Viacom reports Fourth Quarter, Year End 2005 results

Televisionpoint.com Correspondent
Viacom has reported its results for the full year and fourth quarter ended December 31, 2005. Viacom completed its separation from CBS Corporation (formerly Viacom Inc.) on December 31, 2005. Therefore, Viacom's historical results for 2005 and 2004 are presented on a "carve-out" basis consistent with the results presented for the nine months ended September 30, 2005 and 2004, and the twelve months ended December 31, 2004 in its Form S-4 filing with the Securities and Exchange Commission on November 23, 2005.

For the full year 2005, revenues increased 18% to $9.61 billion, from $8.13 billion in 2004, reflecting 18% growth in the Cable Networks Segment, and 19% growth in the Entertainment Segment. Advertising revenues climbed 18% to $3.96 billion compared to $3.35 billion in 2004. Historical 2005 operating income increased by 4% to $2.37 billion in 2005 from $2.28 billion in 2004 and net earnings from continuing operations decreased to $1.30 billion from $1.39 billion. For the fourth quarter of 2005, operating income decreased to $413 million compared to $626 million for the same period in 2004 and net earnings from continuing operations decreased to $130 million from $406 million for the fourth quarter of 2004. Historical operating income and net earnings from continuing operations include separation costs of $164 million and $154 million for the full year 2005 and fourth quarter 2005, respectively.

For full year 2005, free cash flow was approximately $1.45 billion, including approximately $55 million of cash payments related to the separation from CBS Corporation. In 2004 free cash flow was $1.58 billion and included a $77 million cash benefit related to tax settlements. Excluding the separation related payments in 2005 and the 2004 tax settlement, free cash flow was $1.51 billion in both 2005 and 2004. Free cash flow reflects net cash flow from operating activities less capital expenditures and operating cash flow of discontinued operations. This release also includes "pro forma" financial information as if the separation and other events, as described in more detail below, had occurred at the beginning of each year presented. Management believes that the presentation and discussion of pro forma financial information provides readers with a more meaningful basis of comparison to Viacom's results in future periods. There are no pro forma adjustments to reported revenues. Management believes the assumptions and allocations are reasonable.

However, the pro forma results do not necessarily represent what the actual results would have been had Viacom been a stand alone public company for the periods presented; nor are they necessarily indicative of future results. The pro forma results presented in this release include updated information, in particular separation-related costs, debt and related interest expense and as a result are not comparable to those presented in the S-4 for the nine months ended September 30, 2005 or the year ended December 31, 2004. Pro forma operating income increased 12% to $2.50 billion in 2005 from $2.23 billion in 2004 reflecting 15% growth in the Cable Networks Segment, partially offset by a decline of 59% in the Entertainment Segment. The 2005 results include unusual charges for severance expenses of $71 million, and theatrical inventory write-downs of $32 million as a result of decisions by new management at Paramount not to pursue certain projects previously in development. Results for 2004 include severance expenses of $28 million. Excluding these charges in both periods, pro forma operating income grew 15% to $2.60 billion compared to $2.26 billion in 2004.

Viacom reported 2005 pro forma net earnings from continuing operations of $1.29 billion or $1.63 per diluted share, versus $1.29 billion or $1.50 per diluted share in 2004. Excluding the charges noted in the prior paragraph for both periods, and a tax benefit of $77 million or $.09 per diluted share included in 2004, pro forma net earnings from continuing operations increased 10% to $1.35 billion or $1.70 per diluted share, from $1.23 billion or $1.43 per diluted share in 2004.

For the fourth quarter of 2005, revenues increased 9% to $2.72 billion from $2.50 billion for the same period last year, with 16% growth in the Cable Networks Segment partially offset by a 5% decline in the Entertainment Segment. Pro forma operating income decreased 8% to $568 million from $619 million in the fourth quarter of 2004. The decrease is substantially attributable to a $140 million decline in the Entertainment Segment, offset by a $91 million increase in the Cable Networks Segment. Among other items, the Entertainment Segment was impacted by an unusual severance expense of $23 million and theatrical inventory writedowns of $32 million.

The Cable Networks Segment increase includes $48 million in unusual severance expense. Excluding unusual charges, pro forma operating income increased 8% to $670 million compared to $619 million in 2004. Fourth quarter 2005 pro forma net earnings from continuing operations decreased to $220 million, or $.29 per diluted share, from $378 million or $.45 per diluted share for the fourth quarter of 2004. Excluding the charges noted in the prior paragraph for both periods, and a tax benefit of $23 million or $.03 per diluted share included in 2004, pro forma net earnings from continuing operations decreased to $282 million or $.37 per diluted share from $355 million or $.42 per diluted share in 2004.

Sumner M. Redstone, Executive Chairman of Viacom said, "The strong growth and performance of the exceptional businesses that comprise new Viacom in 2005 not only validates the rationale for the separation of the company, but also highlights the outstanding potential of this great new company. New Viacom began its life as the world's leading pure-play content business and under the leadership of Tom Freston and his experienced team, is already moving ahead rapidly to fulfill its core commitment to create great content for every imaginable platform while delivering outstanding returns for shareholders."

Tom Freston, President and Chief Executive Officer of Viacom said, "Our strong results show that, even as Viacom prepared for the split of the company at the end of 2005, our team was able to keep its eye on the ball, and perform well for yet another quarter. The cable networks continue to deliver, and many had their best years ever in terms of ratings and total viewers. Our networks now reach more than 440 million homes in 169 countries around the world, and are successfully implementing our digital strategy not only through organic expansion, but also through the acquisitions of Neopets, IFILM and GameTrailers, and through partnerships, including the upcoming digital music service we're developing with Microsoft. The actions we have taken throughout the company to make us leaner, more flexible and more efficient have, in some cases, reduced our 2005 profits. We are continuing to reset Paramount for future success, have new management in place and a good slate for 2006 and 2007. Although there is still work in progress, the acquisition of DreamWorks, completed last month, brings new talent and expertise to the company, and significantly accelerates the turnaround of that business."

In 2006, the Company expects double digit revenue and operating income growth compared to 2005 revenues of $9.61 billion and pro forma operating income excluding unusual charges of $2.60 billion. The Company also expects diluted earnings per share from continuing operations in the range of $1.95 to $2.00 compared to diluted earnings per share of $1.70 pro forma net earnings from continuing operations excluding unusual charges. The following tables provide a reconciliation of Viacom's historical results for 2005 and 2004 to the pro forma results discussed in this release. For pro forma purposes, the separation of Viacom from CBS Corporation is deemed to have occurred January 1, 2004, and as such reflects adjustments to separation costs, debt and related interest expense, certain overhead expenses and tax expense.