<PAGE>
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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, 2000
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Commission file number 1-9553
VIACOM INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-2949533
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(State or other jurisdiction of) (I.R.S. Employer
incorporation or organization) identification No)
1515 Broadway, New York, New York 10036
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(Address of principal executive offices, zip code)
(212) 258-6000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____.
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Number of shares of Common Stock Outstanding at July 31, 2000:
Class A Common Stock, par value $.01 per share - 137,546,949
Class B Common Stock, par value $.01 per share - 1,379,075,241
================================================================================
<PAGE>
VIACOM INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C> <C>
Consolidated Statements of Operations (Unaudited) for the Three and
Six Months ended June 30, 2000 and June 30, 1999 3
Consolidated Balance Sheets at June 30, 2000 (Unaudited) and
December 31, 1999 4
Consolidated Statements of Cash Flow (Unaudited) for the Six Months
ended June 30, 2000 and June 30, 1999 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 23
Item 3. Quantitative and Qualitative Disclosures about Market Risk 36
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 37
Item 6. Exhibits and Reports on Form 8-K 39
</TABLE>
<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 Six Months Ended
June 30, June 30,
-----------------------------------------------
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $4,912.5 $3,003.3 $7,938.3 $5,954.4
Expenses:
Operating 2,866.1 1,935.4 4,861.2 3,887.6
Selling, general and administrative 1,075.1 585.6 1,636.2 1,109.9
Merger-related charges 698.5 -- 698.5 --
Depreciation and amortization 551.0 200.0 780.2 397.1
------------------------------------------------------------------------------------------------------------
Total expenses 5,190.7 2,721.0 7,976.1 5,394.6
------------------------------------------------------------------------------------------------------------
Operating income (loss) (278.2) 282.3 (37.8) 559.8
Interest expense (193.4) (110.6) (315.9) (209.1)
Interest income 13.9 4.5 23.4 8.7
Other items, net (16.7) 6.6 (15.0) 5.3
------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (474.4) 182.8 (345.3) 364.7
Benefit (provision) for income taxes 12.1 (105.1) (46.0) (202.4)
Equity in loss of affiliated companies, net of tax (21.3) (18.2) (27.4) (34.3)
Minority interest, net of tax (12.0) (.2) (8.9) (.3)
------------------------------------------------------------------------------------------------------------
Net earnings (loss) before extraordinary loss and cumulative
effect of change in accounting principle (495.6) 59.3 (427.6) 127.7
Extraordinary loss, net of tax -- -- -- (23.5)
Cumulative effect of change in accounting principle,
net of tax -- -- (452.3) --
------------------------------------------------------------------------------------------------------------
Net earnings (loss) (495.6) 59.3 (879.9) 104.2
Cumulative convertible preferred stock dividend
requirement -- -- -- (.4)
Premium on redemption of preferred stock -- -- -- (12.0)
------------------------------------------------------------------------------------------------------------
Net earnings (loss) attributable to common stock $ (495.6) $ 59.3 $ (879.9) $ 91.8
============================================================================================================
Basic earnings (loss) per common share:
Net earnings (loss) before extraordinary loss and
cumulative effect of change in accounting principle $ (.41) $ .09 $ (.45) $ .17
Net earnings (loss) $ (.41) $ .09 $ (.93) $ .13
============================================================================================================
Diluted earnings (loss) per common share:
Net earnings (loss) before extraordinary loss and
cumulative effect of change in accounting principle $ (.41) $ .08 $ (.45) $ .16
Net earnings (loss) $ (.41) $ .08 $ (.93) $ .13
============================================================================================================
Weighted average number of common shares:
Basic 1,207.6 690.6 951.2 693.4
Diluted 1,207.6 705.0 951.2 708.1
============================================================================================================
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
<TABLE>
<CAPTION>
At June 30, At December 31,
2000 1999
-----------------------------------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 907.0 $ 680.8
Receivables, less allowances of $188.0 (2000) and $109.5 (1999) 3,284.4 1,697.4
Inventory (Note 7) 1,295.2 1,959.5
Other current assets 1,717.6 860.7
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Total current assets 7,204.2 5,198.4
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Property and equipment:
Land 715.8 450.3
Buildings 1,058.8 660.1
Capital leases 889.0 881.9
Advertising structures 1,818.5 --
Equipment and other 4,223.3 3,263.6
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8,705.4 5,255.9
Less accumulated depreciation and amortization 2,136.3 1,830.6
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Net property and equipment 6,569.1 3,425.3
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Inventory (Note 7) 3,426.9 2,829.5
Intangibles, net (Note 3) 61,216.1 11,478.9
Other assets 5,308.9 1,554.3
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Total assets $83,725.2 $24,486.4
=============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 1,100.1 544.4
Accrued expenses and other 3,762.8 2,276.9
Accrued participations 1,119.7 1,087.2
Program rights 734.8 196.9
Current portion of long-term debt (Note 9) 375.5 294.3
-----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 7,092.9 4,399.7
Long-term debt (Note 9) 11,130.7 5,697.7
Deferred tax liabilities 1,895.0 72.9
Other liabilities 7,436.6 1,937.6
Commitments and contingencies (Note 10)
Minority Interest 6,950.2 1,246.5
Stockholders' Equity:
Class A Common Stock, par value $.01 per share; 500.0 shares
authorized; 138.9 (2000) and 139.7 (1999) shares issued 1.4 1.4
Class B Common Stock, par value $.01 per share; 3,000.0 shares
authorized; 1,448.9 (2000) and 606.6 (1999) shares issued 14.4 6.1
Additional paid-in capital 50,593.0 10,338.5
Retained earnings 1,368.0 2,247.9
Accumulated other comprehensive loss (Note 1) (77.3) (30.2)
-----------------------------------------------------------------------------------------------------------------------------
51,899.5 12,563.7
Less treasury stock, at cost; 1.4 (2000 and 1999) Class A shares and
69.4 (2000) and 47.1 (1999) Class B shares (2,679.7) (1,431.7)
-----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 49,219.8 11,132.0
-----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $83,725.2 $24,486.4
=============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
<TABLE>
<CAPTION>
Six months ended June 30, 2000 1999
=============================================================================================================================
<S> <C> <C>
Net earnings (loss) $ (879.9) $ 104.2
Adjustments to reconcile net earnings (loss) to net cash flow from operating
activities
Non-cash merger-related charges 415.0 --
Cumulative effect of change in accounting principle 753.9 --
Depreciation and amortization 780.2 397.1
Distribution from affiliated companies 28.1 14.4
Equity in loss of affiliated companies 27.4 34.3
Change in operating assets and liabilities, net of effects of acquisitions (589.1) (922.1)
-----------------------------------------------------------------------------------------------------------------------------
Net cash flow provided by (used for) operating activities 535.6 (372.1)
-----------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Capital expenditures (291.9) (320.4)
Acquisitions, net of cash acquired (286.9) (277.4)
Investments in and advances to affiliated companies (111.9) (84.4)
Proceeds from sales of short-term investments 118.3 222.5
Purchases of short-term investments (58.1) (215.3)
Other, net (1.2) --
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Net cash flow used for investing activities (631.7) (675.0)
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Financing Activities:
Borrowings from banks, including commercial paper, net 1,582.8 2,776.6
Proceeds from notes and debentures 137.2 --
Repayment of notes and debentures (110.2) (856.9)
Repurchase of preferred stock -- (612.0)
Purchase of treasury stock and warrants (1,248.0) (402.3)
Purchase of treasury stock by subsidiary (82.8) --
Payment of capital lease obligations (64.9) (44.5)
Proceeds from exercise of stock options and warrants 110.9 42.4
Other, net (2.7) (7.5)
-----------------------------------------------------------------------------------------------------------------------------
Net cash flow provided by financing activities 322.3 895.8
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Net increase (decrease) in cash and cash equivalents 226.2 (151.3)
Cash and cash equivalents at beginning of the period 680.8 767.3
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 907.0 $ 616.0
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Supplemental disclosure of cash flow information
Non-cash investing and financing activities:
Fair value of assets acquired $ 60,170.9 $ 278.2
Fair value of liabilities assumed (20,134.0) (.8)
Cash paid, net of cash acquired (286.9) (277.4)
-----------------------------------------------------------------------------------------------------------------------------
Impact on stockholders' equity $ 39,750.0 $ --
-----------------------------------------------------------------------------------------------------------------------------
Property and equipment acquired under capitalized leases $ 34.8 $ 117.5
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in millions, except per share amounts)
1) BASIS OF PRESENTATION
Viacom Inc. ("Viacom" or the "Company") is a diversified entertainment company
with operations in seven segments: (i) Cable Networks, (ii) Television, (iii)
Infinity, (iv) Entertainment, (v) Video, (vi) Publishing and (vii) Online. On
May 4, 2000, CBS Corporation ("CBS") merged with and into the Company and
effective from this date, CBS' results of operations are included in the
Company's consolidated results of operations (See Note 3).
The accompanying unaudited consolidated financial statements of the Company have
been prepared pursuant to the rules of the Securities and Exchange Commission.
These financial statements should be read in conjunction with the more detailed
financial statements and notes thereto included in the Company's most recent
annual report on Form 10-K.
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, except for the change in
accounting principle. Operating results for the quarter are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. 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. For the three and six
months ended June 30, 2000, the incremental shares for stock options of 30.1
million and 23.5 million, respectively, were excluded from the computation of
diluted EPS because their inclusion would be anti-dilutive. 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,
---------------------------- ----------------------------
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average shares for basic EPS 1,207.6 690.6 951.2 693.4
Incremental shares for stock options & warrants -- 14.4 -- 14.7
--------------------------------------------------------------------------------------------------------------
Weighted average shares for diluted EPS 1,207.6 705.0 951.2 708.1
--------------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
Comprehensive Income (Loss) - Total comprehensive income (loss) for the Company
includes net earnings (loss) and other comprehensive income items including
unrealized gain (loss) on securities, cumulative translation adjustments and
minimum pension liability adjustments.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- -----------------
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings (loss) $(495.6) $59.3 $(879.9) $104.2
Other comprehensive income (loss):
Unrealized gain (loss) on securities, net of tax (6.7) 5.0 (11.3) 3.6
Cumulative translation adjustments, net of tax (33.6) (2.2) (35.8) 16.8
Minimum pension liability adjustments, net of tax -- -- -- 4.2
---------------------------------------------------------------------------------------------------
Comprehensive income (loss) $(535.9) $62.1 $(927.0) $128.8
===================================================================================================
</TABLE>
Change in Accounting - In June 2000, the Company elected early adoption of
Statement of Position 00-2, "Accounting by Producers or Distributors of Films"
("SOP 00-2"). SOP 00-02 established new film accounting standards, including
changes in revenue recognition and accounting for advertising, development and
overhead costs. Under the new accounting standard, all exploitation costs such
as advertising expenses, marketing costs and video duplication costs for
theatrical and television product will be expensed as incurred, whereas under
the old accounting standards, these costs were capitalized and amortized over
the products' lifetime. As a result of this early adoption, the Company
recorded a one-time, pre-tax non-cash charge of $754 million ($452 million
after-tax or $.48 per share). This charge has been reflected as a cumulative
effect of a change in accounting principle, effective January 1, 2000, in the
consolidated statement of operations. Under the SOP 00-2 for the six months
ended June 30, 2000, the Company recognized additional operating expense of
approximately $50 million.
In June 2000, the Financial Accounting Standards Board ("FASB") issued Statement
139 ("SFAS 139") which rescinds FASB Statement 53 on financial reporting by
motion picture film producers or distributors. SFAS 139 requires public
companies to follow the guidance provided by SOP 00-2.
2) SUBSEQUENT EVENTS
On July 1, 2000, Infinity Broadcasting Corporation ("Infinity Broadcasting"),a
majority owned subsidiary of the Company, completed the acquisition of Waterman
Broadcasting Corporation of Texas ("Waterman Broadcasting") in exchange for
approximately 2.7 million shares of Infinity Broadcasting Class A common stock
valued at approximately $88 million. Waterman Broadcasting owns radio stations
KTSA-AM and KTFM-FM in San Antonio, Texas.
