CBS qr3q 02

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CBS qr3q 02

  1. 1. VIACOM REPORTS RECORD THIRD QUARTER 2002 RESULTS, WITH HIGHER REVENUES AND OPERATING INCOME IN EVERY SEGMENT • Reported Revenues of $6.3 Billion, Up 10%, versus Revenues of $5.7 Billion, Led By 14% Advertising Growth • Reported Operating Income of $1.3 Billion Increased from $194 Million and Reported Diluted Earnings Per Share of $.36 Rose from a Loss of $.11 Per Share Assuming Adoption of SFAS No. 142 in 2001 and Excluding 2001 Video Charge • Operating Income Increased 18% to $1.3 Billion from $1.1 Billion • Diluted Earnings Per Share Rose 17% to $.36 from $.31 Per Share New York, New York, October 24, 2002 -- Viacom Inc. (NYSE: VIA and VIA.B) today reported record results for the third quarter ended September 30, 2002. Viacom reported revenues increased 10% to $6.3 billion from $5.7 billion and operating income increased to $1.3 billion from $194 million in the same quarter last year, with higher revenues and operating income in every segment and a 14% overall increase in advertising revenues, led by the strength of the Company’s broadcast and cable networks, and television and radio stations. Television revenues increased 14% and operating income rose to $314 million from $78 million; Cable Networks revenues grew 13% and operating income increased 41% to $511 million from $363 million; and Infinity revenues increased 6%, driven primarily by 10% growth in Radio, and operating income rose to $322 million from $61 million. Viacom reported net earnings of $640 million, or $.36 per diluted share, for the third quarter of 2002 compared with a net loss of $190 million, or a loss of $.11 per diluted share, for the third quarter of 2001. The Company’s EBITDA (operating income before depreciation and amortization) in the third quarter increased 56% to $1.5 billion from $977 million in the third quarter of 2001. Free cash flow for the third quarter of 2002 was $214 million, bringing free cash flow to $1.62 billion for the first nine months
  2. 2. 2 of 2002. Free cash flow reflects the Company’s operating income before depreciation and amortization, less cash interest, taxes paid, working capital requirements and capital expenditures. “Viacom’s record third quarter performance was outstanding, with revenues and operating income up across every one of our segments,” said Sumner M. Redstone, Chairman and Chief Executive Officer of Viacom. “Clearly, the strength of our assets and the talent, commitment and superior execution of our management team, led by Mel Karmazin, have spurred Viacom to excel. We are confident in our ability to deliver on our full-year financial targets for 2002, and we see the growth of our businesses becoming even more robust as we move into 2003. We also continue to use our strong free cash flow to enhance shareholder value through the purchase of our stock and recently announced a new $3 billion buy back program.” Mel Karmazin, President and Chief Operating Officer of Viacom, said, “Our record third quarter results demonstrate the underlying vibrancy of our core businesses, the continued strengthening of ad sales, and the strategic validity and superior execution of the Viacom/CBS merger. Viacom turned in the best third quarter in its history, and the pacings in our advertising-supported businesses continue to be strong in the fourth quarter. In addition, Viacom’s $1.62 billion in free cash flow for the first nine months of 2002 exceeded free cash flow for the same period last year. “In the third quarter, exceptional ratings spurred CBS, MTV, Nickelodeon, TV Land, TNN and BET to double-digit ad sales growth, clearly outperforming their respective markets. Our radio and TV station operations also delivered double-digit revenue growth and Viacom Outdoor, which continues to improve, had its first revenue growth quarter since the fourth quarter of 2000. Viacom’s non-advertising businesses also made significant contributions, led by a strong quarter in our Entertainment operations and solid results at Blockbuster, which continues to roll out new rental and retail initiatives.” Comparisons to prior-year third quarter and nine-month results were positively affected by the adoption of SFAS No. 142 “Goodwill and Other Intangible Assets” in the first quarter of 2002 as goodwill is no longer amortized but tested for impairment at least annually. As a result, the Company’s amortization expense is now significantly lower, totaling $25 million in the third quarter of 2002 compared with $571 million in the third quarter last year. Viacom’s 2001 third quarter and nine-month results also include the primarily non-cash third quarter Video charge of $355 million in operating income and also reflect lower revenues and increased costs from the events of September 11.
