<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
------------------
Commission file number 1-9553
---------------------
VIACOM INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2949533
-------------------------------- ---------------------
(State or other jurisdiction of) (I.R.S. Employer
incorporation or organization) identification No.)
1515 Broadway, New York, New York 10036
--------------------------------------------------
(Address of principal executive offices, zip code)
(212) 258-6000
----------------------------------------------------
(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 .
----- -----
Number of shares of Common Stock Outstanding at October 31, 2000:
Class A Common Stock, par value $.01 per share - 137,548,044
Class B Common Stock, par value $.01 per share - 1,375,482,968
================================================================================
<PAGE>
VIACOM INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
Item 1. Financial Statements
<S> <C>
Consolidated Statements of Operations (Unaudited) for the Three and
Nine Months ended September 30, 2000 and September 30, 1999 3
Consolidated Balance Sheets at September 30, 2000 (Unaudited) and
December 31, 1999 4
Consolidated Statements of Cash Flow (Unaudited) for the Nine Months
ended September 30, 2000 and September 30, 1999 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 25
Item 3. Quantitative and Qualitative Disclosures about Market Risk 38
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 39
</TABLE>
2
<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 Nine Months Ended
September 30, September 30,
------------------------------------------------
2000 1999 2000 1999
=============================================================================================================
<S> <C> <C> <C> <C>
Revenues $5,962.0 $3,332.0 $13,900.3 $9,286.4
-------------------------------------------------------------------------------------------------------------
Expenses:
Operating 3,352.5 2,119.3 8,213.7 6,006.9
Selling, general and administrative 1,169.3 602.5 2,805.5 1,712.4
Merger-related charges -- -- 698.5 --
Restructuring charge -- 70.3 -- 70.3
Depreciation and amortization 680.3 218.7 1,460.5 615.8
-------------------------------------------------------------------------------------------------------------
Total expenses 5,202.1 3,010.8 13,178.2 8,405.4
-------------------------------------------------------------------------------------------------------------
Operating income 759.9 321.2 722.1 881.0
Interest expense (245.0) (118.3) (560.9) (327.4)
Interest income 13.3 7.8 36.7 16.5
Other items, net .5 (2.4) (14.5) 2.9
-------------------------------------------------------------------------------------------------------------
Earnings before income taxes 528.7 208.3 183.4 573.0
Provision for income taxes (424.2) (93.2) (470.2) (295.6)
Equity in loss of affiliated companies, net of tax (44.0) (3.8) (71.4) (38.1)
Minority interest, net of tax (27.1) (.4) (36.0) (.7)
-------------------------------------------------------------------------------------------------------------
Net earnings (loss) before extraordinary loss and cumulative
effect of change in accounting principle 33.4 110.9 (394.2) 238.6
Extraordinary loss, net of tax -- (14.2) -- (37.7)
Cumulative effect of change in accounting principle,
net of tax -- -- (452.3) --
-------------------------------------------------------------------------------------------------------------
Net earnings (loss) 33.4 96.7 (846.5) 200.9
Cumulative convertible preferred stock dividend
requirement -- -- -- (.4)
Premium on redemption of preferred stock -- -- -- (12.0)
-------------------------------------------------------------------------------------------------------------
Net earnings (loss) attributable to common stock $ 33.4 $ 96.7 $ (846.5) $ 188.5
=============================================================================================================
Earnings (loss) per common share:
Basic:
Net earnings (loss) before extraordinary loss and
cumulative effect of change in accounting principle $ .02 $ .16 $ (.35) $ .33
Net earnings (loss) $ .02 $ .14 $ (.75) $ .27
=============================================================================================================
Diluted:
Net earnings (loss) before extraordinary loss and
cumulative effect of change in accounting principle $ .02 $ .16 $ (.35) $ .32
Net earnings (loss) $ .02 $ .14 $ (.75) $ .27
=============================================================================================================
Weighted average number of common shares:
Basic 1,503.7 696.7 1,133.7 694.5
Diluted 1,544.5 709.5 1,133.7 708.6
=============================================================================================================
</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 September 30, At December 31,
2000 1999
===============================================================================================================================
ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 992.7 $ 680.8
Receivables, less allowances of $258.6 (2000) and $109.5 (1999) 3,501.9 1,697.4
Inventory (Note 7) 1,308.1 1,959.5
Other current assets 1,717.1 860.7
-------------------------------------------------------------------------------------------------------------------------------
Total current assets 7,519.8 5,198.4
-------------------------------------------------------------------------------------------------------------------------------
Property and equipment:
Land 723.0 450.3
Buildings 1,069.5 660.1
Capital leases 971.1 881.9
Advertising structures 1,932.7 --
Equipment and other 4,126.0 3,263.6
-------------------------------------------------------------------------------------------------------------------------------
8,822.3 5,255.9
Less accumulated depreciation and amortization 2,285.4 1,830.6
-------------------------------------------------------------------------------------------------------------------------------
Net property and equipment 6,536.9 3,425.3
-------------------------------------------------------------------------------------------------------------------------------
Inventory (Note 7) 3,558.7 2,829.5
Intangibles, net (Note 3) 61,643.4 11,478.9
Other assets 3,164.6 1,554.3
-------------------------------------------------------------------------------------------------------------------------------
Total Assets $82,423.4 $24,486.4
===============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,163.3 $ 544.4
Accrued expenses and other 3,747.9 2,276.9
Accrued participations 1,127.4 1,087.2
Program rights 782.6 196.9
Current portion of long-term debt (Note 9) 238.0 294.3
-------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 7,059.2 4,399.7
-------------------------------------------------------------------------------------------------------------------------------
Long-term debt (Note 9) 12,638.9 5,697.7
Other liabilities 7,520.8 2,010.5
Commitments and contingencies (Note 10)
Minority Interest 7,009.2 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; 1,453.5 (2000) and 606.6 (1999) shares issued 14.5 6.1
Additional paid-in capital 49,974.7 10,338.5
Retained earnings 1,401.4 2,247.9
Accumulated other comprehensive loss (Note 1) (125.7) (30.2)
-------------------------------------------------------------------------------------------------------------------------------
51,266.3 12,563.7
Less treasury stock, at cost; 1.4 (2000 and 1999) Class A shares and
75.7 (2000) and 47.1 (1999) Class B shares 3,071.0 1,431.7
-------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 48,195.3 11,132.0
-------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $82,423.4 $24,486.4
===============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; in millions)
<TABLE>
Nine Months ended September 30, 2000 1999
=======================================================================================================================
<S> <C> <C>
Net earnings (loss) $ (846.5) $ 200.9
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 1,460.5 615.8
Distribution from affiliated companies 32.4 23.2
Equity in loss of affiliated companies 71.4 38.1
Change in operating assets and liabilities, net of effects of acquisitions (741.8) (1,166.3)
-----------------------------------------------------------------------------------------------------------------------
Net cash flow provided by (used for) operating activities 1,144.9 (288.3)
-----------------------------------------------------------------------------------------------------------------------
Investing Activities:
Acquisitions, net of cash acquired (1,851.3) (309.5)
Capital expenditures (422.1) (503.6)
Investments in and advances to affiliated companies (125.2) (106.8)
Proceeds from sales of short-term investments 280.7 342.1
Purchases of short-term investments (83.4) (280.2)
Other, net 2.7 1.9
-----------------------------------------------------------------------------------------------------------------------
Net cash flow used for investing activities (2,198.6) (856.1)
-----------------------------------------------------------------------------------------------------------------------
Financing Activities:
Borrowings from banks, including commercial paper, net 1,526.1 2,494.2
Proceeds from senior notes and debentures 1,635.6 --
Purchase of treasury stock and warrants (1,588.6) (478.8)
Repayment of notes and debentures (184.7) (1,075.3)
Payment of capital lease obligations (102.0) (71.3)
Purchase of treasury stock by subsidiary (82.8) --
Proceeds from exercise of stock options and warrants 162.5 371.5
Repurchase of preferred stock and dividend payments -- (619.8)
Net proceeds from issuance of subsidiary stock -- 430.7
Other, net (.5) .1
-----------------------------------------------------------------------------------------------------------------------
Net cash flow provided by financing activities 1,365.6 1,051.3
-----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 311.9 (93.1)
Cash and cash equivalents at beginning of the period 680.8 767.3
-----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 992.7 $ 674.2
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information
Non-cash investing and financing activities:
Fair value of assets acquired $ 61,553.6 $ 310.3
Fair value of liabilities assumed (20,733.4) (.8)
Cash paid, net of cash acquired (1,851.3) (309.5)
-----------------------------------------------------------------------------------------------------------------------
Impact on stockholders' equity $ 38,968.9 $ --
=======================================================================================================================
Property and equipment acquired under capitalized leases $ 82.9 $ 136.8
=======================================================================================================================
</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, except for the
change in accounting principle, necessary for a fair presentation of the
financial position and results of operations and cash flows of the Company for
the periods presented. 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 (loss) attributable to common stock by the
weighted average common shares outstanding during the period. Diluted EPS
adjusts the basic weighted average 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 nine months ended
September 30, 2000, incremental shares for stock options of 29.2 million 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 Nine Months Ended
September 30, September 30,
-------------------------- ---------------------
2000 1999 2000 1999
===========================================================================================================
<S> <C> <C> <C> <C>
Weighted average shares for basic EPS 1,503.7 696.7 1,133.7 694.5
Incremental shares for stock options & warrants 40.8 12.8 -- 14.1
-----------------------------------------------------------------------------------------------------------
Weighted average shares for diluted EPS 1,544.5 709.5 1,133.7 708.6
===========================================================================================================
</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 Nine Months Ended
September 30, September 30,
---------------------------- -----------------------------
2000 1999 2000 1999
=================================================================================================================
<S> <C> <C> <C> <C>
Net earnings (loss) $ 33.4 $ 96.7 $(846.5) $200.9
Other comprehensive income (loss):
Unrealized gain (loss) on securities, net of tax (21.3) 2.7 (32.6) 6.3
Cumulative translation adjustments, net of tax (27.1) 7.3 (62.9) 24.1
Minimum pension liability adjustments, net of tax -- -- -- 4.2
-----------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $(15.0) $106.7 $(942.0) $235.5
=================================================================================================================
</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 00-2 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 in the second
quarter of 2000, the Company recorded a one-time, pre-tax non-cash charge of
$754 million ($452 million after-tax or $.40 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 for the nine months
ended September 30, 2000. Under the SOP 00-2 for the nine months ended
September 30, 2000, the Company reported lower operating results of
approximately $41 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 November 3, 2000, the Company announced an agreement to acquire Black
Entertainment Television ("BET") for approximately $2.3 billion of Viacom Class
B Common Stock plus the assumption of approximately $575 million of debt. The
tax-free transaction is subject to customary regulatory approvals. The final
exchange ratio will be based on the trading prices of Viacom Class B Common
Stock during a measurement period immediately before the closing of the
transaction, which is expected to occur in the first quarter of 2001.