On July 11, 2000, Infinity Broadcasting entered into an agreement to purchase
Memphis radio stations WMC-AM and WMC-FM from Raycom Media for approximately $76
million.
On July 20, 2000, Infinity Broadcasting initiated a $3.3 billion commercial
paper program (the "Program"). Borrowings under the Program will be short-term
in nature and are supported by unused committed bank facilities and will be used
primarily to finance pending and future potential acquisitions.
-7-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
On August 1, 2000 the Company issued $1.15 billion of 7.70% unsecured senior
notes due July 30, 2010 and $500 million of 7.875% unsecured senior debentures
due July 30, 2030; interest on the senior notes and debentures will be payable
semi-annually. Proceeds from the debt issuance were used to repay bank debt,
including commercial paper. The senior notes and debentures are redeemable at
any time at their principal amount plus the applicable premium and accrued
interest.
3) CBS MERGER
On May 4, 2000, CBS was merged with and into the Company (the "Merger"). The
total purchase price of approximately $39.8 billion included approximately $37.7
billion for the issuance of 825.5 million shares of Viacom non-voting Class B
common stock and 11,004 shares of Viacom Series C convertible preferred stock,
which were subsequently converted into shares of Viacom non-voting Class B
common stock, and approximately $1.9 billion for the fair value of CBS stock
options assumed by Viacom and transaction costs. In addition, Viacom assumed
approximately $3.7 billion of CBS debt.
The Merger was accounted for under the purchase method of accounting. CBS'
results of operations are included in the Company's reported consolidated
results of operations from the effective date of acquisition. The total cost to
acquire CBS has been preliminarily allocated based on the estimated fair values
of the assets acquired and liabilities assumed at the time of the Merger. The
excess purchase price over the fair value of the tangible net assets acquired of
approximately $50 billion was allocated to intangibles and is being amortized on
a straight-line basis principally not to exceed 40 years. Included in this total
are FCC licenses of approximately $9.3 billion at June 30, 2000. The final
allocation of the purchase price will be based on comprehensive final
evaluations of the fair value of CBS' tangible and identifiable intangible
assets acquired and liabilities assumed.
The Company presently holds television stations which reach approximately 41% of
United States television households (as calculated for this purpose under rules
and regulations of the Federal Communications Commission (the "FCC"), which
apply a 50% discount to the reach of UHF stations). These stations reach
approximately 6% in excess of the 35% limit permitted by FCC regulations. In
connection with FCC approval of the Merger, the Company was given one year to
come into compliance with the limit. The Company was also provided with one year
to come into compliance with the FCC's so-called "dual network" rule, which
prohibits the Company from owning and controlling both CBS and the United
Paramount Network ("UPN"). On June 20, 2000, the FCC released a Notice of
Proposed Rule Making, in which it proposes to modify the dual network, the
effect of which would be to permit the Company to own both CBS and UPN. In
addition, the Company was provided with six months to come into compliance with
FCC rules limiting the number of television and radio stations held in a single
market.
The unaudited condensed pro forma results of operations data presented below
assumes the Merger, pre-merger CBS acquisitions, and the UPN acquisition, had
occurred as of January 1, 1999. The unaudited condensed pro forma results of
operations were prepared based upon the historical consolidated results of
operations of the Company and CBS prior to the Merger, adjusted to exclude the
non-recurring merger-related charges and to reflect the adoption of the change
in accounting principle as of January 1, 1999 (see Note 1). Financial results of
CBS subsequent to the date of acquisition are included in the Company's
financial statements. The pre-merger CBS acquisitions assumed to have been
acquired January 1, 1999 are Infinity Outdoor, King World and two Texas
television stations. The aggregate impact of other acquisitions was not material
to consolidated results of operations.
-8-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Proforma Results of Operations Data Six months ended June 30,
(unaudited) 2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $11,233.8 $10,240.5
Net loss before extraordinary loss and
cumulative effect of change in accounting principle $ (167.7) $ (164.7)
Net earnings (loss) attributable to common stock $ (618.0) $ 178.4
Basic and diluted earnings (loss):
Net loss before extraordinary loss and cumulative
effect of change in accounting principle $ (.11) $ (.12)
Net earnings (loss) $ (.41) $ .12
-----------------------------------------------------------------------------------------------
</TABLE>
The pro forma financial information is presented for comparative purposes only
and is not necessarily indicative of the operating results that actually would
have occurred had the CBS, UPN, Infinity Outdoor, King World and television
station transactions been consummated on January 1, 1999. In addition, these
results are not intended to be a projection of future results and do not reflect
any synergies that might be achieved from the combined operations.
4) MERGER-RELATED CHARGES
In the second quarter of 2000, Viacom recorded non-recurring merger-related
charges of $698 million (after-tax $505 million or $.42 per share). These
charges include non-cash charges of $415 million principally attributable to
compensation for stock options and $283 million of cash payments and accrued
liabilities for severance, transaction fees and costs associated with the
integration of Viacom and CBS and the acquisition of UPN (see Note 3). As of
June 30, 2000, the Company had paid and charged approximately $72 million
against the severance liabilities.
In the third quarter of 1999, the Company recorded a restructuring charge of
$70.3 million primarily associated with the integration of the operations of
Spelling Entertainment Group Inc. into Paramount Television, resulting in the
elimination of duplicative sales forces and certain other back office functions.
Included in this total were severance and employee related costs of $48.1
million, lease termination and other occupancy costs of $17.7 million and other
exit costs of $4.5 million. As of June 30, 2000, the Company had paid and
charged approximately $32.6 million against the severance liability; $9.5
million against lease termination and other occupancy costs, and $1.2 million
against the other exit costs. The Company expects to complete the exit
activities by the end of the year 2000.
5) OTHER ACQUISITIONS
During June 2000, Infinity Broadcasting completed its acquisitions of two
international outdoor advertising businesses for approximately $490 million.
-9-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
On March 31, 2000, the Company acquired the remaining 50% interest in UPN that
it did not already own for $5 million and recorded approximately $76 million of
goodwill. In the second quarter of 2000, the Company consolidated UPN's results
of operations. Prior to this acquisition, the Company reported its proportionate
share of net losses of UPN in "Equity in loss of affiliated companies, net of
tax" in the Consolidated Statements of Operations.
On March 3, 2000, Infinity Broadcasting entered into an asset purchase agreement
to acquire 18 radio stations from Clear Channel Communications, Inc. for
approximately $1.4 billion. This transaction is subject to regulatory reviews
and approvals and is expected to close by the end of the third quarter 2000.
6) INVESTMENTS IN AFFILIATED COMPANIES
The Company accounts for its investments in affiliated companies over which it
has significant influence or ownership of 20% or more but less than or equal to
50% under the equity method. Such investments include several Internet-based
companies with equity ownership interests ranging from 20% to 50%. At June 30,
2000, the Company's total investment in affiliated companies was $914.8 million,
of which $391.9 million represented the Internet-based companies, and is
reflected in Other Assets in the Consolidated Balance Sheet. The following
summarized unaudited financial information reflects the Internet equity
investments' results of operations (results are recorded on a one quarter lag).
Results of Operations Data
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- ------------------
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 26.4 $ 8.5 $ 52.0 $ 15.9
Gross profit 11.9 4.1 17.6 6.7
Loss before extraordinary items
and effect of a change in accounting principle (108.4) (19.4) (233.9) (31.6)
Net loss (108.4) (19.4) (233.9) (31.6)
------------------------------------------------------------------------------------------------------
</TABLE>
At the date of acquisition, for equity investments in Internet-based companies
the Company typically records the investment at an amount equal to the cash
consideration paid plus the fair value of the advertising and promotion time to
be provided. The associated obligation to provide future advertising and
promotion time is non-cash and is recorded as deferred revenue at an amount
equal to the fair value of the advertising and promotion time to be provided.
Any related deferred revenue balance is presented as a liability in the
Consolidated
-10-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
Balance Sheet. Deferred revenue is relieved and barter revenue is recognized as
the related advertising and promotion time is delivered. Barter revenue of $27.6
million has been recognized for both the three and six months ended June 30,
2000.
For equity investments, a difference typically exists between the initial
investment and the proportionate share in the underlying net assets of these
companies. This difference is being amortized over a five-year period and as of
June 30, 2000 the unamortized difference is $572 million. The amortization
expense of the Company's initial basis is presented as "Equity in loss of
affiliated companies, net of tax" in the Consolidated Statements of Operations.
As of June 30, 2000, the Company's equity investments included three publicly
traded Internet- based companies: Hollywood.com, Inc., MarketWatch.com, Inc. and
Switchboard, Inc. Based upon quoted market prices at June 30, 2000, the
aggregate carrying values of these investments exceeded their respective
aggregate market values by approximately $43 million.
7) INVENTORY
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
---------------------------------------------------------------------------------------------------
Theatrical and television inventory:
<S> <C> <C>
Theatrical productions:
Released $ 443.4 $ 798.7
Completed, not released -- 0.8
In process and other 271.2 276.6
Television productions:
Released 942.4 1,039.4
In process and other 77.9 135.0
Program rights 1,896.9 1,434.4
---------------------------------------------------------------------------------------------------
3,631.8 3,684.9
Less current portion 886.1 1,515.0
---------------------------------------------------------------------------------------------------
2,745.7 2,169.9
---------------------------------------------------------------------------------------------------
Merchandise inventory, including sell-through
videocassettes 283.0 338.0
Videocassette rental inventory 593.3 569.5
Publishing, primarily finished goods 76.4 70.4
Other 137.6 126.2
---------------------------------------------------------------------------------------------------
1,090.3 1,104.1
Less current portion 409.1 444.5
---------------------------------------------------------------------------------------------------
681.2 659.6
---------------------------------------------------------------------------------------------------
Total Current Inventory $1,295.2 $1,959.5
---------------------------------------------------------------------------------------------------
Total Non-Current Inventory $3,426.9 $2,829.5
---------------------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
8) STOCK REPURCHASE
During the first six months of 2000, the Company repurchased 10,000 shares of
its Class A Common Stock and 22,231,355 shares of its Class B Common Stock under
its stock repurchase programs for approximately $1.2 billion in the aggregate.
Second quarter 2000 repurchases included in this total amounted to $465.2
million.
9) LONG-TERM DEBT
<TABLE>
<CAPTION>
At June 30, At December 31,
2000 1999
----------------------------------------------------------------------------------------------------------------------
Long-term debt:
<S> <C> <C>
Notes payable to banks (including commercial paper) $ 5,964.5 $3,054.2
Senior notes and debentures (5.875% - 9.75%, due 2000-2023) 4,221.1 2,310.9
Senior subordinated notes (8.875%-10.25%, due 2001-2007) 728.2 35.3
Subordinated exchange debentures (11.375%, due 2009) 45.0 --
Obligations under capital leases 547.4 591.6
----------------------------------------------------------------------------------------------------------------------
Total debt $11,506.2 $5,992.0
Less current portion 375.5 294.3
----------------------------------------------------------------------------------------------------------------------
Total long-term debt $11,130.7 $5,697.7
======================================================================================================================
</TABLE>
As a result of the CBS merger, Viacom assumed approximately $3.7 billion of CBS
debt. On March 28, 2000, the Viacom credit agreements were amended to allow for
the merger of CBS with and into the Company. On April 17, 2000, the CBS and
Infinity credit agreements were amended to allow for the merger of CBS with and
into the Company.
The Company has a $3.0 billion commercial paper program. Borrowings under the
program have maturities of less than a year and are supported by unused
committed bank facilities.
