Document


 
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, 2016
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 31, 2017
Class A common stock, par value $0.001 per share
 
49,431,379

Class B common stock, par value $0.001 per share
 
347,464,803

 


Table of Contents

VIACOM INC.
INDEX TO FORM 10-Q
 
 
 
Page
 
 
 
Consolidated Statements of Earnings for the quarters ended December 31, 2016 and 2015
 
Consolidated Statements of Comprehensive Income for the quarters ended December 31, 2016 and 2015
 
Consolidated Balance Sheets as of December 31, 2016 and September 30, 2016
 
Consolidated Statements of Cash Flows for the quarters ended December 31, 2016 and 2015
 
 
 
 


Table of Contents

PART I – FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
VIACOM INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
 
  
Quarter Ended  
 December 31,
(in millions, except per share amounts)
2016
 
2015
Revenues
$
3,324

 
$
3,154

Expenses:
 
 
 
Operating
1,819

 
1,593

Selling, general and administrative
701

 
667

Depreciation and amortization
56

 
55

Restructuring
42

 

Total expenses
2,618

 
2,315

Operating income
706

 
839

Interest expense, net
(156
)
 
(155
)
Equity in net earnings of investee companies
13

 
31

Other items, net
3

 
2

Earnings before provision for income taxes
566

 
717

Provision for income taxes
(158
)
 
(256
)
Net earnings (Viacom and noncontrolling interests)
408

 
461

Net earnings attributable to noncontrolling interests
(12
)
 
(12
)
Net earnings attributable to Viacom
$
396

 
$
449

 
 
 
 
Basic earnings per share attributable to Viacom
$
1.00

 
$
1.13

Diluted earnings per share attributable to Viacom
$
1.00

 
$
1.13

Weighted average number of common shares outstanding:
 
 
 
Basic
397.0

 
396.6

Diluted
397.9

 
398.4

Dividends declared per share of Class A and Class B common stock
$
0.20

 
$
0.40

 
 
 
 
 See accompanying notes to Consolidated Financial Statements

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Table of Contents

VIACOM INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
  
Quarter Ended  
 December 31,
(in millions)
2016
 
2015
Net earnings (Viacom and noncontrolling interests)
$
408

 
$
461

Other comprehensive income/(loss), net of tax:
 
 
 
Foreign currency translation adjustments
(138
)
 
(40
)
Defined benefit pension plans
2

 
(5
)
Cash flow hedges

 
(1
)
Other comprehensive loss (Viacom and noncontrolling interests)
(136
)
 
(46
)
Comprehensive income
272

 
415

Less: Comprehensive income attributable to noncontrolling interest
11

 
9

Comprehensive income attributable to Viacom
$
261

 
$
406

 
 
 
 
 See accompanying notes to Consolidated Financial Statements

2

Table of Contents

VIACOM INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in millions, except par value)
December 31,
2016
 
September 30,
2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
443

 
$
379

Receivables, net
3,125

 
2,712

Inventory, net
908

 
844

Prepaid and other assets
513

 
587

Total current assets
4,989

 
4,522

Property and equipment, net
976

 
932

Inventory, net
4,159

 
4,032

Goodwill
11,586

 
11,400

Intangibles, net
344

 
315

Other assets
1,258

 
1,307

Total assets
$
23,312

 
$
22,508

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
375

 
$
453

Accrued expenses
754

 
773

Participants’ share and residuals
836

 
801

Program obligations
728

 
692

Deferred revenue
361

 
419

Current portion of debt
517

 
17

Other liabilities
634

 
517

Total current liabilities
4,205

 
3,672

Noncurrent portion of debt
11,783

 
11,896

Participants’ share and residuals
336

 
358

Program obligations
509

 
311

Deferred tax liabilities, net
377

 
381

Other liabilities
1,393

 
1,349

Redeemable noncontrolling interest
200

 
211

Commitments and contingencies (Note 7)


 


Viacom stockholders’ equity:
 
 
 
Class A common stock, par value $0.001, 375.0 authorized; 49.4 and 49.4 outstanding, respectively

 

Class B common stock, par value $0.001, 5,000.0 authorized; 347.6 and 347.6 outstanding, respectively

 

Additional paid-in capital
10,136

 
10,139

Treasury stock, 399.1 and 399.4 common shares held in treasury, respectively
(20,796
)
 
(20,798
)
Retained earnings
15,945

 
15,628

Accumulated other comprehensive loss
(827
)
 
(692
)
Total Viacom stockholders’ equity
4,458

 
4,277

Noncontrolling interests
51

 
53

Total equity
4,509

 
4,330

Total liabilities and equity
$
23,312

 
$
22,508

 
 
 
 
 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)
2016
 
2015
OPERATING ACTIVITIES
 
 
 
Net earnings (Viacom and noncontrolling interests)
$
408

 
$
461

Reconciling items:
 
 
 
Depreciation and amortization
56

 
55

Feature film and program amortization
1,089

 
1,028

Equity-based compensation
23

 
26

Equity in net earnings and distributions from investee companies
13

 
(29
)
Deferred income taxes
(63
)
 
299

Operating assets and liabilities, net of acquisitions:
 
 
 
Receivables
(323
)
 
(188
)
Production and programming
(1,020
)
 
(1,292
)
Accounts payable and other current liabilities
(45
)
 
