VIA-2014.12.31-10Q


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
FORM 10-Q
 
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    
For the quarterly period ended December 31, 2014
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    
For the transition period from                      to                     
Commission File Number 001-32686
 
 
 
 
VIACOM INC.
(Exact name of registrant as specified in its charter)
DELAWARE
20-3515052
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
 
 
 
 
1515 Broadway
New York, NY 10036
(212) 258-6000
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
 
 
 
 
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 ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).  Yes x    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x    Accelerated filer ¨    Non-accelerated filer ¨    Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨    No x
Class of Stock
 
Shares Outstanding
as of January 15, 2015
Class A common stock, par value $0.001 per share
 
50,607,121

Class B common stock, par value $0.001 per share
 
355,154,549

 


Table of Contents

VIACOM INC.
INDEX TO FORM 10-Q
 
 
 
Page
 
 
 
Consolidated Statements of Earnings for the quarters ended December 31, 2014 and 2013
 
Consolidated Statements of Comprehensive Income for the quarters ended December 31, 2014 and 2013
 
Consolidated Balance Sheets as of December 31, 2014 and September 30, 2014
 
Consolidated Statements of Cash Flows for the quarters ended December 31, 2014 and 2013
 
 
 
 


Table of Contents

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
VIACOM INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
 
  
Quarter Ended  
 December 31,
(in millions, except per share amounts)
2014
 
2013
Revenues
$
3,344

 
$
3,197

Expenses:
 
 
 
Operating
1,623

 
1,474

Selling, general and administrative
731

 
704

Depreciation and amortization
55

 
59

Total expenses
2,409

 
2,237

Operating income
935

 
960

Interest expense, net
(160
)
 
(149
)
Equity in net earnings of investee companies
33

 
26

Other items, net
(18
)
 

Earnings before provision for income taxes
790

 
837

Provision for income taxes
(277
)
 
(280
)
Net earnings (Viacom and noncontrolling interests)
513

 
557

Net earnings attributable to noncontrolling interests
(13
)
 
(10
)
Net earnings attributable to Viacom
$
500

 
$
547

 
 
 
 
Basic earnings per share attributable to Viacom
$
1.22

 
$
1.23

Diluted earnings per share attributable to Viacom
$
1.20

 
$
1.20

Weighted average number of common shares outstanding:
 
 
 
Basic
410.6

 
444.9

Diluted
416.1

 
454.0

Dividends declared per share of Class A and Class B common stock
$
0.33

 
$
0.30

 
 
 
 
 See accompanying notes to Consolidated Financial Statements

1

Table of Contents

VIACOM INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
  
Quarter Ended  
 December 31,
(in millions)
2014
 
2013
Net earnings (Viacom and noncontrolling interests)
$
513

 
$
557

Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation adjustments
(104
)
 
26

Defined benefit pension plans
(20
)
 

Other comprehensive income (loss) (Viacom and noncontrolling interests)
(124
)
 
26

Comprehensive income
389

 
583

Less: Comprehensive income attributable to noncontrolling interest
11

 
11

Comprehensive income attributable to Viacom
$
378

 
$
572

 
 
 
 
 See accompanying notes to Consolidated Financial Statements

2

Table of Contents

VIACOM INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in millions, except par value)
December 31,
2014
 
September 30,
2014
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,185

 
$
1,000

Receivables, net
3,024

 
3,066

Inventory, net
870

 
846

Prepaid and other assets
391

 
340

Total current assets
5,470

 
5,252

Property and equipment, net
976

 
1,016

Inventory, net
4,100

 
3,897

Goodwill
11,495

 
11,535

Intangibles, net
372

 
399

Other assets
1,003

 
1,018

Total assets
$
23,416

 
$
23,117

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
370

 
$
475

Accrued expenses
710

 
969

Participants' share and residuals
949

 
993

Program obligations
673

 
703

Deferred revenue
252

 
259

Current portion of debt
617

 
18

Other liabilities
468

 
518

Total current liabilities
4,039

 
3,935

Noncurrent portion of debt
13,146

 
12,751

Participants' share and residuals
289

 
403

Program obligations
435

 
459

Deferred tax liabilities, net
527

 
266

Other liabilities
1,396

 
1,340

Redeemable noncontrolling interest
207

 
216

Commitments and contingencies (Note 6)


 


Viacom stockholders' equity:
 
 
 
Class A common stock, par value $0.001, 375.0 authorized; 50.6 and 50.9 outstanding, respectively

 

Class B common stock, par value $0.001, 5,000.0 authorized; 356.7 and 363.3 outstanding, respectively

 

Additional paid-in capital
9,914

 
9,772

Treasury stock, 387.1 and 377.0 common shares held in treasury, respectively
(19,975
)
 
(19,225
)
Retained earnings
13,828

 
13,465

Accumulated other comprehensive loss
(415
)
 
(293
)
Total Viacom stockholders' equity
3,352

 
3,719

Noncontrolling interests
25

 
28

Total equity
3,377

 
3,747

Total liabilities and equity
$
23,416

 
$
23,117

 
 
 
 
 See accompanying notes to Consolidated Financial Statements

3

Table of Contents

VIACOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
  
Quarter Ended 
 December 31,
(in millions)
2014
 
2013
OPERATING ACTIVITIES
 
 
 
Net earnings (Viacom and noncontrolling interests)
$
513

 
$
557

Reconciling items:
 
 
 
Depreciation and amortization
55

 
59

Feature film and program amortization
1,027

 
907

Equity-based compensation
26

 
32

Equity in net earnings and distributions from investee companies
(29
)
 
(22
)
Deferred income taxes
232

 
(30
)
Operating assets and liabilities, net of acquisitions:
 
 
 
Receivables
42

 
90

Inventory, program rights and participations
(1,448
)
 
(1,185
)
Accounts payable and other current liabilities
(421
)
 
(121
)
Other, net
59

 
6

Cash provided by operations
56

 
293

INVESTING ACTIVITIES
 
 
 
Acquisitions and investments, net
(1
)
 
6

Capital expenditures
(34
)
 
(20
)
Net cash flow used in investing activities
(35
)
 
(14
)
FINANCING ACTIVITIES
 
 
 
Borrowings
990

 

Purchase of treasury stock
(754
)
 
(970
)
Dividends paid
(137
)
 
(271
)
Excess tax benefits on equity-based compensation awards
35

 
5

Exercise of stock options
104

 
11

Other, net
(45
)
 
(42
)
Net cash flow provided by/(used) in financing activities
193

 
(1,267
)
Effect of exchange rate changes on cash and cash equivalents
(29
)
 
2

Net change in cash and cash equivalents
185

 
(986
)
Cash and cash equivalents at beginning of period
1,000

 
2,403

Cash and cash equivalents at end of period
$
1,185

 
$
1,417

 
 
 
 
 See accompanying notes to Consolidated Financial Statements

4

Table of Contents
VIACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 1. BASIS OF PRESENTATION
Description of Business
Viacom Inc. is a leading global entertainment content company that connects with audiences in more than 165 countries and territories and creates compelling television programs, motion pictures, short-form videos, apps, games, brands for consumer products, social media and other entertainment content. Viacom operates through two reporting segments: Media Networks, which includes Music, Nickelodeon, Entertainment and BET Networks and Filmed Entertainment. The Media Networks segment provides entertainment content and related branded products for consumers in targeted demographics attractive to advertisers, content distributors and retailers. The Filmed Entertainment segment produces, finances, acquires and distributes motion pictures, television programming and other entertainment content under the Paramount Pictures, Paramount Vantage, Paramount Classics, Insurge Pictures, MTV Films, Nickelodeon Movies and Paramount Television brands. References in this document to “Viacom”, “Company”, “we”, “us” and “our” mean Viacom Inc. and our consolidated subsidiaries, unless the context requires otherwise.
Unaudited Interim Financial Statements
The accompanying unaudited consolidated quarterly financial statements have been prepared on a basis consistent with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules of the Securities and Exchange Commission (“SEC”). In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of our results of operations, financial position and cash flows for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results expected for the fiscal year ending September 30, 2015 (“fiscal 2015”) or any future period. These financial statements should be read in conjunction with our Form 10-K for the year ended September 30, 2014, as filed with the SEC on November 13, 2014 (the “2014 Form 10-K”).
Use of Estimates
Preparing financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the dates presented and the reported amounts of revenues and expenses during the periods presented. Significant estimates inherent in the preparation of the accompanying Consolidated Financial Statements include estimates of film ultimate revenues, product returns, potential outcome of uncertain tax positions, fair value of acquired assets and liabilities, fair value of equity-based compensation and pension benefit assumptions. Estimates are based on past experience and other considerations reasonable under the circumstances. Actual results may differ from these estimates.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2014-09 - Revenue from Contracts with Customers (“ASU 2014-09”), a comprehensive revenue recognition model that supersedes the current revenue recognition requirements and most industry-specific guidance. The underlying core principle of ASU 2014-09 is that a company should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. ASU 2014-09 will be effective for the first interim period within annual reporting periods beginning after December 15, 2016, and allows adoption either under a full retrospective or a modified retrospective approach. Early adoption is not permitted. We will adopt ASU 2014-09 during the first quarter of fiscal 2018. We are currently evaluating the impact of the new standard.