On May 3, 2000, Infinity Broadcasting entered into two new credit facilities,
totaling $1.95 billion, comprised of a $1.45 billion 5-year revolving credit and
a $500 million 364-day revolving credit. Borrowing rates under the facilities
are determined at the time of each borrowing and are based generally on a
floating rate index, the London Interbank Offer Rate ("LIBOR"), plus a margin
based on Infinity Broadcasting's senior unsecured debt rating. The facility
contains certain covenants which, among other things, require that Infinity
Broadcasting maintain certain financial ratios and impose on Infinity
Broadcasting and its subsidiaries certain limitations on substantial asset sales
and mergers with any other company in which Infinity Broadcasting is not the
surviving entity.
10) COMMITMENTS AND CONTINGENCIES
There are various lawsuits and claims pending against the Company relating to
its ongoing and discontinued operations. Some of these lawsuits and claims,
including those related to asbestos liabilities, seek substantial monetary
damages. Management believes that any ultimate liability resulting from those
-12-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
actions or claims will not have a material adverse effect on the Company's
results of operations, financial position or liquidity.
The Company is a defendant in numerous lawsuits claiming various
asbestos-related personal injuries, which allegedly occurred from use or
inclusions of asbestos in certain products supplied by previously divested
industrial businesses, generally in the pre-1970 time period. Typically, these
lawsuits are brought against multiple defendants. The Company was neither a
manufacturer nor a producer of asbestos. At June 30, 2000 the Company had
approximately 129,000 unresolved claims pending.
The Company has brought suit against certain of its insurance carriers with
respect to these asbestos claims. Under the terms of a settlement agreement
resulting from this suit, carriers that have agreed to the settlement are now
reimbursing the Company for a substantial portion of its current costs and
settlements associated with asbestos claims. The Company has recorded a
liability (in Other liabilities) reflecting its best estimate of its asbestos
liability exposure. The Company has also separately recorded an asset reflected
in Other assets in the Consolidated Balance Sheet equal to the amount of such
estimated liability that will be recovered pursuant to agreements with insurance
carriers.
The Company and certain of its subsidiaries and affiliates from time to time
receive claims from federal and state environmental regulatory agencies and
other entities asserting that they are or may be liable for environmental
cleanup costs and related damages, principally relating to discontinued
operations conducted by its former mining and industrial businesses (acquired as
part of the Company's mergers). The Company's liabilities reflect management's
best estimate of its environmental exposure. Such liability was not
discounted or reduced by potential insurance recoveries and reflects
management's estimate of cost sharing at multiparty sites. The estimated
liability was calculated based upon currently available facts, existing
technology and presently enacted laws and regulations. On the basis of its
experience and the information currently available to it, the Company believes
that the claims it has received will not have a material adverse effect on its
results of operations, financial position or liquidity.
The commitments of the Company for program license fees, estimated to aggregate
approximately $15.8 billion, are not reflected in the balance sheet as of June
30, 2000. These commitments include approximately $12.3 billion for the
acquisition of sports programming rights. A majority of such fees are payable
over several years, as part of normal programming expenditures.
11) PROVISION FOR INCOME TAXES
The provision for income taxes represents federal, state and foreign income
taxes on earnings before income taxes. The reported estimated annual effective
tax rates of 77.0% for 2000 and 55.5% for 1999 were adversely affected by
amortization of intangibles in excess of the amounts deductible for the tax
purposes. Excluding the non-deductible amortization of intangibles, the
estimated annual effective tax rates would have been 40.1% for 2000 and 37.7%
for 1999.
Due to the unusual nature of the merger-related charges of $698 million (after-
tax $505 million), its full income tax effect is also excluded from the 2000
estimated annual effective tax rate.
12) OPERATING SEGMENTS
The following table sets forth the Company's financial performance by reportable
operating segment. As a result of the merger with CBS, the segment information
reflects a new organizational structure. Prior period information for Viacom has
been reclassified to conform to the new structure. Intersegment sales are
recorded at fair market value as if the sales were to third parties and are
eliminated in consolidation. Intersegment sales were not material for the
-13-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
periods presented. Residual costs of discontinued businesses primarily include
pension and postretirement benefit costs for benefit plans retained by CBS for
previously divested industrial businesses. The Company evaluates
performance based on many factors; one of the primary measures is EBITDA,
defined as operating income before depreciation and amortization. The Company
believes that EBITDA is an appropriate measure of evaluating the operating
performance of its segments. However, EBITDA should be considered in addition
to, not as a substitute for or superior to operating income, net earnings, cash
flows, and other measures of financial performance prepared in accordance with
generally accepted accounting principles.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C> <C>
Cable Networks $ 945.9 $ 704.4 $1,705.4 $1,368.2
Television 1,278.4 518.3 1,806.5 1,079.7
Infinity 672.6 -- 672.6 --
Entertainment 757.7 657.8 1,293.1 1,200.3
Video 1,214.4 1,041.7 2,425.5 2,154.7
Publishing 133.2 145.8 246.0 268.5
Online 24.2 5.2 35.8 9.9
Intercompany eliminations (113.9) (69.9) (246.6) (126.9)
---------------------------------------------------------------------------------------------------------------------
Total Revenues $4,912.5 $3,003.3 $7,938.3 $5,954.4
---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------
EBITDA:
<S> <C> <C> <C> <C>
Cable Networks $ 335.0 $ 219.3 $ 593.7 $ 420.8
Television 183.0 89.4 300.3 159.1
Infinity 324.1 -- 324.1 --
Entertainment 114.4 105.0 169.1 195.4
Video 113.2 104.5 263.5 249.6
Publishing 8.5 16.9 6.8 22.6
Online (67.3) (6.0) (90.5) (7.0)
---------------------------------------------------------------------------------------------------------------------
Segment Total 1,010.9 529.1 1,567.0 1,040.5
---------------------------------------------------------------------------------------------------------------------
Corporate Expenses/Eliminations (719.5) (46.8) (806.0) (83.6)
Residual cost of discontinued operations (18.6) -- (18.6) --
---------------------------------------------------------------------------------------------------------------------
Total EBITDA $ 272.8 $ 482.3 $ 742.4 $ 956.9
---------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ (551.0) $(200.0) $ (780.2) $ (397.1)
---------------------------------------------------------------------------------------------------------------------
Total Operating Income $ (278.2) $ 282.3 $ (37.8) $ 559.8
---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
At June 30, At December 31,
2000 1999
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total Assets:
Cable Networks $ 7,682.5 $ 3,138.1
Television 24,697.7 5,817.2
Infinity 32,235.9 --
Entertainment 4,865.6 4,826.5
Video 8,370.1 8,475.6
Publishing 944.8 948.1
Online 883.0 162.1
------------------------------------------------------------------------------------------------------
Segment Total 79,679.6 23,367.6
Corporate/Eliminations 4,045.6 1,118.8
------------------------------------------------------------------------------------------------------
Total Assets $83,725.2 $24,486.4
------------------------------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
13) 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 to the current period
presentation.
<TABLE>
<CAPTION>
Three Months Ended June 30, 2000
--------------------------------------------------------------------
Non- Viacom
Viacom Viacom Guarantor Inc.
Inc. International Affiliates Eliminations Consolidated
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 10.3 $ 603.0 $4,311.8 $ (12.6) $4,912.5
---------------------------------------------------------------------------------------------------------------------
Expenses:
Operating 8.2 205.2 2,680.7 (28.0) 2,866.1
Selling, general and administrative 1.7 253.7 819.7 -- 1,075.1
Merger-related charges -- 650.0 48.5 -- 698.5
Depreciation and amortization 0.9 35.1 515.0 -- 551.0
---------------------------------------------------------------------------------------------------------------------
Total expenses 10.8 1,144.0 4,063.9 (28.0) 5,190.7
---------------------------------------------------------------------------------------------------------------------
Operating income (loss) (0.5) (541.0) 247.9 15.4 (278.2)
---------------------------------------------------------------------------------------------------------------------
Interest expense (82.1) (19.9) (91.4) -- (193.4)
Interest income 0.2 6.9 6.8 -- 13.9
Intercompany interest (31.6) 28.1 3.5 -- --
Other items, net (7.5) 3.4 (12.6) -- (16.7)
---------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (121.5) (522.5) 154.2 15.4 (474.4)
---------------------------------------------------------------------------------------------------------------------
Benefit (provision) for income taxes 47.6 112.1 (147.6) -- 12.1
Equity in earnings (loss) of affiliated
companies, net of tax (421.7) (15.0) (32.6) 448.0 (21.3)
Minority interest, net of tax -- 3.7 (15.7) -- (12.0)
---------------------------------------------------------------------------------------------------------------------
Net loss $(495.6) (421.7) $ (41.7) $ 463.4 $ (495.6)
=====================================================================================================================
</TABLE>
-15-
<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, 2000
--------------------------------------------------------------------
Non- Viacom
Viacom Viacom Guarantor Inc.
