceeds of the borrowings were used to pay
amounts owed to the Company. The Company used such proceeds to permanently
reduce its commitments under the March 1997 Credit Agreements by $1.139 billion.
On May 21, 1999, the Company amended the March 1997 Credit Agreements to, among
other things, provide for the Blockbuster Credit Agreement.
On May 6, 1999, the 364-day film financing credit agreement, guaranteed by
Viacom International Inc. and the Company, was paid in full and on May 7, 1999,
the credit agreement terminated.
As of June 30, 1999, the Company's scheduled maturities of indebtedness through
December 31, 2003, assuming full utilization of the March 1997 Credit
Agreements, as amended, and the Blockbuster Credit Agreement are $245.2 million
(1999), $1.6 billion (2000), $1.8 billion (2001), $2.2 billion (2002) and $625.0
million (2003). The Company's maturities of long-term debt outstanding at June
30, 1999, excluding capital leases, are $245.2 million (1999), $882.5 million
(2000), $304.6 million (2001), $2.0 billion (2002) and $625.0 million (2003).
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.
8) COMMITMENTS AND CONTINGENCIES
The commitments of the Company for program license fees, which are not reflected
in the balance sheet as of June 30, 1999 and are estimated to aggregate $1.2
billion, principally reflect Showtime Networks Inc.'s ("SNI's") commitments of
$918.9 million for the acquisition of programming rights and the production of
original programming, and exclude intersegment commitments between the Networks
and Entertainment segments of $847.2 million. The 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 to acquire
programming rights 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.
-11-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
9) PROVISION FOR INCOME TAXES
The provision for income taxes represents federal, state and foreign income
taxes on earnings before income taxes. The estimated effective tax rates of
55.5% for 1999 and 54.7% for 1998 were both adversely affected by amortization
of intangibles in excess of the amounts deductible for tax purposes. Excluding
the non-deductible amortization of intangibles, the estimated effective tax
rates would have been 37.7% for 1999 and 28.1% for 1998.
Due to the unusual nature of the 1998 second quarter charge associated with the
change in accounting for rental tape amortization, the full income tax effect is
reflected in the second quarter 1998 tax provision and is excluded from the
estimated annual effective tax rate.
10) OPERATING SEGMENTS
The following table sets forth the Company's financial performance by operating
segment. Prior period results have been reclassified to conform to the new
presentation. Intersegment revenues, recorded at fair market value, of the
Entertainment segment were $58.8 million and $108.4 million for the three and
six months ended June 30, 1999 and $25.7 million and $56.0 million for the three
and six months ended June 30, 1998, respectively. All other intersegment
revenues were immaterial for each of the periods presented.
-12-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Networks .......................... $ 704.4 $ 597.3 $1,368.2 $1,142.0
Entertainment ..................... 1,025.2 1,043.1 2,117.5 2,162.0
Video ............................. 1,041.7 890.0 2,154.7 1,821.2
Parks ............................. 148.4 151.2 158.9 164.0
Publishing ........................ 145.8 122.5 268.5 230.9
Online ............................ 5.2 2.5 9.9 4.7
Intercompany eliminations ......... (67.4) (27.3) (123.3) (59.9)
-------- -------- -------- --------
Total revenues ................ $3,003.3 $2,779.3 $5,954.4 $5,464.9
======== ======== ======== ========
EBITDA:
Networks .......................... $ 219.3 $ 175.1 $ 420.8 $ 325.4
Entertainment ..................... 165.8 153.5 328.6 327.3
Video ............................. 104.5 (359.2) 249.6 (192.0)
Parks ............................. 28.6 27.5 25.9 25.4
Publishing ........................ 16.9 9.6 22.6 14.0
Online ............................ (6.0) (0.2) (7.0) 0.3
-------- -------- -------- --------
Total segment EBITDA ...... 529.1 6.3 1,040.5 500.4
Reconciliation to operating income:
Corporate/Eliminations ............ (46.8) (39.8) (83.6) (73.7)
Depreciation and amortization ..... (200.0) (191.9) (397.1) (378.7)
-------- -------- -------- --------
Total operating income .... $ 282.3 $ (225.4) $ 559.8 $ 48.0
======== ======== ======== ========
</TABLE>
-13-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
11) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Viacom International Inc. ("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 the Company, 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. Certain prior
year equity eliminations have been reclassified to conform with the current
period presentation.
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
--------------------------------------------------------------------
Non- Viacom
Viacom Viacom Guarantor Inc.
Inc. International Affiliates Eliminations Consolidated
---- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ................................. $ 10.2 $ 485.4 $2,616.3 $ (108.6) $3,003.3
Expenses:
Operating ............................. 9.0 158.6 1,876.4 (108.6) 1,935.4
Selling, general and administrative ... 0.4 189.5 395.7 -- 585.6
Depreciation and amortization ......... 0.9 21.6 177.5 -- 200.0
-------- -------- -------- -------- --------
Total expenses ...................... 10.3 369.7 2,449.6 (108.6) 2,721.0
-------- -------- -------- -------- --------
Operating income (loss) .................. (0.1) 115.7 166.7 -- 282.3
Other income (expense):
Interest expense, net ................. (96.1) 27.3 (37.3) -- (106.1)
Other items, net ...................... (5.1) 5.6 6.1 -- 6.6
-------- -------- -------- -------- --------
Earnings (loss) from continuing operations
before income taxes ................... (101.3) 148.6 135.5 -- 182.8
Benefit (provision) for income taxes .. 41.5 (60.9) (85.7) -- (105.1)
Equity in earnings (loss) of affiliated
companies, net of tax .............. 119.1 31.4 (23.9) (144.8) (18.2)
Minority interest ..................... -- -- (0.2) -- (0.2)
-------- -------- -------- -------- --------
Net earnings ............................. $ 59.3 $ 119.1 $ 25.7 $ (144.8) $ 59.3
======== ======== ======== ======== ========
</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, 1999
----------------------------------------------------------------------------
Non- Viacom
Viacom Viacom Guarantor Inc.
Inc. International Affiliates Eliminations Consolidated
---- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues .................................... $ 19.3 $ 937.7 $5,114.4 $ (117.0) $5,954.4
Expenses:
Operating ................................. 18.5 306.9 3,679.2 (117.0) 3,887.6
Selling, general and administrative ....... 1.2 358.4 750.3 -- 1,109.9
Depreciation and amortization ............. 1.8 44.0 351.3 -- 397.1
-------- -------- -------- -------- --------
Total expenses .......................... 21.5 709.3 4,780.8 (117.0) 5,394.6
-------- -------- -------- -------- --------
Operating income (loss) ..................... (2.2) 228.4 333.6 -- 559.8
Other income (expense):
Interest expense, net ..................... (177.4) 50.2 (73.2) -- (200.4)
Other items, net .......................... (10.5) 5.0 10.8 -- 5.3
-------- -------- -------- -------- --------
Earnings (loss) from continuing operations
before income taxes ....................... (190.1) 283.6 271.2 -- 364.7
Benefit (provision) for income taxes ...... 77.9 (116.2) (164.1) -- (202.4)
Equity in earnings (loss) of affiliated
companies, net of tax ................... 239.6 72.5 (43.8) (302.6) (34.3)
Minority interest ......................... -- -- (0.3) -- (0.3)
-------- -------- -------- -------- --------
Net earnings before extraordinary loss 127.4 239.9 63.0 (302.6) 127.7
Extraordinary loss, net of tax ............ (23.2) (0.3) -- -- (23.5)
-------- -------- -------- -------- --------
Net earnings ................................ 104.2 239.6 63.0 (302.6) 104.2
Cumulative convertible preferred
stock dividend requirement .............. (0.4) -- -- -- (0.4)
Premium on repurchase of preferred stock .. (12.0) -- -- -- (12.0)
-------- -------- -------- -------- --------
Net earnings attributable to
common stock ............................ $ 91.8 $ 239.6 $ 63.0 $ (302.6) $ 91.8
======== ======== ======== ======== ========
</TABLE>
-15-
<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, 1998
--------------------------------------------------------------------------
Non- Viacom
Viacom Viacom Guarantor Inc.
Inc. International Affiliates Eliminations Consolidated
---- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ................................. $ 10.5 $ 392.0 $2,383.6 $ (6.8) $2,779.3
Expenses:
Operating .............................. 7.2 138.3 2,170.7 (6.8) 2,309.4
Selling, general and administrative .... 0.4 152.2 350.8 -- 503.4
Depreciation and amortization .......... 0.6 23.3 168.0 -- 191.9
-------- -------- -------- -------- --------
Total expenses ....................... 8.2 313.8 2,689.5 (6.8) 3,004.7
-------- -------- -------- -------- --------
Operating income (loss) .................. 2.3 78.2 (305.9) -- (225.4)
Other income (expense):
Interest expense, net .................. (137.3) (9.1) (10.2) -- (156.6)
Other items, net ....................... (6.5) (0.7) (0.9) -- (8.1)
-------- -------- -------- -------- --------
Earnings (loss) from continuing operations
before income taxes .................... (141.5) 68.4 (317.0) -- (390.1)
Benefit (provision) for income taxes ... 56.7 (27.2) 103.5 -- 133.0
Equity in loss of affiliated companies,
net of tax ........................... (195.9) (237.4) (14.2) 436.9 (10.6)
Minority interest ...................... -- -- 0.4 -- 0.4
-------- -------- -------- -------- --------
Loss from continuing operations .......... (280.7) (196.2) (227.3) 436.9 (267.3)
Discontinued operations:
Loss from discontinued operations ...... -- -- (13.7) -- (13.7)
Gain on dispositions ................... -- 0.3 -- -- 0.3
-------- -------- -------- -------- --------
Net loss ................................. (280.7) (195.9) (241.0) 436.9 (280.7)
Cumulative convertible preferred
stock dividend requirement ........... (15.0) -- -- -- (15.0)
-------- -------- -------- -------- --------
Net loss attributable to common stock .... $ (295.7) $ (195.9) $ (241.0) $ 436.9 $ (295.7)
======== ======== ======== ======== ========
</TABLE>
-16-
<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, 1998
---------------------------------------------------------------------------
Non- Viacom
Viacom Viacom Guarantor Inc.
