Viacom Reports Quarterly Results

Aug 05, 2010
By ViacomCBS Staff

-- Adjusted Operating Income Climbs 28% on Strong Growth in Media Networks and Filmed Entertainment Segments

-- Adjusted Net Earnings and Adjusted Diluted EPS from Continuing Operations Increased 40% and 39% Respectively in the Quarter

Viacom Inc. (NYSE: VIA, VIA.B) today reported strong growth in operating income and profit on improving trends in the advertising market, continued strength of its affiliate revenues and lower film and distribution costs for the quarter ended June 30, 2010.

    2010 Results

                                          Quarter Ended           B/(W)

                                            June 30,              -----

                                            --------

                                                              2010 vs.

                                        2010        2009         2009

                                        ----        ----      ---------

    (in millions, except per

     share amounts)

    ------------------------

    Revenues                          $3,301      $3,299              -

    Operating income                     794         586             35%

    Adjusted operating income(1)         794         619             28%

    Net earnings from continuing

     operations attributable to

     Viacom                              418         277             51%

    Adjusted net earnings from

     continuing operations

     attributable to Viacom(1)           418         298             40%

    Diluted EPS from continuing

     operations                         0.68        0.46             48%

    Adjusted diluted EPS from

     continuing operations(1)          $0.68       $0.49             39%

                                            Six Months

                                              Ended             B/(W)

                                            June 30,            -----

                                            --------

                                                               2010

                                                                vs.

                                        2010        2009       2009

                                       ----        ----       -----

    (in millions, except per

     share amounts)

    ------------------------

    Revenues                          $6,087      $6,204         (2%)

    Operating income                   1,328       1,028          29%

    Adjusted operating income(1)       1,328       1,061          25%

    Net earnings from continuing

     operations attributable to

     Viacom                              661         454          46%

    Adjusted net earnings from

     continuing operations

     attributable to Viacom(1)           661         475          39%

    Diluted EPS from continuing

     operations                         1.08        0.75          44%

    Adjusted diluted EPS from

     continuing operations(1)          $1.08       $0.78          38%

    (1)Adjusted measures referenced in this release are detailed in the

    Supplemental Disclosures at the end of this release.

Consolidated revenues for the quarter were $3.30 billion, essentially flat with the prior year, as growth in affiliate, theatrical and advertising revenues offset lower home entertainment revenues. Adjusted operating income grew 28% to $794 million versus the prior year, reflecting 14% growth in Media Networks and a $77 million increase in the Filmed Entertainment segment. Viacom generated $418 million in adjusted net earnings from continuing operations attributable to Viacom, a 40% increase over the second quarter of 2009, and adjusted diluted earnings per share (EPS) of $0.68, up 39% year-over-year.

Sumner M. Redstone, Executive Chairman of Viacom, said, "Viacom's strong bottom-line results reflect our focused strategy, our creative ingenuity and our disciplined financial approach. We are very pleased with our consistent progress and the solid results that Viacom continues to deliver for shareholders."

Philippe Dauman, President and Chief Executive Officer of Viacom, said, "Viacom has significantly strengthened its financial position, driving free cash flow and continuing to expand our operating margins, culminating this quarter with the delivery of Viacom's first quarterly cash dividend. Importantly, this was achieved without sacrificing our investment in programming, which allows us to further build our brands, launch major new hits and create even stronger connections with our audiences. As a result, we are well positioned to capitalize on improving trends in the advertising market. We have strong slates of new and returning programming debuting in the coming months on MTV, Nickelodeon, BET, Spike, Comedy Central and other networks, which we continue to deliver to audiences on multiple screens and devices.

"At Paramount Pictures, our film slate strategy focused on franchise opportunities coupled with the studio's continued bottom-line vigilance is generating strong results. Our tentpole releases, Marvel Studios' Iron Man 2 and DreamWorks Animation's Shrek Forever After, both rank among the top five films in domestic box office for the year."

    Revenues

    Revenues                      Quarter Ended            B/(W)

                                    June 30,

                                    --------

                                                          2010

                                                           vs.

    (in millions)                 2010        2009        2009

    -------------                ----        ----

    Media Networks              $2,091      $1,966            6%

    Filmed Entertainment         1,245       1,380         (10%)

    Eliminations                   (35)        (47)         N/M

                                   ---         ---

      Total revenues            $3,301      $3,299           --

    Revenues                    Six Months Ended          B/(W)

                                  June 30,            -----

                                  --------

                                                            2010 vs.