On October 30, 2000, the Company and Infinity Broadcasting entered into a merger
agreement under which the Company will acquire all the issued and outstanding
shares of Infinity common stock that it does not currently own, approximately
36%, pursuant to a merger in which Viacom will exchange 0.592 of a share of
Viacom Class B Common Stock for each share of Infinity Class A common stock. The
Company's Board of Directors and Infinity's Board of Directors approved the
merger agreement after approval by a special committee of Infinity's independent
directors. The special committee was advised by separate legal and financial
advisors. The Company expects the merger to be completed in the first quarter of
2001. As of October 30, 2000, there were 390.8 million shares of Infinity Class
A common stock outstanding to shareholders other than the Company.
7
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
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 not to exceed 40 years. Included in this total are FCC
licenses of approximately $9.3 billion. 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 "dual network" rule, which prohibits
the Company from owning and controlling both CBS and 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. Subsequent to September 30, 2000,
the Company has entered into agreements relating to the sale of several radio
stations, which, if consummated, will result in compliance with FCC
requirements.
8
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
The unaudited condensed pro forma results of operations data presented below
assumes the Merger, pre-merger CBS acquisitions, and other acquisitions,
including UPN and the pending acquisition of Infinity Broadcasting's Class A
common stock, 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.
<TABLE>
<CAPTION>
Pro Forma Results of Operations Data Nine Months Ended September 30,
(unaudited) 2000 1999
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $17,353.6 $15,991.9
Net loss before discontinued operations, extraordinary loss and
cumulative effect of change in accounting principle $ (197.3) $ (264.3)
Net earnings (loss) attributable to common stock $ (647.1) $ 76.2
Basic and diluted earnings (loss) per common share:
Net loss before discontinued operations, extraordinary loss and cumulative
effect of change in accounting principle $ (.11) $ (.16)
Net earnings (loss) $ (.37) $ .04
---------------------------------------------------------------------------------------------------------------
</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 ($505 million after-tax or $.44 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
September 30, 2000, the Company had paid and charged approximately $80 million
against the severance liabilities, and $47 million against transaction fees and
costs. The Company expects to substantially complete the activities by the end
of the year 2000.
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 September 30, 2000, the Company had paid and
charged approximately $37.4 million against the severance liability, $11.7
million against lease termination and other occupancy costs, and $1.4 million
against the other exit costs. The Company expects to complete the exit
activities by the end of the year 2000.
9
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
5) OTHER ACQUISITIONS
On September 15, 2000, Infinity Broadcasting completed the acquisition of
Memphis radio stations WMC-AM and WMC-FM from Raycom Media for approximately $76
million.
On August 24, 2000, Infinity Broadcasting Corporation ("Infinity Broadcasting"),
a majority owned subsidiary of the Company, completed the acquisition of 18
radio stations from Clear Channel Communications, Inc. for $1.4 billion in an
asset transaction. These stations are located in San Diego, Phoenix, Denver,
Cleveland, Cincinnati, Orlando and Greensboro--Winston -Salem.
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.
During June 2000, Infinity Broadcasting completed its acquisitions of two
international outdoor advertising businesses for approximately $490 million.
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.
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 equity investments include several Internet-
based companies. At September 30, 2000, the Company's total investment in
affiliated companies was $851.7 million, of which $330.6 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 investees' results of operations (results are on a one
quarter lag).
Results of Operations Data
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 35.1 $ 13.5 $ 87.1 $ 33.2
Gross profit 15.0 7.2 32.5 15.6
Operating loss (122.1) (37.0) (359.1) (73.1)
Net loss (123.3) (36.7) (357.2) (72.1)
-------------------------------------------------------------------------------------------------------------
</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
10
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
Consolidated Balance Sheet. Deferred revenue is relieved and barter revenue is
recognized as the related advertising and promotion time is delivered. Barter
revenue of $23.0 million and $44.4 million has been recognized for the three and
nine months ended September 30, 2000, respectively.
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
September 30, 2000 the unamortized difference is $304 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 September 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 September 30,
2000, the aggregate carrying values of these investments exceeded their
respective aggregate market values by approximately $122 million.
11
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
7) INVENTORY
<TABLE>
<CAPTION>
At September 30, At December 31,
2000 1999
------------------------------------------------------------------------------------------------------------
Theatrical and television inventory:
Theatrical productions:
<S> <C> <C>
Released $ 402.7 $ 798.7
Completed, not released 9.3 0.8
In process and other 321.2 276.6
Television productions:
Released 774.9 1,039.4
In process and other 221.2 135.0
Program rights 2,057.9 1,434.4
------------------------------------------------------------------------------------------------------------
3,787.2 3,684.9
Less current portion 903.5 1,515.0
------------------------------------------------------------------------------------------------------------
2,883.7 2,169.9
------------------------------------------------------------------------------------------------------------
Merchandise inventory, including sell-through
videocassettes 286.4 338.0
Videocassette rental inventory 590.9 569.5
Publishing, primarily finished goods 74.6 70.4
Other 127.7 126.2
------------------------------------------------------------------------------------------------------------
1,079.6 1,104.1
Less current portion 404.6 444.5
------------------------------------------------------------------------------------------------------------
675.0 659.6
------------------------------------------------------------------------------------------------------------
Total Current Inventory $1,308.1 $1,959.5
------------------------------------------------------------------------------------------------------------
Total Non-Current Inventory $3,558.7 $2,829.5
============================================================================================================
</TABLE>
8) STOCK REPURCHASE
During the first nine months of 2000, the Company repurchased 10,000 shares of
its Class A Common Stock and 27.5 million shares of its Class B Common Stock
under its stock repurchase programs for approximately $1.6 billion in the
aggregate. Third quarter 2000 repurchases included in this total amounted to
$340.6 million.