5

Table of Contents
VIACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

NOTE 2. INVENTORY
Our total inventory consists of the following:
Inventory
(in millions)
December 31,
2014
 
September 30,
2014
Film inventory:
 
 
 
Released, net of amortization
$
712

 
$
664

Completed, not yet released
28

 
131

In process and other
673

 
436

Total film inventory, net of amortization
1,413

 
1,231

Original programming:
 
 
 
Released, net of amortization
1,452

 
1,409

In process and other
605

 
631

Total original programming, net of amortization
2,057

 
2,040

Acquired program rights, net of amortization
1,402

 
1,367

Home entertainment inventory
98

 
105

Total inventory, net
4,970

 
4,743

Less: current portion
(870
)
 
(846
)
Total inventory-noncurrent, net
$
4,100

 
$
3,897

 
 
 
 

6

Table of Contents
VIACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

NOTE 3. DEBT
Our total debt consists of the following:
Debt
(in millions)
December 31,
2014
 
September 30,
2014
Senior Notes and Debentures:
 
 
 
                Senior notes due February 2015, 1.250%
$
600

 
$
600

                Senior notes due September 2015, 4.250%
250

 
250

                Senior notes due April 2016, 6.250%
917

 
917

                Senior notes due December 2016, 2.500%
399

 
399

                Senior notes due April 2017, 3.500%
498

 
498

                Senior notes due October 2017, 6.125%
499

 
499

                Senior notes due September 2018, 2.500%
498

 
498

                Senior notes due April 2019, 2.200%
400

 
400

                Senior notes due September 2019, 5.625%
552

 
552

                Senior notes due December 2019, 2.750%
400

 

                Senior notes due March 2021, 4.500%
495

 
495

                Senior notes due December 2021, 3.875%
593

 
593

                Senior notes due June 2022, 3.125%
297

 
296

                Senior notes due March 2023, 3.250%
298

 
298

                Senior notes due September 2023, 4.250%
1,239

 
1,238

                Senior notes due April 2024, 3.875%
546

 
546

                Senior debentures due December 2034, 4.850%
597

 

                Senior debentures due April 2036, 6.875%
1,072

 
1,072

                Senior debentures due October 2037, 6.750%
76

 
76

                Senior debentures due February 2042, 4.500%
246

 
245

                Senior debentures due March 2043, 4.375%
1,090

 
1,089

                Senior debentures due June 2043, 4.875%
249

 
249

                Senior debentures due September 2043, 5.850%
1,242

 
1,242

                Senior debentures due April 2044, 5.250%
549

 
549

Capital lease and other obligations
161

 
168

Total debt
13,763

 
12,769

Less: current portion
(617
)
 
(18
)
Total noncurrent portion of debt
$
13,146

 
$
12,751

 
 
 
 
Senior Notes and Debentures
In December 2014, we issued a total of $1.0 billion of senior notes and debentures as follows:
2.750% Senior Notes due December 2019 with an aggregate principal amount of $400 million at a price equal to 99.986% of the principal amount.
4.850% Senior Debentures due December 2034 with an aggregate principal amount of $600 million at a price equal to 99.543% of the principal amount.
The proceeds, net of the discount and other issuance fees and expenses, from the issuance of the senior notes and debentures were $990 million.
The total unamortized net discount related to our senior notes and debentures was $418 million as of December 31, 2014. The fair value of our senior notes and debentures was approximately $14.7 billion as of December 31, 2014. The valuation of our publicly traded debt is based on quoted prices in active markets.
The Senior Notes due in September 2015 are classified as long-term debt as we have the intent and the ability, through utilization of our $2.5 billion revolving credit facility, to refinance this debt.

7

Table of Contents
VIACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

Credit Facility
In November 2014, we amended our revolving credit agreement, originally dated as of October 8, 2010, to, among other things, extend the maturity date of the $2.5 billion revolving credit facility from November 9, 2017 to November 18, 2019. At December 31, 2014, there were no amounts outstanding under the credit facility. The credit facility has one principal financial covenant that requires our interest coverage for the most recent four consecutive fiscal quarters to be at least 3.0x, which we met as of December 31, 2014.
NOTE 4. PENSION BENEFITS

We offered certain participants of our funded pension plan the option to receive a one-time lump-sum payment equal to the present value of their respective pension benefit. The settlement triggered a remeasurement of the net pension obligation and settlement accounting. The remeasurement resulted in a $53 million increase to the net benefit obligation, primarily driven by a decline in the discount rate to 4.0% from 4.5%. The settlement resulted in the recognition of a non-cash settlement loss of $24 million reclassed from unrecognized actuarial loss included within Accumulated other comprehensive income (loss) in the Consolidated Balance Sheet.

The components of net periodic benefit cost (income) for our defined benefit pension plans, which are currently frozen to future benefit accruals, are set forth below.
Net Periodic Benefit Cost (Income)
(in millions)
Quarter Ended  
 December 31,
2014
 
2013
Interest cost
$
12

 
$
12

Expected return on plan assets
(13
)
 
(13
)
Recognized actuarial loss
1

 

Loss on pension settlement
24

 

Net periodic benefit cost (income)
$
24

 
$
(1
)
 
 
 
 

NOTE 5. REDEEMABLE NONCONTROLLING INTEREST

We are subject to a redeemable put option, payable in a foreign currency, with respect to an international subsidiary. The put option expires in January 2016 and is classified as Redeemable noncontrolling interest in the Consolidated Balance Sheets.

The components of redeemable noncontrolling interest are as follows:
Redeemable Noncontrolling Interest
Quarter Ended 
 December 31,
(in millions)
2014
 
2013
Beginning balance
$
216

 
$
200

Net earnings
7

 
6

Distributions
(8
)
 
(8
)
Translation adjustment
(9
)
 
6

Redemption value adjustment
1

 
2

Ending Balance
$
207

 
$
206

 
 
 
 


8

Table of Contents
VIACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

NOTE 6. COMMITMENTS AND CONTINGENCIES
Commitments
As more fully described in Notes 4 and 11 of the 2014 Form 10-K, our commitments primarily consist of programming and talent commitments, operating and capital lease arrangements, and purchase obligations for goods and services. These arrangements result from our normal course of business and represent obligations that may be payable over several years.
Contingencies
We have certain indemnification obligations with respect to leases primarily associated with the previously discontinued operations of Famous Players Inc. (“Famous Players”). In addition, we have certain indemnities provided by the acquirer of Famous Players. These lease commitments amounted to approximately $348 million as of December 31, 2014. The amount of lease commitments varies over time depending on expiration or termination of individual underlying leases, or of the related indemnification obligation, and foreign exchange rates, among other things. We may also have exposure for certain other expenses related to the leases, such as property taxes and common area maintenance. We have recorded a liability of $192 million with respect to such obligations as of December 31, 2014. We believe our accrual is sufficient to meet any future obligations based on our consideration of available financial information, the lessees’ historical performance in meeting their lease obligations and the underlying economic factors impacting the lessees’ business models.
Legal Matters
Litigation is inherently uncertain and always difficult to predict. However, based on our understanding and evaluation of the relevant facts and circumstances, we believe that the legal matters described below and other litigation to which we are a party are not likely, in the aggregate, to have a material adverse effect on our results of operations, financial position or operating cash flows.
In February 2013, Cablevision Systems Corporation filed a lawsuit in the United States District Court for the Southern District of New York alleging that Viacom’s industry standard practice of offering discounts for additional network distribution constituted a “tying” arrangement in violation of federal and New York state antitrust laws. Similar arrangements have been upheld by numerous federal and state courts, including in a federal case in which Cablevision itself advocated for the legality of such arrangements. We believe the lawsuit is without merit. In July 2014, Viacom answered the amended complaint and asserted counterclaims against Cablevision for having fraudulently induced Viacom to renew their affiliate agreement at the end of 2012 on terms which Cablevision intended to challenge in the courts. Cablevision answered the counterclaims in September 2014. The litigation has now entered the discovery phase.
NOTE 7. STOCKHOLDERS’ EQUITY
The components of stockholders’ equity are as follows:
  
Quarter Ended  
 December 31, 2014
 
Quarter Ended  
 December 31, 2013
Stockholders’ Equity
(in millions)
Total Viacom Stockholders' Equity
 
Noncontrolling Interests
 
Total Equity
 
Total Viacom Stockholders' Equity
 
Noncontrolling Interests
 
Total Equity
Beginning Balance
$
3,719

 
$
28

 
$
3,747

 
$
5,193

 
$
(3
)
 
$
5,190

Net earnings
500

 
13

 
513

 
547

 
10

 
557

Other comprehensive income (loss) (1)
(122
)
 
(2
)
 
(124
)
 
25

 
1

 
26

Noncontrolling interests
(1
)
 
(14
)
 
(15
)
 
(2
)
 
(11
)
 
(13
)
Dividends declared
(136
)
 

 
(136
)
 
(134
)
 

 
(134
)
Purchase of treasury stock
(750
)
 

 
(750
)
 
(850
)
 

 
(850
)
Equity-based compensation and other
142

 

 
142

 
23

 

 
23

Ending Balance
$
3,352

 
$
25

 
$
3,377

 
$
4,802

 
$
(3
)
 
$
4,799

 
 
 
 
 
 
 
 
 
 
 
 
(1) The components of other comprehensive income (loss) are net of a tax benefit of $10 million for the quarter ended December 31, 2014.

9

Table of Contents
VIACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

NOTE 8. EARNINGS PER SHARE
Basic earnings per common share is computed by dividing Net earnings attributable to Viacom by the weighted average number of common shares outstanding during the period. The determination of diluted earnings per common share includes the weighted average number of common shares plus the dilutive effect of equity awards based upon the application of the treasury stock method. Anti-dilutive common shares were excluded from the calculation of diluted earnings per common share.
The following table sets forth the weighted average number of common shares outstanding used in determining basic and diluted earnings per common share and anti-dilutive common shares:
Weighted Average Number of Common Shares Outstanding and Anti-dilutive Common Shares
Quarter Ended  
 December 31,
(in millions)
2014
 
2013
Weighted average number of common shares outstanding, basic
410.6

 
444.9

        Dilutive effect of equity awards
5.5

 
9.1

Weighted average number of common shares outstanding, diluted
416.1

 
454.0

 
 
 
 
Anti-dilutive common shares
4.1

 

 
 
 
 
 
NOTE 9. SUPPLEMENTAL CASH FLOW AND OTHER INFORMATION
Our supplemental cash flow information is as follows:
Supplemental Cash Flow Information
Quarter Ended 
 December 31,
(in millions)
2014
 
2013
Cash paid for interest
$
156

 
$
122

Cash paid for income taxes
$
48

 
$
124


Accounts Receivable
We had $458 million and $482 million of noncurrent trade receivables as of December 31, 2014 and September 30, 2014, respectively. The accounts receivable were primarily in the Filmed Entertainment segment, included within Other assets in our Consolidated Balance Sheets, and principally related to long-term television license arrangements. Such amounts are due in accordance with the underlying terms of the respective agreements and are principally from investment grade companies with which we have historically done business under similar terms, for which credit loss allowances are generally not considered necessary.
Variable Interest Entities
In the normal course of business, we enter into joint ventures or make investments with business partners that support our underlying business strategy and provide us the ability to enter new markets to expand the reach of our brands, develop new programming and/or distribute our existing content. In certain instances, an entity in which we make an investment may qualify as a variable interest entity (“VIE”). In determining whether we are the primary beneficiary of a VIE, we assess whether we have the power to direct matters that most significantly impact the activities of the VIE and have the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
Unconsolidated Variable Interest Entities: We have an unconsolidated investment in Viacom 18, a 50% owned joint venture in India with Network 18 Media and Investments Limited that qualifies as a VIE. Our aggregate investment carrying value in Viacom 18 was $71 million and $68 million as of December 31, 2014 and September 30, 2014, respectively.