Inc. International Affiliates Eliminations Consolidated
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 19.9 $1,136.1 $6,847.9 $ (65.6) $7,938.3
-----------------------------------------------------------------------------------------------------------------------
Expenses:
Operating 18.2 387.1 4,487.2 (31.3) 4,861.2
Selling, general and administrative 2.0 443.5 1,190.7 -- 1,636.2
Merger-related charges -- 650.0 48.5 -- 698.5
Depreciation and amortization 1.6 70.5 708.1 -- 780.2
-----------------------------------------------------------------------------------------------------------------------
Total expenses 21.8 1,551.1 6,434.5 (31.3) 7,976.1
-----------------------------------------------------------------------------------------------------------------------
Operating income (loss) (1.9) (415.0) 413.4 (34.3) (37.8)
Interest expense (147.3) (40.3) (128.3) -- (315.9)
Interest income 0.5 13.5 9.4 -- 23.4
Intercompany interest (61.3) 55.0 6.3 -- --
Other items, net (15.6) 9.3 (8.7) -- (15.0)
-----------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (225.6) (377.5) 292.1 (34.3) (345.3)
-----------------------------------------------------------------------------------------------------------------------
Benefit (provision) for income taxes 90.3 52.6 (188.9) -- (46.0)
Equity in earnings (loss) of affiliated
companies, net of tax (744.6) (425.4) (46.8) 1,189.4 (27.4)
Minority interest, net of tax -- 5.7 (14.6) -- (8.9)
-----------------------------------------------------------------------------------------------------------------------
Net earnings (loss) before cumulative effect of
change in accounting principle (879.9) (744.6) 41.8 1,155.1 (427.6)
Cumulative effect of change in accounting
principle -- -- (452.3) -- (452.3)
-----------------------------------------------------------------------------------------------------------------------
Net loss $(879.9) $ (744.6) $ (410.5) $1,155.1 $ (879.9)
=======================================================================================================================
</TABLE>
-16-
<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, 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
Interest expense (74.7) (22.7) (13.2) -- (110.6)
Interest income 0.1 3.0 1.4 -- 4.5
Intercompany interest (21.5) 47.0 (25.5) -- --
Other items, net (5.1) 5.6 6.1 -- 6.6
--------------------------------------------------------------------------------------------------------------------
Earnings (loss) 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 loss of affiliated companies,
net of tax 119.1 31.4 (23.9) (144.8) (18.2)
Minority interest, net of tax -- -- (0.2) -- (0.2)
--------------------------------------------------------------------------------------------------------------------
Net earnings $ 59.3 $119.1 $ 25.7 $(144.8) $ 59.3
====================================================================================================================
</TABLE>
-17-
<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
Interest expense (136.6) (48.4) (24.1) -- (209.1)
Interest income 0.7 5.4 2.6 -- 8.7
Intercompany interest (41.5) 93.2 (51.7) -- --
Other items, net (10.5) 5.0 10.8 -- 5.3
----------------------------------------------------------------------------------------------------------------------
Earnings (loss) 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 loss of affiliated companies,
net of tax 239.6 72.5 (43.8) (302.6) (34.3)
Minority interest, net of tax -- -- (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>
-18-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
June 30, 2000
---------------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 31.0 $ 462.3 $ 413.7 $ -- $ 907.0
Receivables, net 13.9 288.4 3,134.5 (152.4) 3,284.4
Inventory 4.8 242.3 1,048.1 -- 1,295.2
Other current assets 1.3 196.4 1,519.9 -- 1,717.6
---------------------------------------------------------------------------------------------------------------------
Total current assets 51.0 1,189.4 6,116.2 (152.4) 7,204.2
---------------------------------------------------------------------------------------------------------------------
Property and equipment 13.5 730.5 7,961.4 -- 8,705.4
Less accumulated depreciation and
amortization 4.5 272.5 1,859.3 -- 2,136.3
---------------------------------------------------------------------------------------------------------------------
Net property and equipment 9.0 458.0 6,102.1 -- 6,569.1
---------------------------------------------------------------------------------------------------------------------
Inventory -- 478.9 2,968.6 (20.6) 3,426.9
Intangibles, at amortized cost 104.9 649.0 60,462.2 -- 61,216.1
Investments in consolidated subsidiaries 45,834.8 14,436.0 -- (60,270.8) --
Other assets 49.3 2,098.8 3,278.9 (118.1) 5,308.9
---------------------------------------------------------------------------------------------------------------------
Total assets $ 46,049.0 $19,310.1 $78,928.0 $(60,561.9) $83,725.2
=====================================================================================================================
Liabilities and Stockholders' Equity
Accounts payable $ -- $ 37.3 $ 1,115.9 $ (53.1) $ 1,100.1
Accrued expenses and other 231.0 1,299.9 3,591.6 (624.9) 4,497.6
Accrued participations -- -- 1,122.8 (3.1) 1,119.7
Current portion of long-term debt -- 8.4 367.1 -- 375.5
---------------------------------------------------------------------------------------------------------------------
Total current liabilities 231.0 1,345.6 6,197.4 (681.1) 7,092.9
---------------------------------------------------------------------------------------------------------------------
Long-term debt 4,530.4 1,016.6 5,583.7 -- 11,130.7
Other liabilities (12,100.7) 2,534.9 14,723.6 4,173.8 9,331.6
Minority interest -- 165.6 6,784.6 -- 6,950.2
Stockholders' Equity:
Preferred Stock -- 104.1 20.4 (124.5) --
Common Stock 15.8 185.7 495.5 (681.2) 15.8
Additional paid-in capital 50,593.0 9,254.6 45,584.3 (54,838.9) 50,593.0
Retained earnings 5,459.2 4,678.4 (359.6) (8,410.0) 1,368.0
Accumulated other comprehensive
income (loss) -- 24.6 (101.9) -- (77.3)
---------------------------------------------------------------------------------------------------------------------
56,068.0 14,247.4 45,638.7 (64,054.6) 51,899.5
Less treasury stock, at cost 2,679.7 -- -- -- 2,679.7
---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 53,388.3 14,247.4 45,638.7 (64,054.6) 49,219.8
---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $ 46,049.0 $19,310.1 $78,928.0 $(60,561.9) $83,725.2
=====================================================================================================================
</TABLE>
-19-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 81.6 $ 486.0 $ 113.2 $ -- $ 680.8
Receivables, net 10.9 340.4 1,441.7 (95.6) 1,697.4
Inventory 10.9 250.4 1,698.2 -- 1,959.5
Other current assets 2.8 172.6 685.3 -- 860.7
------------------------------------------------------------------------------------------------------------------------
Total current assets 106.2 1,249.4 3,938.4 (95.6) 5,198.4
------------------------------------------------------------------------------------------------------------------------
Property and equipment 13.4 684.5 4,558.0 -- 5,255.9
Less accumulated depreciation and amortization 3.8 242.6 1,584.2 -- 1,830.6
------------------------------------------------------------------------------------------------------------------------
Net property and equipment 9.6 441.9 2,973.8 -- 3,425.3
------------------------------------------------------------------------------------------------------------------------
Inventory -- 365.2 2,464.3 -- 2,829.5
Intangibles, at amortized cost 106.4 647.1 10,725.4 -- 11,478.9
Investments in consolidated subsidiaries 6,829.2 14,891.0 -- (21,720.2) --
Other assets 58.0 204.7 1,411.0 (119.4) 1,554.3
------------------------------------------------------------------------------------------------------------------------
Total assets $ 7,109.4 $17,799.3 $21,512.9 $(21,935.2) $24,486.4
========================================================================================================================
Liabilities and Stockholders' Equity
Accounts payable $ 0.1 $ 9.0 $ 578.6 $ (43.3) $ 544.4
Accrued expenses and other 15.3 1,637.3 1,441.6 (620.4) 2,473.8
Accrued participations -- -- 1,109.1 (21.9) 1,087.2
Current portion of long-term debt -- 17.7 276.6 -- 294.3
------------------------------------------------------------------------------------------------------------------------
Total current liabilities 15.4 1,664.0 3,405.9 (685.6) 4,399.7
------------------------------------------------------------------------------------------------------------------------
Long-term debt 3,262.1 1,013.4 1,422.2 -- 5,697.7
Other liabilities (11,421.6) 1,889.6 7,339.9 4,202.6 2,010.5
Minority interest -- 144.4 1,102.1 -- 1,246.5
Stockholders' equity:
Preferred Stock -- 104.1 20.4 (124.5) --
Common Stock 7.5 185.7 495.4 (681.1) 7.5
Additional paid-in capital 10,338.5 7,342.3 7,739.4 (15,081.7) 10,338.5
Retained earnings 6,339.2 5,422.7 50.9 (9,564.9) 2,247.9
Accumulated other comprehensive
income (loss) -- 33.1 (63.3) -- (30.2)
------------------------------------------------------------------------------------------------------------------------
16,685.2 13,087.9 8,242.8 (25,452.2) 12,563.7
Less treasury stock, at cost 1,431.7 -- -- -- 1,431.7
------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 15,253.5 13,087.9 8,242.8 (25,452.2) 11,132.0
------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 7,109.4 $17,799.3 $21,512.9 $(21,935.2) $24,486.4
========================================================================================================================
</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, 2000
--------------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net cash flow provided by (used for) operating
activities $ (109.9) $123.1 $ 522.4 -- $ 535.6
----------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Capital expenditures -- (77.1) (214.8) -- (291.9)
Acquisitions, net of cash acquired -- 332.9 (619.8) -- (286.9)
Investments in and advances to affiliated -- (3.2) (108.7) -- (111.9)
companies
Proceeds from sales of short-term investments -- 32.7 85.6 -- 118.3
Purchases of short-term investments -- (58.1) -- -- (58.1)
Other -- (10.5) 9.3 -- (1.2)
----------------------------------------------------------------------------------------------------------------------------
Net cash flow provided by (used for) investing activities -- 216.7 (848.4) -- (631.7)
----------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Borrowings from banks, including commercial paper, net 1,267.8 -- 315.0 -- 1,582.8
Proceeds from notes and debentures -- -- 137.2 -- 137.2
Repayment of notes and debentures -- -- (110.2) -- (110.2)
Purchase of treasury stock (1,248.0) -- -- -- (1,248.0)
Purchase of treasury stock by subsidiary -- -- (82.8) -- (82.8)
Payment of capital lease obligations -- (19.5) (45.4) -- (64.9)
Increase (decrease) in intercompany payables (71.4) (344.0) 415.4 -- --
Proceeds from exercise of stock options 110.9 -- -- -- 110.9
Other, net -- (2.7) -- (2.7)
----------------------------------------------------------------------------------------------------------------------------
Net cash flow provided by (used for) financing activities 59.3 (363.5) 626.5 322.3
----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (50.6) (23.7) 300.5 -- 226.2
Cash and cash equivalents at beginning of period 81.6 486.0 113.2 -- 680.8
----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period 31.0 462.3 413.7 -- 907.0
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-21-
<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> <C>
Net cash flow provided by (used for) operating
activities $ (379.1) $291.1 $ (284.1) $ -- $ (372.1)
------------------------------------------------------------------------------------------------------------------------
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 used for investing
activities (160.9) (59.6) (454.5) -- (675.0)
------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Borrowings from banks, including commercial
paper, net 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) (535.3) -- -- (856.9)
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 provided by financing
activities 143.9 31.4 720.5 -- 895.8
------------------------------------------------------------------------------------------------------------------------
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>
-22-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Management's discussion and analysis of financial condition and the consolidated
results of operations should be read in conjunction with the Consolidated
Financial Statements and related Notes.
Significant transactions, in the second quarter of 2000, that affect the
comparability of historical results are listed below:
. The Company completed its merger with CBS and acquired the remaining 50%
interest in UPN that it did not already own.
. The Company recorded one-time merger-related pre-tax charges of $698
million associated with these acquisitions.
. The Company elected early adoption of the new accounting standard for
accounting for motion pictures, resulting in a one-time, pre-tax non-cash
charge of $754 million.
In order to enhance comparability, the following discussion of the Company's
results of operations is supplemented by pro forma financial information that
gives effect to the CBS merger and other acquisitions (including significant
acquisitions made by CBS prior to the completion of the merger) as if they had
occurred at the beginning of each period presented, exclude non-recurring items
and reflect the adoption of the change in accounting as of January 1, 1999. The
pro forma results are presented for informational purposes only and are not
indicative of the operating results that would have occurred had the
transactions actually occurred at the beginning of 1999, nor are they
necessarily indicative of future operating results.
The table below presents the Company's total revenues and total operating
income, as reported and on a pro forma basis for the three and six months ended
June 30, 2000 and 1999, respectively:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, Percent June 30, Percent
2000 1999 B/(W) 2000 1999 B/(W)
=========================================================================================================
Total Revenues:
<S> <C> <C> <C> <C> <C> <C>
As Reported $4,912.5 $3,003.3 64% $ 7,938.3 $ 5,954.4 33%
---------------------------------------------------------------------------------------------------------
Pro Forma $5,765.8 $5,117.2 13% $11,233.8 $10,240.5 10%
---------------------------------------------------------------------------------------------------------
Total Operating Income (a):
As Reported $ (278.2) $ 282.3 (199%) $ (37.8) $ 559.8 (107%)
---------------------------------------------------------------------------------------------------------
Pro Forma $ 512.3 $ 371.3 38% $ 792.6 $ 579.3 37%
=========================================================================================================
</TABLE>
(a) Operating income (loss) is defined as net earnings (loss) before
extraordinary loss (net of tax), minority interest, equity in loss of
affiliated companies (net of tax), provision for income taxes, other items
(net) and interest expense and interest income.
-23-
<PAGE>
EBITDA
------
EBITDA is defined as operating income (loss) before depreciation and
amortization. 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. Pro forma
EBITDA gives effect to the CBS merger and other acquisitions (including
significant acquisitions made by CBS prior to the completion of the merger) as
if they had occurred at the beginning of each period presented, excludes non-
recurring items and reflect the adoption of the change in accounting as of
January 1, 1999.
<TABLE>
<CAPTION>
Three months ended Percent Six months ended Percent
June 30, B/(W) June 30, B/(W)
=================================================================================================
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------
Total EBITDA:
<S> <C> <C> <C> <C> <C> <C>
As Reported $ 272.8 $ 482.3 (43)% $ 742.4 $ 956.9 (22)%
Pro Forma $1,204.7 $1,020.0 18% $2,168.7 $1,868.3 16%
=================================================================================================
</TABLE>
Results of Operations
---------------------
On a reported basis, revenues increased 64% to $4.9 billion and 33% to $7.9
billion for the three-and six-month periods ended June 30, 2000, respectively,
from $3.0 billion and $6.0 billion for the same prior-year periods. Operating
results are not comparable with prior-year periods due to the CBS merger,
merger-related charges and other non-recurring items.
On a pro forma basis, revenues increased 13% to $5.8 billion and 10% to $11.2
billion for the three-and six-month periods ended June 30, 2000, respectively,
from $5.1 billion and $10.2 billion for the same prior-year periods. Revenue
increases were paced by gains in the Infinity, Cable Networks and Television
segments due to continued broad-based advertising strength across all major
media assets. The Video segment also contributed to the revenue increases
driven by the increase in the number of company-operated stores and strong
worldwide same-store sales growth of 11%.