    (in millions)                 2010        2009             2009

    -------------                 ----        ----          ---------

    Media Networks              $4,029      $3,831                  5%

    Filmed Entertainment         2,131       2,467               (14%)

    Eliminations                   (73)        (94)               N/M

                                   ---         ---

      Total revenues            $6,087      $6,204                (2%)

   N/M = Not Meaningful

Quarterly revenues of $3.30 billion were on par with the $3.299 billion generated in 2009. Solid growth in affiliate and advertising revenues resulted in a 6% increase in Media Networks revenues. Domestic advertising revenues increased 4% as the strong scatter market more than offset the impact of a weaker 2009 upfront. Worldwide advertising revenues were also up 4%. Worldwide affiliate revenues grew 11% in the quarter, primarily due to rate growth. Worldwide ancillary revenues were flat as growth in online content licensing fees and consumer products sales was offset by lower music video game royalties. Filmed Entertainment revenues were down 10% to $1.25 billion primarily due to lower home entertainment revenues, which declined 43% in the quarter. This decline reflects lower revenues from third party distribution arrangements as well as the release of three titles in the current quarter versus six titles in the comparable 2009 quarter. Worldwide theatrical revenues grew 10% in the quarter reflecting the solid performance of Marvel Studios' Iron Man 2 and DreamWorks Animation's Shrek Forever After as well as the solid carryover revenues from the previous quarter's major releases. Worldwide television license fees decreased 2% primarily due to lower international syndicated television revenues.

    Operating Income

    Operating Income

     (Loss)                    Quarter Ended

                                 June 30,               B/(W)

                                 --------

                                                     2010 vs.

    (in millions)              2010        2009         2009

    -------------              ----        ----

    Media Networks             $789        $692            14%

    Filmed

     Entertainment               69          (8)          N/M

    Corporate                   (45)        (47)            4%

    Equity-based

     compensation               (20)        (19)          (5%)

    Eliminations                  1           1           N/M

                                ---         ---

    Adjusted operating

     income                    $794        $619            28%

    Restructuring                 -         (33)          N/M

    Operating income           $794        $586            35%

    Operating Income

     (Loss)                     Six Months Ended

                                    June 30,              B/(W)

                                    --------              -----

                                                      2010 vs.

    (in millions)               2010        2009         2009

    -------------               ----        ----      ---------

    Media Networks            $1,484      $1,329             12%

    Filmed

     Entertainment               (14)       (129)            89%

    Corporate                    (96)        (96)             -

    Equity-based

     compensation                (46)        (41)          (12%)

    Eliminations                   -          (2)           N/M

                                 ---         ---

    Adjusted operating

     income                   $1,328      $1,061             25%

    Restructuring                  -         (33)           N/M

    Operating income          $1,328      $1,028             29%

    N/M = Not Meaningful

Quarterly adjusted operating income increased 28% to $794 million compared with $619 million in the second quarter of 2009. This growth was led by a $97 million, or 14%, increase in Media Networks operating income, which was driven by higher affiliate and advertising revenues as well as lower losses from Rock Band. This growth was partially offset by the Company's continued investment in programming. The Filmed Entertainment segment delivered a $69 million profit, which represents a $77 million improvement over the second quarter 2009 result, driven by lower costs due to fewer theatrical and home entertainment releases.

Quarterly adjusted net earnings from continuing operations attributable to Viacom increased $120 million, or 40%, to $418 million, principally due to higher operating income. Adjusted diluted earnings per share for the quarter were $0.68, a 39% increase over adjusted diluted EPS of $0.49 in the second quarter of 2009.

Debt

At June 30, 2010, total debt outstanding, including capital lease obligations, was $6.76 billion, compared with $6.77 billion at December 31, 2009. The Company's cash balances increased to $677 million at June 30, 2010 compared with $298 million at December 31, 2009.

About Viacom

Viacom, consisting of BET Networks, MTV Networks and Paramount Pictures, is the world's leading entertainment content company. It engages audiences on television, motion picture and digital platforms through many of the world's best known entertainment brands, including MTV, VH1, CMT, Palladia, Logo, Nickelodeon, Nick at Nite, Nick Jr., TeenNick, Nicktoons, COMEDY CENTRAL, Spike TV, TV Land, BET, CENTRIC, Rock Band, AddictingGames, Atom, Neopets, Shockwave and Paramount Pictures. Viacom's global reach includes approximately 170 channels and 500 digital media properties in more than 160 countries and territories.

For more information about Viacom and its businesses, visit http://www.viacom.com/.