(481
)
Other, net
21

 
(5
)
Net cash provided by/(used in) operating activities
159

 
(126
)
 
 
 
 
INVESTING ACTIVITIES
 
 
 
Acquisitions and investments, net
(343
)
 
(30
)
Capital expenditures
(52
)
 
(26
)
Proceeds received from grantor trusts
46

 

Net cash flow used in investing activities
(349
)
 
(56
)
 
 
 
 
FINANCING ACTIVITIES
 
 
 
Borrowings
1,285

 

Debt repayments
(900
)
 

Commercial paper

 
290

Purchase of treasury stock

 
(100
)
Dividends paid
(79
)
 
(159
)
Exercise of stock options

 
1

Other, net
(14
)
 
(22
)
Net cash flow provided by financing activities
292

 
10

Effect of exchange rate changes on cash and cash equivalents
(38
)
 
(7
)
Net change in cash and cash equivalents
64

 
(179
)
Cash and cash equivalents at beginning of period
379

 
506

Cash and cash equivalents at end of period
$
443

 
$
327

 
 
 
 
 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 is home to premier global media brands that create compelling television programs, motion pictures, short-form content, applications (“apps”), games, consumer products, social media experiences and other entertainment content for audiences in more than 180 countries. Viacom operates through two reporting segments: Media 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 through three brand groups: the Global Entertainment Group, the Nickelodeon Group and BET Networks. The Filmed Entertainment segment produces, finances, acquires and distributes motion pictures, television programming and other entertainment content under the Paramount Pictures, Paramount Animation, Nickelodeon Movies, MTV Films 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, 2017 (“fiscal 2017”) or any future period. These financial statements should be read in conjunction with our Form 10-K for the year ended September 30, 2016, as filed with the SEC on November 9, 2016 (the “2016 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
Income Taxes
In October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-16 - Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 will require the tax effects of intercompany transactions, other than sales of inventory, to be recognized currently, eliminating an exception under current GAAP in which the tax effects of intra-entity asset transfers are deferred until the transferred asset is sold to a third party or otherwise recovered through use. The guidance will be effective for the first interim period of our 2019 fiscal year, with early adoption permitted. We are currently evaluating the impact of the new standard.

Statement of Cash Flows
In August 2016, the FASB issued ASU 2016-15 - Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance will be effective for the first interim period of our 2019 fiscal year, with early adoption permitted. The new standard will impact our statement of cash flows by increasing cash flow from operating activities and decreasing cash flow from financing activities in periods when debt prepayment or debt extinguishment costs are paid.

Financial Instruments
In connection with its financial instruments project, the FASB issued ASU 2016-13 - Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments in June 2016 and ASU 2016-01 - Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities in January 2016.
ASU 2016-13 introduces a new impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a forward-looking “expected loss” model that will replace the current “incurred loss” model and generally will result in

5

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

earlier recognition of allowances for losses. The guidance will be effective for the first interim period of our 2021 fiscal year, with early adoption in fiscal year 2020 permitted.
ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Among other provisions, the new guidance requires the fair value measurement of investments in certain equity securities. For investments without readily determinable fair values, entities have the option to either measure these investments at fair value or at cost adjusted for changes in observable prices minus impairment. All changes in measurement will be recognized in net income. The guidance will be effective for the first interim period of our 2019 fiscal year. Early adoption is not permitted, except for certain provisions relating to financial liabilities.
We are currently evaluating the impact of the new standards.

Equity-Based Compensation
In March 2016, the FASB issued ASU 2016-09 - Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements, such as requiring all income tax effects of awards to be recognized in the income statement when the awards vest or are settled and allowing a policy election to account for forfeitures as they occur. In addition, all related cash flows resulting from share-based payments will be reported as operating activities on the statement of cash flows. The guidance will be effective for the first interim period of our 2018 fiscal year, with early adoption permitted. The new standard will impact our financial statements by increasing or decreasing our income tax provision and increasing cash flow from operating activities.

Leases
In February 2016, the FASB issued ASU 2016-02 - Leases. ASU 2016-02 requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet for most leases. For income statement purposes, leases will be classified as either operating or finance, generally resulting in straight-line expense recognition for operating leases (similar to current operating leases) and accelerated expense recognition for financing leases (similar to current capital leases). The guidance will be effective for the first interim period of our 2020 fiscal year, with early adoption permitted. We are currently evaluating the impact of the new standard.

Revenue Recognition
In May 2014, the FASB issued ASU 2014-09 - Revenue from Contracts with Customers, a comprehensive revenue recognition model that supersedes the current revenue recognition requirements and most industry-specific guidance. Subsequent accounting standard updates have also been issued which amend and/or clarify the application of ASU 2014-09. The guidance provides a five step framework to 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. The guidance will be effective for the first interim period of our 2019 fiscal year (with early adoption permitted beginning with our 2018 fiscal year), and allows adoption either under a full retrospective or a modified retrospective approach. We are currently evaluating the impact of the new standard.