Inc. International Affiliates Eliminations Consolidated
---- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ................................. $ 20.6 $ 737.9 $4,719.2 $ (12.8) $5,464.9
Expenses:
Operating .............................. 17.4 263.3 3,845.7 (12.8) 4,113.6
Selling, general and administrative .... 1.4 270.9 652.3 -- 924.6
Depreciation and amortization .......... 1.2 41.7 335.8 -- 378.7
-------- -------- -------- -------- --------
Total expenses ....................... 20.0 575.9 4,833.8 (12.8) 5,416.9
-------- -------- -------- -------- --------
Operating income (loss) .................. 0.6 162.0 (114.6) -- 48.0
Other income (expense):
Interest expense, net .................. (264.8) (21.0) (24.9) -- (310.7)
Other items, net ....................... (9.1) 8.1 (3.5) -- (4.5)
-------- -------- -------- -------- --------
Earnings (loss) from continuing operations
before income taxes .................... (273.3) 149.1 (143.0) -- (267.2)
Benefit (provision) for income taxes ... 112.0 (61.1) 14.3 -- 65.2
Equity in loss of affiliated companies,
net of tax ........................... (118.0) (207.5) (25.2) 332.4 (18.3)
Minority interest ...................... -- 1.2 (0.6) -- 0.6
-------- -------- -------- -------- --------
Loss from continuing operations .......... (279.3) (118.3) (154.5) 332.4 (219.7)
Discontinued operations:
Loss from discontinued operations ...... -- -- (59.9) -- (59.9)
Gain on dispositions ................... -- 0.3 -- -- 0.3
-------- -------- -------- -------- --------
Net loss ................................. (279.3) (118.0) (214.4) 332.4 (279.3)
Cumulative convertible preferred
stock dividend requirement ........... (30.0) -- -- -- (30.0)
-------- -------- -------- -------- --------
Net loss attributable to
common stock ........................... $ (309.3) $ (118.0) $ (214.4) $ 332.4 $ (309.3)
======== ======== ======== ======== ========
</TABLE>
-17-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
June 30, 1999
------------------------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
---- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ......... $ 10.3 $ 452.4 $ 153.3 $ -- $ 616.0
Receivables, net .................. 9.1 303.7 1,337.4 (72.6) 1,577.6
Inventory ......................... 11.5 154.5 1,572.5 -- 1,738.5
Other current assets .............. 1.2 235.7 646.3 -- 883.2
--------- --------- --------- ---------- ---------
Total current assets ........... 32.1 1,146.3 $ 3,709.5 (72.6) 4,815.3
Property and equipment, at cost ........ 14.1 632.9 4,265.7 -- 4,912.7
Less accumulated depreciation ..... 3.7 209.8 1,450.4 -- 1,663.9
--------- --------- --------- ---------- ---------
Net property and equipment .... 10.4 423.1 2,815.3 -- 3,248.8
Inventory .............................. -- 447.1 2,220.5 -- 2,667.6
Intangibles, at amortized cost ......... 107.9 522.0 10,859.8 -- 11,489.7
Investments in consolidated subsidiaries 6,407.3 15,366.2 -- (21,773.5) --
Other assets ........................... 63.0 154.6 1,497.5 (133.1) 1,582.0
--------- --------- --------- ---------- ---------
$ 6,620.7 $18,059.3 $21,102.6 $(21,979.2) $23,803.4
========= ========= ========= ========== =========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable ................... $ -- $ 64.4 $ 391.2 $ (34.9) $ 420.7
Accrued compensation ............... -- 67.1 220.6 -- 287.7
Participants' share, residuals and
royalties payable .............. -- -- 1,094.3 -- 1,094.3
Income tax payable ................. (16.1) 876.0 (128.2) (536.2) 195.5
Current portion of long-term debt .. 194.2 18.4 115.6 -- 328.2
Accrued expenses and other ......... 92.5 641.7 1,334.9 (108.0) 1,961.1
--------- --------- --------- ---------- ---------
Total current liabilities ......... 270.6 1,667.6 3,028.4 (679.1) 4,287.5
--------- --------- --------- ---------- ---------
Long-term debt ......................... 3,177.6 1,037.2 2,209.5 -- 6,424.3
Other liabilities ...................... (12,176.0) 2,593.4 7,505.5 3,953.9 1,876.8
Shareholders' equity:
Preferred Stock .................... -- 104.1 20.4 (124.5) --
Common Stock ....................... 7.3 230.4 1,907.4 (2,137.8) 7.3
Additional paid-in capital ......... 10,593.2 7,334.6 6,540.2 (13,874.8) 10,593.2
Retained earnings .................. 6,109.1 5,061.5 (35.8) (9,116.9) 2,017.9
Accumulated other comprehensive
income (loss) ................... -- 30.5 (73.0) -- (42.5)
--------- --------- --------- ---------- ---------
16,709.6 12,761.1 8,359.2 (25,254.0) 12,575.9
Less treasury stock, at cost ....... 1,361.1 -- -- -- 1,361.1
--------- --------- --------- ---------- ---------
Total shareholders' equity ....... 15,348.5 12,761.1 8,359.2 (25,254.0) 11,214.8
--------- --------- --------- ---------- ---------
$ 6,620.7 $18,059.3 $21,102.6 $(21,979.2) $23,803.4
========= ========= ========= ========== =========
</TABLE>
-18-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
---- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ......... $ 406.4 $ 189.5 $ 171.4 $ -- $ 767.3
Receivables, net .................. 9.5 319.5 1,458.0 (27.9) 1,759.1
Inventory ......................... 11.5 131.9 1,662.1 -- 1,805.5
Other current assets .............. 0.9 160.9 570.8 -- 732.6
--------- --------- --------- ----------- ---------
Total current assets ............ 428.3 801.8 3,862.3 (27.9) 5,064.5
Property and equipment ................. 13.6 602.3 3,921.1 -- 4,537.0
Less accumulated depreciation ..... 3.0 188.6 1,265.9 -- 1,457.5
--------- --------- --------- ----------- ---------
Net property and equipment ...... 10.6 413.7 2,655.2 -- 3,079.5
Inventory .............................. -- 400.1 2,070.7 -- 2,470.8
Intangibles, at amortized cost ......... 109.4 530.9 10,917.0 -- 11,557.3
Investments in consolidated subsidiaries 5,796.0 15,701.9 -- (21,497.9) --
Other assets ........................... 83.4 1,541.4 1,795.3 (1,979.1) 1,441.0
--------- --------- --------- ----------- ---------
$ 6,427.7 $19,389.8 $21,300.5 $(23,504.9) $23,613.1
========= ========= ========= =========== =========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable ................... $ -- $ 68.0 $ 474.4 $ (43.2) $ 499.2
Accrued compensation ............... -- 144.4 265.9 -- 410.3
Participants' share, residuals and
royalties payable ................ -- -- 1,227.5 -- 1,227.5
Income taxes payable ............... -- 1,257.5 (139.7) (591.3) 526.5
Current portion of long-term debt .. 282.4 13.5 81.3 -- 377.2
Accrued expenses and other ......... 612.7 663.6 1,351.5 (35.9) 2,591.9
--------- --------- --------- ----------- ---------
Total current liabilities ....... 895.1 2,147.0 3,260.9 (670.4) 5,632.6
--------- --------- --------- ----------- ---------
Long-term debt ......................... 2,214.6 1,050.4 548.4 -- 3,813.4
Other liabilities ...................... (12,834.8) 3,458.2 9,008.6 2,485.5 2,117.5
Shareholders' equity:
Preferred Stock .................... 600.0 104.1 20.4 (124.5) 600.0
Common Stock ....................... 7.3 228.7 1,985.3 (2,214.0) 7.3
Additional paid-in capital ......... 10,519.6 7,545.4 6,676.9 (14,167.2) 10,574.7
Retained earnings .................. 6,024.1 4,821.9 (98.8) (8,814.3) 1,932.9
Accumulated other comprehensive
income (loss) .................... -- 34.1 (101.2) -- (67.1)
--------- --------- --------- ----------- ---------
17,151.0 12,734.2 8,482.6 (25,320.0) 13,047.8
Less treasury stock, at cost ....... 998.2 -- -- -- 998.2
--------- --------- --------- ----------- ---------
Total shareholders' equity ....... 16,152.8 12,734.2 8,482.6 (25,320.0) 12,049.6
--------- --------- --------- ----------- ---------
$ 6,427.7 $19,389.8 $21,300.5 $(23,504.9) $23,613.1
========= ========= ========= =========== =========
</TABLE>
-19-
<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, 1999
--------------------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
---- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net cash flow from operating activities ....... $ (379.1) $ (242.7) $ (284.1) $ -- $ (905.9)
Investing Activities:
Capital expenditures ........................ -- (50.6) (269.8) -- (320.4)
Acquisitions, net of cash acquired .......... (160.9) -- (116.5) -- (277.4)
Investments in and advances to
affiliated companies ...................... -- (16.2) (68.2) -- (84.4)
Purchases of short-term investments ......... -- (215.3) -- -- (215.3)
Proceeds from sales of short-term investments -- 222.5 -- -- 222.5
-------- -------- -------- -------- --------
Net cash flow from investing activities ....... (160.9) (59.6) (454.5) -- (675.0)
-------- -------- -------- -------- --------
Financing Activities:
Net borrowings from banks ................... 1,165.4 -- 1,611.2 -- 2,776.6
Repurchase of Preferred Stock ............... (612.0) -- -- -- (612.0)
Purchase of treasury stock and warrants ..... (402.3) -- -- -- (402.3)
Repayment of notes and debentures ........... (321.6) (1.5) -- -- (323.1)
Payment of capital lease obligations ........ -- (14.9) (29.6) -- (44.5)
Increase (decrease) in intercompany
payables .................................. 279.5 581.6 (861.1) -- --
Proceeds from exercise of stock options
and warrants .............................. 42.4 -- -- -- 42.4
Other, net .................................. (7.5) -- -- -- (7.5)