12
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
9) LONG-TERM DEBT
<TABLE>
<CAPTION>
At September 30, At December 31,
2000 1999
------------------------------------------------------------------------------------------------------------
Long-term debt:
<S> <C> <C>
Notes payable to banks (including commercial paper) $ 6,046.2 $3,054.2
Senior notes and debentures (5.875% - 9.75%, due 2000-2030) 5,528.4 2,310.9
Senior subordinated notes (8.875%-10.25%, due 2001-2007) 704.8 35.3
Subordinated exchange debentures (11.375%, due 2009) 45.0 --
Obligations under capital leases 552.5 591.6
------------------------------------------------------------------------------------------------------------
Total debt 12,876.9 5,992.0
Less current portion 238.0 294.3
-----------------------------------------------------------------------------------------------------------
Total long-term debt $12,638.9 $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 credit
agreement, which consists of a $1.5 billion revolving credit facility maturing
August 29, 2001 and the existing Infinity credit agreement, which consists of a
$1.5 billion revolving credit facility maturing August 29, 2001, were amended to
allow for the merger of CBS with and into the Company. Borrowing rates under the
CBS and Infinity 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 the respective senior unsecured debt rating.
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 LIBOR
plus a margin based on Infinity Broadcasting's senior unsecured debt rating.
The CBS and Infinity Broadcasting facilities contain certain covenants which,
among other things, require that CBS and Infinity Broadcasting maintain certain
financial ratios and impose on CBS and Infinity Broadcasting and their
subsidiaries certain limitations on substantial asset sales and mergers with any
other company in which CBS and Infinity Broadcasting are not the surviving
entities.
The Company has a $4.0 billion commercial paper program. Borrowings under the
program have maturities of less than a year and are supported by unused
committed bank facilities. At September 30, 2000, the Company had borrowings
under the program of approximately $1 billion.
On July 20, 2000, Infinity Broadcasting initiated a $3.25 billion commercial
paper program. Borrowings under Infinity's commercial paper program are short-
term in nature and have been and will be used primarily to finance acquisitions
or refinance existing debt. At September 30, 2000, Infinity Broadcasting had
borrowings under the commerical paper program of approximately $2.5 billion.
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.
13
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
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
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 September 30, 2000 the Company had approximately
140,872 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
settlement 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 $15.2 billion, are not reflected in the balance sheet as of
September 30, 2000. These commitments include approximately $10.9 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 estimated annual effective tax rates
of 76.7% for 2000 excluding the 2000 merger-related charges of $698 million, and
51.6% for 1999 were adversely affected by amortization of intangibles in excess
of the amounts deductible for tax purposes. The post merger 2000 estimated
annual effective tax rate of 81% has been adversely affected by additional
nondeductible amortization. Excluding the non-deductible amortization of
intangibles, the estimated annual effective tax rates would have been 38.8% for
2000 and 35.9% for 1999.
14
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
12) OPERATING SEGMENTS
The following tables set 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
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 ("GAAP"). As EBITDA is not a measure of
performance calculated in accordance with GAAP, this measure may not be
comparable to similarly titled measures employed by other companies.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
=======================================================================================================
Revenues:
<S> <C> <C> <C> <C>
Cable Networks $1,008.9 $ 752.6 $ 2,714.3 $2,120.8
Television 1,848.2 603.2 3,654.7 1,682.9
Infinity 1,025.8 -- 1,698.4 --
Entertainment 791.7 775.9 2,084.8 1,976.2
Video 1,193.8 1,112.8 3,619.3 3,267.5
Publishing 167.0 162.2 413.0 430.7
Online 28.1 6.6 63.9 16.5
Intercompany eliminations (101.5) (81.3) (348.1) (208.2)
-------------------------------------------------------------------------------------------------------
Total Revenues $5,962.0 $3,332.0 $13,900.3 $9,286.4
=======================================================================================================
</TABLE>
15
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------
EBITDA:
<S> <C> <C> <C> <C>
Cable Networks $ 425.8 $ 285.1 $ 1,019.5 $ 705.9
Television 369.2 26.3 669.5 185.4
Infinity 468.3 -- 792.4 --
Entertainment 174.9 136.9 344.0 332.3
Video 119.1 129.9 382.6 379.5
Publishing 27.6 22.0 34.4 44.6
Online (53.1) (15.5) (143.6) (22.5)
--------------------------------------------------------------------------------------------------------------
Segment Total 1,531.8 584.7 3,098.8 1,625.2
--------------------------------------------------------------------------------------------------------------
Corporate Expenses/Eliminations (62.6) (44.8) (868.6) (128.4)
Residual cost of discontinued
operations (29.0) -- (47.6) --
--------------------------------------------------------------------------------------------------------------
Total EBITDA 1,440.2 539.9 2,182.6 1,496.8
--------------------------------------------------------------------------------------------------------------
Depreciation and amortization (680.3) (218.7) (1,460.5) (615.8)
--------------------------------------------------------------------------------------------------------------
Total Operating Income $ 759.9 $ 321.2 $ 722.1 $ 881.0
==============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
At September 30, At December 31,
2000 1999
---------------------------------------------------------------------------------------------
Total Assets:
<S> <C> <C>
Cable Networks $ 7,582.9 $ 3,138.1
Television 24,305.0 5,817.2
Infinity 33,713.3 --
Entertainment 4,754.4 4,826.5
Video 8,276.2 8,475.6
Publishing 948.6 948.1
Online 756.4 162.1
--------------------------------------------------------------------------------------------
Segment Total 80,336.8 23,367.6
--------------------------------------------------------------------------------------------
Corporate/Eliminations 2,086.6 1,118.8
--------------------------------------------------------------------------------------------
Total Assets $82,423.4 $24,486.4
=============================================================================================
</TABLE>
16
<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 September 30, 2000
------------------------------------------------------------------------------------
Non- Viacom
Viacom Viacom Guarantor Inc.
Inc. International Affiliates Eliminations Consolidated
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 8.1 $ 609.3 $5,349.2 $(4.6) $5,962.0
--------------------------------------------------------------------------------------------------------------------------------
Expenses:
Operating 7.5 184.0 3,163.6 (2.6) 3,352.5
Selling, general and administrative (.1) 192.8 976.6 -- 1,169.3
Depreciation and amortization .9 31.1 648.3 -- 680.3
--------------------------------------------------------------------------------------------------------------------------------
Total expenses 8.3 407.9 4,788.5 (2.6) 5,202.1
--------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (.2) 201.4 560.7 (2.0) 759.9
Other income (expense):
Interest expense, net (146.4) 16.9 (102.2) -- (231.7)
Other items, net (6.3) 13.9 (7.1) -- .5
--------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (152.9) 232.2 451.4 (2.0) 528.7
Benefit (provision) for income taxes 61.2 10.5 (495.9) -- (424.2)
Equity in earnings (loss) of affiliated
companies, net of tax 125.1 (120.0) (52.3) 3.2 (44.0)
Minority interest, net of tax -- 2.4 (29.5) -- (27.1)
--------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 33.4 $ 125.1 $ (126.3) $ 1.2 $ 33.4
================================================================================================================================
</TABLE>
17
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000
------------------------------------------------------------------------------
Non- Viacom
Viacom Viacom Guarantor Inc.
Inc. International Affiliates Eliminations Consolidated
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 28.0 $1,745.4 $12,197.1 $ (70.2) $13,900.3
-----------------------------------------------------------------------------------------------------------------------------
Expenses:
Operating 25.7 571.1 7,650.8 (33.9) 8,213.7
Selling, general and administrative 1.9 636.3 2,167.3 -- 2,805.5
Merger-related charges -- 650.0 48.5 -- 698.5
Depreciation and amortization 2.5 101.6 1,356.4 -- 1,460.5
-----------------------------------------------------------------------------------------------------------------------------
Total expenses 30.1 1,959.0 11,223.0 (33.9) 13,178.2
-----------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (2.1) (213.6) 974.1 (36.3) 722.1
Other income (expense):
Interest expense, net (354.5) 45.1 (214.8) -- (524.2)
Other items, net (21.9) 23.2 (15.8) -- (14.5)
-----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (378.5) (145.3) 743.5 (36.3) 183.4
Benefit (provision) for income taxes 151.5 63.1 (684.8) -- (470.2)
Equity in loss of affiliated
companies, net of tax (619.5) (545.4) (99.1) 1,192.6 (71.4)
Minority interest, net of tax -- 8.1 (44.1) -- (36.0)
-----------------------------------------------------------------------------------------------------------------------------
Net loss before cumulative effect of
change in accounting principle (846.5) (619.5) (84.5) 1,156.3 (394.2)
Cumulative effect of change in accounting
principle, net of tax -- -- (452.3) -- (452.3)
-----------------------------------------------------------------------------------------------------------------------------
Net loss $(846.5) $ (619.5) $ (536.8) $1,156.3 $ (846.5)
=============================================================================================================================
</TABLE>
18
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
----------------------------------------------------------------------------------
Non- Viacom
Viacom Viacom Guarantor Inc.