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

NOTE 2. ACQUISITION
On November 15, 2016, we acquired Televisión Federal S.A. (“Telefe”), one of the main free-to-air channels and biggest content producers in Argentina, for $336 million, net of cash acquired. Telefe adds to our portfolio of international TV networks and accelerates our growth strategy in Argentina.
The following table summarizes our estimated allocation of the purchase price as of the acquisition date:
 
 
 
 
 
Purchase Price Allocation
(in millions)
 
 
   Current assets
 
$
88

 
   Goodwill
 
250

 
   Intangible assets
 
49

 
   Property and equipment
 
76

 
   Other assets
 
13

 
Assets acquired
 
476

 
   Accounts payable and accrued expenses
 
55

 
   Other liabilities
 
85

 
Liabilities assumed
 
140

 
 
 
$
336

 
 
 
 
The goodwill, which is not deductible for tax purposes, reflects the Company-specific synergies arising from the acquisition. Intangible assets primarily consist of trade names and broadcast licenses with a useful life of 15 years.
The operating results of Telefe in the current and prior year are not material.
NOTE 3. INVENTORY
Our total inventory consists of the following:
Inventory
(in millions)
December 31,
2016
 
September 30,
2016
Film inventory:
 
 
 
Released, net of amortization
$
680

 
$
632

Completed, not yet released
125

 
128

In process and other
856

 
993

 
1,661

 
1,753

Television productions:
 
 
 
Released, net of amortization
30

 
16

In process and other
84

 
102

 
114

 
118

Original programming:
 
 
 
Released, net of amortization
1,155

 
1,082

In process and other
626

 
706

 
1,781

 
1,788

Acquired program rights, net of amortization
1,417

 
1,127

Home entertainment inventory
94

 
90

Total inventory, net
5,067

 
4,876

Less current portion
908

 
844

Noncurrent portion
$
4,159

 
$
4,032

 
 
 
 

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

NOTE 4. DEBT
Our total debt consists of the following:
Debt
(in millions)
December 31,
2016
 
September 30,
2016
Senior Notes and Debentures:
 
 
 
Senior notes due December 2016, 2.500%
$

 
$
400

Senior notes due April 2017, 3.500%

 
499

Senior notes due October 2017, 6.125%
500

 
499

Senior notes due September 2018, 2.500%
498

 
498

Senior notes due April 2019, 2.200%
399

 
399

Senior notes due September 2019, 5.625%
550

 
550

Senior notes due December 2019, 2.750%
399

 
399

Senior notes due March 2021, 4.500%
495

 
495

Senior notes due December 2021, 3.875%
593

 
593

Senior notes due February 2022, 2.250%
396

 

Senior notes due June 2022, 3.125%
297

 
296

Senior notes due March 2023, 3.250%
297

 
297

Senior notes due September 2023, 4.250%
1,235

 
1,235

Senior notes due April 2024, 3.875%
544

 
544

Senior notes due October 2026, 3.450%
889

 

Senior debentures due December 2034, 4.850%
593

 
593

Senior debentures due April 2036, 6.875%
1,067

 
1,066

Senior debentures due October 2037, 6.750%
75

 
75

Senior debentures due February 2042, 4.500%
244

 
244

Senior debentures due March 2043, 4.375%
1,091

 
1,091

Senior debentures due June 2043, 4.875%
247

 
247

Senior debentures due September 2043, 5.850%
1,229

 
1,228

Senior debentures due April 2044, 5.250%
545

 
545

Capital lease and other obligations
117

 
120

Total debt
12,300

 
11,913

Less current portion
517

 
17

Noncurrent portion
$
11,783

 
$
11,896

 
 
 
 
In October 2016, we issued a total of $1.3 billion of senior notes as follows:
$400 million in aggregate principal amount of 2.250% senior notes due 2022 at a price equal to 99.692% of the principal amount (the “2022 Senior Notes”); and
$900 million in aggregate principal amount of 3.450% senior notes due 2026 at a price equal to 99.481% of the principal amount (the “2026 Senior Notes” and, together with the 2022 Senior Notes, the “Senior Notes”).

The proceeds, net of discount and other issuance fees and expenses, from the issuance of the Senior Notes were $1.285 billion, a portion of which was used to redeem the senior notes described below.

In November 2016, we redeemed all $400 million of our outstanding 2.500% senior notes due December 2016 and all $500 million of our outstanding 3.500% senior notes due April 2017 at a redemption price equal to the sum of the principal amount and a make-whole amount, together totaling $906 million, and accrued interest of $6 million. As a result of the redemption, we recognized a pre-tax extinguishment loss of $6 million, recorded in Other items, net in the Consolidated Statement of Earnings.
The total unamortized discount and issuance fees and expenses related to our senior notes and debentures was $469 million as of December 31, 2016 and $459 million as of September 30, 2016. The fair value of our senior notes and debentures was approximately $12.3 billion as of December 31, 2016. The valuation of our publicly traded debt is based on quoted prices in active markets.

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

Credit Facility
At December 31, 2016, there were no amounts outstanding under our $2.5 billion revolving credit facility due November 2019. The credit facility is used for general corporate purposes and to support commercial paper outstanding, if any. 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, 2016.
NOTE 5. PENSION BENEFITS
The components of net periodic benefit cost for our defined benefit pension plans, which are currently frozen to future benefit accruals, are set forth below.
Net Periodic Benefit Cost
(in millions)
Quarter Ended  
 December 31,
2016
 
2015
Interest cost
$
8

 
$
9

Expected return on plan assets
(9
)
 
(10
)
Recognized actuarial loss
2

 
1

Net periodic benefit cost
$
1

 
$

 
 
 
 
NOTE 6. 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 December 2022 and is classified as Redeemable noncontrolling interest in the Consolidated Balance Sheets.

