SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
Commission file number 1-9554
VIACOM INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2980402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1515 Broadway, New York, N.Y. 10036
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 258-6000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X . No___.
Number of shares of Common Stock Outstanding at April 30, 1994:
Common Stock, par value $.10 per share - 100
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; all amounts, except per share amounts, are in millions)
Three months ended
March 31,
------------------
1994 1993
---- ----
Revenues $ 500.9 $ 470.7
Expenses:
Operating 526.2 219.1
Selling, general and administrative 194.5 122.7
Depreciation and amortization 40.4 37.8
------ ------
Total expenses 761.1 379.6
------ ------
Earnings (loss) from operations (260.2) 91.1
Other income (expense):
Interest expense, net (33.8) (40.2)
Other items, net (See Note 7) (4.3) 52.9
------ ------
Earnings (loss) before income taxes (298.3) 103.8
Provision for income taxes (76.1) (31.8)
Equity in earnings of affiliated companies,
net of tax 1.2 .3
------ ------
Net earnings (loss) before cumulative effect of
change in accounting principle (373.2) 72.3
Cumulative effect of change in accounting
principle -- 10.4
------ ------
Net earnings (loss) $ (373.2) $ 82.7
========= ========
See notes to consolidated financial statements.
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VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts are in millions)
March 31, December 31,
1994 1993
(Unaudited)
----------- -----------
Assets
Current Assets:
Cash and cash equivalents $ 28.6 $ 74.0
Receivables, less allowances of
$34.2 (1994) and $33.9 (1993) 338.2 351.7
Programming rights, deferred program costs and
distribution fees advanced and committed 311.9 356.5
Other current assets 92.8 95.7
-------- --------
Total current assets 771.5 877.9
-------- --------
Property and equipment, at cost 917.0 900.9
Less accumulated depreciation 365.7 347.2
-------- --------
Net property and equipment 551.3 553.7
-------- --------
Programming rights, deferred program costs and
distribution fees advanced and committed 538.7 789.5
Receivable from Viacom Inc.(Parent Company) 223.4 203.9
Intangibles, at amortized cost 2,113.3 2,128.9
Other assets 235.0 219.6
-------- --------
$4,433.2 $4,773.5
======== ========
See notes to consolidated financial statements.
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VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts, except share and per share amounts, are in millions)
March 31, December 31,
1994 1993
(Unaudited)
---------- -----------
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 72.6 $ 96.6
Accrued interest 12.1 20.5
Deferred income, current 48.4 50.9
Other accrued expenses 227.3 229.5
Income taxes 213.9 140.5
Participants share and residuals
payable 145.2 139.1
Program rights, current 158.7 198.0
Current portion of long-term debt 3.5 18.6
-------- --------
Total current liabilities 881.7 893.7
-------- --------
Long-term debt 2,451.4 2,411.8
Program rights, non-current 100.6 86.8
Other liabilities 190.6 195.9
Commitments and contingencies (See Note 5)
Shareholders' Equity:
Common Stock, par value $.10 per share;
100 shares authorized, issued and
outstanding -- --
Additional paid-in capital 912.3 912.3
Retained earnings (accumulated deficit) (100.2) 273.0
Cumulative translation adjustment (3.2) --
-------- --------
808.9 1,185.3
-------- --------
$4,433.2 $4,773.5
======== ========
See notes to consolidated financial statements.
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VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; all amounts are in millions)
Three months ended March 31,
---------------------------
1994 1993
---- ----
Net cash flow from operating activities:
Net earnings (loss) $ (373.2) $ 81.9
Adjustment to reconcile net earnings to net
cash flow from operating activities:
Merger-related charges 332.1 --
Depreciation and amortization 40.4 37.8
Gain on the sale of the Wisconsin cable system,
net of tax -- (45.8)
Cumulative effect of change in
accounting principle -- (10.4)
Decrease in receivables 13.5 17.1
Decrease in accounts payable and
accrued expenses (61.8) (39.0)
Increase in inventory and related
liabilities, net (36.5) (57.2)
Increase in income
taxes payable and deferred
income taxes, net 72.8 20.8
Decrease in receivable from Viacom Inc. (19.7) (.3)
Other, net 5.6 (11.4)
------- -------
Net cash flow from operating activities (26.8) (6.5)
------- -------
Investing Activities:
Capital expenditures (33.4) (28.5)
Investments in and advances to affiliated
companies (14.1) (12.3)
Proceeds from sale of the Wisconsin cable
system -- 73.7
Other, net 5.1 (4.4)
------- -------
Net cash flow from investing activities (42.4) 28.5
------- -------
Financing Activities:
Short-term borrowings (repayments) from banks,
net 24.7 (30.4)
Other, net (.9) (.5)
------- -------
Net cash flow from financing activities 23.8 (30.9)
------- -------
Net decrease in cash and cash equivalents (45.4) (8.9)
Cash and cash equivalents at beginning of the
period 74.0 48.4
------- -------
Cash and cash equivalents at end of period $ 28.6 $ 39.5
======= =========
See notes to consolidated financial statements.