Consolidated Variable Interest Entities: Our Consolidated Balance Sheets include amounts related to consolidated VIEs totaling $132 million in assets and $53 million in liabilities as of December 31, 2014, and $138 million in assets and $54 million in liabilities as of September 30, 2014. The consolidated VIEs’ revenues, expenses and operating income were not significant for all periods presented.

10

Table of Contents
VIACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

Income Taxes
We recognized discrete tax expense of $23 million in the quarter ended December 31, 2014, principally related to a reduction in qualified production activity tax benefits as a result of retroactively reenacted legislation.
NOTE 10. FAIR VALUE MEASUREMENTS
The following table summarizes our financial assets and liabilities measured and recorded at fair value on a recurring basis as of December 31, 2014 and September 30, 2014:
Financial Asset (Liability)
  
 
Quoted Prices In
Active Markets for
Identical Assets
 
Significant Other
Observable
Inputs
 
Significant
Unobservable
Inputs
(in millions)
Total        
 
Level 1
 
Level 2
 
Level 3
December 31, 2014
 
 
 
 
 
 
 
Marketable securities
$
106

 
$
106

 
$

 
$

Derivatives
(1
)
 

 
(1
)
 

Total
$
105

 
$
106

 
$
(1
)
 
$

September 30, 2014
 
 
 
 
 
 
 
Marketable securities
$
107

 
$
107

 
$

 
$

Derivatives
(8
)
 

 
(8
)
 

Total
$
99

 
$
107

 
$
(8
)
 
$

 
 
 
 
 
 
 
 
The fair value for marketable securities is determined utilizing a market approach based on quoted market prices in active markets at period end and the fair value for derivatives is determined utilizing a market-based approach.
The notional value of all foreign exchange contracts was $565 million and $628 million as of December 31, 2014 and September 30, 2014, respectively. At December 31, 2014, $363 million related to our foreign currency balances, $147 million related to anticipated investing cash flows and $55 million related to future production costs. At September 30, 2014, $390 million related to our foreign currency balances, $154 million related to anticipated investing cash flows and $84 million related to future production costs.
NOTE 11. REPORTING SEGMENTS
The following tables set forth our financial performance by reporting segment. Our reporting segments have been determined in accordance with our internal management structure. We manage our operations through two reporting segments: (i) Media Networks and (ii) Filmed Entertainment. Typical intersegment transactions include the purchase of advertising by the Filmed Entertainment segment on Media Networks’ properties and the purchase of Filmed Entertainment’s feature films exhibition rights by Media Networks. The elimination of such intercompany transactions in the Consolidated Financial Statements is included within eliminations in the tables below.
 
Our measure of segment performance is adjusted operating income (loss). Adjusted operating income (loss) is defined as operating income (loss), before equity-based compensation and certain other items identified as affecting comparability, when applicable.
Revenues by Segment
Quarter Ended  
 December 31,
(in millions)
2014
 
2013
Media Networks
$
2,654

 
$
2,541

Filmed Entertainment
720

 
681

Eliminations
(30
)
 
(25
)
Total revenues
$
3,344

 
$
3,197

 
 
 
 
 

11

Table of Contents
VIACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

Adjusted Operating Income (Loss)
Quarter Ended  
 December 31,
(in millions)
2014
 
2013
Media Networks
$
1,104

 
$
1,114

Filmed Entertainment
(60
)
 
(74
)
Corporate expenses
(61
)
 
(51
)
Eliminations
2

 
3

Equity-based compensation
(26
)
 
(32
)
Loss on pension settlement
(24
)
 

Operating income
935

 
960

Interest expense, net
(160
)
 
(149
)
Equity in net earnings of investee companies
33

 
26

Other items, net
(18
)
 

Earnings before provision for income taxes
$
790

 
$
837

 
 
 
 
 
Total Assets
December 31,
2014
 
September 30,
2014
(in millions)
 
Media Networks
$
17,704

 
$
17,647

Filmed Entertainment
5,719

 
5,440

Corporate/Eliminations
(7
)
 
30

Total assets
$
23,416

 
$
23,117

 
 
 
 

Revenues by Component
Quarter Ended  
 December 31,
(in millions)
2014
 
2013
Advertising
$
1,367

 
$
1,325

Feature film
674

 
639

Affiliate fees
1,132

 
1,066

Ancillary
201

 
192

Eliminations
(30
)
 
(25
)
Total revenues
$
3,344

 
$
3,197

 
 
 
 

Certain prior year revenues for the Filmed Entertainment segment have been reclassified to conform to the current year presentation.


12

Table of Contents
VIACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

NOTE 12. RELATED PARTY TRANSACTIONS
National Amusements, Inc. (“NAI”), directly and through a wholly-owned subsidiary, is the controlling stockholder of both Viacom and CBS Corporation (“CBS”). Sumner M. Redstone, the controlling shareholder, Chairman and Chief Executive Officer of NAI, serves as our Executive Chairman and Founder and as the Executive Chairman and Founder of CBS. Shari Redstone, who is Sumner Redstone’s daughter, is the President and a director of NAI, and serves as non-executive Vice Chair of the Board of Directors of both Viacom and CBS. George Abrams, one of our directors, serves on the boards of both NAI and Viacom, and Frederic Salerno, another of our directors, serves on the boards of both Viacom and CBS. Philippe Dauman, our President and Chief Executive Officer, also serves on the boards of both NAI and Viacom. Transactions between Viacom and related parties are overseen by our Governance and Nominating Committee.

Viacom and NAI Related Party Transactions
NAI licenses films in the ordinary course of business for its motion picture theaters from all major studios, including Paramount. Paramount earned revenues from NAI in connection with these licenses in the aggregate amount of approximately $2 million in each of the quarters ended December 31, 2014 and 2013.
Viacom and CBS Corporation Related Party Transactions
In the ordinary course of business, we are involved in transactions with CBS and its various businesses that result in the recognition of revenues and expenses by us. Transactions with CBS are settled in cash.
Our Filmed Entertainment segment earns revenues and recognizes expenses associated with its distribution of certain television products into the home entertainment market on behalf of CBS. Pursuant to its agreement with CBS, Paramount distributes CBS’s library of television and other content on DVD and Blu-ray disc on a worldwide basis. Under the terms of the agreement, Paramount is entitled to retain a fee based on a percentage of gross receipts and is generally responsible for all out-of-pocket costs, which are recoupable together with any advance amounts paid. Paramount made advance payments of $75 million to CBS in the quarter ended December 31, 2014. Paramount also earns revenues from CBS through leasing of studio space and licensing of certain film products.
Our Media Networks segment recognizes advertising revenues and purchases television programming from CBS. The cost of the programming purchases is initially recorded as acquired program rights inventory and amortized over the estimated period that revenues will be generated.
Both of our segments recognize advertising expenses related to the placement of advertisements with CBS.
The following table summarizes the transactions with CBS as included in our Consolidated Financial Statements:
CBS Related Party Transactions
Quarter Ended 
 December 31,
(in millions)
2014
 
2013
Consolidated Statement of Earnings
 
 
 
Revenue
$
59

 
$
73

Operating expenses
$
68

 
$
96

 
 
 
 
  
December 31,
2014
 
September 30,
2014
Consolidated Balance Sheets
 
 
 
Accounts receivable
$
5

 
$
5

 
 
 
 
Accounts payable
$
3

 
$
2

Participants’ share and residuals, current
75

 
100

Program obligations, current
84

 
87

Program obligations, noncurrent
86

 
104

Other liabilities
8

 
9

Total due to CBS
$
256

 
$
302

 
 
 
 


13

Table of Contents
VIACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

Other Related Party Transactions
In the ordinary course of business, we are involved in related party transactions with equity investees. These related party transactions primarily relate to the provision of advertising services, licensing of film and programming content, distribution of films and provision of certain administrative support services, for which the impact on our Consolidated Financial Statements is as follows:
Other Related Party Transactions
Quarter Ended 
 December 31,
(in millions)
2014
 
2013
Consolidated Statement of Earnings
 
 
 
Revenue
$
13

 
$
13

Operating expenses
$
2

 
$
2

Selling, general and administrative
$
(2
)
 
$
(2
)
 
 
 
 
  
December 31,
2014
 
September 30,
2014
Consolidated Balance Sheets
 
 
 
Account receivable
$
89

 
$
84

Other assets
2

 
1

Total due from other related parties
$
91

 
$
85

 
 
 
 
Accounts payable
$
9

 
$
2

Other liabilities
37

 
37

 Total due to other related parties
$
46

 
$
39

 
 
 
 
All other related party transactions are not material in the periods presented.