Cautionary Statement Concerning Forward-Looking Statements

This news release contains both historical and forward-looking statements. All statements that are not statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements reflect the Company's current expectations concerning future results, objectives, plans and goals, and involve known and unknown risks, uncertainties and other factors that are difficult to predict and which may cause actual results, performance or achievements to differ. These risks, uncertainties and other factors include, among others: the public acceptance of the Company's programs, motion pictures and games on the various platforms on which they are distributed; economic conditions generally, and in advertising and retail markets in particular; competition for audiences and distribution; the impact of piracy; technological developments and their effect in the Company's markets and on consumer behavior; fluctuations in the Company's results due to the timing, mix and availability of the Company's motion pictures and games; changes in the Federal communications laws and regulations; other domestic and global economic, business, competitive and/or regulatory factors affecting the Company's businesses generally; and other factors described in the Company's news releases and filings with the Securities and Exchange Commission, including its 2009 Annual Report on Form 10-K and reports on Form 10-Q and Form 8-K. The forward-looking statements included in this document are made only as of the date of this document, and the Company does not have any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances.

                                VIACOM INC.

                    CONSOLIDATED STATEMENTS OF EARNINGS

                                (Unaudited)

                                    Quarter Ended      Six Months Ended

                                      June 30,             June 30,

                                      --------             --------

    (in millions, except per

     share amounts)                 2010       2009    2010        2009

                                    ----       ----    ----        ----

    Revenues                      $3,301     $3,299  $6,087      $6,204

    Expenses:

        Operating                  1,742      1,943   3,263       3,691

        Selling, general and

         administrative              687        657   1,340       1,290

        Depreciation and

         amortization                 78         80     156         162

        Restructuring                  -         33       -          33

                                     ---        ---     ---         ---

        Total expenses             2,507      2,713   4,759       5,176

    Operating income                 794        586   1,328       1,028

    Interest expense, net           (104)      (109)   (217)       (218)

    Equity in net losses of

     investee companies              (24)       (23)    (52)        (56)

    Other items, net                  (3)       (15)    (13)        (34)

                                     ---        ---     ---         ---

    Earnings from continuing

     operations before

     provision for income taxes      663        439   1,046         720

    Provision for income taxes      (239)      (158)   (377)       (259)

                                    ----       ----    ----        ----

    Net earnings from

     continuing operations           424        281     669         461

    Discontinued operations,

     net of tax                        2          -       4           -

                                     ---        ---     ---         ---

    Net earnings (Viacom and

     noncontrolling interests)       426        281     673         461

    Net earnings attributable

     to noncontrolling

     interests                        (6)        (4)     (8)         (7)

                                     ---        ---     ---         ---

    Net earnings attributable

     to Viacom                      $420       $277    $665        $454

                                    ====       ====    ====        ====

    Amounts attributable to

     Viacom:

        Net earnings from

         continuing operations      $418       $277    $661        $454

        Discontinued operations,

         net of tax                    2          -       4           -

                                     ---        ---     ---         ---

        Net earnings attributable

         to Viacom                  $420       $277    $665        $454

                                    ====       ====    ====        ====

    Basic earnings per share

     attributable to Viacom:

        Continuing operations      $0.69      $0.46   $1.09       $0.75

        Discontinued operations       $-         $-      $-          $-

        Net earnings               $0.69      $0.46   $1.09       $0.75

    Diluted earnings per share

     attributable to Viacom:

        Continuing operations      $0.68      $0.46   $1.08       $0.75

        Discontinued operations    $0.01         $-   $0.01          $-

        Net earnings               $0.69      $0.46   $1.09       $0.75

    Weighted average number of

     common shares outstanding:

        Basic                      607.9      607.0   607.8       606.9

        Diluted                    611.3      608.1   610.5       607.6

    Dividends declared per

     share of Class A and Class

     B common stock                $0.15         $-   $0.15          $-

                              VIACOM INC.