  3. 3. 3 Excluding goodwill amortization and the Video charge from 2001 results, Viacom’s operating income increased 18% to $1.3 billion from $1.1 billion in the same quarter last year. Net earnings were $640 million, or $.36 per diluted share, versus $556 million, or $.31 per diluted share, for the third quarter of 2001, a per share increase of 17% over the same prior-year quarter. Excluding the 2001 Video charge, Viacom’s EBITDA in the third quarter of 2002 increased 15% to $1.5 billion from $1.3 billion. Business Outlook In the fourth quarter of 2002, the Company expects to deliver in excess of 20% growth in earnings per share, operating income and EBITDA versus the same quarter last year. With this fourth quarter performance, the Company will achieve its forecast for full year 2002 of double-digit growth in earnings per share, operating income and EBITDA. For the full year 2003, the Company expects to deliver mid-single digit revenue growth resulting in double-digit EBITDA growth and mid-teen growth in operating income and earnings per share. Segment Results (Third Quarter 2002 versus Third Quarter 2001) The Company is a diversified worldwide entertainment company with operations in five segments: (i) Cable Networks, (ii) Television, (iii) Infinity, (iv) Entertainment and (v) Video. The table below presents Viacom’s third quarter 2002 and 2001 revenues by segment. Revenues Third Quarter Better/ % of Total Revenues (dollars in millions) 2002 2001 (Worse)% 2002 2001 Cable Networks $ 1,243.9 $ 1,096.6 13% 20% 19% Television 1,810.1 1,585.2 14 29 28 Infinity 968.2 910.3 6 15 16 Entertainment 1,058.6 980.4 8 17 17 Video 1,386.5 1,264.7 10 22 22 Intercompany eliminations (160.8) (123.4) (30) (3) (2) $ 6,306.5 $ 5,713.8 10% 100% 100% Total Revenues
  4. 4. 4 Cable Networks revenues are generated primarily from advertising sales and affiliate fees. Television and Infinity revenues are generated primarily from advertising sales. Television also generates revenues from television license fees. Entertainment revenues are generated primarily from feature film exploitation, publishing, movie theaters and theme park operations. Video generates revenues from its rental and retail operations of videocassettes, DVDs and games. The following table sets forth the percentage of revenues that each type contributes to consolidated revenues for the third quarter of 2002 and 2001. Percentage of Revenues Third Quarter 2002 2001 Revenues by Type Advertising sales 43% 41% Rental/retail sales 22 22 Affiliate fees 9 9 TV license fees 8 9 Feature film exploitation 7 7 Other 11 12 100% 100% Total The table below presents Viacom’s third quarter 2002 and 2001 operating income by segment. Operating Income Third Quarter Better/ 2001 Adjusted Better/ (dollars in millions) 2002 2001 (Worse)% for SFAS 142 (Worse)% Cable Networks $ 510.8 $ 363.1 41% $ 420.6 21% Television 313.8 78.1 N/M 250.3 25 Infinity 322.0 60.9 N/M 315.7 2 Entertainment 137.0 69.0 99 85.2 61 Video(a) 80.0 (317.5) N/M (272.8) N/M Segment Total 1,363.6 253.6 N/M 799.0 71 Corporate expenses/eliminations (53.3) (38.9) (37) (38.9) (37) Residual costs (22.1) (21.0) (5) (21.0) (5) $ 1,288.2 $ 193.7 N/M $ 739.1 74% Total Operating Income 2001 Video charge(a) — 355.3 N/M 355.3 N/M Total Operating Income (excluding Video charge) $ 1,288.2 $ 549.0 135% $ 1,094.4 18% N/M – Not meaningful (a) Results for third quarter 2001 reflect a primarily non-cash charge principally related to the elimination of less-productive VHS tapes as part of the transition from VHS to the higher margin DVD rental market and a change in amortization.