-------- -------- -------- -------- --------
Net cash flow from financing activities ....... 143.9 565.2 720.5 -- 1,429.6
-------- -------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents ......................... (396.1) 262.9 (18.1) -- (151.3)
Cash and cash equivalents at beginning
of period ................................. 406.4 189.5 171.4 -- 767.3
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period .... $ 10.3 $ 452.4 $ 153.3 $ -- $ 616.0
======== ======== ======== ======== ========
</TABLE>
-20-
<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, 1998
------------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
---- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash flow from operating activities ....... $ (183.5) $ (860.5) $ 976.6 $ -- $ (67.4)
-------- -------- -------- -------- --------
Investing Activities:
Capital expenditures ........................ -- (55.4) (208.6) -- (264.0)
Acquisitions, net of cash acquired .......... (11.1) -- (61.7) -- (72.8)
Investments in and advances to
affiliated companies ...................... -- (0.1) (50.9) -- (51.0)
Purchases of short-term investments ......... -- (48.8) -- -- (48.8)
Proceeds from sales of short-term investments -- 53.4 -- -- 53.4
Other, net .................................. -- 13.3 (9.3) -- 4.0
-------- -------- -------- -------- --------
Net cash flow from investing activities ....... (11.1) (37.6) (330.5) -- (379.2)
-------- -------- -------- -------- --------
Financing Activities:
Borrowings from banks, net .................. 1,041.3 (109.0) (48.4) -- 883.9
Repayment of notes and debentures ........... (150.0) (250.0) -- -- (400.0)
Payment of capital lease obligations ........ -- (12.4) (23.2) -- (35.6)
Increase (decrease) in intercompany
payables .................................. (675.3) 1,303.7 (628.4) -- --
Proceeds from exercise of stock options
and warrants .............................. 71.7 -- -- -- 71.7
Payment of Preferred Stock dividends ........ (30.0) -- -- -- (30.0)
Other, net .................................. -- -- 0.2 -- 0.2
-------- -------- -------- -------- --------
Net cash flow from financing activities ....... 257.7 932.3 (699.8) -- 490.2
-------- -------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents .......................... 63.1 34.2 (53.7) -- 43.6
Cash and cash equivalents at beginning
of period ................................. 0.1 91.5 200.7 -- 292.3
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period .... $ 63.2 $ 125.7 $ 147.0 $ -- $ 335.9
======== ======== ======== ======== ========
</TABLE>
-21-
<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 six months ended June 30, 1999 and 1998.
Results for the periods presented exclude contributions from the Company's
educational, professional and reference publishing businesses ("Non-Consumer
Publishing") and music retail stores ("Music") which were sold on November 27,
1998 and October 26, 1998, respectively. (See Note 5 of Notes to Consolidated
Financial Statements).
<TABLE>
<CAPTION>
Three months ended Percent Six months ended Percent
June 30, B/(W) June 30, B/(W)
------------------ ----- ------------------ -----
1999 1998 1999 1998
---- ---- ---- ----
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Networks ................... $ 704.4 $ 597.3 18% $1,368.2 $1,142.0 20%
Entertainment .............. 1,025.2 1,043.1 (2) 2,117.5 2,162.0 (2)
Video ...................... 1,041.7 890.0 17 2,154.7 1,821.2 18
Parks ...................... 148.4 151.2 (2) 158.9 164.0 (3)
Publishing ................. 145.8 122.5 19 268.5 230.9 16
Online ..................... 5.2 2.5 108 9.9 4.7 111
Intercompany eliminations .. (67.4) (27.3) (147) (123.3) (59.9) (106)
-------- -------- -------- --------
Total ........... $3,003.3 $2,779.3 8 $5,954.4 $5,464.9 9
-------- -------- -------- --------
Operating income (loss): (a)
Networks ................... $ 190.1 $ 147.0 29% $ 362.8 $ 274.2 32%
Entertainment .............. 114.7 106.9 7 227.8 234.5 (3)
Video ...................... 7.5 (453.4) NM 57.8 (381.0) NM
Parks ...................... 15.4 14.6 5 (0.6) (0.5) (20)
Publishing ................. 12.4 5.3 134 13.7 5.4 154
Online ..................... (6.0) (0.2) NM (7.0) 0.3 NM
-------- -------- -------- --------
Segment Total ... 334.1 (179.8) NM 654.5 132.9 392
Corporate/Eliminations ..... (51.8) (45.6) (14) (94.7) (84.9) (12)
-------- -------- -------- --------
Total ........... $ 282.3 $ (225.4) NM $ 559.8 $ 48.0 NM
-------- -------- -------- --------
</TABLE>
NM -- Not meaningful
(a) Operating income (loss) is defined as net earnings (loss) before
extraordinary loss (net of tax), discontinued operations (net of tax),
minority interest, equity in loss of affiliated companies (net of tax),
provision for income taxes, other items (net) and interest expense (net).
-22-
<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, 1999 and 1998. 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)
------------------ ----- ------------------ -----
1999 1998 1999 1998
---- ---- ---- ----
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
EBITDA:
Networks ............... $ 219.3 $ 175.1 25% $ 420.8 $ 325.4 29%
Entertainment .......... 165.8 153.5 8 328.6 327.3 --
Video .................. 104.5 (359.2) NM 249.6 (192.0) NM
Parks .................. 28.6 27.5 4 25.9 25.4 2
Publishing ............. 16.9 9.6 76 22.6 14.0 61
Online ................. (6.0) (0.2) NM (7.0) 0.3 NM
-------- -------- -------- --------
Segment Total.. 529.1 6.3 NM 1,040.5 500.4 108
Corporate/Eliminations.. (46.8) (39.8) (18) (83.6) (73.7) (13)
-------- -------- -------- --------
Total ......... $ 482.3 $ (33.5) NM $ 956.9 $ 426.7 124
======== ======== ======== ========
</TABLE>
NM - Not meaningful
Results of Operations
Revenues increased 8% to $3.0 billion and 9% to $5.95 billion for the three-and
six-month periods ended June 30, 1999, respectively, from $2.78 billion and
$5.46 billion for the same prior-year periods. Revenue increases were paced by
gains in the Networks, Video and Publishing segments. Networks recorded higher
advertising revenues and affiliate fees for the periods presented. Video's
revenue gains were led by domestic same-store rental revenue increases of 13%
for the second quarter and 17% for the six months then ended and the increased
number of Company-owned stores in operation in 1999.
Total expenses decreased 9% to $2.7 billion for the second quarter of 1999 from
$3.0 billion for the second quarter of 1998 and remained constant at $5.4
billion for the comparable six-month periods. The second quarter of 1998
includes the charge taken by Blockbuster of $424.3 million associated with an
adjustment to the carrying value of rental tapes due to a new method of
accounting.
Excluding the impact of the Blockbuster charge, EBITDA and operating income
increased 23% to $482.3 million and 42% to $282.3 million, respectively, for the
second quarter, and 12% to $956.9 million and 19% to $559.8 million,
respectively, for the six months ended June 30, 1999.
-23-
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Segment Results of Operations
Networks (Basic Cable and Premium Subscription Television Program Services)
<TABLE>
<CAPTION>
Three months ended Percent Six months ended Percent
June 30, B/(W) June 30, B/(W)
---------------- ----- ------------------ -----
1999 1998 1999 1998
---- ---- ---- ----
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 704.4 $ 597.3 18% $1,368.2 $1,142.0 20%
Operating Income $ 190.1 $ 147.0 29 $ 362.8 $ 274.2 32
EBITDA $ 219.3 $ 175.1 25 $ 420.8 $ 325.4 29
</TABLE>
The Networks segment is comprised of MTV Networks ("MTVN"), basic cable
television program services and Showtime Networks Inc. ("SNI"), premium
subscription television program services.
For the second quarter of 1999, MTVN revenues of $506.6 million, EBITDA of
$187.9 million and operating income of $164.5 million increased 22%, 28% and
31%, respectively. For the six months ended June 30, 1999, MTVN revenues of
$975.6 million, EBITDA of $359.9 million and operating income of $313.9 million
increased 26%, 28% and 30%, respectively, over the same six-month period last
year. The increase in MTVN's revenues principally reflects higher worldwide
advertising revenues of 21% and 24% for the second quarter and six months then
ended, respectively, and higher affiliate fees of 12% for the quarter and 13%
for the six months then ended, as well as the ongoing success of MTVN's
licensing programs, including RUGRATS. Advertising revenues for the second
quarter and six months were primarily driven by rate increases at VH1, MTV and
Nickelodeon and for the year to date period, higher unit volume at MTV. MTVN's
EBITDA and operating income gains were driven by the increased revenues
partially offset by increased programming, production and marketing expenses.
SNI's revenues, EBITDA and operating income increased 8%, 1% and 4% for the
second quarter, respectively, and 6%, 18% and 24% for the six months ended June
30, 1999, respectively, over the same prior-year periods. The revenue increases
were principally due to an increase of approximately 3.4 million subscriptions,
up 18%, over the prior year to 22.3 million subscriptions at June 30, 1999.