                        CONSOLIDATED BALANCE SHEETS

                                (Unaudited)

                                                    June 30,    December 31,

                                                          2010           2009

                                                          ----           ----

    (in millions, except par value)

    ASSETS

    Current assets:

        Cash and cash equivalents                         $677           $298

        Receivables, net                                 2,334          2,881

        Inventory, net                                     802            779

        Deferred tax assets, net                           114            147

        Prepaid and other assets                           349            325

                                                           ---            ---

            Total current assets                         4,276          4,430

    Property and equipment, net                          1,091          1,179

    Inventory, net                                       4,087          3,731

    Goodwill                                            11,303         11,401

    Intangibles, net                                       495            570

    Other assets                                           549            589

                                                           ---            ---

    Total assets                                       $21,801        $21,900

                                                       =======        =======

    LIABILITIES AND EQUITY

    Current liabilities:

        Accounts payable                                  $181           $248

        Accrued expenses                                 1,000          1,169

        Participants' share and residuals                1,213          1,090

        Program rights obligations                         406            404

        Deferred revenue                                   333            323

        Current portion of debt                            230            123

        Other liabilities                                  417            394

                                                           ---            ---

            Total current liabilities                    3,780          3,751

    Noncurrent portion of debt                           6,528          6,650

    Participants' share and residuals                      489            739

    Program rights obligations                             535            523

    Deferred tax liabilities, net                            -             89

    Other liabilities                                    1,205          1,303

    Redeemable noncontrolling interest                     149            168

    Commitments and contingencies

    Viacom stockholders' equity:

        Class A Common stock, par value $0.001,

         375.0 authorized; 52.0 and 52.4

         outstanding, respectively                           -              -

        Class B Common stock, par value $0.001,

         5,000.0 authorized; 556.4 and 555.0

         outstanding, respectively                           1              1

        Additional paid-in capital                       8,315          8,287

        Treasury stock, 151.5 common shares held

         in treasury                                    (5,725)        (5,725)

        Retained earnings                                6,650          6,106

        Accumulated other comprehensive income

         (loss)                                           (102)            35

                                                          ----            ---

              Total Viacom stockholders' equity          9,139          8,704

    Noncontrolling interests                               (24)           (27)

                                                           ---            ---

    Total equity                                         9,115          8,677

                                                         -----          -----

    Total liabilities and equity                       $21,801        $21,900

                                                       =======        =======

SUPPLEMENTAL DISCLOSURES REGARDING NON-GAAP FINANCIAL INFORMATION

The following table reconciles the Company's results for the quarter and six months ended June 30, 2009, to adjusted results that exclude the impact of certain items identified as affecting comparability ("Factors Affecting Comparability"), including restructuring charges. There were no similar adjustments to our results for the quarter and six months ended June 30, 2010. The Company uses adjusted operating income, adjusted net earnings from continuing operations attributable to Viacom and adjusted diluted EPS from continuing operations, as applicable, among other measures, to evaluate the Company's operating performance and for planning and forecasting of future periods. The Company believes that the adjusted results provide relevant and useful information for investors because they clarify the Company's actual operating performance, make it easier to compare Viacom's results with those of other companies and allow investors to review performance in the same way as the Company's management. Since these are not measures of performance calculated in accordance with GAAP, they should not be considered in isolation of, or as a substitute for operating income, net earnings from continuing operations attributable to Viacom and diluted EPS as indicators of operating performance and they may not be comparable to similarly titled measures employed by other companies.

                                              Quarter Ended

                                              June 30, 2009

                                              -------------

    (in millions, except per share amounts)

                                                          Net

                                         Pre-tax     Earnings from

                                        Earnings      Continuing

                                          from        Operations      Diluted

                                       Continuing    Attributable     EPS from

                          Operating    Operations      to Viacom    Continuing

                           Income           (1)            (2)      Operations

    Reported results        $586           $439            $277          $0.46

    Factors

     Affecting

     Comparability:

        Restructuring

         charges(3)           33             33              21           0.03

                             ---            ---             ---           ----

    Adjusted results        $619           $472           $$298          $0.49

                            ----           ----           -----          -----

                                       Six Months Ended

                                        June 30, 2009

                                        -------------

    (in millions, except per share amounts)

                                                Net Earnings

                                    Pre-tax         from

                                   Earnings      Continuing

                                     from        Operations     Diluted EPS

                                  Continuing    Attributable       from

                     Operating    Operations     to  Viacom     Continuing

                      Income           (1)            (2)       Operations

    Reported

     results            $1,028         $720         $454           $0.75

    Factors

     Affecting

     Comparability:

       Restructuring

        charges(3)          33           33           21            0.03

                           ---          ---          ---            ----

    Adjusted

     results            $1,061         $753        $$475           $0.78

                        ------         ----        -----           -----

   (1) Pre-tax earnings from continuing operations represent earnings

        before provision for income taxes.

    (2) The tax impact of adjustments has been calculated where

        appropriate using the applicable rates in effect for the

        period presented.

    (3) For the quarter and six months ended June 30, 2009 adjusted

        results exclude $33 million of pre-tax severance

        expenses attributable to the Media Networks and Filmed Entertainment

        segments.