  5. 5. 5 The table below sets forth EBITDA for the third quarter of 2002 and 2001. The Company believes that 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”). EBITDA is not a GAAP measurement and may not be comparable to similarly titled measures employed by other companies. EBITDA Third Quarter Better/ (dollars in millions) 2002 2001 (Worse)% Cable Networks $ 556.8 $ 470.2 18% Television 348.7 282.6 23 Infinity 380.6 373.1 2 Entertainment 167.8 115.2 46 Video(a) 142.0 (210.4) N/M Segment Total 1,595.9 1,030.7 55 Corporate expenses/eliminations (47.7) (32.8) (45) Residual costs (22.1) (21.0) (5) $1,526.1 $ 976.9 56% Total EBITDA 2001 Video charge(a) — 352.7 N/M $1,526.1 $1,329.6 15% Total EBITDA (excluding Video charge) N/M – Not meaningful (a) Results for third quarter 2001 reflect a primarily non-cash charge principally related to the elimination of less-productive VHS tapes as part of the transition from VHS to the higher margin DVD rental market and a change in amortization. Cable Networks (MTV Networks, including MTV, VH1, Nickelodeon/Nick at Nite, TV Land, TNN and CMT; BET; and Showtime Networks Inc.) Cable Networks revenues increased 13% to $1.2 billion from $1.1 billion and operating income increased 41% to $511 million from $363 million. Assuming SFAS 142 had been adopted in 2001, operating income would have increased 21%. Revenue and operating income increases were driven by double-digit advertising revenue growth at MTV, Nickelodeon, TV Land, TNN and BET and increases in affiliate fees. The third quarter included The 2002 MTV Video Music Awards, the most- watched show in its 19-year history. BET’s double-digit growth in national advertising more than offset the absence of revenues from infomercials which are no longer part of BET’s programming strategy. Showtime subscriptions increased by approximately 2.7 million, or 9%, to 32.3 million subscriptions at September 30, 2002. Cable Networks EBITDA increased 18% to $557 million from $470 million.
  6. 6. 6 Television (CBS and UPN Television Networks and Stations; Television Production and Syndication) Television revenues increased 14% to $1.8 billion from $1.6 billion and operating income increased to $314 million from $78 million. Assuming SFAS 142 had been adopted in 2001, operating income would have increased 25% for the quarter. CBS and UPN Networks combined delivered 18% growth in advertising revenues, led by growth in primetime of over 20%. The Stations group delivered 30% year-over-year advertising revenue growth due to strong sales in the automotive, leisure and media industries as well as increased political ads and the addition of KCAL- Los Angeles, which was acquired in May 2002. KCAL contributed 8% of Stations revenue growth for the quarter. Syndication revenues declined primarily reflecting the absence of contributions from the syndication of Everybody Loves Raymond in the same quarter last year, partially offset by incremental cable sales in the current quarter. Television’s 2001 results were impacted by the events of September 11, which caused lower revenues from the cancellation and rescheduling of programming and increased news coverage costs. Television EBITDA increased 23% to $349 million from $283 million. Infinity (Radio Stations, Outdoor Advertising Properties) Infinity revenues increased 6% to $968 million from $910 million while operating income increased to $322 million from $61 million. Assuming SFAS 142 had been adopted in 2001, operating income would have increased 2% for the quarter. Radio, which continues to show strong improvement with revenues up 10%, incurred higher programming expenses principally associated with sports rights. Outdoor revenues were up 2% in the third quarter, the first increase since the fourth quarter of 2000, principally because of favorable foreign currency exchange rates. Outdoor operating income declined primarily due to higher guarantee payments for transit contracts. Infinity EBITDA increased 2% to $381 million from $373 million. Entertainment (Paramount Pictures, Famous Players, Famous Music Publishing, Paramount Parks and Simon & Schuster) Entertainment revenues increased 8% to $1.1 billion from $980 million while operating income increased 99% to $137 million from $69 million. Assuming SFAS 142 had been adopted in 2001, operating income would have increased 61% for the quarter. The strong performance of Entertainment was driven by revenue and operating income growth of the Features group, primarily home video and network television, partially offset by lower theatrical revenues. Simon & Schuster’s key third quarter 2002 titles were From A Buick 8 by Stephen King, What We Saw by CBS News and Self Matters Companion by Phillip C. McGraw. Entertainment EBITDA increased 46% to $168 million from $115 million.
  7. 7. 7 Effective January 1, 2002, the Company operates and presents Simon & Schuster under the Entertainment segment. Prior period segment information has been reclassified to conform to the new presentation. Video (Blockbuster) Video revenues increased 10% to $1.4 billion from $1.3 billion and operating income of $80 million increased from a loss of $318 million. Revenue increases were driven by 6.9% higher worldwide same store revenues, largely the result of positive consumer acceptance of Blockbuster’s new rental and retail initiatives in support of movies and games. Domestic and international same store sales were up 7.6% and 3.6%, respectively. Assuming SFAS 142 had been adopted in 2001 and excluding the 2001 primarily non-cash charge of $355 million, gross margin of 57.8% decreased from 59.9% and operating income would have decreased 3%. Increased investment in rental and retail initiatives resulted in the decrease in gross margin and operating income, which was also affected by higher marketing costs to initiate new consumer programs. Blockbuster ended the third quarter of 2002 with 8,246 company-owned and franchise stores, a net increase of 395 stores over the third quarter of 2001. EBITDA of $142 million increased from a loss of $210 million and, excluding the 2001 third quarter charge, Video EBITDA was flat. Corporate Expenses/Eliminations Corporate expenses, including depreciation, remained constant at $43 million for the third quarter of 2002 versus the prior-year period. Eliminations of $10 million for the quarter principally reflect the profit elimination of the sale of feature films to cable and broadcast networks. Residual Costs Residual costs primarily include pension and postretirement benefit costs for benefit plans retained by the Company for previously divested businesses. Residual costs increased 5% to $22 million from $21 million for the third quarter of 2002 versus the prior-year period due primarily to a reduction in amortized actuarial gains for benefit plans of divested businesses.