14


Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition.
Management’s discussion and analysis of results of operations and financial condition is provided as a supplement to and should be read in conjunction with the unaudited consolidated financial statements and related notes to enhance the understanding of our results of operations, financial condition and cash flows. Additional context can also be found in our Form 10-K for the fiscal year ended September 30, 2014, as filed with the Securities and Exchange Commission (“SEC”) on November 13, 2014 (the “2014 Form 10-K”). References in this document to “Viacom,” “Company,” “we,” “us” and “our” mean Viacom Inc. and our consolidated subsidiaries, unless the context requires otherwise.
Significant components of management’s discussion and analysis of results of operations and financial condition include:
Overview. The overview section provides a summary of our business.
Results of Operations. The results of operations section provides an analysis of our results on a consolidated and reportable segment basis for the quarter ended December 31, 2014, compared to the quarter ended December 31, 2013. In addition, we provide a discussion of items that affect the comparability of our results of operations.
Liquidity and Capital Resources. The liquidity and capital resources section provides a discussion of our cash flows for the quarter ended December 31, 2014, compared to the quarter ended December 31, 2013, and of our outstanding debt, commitments and contingencies existing as of December 31, 2014.
OVERVIEW
Summary
We are a leading global entertainment content company that connects with audiences in more than 165 countries and territories and creates compelling television programs, motion pictures, short-form video, apps, games, brands for consumer products, social media and other entertainment content. With media networks reaching a cumulative 3.2 billion television subscribers worldwide, Viacom’s leading brands include MTV®, VH1®, CMT®, Logo®, BET®, CENTRIC®, Nickelodeon®, Nick Jr.®, TeenNick®, Nicktoons®, Nick at Nite®, COMEDY CENTRAL®, TV Land®, SPIKE®, Channel 5® (UK), Tr3s®, Paramount Channel™ and VIVA™, among others. Paramount Pictures®, America's oldest film studio, is a major global producer and distributor of filmed entertainment and Paramount Television™, our television production division, is focused on developing programming for television and digital platforms.
We operate through two reporting segments: Media Networks and Filmed Entertainment. Our measure of segment performance is adjusted operating income (loss). We define adjusted operating income (loss) for our segments as operating income (loss), before equity-based compensation and certain other items identified as affecting comparability, when applicable. Equity-based compensation is excluded from our segment measure of performance since it is set and approved by the Compensation Committee of Viacom’s Board of Directors in consultation with corporate executive management, and is included as a component of consolidated adjusted operating income.
When applicable, we use consolidated adjusted operating income, adjusted net earnings attributable to Viacom and adjusted diluted earnings per share (“EPS”), among other measures, to evaluate our actual operating performance and for planning and forecasting of future periods. We believe that the adjusted results provide relevant and useful information for investors because they clarify our actual operating performance, make it easier to compare our results with those of other companies and allow investors to review performance in the same way as our management. Since these are not measures of performance calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”), they should not be considered in isolation of, or as a substitute for, operating income, net earnings 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. For a reconciliation of our adjusted measures and discussion of the items affecting comparability, refer to the section entitled “Factors Affecting Comparability”.
Media Networks
Our Media Networks segment generates revenues in three categories: (i) the sale of advertising and marketing services related to our content, (ii) affiliate fees from multichannel television service providers, including cable television operators, direct-to-home satellite television operators and telecommunications operators, subscription and advertising supported video-on-demand services, and other distributors of our programming and program services, and (iii) ancillary revenues, which include consumer products licensing, brand licensing, sale of content on DVDs and Blu-ray discs, licensing of our content for download-to-own and download-to-rent services and television syndication.

15

Table of Contents
Management’s Discussion and Analysis
of Results of Operations and Financial Condition
(continued)



Media Networks segment expenses consist of operating expenses, selling, general and administrative (“SG&A”) expenses and depreciation and amortization. Operating expenses are comprised of costs related to original and acquired programming, including programming amortization, expenses associated with the distribution of home entertainment products and consumer products licensing, participation fees, integrated marketing expenses and other costs of sales. SG&A expenses consist primarily of employee compensation, marketing, research and professional service fees and facility and occupancy costs. Depreciation and amortization expenses reflect depreciation of fixed assets, including transponders financed under capital leases, and amortization of finite-lived intangible assets.
Filmed Entertainment
Our Filmed Entertainment segment generates revenues worldwide principally from: (i) the theatrical release and/or distribution of motion pictures, (ii) home entertainment revenues, which include sales of DVDs and Blu-ray discs relating to the motion pictures we release theatrically and direct-to-DVD, as well as content distributed on behalf of Viacom and third parties, transactional video-on-demand and download-to-own services, (iii) licensing of film exhibition rights to pay and basic cable television, broadcast television, syndicated television and subscription video-on-demand services and (iv) ancillary revenues from providing production services to third parties, primarily at Paramount’s studio lot, licensing of its brands for consumer products and theme parks, and distribution of content specifically developed for digital platforms and game distribution.
Filmed Entertainment segment expenses consist of operating expenses, SG&A expenses and depreciation and amortization. Operating expenses principally include the amortization of film costs of our released feature films (including participations and residuals), print and advertising expenses and other distribution costs. We incur marketing costs before and throughout the theatrical release of a film and, to a lesser extent, other distribution windows. Such costs are incurred to generate public interest in our films and are expensed as incurred; therefore, we typically incur losses with respect to a particular film prior to and during the film’s theatrical exhibition and profitability may not be realized until well after a film’s theatrical release. Therefore, the results of the Filmed Entertainment segment can be volatile as films work their way through the various distribution windows. SG&A expenses include employee compensation, facility and occupancy costs, professional service fees and other overhead costs. Depreciation and amortization expense principally consists of depreciation of fixed assets. 

16

Table of Contents
Management’s Discussion and Analysis
of Results of Operations and Financial Condition
(continued)


RESULTS OF OPERATIONS
Consolidated Results of Operations
Our summary consolidated results of operations are presented below for the quarters ended December 31, 2014 and 2013.
  
Quarter Ended  
 December 31,
 
Better/(Worse)
(in millions, except per share amounts)
2014
 
2013
 
$
 
%
Revenues
$
3,344

 
$
3,197

 
$
147

 
5
 %
Operating income
935

 
960

 
(25
)
 
(3
)
Adjusted operating income
959

 
960

 
(1
)
 

Net earnings attributable to Viacom
500

 
547

 
(47
)
 
(9
)
Adjusted net earnings attributable to Viacom
538

 
547

 
(9
)
 
(2
)
Diluted EPS
1.20

 
1.20

 

 

Adjusted diluted EPS
$
1.29

 
$
1.20

 
$
0.09

 
8
 %
 
 
 
 
 
 
 
 
See the section entitled “Factors Affecting Comparability” for a reconciliation of our adjusted measures to our reported results.
Revenues
Worldwide revenues increased $147 million, or 5%, to $3.344 billion in the quarter ended December 31, 2014. Media Networks revenues increased $113 million, due to higher affiliate fees, as well as an increase in advertising revenues driven by the acquisition of Channel 5 Broadcast Limited ("Channel 5"). Filmed Entertainment revenues increased $39 million primarily driven by higher home entertainment revenues.
Operating Income
Adjusted operating income was substantially flat in the quarter ended December 31, 2014. Filmed Entertainment operating results improved by $14 million, while Media Networks adjusted operating income declined $10 million. In addition, corporate expenses increased $10 million, due to higher employee-related expenses, and equity-based compensation decreased $6 million. Adjusted results exclude the impact of a $24 million non-cash pension settlement loss. Including the pension settlement loss, operating income decreased $25 million, or 3%.
See the section entitled “Segment Results of Operations” for a more in-depth discussion of the revenues, expenses and adjusted operating income (loss) for each of the Media Networks and Filmed Entertainment segments.

Net Earnings Attributable to Viacom
Adjusted net earnings attributable to Viacom decreased $9 million, or 2%, to $538 million in the quarter ended December 31, 2014, principally due to foreign currency exchange losses and higher interest expense, reflecting higher levels of debt outstanding, partially offset by a decrease in the effective income tax rate.
Our effective income tax rate was 32.3% in the quarter ended December 31, 2014, compared with 33.5% in the quarter ended December 31, 2013, excluding the impact of discrete tax items. The decrease in the effective income tax rate is principally due to a change in the mix of domestic and international income.
Adjusted diluted EPS increased $0.09 per diluted share to $1.29 in the quarter, principally reflecting fewer shares outstanding.
In addition to the pension settlement loss mentioned above, adjusted net earnings attributable to Viacom in the quarter ended December 31, 2014 exclude discrete taxes. Including these items, net earnings attributable to Viacom decreased $47 million, or 9%, and diluted EPS remained unchanged at $1.20 per diluted share.
Segment Results of Operations
Transactions between reportable segments are accounted for as third-party arrangements for the purposes of presenting segment results of operations. Typical intersegment transactions include the purchase of advertising by the Filmed Entertainment segment on Media Networks’ properties and the purchase of Filmed Entertainment’s feature films exhibition rights by Media Networks.

17

Table of Contents
Management’s Discussion and Analysis
of Results of Operations and Financial Condition
(continued)


Media Networks
  
Quarter Ended  
 December 31,
 
Better/(Worse)  
(in millions)
2014
 
2013
 
$
 
%
Revenues by Component
 
 
 
 
 
 
 
Advertising
$
1,367

 
$
1,325

 
$
42

 
3
 %
Affiliate fees
1,132

 
1,066

 
66

 
6

Ancillary
155

 
150

 
5

 
3

Total revenues by component
$
2,654

 
$
2,541

 
$
113

 
4
 %
Expenses
 
 
 
 
 
 
 
Operating
$
987

 
$
868

 
$
(119
)
 
(14
)%
Selling, general and administrative
522

 
523

 
1

 

Depreciation and amortization
41

 
36

 
(5
)
 
(14
)
Total expenses
$
1,550

 
$
1,427

 
$
(123
)
 
(9
)%
Adjusted Operating Income
$
1,104

 
$
1,114

 
$
(10
)
 
(1
)%
 
 
 
 
 
 
 
 

Revenues
Worldwide revenues increased $113 million, or 4%, to $2.654 billion in the quarter ended December 31, 2014, driven by higher affiliate fees and advertising revenues. Domestic revenues were up slightly to $2.124 billion and international revenues grew 25% to $530 million. The growth in international revenues was due to the acquisition of Channel 5, partially offset by foreign exchange, which had a 6-percentage point unfavorable impact on international revenues.
Advertising
Worldwide advertising revenues increased $42 million, or 3%, to $1.367 billion in the quarter. Domestic advertising revenues decreased 6%. While demand remained strong, lower ratings across our channels resulted in a decline in the average price per unit, partially offset by the impact of an increase in units delivered to satisfy our audience deficiency liabilities. International advertising revenues increased 60%, driven by the acquisition of Channel 5, partially offset by the impact of foreign exchange, which had a 7-percentage point unfavorable impact in the quarter.
Affiliate Fees
Worldwide affiliate fee revenues increased $66 million, or 6%, to $1.132 billion in the quarter, primarily driven by rate increases. Domestic affiliate revenues increased 8% and international affiliate revenues decreased 2%. Excluding the impact from the timing of product available under certain distribution agreements, domestic affiliate revenues grew high single-digits in the quarter. Foreign exchange had a 7-percentage point unfavorable impact on international revenues.
Expenses
Total expenses increased $123 million, or 9%, to $1.550 billion in the quarter, driven by higher operating expenses.
Operating
Operating expenses increased $119 million, or 14%, to $987 million in the quarter. Programming costs increased $111 million, or 15%, with the acquisition of Channel 5 contributing 9 percentage points and the remaining 6 percentage points of growth primarily reflecting our continuing investment in original content. Distribution and other expenses increased $8 million, or 7%, driven by the acquisition of Channel 5.
Selling, General and Administrative
SG&A expenses were substantially flat at $522 million in the quarter, with the acquisition of Channel 5 contributing a 2-percentage point increase, offset by a decline in incentive compensation expenses.
Depreciation and Amortization
Depreciation and amortization increased $5 million, or 14%, to $41 million in the quarter, driven by the acquisition of Channel 5.
Adjusted Operating Income
Adjusted operating income decreased $10 million, or 1%, to $1.104 billion in the quarter, reflecting the operating results discussed above and a 1-percentage point unfavorable foreign exchange impact.