The activity reflected within redeemable noncontrolling interest is as follows:
Redeemable Noncontrolling Interest
(in millions)
Quarter Ended 
 December 31,
2016
 
2015
Beginning balance
$
211

 
$
219

Net earnings
7

 
7

Distributions
(6
)
 
(7
)
Translation adjustment
(12
)
 
(8
)
Redemption value adjustment

 
20

Ending Balance
$
200

 
$
231

 
 
 
 
NOTE 7. COMMITMENTS AND CONTINGENCIES
Commitments
As more fully described in Note 11 of the 2016 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 $214 million as of December 31, 2016. 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 $190 million with respect to such obligations as of December 31, 2016. 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.

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

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.
Purported Class and Derivative Actions
Between June 17, 2016 and August 1, 2016, three substantially similar purported class action complaints were filed in the Delaware Chancery Court by purported Viacom stockholders, against Viacom and Viacom’s directors at the time, as well as National Amusements, Inc. and NAI Entertainment Holdings LLC (together, “NAI”), and were subsequently consolidated into one action. The action - brought on behalf of the class of all holders of Viacom Class B common stock except the named defendants and any person or entity affiliated with any of the defendants - alleges claims for breaches of fiduciary duty against the incumbent director defendants and NAI, and alleges that the Viacom directors who joined the Board of Directors subsequent to the filing of the actions aided and abetted these breaches. In addition to damages and attorneys’ fees, the action seeks “such relief as the Court deems just and proper.” All defendants, including Viacom and certain of its directors, have moved to dismiss the action. The plaintiffs filed an amended consolidated complaint in November 2016, and we have again moved to dismiss the action.
On July 20, 2016, a purported derivative action was commenced in the Delaware Chancery Court by a purported Viacom stockholder against Viacom and its directors. The complaint alleges that Viacom’s directors breached their fiduciary duties to Viacom in connection with compensation paid to Mr. Redstone. These breaches, it is alleged, permitted a waste of corporate assets and the unjust enrichment of Mr. Redstone. We have moved to dismiss the action.
NOTE 8. STOCKHOLDERS’ EQUITY
The components of stockholders’ equity are as follows:
  
Quarter Ended  
 December 31, 2016
 
Quarter Ended  
 December 31, 2015
Stockholders’ Equity
(in millions)
Total Viacom Stockholders’ Equity
 
Noncontrolling Interests
 
Total Equity
 
Total Viacom Stockholders’ Equity
 
Noncontrolling Interests
 
Total Equity
Beginning Balance
$
4,277

 
$
53

 
$
4,330

 
$
3,538

 
$
61

 
$
3,599

Net earnings
396

 
12

 
408

 
449

 
12

 
461

Other comprehensive loss (1)
(135
)
 
(1
)
 
(136
)
 
(43
)
 
(3
)
 
(46
)
Noncontrolling interests

 
(13
)
 
(13
)
 
(20
)
 
(12
)
 
(32
)
Dividends declared
(79
)
 

 
(79
)
 
(159
)
 

 
(159
)
Purchase of treasury stock

 

 

 
(100
)
 

 
(100
)
Equity-based compensation and other
(1
)
 

 
(1
)
 
33

 

 
33

Ending Balance
$
4,458

 
$
51

 
$
4,509

 
$
3,698

 
$
58

 
$
3,756

 
 
 
 
 
 
 
 
 
 
 
 
(1) The components of other comprehensive loss are net of tax expense of $1 million and $3 million for the quarters ended December 31, 2016 and 2015, respectively.
NOTE 9. RESTRUCTURING
During the quarter ended December 31, 2016, we recognized a restructuring charge of $42 million for severance, including $7 million of equity-based compensation expense, associated with management changes in connection with ongoing strategic initiatives.
Our restructuring liability by reporting segment is as follows:
 
 
 
 
 
 
 
 
(in millions)
Media Networks
 
Filmed Entertainment
 
Corporate
 
Total
September 30, 2016
$
36

 
$
12

 
$
94

 
$
142

Net accruals
28

 
1

 
6

 
35

Severance payments
(13
)
 
(5
)
 
(49
)
 
(67
)
December 31, 2016
$
51

 
$
8

 
$
51

 
$
110

 
 
 
 
 
 
 
 

10

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

Severance payments include $46 million paid from proceeds in grantor trusts established to facilitate the administration of payments to certain former senior executives. As of December 31, 2016, of the remaining $110 million liability, $67 million is classified as a current liability in the Consolidated Balance Sheets, with the remaining $43 million classified as a noncurrent liability. Amounts classified as noncurrent are expected to be paid through 2019, in accordance with applicable contractual terms.
NOTE 10. 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
(in millions)
Quarter Ended  
 December 31,
2016
 
2015
Weighted average number of common shares outstanding, basic
397.0

 
396.6

        Dilutive effect of equity awards
0.9

 
1.8

Weighted average number of common shares outstanding, diluted
397.9

 
398.4

 
 
 
 
Anti-dilutive common shares
15.6

 
12.7

 
 
 
 
 
NOTE 11. SUPPLEMENTAL CASH FLOW AND OTHER INFORMATION
Our supplemental cash flow information is as follows:
Supplemental Cash Flow Information
(in millions)
Quarter Ended 
 December 31,
2016

2015
Cash paid for interest
$
150

 
$
157

Cash paid for income taxes
$
38

 
$
65

Accounts Receivable
We had $506 million and $547 million of noncurrent trade receivables as of December 31, 2016 and September 30, 2016, respectively. Accounts receivables are principally related to long-term television license arrangements at Filmed Entertainment and subscription video-on-demand and other over-the-top arrangements at Media Networks. These amounts are included within Other assets - noncurrent in our Consolidated Balance Sheets. Such amounts are due in accordance with the underlying terms of the respective agreements with companies that are investment grade or with which we have historically done business under similar terms. We have determined that credit loss allowances are generally not considered necessary for these amounts.
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.