Inc. International Affiliates Eliminations Consolidated
===============================================================================================================================
<S> <C> <C> <C> <C> <C>
Revenues $ 7.8 $538.1 $2,890.0 $(103.9) $3,332.0
-------------------------------------------------------------------------------------------------------------------------------
Expenses:
Operating 7.5 175.7 2,033.9 (97.8) 2,119.3
Selling, general and administrative .3 170.8 431.4 -- 602.5
Restructuring charge -- -- 70.3 -- 70.3
Depreciation and amortization .9 24.0 193.8 -- 218.7
-------------------------------------------------------------------------------------------------------------------------------
Total expenses 8.7 370.5 2,729.4 (97.8) 3,010.8
-------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (.9) 167.6 160.6 (6.1) 321.2
Other income (expense):
Interest expense, net (90.8) 12.9 (32.6) -- (110.5)
Other items, net (5.1) (4.1) 6.8 -- (2.4)
-------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (96.8) 176.4 134.8 (6.1) 208.3
Benefit (provision) for income taxes 39.7 (72.4) (60.5) -- (93.2)
Equity in earnings (loss) of affiliated
companies, net of tax 168.0 63.3 (9.0) (226.1) (3.8)
Minority interest, net of tax -- .7 (1.1) -- (.4)
-------------------------------------------------------------------------------------------------------------------------------
Net earnings before extraordinary loss 110.9 168.0 64.2 (232.2) 110.9
Extraordinary loss, net of tax (14.2) -- -- -- (14.2)
-------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 96.7 $168.0 $ 64.2 $(232.2) $ 96.7
===============================================================================================================================
</TABLE>
19
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
-------------------------------------------------------------------------------
Non- Viacom
Viacom Viacom Guarantor Inc.
Inc. International Affiliates Eliminations Consolidated
==============================================================================================================================
<S> <C> <C> <C> <C> <C>
Revenues $ 27.1 $1,475.8 $8,004.4 $(220.9) $9,286.4
------------------------------------------------------------------------------------------------------------------------------
Expenses:
Operating 26.0 482.6 5,713.1 (214.8) 6,006.9
Selling, general and administrative 1.5 529.2 1,181.7 -- 1,712.4
Restructuring charge -- -- 70.3 -- 70.3
Depreciation and amortization 2.7 68.0 545.1 -- 615.8
------------------------------------------------------------------------------------------------------------------------------
Total expenses 30.2 1,079.8 7,510.2 (214.8) 8,405.4
------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (3.1) 396.0 494.2 (6.1) 881.0
Other income (expense):
Interest expense, net (268.2) 63.1 (105.8) -- (310.9)
Other items, net (15.6) .9 17.6 -- 2.9
------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (286.9) 460.0 406.0 (6.1) 573.0
Benefit (provision) for income taxes 117.6 (188.6) (224.6) -- (295.6)
Equity in earnings (loss) of affiliated
companies, net of tax 407.6 135.8 (52.8) (528.7) (38.1)
Minority interest, net of tax -- .7 (1.4) -- (.7)
------------------------------------------------------------------------------------------------------------------------------
Net earnings before extraordinary loss 238.3 407.9 127.2 (534.8) 238.6
Extraordinary loss, net of tax (37.4) (.3) -- -- (37.7)
------------------------------------------------------------------------------------------------------------------------------
Net earnings 200.9 407.6 127.2 (534.8) 200.9
Cumulative convertible preferred
stock dividend requirement (.4) -- -- -- (.4)
Premium on repurchase of preferred stock (12.0) -- -- -- (12.0)
------------------------------------------------------------------------------------------------------------------------------
Net earnings attributable to common stock $ 188.5 $ 407.6 $ 127.2 $(534.8) $ 188.5
==============================================================================================================================
</TABLE>
20
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
At September 30, 2000
--------------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
=================================================================================================================
<S> <C> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 101.5 $ 503.9 $ 387.3 $ -- $ 992.7
Receivables, net 8.7 355.4 3,304.3 (166.5) 3,501.9
Inventory 9.5 229.7 1,068.9 -- 1,308.1
Other current assets 1.5 652.8 1,062.8 -- 1,717.1
-----------------------------------------------------------------------------------------------------------------
Total current assets 121.2 1,741.8 5,823.3 (166.5) 7,519.8
-----------------------------------------------------------------------------------------------------------------
Property and equipment 13.5 739.4 8,069.4 -- 8,822.3
Less accumulated depreciation and
amortization 4.8 311.8 1,968.8 -- 2,285.4
-----------------------------------------------------------------------------------------------------------------
Net property and equipment 8.7 427.6 6,100.6 -- 6,536.9
-----------------------------------------------------------------------------------------------------------------
Inventory -- 536.5 3,041.4 (19.2) 3,558.7
Intangibles, at amortized cost 104.1 651.9 60,887.4 -- 61,643.4
Investments in consolidated subsidiaries 45,364.1 14,266.7 -- (59,630.8) --
Other assets 66.9 2,537.2 695.6 (135.1) 3,164.6
-----------------------------------------------------------------------------------------------------------------
Total Assets $ 45,665.0 $20,161.7 $76,548.3 $(59,951.6) $82,423.4
=================================================================================================================
Liabilities and Stockholders' Equity
Accounts payable $ -- $ 10.2 $ 1,209.0 $ (55.9) $ 1,163.3
Accrued expenses and other 156.1 2,187.4 2,395.4 (208.4) 4,530.5
Accrued participations -- -- 1,129.1 (1.7) 1,127.4
Current portion of long-term debt -- 8.4 229.6 -- 238.0
-----------------------------------------------------------------------------------------------------------------
Total current liabilities 156.1 2,206.0 4,963.1 (266.0) 7,059.2
-----------------------------------------------------------------------------------------------------------------
Long-term debt 6,530.2 831.3 5,277.4 -- 12,638.9
Other liabilities (13,433.6) 2,618.1 14,506.2 3,830.1 7,520.8
Minority interest -- 162.2 6,847.0 -- 7,009.2
Stockholders' Equity:
Preferred Stock -- 104.1 20.4 (124.5) --
Common Stock 15.9 185.7 504.0 (689.7) 15.9
Additional paid-in capital 49,974.7 9,238.8 45,045.1 (54,283.9) 49,974.7
Retained earnings 5,492.7 4,802.6 (476.3) (8,417.6) 1,401.4
Accumulated other comprehensive
income (loss) -- 12.9 (138.6) -- (125.7)
-----------------------------------------------------------------------------------------------------------------
55,483.3 14,344.1 44,954.6 (63,515.7) 51,266.3
Less treasury stock, at cost 3,071.0 -- -- -- 3,071.0
-----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 52,412.3 14,344.1 44,954.6 (63,515.7) 48,195.3
-----------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 45,665.0 $20,161.7 $76,548.3 $(59,951.6) $82,423.4
=================================================================================================================
</TABLE>
21
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
At 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>
22
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000
--------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
Net cash flow (used for) provided by operating
activities $ (46.4) $ 80.3 $ 1,111.0 $ -- $ 1,144.9
---------------------------------------------------------------------------------------------------------------------
Investing Activities:
Acquisitions, net of cash acquired -- -- (1,851.3) -- (1,851.3)
Capital expenditures -- (27.0) (395.1) -- (422.1)
Investments in and advances to affiliated
companies -- (7.6) (117.6) -- (125.2)
Proceeds from sales of short-term
investments -- 55.7 225.0 -- 280.7
Purchases of short-term investments -- (83.4) -- -- (83.4)
Other, net -- (13.4) 16.1 -- 2.7
---------------------------------------------------------------------------------------------------------------------
Net cash flow used for investing
activities -- (75.7) (2,122.9) -- (2,198.6)
---------------------------------------------------------------------------------------------------------------------
Financing Activities:
Borrowings from banks, including commercial
paper, net 1.1 -- 1,525.0 -- 1,526.1
Proceeds from senior notes and debentures 1,635.3 -- .3 -- 1,635.6
Purchase of treasury stock (1,588.6) -- -- -- (1,588.6)
Repayment of notes and debentures -- (160.6) (24.1) -- (184.7)
Payment of capital lease obligations -- (25.2) (76.8) -- (102.0)
Purchase of treasury stock by subsidiary -- -- (82.8) -- (82.8)
Increase (decrease) in intercompany payables (144.0) 199.1 (55.1) -- --
Proceeds from exercise of stock options and
warrants 162.5 -- -- -- 162.5
Other, net -- -- (.5) -- (.5)
---------------------------------------------------------------------------------------------------------------------
Net cash flow provided by financing
activities 66.3 13.3 1,286.0 1,365.6
---------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash
equivalents 19.9 17.9 274.1 -- 311.9
Cash and cash equivalents at beginning of
period 81.6 486.0 113.2 -- 680.8
---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 101.5 $ 503.9 $ 387.3 $ -- $ 992.7
=====================================================================================================================
</TABLE>
23
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
--------------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
=====================================================================================================================
Net cash flow provided by (used for) operating
<S> <C> <C> <C> <C> <C>
activities $ 384.3 $(361.0) $ (311.6) $ -- $ (288.3)
---------------------------------------------------------------------------------------------------------------------
Investing Activities:
Acquisitions, net of cash acquired (180.2) -- (129.3) -- (309.5)
Capital expenditures -- (71.8) (431.8) -- (503.6)
Investments in and advances to
Affiliated companies -- (19.9) (86.9) -- (106.8)
Proceeds from sales of short-term investments -- 342.1 -- -- 342.1
Purchases of short-term investments -- (280.2) -- -- (280.2)
Other, net -- -- 1.9 -- 1.9
---------------------------------------------------------------------------------------------------------------------
Net cash flow used for investing activities (180.2) (29.8) (646.1) -- (856.1)
---------------------------------------------------------------------------------------------------------------------
Financing Activities:
Borrowings from banks, net 1,297.0 -- 1,197.2 -- 2,494.2
Purchase of treasury stock and warrants (478.8) -- -- -- (478.8)
Repayment of notes and debentures (1,073.8) (1.5) -- -- (1,075.3)
Payment of capital lease obligations -- (22.6) (48.7) -- (71.3)
Proceeds from exercise of stock options
and warrants 371.5 -- -- -- 371.5
Repurchase of preferred stock and
dividend payments (619.8) -- -- -- (619.8)
Increase (decrease) in intercompany
payables (72.7) 705.2 (632.5) -- --
Net proceeds from issuance of subsidiary
stock -- -- 430.7 -- 430.7
Other, net .1 -- -- -- .1
---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing
activities (576.5) 681.1 946.7 -- 1,051.3
---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (372.4) 290.3 (11.0) -- (93.1)
Cash and cash equivalents at beginning
of period 406.4 189.5 171.4 -- 767.3
---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 34.0 $ 479.8 $ 160.4 $ -- $ 674.2
=====================================================================================================================
</TABLE>
24
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's discussion and analysis of the consolidated financial condition and
results of operations should be read in conjunction with the Consolidated
Financial Statements and related Notes.