EBITDA, on a pro forma basis, increased 18% to $1.2 billion and 16% to $2.2
billion for the three-and six-month periods ended June 30, 2000, respectively,
from $1.0 billion and $1.9 billion for the same prior-year periods. EBITDA
growth outpaced revenue growth for both periods presented primarily due to
increased margins on the additional revenues.
-24-
<PAGE>
Segment Results of Operations
-----------------------------
Cable Networks (MTV Networks (MTVN) including MTV, VH1, Nickelodeon, Nick at
Nite, TV Land, TNN and CMT; and Showtime Networks, Inc.("SNI"))
<TABLE>
<CAPTION>
Three months ended Percent Six months ended Percent
June 30, B/(W) June 30, B/(W)
=======================================================================================================
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------
As Reported:
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 945.9 $ 704.4 34% $ 1,705.4 $ 1,368.2 25%
Operating $ 281.4 $ 190.1 48 $ 509.5 $ 362.8 40
income
EBITDA $ 335.0 $ 219.3 53 $ 593.7 $ 420.8 41
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Pro forma:
Revenues $ 994.9 $ 860.5 16% $ 1,892.7 $ 1,654.7 14%
Operating $ 286.7 $ 220.9 30 $ 528.1 $ 405.2 30
income
EBITDA $ 353.3 $ 289.0 22 $ 665.0 $ 541.0 23
=======================================================================================================
</TABLE>
For the second quarter of 2000, MTVN revenues of $704.4 million, EBITDA of
$291.5 million and operating income of $246.4 million increased 39%, 55% and
50%, respectively, over the second quarter of 1999. For the six months ended
June 30, 2000, MTVN revenues of $1.3 billion, EBITDA of $513.4 million and
operating income of $443.0 million increased 29%, 43% and 41%, respectively,
over the same six-month period last year. For the second quarter of 2000, MTVN
pro forma revenues of $738.8 million increased 18% as compared with $623.8
million of pro forma revenues for the second quarter of 1999 and pro forma
EBITDA of $308.0 million increased 23% as compared with pro forma EBITDA of
$251.0 million for the prior-year period. For the six months ended June 30,
2000, MTVN pro forma revenues of $1.4 billion and pro forma EBITDA of $576.2
million increased 17% and 22%, respectively, over the same prior-year period pro
forma revenues of $1.2 billion and EBITDA of $470.6 million. The revenue
increases principally reflect 26% higher worldwide advertising revenues led by
double-digit increases at MTV, VH1 and Nickelodeon/Nick at Nite. Advertising
revenue gains were primarily driven by rate increases at MTV and VH1. Pro forma
results assume the acquisition of CBS Cable Networks, TNN and CMT, had occurred
on January 1, 1999. The second quarter results include a benefit of $5 million
attributable to purchase accounting for TNN and CMT.
SNI's revenues, EBITDA and operating income increased 8%, 17% and 21% for the
second quarter, respectively, and 7%, 21% and 28% for the six months ended June
30, 2000, respectively, over the same prior-year periods. The revenue increases
were principally due to an increase of approximately 1.9 million subscriptions,
up 9% over the prior-year to 24.2 million subscriptions at June 30, 2000.
Operating results reflect revenue increases attributable to the continued growth
of direct broadcast satellite and cable.
-25-
<PAGE>
Television (CBS and UPN Television Networks and Stations; Television Production
and Syndication)
<TABLE>
<CAPTION>
Three months ended Percent Six months ended Percent
June 30, B/(W) June 30, B/(W)
===================================================================================================================
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------
As Reported:
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 1,278.4 $ 518.3 147% $ 1,806.5 $ 1,079.7 67%
Operating $ 32.3 $ 60.6 (47) $ 120.4 $ 101.2 19
income
EBITDA $ 183.0 $ 89.4 105 $ 300.3 $ 159.1 89
-------------------------------------------------------------------------------------------------------------------
Pro forma:
Revenues $ 1,786.2 $ 1,675.9 7% $ 3,841.9 $ 3,633.1 6%
Operating $ 154.8 $ 42.1 267 $ 272.2 $ 32.9 NM
income
EBITDA $ 346.7 $ 234.5 48 $ 656.4 $ 415.8 58
===================================================================================================================
</TABLE>
NM - not meaningful
For the second quarter and six months ended June 30, 2000, Television pro forma
revenues, EBITDA and operating income increases over the same prior-year periods
principally reflect strong national and local advertising sales gains. The
Television segment's results were led by the CBS Network and television stations
strong revenue growth which was driven by improved prime-time performance with
the success of the new reality-based television show SURVIVOR, the benefit of
the NCAA FINAL FOUR CHAMPIONSHIP TOURNAMENT in the second quarter and strong
advertising pricing in local owned and operated TV markets. Paramount Television
revenues for the three and six month periods were higher for continuing network
and first run syndication shows including ENTERTAINMENT TONIGHT, JUDGE JUDY, 7TH
HEAVEN, CHARMED, and JUDGE JOE BROWN. However, these increases were more than
offset by the loss of revenues from the network series MELROSE PLACE and SUNSET
BEACH and the first run syndication shows STAR TREK: DEEP SPACE NINE, VIPER and
HARD COPY which are no longer on the air, and lower syndication revenues this
year from library product. Pro forma results assume that the CBS merger and the
acquisitions of King World, two Texas television stations and the remaining 50%
interest of United Paramount Network ("UPN") had occurred on January 1, 1999,
and are adjusted to exclude merger-related charges for the integration of recent
acquisitions into existing operations. The Television segment's second quarter
results include a benefit of $30 million attributable to purchase accounting
which was partially offset by a reduction of $12 million attributable to the
change in accounting described below. Excluding these accounting items, as
reported, Television's operating income decreased in the second quarter of 2000,
due primarily to an increase in amortization expense of $108 million, merger-
related charges of $48 million with the consolidation of UPN, beginning in the
second quarter of 2000.
The Company elected early adoption of the AICPA's Statement of Position
"Accounting by Producers or Distributors of Films" ("SOP 00-2") which is
effective for financial statements for fiscal years beginning after December 15,
2000. SOP 00-2 established new film accounting standards, including changes in
revenue recognition and accounting for advertising, development and overhead
costs. As a result of the early adoption, Television recorded a pre-tax
charge of $330 million, primarily related to Spelling Entertainment. The
cumulative effect of the accounting change is not included in the EBITDA and
operating income above.
-26-
<PAGE>
Infinity (Radio Stations, Outdoor Advertising Properties)
<TABLE>
<CAPTION>
Three months ended Percent Six months ended Percent
June 30, B/(W) June 30, B/(W)
==================================================================================================================
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------
As Reported:
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 672.6 -- NM $ 672.6 -- NM
Operating income $ 151.6 -- NM $ 151.6 -- NM
EBITDA $ 324.1 -- NM $ 324.1 -- NM
------------------------------------------------------------------------------------------------------------------
Pro forma:
Revenues $ 974.9 $ 799.0 22% $ 1,763.5 $ 1,445.0 22%
Operating income $ 199.6 $ 123.2 62 $ 278.4 $ 130.4 113
EBITDA $ 457.6 $ 368.0 24 $ 784.5 $ 617.0 27
==================================================================================================================
</TABLE>
NM - not meaningful
For the second quarter, Infinity Broadcasting Corporation ("Infinity
Broadcasting"), the Company's out-of-home media subsidiary, recorded pro forma
revenues, EBITDA and operating income increases of 22%, 24% and 62%,
respectively. For the six months ended June 30, 2000, pro forma revenues, EBITDA
and operating income increased 22%, 27% and 113% respectively. Second quarter
and six-month results were driven by continued strong sales momentum at both
Radio and Outdoor. Pro forma results assume the acquisition of Infinity
Broadcasting, as part of the CBS merger, and Infinity Broadcasting's December
1999 acquisition of Infinity Outdoor, formerly known as Outdoor Systems, Inc.,
had occurred on January 1, 1999. During the second quarter of 2000, Infinity
Broadcasting completed the acquisition of two radio stations in San Antonio,
Texas and the acquisition of Giraudy, one of France's largest outdoor
advertising companies. Infinity Broadcasting also acquired Societa Manifesti &
Affissioni S.p.A., one of the leading Italian outdoor media sales companies. The
Company owns approximately 64% of Infinity Broadcasting.
-27-
<PAGE>
Entertainment (Paramount Pictures, Famous Players, Famous Music Publishing and
Paramount Parks)
<TABLE>
<CAPTION>
Three months ended Percent Six months ended Percent
June 30, B/(W) June 30, B/(W)
============================================================================================================
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------
As Reported:
<S> <C> <C> <C> <C> <C> <C>
Revenues $757.7 $657.8 15% $1,293.1 $1,200.3 8%
Operating income $ 76.2 $ 69.5 10 $ 91.1 $ 126.0 (28)
EBITDA $114.4 $105.0 9 $ 169.1 $ 195.4 (13)
------------------------------------------------------------------------------------------------------------
Pro forma:
Revenues $757.7 $657.8 15% $1,293.1 $1,200.3 8%
Operating income $ 76.2 $ 63.4 20 $ 91.1 $ 116.7 (22)
EBITDA $114.4 $ 98.8 16 $ 169.1 $ 186.0 (9)
============================================================================================================
</TABLE>
For the three and six months ended June 30, 2000, Entertainment revenues
increased 15% and 8%, respectively, over the comparable prior-year periods,
principally reflecting higher Features and Theaters revenues partially offset by
lower Parks revenues. Domestic theatrical revenues for the three and six month
periods are higher primarily as a result of the successful box office release of
MISSION: IMPOSSIBLE 2 as well as contributions from RULES OF ENGAGEMENT and
SHAFT, while the six month period also includes domestic theatrical
contributions from SNOW DAY and foreign theatrical contributions from DOUBLE
JEOPARDY. Home video revenues for the three- and six-month-periods include
contributions from SLEEPY HOLLOW and THE TALENTED MR. RIPLEY, while the six-
month period also includes contributions from DOUBLE JEOPARDY, RUNAWAY BRIDE and
THE GENERAL'S DAUGHTER. Theaters' revenues for the three-and six-month periods
were higher primarily as a result of additional new multiplex theaters opened
since the end of the same prior-year period. Parks revenue for the three- and
six-month-periods reflect slight declines in overall attendance primarily due to
less favorable weather conditions. Revenues for the six months ended June
30, 1999 also included the recognition of a license for pay television rights
for library products and the renewal of a film processing agreement.
For the second quarter ended June 30, 2000, Entertainment's EBITDA and operating
income increased 9% and 10%, respectively, while for the six months, EBITDA and
operating income decreased 13% and 28%, respectively. EBITDA and operating
income for the second quarter principally reflects the higher Features revenue
items noted above, partially offset by higher distribution costs, principally
due to the adoption of SOP 00-2 which resulted in a reduction of EBITDA and
operating income of $14.8 million. EBITDA and operating income for the six
months were lower compared with the same prior-year period reflecting higher
Features revenues which were more than offset by higher distribution expenses,
principally as a result of the previously mentioned accounting change. Theatres
EBITDA and operating income for the three- and six-month-periods were marginally
better than the same prior year period. Parks lower operating results for the
three- and six-month periods are due to lower revenues from the declines in
attendance mentioned above.
-28-
<PAGE>
As a result of the early adoption of SOP 00-2, feature films recorded a pre-tax
charge of $423.0 million. The cumulative effect of the accounting change is not
included in the EBITDA and operating income above.