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Viacom International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
In the opinion of management, the unaudited information for the
interim periods includes all the adjustments, which are of a normal
recurring nature, except for the merger-related charges associated
with the merger of Paramount Communications Inc. ("Paramount") (see
Notes 2 and 3), necessary for a fair statement of the interim
financial information. Interim results are not necessarily indicative
of the results to be expected for the full year. The consolidated
balance sheet at December 31, 1993 was derived from Viacom
International's Annual Report on Form 10-K/A.
1) BASIS OF PRESENTATION
Viacom International Inc. ("Viacom International") is a wholly owned
subsidiary of Viacom Inc. Viacom Inc. is a holding company whose
other principal asset is its majority ownership of Paramount. Viacom
International is a diversified entertainment company with operations
in three principal segments: (i) Networks, (ii) Entertainment and
(iii) Cable Television and Broadcasting.
Certain amounts on the 1993 financial statements have been
reclassified to conform with the current presentation.
2) PARAMOUNT MERGER AND BLOCKBUSTER MERGER
On March 11, 1994, Viacom Inc. acquired, pursuant to a tender offer
(the "Paramount Offer"), 61,657,432 shares of Paramount Common Stock,
constituting a majority of the shares outstanding, at a price of $107
per share in cash. The Paramount Offer was made pursuant to the
Amended and Restated Agreement and Plan of Merger dated as of February
4, 1994 (the "Paramount Merger Agreement") between Viacom Inc. and
Paramount. Subject to certain conditions, Paramount will become a
wholly owned subsidiary of Viacom Inc. (the "Paramount Merger") at the
effective time of a merger between Paramount and a subsidiary of
Viacom Inc. which is expected to occur promptly as practicable
following completion of review by the Securities and Exchange
Commission (the "SEC").
On January 7, 1994, Viacom Inc. and Blockbuster Entertainment
Corporation ("Blockbuster") entered into an agreement and plan of
merger (the "Blockbuster Merger Agreement") pursuant to which
Blockbuster will be merged with and into Viacom Inc. (the "Blockbuster
Merger").
The Paramount Merger and the Blockbuster Merger (collectively, the
"Mergers") have been unanimously approved by the Boards of Directors
of each of the respective companies. The obligations of Viacom Inc.,
Blockbuster and Paramount to consummate the mergers are subject to
various conditions, including obtaining requisite stockholder
approvals. Viacom
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Viacom International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Inc. intends to vote its shares of Paramount in favor of the merger and
National Amusements, Inc. ("NAI") has agreed to vote its shares of Viacom Inc.
in favor of the Mergers; therefore, stockholder approval of the Paramount
Merger is assured, and approval by Viacom Inc. of the Blockbuster Merger is
also assured.
In a letter to stockholders dated May 4,1994, H. Wayne Huizenga, the
Chairman of the Board of Blockbuster, stated that although the Blockbuster
Board continues to believe that the combination of Blockbuster with Viacom
Inc. and Paramount represents an excellent strategic opportunity, given the
stock prices as of the date of his letter, there could be no assurance that
the Blockbuster Board would be able to recommend the Blockbuster Merger
Agreement to the Blockbuster shareholders at the time of any shareholder
meeting called to vote on the Blockbuster Merger. Mr. Huizenga also
stated, among other things, that Blockbuster was unable to say whether or
not the Blockbuster Merger would go forward or whether or not any special
meeting of Blockbuster shareholders would be called to vote on the
Blockbuster Merger.
The closing prices reported by the New York Stock Exchange of
Blockbuster's Common Stock and the American Stock Exchange of Viacom
Inc.'s Class A and Class B Common Stock as of the close of business on
January 6, 1994, the date prior to the announcement of the Blockbuster
Merger, were $29 7/8 per share, $47 per share and $42 3/4 per share,
respectively. Such prices as of May 3, 1994, the day prior to the
stockholders letter, were $26 3/4 per share, $26 per share and $24 1/4
per share, respectively. Such prices were $26 1/2 per share, $29 3/4 per
share, and $28 1/8 per share, respectively, as of the close of business
on May 19, 1994.