Operating results reflect revenue increases attributable to the continued growth
of direct broadcast satellite subscriptions partially offset by higher
programming expenses and, for the second quarter, higher marketing costs to
support subscription growth and branding initiatives.
-24-
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Entertainment (Motion Pictures, Television Programming, Television Stations,
International Channels, Movie Theaters and Music Publishing)
<TABLE>
<CAPTION>
Three months ended Percent Six months ended Percent
June 30, B/(W) June 30, B/(W)
------------------ ----- ------------------ -----
1999 1998 1999 1998
---- ---- ---- ----
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 1,025.2 $ 1,043.1 (2)% $ 2,117.5 $ 2,162.0 (2)%
Operating Income $ 114.7 $ 106.9 7 $ 227.8 $ 234.5 (3)
EBITDA $ 165.8 $ 153.5 8 $ 328.2 $ 327.3 --
</TABLE>
The Entertainment segment is comprised of Paramount Pictures, Paramount
Television, Spelling Entertainment Group Inc. ("Spelling"), the Paramount
Stations Group ("PSG"), Paramount's movie theaters, music publishing and
international channels.
For the quarter ended June 30, 1999, Entertainment revenues decreased 2%, as the
domestic theatrical contributions from THE GENERAL'S DAUGHTER and worldwide home
video contributions from THE RUGRATS MOVIE, STAR TREK: INSURRECTION, SAVING
PRIVATE RYAN and THE TRUMAN SHOW did not match the same prior year's box office
success of DEEP IMPACT and THE TRUMAN SHOW. The quarter benefited from increased
theaters revenues generated by new multiplex theaters opened since the end of
the same prior year period. Television revenues were lower primarily due to
lower library availabilities partially offset by higher network revenues for new
series and a cable retransmission royalty settlement. For the six months, the
revenue decreases are principally the result of lower features and television
revenues, as the strong domestic theatrical contributions from VARSITY BLUES,
PAYBACK and THE GENERAL'S DAUGHTER did not match the same prior-year period's
extraordinary box office success of TITANIC, along with DEEP IMPACT and THE
TRUMAN SHOW. These lower domestic theatrical revenues were partially offset by
higher foreign theatrical revenues and higher domestic and foreign home video
revenues. The six month results reflect the recognition of a license of pay
television rights for library products and the renewal of a film processing
agreement. In the current quarter, Paramount Features' operating income and
EBITDA were higher due to a more profitable product mix, while Paramount
Television's operating income and EBITDA remained constant. For the six months,
Paramount Features' operating income and EBITDA were higher due to the revenue
items noted above and Paramount Television's operating income and EBITDA were
lower primarily due to lower library availabilities, partially offset by a cable
retransmission royalty settlement. Theater profits were lower in the quarter and
six months due to the one-time costs associated with opening additional
multiplexes.
Spelling's revenues of $142.3 million for the quarter and $327.3 million for the
six months ended June 30, 1999 increased 31% and 18%, respectively, over the
comparable prior-year periods. Spelling recorded EBITDA and operating income of
$13.8 million and $8.8 million, respectively, for the quarter, and $32.5 million
and $22.3 million, respectively, for the six months ended June 30, 1999. The
improved operating results are principally due to Spelling's focus on its core
business of television production and distribution, resulting in higher per
episode network license fees for continuing series, increased hours of
programming delivered to the networks and improved performance of its first-run
-25-
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
syndication products, including JUDGE JUDY. The Company completed the
acquisition of Spelling on June 23, 1999 and has begun the process of
integrating certain operations of Spelling into Paramount Television.
PSG's revenues, EBITDA, and operating income decreased 6%, 13% and 20%,
respectively, for the quarter and 3%, 3% and 9%, respectively, for the six
months, primarily reflecting soft market conditions in certain advertising
markets.
Video (Home Video and Game rental and retail)
<TABLE>
<CAPTION>
Three months ended Percent Six months ended Percent
June 30, B/(W) June 30, B/(W)
-------------------- ----- ----------------- -----
1999 1998 1999 1998
---- ---- ---- ----
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues $1,041.7 $ 890.0 17% $2,154.7 $1,821.2 18%
Operating Income $ 7.5 $ (453.4) NM $ 57.8 $ (381.0) NM
EBITDA $ 104.5 $ (359.2) NM $ 249.6 $ (192.0) NM
</TABLE>
NM - Not meaningful
The Video segment is comprised of Blockbuster Video, operating in the home video
and video game rental and retailing business.
The revenue increases for the quarter and six months ended June 30, 1999 were
driven by strong consumer traffic and the increased number of Company-owned
video stores. For the second quarter, domestic same store rental revenues,
including sales of previously viewed tapes and games ("PVT"), rose 13% and
worldwide same store sales, including rental and retail product, increased 10%,
paced by 12% higher domestic same store sales. For the six months ended June 30,
1999, domestic same store rental revenues rose 17% and worldwide same store
sales increased 13%, paced by 16% higher domestic same store sales. The increase
in same store revenues for both periods is principally due to increases in the
number of domestic rental transactions of approximately 5% and 10%, on a same
store basis, for the respective three-and six-month periods ended June 30, 1999
as compared to the corresponding periods of the prior year. Blockbuster Video
ended the second quarter with 6,658 stores, a net increase of 505 stores over
the second quarter of 1998. Revenues increases were partially offset by an
increase in advertising expenses which reflect Blockbuster's planned investment
in media and marketing intended to achieve stronger market penetration. The 1998
results reflect a charge taken in the second quarter of $424.3 million
associated with an adjustment to the carrying value of rental tapes due to a new
method of accounting.
Excluding the impact of the second quarter 1998 charge, Video's EBITDA increased
61%, reflecting the continuing success of operational and marketing programs
implemented in the first quarter of 1999 to emphasize tape copy depth, promote
customer loyalty, reward customer frequency and enhance its market share.
Excluding the impact of the second quarter 1998 charge, Video's gross margin
percentage increased slightly to 61.9% for the second quarter 1999 from 60.3%
for the second quarter 1998 reflecting the first quarterly comparison against a
prior-year period to fully reflect revenue
-26-
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
sharing agreements. For the six months ended June 30, 1999, Video's gross margin
percentage decreased to 61.1% from 62.6% for the comparable prior-year period
due to the impact of revenue sharing agreements which were not fully established
in the prior-year period.
Parks (Theme Parks)
<TABLE>
<CAPTION>
Three months ended Percent Six months ended Percent
June 30, B/(W) June 30, B/(W)
---------------- ----- ---------------- -----
1999 1998 1999 1998
---- ---- ---- ----
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues $148.4 $151.2 (2)% $158.9 $164.0 (3)%
Operating Income $ 15.4 $ 14.6 5 $ (0.6) $ (0.5) (20)
EBITDA $ 28.6 $ 27.5 4 $ 25.9 $ 25.4 2
</TABLE>
The Parks segment is comprised of five regional theme parks and a themed
attraction in the U.S. and Canada. The Parks' revenue decreases and EBITDA
increases for the second quarter and six months ended June 30, 1999, reflect
reduced expenses, which more than offset modest declines in overall attendance.
Publishing (Consumer Publishing)
<TABLE>
<CAPTION>
Three months ended Percent Six months ended Percent
June 30, B/(W) June 30, B/(W)
--------------- ----- ---------------- -----
1999 1998 1999 1998
---- ---- ---- ----
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues $145.8 $122.5 19% $268.5 $230.9 16%
Operating Income $ 12.4 $ 5.3 134 $ 13.7 $ 5.4 154
EBITDA $ 16.9 $ 9.6 76 $ 22.6 $ 14.0 61
</TABLE>
The Publishing segment is comprised of Simon & Schuster which includes imprints
such as POCKET BOOKS, SCRIBNER and THE FREE PRESS.
For the quarter and six months ended June 30, 1999, the improved revenues and
operating results are due principally to sharply higher sales in the Trade
division, led by the best selling titles WE'LL MEET AGAIN by Mary Higgins Clark
and THE GIRL WHO LOVED TOM GORDON by Stephen King. The Children and Pocket
Books' divisions revenues also increased for these periods driven by higher
front list sales. Publishing typically has seasonally stronger operating results
in the second half of the year.
-27-
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Online (Interactive Online Services)
<TABLE>
<CAPTION>
Three months ended Percent Six months ended Percent
June 30, B/(W) June 30, B/(W)
--------------- ----- -------------- -----
1999 1998 1999 1998
---- ---- ---- ----
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues $5.2 $2.5 108% $9.9 $4.7 111%
Operating Income $(6.0) $(0.2) NM $(7.0) $0.3 NM
EBITDA $(6.0) $(0.2) NM $(7.0) $0.3 NM
</TABLE>
NM - Not meaningful
The Online segment is comprised of online music and children destinations
featuring entertainment, information and e-commerce.
Revenue increases for the second quarter and six months ended June 30, 1999
principally reflect increased license fees and higher advertising revenues. The
operating losses in the current periods reflect the increased investment in the
Company's online services.
On July 15, 1999, Liberty Digital acquired a 10% stake in MTV Networks online
music ventures and the MTV Networks online music ventures acquired SonicNet, one
of the internet's leading music web sites, from Liberty Digital. As part of this
transaction, MTV Networks also acquired rights to The Box Worldwide, an
interactive 24-hour all-music network. In February 1999, the Company acquired
Imagine Radio, an Internet radio company transmitting original radio stations
offering listeners various customization features from a wide range of formats.
The Company also owns Nvolve, Inc., a Web site developer and Red Rocket, an
online education toy retailer.