Video (Blockbuster)
<TABLE>
<CAPTION>
Three months ended Percent Six months ended Percent
June 30, B/(W) June 30, B/(W)
==========================================================================================================
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $1,214.4 $1,041.7 17% $2,425.5 $2,154.7 13%
Operating Income $ 7.0 $ 7.5 (7) $ 51.7 $ 57.8 (11)
EBITDA $ 113.2 $ 104.5 8 $ 263.5 $ 249.6 6
==========================================================================================================
</TABLE>
The Video segment is comprised of Blockbuster's operations, operating in the
home video, DVD and video game rental and retailing business through traditional
stores and the Internet.
Video revenues increased 17% for the second quarter and 13% for the six months
ended June 30, 2000 driven by the increase in the number of Company-operated
stores in operation in 2000 over the prior-year period and strong worldwide
same-store sales. Worldwide same store sales, which include retail and rental
product, increased 11% for the second quarter and 7% for the six months ended
June 30, 2000. For the second quarter, 17% higher international same store
revenues and 10% higher domestic same store sales paced same store sales growth
over the comparable prior year period. For the six months, 12% higher
international same store revenues and 6% higher domestic same store sales led
same store sales growth over the six months ended June 30, 1999. Both periods
also benefited from an increase in the average domestic rental fee.
Operating results were impacted by Blockbuster's investment in its online
operations, which began in the fourth quarter of 1999 and resulted in reductions
to EBITDA and operating income of $12.9 million and $15.6 million, respectively,
for the second quarter and $24.3 million and $29.6 million for the six months
ended June 30, 2000. Excluding the amounts attributable to its online
operations, Video's EBITDA and operating income increased 21% and 202%,
respectively, for the second quarter and 15% and 41%, respectively, for the six
months ended June 30, 2000 as compared with the corresponding prior-year
periods. Video's gross margin percentage decreased to 58.7% for the second
quarter of 2000 from 61.9% for the second quarter of 1999 principally due to an
increase in revenues generated through revenue-sharing arrangements as a
percentage of total revenues, as revenue-sharing arrangements on average have
lower gross margins than do traditional buying arrangements. For the six months
ended June 30, 2000, Video's gross margin percentage decreased to 58.9% from
61.1% for the comparable prior-year period. Blockbuster Video ended the second
quarter of 2000 with 7,376 company-operated and franchised stores, a net
increase of 718 stores over the second quarter of 1999.
-29-
<PAGE>
Publishing (Simon & Schuster)
<TABLE>
<CAPTION>
Three months ended Percent Six months ended Percent
June 30, B/(W) June 30, B/(W)
==========================================================================================================
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $133.2 $145.8 (9)% $246.0 $268.5 (8)%
Operating Income $ 3.2 $ 12.4 (74) $ (3.8) $ 13.7 (128)
EBITDA $ 8.5 $ 16.9 (50) $ 6.8 $ 22.6 (70)
---------------------------------------------------------------------------------------------------------
</TABLE>
The Publishing segment is comprised of Simon & Schuster which includes imprints
such as Pocket Books, Scribner and The Free Press.
For the second quarter and six months ended June 30, 2000, revenues, EBITDA and
operating income were lower than the comparable prior year periods due to the
timing of major title releases in 2000 relative to 1999 in both the Pocket Books
and Trade divisions. Publishing's best selling titles in the second quarter
included BEFORE I SAY GOODBYE by Mary Higgins Clark and SOUL STORIES by Gary
Zukav.
Online (The MTVi Group, Nickelodeon Online, CBS.com, iWon.com)
<TABLE>
<CAPTION>
Three months ended Percent Six months ended Percent
June 30, B/(W) June 30, B/(W)
==========================================================================================================
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------
As Reported:
<S> <C> <C> <C> <C> <C>
Revenues $ 24.2 $ 5.2 NM $ 35.8 $ 9.9 262%
Operating income $(84.3) $(6.0) NM $(121.4) $(7.0) NM
EBITDA $(67.3) $(6.0) NM $ (90.5) $(7.0) NM
-----------------------------------------------------------------------------------------------------------
Pro forma:
Revenues $ 27.8 $ 7.6 266% $ 48.3 $13.7 253%
Operating income $(101.5) $(5.3) NM $(174.3) $(8.6) NM
EBITDA $ (83.3) $(5.2) NM $(139.8) $(8.5) NM
==========================================================================================================
</TABLE>
NM - Not meaningful
The Company operates Internet sites that provide online music and offer a broad
range of information, entertainment, news and promotional content.
For the second quarter and six months ended June 30, 2000, the increase in
Online revenues, as reported and pro forma, reflect increased license fees and
higher advertising revenues. Operating losses, as reported and pro forma, were
driven by increased sales and marketing expenses for iWon.com (a 37% owned,
majority controlled consolidated subsidiary) which was launched in the fourth
quarter of 1999 and increased spending at MTVi.
-30-
<PAGE>
Other Income and Expense Information
------------------------------------
Corporate Expenses/Eliminations
Included in the reported Corporate Expenses/Eliminations of $720 million for the
second quarter of 2000, are intersegment profit eliminations of $18 million and
$650 million of the merger-related charges. Pro forma corporate expenses,
excluding intersegment profit eliminations and the merger-related charges, were
$57 million for the second quarter of 2000 as compared with $55 million for the
second quarter of 1999.
Interest Expense
For the three- and six-month periods ended June 30, 2000, interest expense
increased 75% to $193.4 million and 51% to $315.9 million, respectively. The
Company had approximately $11.5 billion and $6.8 billion principal amount of
debt outstanding (including current maturities) as of June 30, 2000 and June 30,
1999, respectively, at weighted average interest rates of 7.6% and 7.0%,
respectively.
Interest Income
For the three- and six-month periods ended June 30, 2000, interest income
increased to $13.9 million and $23.4 million, respectively, from $4.5 million
and $8.7 million, respectively, for the second quarter and six months ended June
30, 1999.
Other Items, Net
"Other items, net" reflects a loss of $16.7 million for the second quarter of
2000 compared to income of $6.6 million for the second quarter of 1999. The
decrease principally reflects losses associated with the sale of fixed assets
and investments.
Provision for Income Taxes
The provision for income taxes represents federal, state and foreign income
taxes on earnings before income taxes. The reported estimated annual effective
tax rates of 77.0% for 2000 and 55.5% for 1999 were both adversely affected by
amortization of intangibles in excess of the amounts deductible for tax
purposes. Excluding the non-deductible amortization of intangibles and the
merger-related charges, the estimated effective tax rates would have been 40.1%
for 2000 and 37.7% for 1999.
Due to the unusual nature of the merger-related charges of $698 million (after-
tax $505 million), its full income tax effect is also excluded from the 2000
estimated annual effective tax rate.
Equity in Loss of Affiliated Companies, Net of Tax
"Equity in loss of affiliated companies, net of tax" was $21.3 million and $27.4
million for the second quarter of 2000 and the six months then ended,
respectively, as compared to a loss of $18.2 million and $34.3 million in the
comparable prior-year periods, principally reflecting increased losses of CBS
online equity ventures and cable international ventures, partially offset by the
improved performance of Comedy Central.
Minority Interest
Minority interest primarily represents the minority ownership of Infinity
Broadcasting and Blockbuster common stock.
-31-
<PAGE>
Extraordinary Loss
For the six months ended June 30, 1999, the Company recognized after-tax
extraordinary loss on the early extinguishment of debt of $23.5 million, or a
loss of $.03 per basic and diluted common share.
Net Earnings (Loss)
For the reasons described above, the Company reported a net loss of $495.6
million for the three months ended June 30, 2000 as compared with net earnings
of $59.3 million for the three months ended June 30, 1999 and a net loss of
$879.9 million for the six months ended June 30, 2000 as compared with earnings
of $104.2 million for the six months ended June 30, 1999.
Acquisitions
On May 4, 2000, CBS was merged with and into the Company (the "Merger"). The
total purchase price of approximately $39.8 billion represents the issuance of
825.5 million shares of Viacom non-voting Class B common stock and 11,004 shares
of Viacom Series C convertible preferred stock which were subsequently converted
into shares of Viacom non-voting Class B common stock. The purchase price also
included approximately $1.9 billion for the fair value of CBS stock options
which were assumed by Viacom and transaction costs.
The Company presently holds television stations which reach approximately 41% of
United States television households (as calculated for this purpose under rules
and regulations of the Federal Communications Commission (the "FCC"), which
apply a 50% discount to the reach of UHF stations). These stations reach
approximately 6% in excess of the 35% limit permitted by FCC regulations. In
connection with FCC approval of the Merger, the Company was given one year to
come into compliance with the limit. The Company was also provided with one year
to come into compliance with the FCC's so-called "dual network" rule, which
prohibits the Company from owning and controlling both CBS and the United
Paramount Network ("UPN"). On June 20, 2000, the FCC released a Notice of
Proposed Rule Making, in which it proposes to modify the dual network, the
effect of which would be to permit the Company to own both CBS and UPN. In
addition, the Company was provided with six months to come into compliance with
FCC rules limiting the number of television and radio stations held in a single
market.
During June 2000, Infinity Broadcasting completed its acquisitions of two
international advertising businesses for approximately $490 million. On July 1,
2000, Infinity Broadcasting completed the acquisition of Waterman Broadcasting
Corporation of Texas ("Waterman Broadcasting") in exchange for approximately 2.7
million shares of Infinity Broadcasting Class A common stock valued at
approximately $88 million. Waterman Broadcasting owns radio stations KTSA-AM and
KTFM-FM in San Antonio, Texas.
On July 11, 2000, Infinity Broadcasting entered into an agreement to purchase
Memphis radio stations WMC-AM and WMC-FM from Raycom Media for approximately $76
million.
Liquidity and Capital Resources
-------------------------------
The Company expects to fund its anticipated cash requirements (including the
anticipated cash requirements for its capital expenditures, share repurchase
programs, 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.
-32-
<PAGE>
The Company has certain restrictions on Infinity Broadcasting's cash balance of
$122.4 million, reflected in the Company's consolidated cash amount of $907.0
million at June 30, 2000. Infinity Broadcasting's cash is available to Viacom
if Infinity Broadcasting were to pay a dividend on all of its common stock.
Infinity Broadcasting does not anticipate paying any dividends in the near term.
Cash generated by Infinity Broadcasting is expected to be retained by Infinity
Broadcasting for use in its operations or for investing. Management does not
believe that this segregation will materially impact the Company's liquidity.
Share Repurchase Programs
During the first six months of 2000, the Company repurchased 10,000 shares of
its Class A Common Stock and 22,231,355 shares of its Class B Common Stock under
its stock repurchase programs for approximately $1.2 billion in the aggregate.
Second quarter 2000 repurchases included in this total amounted to $465.2
million. As of August 7, 2000, the Company had approximately $711 million
remaining under the program announced on May 25.
Commitments and Contingencies
There are various lawsuits and claims pending against the Company relating to
its ongoing and discontinued operations. Some of these lawsuits and claims,
including those related to asbestos liabilities, seek substantial monetary
damages. Management believes that any ultimate liability resulting from those
actions or claims will not have a material adverse effect on the Company's
results of operations, financial position or liquidity.
The Company is a defendant in numerous lawsuits claiming various
asbestos-related personal injuries, which allegedly occurred from use or
inclusions of asbestos in certain products supplied by previously divested
industrial businesses, generally in the pre-1970 time period. Typically, these
lawsuits are brought against multiple defendants. The Company was neither a
manufacturer nor a producer of asbestos. At June 30, 2000 the Company had
approximately 129,000 unresolved claims pending.
The Company has brought suit against certain of its insurance carriers with
respect to these asbestos claims. Under the terms of a settlement agreement
resulting from this suit, carriers that have agreed to the settlement are now
reimbursing the Company for a substantial portion of its current costs and
settlements associated with asbestos claims. The Company has recorded a
liability (in Other liabilities) reflecting its best estimate of its asbestos
liability exposure. The Company has also separately recorded an asset reflected
in Other assets in the Consolidated Balance Sheet equal to the amount of such
estimated liability that will be recovered pursuant to agreements with insurance
carriers.