3) PARAMOUNT MERGER-RELATED CHARGES
Included in earnings (loss) from operations are certain merger-
related charges to Viacom's pre-merger businesses, reflecting the
integration of these businesses with similar Paramount units, and
related management and strategic changes principally related to the
merger with Paramount as follows:
Viacom Merger-
International Related
pre-merger Charges As reported
---------- ------- -----------
(Millions of Dollars)
Networks $66.4 $ 73.4 $ (7.0)
Entertainment $ 1.9 $ 224.0 $(222.1)
Cable Television and
Broadcasting $29.6 $ 17.3 $ 12.3
Merger-related charges principally relate to adjustments of programming
assets based upon new management strategies and additional programming
sources resulting from the merger with
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<PAGE>
Viacom International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Paramount. In addition, a merger-related charge included in Corporate
expenses reflects the combination of the Viacom International and Paramount
staffs.
4) BANK FINANCING AND DEBT
Total debt, which includes short-term and long-term debt, consists of the
following:
March 31, December 31,
1994 1993
-------- ------------
(Millions of dollars)
Notes payable to banks $1,939.8 $1,915.1
9.125% Senior Subordinated Notes due 1999 150.0 150.0
8.75% Senior Subordinated Reset Notes due
2001 100.0 100.0
10.25% Senior Subordinated Notes due 2001 200.0 200.0
Obligations under capital leases 65.1 65.3
-------- --------
2,454.9 2,430.4
Less current portion 3.5 18.6
-------- --------
$2,451.4 $2,411.8
======== ========
During May 1994, Viacom Inc. received commitments in the aggregate
amount of $3.0 billion from Bank of America NT&SA, Citibank, N.A.,
Morgan Guaranty Trust Company of New York and The Bank of New York,
managing agents under a proposed long-term $6.8 billion credit
facility, subject to receiving commitments for the remainder of the
facility. The new facility is expected to have scheduled maturities
commencing December 1996 and a final maturity of July 2002. This new
facility will refinance existing bank indebtedness at Viacom Inc.,
Viacom International and Paramount, and will be available for general
corporate purposes. Viacom Inc. expects, during the second quarter of
1994, to receive commitments for the remainder of the facility from a
syndicate of financial institutions. Based on these factors,
substantially all borrowings of $239.5 million outstanding under short-
term credit facilities at March 31, 1994, have been classified as long-
term debt due to management's ability and intent to refinance these
facilities on a long-term basis.
5) COMMITMENTS AND CONTINGENCIES
Those commitments of Viacom International for program license fees
which are not reflected in the balance sheet as of March 31, 1994,
which are estimated to aggregate approximately $2.1 billion,
principally reflect commitments under Showtime Networks Inc.'s
("SNI's") exclusive arrangements with several motion picture
companies. This estimate is based upon a number of factors. A
majority of such fees are payable within the next seven years, as part
of normal programming
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<PAGE>
Viacom International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
expenditures of SNI. These commitments are contingent upon delivery of
motion pictures, which are not yet available for premium television exhibition
and, in many cases, have not yet been produced.
6) PROVISION FOR INCOME TAXES
The provision for income taxes represents federal, state and foreign
income taxes on earnings before income taxes.
The annual effective tax rates of 48% for 1993 and negative 26% for
1994 continue to be affected by amortization of acquisition costs
which are not deductible for tax purposes.
Due to the unusual and non-recurring nature of the gain on the sale
of the Wisconsin cable system, its full income tax effect is
reflected in the first quarter 1993 tax provision and is excluded
from the estimated annual effective tax rate.
During the first quarter of 1993, Viacom International adopted
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"), on a prospective basis and recognized a
cumulative benefit from a change in accounting principle of $10.4
million.
7) OTHER ITEMS, NET
As part of the settlement of the Time Warner antitrust lawsuit, Viacom
International sold the stock of Viacom Cablevision of Wisconsin, Inc.
to Warner Communications Inc. ("Warner"). This transaction was
effective on January 1, 1993. As consideration for the stock, Warner
paid the sum of $46 million, $20 million of which was received during
1992, plus repayment of debt in the amount of $49 million, resulting
in a pre-tax gain of approximately $55 million reflected in "Other
items, net." Also reflected in this line item is an adjustment to
previously established non-operating litigation reserves and the net
gain on the sale of a portion of an investment held at cost.
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Viacom International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
8) SUPPLEMENTAL CASH FLOW INFORMATION
Three months ended
March 31,
------------------
1994 1993
---- ----
(Millions of dollars)
Cash payments for interest, net of amounts
capitalized $41.3 $59.0
Cash payments for income taxes 3.2 2.0
9) SUBSEQUENT EVENT
On April 4, 1994, Viacom International sold its one-third partnership
interest in Lifetime Television ("Lifetime") for approximately $317.6
million, which will result in a pre-tax gain of approximately $267
million in the second quarter of 1994. Proceeds from the sale were
used to reduce outstanding debt of Viacom International.
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<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.
Management's discussion and analysis of the results of operations and
financial condition of Viacom International should be read in
conjunction with the Consolidated Financial Statements and related
Notes.