18

Table of Contents
Management’s Discussion and Analysis
of Results of Operations and Financial Condition
(continued)



Filmed Entertainment
 
Quarter Ended  
 December 31,
 
Better/(Worse)
(in millions)
2014
 
2013
 
$        
 
%    
Revenues by Component
 
 
 
 
 
 
 
Theatrical
$
169

 
$
159

 
$
10

 
6
 %
Home entertainment
316

 
272

 
44

 
16

License fees
189

 
208

 
(19
)
 
(9
)
Ancillary
46

 
42

 
4

 
10

Total revenues by component
$
720

 
$
681

 
$
39

 
6
 %
Expenses
 
 
 
 
 
 
 
Operating
$
668

 
$
634

 
$
(34
)
 
(5
)%
Selling, general & administrative
99

 
100

 
1

 
1

Depreciation & amortization
13

 
21

 
8

 
38

Total expenses
$
780

 
$
755

 
$
(25
)
 
(3
)%
Adjusted Operating Income/(Loss)
$
(60
)
 
$
(74
)
 
$
14

 
19
 %
 
 
 
 
 
 
 
 

Revenues
Worldwide revenues increased $39 million, or 6%, to $720 million in the quarter ended December 31, 2014, primarily driven by higher home entertainment revenues. Domestic revenues were $372 million, an increase of 22%, and international revenues were $348 million, a decrease of 8% in the quarter. Foreign exchange had a 5-percentage point unfavorable impact on international revenues in the quarter.
Theatrical
Worldwide theatrical revenues increased $10 million, or 6%, to $169 million in the quarter. Carryover revenues were $48 million higher driven by the prior period release of Teenage Mutant Ninja Turtles, while revenues from our current quarter releases were lower by $38 million due to the mix of releases. We released five titles in the current and prior year quarter, with the current quarter including Interstellar, Top Five and The Gambler, as well as the limited release of Selma and the prior year quarter including Jackass: Bad Grandpa, Anchorman 2: The Legend Continues and The Wolf of Wall Street. Domestic theatrical revenues decreased 8%, while international theatrical revenues increased 49%, driven by the release of Teenage Mutant Ninja Turtles. Foreign exchange had a 13-percentage point unfavorable impact on international theatrical revenues.
Home Entertainment
Worldwide home entertainment revenues increased $44 million, or 16%, to $316 million in the quarter. Revenues from current quarter titles increased $103 million as we released two titles in the current quarter, Teenage Mutant Ninja Turtles and Hercules, compared with none in the prior year quarter. Carryover and catalog revenues from prior year releases were lower by $57 million and digital revenues declined $2 million. Domestic home entertainment revenues increased 100%, primarily driven by the two releases discussed above, and international home entertainment revenues decreased 23%, primarily from lower catalog revenues. Foreign exchange had a 5-percentage point unfavorable impact on international home entertainment revenues.
License Fees
License fees decreased $19 million, or 9%, to $189 million in the quarter, primarily driven by the mix of available titles.

19

Table of Contents
Management’s Discussion and Analysis
of Results of Operations and Financial Condition
(continued)


Expenses
Total expenses increased $25 million, or 3%, to $780 million in the quarter, principally driven by higher operating expenses.
Operating
Operating expenses increased $34 million, or 5%, to $668 million in the quarter. Film costs increased $16 million, or 5%, as a result of the number and mix of films, partially offset by lower participation costs on third-party distribution arrangements. Distribution and other costs, principally print and advertising expenses, increased $18 million, or 5%, as a result of the number and mix of current year home entertainment titles.
Depreciation and Amortization
Depreciation and amortization decreased $8 million, or 38%, to $13 million in the quarter, driven by a decline in amortization expense associated with an intangible asset becoming fully amortized in the prior year.
Adjusted Operating Income/(Loss)
Adjusted operating loss was $60 million for the quarter ended December 31, 2014 compared with $74 million for the quarter ended December 31, 2013, an improvement of $14 million as higher revenues more than offset an increase in expenses as discussed above. The generation of an operating loss reflects the recognition of print and advertising expenses incurred in the period, generally before and throughout the theatrical release of a film, while revenues for the respective films are recognized as earned through its theatrical exhibition and subsequent distribution windows.
Factors Affecting Comparability
The Consolidated Financial Statements as of and for the quarters ended December 31, 2014 and 2013 reflect our results of operations, financial position and cash flows reported in accordance with GAAP. Results for the aforementioned periods, as discussed in the section entitled “Overview”, have been affected by certain items identified as affecting comparability. Accordingly, when applicable, we use adjusted measures to evaluate our actual operating performance.
The following table reconciles our adjusted measures to our reported results for the quarter ended December 31, 2014. The tax impact included in the table has been calculated using the rate applicable to the adjustment presented. There were no adjustments to our results for the quarter ended December 31, 2013.
(in millions, except per share amounts)
 
Quarter Ended  
 December 31, 2014
 
Operating
Income
 
Pre-tax Earnings
from
Operations
 
Net Earnings 
Attributable to Viacom
 
Diluted
EPS
Reported results
$
935

 
$
790

 
$
500

 
$
1.20

Factors Affecting Comparability:
 
 
 
 
 
 
 
Loss on pension settlement
24

 
24

 
15

 
0.04

Discrete tax expense

 

 
23

 
0.05

Adjusted results
$
959

 
$
814

 
$
538

 
$
1.29

 
 
 
 
 
 
 
 
Loss on pension settlement: The pre-tax non-cash charge of $24 million was driven by the settlement of pension benefits of certain participants of our funded pension plan.
Discrete tax expense: The discrete tax expense is principally related to a reduction in qualified production activity tax benefits as a result of retroactively reenacted legislation. Our effective income tax rate was 32.3% in the quarter, excluding the impact of the discrete tax expense. Discrete tax expense of $23 million, taken together with the impact of the pension settlement loss, contributed 2.8 percentage points of expense to the effective tax rate, which reconciles to the reported effective tax rate of 35.1%.

20

Table of Contents
Management’s Discussion and Analysis
of Results of Operations and Financial Condition
(continued)


LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Sources and Uses of Cash
Our primary source of liquidity is cash provided through the operations of our businesses. We have access to external financing sources such as our $2.5 billion five-year revolving credit facility and the capital markets. Our principal uses of cash from operations include the creation of new programming and film content, acquisitions of third-party content, and interest and income tax payments. We also use cash for discretionary share repurchases under our stock repurchase program, as deemed appropriate, as well as quarterly cash dividends, capital expenditures and acquisitions of businesses.
We believe that our cash flows from operating activities together with our credit facility provide us with adequate resources to fund our anticipated ongoing cash requirements. We anticipate that future debt maturities will be funded with cash and cash equivalents, cash flows from operating activities and future access to capital markets, including our credit facility.
We may continue to access external financing from time to time depending on our cash requirements, assessments of current and anticipated market conditions and after-tax cost of capital. Our access to capital markets can be impacted by factors outside our control, including economic conditions; however, we believe that our strong cash flows and balance sheet, our credit facility and our credit rating will provide us with adequate access to funding given our expected cash needs. Any new borrowing cost would be affected by market conditions and short and long-term debt ratings assigned by independent rating agencies, and there can be no assurance that we will be able to access capital markets on terms and conditions that will be favorable to us.
Cash Flows
Cash and cash equivalents as of December 31, 2014 increased $185 million compared to September 30, 2014.
Operating Activities
Cash provided by operations was $56 million for the quarter ended December 31, 2014, a decrease of $237 million compared with the quarter ended December 31, 2013. The decrease is primarily driven by an increase in production spending.
Investing Activities
Cash used in investing activities was $35 million in the quarter ended December 31, 2014 and $14 million in the quarter ended December 31, 2013, reflecting higher capital expenditures in the current year.
Financing Activities
Cash provided by financing activities was $193 million for the quarter ended December 31, 2014, primarily driven by proceeds of $990 million from the issuance of senior notes and debentures and proceeds of $104 million from the exercise of stock options, partially offset by the settlement of share repurchases of $754 million and dividend payments totaling $137 million.
Cash used in financing activities was $1.267 billion in the quarter ended December 31, 2013, primarily driven by the settlement of share repurchases of $970 million and two dividend payments totaling $271 million.
Capital Resources
Capital Structure and Debt
Total debt was $13.763 billion as of December 31, 2014, an increase of $994 million from $12.769 billion at September 30, 2014.
In December 2014, we issued a total of $1.0 billion of senior notes and debentures as follows:
2.750% Senior Notes due December 2019 with an aggregate principal amount of $400 million at a price equal to 99.986% of the principal amount.
4.850% Senior Debentures due December 2034 with an aggregate principal amount of $600 million at a price equal to 99.543% of the principal amount.
The proceeds, net of the discount and other issuance fees and expenses, from the issuance of the senior notes and debentures were $990 million. We intend to utilize the net proceeds for the repayment of outstanding indebtedness, which includes the repayment of $600 million aggregate principal amount of our 1.250% senior notes due February 2015 and borrowings under our commercial paper program. To the extent any proceeds remain, they will be used for general corporate purposes, including the repurchase of shares under our stock repurchase program.