Our Consolidated Balance Sheets include amounts related to consolidated VIEs totaling $201 million in assets and $58 million in liabilities as of December 31, 2016, and $190 million in assets and $57 million in liabilities as of September 30, 2016. The consolidated VIEs’ revenues, expenses and operating income were not significant for all periods presented.

11

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

Income Taxes
Our effective income tax rate was 27.9% in the quarter ended December 31, 2016, which included a net discrete tax benefit of $15 million that, when taken together with the tax impact of the restructuring charge and debt extinguishment loss, reduced the effective income tax rate by 2.9 percentage points. The net discrete tax benefit was principally related to the reversal of a valuation allowance on net operating losses upon receipt of a favorable tax authority ruling.
Our effective income tax rate was 35.7% in the quarter ended December 31, 2015, which included a net discrete tax expense of $21 million that contributed 2.9 percentage points to the effective income tax rate. The net discrete tax expense was principally related to a reduction in qualified production activity tax benefits as a result of retroactively reenacted legislation.
NOTE 12. 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, 2016 and September 30, 2016:
Financial Asset/(Liability)
(in millions)
  
 
Quoted Prices In
Active Markets for
Identical Assets
 
Significant Other
Observable
Inputs
 
Significant
Unobservable
Inputs
Total        
 
Level 1
 
Level 2
 
Level 3
December 31, 2016
 
 
 
 
 
 
 
Marketable securities
$
118

 
$
118

 
$

 
$

Derivatives
(6
)
 

 
(6
)
 

Total
$
112

 
$
118

 
$
(6
)
 
$

September 30, 2016
 
 
 
 
 
 
 
Marketable securities
$
114

 
$
114

 
$

 
$

Derivatives
(13
)
 

 
(13
)
 

Total
$
101

 
$
114

 
$
(13
)
 
$

 
 
 
 
 
 
 
 
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 $932 million and $1.149 billion as of December 31, 2016 and September 30, 2016, respectively. At December 31, 2016, $605 million related to our foreign currency balances and $327 million related to future production costs. At September 30, 2016, $874 million related to our foreign currency balances and $275 million related to future production costs.
NOTE 13. 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 and television programming 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. Adjusted operating income is defined as operating income, before equity-based compensation and certain other items identified as affecting comparability, when applicable.
Revenues by Segment
(in millions)
Quarter Ended  
 December 31,
2016
 
2015
Media Networks
$
2,589

 
$
2,565

Filmed Entertainment
758

 
612

Eliminations
(23
)
 
(23
)
Total revenues
$
3,324

 
$
3,154

 
 
 
 
 

12

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

Adjusted Operating Income/(Loss)
(in millions)
Quarter Ended  
 December 31,
2016
 
2015
Media Networks
$
987

 
$
1,057

Filmed Entertainment
(180
)
 
(146
)
Corporate expenses
(50
)
 
(50
)
Eliminations
7

 
4

Equity-based compensation
(16
)
 
(26
)
Restructuring
(42
)
 

Operating income
706

 
839

Interest expense, net
(156
)
 
(155
)
Equity in net earnings of investee companies
13

 
31

Other items, net
3

 
2

Earnings before provision for income taxes
$
566

 
$
717

 
 
 
 
 
Total Assets
(in millions)
December 31,
2016
 
September 30,
2016
 
Media Networks
$
17,449

 
$
16,410

Filmed Entertainment
6,435

 
6,391

Corporate/Eliminations
(572
)
 
(293
)
Total assets
$
23,312

 
$
22,508

 
 
 
 

Revenues by Component
(in millions)
Quarter Ended  
 December 31,
2016
 
2015
Advertising
$
1,294

 
$
1,320

Affiliate
1,144

 
1,119

Feature film
680

 
570

Ancillary
229

 
168

Eliminations
(23
)
 
(23
)
Total revenues
$
3,324

 
$
3,154

 
 
 
 