The third quarter of 2000 represents the first full quarter of combined results
of operations of the Company with CBS, as the merger was completed in May of
2000. Other significant transactions, which occurred in the second quarter of
2000, and affect the comparability of historical results, are listed below:
. The Company 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 the CBS and UPN 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, excludes non-recurring items
and reflects 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 nine months ended
September 30, 2000 and 1999, respectively:
<TABLE>
<CAPTION>
Three Months ended Percent Nine Months ended Percent
September 30, B/(W) September 30, B/(W)
--------------------------------------------------------------------------------------------------
2000 1999 2000 1999
-----------------------------------------------------------------
Total Revenues:
<S> <C> <C> <C> <C> <C> <C>
As Reported $5,962.0 $3,332.0 79% $13,900.3 $ 9,286.4 50%
Pro Forma $5,971.6 $5,580.9 7% $17,353.6 $15,991.9 9%
--------------------------------------------------------------------------------------------------
Total Operating Income:
As Reported $ 759.9 $ 321.2 137% $ 722.1 $ 881.0 (18%)
Pro Forma $ 761.2 $ 521.7 46% $ 1,565.7 $ 1,102.4 42%
--------------------------------------------------------------------------------------------------
</TABLE>
25
<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, 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 ("GAAP").
As EBITDA is not a measure of performance calculated in accordance with GAAP,
this measure may not be comparable to similarly titled measures employed by
other companies. 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 reflects the adoption of the
change in accounting as of January 1, 1999.
<TABLE>
<CAPTION>
Three Months ended Percent Nine Months ended Percent
September 30, B/(W) September 30, B/(W)
-------------------------------------------------------------------------------------------------
2000 1999 2000 1999
----------------------------------------------------------------
Total EBITDA:
<S> <C> <C> <C> <C> <C> <C>
As Reported $1,440.2 $ 539.9 167% $2,182.6 $1,496.8 46%
Pro Forma $1,445.1 $1,183.1 22% $3,654.9 $3,089.4 18%
-------------------------------------------------------------------------------------------------
</TABLE>
Results of Operations
---------------------
On a reported basis, revenues increased 79% to $6.0 billion and 50% to $13.9
billion for the three and nine months ended September 30, 2000, respectively,
from $3.3 billion and $9.3 billion for the same prior-year periods. Reported
operating results for the third quarter and nine months 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 7% to $6.0 billion and 9% to $17.4
billion for the three and nine months ended September 30, 2000, respectively,
from $5.6 billion and $16.0 billion for the same prior-year periods. Revenue
increases were driven by third quarter double digit advertising sales increases
at Infinity, Cable Networks and Television segments. The Video segment also
contributed to the revenue increases with the increase in the number of company-
operated stores.
EBITDA, on a pro forma basis, increased 22% to $1.4 billion and 18% to $3.7
billion for the three and nine months ended September 30, 2000, respectively,
from $1.2 billion and $3.1 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.
26
<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 Nine Months Ended Percent
September 30, B/(W) September 30, B/(W)
-------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------
As Reported:
<S> <C> <C> <C> <C> <C> <C>
Revenues $1,008.9 $ 752.6 34% $2,714.3 $2,120.8 28%
Operating income $ 349.9 $ 255.0 37 $ 859.4 $ 617.8 39
EBITDA $ 425.8 $ 285.1 49 $1,019.5 $ 705.9 44
-------------------------------------------------------------------------------------------------------
Pro Forma:
Revenues $1,008.9 $889.4 13% $2,901.6 $2,544.1 14%
Operating income $ 349.9 $271.4 29 $ 878.0 $ 676.6 30
EBITDA $ 425.8 $345.9 23 $1,090.8 $ 886.9 23
-------------------------------------------------------------------------------------------------------
</TABLE>
For the third quarter of 2000, MTVN revenues of $739.9 million, EBITDA of $375.1
million and operating income of $298.1 million increased 34%, 49% and 32%,
respectively, over the third quarter of 1999. For the nine months ended
September 30, 2000, MTVN revenues of $2.0 billion, EBITDA of $888.5 million and
operating income of $741.1 million increased 30%, 45% and 37%, respectively,
over the same nine-month period last year. For the third quarter of 2000, MTVN
pro forma revenues of $739.9 million increased 13% as compared with $652.3
million of pro forma revenues for the third quarter of 1999 and pro forma EBITDA
of $375.1 million increased 24% as compared with pro forma EBITDA of $302.3
million for the prior-year period. For the nine months ended September 30,
2000, MTVN pro forma revenues of $2.1 billion and pro forma EBITDA of $951.3
million increased 16% and 23%, respectively, over the same prior-year period pro
forma revenues of $1.8 billion and EBITDA of $772.9 million. The increase in
MTVN's pro forma revenues principally reflects higher worldwide advertising
revenues of 11% and 18% and higher affiliate fees of 20% and 15%, for the third
quarter and nine months, respectively. Advertising revenue gains were primarily
driven by rate increases at MTV, VH1 and TV Land. MTVN's EBITDA and operating
income gains were driven by the increased revenues. Pro forma results assume the
acquisition of the CBS Cable Networks, TNN and CMT, had occurred on January 1,
1999. The third quarter and nine-month period pro forma results include benefits
of $11 million and $16 million, respectively, attributable to purchase
accounting for TNN and CMT.
SNI's revenues increased 15%, and EBITDA and operating income each increased 22%
for the quarter and increased 10%, 21% and 26% for the nine months ended
September 30, 2000, respectively, over the same prior-year periods. The revenue
increases were principally due to an increase of approximately 3.2 million
subscriptions, up 14% over the prior-year to 25.5 million subscriptions at
September 30, 2000. Operating results reflect revenue increases attributable to
the continued growth of direct broadcast satellite and cable and the timing of
programming expenses.