The following tables set forth revenues, depreciation and amortization,
earnings (loss) from operations, equity in pre-tax earnings of
affiliated companies, and earnings from operations plus equity in pre-
tax earnings by business segment for the three months ended March 31,
1994 and March 31, 1993:
<TABLE><CAPTION>
Equity in
Earnings pre-tax Operations
from earnings of plus
Depreciation operations affiliated equity
1994 Revenues & amortization (as reported) companies earnings
--------- -------------- ------------- ----------- ----------
(Millions of dollars)
<S> <C> <C> <C> <C> <C>
Networks . . . . . . . . $314.9 $11.9 $ (7.0) $2.1 $ (4.9)
Entertainment . . . . . . 50.1 2.9 (222.1) (0.2) (222.3)
Cable Television
& Broadcasting . . . . . 141.4 24.6 11.9 -- 11.9
Corporate . . . . . . . . -- 1.0 (43.0) -- (43.0)
Intercompany . . . . . . (5.5) -- -- -- --
------ ------ -------- ----- --------
Totals . . . . . . . . . $500.9 $40.4 $(260.2) $1.9 $(258.3)
====== ====== ======== ===== ========
</TABLE>
<TABLE><CAPTION>
Equity in
Earnings pre-tax Operations
from earnings of plus
Depreciation operations affiliated equity
1993 Revenues & amortization (as reported) companies earnings
--------- -------------- ------------- ----------- ----------
(Millions of dollars)
<S> <C> <C> <C> <C> <C>
Networks . . . . . . . . $269.1 $10.6 $56.5 $0.5 $57.0
Entertainment . . . . . . 64.5 2.3 13.1 -- 13.1
Cable Television
& Broadcasting . . . . . 142.8 24.0 35.8 -- 35.8
Corporate . . . . . . . . -- 0.9 (14.3) -- (14.3)
Intercompany . . . . . . (5.7) -- -- -- --
------- ------ ------ ----- ------
Totals . . . . . . . . . $470.7 $37.8 $91.1 $0.5 $91.6
======= ====== ====== ===== ======
</TABLE>
Results of Operations
First quarter 1994 vs. First quarter 1993
Revenues increased 6%, or $30.2 million, to $500.9 million for the
first quarter of 1994. Earnings from operations decreased $351.3
million, to a loss of $260.2 million for the first quarter of 1994.
The net loss of $373.2 million for the first quarter of
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<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition.
1994, reflects net interest expense of $33.8 million and a provision for
income taxes of $76.1 million. Net earnings of $82.7 million for the
first quarter of 1993, reflect net interest expense of $40.2 million,
a pre-tax gain of $55 million from the sale of the Wisconsin cable
television system, a provision for income taxes of $31.8 million, and
the cumulative benefit from a change in accounting for income taxes
of $10.4 million.
Included in earnings (loss) from operations are certain merger-
related charges to Viacom's pre-merger businesses, reflecting the
integration of these businesses with similar Paramount units, and
related management and strategic changes principally related to the
merger with Paramount as follows:
Viacom Merger-
International related As
pre-merger charges Reported
---------- ------- --------
(Millions of Dollars)
Networks $66.4 $ 73.4 $ (7.0)
Entertainment $ 1.9 $ 224.0 $(222.1)
Cable Television and
Broadcasting $29.6 $ 17.3 $ 12.3
These merger-related charges principally relate to adjustments of
programming assets based upon new management strategies and additional
programming sources resulting from the merger with Paramount. In
addition, a merger-related charge of $17.4 million has been taken in
Corporate expenses reflecting the combination of the Viacom International
and Paramount staffs.
Exclusive of these merger-related charges, segment results of
operations for the three months ended March 31, 1994 were as follows:
Networks (Basic cable and premium television networks)
MTV Networks ("MTVN") revenues increased 30% to $173.7 million for
the quarter ended March 31, 1994 from $133.5 million for the quarter
ended March 31, 1993: 66% of this increase was attributable to
increased advertising sales at each of the services; 17% to increased
affiliate fees at each of the services; and 17% to other revenue
sources. The increase in advertising sales and affiliate fees are
principally due to rate increases. The increases in other revenue
sources are principally due to revenues from new business ventures,
including licensing and merchandising. Earnings from operations of
MTVN increased 21% to $55.2 million for the quarter ended March 31,
1994 from $45.7 million for the quarter ended March 31, 1993,
reflecting the
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<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition.
increased revenues, partially offset by increased costs of operating the
networks, including start-up losses of MTV Latino and Nickelodeon Magazine
aggregating $2.5 million.