21

Table of Contents
Management’s Discussion and Analysis
of Results of Operations and Financial Condition
(continued)


Credit Facility
In November 2014, we amended our revolving credit agreement, originally dated as of October 8, 2010, to, among other things, extend the maturity date of the $2.5 billion revolving credit facility from November 9, 2017 to November 18, 2019. At December 31, 2014, there were no amounts outstanding under the credit facility. The credit facility has one principal financial covenant that requires our interest coverage for the most recent four consecutive fiscal quarters to be at least 3.0x, which we met as of December 31, 2014.
Stock Repurchase Program
During the quarter ended December 31, 2014, we repurchased 10.2 million shares of Class B common stock for an aggregate purchase price of $750 million. From January 1, 2015 through January 28, 2015, we repurchased an additional 1.8 million shares for an aggregate purchase price of $130 million, leaving $5.620 billion of remaining capacity under our program. Share repurchases under the program are expected to be funded through a combination of debt and cash generated by operations, as deemed appropriate.
Commitments and Contingencies
Legal Matters
Litigation is inherently uncertain and difficult to predict. However, based on our understanding and evaluation of the relevant facts and circumstances, we believe that the legal matters described in this document and other litigation to which we are a party are not likely, in the aggregate, to have a material adverse effect on our results of operations, financial position or operating cash flows. For additional information, see Note 6 to the Consolidated Financial Statements.
OTHER MATTERS
Related Parties
In the ordinary course of business we enter into transactions with related parties, including National Amusements, Inc., CBS Corporation, their respective subsidiaries and affiliates, and companies that we account for under the equity method of accounting. For additional information, see Note 12 to the Consolidated Financial Statements.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q, including “Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition,” 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 our 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 future results, performance or achievements to differ. These risks, uncertainties and other factors include, among others: the measured audience acceptance of our programs, motion pictures and other entertainment content on the various platforms on which they are distributed; technological developments and their effect in our markets and on consumer behavior; competition for content, audiences, advertising and distribution; the impact of piracy; economic fluctuations in advertising and retail markets, and economic conditions generally; fluctuations in our results due to the timing, mix and availability of our motion pictures and other programming; the potential for loss of carriage or other reduction in the distribution of our content; changes in the Federal communications laws and regulations; evolving cybersecurity and similar risks; other domestic and global economic, business, competitive and/or regulatory factors affecting our businesses generally; and other factors described in our news releases and filings with the Securities and Exchange Commission, including but not limited to our 2014 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 we do not have any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to the impact of interest rate changes, foreign currency fluctuations and changes in the market value of investments. In the ordinary course of business, we may employ established and prudent policies and procedures to manage our exposure principally to changes in interest rates and foreign exchange risks. The objective of such policies and procedures is to manage exposure to market risks in order to minimize the impact on earnings and cash flows. We do not hold or enter into financial instruments for speculative trading purposes.

22

Table of Contents

Item 4. Controls and Procedures.
Our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)) were effective, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Exchange Act.
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


23

Table of Contents

PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
Since our 2014 Form 10-K, there have been no material developments in the material legal proceedings in which we are involved, except as set forth in Note 6 to the Consolidated Financial Statements.
Item 1A. Risk Factors.
A wide range of risks may affect our business and financial results, now and in the future. We consider the risks described in our 2014 Form 10-K to be the most significant. There may be other currently unknown or unpredictable economic, business, competitive, regulatory or other factors that could have material adverse effects on our future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table provides information about our purchases of Viacom Class B common stock during the quarter ended December 31, 2014 under our publicly announced stock repurchase program.
 
Total Number
of Shares
Purchased
 
Average Price
Paid per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1)
 
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under Program
Open Market Purchases
(thousands)
 
(dollars)
 
(thousands)
 
(millions)
Month ended October 31, 2014
3,197

 
$
71.93

 
3,197

 
$
6,270

Month ended November 30, 2014
2,866

 
$
73.26

 
2,866

 
$
6,060

Month ended December 31, 2014
4,126

 
$
75.14

 
4,126

 
$
5,750

Total
10,189

 
 
 
10,189

 
 
 
 
 
 
 
 
 
 
(1)
There is no expiration date for the program.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.

24

Table of Contents

Item 6. Exhibits.
Exhibit No.
 
Description of Exhibit
 
 
 
4.1
 
Eighteenth Supplemental Indenture, dated as of December 10, 2014, between Viacom Inc. and The Bank of New York Mellon, as Trustee (including forms of the Securities) (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of Viacom Inc. filed December 10, 2014) (File No. 001-32686).
 
 
 
10.1*
 
Third Amendment, dated as of November 18, 2014, to the Credit Agreement, dated as of October 8, 2010, among Viacom Inc., the subsidiaries of Viacom Inc. designated as borrowers from time to time thereunder, the Lenders named therein, JPMorgan Chase Bank, N.A., as Administrative Agent, Citibank, N.A. and Bank of America, N.A., as Syndication Agents, and Deutsche Bank Securities Inc., Morgan Stanley MUFG Loan Partners, LLC, The Royal Bank of Scotland PLC and Wells Fargo Bank, N.A., as Documentation Agents.
 
 
 
10.2*
 
Employment Agreement between Viacom Inc. and Philippe P. Dauman, effective as of January 15, 2015.
 
 
 
10.3*
 
Employment Agreement between Viacom Inc. and Wade Davis, effective as of November 27, 2014.
 
 
 
31.1*
 
Certification of the Chief Executive Officer of Viacom Inc. pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2*
 
Certification of the Chief Financial Officer of Viacom Inc. pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1*
 
Certification of the Chief Executive Officer of Viacom Inc. furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.2*
 
Certification of the Chief Financial Officer of Viacom Inc. furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101.INS*
 
XBRL Instance Document.
 
 
 
101.SCH*
 
XBRL Taxonomy Extension Schema Document.
 
 
 
101.CAL*
 
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
101.DEF*
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
101.LAB*
 
XBRL Taxonomy Extension Label Linkbase Document.
 
 
 
101.PRE*
 
XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
 
 
*
Filed herewith

25

Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
VIACOM INC.
 
 
 
 
Date: January 29, 2015
By:
 
/s/    WADE DAVIS
 
 
 
Wade Davis
 
 
 
Executive Vice President, Chief Financial Officer
 
 
 
 
Date: January 29, 2015
By:
 
/s/    KATHERINE GILL-CHAREST
 
 
 
Katherine Gill-Charest
 
 
 
Senior Vice President, Controller
(Chief Accounting Officer)

26
Amendment to Credit Agreement Exhibit 10.1

Exhibit 10.1
THIRD AMENDMENT
TO
CREDIT AGREEMENT
Viacom Inc.
THIRD AMENDMENT dated as of November 18, 2014 (this “Amendment”) to the Credit Agreement, entered into as of October 8, 2010, as amended on December 2, 2011, as amended on November 9, 2012 (and as further amended from time to time, the “Credit Agreement”), by and among VIACOM INC., a Delaware corporation, (“Viacom”); each Subsidiary Borrower (as therein defined); the lenders party thereto (the “Lenders”); JPMORGAN CHASE BANK, N.A., a national banking association, as administrative agent for the Lenders (in such capacity, the “Administrative Agent”); CITIBANK, N.A., a national banking association, and BANK OF AMERICA N.A., a national banking association, as syndication agents for the Lenders (in such capacity, the “Syndication Agents”); DEUTSCHE BANK SECURITIES INC., MORGAN STANLEY MUFG LOAN PARTNERS, LLC, THE ROYAL BANK OF SCOTLAND PLC and WELLS FARGO BANK, N.A., as documentation agents for the Lenders (in such capacity, the “Documentation Agents”); and J.P. MORGAN SECURITIES LLC, CITIGROUP GLOBAL MARKETS INC., and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED as joint lead arrangers and joint bookrunners. Capitalized terms used in this Amendment and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement.
RECITALS
WHEREAS, the Borrowers and the Lenders desire to make certain modifications to the Credit Agreement as provided herein;
NOW THEREFORE, in consideration of the premises and the agreements contained herein, the parties hereto hereby agree as follows:
SECTION 1.Amendments to Credit Agreement.
(a)    Section 1.1 of the Credit Agreement is hereby amended by adding the following new definitions in the appropriate alphabetical order:
Anti-Corruption Laws” shall mean the United States Foreign Corrupt Practices Act of 1977, the U.K. Bribery Act of 2010 and all other similar laws, rules, and regulations of any jurisdiction applicable to Viacom or any of its Subsidiaries concerning or relating to bribery or corruption.
Sanctions” shall mean economic sanctions imposed, administered or enforced by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”) or similar economic sanctions imposed, administered or enforced by (i) the U.S. Department of State pursuant to the International Emergency Economic Powers Act, Trading with the Enemy Act, United Nations Participation Act, Foreign Narcotics Kingpin Designation Act, Comprehensive



Iran Sanctions, Accountability, and Divestment Act, Iran Threat Reduction and Syria Human Rights Act and related executive orders and regulations, (ii) the United Nations Security Council, (iii) the European Union or (iv) Her Majesty’s Treasury of the United Kingdom.
Sanctioned Person” shall mean any Person currently named on (a) OFAC’s List of Specially Designated Nationals and Blocked Persons or any entity that is 50% or more owned by such Person, (b) the Sanctioned Entities List maintained by the U.S. Department of State, or (c) any similar list maintained by any applicable European Union, United Nations or United Kingdom sanctions authority.
(b)    The definition of “ABR Swingline Exposures” in Section 1.1 of the Credit Agreement is hereby amended to read as follows:
ABR Swingline Exposures” shall mean at any time the aggregate principal amount at such time of the outstanding ABR Swingline Loans. The ABR Swingline Exposure of any Lender at any time shall mean the sum of (a) its Revolving Credit Percentage of the aggregate ABR Swingline Loans outstanding at such time (excluding, in the case of any Lender that is a Swingline Lender, ABR Swingline Loans made by it and outstanding at such time to the extent that the other Lenders shall not have funded their participations in such ABR Swingline Loans), adjusted to give effect to any reallocation under Section 2.24 of the Swingline Exposure of Defaulting Lenders in effect at such time, and (b) in the case of any Lender that is a Swingline Lender, the aggregate principal amount of all ABR Swingline Loans made by such Lender and outstanding at such time to the extent that the other Lenders shall not have funded their participations in such ABR Swingline Loans.
(c)    The definition of “Administrative Agent Fee Letter” in Section 1.1 of the Credit Agreement is amended by changing the date referred to therein to “October 17, 2014”.
(d)    The definition of “Closing Date” in Section 1.1 of the Credit Agreement is amended by changing the date referred to therein to “November 18, 2014”.
(e)    The definition of “Eurocurrency Rate” in Section 1.1 of the Credit Agreement is amended by inserting the following sentence at the end thereof:
It is understood and agreed that the Administrative Agent will not disclose to any party hereto (a) the rates quoted by the individual Reference Banks or (b) if one or more of the Reference Banks shall not have quoted a rate, the fact that the Eurocurrency Rate is being determined on the basis of the rate quoted by fewer than all the Reference Banks.
(f)    The definition of “Facility Exposure” in Section 1.1 of the Credit Agreement is hereby amended to read as follows:
Facility Exposure” shall mean, with respect to any Lender, the sum of (a) the aggregate principal amount of all Revolving Credit Loans made by such Lender then outstanding, (b) such Lender’s LC Exposure at such time, (c) such Lender’s