27
<PAGE>
Television (CBS and UPN Television Networks and Stations; Television Production
and Syndication)
<TABLE>
<CAPTION>
Three Months Ended Percent Nine Months Ended Percent
September 30, B/(W) September 30, B/(W)
---------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------
As Reported:
<S> <C> <C> <C> <C> <C> <C>
Revenues $1,848.2 $ 603.2 206% $3,654.7 $1,682.9 117%
Operating income $ 191.1 $ (14.1) NM $ 311.5 $ 87.1 258
EBITDA $ 369.2 $ 26.3 NM $ 669.5 $ 185.4 261
---------------------------------------------------------------------------------------------------------
Pro Forma:
Revenues $1,848.2 $1,792.5 3% $5,690.1 $5,425.6 5%
Operating income $ 191.1 $ 78.4 144 $ 463.3 $ 111.3 316
EBITDA $ 369.2 $ 266.3 39 $1,025.6 $ 682.1 50
---------------------------------------------------------------------------------------------------------
</TABLE>
NM - not meaningful
For the third quarter and nine months ended September 30, 2000, Television pro
forma revenues, EBITDA and operating income increased over the same prior-year
periods principally reflecting strong national and local advertising sales
gains. Television's third quarter revenues were led by double digit advertising
sales increases, which more than offset the absence of significantly higher
revenues from the initial syndication of off-network programs received in the
same quarter last year and the delay of the start of the Fall television season
to the fourth quarter of 2000. The Television segment's results were led by the
CBS Network and television stations' strong EBITDA growth, which was driven by
improved primetime performance and strong advertising pricing in local owned and
operated TV markets. Paramount Television revenues for the three- and nine-month
periods were higher for continuing network and first run syndication shows
including Entertainment Tonight, Judge Judy, Charmed and Judge Joe Brown.
Network program revenues for 2000 included the first time syndication
availability of Sabrina: The Teenage Witch and Moesha; however, these
contributions did not compare favorably with the prior year which included the
last seasons of Melrose Place and Sunset Beach and the first time syndication
availability of JAG and Star Trek: Voyager.
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 at the beginning of each period presented, exclude
the third quarter 1999 Spelling restructuring charge and other non-recurring
charges and reflect the adoption of the change in accounting as of January 1,
1999. The Television segment's third quarter and nine month pro forma results
for 2000 include a benefit of $35 million and $65 million, respectively,
attributable to purchase accounting which was partially offset by a reduction
attributable to the change in accounting described below.
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 for the nine months ended September 30, 2000. The cumulative
effect of the accounting change is not included in the EBITDA and operating
income above.
28
<PAGE>
Infinity (Radio Stations, Outdoor Advertising Properties)
<TABLE>
<CAPTION>
Three Months Ended Percent Nine Months Ended Percent
September 30, B/(W) September 30, B/(W)
-------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------
As Reported:
<S> <C> <C> <C> <C> <C> <C>
Revenues $1,025.8 -- NM $1,698.4 -- NM
Operating income $ 213.1 -- NM $ 364.7 -- NM
EBITDA $ 468.3 -- NM $ 792.4 -- NM
-------------------------------------------------------------------------------------------------------
Pro Forma:
Revenues $1,035.4 $922.5 12% $2,947.1 $2,538.0 16%
Operating income $ 214.4 $152.7 40 $ 504.7 $ 284.5 77
EBITDA $ 473.2 $402.0 18 $1,298.8 $1,057.0 23
-----------------------------------------------------------------------------------------------------
</TABLE>
NM - not meaningful
For the third quarter, Infinity Broadcasting Corporation ("Infinity
Broadcasting"), the Company's out-of-home media subsidiary, recorded pro forma
revenues, EBITDA and operating income increases of 12%, 18% and 40%,
respectively. For the nine months ended September 30, 2000, pro forma revenues,
EBITDA and operating income increased 16%, 23% and 77%, respectively. Third
quarter and nine month pro forma results were driven by advertising revenue
growth at both Infinity's radio stations and outdoor advertising businesses. 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., and all 2000 acquisitions by
Infinity, occurred on January 1, 1999. During the third quarter of 2000,
Infinity completed acquisitions of 22 radio stations in nine major markets,
including San Diego, Phoenix, Denver, Cleveland, Cincinnati, Orlando,
Greensboro--Winston-Salem, Riverside and Memphis, for $1.5 billion. The Company
owns approximately 64% of Infinity Broadcasting.
Entertainment (Paramount Pictures, Famous Players, Famous Music Publishing and
Paramount Parks)
<TABLE>
<CAPTION>
Three Months Ended Percent Nine Months Ended Percent
September 30, B/(W) September 30, B/(W)
-------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------
As Reported:
<S> <C> <C> <C> <C> <C> <C>
Revenues $791.7 $775.9 2% $2,084.8 $1,976.2 5%
Operating income $132.5 $ 99.3 33 $ 223.6 $ 225.3 (1)
EBITDA $174.9 $136.9 28 $ 344.0 $ 332.3 4
-------------------------------------------------------------------------------------------------------
Pro Forma:
Revenues $791.7 $775.9 2% $2,084.8 $1,976.2 5%
Operating income $132.5 $ 89.6 48 $ 223.6 $ 206.3 8
EBITDA $174.9 $127.3 37 $ 344.0 $ 313.3 10
-------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
For the three and nine months ended September 30, 2000, Entertainment revenues
increased 2% to $791.7 million and 5% to $2.1 billion, respectively, compared
with the same prior-year periods. Revenues for the three months principally
reflect higher Features and Parks revenues partially offset by lower Theaters
revenues; while revenues for the nine months principally reflect higher Features
and Theaters revenues. Higher Features revenues were led by higher foreign
theatrical revenues for the three-and nine-month periods primarily due to the
success of Mission: Impossible 2 and Double Jeopardy. Domestic theatrical
revenues for the three-and nine-month periods included contributions from Bless
The Child and The Original Kings of Comedy, while the nine-month period also
included contributions from Mission: Impossible 2, Rules of Engagement, Shaft,
and Snow Day. Home video revenues for the three- and nine-month periods were
lower than the comparable prior-year periods as the prior year included
contributions from Saving Private Ryan and The Rugrats Movie. Features' network
revenues for the three-and nine-month periods were higher due to the network
availability of Titanic. Theaters' revenues for the third quarter were lower
principally due to lower attendance compared to the same prior year period. For
the nine months ended September 30, 2000, theater revenues were higher primarily
as a result of additional new multiplex theaters opened since the end of the
same prior-year period. Parks' revenues for the third quarter were higher due
to increased per capita spending partially offset by lower attendance, while
revenues for the nine-month period were lower due to attendance declines from
less favorable weather conditions throughout the season. Entertainment revenues
for the nine months ended September 30, 1999 also included the recognition of a
pay television license for library products and the renewal of a film processing
agreement.
For the three months ended September 30, 2000, Entertainment's EBITDA and
operating income increased 28% and 33%, respectively, while for the nine months,
EBITDA increased 4% and operating income decreased 1%, respectively, over the
comparable prior-year periods. EBITDA and operating income for the third quarter
and nine months principally reflect the higher Features revenue items noted
above and lower Theater results and, for the third quarter of 2000, lower
distribution costs, principally due to differences in the timing of distribution
expenses under the change in accounting for motion pictures. Theaters' EBITDA
and operating income for the three- and nine-month periods were lower due to the
impact of lower third quarter attendance compared to the same prior-year period,
and higher year-to-date operating costs and costs associated with opening
additional multiplexes in 2000. Parks' EBITDA and operating income for the
three-and nine-month periods were higher than the same prior-year periods due to
lower operating expenses.
As a result of the early adoption of SOP 00-2, feature films recorded a pre-tax
charge of $423.0 million for the nine months ended September 30, 2000. 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 Nine Months Ended Percent
September 30, B/(W) September 30, B/(W)
-----------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $1,193.8 $1,112.8 7% $3,619.3 $3,267.5 11%
Operating Income $ 17.7 $ 29.9 (41) $ 69.4 $ 87.7 (21)
EBITDA $ 119.1 $ 129.9 (8) $ 382.6 $ 379.5 1
-----------------------------------------------------------------------------------------------------------
</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 7% for the quarter and 11% for the nine months ended
September 30, 2000 driven by the increase in the number of Company-operated
stores in operation in 2000 over the prior-year period. Worldwide same store
sales, which include retail and rental product, increased 1.5% for the quarter
and 5% for the nine months ended September 30, 2000. For the third quarter,
international same store revenues increased 11% while domestic same store
revenues decreased 1%. For the nine months ended September 30, 2000,
international same store revenues increased 12% and domestic same store revenues
increased 4% over the comparable prior-year period. Both current year periods
also benefited from an increase in the average domestic rental fee.