NOTE 14. RELATED PARTY TRANSACTIONS
National Amusements, directly and indirectly, is the controlling stockholder of both Viacom and CBS Corporation (“CBS”). National Amusements owns shares in Viacom representing approximately 79.8% of the voting interest in Viacom and approximately 10% of Viacom’s combined common stock. National Amusements is controlled by Sumner M. Redstone, our Chairman Emeritus, who is the Chairman and Chief Executive Officer of National Amusements, through the Sumner M. Redstone National Amusements Trust (the “SMR Trust”), which owns shares in National Amusements representing 80% of the voting interest of National Amusements. The shares representing the other 20% of the voting interest of National Amusements are held through a trust controlled by Shari E. Redstone, who is Mr. Redstone’s daughter and the non-executive Vice Chair of Viacom’s Board of Directors and the President and a member of the Board of Directors of National Amusements. The shares of National Amusements held by the SMR Trust are voted solely by Mr. Redstone until such time as his incapacity or death. Upon Mr. Redstone’s incapacity or death, (1) Ms. Redstone will also become a trustee of the SMR Trust and (2) the shares of National Amusements held by the SMR Trust will be voted by the trustees of the SMR Trust. The current trustees include Mr. Redstone and David R. Andelman, a member of the boards of directors of National Amusements and CBS. The current Board of Directors of National Amusements includes Mr. Redstone, Ms. Redstone and Mr. Andelman. In addition, Mr. Redstone serves as Chairman Emeritus of CBS and Ms. Redstone serves as non-executive Vice Chair of CBS.
Transactions between Viacom and related parties are overseen by our Governance and Nominating Committee.

13

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

On December 12, 2016, our Board of Directors announced that it had discontinued the exploration of a potential combination of Viacom and CBS following receipt of a related letter and request from National Amusements, and that it had dissolved the Special Committee that was formed to evaluate a potential transaction.
Viacom and National Amusements Related Party Transactions
National Amusements licenses films in the ordinary course of business for its motion picture theaters from all major studios, including Paramount. During the quarters ended December 31, 2016 and 2015, Paramount earned revenues from National Amusements in connection with these licenses in the aggregate amounts of approximately $2 million and $1 million, respectively.
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 prior to any participation amounts paid. 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
(in millions)
Quarter Ended 
 December 31,
2016
 
2015
Consolidated Statements of Earnings
 
 
 
Revenues
$
44

 
$
43

Operating expenses
$
50

 
$
59

 
 
 
 
  
December 31,
2016
 
September 30,
2016
Consolidated Balance Sheets
 
 
 
Accounts receivable
$
3

 
$
3

 
 
 
 
Participants’ share and residuals, current
$
76

 
$
66

Program obligations, current
61

 
61

Program obligations, noncurrent
27

 
32

Other liabilities
2

 
2

Total due to CBS
$
166

 
$
161

 
 
 
 


14

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
(in millions)
Quarter Ended 
 December 31,
2016
 
2015
Consolidated Statements of Earnings
 
 
 
Revenues
$
51

 
$
5

Operating expenses
$
32

 
$
2

Selling, general and administrative
$
(3
)
 
$
(2
)
 
 
 
 
  
December 31,
2016
 
September 30,
2016
Consolidated Balance Sheets
 
 
 
Accounts receivable
$
80

 
$
67

Other assets
2

 
1

Total due from other related parties
$
82

 
$
68

 
 
 
 
Accounts payable
$
7

 
$
8

Other liabilities
43

 
69

Total due to other related parties
$
50

 
$
77

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

15


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, 2016, as filed with the Securities and Exchange Commission (“SEC”) on November 9, 2016 (the “2016 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, 2016, compared with the quarter ended December 31, 2015. 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, 2016, compared with the quarter ended December 31, 2015, and of our outstanding debt, commitments and contingencies existing as of December 31, 2016.
OVERVIEW
Summary
We are home to premier global media brands that create compelling television programs, motion pictures, short-form content, applications (“apps”), games, consumer products, social media experiences and other entertainment content for audiences in more than 180 countries. Our media networks, including Nickelodeon®, COMEDY CENTRAL®, MTV®, VH1®, SPIKE®, BET®, CMT®, TV Land®, Nick at Nite®, Nick Jr.®, Logo®, Nicktoons®, TeenNick®, Channel 5® (United Kingdom), Telefe™ (Argentina) and Paramount Channel™, reach 510 million households worldwide. Viacom Media Networks also operates branded experiences including channels on streaming services and social media platforms such as DIRECTV NOW and Snapchat Discover. Paramount Pictures® is a major global producer and distributor of filmed entertainment. Paramount Television™ develops, finances and produces programming for television and other platforms.
We operate through two reporting segments: Media Networks and Filmed Entertainment. Our measure of segment performance is adjusted operating income. We define adjusted operating income for our segments as operating income, 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.
Media Networks
Our Media Networks segment generates revenues in three categories: (i) the sale of advertising and marketing services, (ii) affiliate fees from distributors of our programming and program services, such as cable television operators, direct-to-home satellite television operators, Internet distributors, mobile networks and subscription video-on-demand (“SVOD”) and other over-the-top (“OTT”) services, and (iii) ancillary revenues. Ancillary revenues are principally derived from consumer products, which includes licensing our brands and intellectual property, creation and publishing of interactive games across various platforms (including mobile, PC, and console) and recreation experiences, viewing of our programming through download-to-own and download-to-rent services and the sale of DVDs and Blu-ray discs, and television syndication.
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, participations and residuals, 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 principally from: (i) the worldwide theatrical release and/or distribution of motion pictures, (ii) home entertainment, which includes the worldwide sales and distribution of DVDs and Blu-ray discs relating to the motion pictures released theatrically by Paramount and programming of other Viacom brands such as