Revenues of Showtime Networks Inc. ("SNI") increased 4% to $141.3
million for the quarter ended March 31, 1994 from $135.5 million for
the quarter ended March 31, 1993 due to: 1) an increase of $5.5
million in revenues of Showtime Satellite Networks Inc. ("SSN"),
primarily due to a 38% increase in SSN's subscriber base, principally
attributable to the use of upgraded scrambling technology, partially
offset by a 4% decrease in average rates; 2) an increase of $3.8
million in revenues of Showtime Entertainment Group from the sale of
foreign rights of original motion pictures; and 3) a decrease of $3.3
million in revenues from sales of Showtime and The Movie Channel from
other than SSN, reflecting a 4% increase in the combined subscriber
base, while the average affiliate rates decreased by 7%. SNI's
premium movie services, Showtime, The Movie Channel and FLIX, served
approximately 12.3 million subscribers as of March 31, 1994 and
approximately 10.9 million subscribers as of March 31, 1993. SNI's
earnings from operations increased 4% to $11.3 million for the
quarter ended March 31, 1994 from $10.9 million for the quarter ended
March 31, 1993, reflecting the increased revenues and a change in
estimate of the costs of movie rights for previously exhibited
programming of $13.7 million, partially offset by overall increased
costs.
Entertainment (Television production and distribution
and New Media)
Viacom Entertainment revenues decreased 22% to $50.1 million for the
quarter ended March 31, 1994 from $64.5 million for the quarter ended
March 31, 1993. The revenue variance is principally due to decreased
syndication revenues. Lower sales to the broadcast, cable and other
markets reflect lower syndication revenues for The Cosby Show.
Earnings from operations decreased 85% to $1.9 million for the
quarter ended March 31, 1994 from $13.1 million for the quarter ended
March 31, 1993, primarily reflecting the decreased revenues and $2.3
million of start-up losses associated with Viacom New Media.
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<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition.
Cable Television and Broadcasting (Cable television systems and
Television and Radio stations)
Cable Television revenues decreased 4% to $100.7 million for the
quarter ended March 31, 1994 from $104.5 million for the quarter
ended March 31, 1993 due to: 1) a decrease of $5.9 million in basic
revenue, primarily due to a 10% decrease in rates for basic services,
partially offset by a 3% increase in basic customers; 2) a decrease
of $1.7 million in premium revenue, primarily due to decreased rates;
3) an increase of $1.7 million in equipment charges; and 4) an
increase of $2.1 million in other revenue sources. Total revenue per
basic customer per month decreased 6% to $30.48 in 1994 from $32.44
in 1993. The revenue variances reflect the effect of the 1992 Cable
Act rate regulations, released by the FCC, which became effective on
September 1, 1993. Earnings from operations decreased 31% to $21.2
million for the quarter ended March 31, 1994 from $30.6 million for
the quarter ended March 31, 1993, reflecting the decreased revenues
and increased operating, general and administrative expenses, which
include non-recurring costs associated with the implementation of FCC
rate regulations.
The FCC released additional rate regulations on March 30, 1994 which
became effective May 15, 1994. Viacom International is evaluating
the effect of these new rate regulations which require a reduction of
rates in addition to that which the Company has already taken.
Viacom Cable served approximately 1,111,000 basic customers
subscribing to approximately 734,000 premium units as of March 31,
1994. Basic customers and premium units increased 3% and 1%,
respectively, since March 31, 1993.
Television revenues increased 10% to $21.7 million for the quarter
ended March 31, 1994 from $19.7 million for the quarter ended March
31, 1993, reflecting increased local and national advertising
revenues for the Viacom stations. Earnings from operations increased
62% to $4.2 million for the quarter ended March 31, 1994 from $2.6
million for the quarter ended March 31, 1993, reflecting increased
revenues.
Radio revenues increased 2% to $19.0 million for the quarter ended
March 31, 1994 from $18.6 million for the quarter ended March 31,
1993, reflecting increased local advertising revenues. Earnings from
operations increased 46% to $5.1 million for the quarter ended March
31, 1994 from $3.5 million for the quarter ended March 31, 1993,
primarily reflecting the increased revenues.
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<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition.
Corporate
Corporate expenses increased to $25.7 million for the quarter ended
March 31, 1994 from $14.3 million for the quarter ended March 31,
1993, primarily due to increased compensation expense.
Other income and expense information
Net interest expense decreased 16% to $33.8 million for the quarter
ended March 31, 1994 from $40.2 million for the quarter ended March
31, 1993.
For the quarter ended March 31, 1993, "Other items, net," reflects
the pre-tax gain of approximately $55 million on the sale of the
stock of the Wisconsin cable system, an adjustment to previously
established non-operating litigation reserves and the net gain on the
sale of a portion of an investment held at cost.
The provision for income taxes represents federal, state and foreign
income taxes on earnings before income taxes.
The annual effective tax rates of 48% for 1993 and negative 26% for
1994 continue to be affected by amortization of acquisition costs
which are not deductible for tax purposes.