  8. 8. 8 Nine-Month Results For the nine months ended September 30, 2002, Viacom revenues increased 4% to $17.8 billion from $17.2 billion for the same period last year. Operating income increased 182% to $3.3 billion from $1.2 billion, principally due to the adoption of SFAS 142 in the first quarter of 2002 and the 2001 Video charge. Viacom’s EBITDA for the first nine months of 2002 increased 16% to $4.0 billion from $3.5 billion. For the nine months ended September 30, 2002, Viacom reported net earnings before cumulative effect of a change in accounting principle of $1.6 billion, or $.87 per diluted share, compared with a net loss of $181 million, or a loss of $.11 per diluted share in the same period last year. The Company’s adoption of SFAS 142 resulted in a non-cash charge of $1.5 billion recorded during the first quarter of 2002 as a cumulative effect of a change in accounting principle. Assuming the adoption of SFAS 142 had occurred at the beginning of 2001, and excluding the 2001 third quarter Video charge, operating income increased 6% to $3.3 billion from $3.1 billion; EBITDA increased 5% to $4.0 billion from $3.8 billion; and net earnings before cumulative effect of change in accounting principle increased 8% to $1.6 billion, or $.87 per diluted share, from $1.4 billion, or $.82 per diluted share, for the nine months ended September 30, 2001. Revenues Nine Months Ended September 30, Better/ % of Total Revenues (dollars in millions) 2002 2001 (Worse)% 2002 2001 Cable Networks $ 3,380.1 $ 3,141.0 8% 19% 18% Television 5,366.9 5,242.4 2 30 31 Infinity 2,756.3 2,731.3 1 15 16 Entertainment 2,744.4 2,619.7 5 15 15 Video 3,983.5 3,798.6 5 22 22 Intercompany eliminations (403.0) (350.1) (15) (1) (2) $ 17,828.2 $ 17,182.9 4% 100% 100% Total Revenues Percentage of Revenues Nine Months Ended September 30, 2002 2001 Revenues by Type Advertising sales 45% 46% Rental/retail sales 22 22 Affiliate fees 9 9 TV license fees 6 6 Feature film exploitation 8 7 Other 10 10 100% 100% Total
  9. 9. 9 Operating Income Nine Months Ended September 30, Better/ 2001 Adjusted Better/ (dollars in millions) 2002 2001 (Worse)% for SFAS 142 (Worse)% Cable Networks $ 1,238.8 $ 894.9 38% $ 1,066.6 16% Television 881.3 359.8 145 857.5 3 Infinity 887.7 218.9 N/M 961.0 (8) Entertainment 284.4 185.1 54 233.5 22 Video(a) 271.4 (247.5) N/M (116.0) N/M Segment Total 3,563.6 1,411.2 153 3,002.6 19 Corporate expenses/eliminations (166.0) (165.2) — (165.2) — Residual costs (66.1) (62.8) (5) (62.8) (5) $ 3,331.5 $ 1,183.2 182 $ 2,774.6 20 Total Operating Income 2001 Video charge(a) — 355.3 N/M 355.3 N/M Total Operating Income $ 3,331.5 $ 1,538.5 117% $ 3,129.9 6% (excluding Video charge) EBITDA Nine Months Ended September 30, Better/ (dollars in millions) 2002 2001 (Worse)% Cable Networks $ 1,382.5 $ 1,218.3 13% Television 985.5 958.1 3 Infinity 1,063.8 1,132.6 (6) Entertainment 374.5 322.4 16 Video(a) 446.2 68.5 N/M Segment Total 4,252.5 3,699.9 15 Corporate expenses/eliminations (148.9) (149.6) — Residual costs (66.1) (62.8) (5) $ 4,037.5 $ 3,487.5 16 Total EBITDA 2001 Video charge(a) — 352.7 N/M Total EBITDA $ 4,037.5 $ 3,840.2 5% (excluding Video charge) N/M – Not meaningful (a) Results for nine months ended September 30, 2001 reflect a primarily non-cash charge principally related to the elimination of less-productive VHS tapes as part of the transition from VHS to the higher margin DVD rental market and a change in amortization.