16

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


Nickelodeon, MTV, Comedy Central and BET, as well as certain acquired films and content distributed on behalf of third parties such as CBS, the viewing of our films through transactional video-on-demand and download-to-own services, for a fee and/or on a revenue sharing basis, (iii) licensing of film and television programs produced, acquired and/or distributed by Paramount that are licensed on a territory by territory basis, for a fee or on a revenue sharing basis, to SVOD, pay and basic cable television, free television and free video-on-demand services and (iv) ancillary revenues from providing production and facilities services to third parties, primarily at Paramount’s studio lot, licensing its brands for consumer products, themed restaurants, hotels and resorts, live stage plays, film clips and theme parks, and sale of film rights.
Filmed Entertainment segment expenses consist of operating expenses, SG&A expenses and depreciation and amortization. Operating expenses principally include the amortization of costs of our released feature films and television programming (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. 
RESULTS OF OPERATIONS
Consolidated Results of Operations
Our summary consolidated results of operations are presented below for the quarters ended December 31, 2016 and 2015.
  
Quarter Ended  
 December 31,
 
Better/(Worse)
(in millions, except per share amounts)
2016
 
2015
 
$
 
%
GAAP
 
 
 
 
 
 
 
Revenues
$
3,324

 
$
3,154

 
$
170

 
5
 %
Operating income
706

 
839

 
(133
)
 
(16
)
Net earnings attributable to Viacom
396

 
449

 
(53
)
 
(12
)
Diluted earnings per share
1.00

 
1.13

 
(0.13
)
 
(12
)
 
 
 
 
 
 
 
 
Non-GAAP*
 
 
 
 
 
 
 
Adjusted operating income
$
748

 
$
839

 
$
(91
)
 
(11
)%
Adjusted net earnings attributable to Viacom
413

 
470

 
(57
)
 
(12
)
Adjusted diluted earnings per share
1.04

 
1.18

 
(0.14
)
 
(12
)
 
 
 
 
 
 
 
 
* See “Factors Affecting Comparability” section below for a reconciliation of our reported results to our adjusted results, which are calculated on a non-GAAP basis.
Factors Affecting Comparability
The Consolidated Financial Statements reflect our results of operations, financial position and cash flows reported in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Our results have been affected by certain items identified as affecting comparability. Accordingly, when applicable, we use non-GAAP measures such as consolidated adjusted operating income, adjusted earnings before provision for income taxes, adjusted provision for income taxes, 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 GAAP, they should not be considered in isolation of, or as a substitute for, operating income, earnings before provision for income taxes, provision for income taxes, 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.

17

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


The following tables reconcile our reported results (GAAP) to our adjusted results (non-GAAP) for the quarters ended December 31, 2016 and 2015. The tax impacts included in the tables below have been calculated using the rates applicable to the adjustments presented.
(in millions, except per share amounts)
 
Quarter Ended  
 December 31, 2016
 
Operating Income
 
Earnings Before Provision for Income Taxes
 
Provision for Income Taxes
 
Net Earnings
Attributable to 
Viacom
 
Diluted EPS
Reported results (GAAP)
$
706

 
$
566

 
$
158

 
$
396

 
$
1.00

Factors Affecting Comparability:
 
 
 
 
 
 
 
 
 
Restructuring
42

 
42

 
14

 
28

 
0.07

Loss on extinguishment of debt

 
6

 
2

 
4

 
0.01

Discrete tax benefit

 

 
15

 
(15
)
 
(0.04
)
Adjusted results (Non-GAAP)
$
748


$
614


$
189


$
413


$
1.04

 
 
 
 
 
 
 
 
 
 
(in millions, except per share amounts)
 
Quarter Ended  
 December 31, 2015
 
Operating Income
 
Earnings Before Provision for Income Taxes
 
Provision for Income Taxes
 
Net Earnings
Attributable to 
Viacom
 
Diluted EPS
Reported results (GAAP)
$
839

 
$
717

 
$
256

 
$
449

 
$
1.13

Factors Affecting Comparability:
 
 
 
 
 
 
 
 
 
Discrete tax expense

 

 
(21
)
 
21

 
0.05

Adjusted results (Non-GAAP)
$
839


$
717


$
235


$
470


$
1.18

 
 
 
 
 
 
 
 
 
 
Restructuring charge: We recognized a pre-tax restructuring charge of $42 million for severance associated with management changes in connection with ongoing strategic initiatives. As we continue to evaluate our strategic initiatives, we may incur additional restructuring charges in the second fiscal quarter.
Loss on extinguishment of debt: In November 2016, we redeemed all $400 million of our outstanding 2.500% senior notes due December 2016 and all $500 million of our outstanding 3.500% senior notes due April 2017 at a redemption price equal to the sum of the principal amount and a make-whole amount, together totaling $906 million, and accrued interest of $6 million. As a result, we recognized a pre-tax extinguishment loss of $6 million.
Discrete taxes: The net discrete tax benefit in the quarter ended December 31, 2016 was principally related to the reversal of a valuation allowance on net operating losses upon receipt of a favorable tax authority ruling. The net discrete tax expense in the quarter ended December 31, 2015 was principally related to a reduction in qualified production activity tax benefits as a result of retroactively reenacted legislation.
Revenues
Worldwide revenues increased $170 million, or 5%, to $3.324 billion in the quarter ended December 31, 2016. Filmed Entertainment revenues increased $146 million, or 24%, primarily reflecting higher theatrical and ancillary revenues. Media Networks revenues increased $24 million, or 1%, principally reflecting higher affiliate and ancillary revenues, partially offset by lower advertising revenues.
Expenses
Total expenses increased $303 million, or 13%, to $2.618 billion in the quarter ended December 31, 2016, reflecting higher segment expenses and the $42 million restructuring charge. Filmed Entertainment expenses increased $180 million, or 24%, driven by higher operating expenses and Media Networks expenses increased $94 million, or 6%, driven by higher SG&A and operating expenses.
Operating
Operating expenses increased $226 million, or 14%, to $1.819 billion in the quarter. Filmed Entertainment operating expenses increased $184 million, or 28%, and Media Networks operating expenses increased $45 million, or 5%.