Due to the unusual and non-recurring nature of the gain on the sale
of the Wisconsin cable system, its full income tax effect is
reflected in the first quarter 1993 tax provision and is excluded
from the estimated annual effective tax rate.
During the first quarter of 1993, Viacom International adopted
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" on a prospective basis and recognized a cumulative
benefit from a change in accounting principle of $10.4 million.
"Equity in earnings of affiliated companies, net of tax" was $1.2
million for the quarter ended March 31, 1994 compared with $.3
million for the quarter ended March 31, 1993, primarily reflecting
improved operating results at Lifetime and Comedy Central. During
April 1994, Viacom International sold its equity investment in
Lifetime. (See "Subsequent Events.")
Effective January 1, 1994, Viacom International adopted Financial
Accounting Standards No. 112, "Employers Accounting for
Postemployment Benefits," which did not have a material effect on
Viacom International's financial position or results of operations.
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<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition.
Liquidity and Capital Resources
Viacom International finances its operations including cash requirements of
its joint ventures through internally generated cash flow, funds available
through bank credit facilities, public market note and bond offerings and
capital contributions from its parent company, Viacom Inc.
Viacom International is expected to have sufficient capital resources
available to it to meet the needs of its expanding operations on a
continuing basis.
Viacom International's scheduled maturities of long-term debt through
December 31, 1998 under its credit facilities are $150 million
(1994), $358 million (1995), $358 million (1996), $358 million (1997)
and $358 million (1998).
Viacom International was in compliance with all covenants and had
satisfied all financial ratios and tests as of March 31, 1994 under
the credit facilities and Viacom International expects to remain in
compliance with such ratios as may be applicable from time to time
during 1994.
Debt, including the current portion, as a percentage of total
capitalization of Viacom International was 75% at March 31, 1994 and
67% at December 31, 1993.
The indebtedness under Viacom International's credit facilities bears
interest at floating rates, causing Viacom International to be
sensitive to changes in prevailing interest rates. As of March 31,
1994, Viacom International had obtained interest rate protection
agreements with respect to $1.8 billion of such indebtedness. The
interest rate protection agreements will mature during 1994 through
1997. Viacom International expects to maintain interest rate
protection agreements sufficient to meet requirements of the credit
facilities.
Net cash flow from operating activities was negative $26.8 million for
the three months ended March 31, 1994 versus negative $6.5 million for
the three months ended March 31, 1993 due to decreased earnings from
operations prior to merger-related charges. Net cash expenditures for
investing activities of $42.4 million for the three months ended March
31, 1994, principally reflects capital expenditures and additional
investments in affiliated companies. Net cash flows from investing
activities of $28.5 million for the three months ended March 31, 1993
principally reflects proceeds from the sale of the Wisconsin cable
system and an investment held at cost partially offset by capital
expenditures, the acquisition of ICOM Simulations, Inc., the
additional investment in StarSight Telecast, Inc. and advances to
Comedy Central. Financing activities principally
-16-
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition.
reflect borrowings and repayments of debt under the credit facilities
during each period presented.
Those commitments of Viacom International for program license fees
which are not reflected in the balance sheet as of March 31, 1994,
which are estimated to aggregate approximately $2.1 billion,
principally reflect commitments under Showtime Networks Inc.'s
("SNI's") exclusive arrangements with several motion picture
companies. This estimate is based upon a number of factors. A
majority of such fees are payable within the next seven years, as part
of normal programming expenditures of SNI. These commitments are
contingent upon delivery of motion pictures, which are not yet
available for premium television exhibition and, in many cases, have
not yet been produced.
On March 11, 1994, Viacom Inc. acquired, pursuant to a tender offer
(the "Paramount Offer"), 61,657,432 shares of Paramount Common Stock,
constituting a majority of the shares outstanding, at a price of $107
per share in cash. (See Note 2 of Notes to Consolidated Financial
Statements.)
Viacom Inc. has substantially no source of funds other than dividends
paid by Viacom International and, upon completion of the Paramount
Merger, by Paramount on their respective stocks. The Viacom
International Credit Agreement, with certain exceptions prohibits,
Viacom International from paying any dividends on its stock to Viacom
Inc. The prohibition will not apply under the new Viacom Inc.
facility described below.
During May 1994, Viacom Inc. received commitments in the aggregate
amount of $3.0 billion from Bank of America NT&SA, Citibank, N.A.,
Morgan Guaranty Trust Company of New York and The Bank of New York,
managing agents under a proposed long-term $6.8 billion credit
facility, subject to receiving commitments for the remainder of the
facility. The new facility is expected to have scheduled maturities
commencing December 1996 and a final maturity of July 2002. This new
facility will refinance existing bank indebtedness at Viacom Inc.,
Viacom International and Paramount and will be available for general
corporate purposes. Viacom Inc. expects, during the second quarter of
1994, to receive commitments for the remainder of the facility from a
syndicate of financial institutions.