2


Revolving Credit Percentage of the aggregate ABR Swingline Loans outstanding at such time, (d) the aggregate outstanding principal amount of any Competitive Loans made by such Lender and (e) in the case of a Swingline Lender, the aggregate outstanding principal amount of any Quoted Swingline Loans made by such Swingline Lender.
(g)    The definition of “Revolving Credit Maturity Date” in Section 1.1 of the Credit Agreement is hereby amended to read as follows:
Revolving Credit Maturity Date” shall mean November 18, 2019.
(h)    Clause (a) of the definition of “Subsidiary Borrower” in Section 1.1 of the Credit Agreement is hereby amended to read as follows:
(a) which is designated as a Subsidiary Borrower by Viacom in accordance with Section 2.25,
(i)    The definition of “Swingline Commitment” in Section 1.1 of the Credit Agreement is hereby amended to read as follows:
Swingline Commitment” shall mean, (i) with respect to any Swingline Lender, the Commitment of such Lender to make ABR Swingline Loans pursuant to Section 2.6, as designated in accordance with Section 2.6(g) and as set forth on Schedule 1.1 or in the agreement pursuant to which such Lender is designated as, and agrees to become, a Swingline Lender, and (ii) in the aggregate, $300,000,000.
(j)    The definition of “Swingline Lender” in Section 1.1 of the Credit Agreement is hereby amended to read as follows:
Swingline Lender” shall mean (i) JPMorgan Chase and (ii) any other Lender designated from time to time by Viacom, and approved by such Lender, as a “Swingline Lender” pursuant to Section 2.6(g).
(k)    Article I of the Credit Agreement is hereby amended by adding the following new Section 1.3:
Section 1.3. Currency Equivalents. For purposes of determining the Facility Exposures and the Outstanding Revolving Extensions of Credit, amounts of Loans and Letters of Credit denominated in currencies other than Dollars will be converted to Dollar amounts as provided in Section 2.22.
(l)    Section 2.6 (a) of the Credit Agreement is hereby amended by inserting in the first sentence thereof the letter “(A)” immediately after the words “giving effect to each Swingline Loan,”, and inserting the following at the end of the first sentence thereof:
and (B) the Outstanding Revolving Extensions of Credit of any Lender shall not exceed such Lender’s Commitment unless, in the case of a Swingline Lender, such Swingline Lender shall otherwise consent.

3


(m)    Section 2.7 (a) of the Credit Agreement is hereby amended by inserting in the first sentence thereof the number “(1)” immediately after the words “after giving effect to each issuance of a Letter of Credit,” and inserting the following at the end of the first sentence thereof:
and (2) the Outstanding Revolving Extensions of Credit of any Lender shall not exceed such Lender’s Commitment unless, in the case of a Swingline Lender, such Swingline Lender shall otherwise consent.
(n)    Clause (x) of Section 2.13(a) of the Credit Agreement is hereby amended to read as follows:
(x) the Outstanding Revolving Extensions of Credit of any Lender would exceed such Lender’s Commitment then in effect unless, in the case of a Swingline Lender, such Swingline Lender shall otherwise consent or
(o)    Clause (i) of Section 2.20(f) of the Credit Agreement is hereby amended by inserting “,W-8BEN-E” after “W-8BEN” the first place it appears and by inserting “or Form W-8BEN-E” after “W-8BEN” in each other place it appears.
(p)    The first sentence of Section 2.21(b) of the Credit Agreement is hereby amended by replacing the word “or” after clause (iii) thereof with a comma, deleting the comma following the term “Defaulting Lender” at the end of clause (iv) thereof and inserting at the end of such clause (iv) the following:
or (v) any Lender delivers a Notice of Objection pursuant to Section 2.25
(q)    Clause (iii) of Section 2.24 of the Credit Agreement is hereby amended to read as follows:
(iii) All or any part of such Defaulting Lender’s ABR Swingline Exposure at such time (other than the portion thereof attributable to ABR Swingline Loans made by such Defaulting Lender in its capacity as a Swingline Lender) and LC Exposure shall be reallocated among the non-Defaulting Lenders in accordance with their pro rata shares of the Total Commitment, but only to the extent such reallocation would not result in the Outstanding Revolving Extensions of Credit of any non-Defaulting Lender (including the portion of the ABR Swingline Exposure of such Defaulting Lender to be reallocated to such non-Defaulting Lender) exceeding such non-Defaulting Lender’s Commitment (unless, in the case of a non-Defaulting Lender that is a Swingline Lender, such non-Defaulting Lender shall otherwise consent).
(r)    Clause (v) of Section 2.24 of the Credit Agreement is hereby amended by deleting the words “total of all” therein.
(s)    Article II of the Credit Agreement is hereby amended by adding the following new Section 2.25:

4


Section 2.25. Designation of Subsidiary Borrowers. Viacom may at any time and from time to time designate any Subsidiary as a Subsidiary Borrower by delivery to the Administrative Agent of a Subsidiary Borrower Designation executed by such Subsidiary and Viacom. As soon as practicable upon receipt thereof, the Administrative Agent will post a copy of such Subsidiary Borrower Designation to the Lenders on IntraLinks or another website accessible to all Lenders. Each Subsidiary Borrower Designation shall become effective on the date ten Business Days after it has been posted by the Administrative Agent (subject to the receipt by any Lender of any information under the Patriot Act or other “know-your-customer” laws reasonably requested by it not later than the third Business Day after the posting date of such Subsidiary Borrower Designation), unless prior thereto, in the case of a Subsidiary that is organized in a non-U.S. jurisdiction, the Administrative Agent shall have received written notice from any Lender that it is unlawful under Federal or applicable state or foreign law for such Lender to make Loans or otherwise extend credit to or do business with such Subsidiary, directly or through a Lender Affiliate, as provided herein (a “Notice of Objection”), in which case such Subsidiary Borrower Designation shall not become effective until such time as such Lender withdraws such Notice of Objection or ceases to be a Lender hereunder. Upon the effectiveness of a Subsidiary Borrower Designation as provided in the preceding sentence, the applicable Subsidiary shall for all purposes of this Agreement be a Subsidiary Borrower and a party to this Agreement.
(t)    Article III of the Credit Agreement is hereby amended (a) by replacing each reference therein to “September 30, 2011” or “June 30, 2012” with a reference to “September 30, 2014”, (b) by deleting the second sentence of Section 3.2 and (c) by replacing the last sentence of Section 3.3 with the following:
The “Exchange Act Report” shall mean, collectively, the Annual Report of Viacom on Form 10-K for the year ended September 30, 2014, and Reports on Form 8-K of Viacom filed with or furnished to the SEC and available on the SEC’s website subsequent to September 30, 2014, and prior to the Closing Date, in each case, as amended or supplemented before the Closing Date.
(u)    Article III of the Credit Agreement is hereby amended by adding the following new Section 3.12
Section 3.12. Anti-Corruption Laws and Sanctions. Viacom has implemented and maintains in effect policies and procedures designed to ensure compliance by Viacom, its Subsidiaries and their respective directors, officers and employees with Anti-Corruption Laws and applicable Sanctions, and to the knowledge of Viacom’s Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Controller, Treasurer and General Counsel, is in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects. None of Viacom, any Subsidiary or, to the knowledge of Viacom’s Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Controller, Treasurer and General Counsel, any director, officer or employee of Viacom or any Subsidiary that will act

5


in connection with or benefit from the credit facility established hereby, is a Sanctioned Person. No Borrowing will be made or Letter of Credit issued (A) for the purpose of an offer, payment, promise to pay or authorization of the payment or giving of money, or anything else of value, to any Person in violation of applicable Anti-Corruption Laws, or (B) for the purpose of funding, financing or facilitating unauthorized transactions with any Sanctioned Person. No transactions undertaken by Viacom and its Subsidiaries hereunder will be undertaken in violation of Anti-Corruption Laws or applicable Sanctions.
(v)    Section 4.2 of the Credit Agreement is hereby amended to read as follows:
Section 4.2. Initial Loans to Subsidiary Borrowers. The obligations of the Lenders or Issuing Lenders, as the case may be, to make the initial extension of credit hereunder (whether in the form of a Loan or the issuance of a Letter of Credit) to a particular Subsidiary Borrower, if designated as such on or after the Effective Date, is subject to the satisfaction of the condition that Viacom shall have delivered to the Administrative Agent a Closing Certificate of such Subsidiary Borrower, with appropriate insertions and attachments, and one or more executed legal opinions with respect to such Subsidiary Borrower, in form and substance reasonably satisfactory to the Administrative Agent.
(w)    Clause (d) of Section 4.3 of the Credit Agreement is hereby amended by replacing clause (i)(A) therein with the following:
(A) the Outstanding Revolving Extensions of Credit of each Lender shall not exceed such Lender’s Commitment then in effect unless, in the case of a Swingline Lender, such Swingline Lender shall otherwise consent and
(x)    Section 9.5 of the Credit Agreement is amended by inserting “non-appealable” after “final” and before “decision” in each place they appear.
(y)    The second parenthetical in clause (ii) of Section 9.5(b) of the Credit Agreement is amended to read as follows:
(whether commenced by any Borrower or any Indemnified Person and whether or not such Indemnified Person is a party thereto)
(z)    Section 9.9 of the Credit Agreement is amended by inserting in the second sentence thereof immediately after the words “subject matter hereof” the following:
(but not any provisions of any commitment letter relating to the credit facilities established hereby that by the terms of such document survive the execution of this Agreement)
(aa)    Schedule 1.1 of the Credit Agreement is hereby deleted in its entirety and replaced with Schedule 1.1 hereto.