The Company and certain of its subsidiaries and affiliates from time to time
receive claims from federal and state environmental regulatory agencies and
other entities asserting that they are or may be liable for environmental
cleanup costs and related damages, principally relating to discontinued
operations conducted by its former mining and industrial businesses (acquired as
part of the Company's mergers). The Company's liabilities reflect management's
best estimate of its environmental exposure. Such liability was not
discounted or reduced by potential insurance recoveries and reflects
management's estimate of cost sharing at multiparty sites. The estimated
liability was calculated based upon currently available facts, existing
technology and presently enacted laws and regulations. On the basis of its
experience and the information currently available to it, the Company believes
that the claims it has received will not have a material adverse effect on its
results of operations, financial position or liquidity.
The commitments of the Company for program license fees, estimated to aggregate
approximately $15.8 billion, are not reflected in the balance sheet as of June
30, 2000. These commitments include approximately $12.3 billion for the
acquisition of sports programming rights. A majority of such fees are payable
over several years, as part of normal programming expenditures.
-33-
<PAGE>
Cash Flows
Net cash flow from operating activities of $535.6 million for the six months
ended June 30, 2000 reflects the impact of the merger and, excluding non-cash
items, the improved operating results of the Company's businesses, partially
offset by payment of accrued liabilities. For the six months ended June 30,
1999, net operating cash flow of negative $372.1 million principally reflects
the 1999 tax payment related to the sale of Non-Consumer Publishing. Net cash
expenditures for investing activities of $631.7 million for the six months ended
June 30, 2000 principally reflect capital expenditures of $291.9 million and
acquisitions of $619.8 million partially offset by cash acquired from the Merger
of $332.9 million. Net cash expenditures for investing activities of $675.0
million for the six months ended June 30, 1999 principally reflect capital
expenditures and the Spelling acquisition as well as acquisitions of video
stores and a television station. Financing activities for the six months ended
June 30, 2000 principally reflect borrowings from banks partially offset by the
purchase of treasury stock. For the six months ended June 30, 1999, financing
activities principally reflect borrowings and the settlement of 8% Merger
Debentures, as well as the repurchase of the Company's common stock, warrants
and convertible preferred stock.
Current assets increased to $7.2 billion as of June 30, 2000 from $5.2 billion
as of December 31, 1999, due to the addition of approximately $3.5 billion
resulting from the Merger, partially offset by a reduction in inventory
reflecting the impact of the adoption of SOP 00-2. The allowance for doubtful
accounts as a percentage of receivables decreased to 5.7% as of June 30, 2000
from 6.5% as of December 31, 1999. The change in property and equipment
principally reflects the addition of approximately $3.1 billion in fixed assets
due to the Merger and capital expenditures of $291.9 million related to capital
additions partially offset by depreciation expense of $328.5 million.
Intangibles of $61.2 billion at June 30, 2000 increased by $49.7 billion
compared to $11.5 billion as of December 31, 1999, reflecting the Merger. Other
assets increased to $5.3 billion as of June 30, 2000 from $1.6 billion as of
December 31, 1999, reflecting the addition of approximately $3.4 billion from
the Merger, including deferred tax assets totaling $1.9 billion at June 30,
2000. Current liabilities increased $2.7 billion to $7.1 billion as of June 30,
2000 due to the addition of approximately $2.8 billion resulting from the
Merger. Non-current liabilities of $20.5 billion reflect the inclusion
of $1.9 billion of deferred tax liabilities, $3.7 billion of debt and $5.8
billion of other liabilities from the Merger. The Minority interest balance of
$6.8 billion as of June 30, 2000 included $5.6 billion of Infinity's minority
interest
Capital Structure
-----------------
The following table sets forth the Company's long-term debt, net of current
portion:
<TABLE>
<CAPTION>
=====================================================================================================================
At June 30, At December 31,
2000 1999
---------------------------------------------------------------------------------------------------------------------
Long-term debt:
<S> <C> <C>
Notes payable to banks (including commercial paper) $ 5,964.5 $3,054.2
Senior notes and debentures (5.875% - 9.75%, due 2000-2023) 4,221.1 2,310.9
Senior subordinated notes (8.875%-10.25%, due 2001-2007) 728.2 35.3
Subordinated exchange debentures (11.375%, due 2009) 45.0 --
Obligations under capital leases 547.4 591.6
---------------------------------------------------------------------------------------------------------------------
Total debt $11,506.2 $5,992.0
---------------------------------------------------------------------------------------------------------------------
Less Current Portion 375.5 294.3
---------------------------------------------------------------------------------------------------------------------
Total Long-term debt $11,130.7 $5,697.7
=====================================================================================================================
</TABLE>
The notes and debentures are presented net of an aggregate unamortized discount
of $13.0 million as of June 30, 2000 and $10.1 million as of December 31, 1999.
Debt, including the current portion, as a percentage of total capitalization of
the Company was 19% at June 30, 2000 and 35% at December 31, 1999.
As a result of the CBS merger, Viacom assumed approximately $3.7 billion of CBS
debt. On March 28, 2000, the Viacom Credit Agreements were amended to allow for
the merger of CBS with and into the Company. On April 17, 2000, the CBS and
Infinity credit agreements were amended to allow for the merger of CBS with and
into the Company.
The Company has a $3.0 billion commercial paper program. Borrowings under the
program have maturities of less than a year and are supported by unused
committed bank facilities.
On August 1, 2000, $1.15 billion of senior notes due July 30, 2010 and $500
million of senior debentures due July 30, 2030 were issued under the Company's
shelf registration statement as filed with the Securities and Exchange
Commission in 1995, as amended. The Company has no remaining availability under
its shelf registration. Proceeds from the debt issuance were used to repay bank
debt, including commercial paper. The senior notes and debentures are redeemable
at any time at their principal amount plus the applicable premium and accrued
interest. The Company intends to file a new shelf registration by year-end 2000.
-34-
<PAGE>
On May 3, 2000, Infinity Broadcasting entered into two new credit facilities,
totaling $1.95 billion, comprised of a $1.45 billion 5 year revolving credit and
a $500 million 364-day revolving credit. Borrowing rates under the facilities
are determined at the time of each borrowing and are based generally on a
floating rate index, the London Interbank Offer Rate ("LIBOR"), plus a margin
based on Infinity Broadcasting's senior unsecured debt rating. The facility
contains certain covenants which, among other things, require that Infinity
Broadcasting maintain certain financial ratios and impose on Infinity
Broadcasting and its subsidiaries certain limitations on substantial asset sales
and mergers with any other company in which Infinity Broadcasting is not the
surviving entity.
On July 20, 2000, Infinity Broadcasting initiated a $3.3 billion commercial
paper program (the "Program"). Borrowings under the Program will be short-term
in nature and are supported by unused committed bank facilities and will be used
primarily to finance pending and future potential acquisitions.
At June 30, 2000, 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 2000.
Market Risk
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, spots 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 and the European Union's common
currency (the "Euro"). 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. The Company is primarily vulnerable
to changes in LIBOR which is the rate currently used in existing agreements;
however, the Company does not believe this exposure to be material.
Other Matters
-------------
The Company has announced that it intends to split-off Blockbuster, subject to
the approval of the Company's Board of Directors, which will be based on an
assessment of market conditions. The Company intends to split-off Blockbuster by
offering to exchange all of its shares in Blockbuster for shares of the
Company's common stock. However, the Company has previously said that it does
not intend to commence the offer unless the Blockbuster Class A common stock
improves to a price range significantly above its current value. The Company has
no obligation to effect the split-off. The Company has received a private letter
ruling from the Internal Revenue Service to the effect that such a split-off, if
effected in accordance with the representations made in the Company's request
for the ruling, would be tax-free to the Company and its stockholders.
-35-
<PAGE>
The aggregate market value of the shares of Blockbuster common stock based on
the July 31, 2000 closing price of $11.875 per share of Blockbuster common stock
was approximately $2.0 billion. The net book value of Viacom's investment in
Blockbuster at June 30, 2000, after giving effect to the initial public
offering, was approximately $5.0 billion. If the Company determines to engage
in the split-off, any difference between the fair market value and net book
value at the time of the split-off will be recognized as a gain or loss for
accounting purposes. Based on the July 31, 2000 closing stock price of
Blockbuster, a split-off would have resulted in a pre-tax loss on discontinued
operations of approximately $3.5 billion. The actual amount of the gain or loss
will depend upon the fair market value and net book value of Blockbuster at the
time of the split-off as well as the exchange ratio used in the split-off. The
Company cannot give any assurance as to whether or not or when the split-off
will occur or as to the terms of the split-off if it does occur, or whether or
not the split-off, if it does occur, will be tax-free.
Cautionary Statement Concerning Forward-looking Statements
This quarterly report on Form 10-Q, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations," contains both
historical and forward-looking statements. All statements other than statements
of historical fact are, or may be deemed to be, forward-looking statements
within the meaning of section 27A of the Securities Act of 1933 and section 21E
of the Securities Exchange Act of 1934, as amended. These forward-looking
statements are not based on historical facts, but rather reflect the Company's
current expectations concerning future results and events. Similarly,
statements that describe our objectives, plans or goals are or may be forward-
looking statements. These forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be different from any future
results, performance and achievements expressed or implied by these statements.
The following important factors, among others, could affect future results,
causing these results to differ materially from those expressed in our forward-
looking statements: changes in advertising market conditions; changes in the
public acceptance of the Company's programming; changes in technology and its
effect on competition in the Company's markets; changes in the Federal
Communications Laws and Regulations; and other economic, business, competitive
and/or regulatory factors affecting the Company's businesses generally. The
forward-looking statements included in this document are made only as of the
date of this document and under section 27A of the Securities Act and section
21E of the Exchange Act, we do not have any obligation to publicly update any
forward-looking statements to reflect subsequent events or circumstances.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Response to this is included in "Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations - Market Risk."
-36-
<PAGE>
PART II - - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Viacom Inc. was held on June 29,
2000. The following matters were voted upon at the meeting: (i) the election
of 18 directors; (ii) the approval of the Viacom Inc. 2000 Long-Term Management
Incentive Plan; (iii) the approval of an amendment to increase the number of
shares of Class B Common Stock authorized to be issued under the Viacom Inc.
1997 Long-Term Management Incentive Plan by an additional 5 million shares; (iv)
the approval of an amendment to the Viacom Inc. Senior Executive Short-Term
Incentive Plan; (v) the approval of the Viacom Inc. 2000 Stock Option Plan for
Outside Directors; and (vi) the approval of the appointment of
PricewaterhouseCoopers LLP to serve as independent accountants for Viacom Inc.
until the 2001 Annual Meeting of Stockholders.