Management believes that both Viacom Inc. and Viacom International
will benefit from consolidating all the bank credit facilities of
Viacom Inc. and its subsidiaries under one master bank credit
facility to be used to fund the operations of Viacom Inc. and its
subsidiaries.
On May 5, 1994, Viacom Inc., Viacom International and
-17-
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition.
Paramount filed a shelf registration statement with the Securities and
Exchange Commission ("SEC") registering $3 billion of debt securities and
Preferred Stock, guaranteed by Viacom International and Paramount.
Some or all of the securities may be issued in one or more offerings.
Although Viacom Inc. expects that it will be able to refinance its
indebtedness and meet its obligations without the need to sell any
assets, Viacom Inc. is continuing to review opportunities for the
sale of non-strategic assets as such opportunities may arise,
including the exploration of the sale of the operations of Madison
Square Garden and certain non-core publishing assets.
Subsequent Event
On April 4, 1994, Viacom International sold its one-third partnership
interest in Lifetime for approximately $317.6 million, which will
result in a pre-tax gain of approximately $267 million in the second
quarter of 1994. Proceeds from the sale were used to reduce
outstanding debt of Viacom International.
-18-
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition.
Capital Structure
The following table sets forth the capitalization of Viacom International
and subsidiaries as of March 31, 1994 and December 31, 1993:
March 31, December 31,
1994 1993
--------- -----------
(Millions of dollars)
Current portion of long-term debt $ 3.5 $ 18.6
======= ========
Long-term debt:
Notes payable to banks $1,939.8 $1,900.0
9.125% Senior Subordinated Notes due 1999 150.0 150.0
8.75% Senior Subordinated Reset Notes
due 2001 100.0 100.0
10.25% Senior Subordinated Notes due 2001 200.0 200.0
Obligations under capital leases 61.6 61.8
------- --------
Total long-term debt $2,451.4 $2,411.8
======= ========
Shareholders' equity of Viacom International:
Common stock and additional paid-in
capital (a) $ 912.3 $ 912.3
Retained earnings (accumulated deficit) (100.2) 273.0
Cumulative translation adjustment (3.2) --
------- --------
Total shareholders' equity $ 808.9 $1,185.3
======= ========
______________
a) On March 31, 1994, there were 100 outstanding shares of Common
Stock (100 shares authorized), all of which were owned by Viacom Inc.
National Amusements, Inc. ("NAI") held approximately 64.2% of outstanding
Viacom Inc. Common Stock as of March 31, 1994, which consisted of 85.2%
of the then outstanding Class A Common Stock and 51.7% of the outstanding
Class B Common Stock. Pursuant to a purchase program initiated in August
1987, NAI announced its intent to buy, from time to time, up to an
additional 3,000,000 shares of Class A Common Stock and 2,423,700 shares
of Class B Common Stock. As of March 31, 1994, NAI had acquired an
aggregate of 3,374,300 shares of Common Stock, consisting of 1,466,200
shares of Class A Common Stock and 1,908,100 shares of Class B Common
Stock pursuant to this buying program. On August 20, 1993, NAI ceased
making purchases of Common Stock.
_____________
Viacom International and Viacom Inc. filed a shelf registration statement
with the SEC registering $800 million of debt securities (or, if such
debt securities are issued at an original issue discount, such greater
principal amount as shall result in an aggregate offering price equal to
$800 million)
-19-
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition.
guaranteed by Viacom Inc. The registration statement was
declared effective by the SEC on March 11, 1993. Some or all of the debt
securities may be issued by Viacom International in one or more
offerings.
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
12.1 Computation of Ratio of Earnings to Fixed Charges of Viacom
International.
12.2 Computation of Ratio of Earnings to Fixed Charges and Ratio
of Earnings to Combined Fixed Charges and Preferred Stock Dividends
of Viacom Inc.
(b) Reports on Form 8-K for Viacom International.
Current Reports on Form 8-K of Viacom International with a report
date of January 12, 1994 relating to the execution of an Agreement
and Plan of Merger dated as of January 7, 1994 by and between
Blockbuster Entertainment Corporation and Viacom Inc.
Current Reports on Form 8-K of Viacom International with a report
date of March 10, 1994 relating to the issuance and sale by Viacom
Inc. to Blockbuster Entertainment Corporation of 22,727,273 shares
of Class B Common Stock of Viacom Inc.
Current Reports on Form 8-K of Viacom International with a report
date of March 11, 1994 relating to the completion of Viacom Inc.'s
tender offer for a majority of the outstanding common stock of
Paramount Communications Inc. and the filing of certain historical
and pro forma financial data.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIACOM INTERNATIONAL INC.