  10. 10. 10 Other Matters For the nine months ended September 30, 2002, the Company purchased approximately 19.7 million shares of its Class B Common Stock for approximately $813 million under its stock purchase program, of which $320 million was spent in the third quarter. From October 1 through October 21, the Company purchased an additional 2.1 million shares for approximately $88 million, leaving $125 million available under the program for future purchases. On October 10, 2002, the Company’s board of directors approved a new purchase program to buy back up to $3.0 billion of the Company’s common stock. The annual effective tax rate has decreased from 40.5% as of June 30, 2002 to 39.6% as of September 30, 2002, principally due to the release of a valuation allowance for certain tax benefits which are currently expected to be realized, and certain other changes in estimates. This reduction of the annual effective tax rate resulted in a third quarter rate of 38.2%. Viacom is a leading global media company, with preeminent positions in broadcast and cable television, radio, outdoor advertising, and online. With programming that appeals to audiences in every demographic category across virtually all media, the company is a leader in the creation, promotion, and distribution of entertainment, news, sports, and music. Viacom’s well-known brands include CBS, MTV, Nickelodeon, VH1, BET, Paramount Pictures, Viacom Outdoor, Infinity, UPN, The New TNN, TV Land, CMT: Country Music Television, Showtime, Blockbuster, and Simon & Schuster. More information about Viacom and its businesses is available at www.viacom.com.
  11. 11. 11 Cautionary Statement Concerning Forward-looking Statements This news release contains both historical and forward-looking statements. All statements, including Business Outlook, 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. 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: advertising market conditions generally; 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; 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 previous news releases and filings made under the securities laws. 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. Contacts: Press: Investors: Carl D. Folta Martin Shea Senior Vice President, Corporate Relations Senior Vice President, Investor Relations (212) 258-6352 (212) 258-6515 Susan Duffy James Bombassei Vice President, Corporate Relations Vice President, Investor Relations (212) 258-6347 (212) 258-6377
  12. 12. 12 VIACOM INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF OPERATIONS (Unaudited; all amounts, except per share amounts, are in millions) Three months ended Nine months ended September 30, September 30, 2002 2001 2002 2001 $ 6,306.5 $ 5,713.8 $ 17,828.2 $ 17,182.9 Revenues Operating income 1,288.2 193.7 3,331.5 1,183.2 Other income (expense): Interest expense, net (209.5) (220.0) (633.1) (720.7) Other items, net .3 (28.3) (18.0) (36.1) 1,079.0 (54.6) 2,680.4 426.4 Earnings (loss) before income taxes Provision for income taxes (412.3) (169.4) (1,060.9) (607.6) Equity in loss of affiliated companies, net of tax (14.5) (7.7) (32.3) (41.9) Minority interest, net of tax (11.9) 41.3 (33.0) 42.1 Net earnings (loss) before cumulative effect of 640.3 (190.4) 1,554.2 (181.0) change in accounting principle Cumulative effect of change in accounting principle, net of minority interest and tax — — (1,480.9) — $ 640.3 $ (190.4) $ 73.3 $ (181.0) Net earnings (loss) Basic earnings (loss) per common share: Net earnings (loss) before cumulative effect of change in accounting principle $ .37 $ (.11) $ .89 $ (.11) Cumulative effect of change in accounting principle $ — $ — $ (.84) $ — Net earnings (loss) $ .37 $ (.11) $ .04 $ (.11) Diluted earnings (loss) per common share: Net earnings (loss) before cumulative effect of change in accounting principle $ .36 $ (.11) $ .87 $ (.11) Cumulative effect of change in accounting principle $ — $ — $ (.83) $ — Net earnings (loss) $ .36 $ (.11) $ .04 $ (.11) Weighted average number of common shares: Basic 1,752.8 1,768.0 1,754.1 1,722.2 Diluted 1,770.3 1,768.0 1,776.9 1,722.2 Earnings per share before cumulative effect of change in accounting principle assuming adoption of SFAS 142 in 2001 and excluding 2001 Video charge Basic $ .37 $ .31 $ .89 $ .83 Diluted $ .36 $ .31 $ .87 $ .82

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