Other Income and Expense Information
Corporate Expenses
Corporate expenses including depreciation and amortization expense increased 14%
to $51.8 million for the second quarter of 1999 from the same prior-year period
and increased 12% to $94.7 million for the six months ended June 30, 1999 over
the comparable six-month period reflecting an increase in Year 2000 expenses in
1999 and a one time fee associated with the initial listing of the Company on
the New York Stock Exchange.
Interest Expense, net
For the three- and six-month period ended June 30, 1999, net interest expense
decreased 32% to $106.1 million and 36% to $200.4 million, respectively. The
Company had approximately $6.8 billion and $8.3 billion principal amount of debt
outstanding (including current maturities) as of June 30, 1999 and June 30,
1998, respectively, at weighted average interest rates of 7.0% and 7.5%,
respectively.
-28-
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Provision for Income Taxes
The provision for income taxes represents federal, state and foreign income
taxes on earnings before income taxes. The estimated effective tax rates of
55.5% for 1999 and 54.7% for 1998 were both adversely affected by amortization
of intangibles in excess of amounts which are deductible for tax purposes.
Excluding the non-deductible amortization of intangibles, the estimated
effective tax rates would have been 37.7% for 1999 and 28.1% for 1998.
Due to the unusual nature of the 1998 second quarter charge associated with the
change in accounting for rental tape amortization, the full income tax effect is
reflected in the second quarter 1998 tax provision and is excluded from the
estimated annual effective tax rate.
Equity in Loss of Affiliates
"Equity in loss of affiliated companies, net of tax" was $18.2 million and $34.3
million for the second quarter of 1999 and the six months then ended,
respectively, as compared to a loss of $10.6 million and $18.3 million in the
comparable prior-year periods, principally reflecting increased losses of United
Paramount Network and international ventures, partially offset by the improved
performance of Comedy Central.
Discontinued Operations
For the three and six months ended June 30, 1998, discontinued operations
reflect the net losses of Non-Consumer Publishing and Music which were sold on
November 27, 1998 and October 26, 1998, respectively.
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 and interest on its outstanding
indebtedness) with internally generated funds, in addition to various external
sources of funds. The external sources of funds may include the Company's
existing credit agreements and amendments thereto, co-financing arrangements by
the Company's various divisions relating to the production of entertainment
products and/or additional financings.
The commitments of the Company for program license fees, which are not reflected
in the balance sheet as of June 30, 1999 and are estimated to aggregate $1.2
billion, principally reflect SNI's commitments of $918.9 million for the
acquisition of programming rights and the production of original programming and
exclude intersegment commitments between the Networks and Entertainment segments
of $847.2 million. The 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 to acquire programming rights are
contingent upon delivery
-29-
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
of motion pictures which are not yet available for premium television exhibition
and, in many cases, have not yet been produced.
Current assets decreased to $4.8 billion as of June 30, 1999 from $5.1 billion
as of December 31, 1998, primarily reflecting the use of cash to repurchase
convertible preferred stock and normal seasonal reductions in receivables. The
allowance for doubtful accounts as a percentage of receivables increased to 7%
as of June 30, 1999 from 5% as of December 31, 1998. The change in property and
equipment principally reflects capital expenditures of $320.4 million related to
capital additions for new and existing video stores, construction of new movie
theaters and additional construction and equipment upgrades for the Parks offset
by depreciation expense of $232.0 million. Current liabilities decreased
approximately 24% to $4.3 billion as of June 30, 1999 from $5.6 billion as of
December 31, 1998, reflecting the payment of taxes associated with the sale of
Non-Consumer Publishing, payment of accrued expenses and settlement of the 8.0%
Merger Debentures. Long-term debt, including current maturities, increased $2.6
billion to $6.8 billion as of June 30, 1999 from $4.2 billion as of December 31,
1998 primarily reflecting the tax payments discussed above, the repurchase
program acquiring the Company's common stock and warrants as well as 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 positive effect of the holiday season on
advertising revenues and video store revenues, the summer operation of its parks
and the seasonality of the consumer publishing business. Net cash flow from
operating activities of negative $905.9 million for the six months ended June
30, 1999 principally reflects the 1999 tax payment related to the sale of
Non-Consumer Publishing and the settlement of the 8.0% Merger Debentures. For
the six months ended June 30, 1998 net operating cash flow of negative $67.4
million reflects the reduction in accounts receivable due principally to the
asset securitization program and improved operating performance including the
impact of TITANIC, offset by the first quarter 1998 tax payment related to the
sale of USA Networks and payment of accrued expenses. Net cash expenditures for
investing activities of $675.0 million for the six months ended June 30, 1999
principally reflects capital expenditures and the Spelling acquisition as well
as acquisitions of video stores and a television station. Net cash expenditures
for investing activities of $379.2 million, for the six months ended June 30,
1998, principally reflect capital expenditures. Financing activities principally
reflect borrowings and repayments of debt during each period presented. For
1999, financing activities also reflect the repurchase of the Company's common
stock, warrants and convertible preferred stock.
-30-
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Capital Structure
The following table sets forth the Company's long-term debt, net of current
portion:
At June 30, 1999 At December 31, 1998
---------------- --------------------
(In millions)
Notes payable to banks ......... $ 3,646.8 $ 868.5
Senior debt .................... 2,310.0 2,308.9
Senior subordinated debt ....... 35.3 36.3
Subordinated debt .............. 194.2 475.2
Obligations under capital leases 566.2 501.4
Other .......................... -- .3
---------- ----------
6,752.5 4,190.6
Less current portion ........... 328.2 377.2
---------- ----------
$ 6,424.3 $ 3,813.4
========== ==========
The notes and debentures are presented net of an aggregate unamortized discount
of $28.8 million as of June 30, 1999 and $56.0 million as of December 31, 1998.
Debt, including the current portion, as a percentage of total capitalization of
the Company was 38% at June 30, 1999 and 26% at December 31, 1998.
On July 7, 1999, the Company completed the redemption of the remaining $210
million principal amount of its 8.0% Merger Debentures.
On June 21, 1999, Blockbuster Inc. entered into a $1.9 billion unsecured credit
agreement (the "Blockbuster Credit Agreement") with a syndicate of banks. The
Blockbuster Credit Agreement is comprised of a $700 million revolving loan due
July 1, 2004, a $600 million term loan due in quarterly installments beginning
April 1, 2002 and ending July 1, 2004, and a $600 million revolving loan due
June 19, 2000. A varying commitment fee is charged on the unused amount of the
revolving loans. Interest rates are based on the prime rate or LIBOR at
Blockbuster's option at the time of borrowing.
The Blockbuster Credit Agreement contains covenants, which, among other things,
relates to the payment of dividends, repurchase of Blockbuster's common stock or
other distributions and also requires compliance with financial covenants with
respect to a maximum leverage ratio and a minimum fixed charge ratio.
On May 21, 1999, the Company amended the March 1997 Credit Agreements to, among
other things, provide for the Blockbuster Credit Agreement.
On June 23, 1999, Blockbuster Inc. borrowed $1.6 billion, comprised of $400
million borrowed under the long-term revolving loan, $600 million borrowed under
the term loan, and $600 million under the short-term revolving loan. The
weighted average interest rates at June 30, 1999 for these borrowings are 6.9%,
6.9%, and 6.8%, respectively. The proceeds of the borrowings were used to pay
amounts
-31-
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
owed to the Company. The Company used such proceeds to permanently reduce its
commitments under the March 1997 Credit Agreements by $1.139 billion.
On May 6, 1999, the 364-day film financing credit agreement, guaranteed by
Viacom International Inc. and the Company, was paid in full and on May 7, 1999,
the credit agreement terminated.
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. The foreign exchange contracts have principally been used to hedge
the British Pound, the Australian Dollar, the Japanese Yen, the Canadian Dollar,
the Singapore Dollar, the European Union's common currency (the "Euro") and the
European Currency Unit/British Pound relationship. These derivatives, which are
over-the-counter instruments, are non-leveraged. Realized gains and losses on
contracts that hedge anticipated future cash flows are recognized in "Other
Items, net" and were not material in the periods presented.
At June 30, 1999, the Company was in compliance with all debt covenants and had
satisfied all financial ratios and tests under the credit agreements. The
Company expects to be in compliance and satisfy all such covenants and ratios as
may be applicable from time to time during 1999.
As of June 30, 1999, the Company's scheduled maturities of indebtedness through
December 31, 2003, assuming full utilization of the March 1997 Credit
Agreements, as amended, and the Blockbuster Credit Agreement are $245.2 million
(1999), $1.6 billion (2000), $1.8 billion (2001), $2.2 billion (2002) and $625.0
million (2003). The Company's maturities of long-term debt outstanding at June
30, 1999, excluding capital leases, are $245.2 million (1999), $882.5 million
(2000), $304.6 million (2001), $2.0 billion (2002) and $625.0 million (2003).
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 Company filed a shelf registration statement with the Securities and
Exchange Commission registering debt securities, preferred stock and contingent
value rights of the Company and guarantees of such debt securities by Viacom
International which may be issued for aggregate gross proceeds of $3.0 billion.
The registration statement was declared effective on May 10, 1995. The net
proceeds from the sale of the offered securities may be used by the Company to
repay, redeem, repurchase or satisfy its obligations in respect of its
outstanding indebtedness or other securities; to make loans to its subsidiaries;
for general corporate purposes; or for such other purposes as may be specified
in the applicable Prospectus Supplement. The Company filed a post-effective
amendment to this registration statement on November 19, 1996. To date, the
Company issued $1.55 billion of notes and debentures and has $1.45 billion
remaining availability under the shelf registration statement.