(Registrant)
Date 5/20/94 /s/ Frank J. Biondi, Jr.
Frank J. Biondi, Jr.
President,
Chief Executive Officer
Date 5/20/94 /s/ George S. Smith, Jr.
George S. Smith, Jr.
Senior Vice President,
Chief Financial Officer
<PAGE>
Exhibit Index
Page
12.1 Computation of Ratio of Earnings to Fixed
Charges of Viacom International
12.2 Computation of Ratio of Earnings to Fixed
Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred
Stock Dividends of Viacom Inc.
EXHIBIT 12.1
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions except ratios)
<TABLE><CAPTION>
Three Months Ended
March 31, Year Ended December 31,
1994 1993 1993 1992 1991 1990 1989
------------------- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) before income
taxes $(260.2) $103.8 $303.7 $164.6 $66.3 $(16.0) $266.1
Add:
Distributed income of
affiliated companies 5.0 .6 13.5 9.5 5.6 2.8 4.5
Interest expense, net of
capitalized interest 34.9 40.4 150.7 195.2 252.9 243.3 258.0
Capitalized interest 2.0 .6 2.1 2.4 2.3 2.2 2.3
amortized
1/3 of rental expense 6.3 6.3 24.7 22.6 21.5 18.8 15.5
------- ------ ------ ------ ------ ------ ------
Earnings (loss) $(212.0) $151.7 $494.7 $394.3 $348.6 $251.1 $546.4
======= ====== ====== ====== ====== ====== ======
Fixed charges:
Interest costs on all
indebtedness $ 35.0 $ 40.5 $151.1 $195.8 $253.5 $244.1 $313.8
1/3 of rental expense 6.3 6.3 24.7 22.6 21.5 18.8 15.5
------- ------ ------ ------ ------ ------ ------
Total fixed charges $ 41.3 $ 46.8 $175.8 $218.4 $275.0 $262.9 $329.3
======= ====== ====== ====== ====== ====== ======
Ratio of earnings to
fixed charges Note (a) 3.2X 2.8X 1.8X 1.3X Note (a) 1.7X
======= ====== ====== ====== ====== ======= ======
</TABLE>
(a) Earnings were inadequate to cover fixed charges; the additional amount
of earnings required to cover fixed charges for the three months
ended March 31, 1994 and the year ended December 31, 1990, would have
been $253.3 million and $11.8 million, respectively.
EXHIBIT 12.2
<TABLE><CAPTION>
VIACOM INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNING TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(In millions, except ratios)
Three Months Ended
March 31, Year Ended December 31,
1994 1993 1993 1992 1991 1990 1989
------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) before
income taxes $(352.3) $102.1 $301.8 $155.6 $ 8.2 $(70.4) $144.9
Add:
Distributed income of
affiliated companies 7.8 .6 13.4 9.5 5.6 2.8 4.5
Interest expense, net of
capitalized interest 61.4 41.2 154.1 195.2 298.1 295.3 313.1
Capitalized interest 1.9 .6 2.1 2.4 2.3 2.3 2.3
amortized
1/3 of rental expense 8.7 6.3 24.8 22.6 21.5 18.8 15.5
------- ------ ------ ------ ------ ------- ------
Earnings (Loss) $(272.5) $150.8 $496.2 $385.3 $335.7 $ 248.8 $480.3
======= ====== ====== ====== ====== ======= ======
Fixed charges:
Interest costs on all
indebtedness $ 62.4 $ 41.3 $154.5 $195.7 $298.6 $296.1 $313.8
1/3 of rental expense 8.7 6.3 24.8 22.6 21.5 18.8 15.5
------- ------ ------ ------ ------ ------- ------
Total fixed charges $ 71.1 $ 47.6 $179.3 $218.3 $320.1 $314.9 $329.3
======= ====== ====== ====== ====== ======= ======
Ratio of earnings to
fixed charges Note (a) 3.2X 2.8X 1.8X 1.0X Note (a) 1.5X
======= ====== ====== ====== ====== ======= ======
Ratio of earnings to combined
fixed charges and preferred
stock dividends Note (b) -- -- -- -- -- 1.3X
======= ====== ====== ====== ====== ======= ======
</TABLE>
(a) Earnings were inadequate to cover fixed charges; the additional amount of
earnings required to cover fixed charges for the three months ended March
31, 1994, and the year ended December 31, 1990, would have been $343.6
million and $66.2 million, respectively.
(b) Earnings were inadequate to cover combined fixed charges and preferred
stock dividends; the additional amount of earnings required to cover
combined fixed charges and preferred stock dividends for the three
months ended March 31, 1994, would have been $361.2 million.