30
<PAGE>
Operating results for 2000 were impacted by Blockbuster's investment in its
online operations, which began operations in the fourth quarter of 1999 and
resulted in reductions to EBITDA and operating income of $13.0 million and $15.8
million, respectively, for the third quarter and $37.3 million and $45.4 million
for the nine months ended September 30, 2000. Excluding the amounts
attributable to its online operations, Video's EBITDA and operating income
increased 1% and 7%, respectively, for the third quarter and 10% and 29%,
respectively, for the nine months ended September 30, 2000 as compared with the
corresponding prior-year periods. Video's gross margin percentage decreased to
60.5% for the third quarter of 2000 from 61.2% for the third quarter of 1999
principally due to a shift in rental revenue mix from higher margin non-revenue
sharing videos to DVDs and 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 nine months ended September 30, 2000, Video's gross margin
decreased to 59.4% from 61.1% for the comparable prior-year period. Blockbuster
is continually evaluating its product mix to try to optimize its stores'
revenues and gross profit. With the anticipated accelerated consumer acceptance
of DVD and other forms of home entertainment, Blockbuster may increase its
stores' depth of DVDs and other home entertainment products. This may result in
a transition in the composition of its stores' inventory to allow for more DVDs,
or other forms of home entertainment, depending on the speed of adoption by
consumers. Blockbuster Video ended the third quarter of 2000 with 7,519
company-operated and franchised stores, a net increase of 659 stores over the
third quarter of 1999.
Publishing (Simon & Schuster)
<TABLE>
<CAPTION>
Three Months Ended Percent Nine Months Ended Percent
September 30, B/(W) September 30, B/(W)
----------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $167.0 $162.2 3% $413.0 $430.7 (4)%
Operating Income $ 22.2 $ 16.8 32 $ 18.4 $ 30.5 (40)
EBITDA $ 27.6 $ 22.0 25 $ 34.4 $ 44.6 (23)
----------------------------------------------------------------------------------------------------------
</TABLE>
The Publishing segment is comprised of Simon & Schuster, which includes imprints
such as Pocket Books, Scribner and The Free Press.
For the quarter ended September 30, 2000, improved revenues, EBITDA and
operating income were led by higher sales at the Pocket Books and Children's
divisions, increased license fees and lower product costs. The nine-month
results were lower than the comparable prior-year period principally due to
decreased year-to-date sales in both the Pocket Books and Trade divisions.
Publishing's best-selling titles in the third quarter included Nothing Like It
in the World by Stephen E. Ambrose, Hearts in Atlantis by Stephen King and High
Tide by Jude Deveraux.
Online (The MTVi Group, Nickelodeon Online, CBS.com, iWon.com)
<TABLE>
<CAPTION>
Three Months Ended Percent Nine Months Ended Percent
September 30, B/(W) September 30, B/(W)
--------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------
As Reported:
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 28.1 $ 6.6 NM $ 63.9 $ 16.5 287%
Operating income $(69.7) $(16.2) NM $(191.1) $(23.2) NM
EBITDA $(53.1) $(15.5) (243) $(143.6) $(22.5) NM
--------------------------------------------------------------------------------------------------------------
Pro forma:
Revenues $ 28.1 $ 9.6 193% $ 76.4 $ 23.3 228%
Operating income $(69.7) $(17.0) (310) $(244.0) $(25.6) NM
EBITDA $(53.1) $(16.1) (230) $(192.9) $(24.6) 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.
31
<PAGE>
For the third quarter and nine months ended September 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. Pro forma results assume the CBS
merger had occurred at the beginning of each period presented.
Other Income and Expense Information
------------------------------------
Corporate Expenses/Eliminations
Included in the reported Corporate Expenses/Eliminations of $62.6 million for
the third quarter of 2000 are intersegment profit eliminations of $16.4 million.
For the nine months ended September 30, 2000, as reported Corporate
Expenses/Eliminations were $868.6 million, of which $88.8 million represents
intersegment profit eliminations and $650 million represents merger-related
charges. Pro forma corporate expenses, excluding intersegment profit
eliminations and the merger-related charges, were $46.2 million and $148.7
million for the third quarter and nine months ended September 30, 2000 as
compared with $60.3 million and $162.8 million for the comparable prior-year
periods.
Interest Expense
For the three-and nine-month periods ended September 30, 2000, interest expense
increased 107% to $245.0 million and 71% to $560.9 million, respectively. The
Company had approximately $12.9 billion and $6.3 billion principal amount of
debt outstanding (including current maturities) as of September 30, 2000 and
September 30, 1999, respectively, at weighted average interest rates of 7.7% and
7.1%, respectively.
Interest Income
For the three-and nine-month periods ended September 30, 2000, interest income
increased to $13.3 million and $36.7 million, respectively, from $7.8 million
and $16.5 million, respectively, for the quarter and nine months ended September
30, 1999.
Other Items, Net
For the three-and nine-month periods ended September 30, 2000, "Other items,
net" was $.5 million and a loss of $14.5 million, respectively, compared to a
loss of $2.4 million and income of $2.9 million for the comparable prior-year
periods. The year-to-date 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 estimated annual effective tax rates
of 76.7% for 2000, excluding the 2000 merger-related charges of $698 million,
and 51.6% for 1999 were adversely affected by amortization of intangibles in
excess of the amounts deductible for tax purposes. The post merger 2000
estimated annual effective tax rate of 81% has been adversely affected by
additional nondeductible amortization. Excluding the non-deductible
amortization of intangibles, the estimated annual effective tax rates would have
been 38.8% for 2000 and 35.9% for 1999.
32
<PAGE>
Equity in Loss of Affiliated Companies, Net of Tax
"Equity in loss of affiliated companies, net of tax" was $44.0 million and $71.4
million for the third quarter of 2000 and the nine months then ended,
respectively, as compared to losses of $3.8 million and $38.1 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.
Extraordinary Loss
For the three and nine months ended September 30, 1999, the Company recognized
after-tax extraordinary losses on the early extinguishment of debt of $14.2
million and $37.7 million, respectively, or a loss of $.02 and $.06 per basic
common share, respectively.
Cumulative Effect of Change in Accounting Principle
For the nine months ended September 30, 2000, the Company recorded a one-time,
after-tax non-cash charge of $452.3 million, or $.40 per basic and diluted
share, resulting from the early adoption of the new accounting standard for
accounting for motion pictures.
Net Earnings (Loss)
For the reasons described above, the Company reported net earnings of $33.4
million for the three months ended September 30, 2000 as compared with $96.7
million for the three months ended September 30, 1999 and a net loss of $846.5
million for the nine months ended September 30, 2000 as compared with net
earnings of $188.5 million for the nine months ended September 30, 1999.
Acquisitions
On November 3, 2000, the Company announced an agreement to acquire Black
Entertainment Television ("BET") for approximately $2.3 billion of Viacom Class
B Common Stock plus the assumption of approximately $575 million of debt. The
tax-free transaction is subject to customary regulatory approvals. The final
exchange ratio will be based on the trading prices of Viacom Class B Common
Stock during a measurement period immediately before the closing of the
transaction, which is expected to occur in the first quarter of 2001.
On October 30, 2000, the Company and Infinity Broadcasting entered into a merger
agreement under which the Company will acquire all the issued and outstanding
shares of Infinity common stock that it does not currently own, approximately
36%, pursuant to a merger in which Viacom will exchange 0.592 of a share of
Viacom Class B Common Stock for each share of Infinity Class A common stock. The
Company's Board of Directors and Infinity's Board of Directors approved the
merger agreement after approval by a special committee of Infinity's independent
directors. The special committee was advised by separate legal and financial
advisors. The Company expects the merger to be completed in the first quarter of
2001. As of October 30, 2000, there were 390.8 million shares of Infinity Class
A common stock outstanding to shareholders other than the Company.
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 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
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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 "dual network" rule, which prohibits
the Company from owning and controlling both CBS and 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. Subsequent to September 30, 2000,
the Company has entered into agreements relating to the sale of several radio
stations, which, if consummated, will result in compliance with FCC
requirements.
On September 15, 2000, Infinity Broadcasting completed the acquisition of
Memphis radio stations WMC-AM and WMC-FM from Raycom Media for approximately $76
million.
On August 24, 2000, Infinity Broadcasting completed the acquisition of 18 radio
stations from Clear Channel Communications, Inc. for $1.4 billion in an asset
transaction. These stations are located in San Diego, Phoenix, Denver,
Cleveland, Cincinnati, Orlando and Greensboro-Winston-Salem.
During June 2000, Infinity Broadcasting completed its acquisitions of two
international outdoor 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.
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.