Other Matters
On July 19, 1999, Blockbuster Inc., a wholly owned subsidiary of the Company,
amended a previously filed registration statement on Form S-1 with the
Securities and Exchange Commission for a proposed
-32-
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
initial public offering of 31 million shares of Blockbuster's Class A common
stock, representing approximately 17.7% of its shares. The underwriters will be
granted an option to acquire up to an additional 4.65 million shares to cover
over-allotments. It is currently estimated that the initial public offering
price will be between $16 and $18 per share. Blockbuster will use the net
proceeds of the offering to repay outstanding indebtedness under its credit
agreement.
On July 7, 1999, the Viacom Five-Year Warrants expired. The Company received
proceeds of approximately $317 million and issued approximately 9.0 million
shares of its Class B Common Stock in connection with the exercise of 4.5
million warrants issued as part of the 1994 acquisition of Paramount
Communications.
On June 21, 1999, the Company completed its tender offer for all outstanding
shares of Spelling common stock that it did not already own for $9.75 per share
in cash. The tendered shares, along with the shares already owned by the
Company, represented approximately 97% of all of the issued and outstanding
shares of Spelling. The tender offer was made under the terms of a merger
agreement between the Company and Spelling. On June 23, 1999, the Company
acquired the remaining outstanding shares of Spelling, approximately 3%, through
a merger of Spelling and a wholly owned subsidiary of the Company. As a result
of the merger, each share of Spelling common stock was also converted into the
right to receive $9.75 in cash. The total consideration for tendered shares and
merger was approximately $176 million. The Company has begun the process of
integrating certain operations of Spelling into Paramount Television.
On March 24, 1999, the Company initiated a repurchase program which was
subsequently expanded, to acquire up to $600 million of the Company's common
stock and warrants. As of June 30, 1999, the Company had repurchased 25,000
shares of Class A Common Stock, 8,825,800 shares of Class B Common Stock and
1,095,900 Viacom Five-Year Warrants, which expired July 7, 1999, for $393.1
million in the aggregate. During the period June 30 through July 28, 1999, the
Company repurchased 690,000 shares of Class B Common Stock and the cumulative
repurchase program totaled $423.4 million in the aggregate.
The Board of Directors of the Company declared a 2-for-1 common stock split in
the form of a dividend. The additional shares were issued on March 31, 1999 to
shareholders of record on March 15, 1999. All common share and per share amounts
have been adjusted to reflect the stock split for all periods presented.
YEAR 2000
Overview
The widespread use of computer programs that rely on two-digit dates to perform
computations and decision making functions may cause computer systems to
malfunction prior to or in the year 2000 ("Y2K") and lead to significant
business delays and disruptions in the U.S. and internationally. In December
1997, the Company formalized its Y2K initiative to optimize the divisional Y2K
efforts that had already begun, by developing a Company wide program to identify
and mitigate Y2K risks. Pursuant to this program, each of the Company's
-33-
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
principal business units developed programs to address Y2K exposures. In
addition, under the direction of its Board of Directors, the Company has
designated a committee of senior officers to oversee these programs and has
engaged an independent consulting firm to assist in the review and oversight. At
present the Company anticipates completing its program to have substantially all
critical systems compliant prior to the end of the third quarter of 1999 and
non-critical systems compliant prior to year end.
The Company is reviewing its Y2K issues based upon three areas: applications,
infrastructure and business partners.
o Applications cover the software systems resident on mainframe, mid-range,
network and personal computers. The Company defines an application as one
or a collection of programs directly related to a common system. For
example, a financial application may include all the general ledger and
accounts receivable software code used to process information throughout
an operating segment. In addition, the Company's applications have been
segregated into critical and non-critical applications. Critical
applications are software systems which, if not operational, could have a
material impact on business operations.
o Infrastructure includes computers, data and voice communications networks,
and other equipment which use embedded chip processors (e.g., inventory
movement systems, tape duplication equipment, telephone systems, etc.).
o Business partners include third party vendors, customers and other
entities whose systems may interface with the Company or whose own
operations are important to the Company's daily operations.
These three areas have been addressed using a five phase program: inventory,
assessment, remediation, testing and contingency planning.
o Phase 1 inventories the respective applications, hardware and business
partners.
o Phase 2 assesses the possible impact of a Y2K error on the continuing
operation of each identified application, hardware systems or business
partner relationship; and subsequently determines the risk to operations
and assigns priorities.
o Phase 3 establishes and implements specific plans for the remediation of
applications and hardware systems and for the determination of business
partners' compliance.
o Phase 4 tests each application and hardware system and reviews business
partners' compliance under the plans established in phase 3, to ensure
that Y2K issues no longer exist.
o Phase 5 establishes and implements contingency plans in the event internal
or external systems are not compliant.
Changes may occur to the Company's operations during the implementation of its
Y2K program or subsequent to the completion of each phase, therefore, management
may periodically revise its plans. The Company continues to review and test
systems for Y2K compliance as changes occur.
-34-
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
State of Readiness
The Company's Y2K progress as of July 23, 1999 is as follows:
Applications
The inventory and assessment phases for the Company have been completed.
Applications status of each operating segment is discussed below.
NETWORKS, CORPORATE, ONLINE - We have identified 15 critical domestic and 29
critical international applications which primarily relate to program
scheduling, finance/payroll and network transmission. All critical domestic
applications have been remediated and tested except for one which has been
remediated and is scheduled for completion during the third quarter of 1999. The
majority of international critical applications are currently being remediated
and tested and the remaining systems are scheduled for completion in the third
quarter of 1999. Substantially all of domestic and international non-critical
applications have been remediated and tested and the remaining applications are
scheduled for completion in the third quarter of 1999.
ENTERTAINMENT - We have identified 71 critical domestic and 50 critical
international applications which primarily relate to theatrical and video
distribution, TV syndication, theater point-of-sale and finance/payroll. A
significant number of critical and non-critical worldwide applications have been
remediated and tested and substantially all of the remaining critical systems
are scheduled for completion prior to the end of the third quarter and most
non-critical systems prior to year end.
VIDEO - We have identified 16 critical domestic and 6 critical international
applications which primarily relate to point-of-sale, warehousing and
distribution and finance/payroll. Substantially all of the critical and
non-critical worldwide applications have been remediated and tested and the
remaining applications are scheduled for completion before the end of the third
quarter of 1999.
PUBLISHING - We have identified 13 critical domestic applications which
primarily relate to order processing, warehousing and billing. A significant
number of critical and non-critical applications have been remediated and tested
and the remaining systems are scheduled for completion in the third quarter of
1999.
PARKS - We have identified 20 critical domestic and 4 critical international
applications which primarily relate to point-of-sale, ticketing and
finance/payroll. All worldwide applications have been remediated and tested.
-35-
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Infrastructure
Infrastructure status of each operating segment is discussed below.
NETWORKS, CORPORATE, ONLINE - The inventory and assessment phases for domestic
and international operations have been completed. The majority of the
remediation and testing of domestic and international hardware systems have been
completed. The remaining infrastructure systems will be completed by the third
quarter of 1999.
ENTERTAINMENT - The inventory and assessment phases for domestic and
international computer systems and non-computer domestic systems (e.g., studio
production facilities and equipment) have been completed. Worldwide remediation
and testing of infrastructure systems will be completed in the third quarter of
1999.
VIDEO - Domestic and international inventory and assessment phases have been
completed. Substantially all of the systems with embedded processors have
completed remediation and testing. The remaining hardware systems will be
completed during the third quarter of 1999.
PUBLISHING - The inventory and assessment phases have been completed. A
substantial number of hardware systems have been remediated and tested; the
remaining systems are scheduled for completion during the third quarter of 1999.
PARKS - The inventory and assessment phases have been completed. Substantially
all systems with embedded processors have been remediated and tested. The
remainder are scheduled for remediation and testing during the third quarter of
1999.
Business Partners
During the course of business operations, the Company relies on third party
business partners to provide raw materials and services and to distribute and
sell products. These business partners include financial institutions,
governmental agencies and utilities. The disruption of the ability to receive
raw materials or services or to distribute or sell the Company's products could
adversely affect the financial condition of the Company. Although the Company
has little or no control over the remediation and testing of these third party
systems, the Company is taking appropriate action to determine the level of Y2K
compliance at each third party. These actions include, but are not limited to,
requesting written confirmation of a business or business system's Y2K
compliance; directly meeting with business management; and, performing
additional independent tests.
The Company has substantially completed the inventory phase and the assessment
phase of business partners. The determination of third party Y2K compliance will
continue through the end of the year.
Contingency Plans and Risks
As the remediation, testing and review of each application, infrastructure item
and business partners occur, the Company is determining the need for contingency
plans. Where appropriate, plans addressing both operational and technical
-36-
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
alternatives are being developed and tested. This phase has begun and will
continue through the end of 1999.
The Company's goal is to achieve timely and substantial Y2K compliance, with
remediation work assigned based upon how critical each system is to the
Company's business. Due to the general uncertainty inherent in the Y2K problem
resulting in part from the uncertainty of compliance by the Company's principal
business partners and third party providers, the Company is unable to determine
at this time what the consequences of Y2K may be. Also, the Company's
international operations may be adversely affected by failures of businesses in
other parts of the world to take adequate steps to address the Y2K problem. The
Company will continue to devote the necessary resources to complete its Y2K
program and contingency plans and believes that the completion of its Y2K
program and contingency plans will significantly mitigate operational and
financial risks.
Costs
Y2K costs have been expensed as incurred, except those costs directly related to
the replacement of systems requiring upgrades in the ordinary course of business
which have been capitalized. As of June 30, 1999, the Company had incurred costs
of approximately $45 million, of which $11 million has been capitalized. The
estimated additional costs to complete the Y2K program are currently expected to
approximate $11 million, of which approximately $3 million are expected to be
capitalized. Based on these amounts, the Company does not expect the costs of
the Y2K program to have a material effect on its results of operations,
financial position or liquidity.