1. The entire nominated board of directors was elected and the votes cast for
or to withhold authority for the election of each director were as follows:
<TABLE>
<CAPTION>
Name No. of Votes Cast For No. of Votes Cast to
Withhold Authority
----------------------------------- ---------------------------------- ---------------------------------
<S> <C> <C>
George S. Abrams 130,117,255 209,229
George H. Conrades 130,220,645 105,839
Philippe P. Dauman 130,195,931 130,553
Thomas E. Dooley 130,197,975 128,509
William H. Gray III 130,196,093 130,391
Mel Karmazin 128,865,565 1,460,919
Jan Leschly 130,218,377 108,107
David T. McLaughlin 130,217,435 109,049
Ken Miller 130,098,627 227,857
Leslie Moonves 130,196,913 129,571
Brent D. Redstone 129,730,601 595,883
Shari Redstone 130,186,284 140,200
Sumner M. Redstone 128,885,905 1,440,579
Frederic V. Salerno 130,219,831 106,653
William Schwartz 130,216,952 109,532
Ivan Seidenberg 130,202,513 123,971
Patty Stonesifer 130,212,293 114,191
Robert D. Walter 130,220,691 105,793
</TABLE>
-37-
<PAGE>
2. The votes cast for, against or abstaining from, and the broker non-votes,
with respect to the approval of the Viacom Inc. 2000 Long-Term Management
Incentive Plan:
Abstentions and
For: Against: Broker Non-Votes:
117,247,096 6,763,081 172,748
3. The votes cast for, against or abstaining from, and the broker non-votes,
with respect to the approval of the amendment to increase the number of
shares of Class B Common Stock authorized to be issued under the Viacom
Inc. 1997 Long-Term Management Incentive Plan by an additional 5 million
shares:
Abstentions and
For: Against: Broker Non-Votes:
117,212,076 6,807,251 163,598
4. The votes cast for, against or abstaining from, and the broker non-votes,
with respect to the approval of the amendment to the Viacom Inc. Senior
Executive Short-Term Incentive Plan:
Abstentions and
For: Against: Broker Non-Votes:
129,397,899 761,105 167,480
5. The votes cast for, against or abstaining from, and the broker non-votes,
with respect to the approval of the Viacom Inc. 2000 Stock Option Plan for
Outside Directors:
Abstentions and
For: Against: Broker Non-Votes:
123,414,385 604,341 164,199
6. The votes cast for, against or abstaining from, and the broker non-votes,
with respect to the approval of the appointment of PricewaterhouseCoopers
LLP to serve as independent accountants for Viacom Inc. until the 2001
Annual Meeting of Stockholders:
Abstentions and
For: Against: Broker Non-Votes:
130,196,043 86,688 43,753
-38-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 Amendment No. 1, dated as of April 17, 2000, to the Amended and
Restated Credit Agreement, dated as of December 10, 1999, among CBS
Corporation (now Viacom Inc.); each Subsidiary Borrower; the
Lenders; Bank of America, N.A. and The Toronto-Dominion Bank, as
syndication agents for the Lenders; The Chase Manhattan Bank, as
documentation agent for the Lenders; and Morgan Guaranty Trust
Company of New York, as administrative agent for the Lenders.
10.2 Amendment No. 1, dated as of April 17, 2000, to the Amended and
Restated Credit Agreement, dated as of December 10, 1999, among
Infinity Broadcasting Corporation; each Subsidiary Borrower; CBS
Corporation (now Viacom Inc.), as a guarantor; the Lenders; Bank of
America, N.A. and The Toronto-Dominion Bank, as syndication agents
for the Lenders; The Chase Manhattan Bank, as documentation agent
for the Lenders; and Morgan Guaranty Trust Company of New York, as
administrative agent for the Lenders.
10.3 Five-Year Credit Agreement, dated as of May 3, 2000, among Infinity
Broadcasting Corporation; the Subsidiary Borrowers parties thereto;
the Lenders named therein; The Chase Manhattan Bank, as
Administrative Agent; Fleet National Bank and Bank of America, N.A.,
as Co- Syndication Agents; and Bank of New York, as Documentation
Agent.
10.4 364-Day Credit Agreement, dated as of May 3, 2000, among Infinity
Broadcasting Corporation; the Subsidiary Borrowers parties thereto;
the Lenders named therein; The Chase Manhattan Bank, as
Administrative Agent; Fleet National Bank and Bank of America, N.A.,
as Co- Syndication Agents; and Bank of New York, as Documentation
Agent.
10.5 Amendment, dated June 13, 2000, to the Employment Agreement, dated
as of September 6, 1999, between Viacom Inc. and Mel Karmazin, as
amended by the First Amendment to Employment Agreement, dated
December 31, 1999.
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 4, 2000, announcing
the completion of the merger of CBS Corporation with and into Viacom Inc,
as amended by the Current Report on Form 8-K/A of Viacom Inc. filed on July
17, 2000, relating to the filing of certain financial information in
connection with the CBS Merger.
-39-
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIACOM INC.
-----------
(Registrant)
Date August 14, 2000 /s/ Fredric G. Reynolds
--------------- ----------------------------------
Fredric G.Reynolds
Executive Vice President
Chief Financial Officer
Date August 14, 2000 /s/ Susan C. Gordon
--------------- ----------------------------------
Susan C. Gordon
Vice President, Controller
Chief Accounting Officer
-40-
<PAGE>
PART II - - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Viacom Inc. was held on June 29,
2000. The following matters were voted upon at the meeting: (i) the election
of 18 directors; (ii) the approval of the Viacom Inc. 2000 Long-Term Management
Incentive Plan; (iii) the approval of an amendment to increase the number of
shares of Class B Common Stock authorized to be issued under the Viacom Inc.
1997 Long-Term Management Incentive Plan by an additional 5 million shares; (iv)
the approval of an amendment to the Viacom Inc. Senior Executive Short-Term
Incentive Plan; (v) the approval of the Viacom Inc. 2000 Stock Option Plan for
Outside Directors; and (vi) the approval of the appointment of
PricewaterhouseCoopers LLP to serve as independent accountants for Viacom Inc.
until the 2001 Annual Meeting of Stockholders.
1. The entire nominated board of directors was elected and the votes cast for
or to withhold authority for the election of each director were as follows:
<TABLE>
<CAPTION>
Name No. of Votes Cast For No. of Votes Cast to
Withhold Authority
----------------------------------- ---------------------------------- ---------------------------------
<S> <C> <C>
George S. Abrams 130,117,255 209,229
George H. Conrades 130,220,645 105,839
Philippe P. Dauman 130,195,931 130,553
Thomas E. Dooley 130,197,975 128,509
William H. Gray III 130,196,093 130,391
Mel Karmazin 128,865,565 1,460,919
Jan Leschly 130,218,377 108,107
David T. McLaughlin 130,217,435 109,049
Ken Miller 130,098,627 227,857
Leslie Moonves 130,196,913 129,571
Brent D. Redstone 129,730,601 595,883
Shari Redstone 130,186,284 140,200
Sumner M. Redstone 128,885,905 1,440,579
Frederic V. Salerno 130,219,831 106,653
William Schwartz 130,216,952 109,532
Ivan Seidenberg 130,202,513 123,971
Patty Stonesifer 130,212,293 114,191
Robert D. Walter 130,220,691 105,793
</TABLE>
<PAGE>
2. The votes cast for, against or abstaining from, and the broker non-votes,
with respect to the approval of the Viacom Inc. 2000 Long-Term Management
Incentive Plan:
Abstentions and
For: Against: Broker Non-Votes:
117,247,096 6,763,081 172,748
3. The votes cast for, against or abstaining from, and the broker non-votes,
with respect to the approval of the amendment to increase the number of
shares of Class B Common Stock authorized to be issued under the Viacom
Inc. 1997 Long-Term Management Incentive Plan by an additional 5 million
shares:
Abstentions and
For: Against: Broker Non-Votes:
117,212,076 6,807,251 163,598
4. The votes cast for, against or abstaining from, and the broker non-votes,
with respect to the approval of the amendment to the Viacom Inc. Senior
Executive Short-Term Incentive Plan:
Abstentions and
For: Against: Broker Non-Votes:
129,397,899 761,105 167,480
5. The votes cast for, against or abstaining from, and the broker non-votes,
with respect to the approval of the Viacom Inc. 2000 Stock Option Plan for
Outside Directors:
Abstentions and
For: Against: Broker Non-Votes:
123,414,385 604,341 164,199
6. The votes cast for, against or abstaining from, and the broker non-votes,
with respect to the approval of the appointment of PricewaterhouseCoopers
LLP to serve as independent accountants for Viacom Inc. until the 2001
Annual Meeting of Stockholders:
Abstentions and
For: Against: Broker Non-Votes:
130,196,043 86,688 43,753
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 Amendment No. 1, dated as of April 17, 2000, to the Amended and
Restated Credit Agreement, dated as of December 10, 1999, among CBS
Corporation (now Viacom Inc.); each Subsidiary Borrower; the
Lenders; Bank of America, N.A. and The Toronto-Dominion Bank, as
syndication agents for the Lenders; The Chase Manhattan Bank, as
documentation agent for the Lenders; and Morgan Guaranty Trust
Company of New York, as administrative agent for the Lenders.
10.2 Amendment No. 1, dated as of April 17, 2000, to the Amended and
Restated Credit Agreement, dated as of December 10, 1999, among
Infinity Broadcasting Corporation; each Subsidiary Borrower; CBS
Corporation (now Viacom Inc.), as a guarantor; the Lenders; Bank of
America, N.A. and The Toronto-Dominion Bank, as syndication agents
for the Lenders; The Chase Manhattan Bank, as documentation agent
for the Lenders; and Morgan Guaranty Trust Company of New York, as
administrative agent for the Lenders.
10.3 Five-Year Credit Agreement, dated as of May 3, 2000, among Infinity
Broadcasting Corporation; the Subsidiary Borrowers Parties thereto;
the Lenders named therein; The Chase Manhattan Bank, as
Administrative Agent; Fleet National Bank and Bank of America, N.A.,
as Co- Syndication Agents; and Bank of New York, as Documentation
Agent.
10.4 364-Day Credit Agreement, dated as of May 3, 2000, among Infinity
Broadcasting Corporation; the Subsidiary Borrowers Parties thereto;
the Lenders named therein; The Chase Manhattan Bank, as
Administrative Agent; Fleet National Bank and Bank of America, N.A.,
as Co- Syndication Agents; and Bank of New York, as Documentation
Agent.
10.5 Amendment, dated June 13, 2000, to the Employment Agreement, dated
as of September 6, 1999, between Viacom Inc. and Mel Karmazin, as
amended by the First Amendment to Employment Agreement, dated
December 31, 1999.
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 4, 2000, announcing
the completion of the merger of CBS Corporation with and into Viacom Inc.
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIACOM INC.
-----------
(Registrant)
Date August 14, 2000
--------------- ----------------------------------
Fredric G. Reynolds
Executive Vice President,
Chief Financial Officer
Date August 14, 2000
--------------- ----------------------------------
Susan C. Gordon
Vice President, Controller
Chief Accounting Officer
-40-
<PAGE>
Exhibit Index
-------------
10.1 Amendment No. 1, dated as of April 17, 2000, to the Amended and
Restated Credit Agreement, dated as of December 10, 1999, among CBS
Corporation (now Viacom Inc.); each Subsidiary Borrower; the
Lenders; Bank of America, N.A. and The Toronto-Dominion Bank, as
syndication agents for the Lenders; The Chase Manhattan Bank, as
documentation agent for the Lenders; and Morgan Guaranty Trust
Company of New York, as administrative agent for the Lenders.
10.2 Amendment No. 1, dated as of April 17, 2000, to the Amended and
Restated Credit Agreement, dated as of December 10, 1999, among
Infinity Broadcasting Corporation; each Subsidiary Borrower; CBS
Corporation (now Viacom Inc.), as a guarantor; the Lenders; Bank of
America, N.A. and The Toronto-Dominion Bank, as syndication agents
for the Lenders; The Chase Manhattan Bank, as documentation agent
for the Lenders; and Morgan Guaranty Trust Company of New York, as
administrative agent for the Lenders.
10.3. Five-Year Credit Agreement, dated as of May 3, 2000, among Infinity
Broadcasting Corporation; the Subsidiary Borrowers Parties thereto;
the Lenders named therein; The Chase Manhattan Bank, as
Administrative Agent; Fleet National Bank and Bank of America, N.A.,
as Co- Syndication Agents; and Bank of New York, as Documentation
Agent.
10.4 364-Day Credit Agreement, dated as of May 3, 2000, among Infinity
Broadcasting Corporation; the Subsidiary Borrowers Parties thereto;
the Lenders named therein; The Chase Manhattan Bank, as
Administrative Agent; Fleet National Bank and Bank of America, N.A.,
as Co- Syndication Agents; and Bank of New York, as Documentation
Agent.
10.5 Amendment, dated June 13, 2000, to the Employment Letter Agreement,
dated as of September 6, 1999, between Viacom Inc. and Mel Karmazin,
as amended by the First Amendment to Employment Agreement, dated
December 31, 1999.
27. Financial Data Schedule.