The Company has certain restrictions on Infinity Broadcasting's cash balance of
$143.8 million, reflected in the Company's consolidated cash amount of $992.7
million at September 30, 2000. Infinity Broadcasting's cash will become
available to Viacom upon the merger of Infinity with Viacom.
Share Repurchase Programs
During the first nine months of 2000, the Company repurchased 10,000 shares of
its Class A Common Stock and 27.5 million shares of its Class B Common Stock
under its stock repurchase programs for approximately $1.6 billion in the
aggregate. Third quarter 2000 repurchases included in this total amounted to
$340.6 million. As of October 31, 2000, the Company had approximately $270.5
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.
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<PAGE>
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 September 30, 2000, the Company had
approximately 140,872 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 $15.2 billion, are not reflected in the balance sheet as of
September 30, 2000. These commitments include approximately $10.9 billion for
the acquisition of sports programming rights. A majority of such fees are
payable over several years, as part of normal programming expenditures.
Cash Flows
Net cash flow from operating activities of $1.1 billion for the nine months
ended September 30, 2000 principally reflects the impact of the merger and,
excluding non-cash items, the improved operating results of the Company's
businesses, partially offset by the payment of accrued liabilities. Net cash
flow from operating activities of negative $288.3 million for the nine months
ended September 30, 1999 principally reflects the tax payment related to the
sale of Non-Consumer Publishing as well as the investment in program development
for the Entertainment and Networks segments. Net cash expenditures for
investing activities of $2.2 billion for the nine months ended September 30,
2000 principally reflect capital expenditures of $422.1 million and acquisitions
of $1.9 billion. Net cash expenditures for investing activities of $856.1
million for the nine months ended September 30, 1999 principally reflects
capital expenditures and the Spelling acquisition as well as acquisitions of
video stores and television stations. Financing activities for the nine months
ended September 30, 2000 principally reflect borrowings from banks and proceeds
from the issuance of $1.6 billion of senior notes and debentures partially
offset by the purchase of treasury stock. For the nine months ended September
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.
Financial Position
Current assets increased to $7.5 billion as of September 30, 2000 from $5.2
billion as of December 31, 1999, due to the addition of approximately $3.5
billion in current assets 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 increased to 6.9%
as of September 30, 2000 from 6.1 % as of December 31, 1999. The change in
property and equipment principally reflects
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<PAGE>
the addition of approximately $3.1 billion in fixed assets due to the Merger and
capital expenditures of $422.1 million related to capital additions partially
offset by depreciation expense of $528.1 million. Intangibles of $61.6 billion
at September 30, 2000 increased by $50.1 billion compared to $11.5 billion as of
December 31, 1999, pricipally reflecting the Merger and other acquisitions.
Other assets increased to $3.2 billion as of September 30, 2000 from $1.6
billion as of December 31, 1999, reflecting the addition of approximately $1.7
billion from the Merger. Current liabilities increased $2.7 billion to $7.1
billion as of September 30, 2000 due to the addition of approximately $2.8
billion resulting from the Merger. Non-current liabilities of $20.2 billion
reflect the inclusion of $3.7 billion of debt and $5.8 billion of other
liabilities from the Merger. The minority interest balance of $7.0 billion as of
September 30, 2000 included $5.7 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 September 30, At December 31,
2000 1999
------------------------------------------------------------------------------------------------------------------
Long-term debt:
<S> <C> <C>
Notes payable to banks (including commercial paper) $ 6,046.2 $3,054.2
Senior notes and debentures (5.875% - 9.75%, due 2000-2030) 5,528.4 2,310.9
Senior subordinated notes (8.875% - 10.25%, due 2001-2007) 704.8 35.3
Subordinated exchange debentures (11.375%, due 2009) 45.0 --
Obligations under capital leases 552.5 591.6
------------------------------------------------------------------------------------------------------------------
Total debt 12,876.9 5,992.0
Less current portion 238.0 294.3
------------------------------------------------------------------------------------------------------------------
Total long-term debt $12,638.9 $5,697.7
==================================================================================================================
</TABLE>
The notes and debentures are presented net of an aggregate unamortized discount
of $12.9 million as of September 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 21% at September 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 credit
agreement, which consists of a $1.5 billion revolving credit facility maturing
August 29, 2001 and the existing Infinity credit agreement, which consists of a
$1.5 billion revolving credit facility maturing August 29, 2001, were amended to
allow for the merger of CBS with and into the Company. Borrowing rates under
the CBS and Infinity 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 the respective senior unsecured debt rating.
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<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 LIBOR
plus a margin based on Infinity Broadcasting's senior unsecured debt rating.
The CBS and Infinity Broadcasting facilities contain certain covenants which,
among other things, require that CBS and Infinity Broadcasting maintain certain
financial ratios and impose on CBS and Infinity Broadcasting and their
subsidiaries certain limitations on substantial asset sales and mergers with any
other company in which CBS and Infinity Broadcasting are not the surviving
entities.
The Company has a $4.0 billion commercial paper program. Borrowings under the
program have maturities of less than a year and are supported by unused
committed bank facilities. At September 30, 2000, the Company had borrowings
under the program of approximately $ 1 billion.
On July 20, 2000, Infinity Broadcasting initiated a $3.25 billion commercial
paper program. Borrowings under Infinity's commercial paper program are short-
term in nature and have been and will be used primarily to finance acquisitions
or refinance existing debt. At September 30, 2000, Infinity Broadcasting had
borrowings under the commerical paper program of approximately $ 2.5 billion.
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.
At September 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.
The aggregate market value of the shares of Blockbuster common stock based on
the October 31, 2000 closing price of $8.875 per share of Blockbuster common
stock was approximately $1.6 billion. The net book value of Viacom's investment
in Blockbuster at September 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 October 31, 2000 closing stock price of Blockbuster, a
split-off would have resulted in a pre-tax loss on discontinued operations of
approximately $3.8 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.
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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."
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PART II - - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 Amendment No. 1, dated as of June 15, 2000, to the Credit Agreement,
dated as of June 21, 1999, between Blockbuster Inc. and the banks
named therein.
10.2 Letter Agreement, dated as of June 15, 2000, among Blockbuster Inc.,
Citibank, N.A. and Viacom Inc., relating to the Credit Agreement,
dated as of June 21, 1999, between Blockbuster Inc. and the banks
named therein.
10.3 Employment Agreement, dated as of May 1, 2000, between Viacom Inc.
and Michael D. Fricklas.
27. Financial Data Schedule.
(b) Reports on Form 8-K for Viacom Inc.
Current Report on Form 8-K/A of Viacom Inc. filed on July 17, 2000,
amending the Current Report on Form 8-K of Viacom Inc. filed on May 4,
2000, relating to certain financial information in connection with the
completion of the merger of CBS Corporation with and into Viacom Inc.
Current Report on Form 8-K of Viacom Inc. filed on August 3, 2000, relating
to the signing of an underwriting agreement with Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Salomon Smith Barney Inc., Banc of America
Securities LLC, Chase Securities Inc., Deutsche Bank Securities Inc., BNY
Capital Markets, Inc. and FleetBoston Robertson Stephens Inc., pursuant to
which Viacom Inc. issued and sold $1,150,000,000 aggregate principal amount
of 7.70% Senior Notes due 2010, and $500,000,000 aggregate principal amount
of 7.875% Senior Debentures due 2030.
Current Report on Form 8-K of Viacom Inc. filed on August 15, 2000,
announcing an offer to acquire, through a stock-for-stock merger
transaction, the remaining shares of Infinity Broadcasting Corporation that
Viacom Inc. does not currently own.
39
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Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIACOM INC.
-------------------------------
(Registrant)
Date November 14, 2000 /s/ Fredric G. Reynolds
----------------- -------------------------------
Fredric G. Reynolds
Executive Vice President
Chief Financial Officer
Date November 14, 2000 /s/ Susan C. Gordon
----------------- -------------------------------
Susan C. Gordon
Vice President, Controller
Chief Accounting Officer
40
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Exhibit Index
-------------
10.1 Amendment No. 1, dated as of June 15, 2000, to the Credit Agreement,
dated as of June 21, 1999, between Blockbuster Inc. and the banks
named therein.
10.2 Letter Agreement, dated as of June 15, 2000, among Blockbuster Inc.,
Citibank, N.A. and Viacom Inc., relating to the Credit Agreement,
dated as of June 21, 1999, between Blockbuster Inc. and the banks
named therein.
10.3 Employment Agreement, dated as of May 1, 2000, between Viacom Inc.
and Michael D. Fricklas.
27. Financial Data Schedule.
41