-37-
<PAGE>
PART II - - OTHER INFORMATION
Item 4. Submission of Matters for a Vote of Security Holders
The Annual Meeting of Stockholders of Viacom Inc. was held on May 19,
1999. The following matters were voted upon at the meeting: (i) the election of
10 directors; (ii) the approval of the adoption of an amendment to the Viacom
Inc. Restated Certificate of Incorporation to increase the number of shares of
Class A Common Stock authorized to be issued from 200 million to 500 million;
(iii) the approval of the adoption of an amendment to the Viacom Inc. Restated
Certificate of Incorporation to increase the number of shares of Class B Common
Stock authorized to be issued from 1 billion to 3 billion; (iv) the approval of
the adoption of an amendment to the Viacom Inc. Restated Certificate of
Incorporation to provide each holder of Common Stock with the right to convert
its shares of Common Stock into shares of Class B Common Stock; (v) the approval
of the adoption of an amendment to the indemnification provisions of the Viacom
Inc. Restated Certificate of Incorporation; (vi) the approval of the Viacom Inc.
Senior Executive Short-Term Incentive Plan; and (vii) the appointment of
PricewaterhouseCoopers to serve as independent accountants for Viacom Inc. until
the 2000 Annual Meeting of Stockholders.
1. 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 135,693,791 176,116
Philippe P. Dauman 135,697,147 172,760
Thomas E. Dooley 135,698,595 171,312
Ken Miller 135,696,675 173,232
Brent D. Redstone 135,682,927 186,980
Shari Redstone 135,682,866 187,041
Sumner M. Redstone 135,717,137 152,770
Frederic V. Salerno 135,683,771 186,136
William Schwartz 135,717,245 152,662
Ivan Seidenberg 135,682,323 187,584
-38-
<PAGE>
2. The votes cast for, against or abstaining from, and the broker non-votes
with respect to, the approval of the adoption of an amendment to the
Viacom Inc. Restated Certificate of Incorporation to increase the number
of shares of Class A Common Stock authorized to be issued from 200 million
to 500 million.
FOR AGAINST ABSTAIN
AND
BROKER
NON-VOTES
125,099,240 10,717,996 52,671
3. The votes cast for, against or abstaining from, and the broker non-votes
with respect to, the approval of the adoption of an amendment to the
Viacom Inc. Restated Certificate of Incorporation to increase the number
of shares of Class B Common Stock authorized to be issued from 1 billion
to 3 billion.
FOR AGAINST ABSTAIN
AND
BROKER
NON-VOTES
126,881,590 8,945,084 43,233
4. The votes cast for, against or abstaining from, and the broker non-votes
with respect to, the approval of the adoption of an amendment to the
Viacom Inc. Restated Certificate of Incorporation to provide each holder
of Common Stock with the right to convert its shares of Common Stock into
shares of Class B Common Stock.
FOR AGAINST ABSTAIN
AND
BROKER
NON-VOTES
128,066,823 2,940,040 4,863,044
5. The votes cast for, against or abstaining from, and the broker non-votes
with respect to, the approval of the adoption of an amendment to the
indemnification provisions of the Viacom Inc. Restated Certificate of
Incorporation.
FOR AGAINST ABSTAIN
AND
BROKER
NON-VOTES
135,610,547 187,629 71,731
-39-
<PAGE>
6. The votes cast for, against or abstaining from, and the broker non-votes
with respect to, the approval of the Viacom Inc. Senior Executive
Short-Term Incentive Plan.
FOR AGAINST ABSTAIN
AND
BROKER
NON-VOTES
134,989,666 587,413 292,828
7. The votes cast for, against or abstaining from, and the broker non-votes
with respect to, the appointment of PricewaterhouseCoopers to serve as
independent accountants for Viacom Inc. until the 2000 Annual Meeting of
Stockholders.
FOR AGAINST ABSTAIN
AND
BROKER
NON-VOTES
135,507,827 319,807 42,273
-40-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K for Viacom Inc.
(a) Exhibits:
10.1 Amendment No. 3, dated as of May 21, 1999, to the Amended and
Restated Credit Agreement, dated as of March 26, 1997, as amended,
among Viacom Inc., 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, Bank of America NT&SA, as a Managing Agent, The Chase
Manhattan Bank, as a Managing Agent, JP Morgan Securities Inc., as a
Syndication Agent, Bancamerica Robertson Stephens (formerly known as
Bancamerica Securities, Inc.), as Syndication Agent, the Banks
identified as Agents on the signature pages thereof, as Agents, and
the Banks identified as Co-Agents on the signature pages thereof, as
Co-Agents.
10.2 Amendment No. 1, dated as of May 21, 1999, to the Amended and
Restated VII Credit Agreement, dated as of March 26, 1997, among
Viacom International Inc., 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, Bank of America NT&SA, as a Managing Agent, The
Chase Manhattan Bank, as a Managing Agent, JP Morgan Securities
Inc., as a Syndication Agent, Bancamerica Robertson Stephens
(formerly known as Bancamerica Securities, Inc.), as Syndication
Agent, the Banks identified as Agents on the signature pages
thereof, as Agents, and the Banks identified as Co-Agents on the
signature pages thereof, as Co-Agents.
11. Statement re Computation of Net Earnings Per Share.
27. Financial Data Schedule.
(b) Reports on Form 8-K for Viacom Inc.:
Current Report on Form 8-K of Viacom Inc. filed on May 18, 1999 announcing
the commencement of its tender offer for all outstanding shares of common stock
of Spelling Entertainment Group Inc. that it did not already own for $9.75 per
share in cash.
Current Report on Form 8-K of Viacom Inc. filed on June 24, 1999
announcing the completion of its tender offer for all outstanding shares of
common stock of Spelling Entertainment Group Inc. that it did not already own
and the subsequent acquisition of all remaining shares not purchased in the
offer, through a merger.
-41-
<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 2, 1999 /s/ Sumner M. Redstone
------------------------------ ------------------------------------
Sumner M. Redstone
Chairman of the Board of Directors,
Chief Executive Officer
Date August 2, 1999 /s/ George S. Smith, Jr.
------------------------------ ------------------------------------
George S. Smith, Jr.
Senior Vice President,
Chief Financial Officer
-42-
<PAGE>
Exhibit Index
10.1 Amendment No. 3, dated as of May 21, 1999, to the Amended and Restated
Credit Agreement, dated as of March 26, 1997, as amended, among Viacom
Inc., 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, Bank of America NT&SA, as a
Managing Agent, The Chase Manhattan Bank, as a Managing Agent, JP Morgan
Securities Inc., as a Syndication Agent, Bancamerica Robertson Stephens
(formerly known as Bancamerica Securities, Inc.), as Syndication Agent,
the Banks identified as Agents on the signature pages thereof, as Agents,
and the Banks identified as Co-Agents on the signature pages thereof, as
Co-Agents.
10.2 Amendment No. 1, dated as of May 21, 1999, to the Amended and Restated VII
Credit Agreement, dated as of March 26, 1997, among Viacom International
Inc., 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, Bank of America NT&SA, as a
Managing Agent, The Chase Manhattan Bank, as a Managing Agent, JP Morgan
Securities Inc., as a Syndication Agent, Bancamerica Robertson Stephens
(formerly known as Bancamerica Securities, Inc.), as Syndication Agent,
the Banks identified as Agents on the signature pages thereof, as Agents,
and the Banks identified as Co-Agents on the signature pages thereof, as
Co-Agents.
11. Statement re Computation of Net Earnings Per Share.
27. Financial Data Schedule.
-43-
AMENDMENT NO. 3, dated as of May 21, 1999 (the "Amendment") to the
AMENDED AND RESTATED CREDIT AGREEMENT (the "Credit Agreement"), dated as of
March 26, 1997, as amended, 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, BANK OF AMERICA NT&SA, as a Managing Agent, THE
CHASE MANHATTAN BANK, as a Managing Agent, JP MORGAN SECURITIES INC., as a
Syndication Agent, BANCAMERICA ROBERTSON STEPHENS (formerly known as BANCAMERICA
SECURITIES, INC.), as Syndication Agent, the Banks identified as Agents on the
signature pages thereof, 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 covenants in the Credit Agreement, and for certain other matters.
NOW THEREFORE, the parties hereto agree as follows:
SECTION 1. Amendments.
(a) Article VIII of the Credit Agreement is hereby amended by adding
at the end thereof the following new section:
"8.10. Prepayment of Certain Indebtedness. Simultaneously with the
initial borrowing by Blockbuster Inc. under the $2 billion Credit Facility
to be entered into by Blockbuster Inc., the Borrower shall prepay the Term
Loans and/or prepay and reduce the commitment of the Revolving Loans
hereunder and/or cause the Subsidiary Borrower to prepay the loans under
the Subsidiary Facility, as amended, in an aggregate amount equal to
$1.139 billion."
For purposes of clarification only, the parties hereto and the Banks
agree that the provisions under Section 2.3(b) and 3.4 of the Credit Agreement
pertaining to
<PAGE>
allocation of optional reductions and prepayments are not applicable to the
reductions and prepayments contemplated by the above Section 8.10 and such
reductions and prepayments can be made in any matter requested by the Borrower.
(b) Section 9.6 of the Credit Agreement is hereby amended by
deleting "and" at the end of clause (b) and replacing it with "," and inserting
"and (d) unsecured Indebtedness for borrowed money incurred by Blockbuster Inc."
at the end of clause (c).
(c) Section 10.1(i) of the Credit Agreement is hereby amended by
deleting "NAI shall fail to own of record and beneficially" and replacing it
with "NAI shall fail to own beneficially, and NAI or a wholly-owned subsidiary
of NAI shall fail to own of record,".