6


Upon the effectiveness of this Amendment as provided in Section 4 below, (i) the Commitment of each Lender that is not listed on Schedule 1.1 hereto shall be terminated and each such Lender shall cease to have a Commitment under the Credit Agreement and (ii) each financial institution becoming party hereto as a Lender, to the extent not already a Lender under the Credit Agreement, shall become a party to the Credit Agreement as amended hereby and a Lender thereunder and shall be bound by the provisions of the Credit Agreement as amended hereby and have the rights and obligations of a Lender thereunder.
SECTION 2.    Representations and Warranties.
(a)    Viacom hereby represents and warrants to the Administrative Agent and the Lenders that (i) this Amendment has been duly executed and delivered by Viacom and constitutes a legal, valid and binding obligation of Viacom, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other laws affecting creditors’ rights generally, concepts of reasonableness and general principles of equity, regardless of whether considered in a proceeding in equity or at law, (ii) the representations and warranties of Viacom set forth in the Credit Agreement (as amended by this Amendment) or contained in any certificate furnished by or on behalf of Viacom pursuant to or in connection with the Credit Agreement are true and correct in all material respects on and as of the date hereof with the same effect as if made on the date hereof, except for representations and warranties expressly stated to relate to a specific earlier date, in which case such representations and warranties were true and correct in all material respects as of such earlier date and (iii) on and as of the Amendment Effective Date (as defined below) no Default or Event of Default has occurred and is continuing.
(b)    Each Lender party hereto hereby represents and warrants to Viacom that it is duly authorized to enter into this Amendment and, to the extent not already a Lender under the Credit Agreement, the Credit Agreement.
SECTION 3.    Credit Agreement in Full Force and Effect as Amended. Except as specifically stated herein, all of the terms and conditions of the Credit Agreement shall remain in full force and effect and are hereby in all respects ratified and confirmed. All references in the Credit Agreement to “hereunder”, “hereof”, “herein”, or words of like import, and all references to the “Credit Agreement” in any other document or instrument, shall be deemed to mean the Credit Agreement, as amended by this Amendment. This Amendment shall not constitute a novation of the Credit Agreement, but shall constitute an amendment thereto. The parties hereto agree to be bound by the terms and obligations of the Credit Agreement, as amended by this Amendment, as though the terms and obligations of the Credit Agreement were set forth herein. Nothing herein shall be deemed to entitle Viacom to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement as amended hereby in similar or different circumstances.
SECTION 4.    Effectiveness. The amendments provided for by this Amendment shall become effective, as of the date first above written, on the date (the “Amendment Effective Date”) on which the Administrative Agent shall have received:

7


(a)    duly executed counterparts hereof that, when taken together, bear the authorized signatures of the Administrative Agent, Viacom, each of the Lenders party hereto and each other financial institution becoming a party hereto as a Lender;
(b)    a Closing Certificate of Viacom dated the Amendment Effective Date, substantially in the form of Exhibit E to the Credit Agreement with appropriate insertions and attachments; and
(c)     an opinion of the general counsel of Viacom, dated the Amendment Effective Date, in form and substance satisfactory to the Administrative Agent.
SECTION 5.    Counterparts. This Amendment may be executed in any number of counterparts and by separate parties hereto on separate counterparts, each of which when executed shall be deemed an original, but all such counterparts taken together shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page of this Amendment by facsimile or other electronic imaging shall be as effective as delivery of an original executed counterpart of this Amendment.
SECTION 6.    Tax Matters. For purposes of determining withholding Taxes imposed under FATCA, from and after the Amendment Effective Date, the Borrower and the Administrative Agent shall treat (and the Lenders hereby authorize the Administrative Agent to treat) the Credit Agreement as not qualifying as a “grandfathered obligation” within the meaning of Treasury Regulation Section 1.1471-2(b)(2)(i).
SECTION 7.    APPLICABLE LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
[Signature Pages to Follow]


8



IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers or representatives as of the date first written above.
 
VIACOM INC.
 
 
 
 
 
 
 
By:
/s/ George S. Nelson
 
 
Name:
George S. Nelson
 
 
Title:
Senior Vice President and Treasurer
 
 
 
 
 
 
 
 
 
JPMORGAN CHASE BANK, N.A., as Administrative Agent for the Lenders and as a Lender
 
 
 
 
 
 
 
By:
/s/ Tina Ruyter
 
 
Name:
Tina Ruyter
 
 
Title:
Executive Director
 
 
 
 
 
 
 
 
 
CITIBANK, N.A., as Syndication Agent and as a Lender
 
 
 
 
 
 
 
By:
/s/ Michael Vondriska
 
 
Name:
Michael Vondriska
 
 
Title:
Vice President
 
 
 
 
 
 
 
 
 
BANK OF AMERICA, N.A., as Syndication Agent and as a Lender
 
 
 
 
 
 
 
By:
/s/ Jay D. Marquis
 
 
Name:
Jay D. Marquis
 
 
Title:
Director
 
 
 
 
 
 
 
 

[Signature Page to the Third Amendment to the Viacom Inc. Credit Agreement]







 
DEUTSCHE BANK SECURITIES INC., as Documentation Agent
 
 
 
 
 
 
 
By:
/s/ Virginia Cosenza
 
 
Name:
Virginia Cosenza
 
 
Title:
Vice President
 
 
 
 
 
 
 
By:
/s/ Ming K. Chu
 
 
Name:
Ming K. Chu
 
 
Title:
Vice President
 
 
 
 
 
 
 
 
 
DEUTSCHE BANK AG NEW YORK BRANCH, as a Lender
 
 
 
 
 
 
 
By:
/s/ Virginia Cosenza
 
 
Name:
Virginia Cosenza
 
 
Title:
Vice President
 
 
 
 
 
 
 
By:
/s/ Ming K. Chu
 
 
Name:
Ming K. Chu
 
 
Title:
Vice President
 
 
 
 
 
 

[Signature Page to the Third Amendment to the Viacom Inc. Credit Agreement]






 
THE ROYAL BANK OF SCOTLAND PLC, as Documentation Agent and as a Lender
 
 
 
 
 
 
 
By:
/s/ Alex Daw
 
 
Name:
Alex Daw
 
 
Title:
Director
 
 
 
 
 
 
 
 
WELLS FARGO BANK, N.A., as Documentation Agent and as a Lender
 
 
 
 
 
 
 
By:
/s/ Eric Frandson
 
 
Name:
Eric Frandson
 
 
Title:
Managing Director
 
 
 
 
 
 
 
 

[Signature Page to the Third Amendment to the Viacom Inc. Credit Agreement]





Name of Lender:
BNP Paribus
 
 
 
 
by
 
 
 
/s/ Barbara Nash
 
 
Name:
Barbara Nash
 
 
Title:
Managing Director
 
 
 
 
 
 
 
 
by1
 
 
 
/s/ Jenny Shum
 
 
Name:
Jenny Shum
 
 
Title:
Vice President
 
 
 
 
 
 
 
 
 
 
 
 





1 For any Lender requiring a second signature line







Name of Lender:
MIZUHO BANK, LTD.
 
 
 
 
by
 
 
 
/s/ Bertram H. Tang
 
 
Name:
Bertram H. Tang
 
 
Title:
Authorized Signatory
 
 
 
 
 
 
 
 
by1
 
 
 
 
 
 
Name:
 
 
 
Title:
 
 
 
 
 
 
 
 
 




_________________________
1 For any Lender requiring a second signature line






SIGNATURE PAGE TO THE
THIRD AMENDMENT
TO THE VIACOM INC.
CREDIT AGREEMENT




Name of Lender:
ROYAL BANK OF CANADA
 
 
 
 
by
 
 
 
/s/ Alfonse Simone
 
 
Name:
Alfonse Simone
 
 
Title:
Authorized Signatory
 
 
 
 
 
 
 
 
by1
 
 
 
 
 
 
Name:
 
 
 
Title:
 
 
 
 
 
 
 
 
 




_________________________
1 For any Lender requiring a second signature line

[Signature Page to the Third Amendment to the Viacom Inc. Credit Agreement]





SIGNATURE PAGE TO THE
THIRD AMENDMENT
TO THE VIACOM INC.
CREDIT AGREEMENT




Name of Lender:
Sumitomo Mitsui Banking Corporation
 
 
 
 
by
 
 
 
/s/ Shuji Yabe
 
 
Name:
Shuji Yabe
 
 
Title:
Managing Director
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




_________________________
1 For any Lender requiring a second signature line
[Signature Page to the Third Amendment to the Viacom Inc. Credit Agreement]






Name of Lender:
Lloyds Bank plc
 
 
 
 
by
 
 
 
/s/ Stephen Giacolone
 
 
Name:
Stephen Giacolone
 
 
Title:
Assistant Vice President – G011
 
 
 
 
 
 
 
 
by
 
 
 
/s/ Daven Popat
 
 
Name:
Daven Popat
 
 
Title:
Senior Vice President – P003
 
 
 
 
 
 
 
 










Name of Lender:
U.S. Bank National Association
 
 
 
 
by
 
 
 
/s/ Colleen Mcevoy
 
 
Name:
Colleen Mcevoy
 
 
Title:
Senior Vice President
 
 
 
 
 
 
 
 
by1
 
 
 
 
 
 
Name:
 
 
 
Title:
 
 
 
 
 
 
 
 
 



_________________________
1 For any Lender requiring a second signature line





SIGNATURE PAGE TO THE
THIRD AMENDMENT
TO THE VIACOM INC.
CREDIT AGREEMENT




Name of Lender:
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
 
 
 
 
by
 
 
 
/s/ Ola Anderssen
 
 
Name:
Ola Anderssen
 
 
Title:
Director
 
 
 
 
 
 
 
 
by1
 
 
 
 
 
 
Name:
 
 
 
Title:
 
 
 
 
 
 
 
 
 




_________________________
1 For any Lender requiring a second signature line
[Signature Page to the Third Amendment to the Viacom Inc. Credit Agreement]




SIGNATURE PAGE TO THE
THIRD AMENDMENT
TO THE VIACOM INC.
CREDIT AGREEMENT




Name of Lender:
MORGAN STANLEY BANK, N.A.
 
 
 
 
by
 
 
 
/s/ Sherrese Clarke
 
 
Name:
SHERRESE CLARKE
 
 
Title:
AUTHORIZED SIGNATORY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




_________________________

[Signature Page to the Third Amendment to the Viacom Inc. Credit Agreement]




SIGNATURE PAGE TO THE
THIRD AMENDMENT
TO THE VIACOM INC.
CREDIT AGREEMENT




Name of Lender:
THE BANK OF NEW YORK MELLON
 
 
 
 
by
 
 
 
/s/ Hussam Alsahlani
 
 
Name:
Hussam Alsahlani
 
 
Title:
Vice President
 
 
 
 
 
 
 
 
by1
 
 
 
 
 
 
Name:
 
 
 
Title:
 
 
 
 
 
 
 
 
 




_________________________
1 For any Lender requiring a second signature line
[Signature Page to the Third Amendment to the Viacom Inc. Credit Agreement]




SIGNATURE PAGE TO THE
THIRD AMENDMENT
TO THE VIACOM INC.
CREDIT AGREEMENT




Name of Lender:
Intesa Sanpaolo S.p.A., New York Branch
 
 
 
 
by
 
 
 
/s/ Katherine Hand
 
 
Name:
Katherine Hand
 
 
Title:
Relationship Manager