(d) Section 10.1 of the Credit Agreement is amended by deleting "or"
at the end of clause (i) thereof and by inserting the following at the end of
clause (j) "or (k) Viacom Inc. shall have failed to make or cause to be made the
required payments under Section 8.10;".
2. Effectiveness. This Amendment will be effective upon the
execution of counterparts hereof by the Borrower 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.
SECTION 3. Representations and Warranties. The Borrower hereby
represents and warrants that as of the date hereof (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.
(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.
- 2 -
<PAGE>
(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.
- 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: /s/ George S. Smith, Jr.
--------------------------------
Name: George S. Smith, Jr.
Title: Senior Vice President
Chief Financial Officer
Managing Agents
THE BANK OF NEW YORK, as Managing
Agent, the Documentation Agent and
a Bank
By: /s/ Geoffrey C. Brooks
--------------------------------
Name: Geoffrey C. Brooks
Title: Vice President
CITIBANK, N.A., as Managing Agent,
the Administrative Agent and a Bank
By: /s/ R. Parr
--------------------------------
Name: R. Parr
Title: M.D.
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Managing Agent and a
Bank
By: /s/ Robert Bottamedi
--------------------------------
Name: Robert Bottamedi
Title: Vice President
- 4 -
<PAGE>
BANK OF AMERICA NT&SA, as Managing
Agent and a Bank
By: /s/ Thomas J. Kane
--------------------------------
Name: Thomas J. Kane
Title: Vice President
THE CHASE MANHATTAN BANK, as
Managing Agent and a Bank
By: /s/ Bruce E. Langenkamp
--------------------------------
Name: Bruce E. Langenkamp
Title: Vice President
Syndication Agents
JP MORGAN SECURITIES INC., as
Syndication Agent
By: /s/ Charles H. King
--------------------------------
Name: Charles H. King
Title: Vice President
BANC OF AMERICA SECURITIES LLC.
(formerly known as THE BANK OF
AMERICA NT&SA), as Syndication
Agent
By: /s/ Thomas J. Kane
--------------------------------
Name: Thomas J. Kane
Title: Vice President
- 5 -
AMENDMENT NO. 1, dated as of May 21, 1999 (the "Amendment") to the
AMENDED AND RESTATED VII CREDIT AGREEMENT (the "Credit Agreement"), dated as of
March 26, 1997, among VIACOM INTERNATIONAL INC., a Delaware corporation (the
"Subsidiary 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, BANK OF AMERICA NT&SA, as a Managing Agent,
THE CHASE MANHATTAN BANK, as a Managing Agent, JP MORGAN SECURITIES INC., as a
Syndication Agent, BANCAMERICA ROBERTSON STEPHENS (formerly known as BANCAMERICA
SECURITIES, INC.), as Syndication Agent, the Banks identified as Agents on the
signature pages thereof, 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 covenants in the Credit Agreement, and for certain other matters.
NOW THEREFORE, the parties hereto agree as follows:
SECTION 1. Amendments.
(a) Article VI of the Credit Agreement is hereby amended by adding
at the end thereof the following new section:
"6.9. Prepayment of Certain Indebtedness. Simultaneously with the
initial borrowing by Blockbuster Inc. under the $2 billion Credit Facility
to be entered into by Blockbuster Inc., Viacom Inc. shall prepay the term
loans and/or prepay and reduce the commitment of the revolving loans under
the Parent Facility, as amended, and/or cause the Subsidiary Borrower to
prepay the Subsidiary Loans hereunder in an aggregate amount equal to
$1.139 billion."
(b) Section 8.1(i) of the Credit Agreement is hereby amended by
deleting "NAI shall fail to own of record and beneficially" and replacing it
with "NAI shall fail to
<PAGE>
own beneficially, and NAI or a wholly-owned subsidiary of NAI shall fail to own
of record,".
(c) Section 8.1 of the Credit Agreement is amended by deleting "or"
at the end of clause (i) thereof and by inserting the following at the end of
clause (j) "or (k) Viacom Inc. shall have failed to make or cause to be made the
required payments under Section 6.9;".
SECTION 2. Effectiveness. This Amendment will be effective upon the
execution of counterparts hereof by the Subsidiary Borrower 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.
SECTION 3. Representations and Warranties. The Subsidiary Borrower
hereby represents and warrants that as of the date hereof (i) the
representations and warranties contained in Article V 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.
(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.
- 2 -
<PAGE>
(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.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first above written.
VIACOM INTERNATIONAL INC.,
as Subsidiary Borrower
By: /s/ George S. Smith, Jr.
--------------------------------
Name: George S. Smith, Jr.
Title: Senior Vice President
Chief Financial Officer
Managing Agents
THE BANK OF NEW YORK, as Managing
Agent, the Documentation Agent and
a Bank
By: /s/ Geoffrey C. Brooks
--------------------------------
Name: Geoffrey C. Brooks
Title: Vice President
CITIBANK, N.A., as Managing Agent,
the Administrative Agent and a Bank
By: /s/ R. Parr
--------------------------------
Name: R. Parr
Title: M.D.
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Managing Agent and a
Bank
By: /s/ Robert Bottamedi
--------------------------------
Name: Robert Bottamedi
Title: Vice President
- 4 -
<PAGE>
BANK OF AMERICA NT&SA, as Managing
Agent and a Bank
By: /s/ Thomas J. Kane
--------------------------------
Name: Thomas J. Kane
Title: Vice President
THE CHASE MANHATTAN BANK, as
Managing Agent and a Bank
By: /s/ Bruce E. Langenkamp
--------------------------------
Name: Bruce E. Langenkamp
Title: Vice President
Syndication Agents
JP MORGAN SECURITIES INC., as
Syndication Agent
By: /s/ Charles H. King
--------------------------------
Name: Charles H. King
Title: Vice President
BANC OF AMERICA SECURITIES LLC.
(formerly known as THE BANK OF
AMERICA NT&SA), as Syndication
Agent
By: /s/ Thomas J. Kane
--------------------------------
Name: Thomas J. Kane
Title: Vice President
- 5 -
Exhibit 11
Viacom Inc. and Subsidiaries
Computation of Net Earnings (Loss) Per Share
<TABLE>
<CAPTION>
Three months Six months ended
ended June 30, June 30,
----------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
Earnings (loss):
Earnings (loss) from continuing operations ......... $ 59.3 $(267.3) $ 127.7 $(219.7)
Cumulative convertible perferred stock dividend
requirement ...................................... -- (15.0) (.4) (30.0)
Premium on redemption of preferred stock ........... -- -- (12.0) --
------- ------- ------- -------
Earnings (loss) from continuing operations
attributable to common stock ..................... 59.3 (282.3) 115.3 (249.7)
Loss from discontinued operations, net of tax ...... -- (13.4) -- (59.6)
Extraordinary loss, net of tax ..................... -- -- (23.5) --
------- ------- ------- -------
Net earnings (loss) ................................ $ 59.3 $(295.7) $ 91.8 $(309.3)
======= ======= ======= =======
Basic computation:
Shares:
Weighted average number of common shares ........... 690.6 713.2 693.4 711.8
Net earnings (loss) per common share:
Earnings (loss) from continuing operations ......... $ .09 $ (.40) $ .17 $ (.35)
Loss from discontinued operations, net of tax ...... -- (.01) -- (.08)
Extraordinary loss, net of tax ..................... -- -- (.04) --
------- ------- ------- -------
Net earnings (loss) ................................ $ .09 $ (.41) $ .13 $ (.43)
======= ======= ======= =======
Dluted computation:
Shares:
Weighted average number of common shares (basic) ... 690.6 713.2 693.4 711.8
Common shares potentially issuable in
connection with stock options and warrants (1) 14.4 -- 14.7 --
------- ------- ------- -------
Weighted average number of common shares
(diluted) ........................................ 705.0 713.2 708.1 711.8
Net earnings (loss) per common share:
Earnings (loss) from continuing operations ......... $ .08 $ (.40) $ .16 $ (.35)
Loss from discontinued operations, net of tax ...... -- (.01) -- (.08)
Extraordinary loss, net of tax ..................... -- -- (.03) --
------- ------- ------- -------
Net earnings (loss) ................................ $ .08 $ (.41) $ .13 $ (.43)
======= ======= ======= =======
</TABLE>
(1) For the three and six months ended June 30, 1998, the assumed exercise of
stock options had an anti-dilutive effect on earnings per share, and
therefore was excluded from the diluted earnings per share calculation.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF VIACOM INC. FOR THE SIX MONTHS ENDED JUNE 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
EARNINGS PER SHARE ARE PRESENTED IN ACCORDANCE WITH SFAS 128.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 616
<SECURITIES> 0
<RECEIVABLES> 1,687
<ALLOWANCES> 110
<INVENTORY> 1,739
<CURRENT-ASSETS> 4,815
<PP&E> 4,913
<DEPRECIATION> 1,664
<TOTAL-ASSETS> 23,803
<CURRENT-LIABILITIES> 4,288
<BONDS> 6,424
<COMMON> 7
0
0
<OTHER-SE> 11,208
<TOTAL-LIABILITY-AND-EQUITY> 23,803
<SALES> 5,954
<TOTAL-REVENUES> 5,954
<CGS> 3,888
<TOTAL-COSTS> 5,395
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 200
<INCOME-PRETAX> 365
<INCOME-TAX> 202
<INCOME-CONTINUING> 128
<DISCONTINUED> 0
<EXTRAORDINARY> (24)
<CHANGES> 0
<NET-INCOME> 92
<EPS-BASIC> .13
<EPS-DILUTED> .13
</TABLE>