18

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


Selling, General and Administrative
SG&A expenses increased $34 million, or 5%, to $701 million in the quarter, primarily driven by an increase in Media Networks SG&A expenses of $47 million, or 9%.
Operating Income
Operating income decreased $133 million, or 16%, to $706 million in the quarter ended December 31, 2016, reflecting the operating results discussed above. Excluding the items discussed in “Factors Affecting Comparability”, adjusted operating income decreased $91 million, or 11%, to $748 million. Media Networks adjusted operating income decreased $70 million, or 7%, reflecting higher expenses that more than offset revenue gains. Filmed Entertainment adjusted operating results decreased $34 million, or 23%, principally reflecting higher print and advertising expenses associated with our fiscal 2017 theatrical releases.
Income Taxes
Our effective income tax rate was 27.9% in the quarter ended December 31, 2016. The net discrete tax benefit of $15 million, taken together with the impact of the other factors affecting comparability discussed above, reduced the effective income tax rate by 2.9 percentage points. Excluding the impact of these items, our adjusted effective income tax rate was 30.8%, a decline of 2 percentage points from the prior year quarter primarily driven by the change in the mix of domestic and international income.
Our effective income tax rate was 35.7% in the quarter ended December 31, 2015. The net discrete tax expense of $21 million contributed 2.9 percentage points to the effective income tax rate in the quarter. Excluding the impact of the net discrete tax expense, our adjusted effective income tax rate was 32.8%.
Net Earnings Attributable to Viacom
Net earnings attributable to Viacom decreased $53 million, or 12%, to $396 million in the quarter, principally due to the decline in tax-effected operating income described above and a decline in equity in net earnings of investee companies. Excluding the items discussed in “Factors Affecting Comparability”, adjusted net earnings attributable to Viacom decreased $57 million, or 12%, to $413 million.
Diluted Earnings Per Share
Diluted EPS decreased $0.13 per diluted share to $1.00 in the quarter, reflecting the impact of net earnings. Excluding the items discussed in “Factors Affecting Comparability”, adjusted diluted EPS decreased $0.14 per diluted share to $1.04.
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 and television programming exhibition rights by Media Networks.

19

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)
2016
 
2015
 
$
 
%
Revenues by Component
 
 
 
 
 
 
 
Advertising
$
1,294

 
$
1,320

 
$
(26
)
 
(2
)%
Affiliate
1,144

 
1,119

 
25

 
2

Ancillary
151

 
126

 
25

 
20

Total revenues by component
$
2,589

 
$
2,565


$
24

 
1
 %
Expenses
 
 
 
 
 
 
 
Operating
$
1,002

 
$
957

 
$
(45
)
 
(5
)%
Selling, general and administrative
557

 
510

 
(47
)
 
(9
)
Depreciation and amortization
43

 
41

 
(2
)
 
(5
)
Total expenses
$
1,602

 
$
1,508


$
(94
)
 
(6
)%
Adjusted Operating Income
$
987

 
$
1,057


$
(70
)
 
(7
)%
 
 
 
 
 
 
 
 
Revenues
Worldwide revenues increased $24 million, or 1%, to $2.589 billion in the quarter ended December 31, 2016. Excluding foreign exchange, which had a 2-percentage point unfavorable impact, worldwide revenues increased 3%, including a 1-percentage point favorable impact from the acquisition of Televisión Federal S.A. (“Telefe”). Domestic revenues were substantially flat at $2.055 billion and international revenues increased $26 million, or 5%, to $534 million. Excluding foreign exchange, which had a 13-percentage point unfavorable impact, international revenues increased 18%, driven by growth in Europe and the acquisition of Telefe, which had an 8-percentage point favorable impact on international revenues.
Advertising
Worldwide advertising revenues decreased $26 million, or 2%, to $1.294 billion in the quarter. Excluding foreign exchange, which had a 3-percentage point unfavorable impact, worldwide advertising revenues increased 1%, including a 2-percentage point favorable impact from the acquisition of Telefe. Domestic advertising revenues decreased $30 million, or 3%, to $991 million. While pricing increased, softer ratings at certain of our networks contributed to lower audience delivery, reducing impressions and associated revenue. International advertising revenues increased $4 million, or 1%, to $303 million. Excluding foreign exchange, which had a 15-percentage point unfavorable impact, international advertising revenues increased 16%, driven by the acquisition of Telefe, which had a 10-percentage point favorable impact on international revenues, and growth in Europe.
Affiliate
Worldwide affiliate revenues increased $25 million, or 2%, to $1.144 billion in the quarter. Excluding foreign exchange, which had a 2-percentage point unfavorable impact, worldwide affiliate revenues increased 4%. Domestic affiliate revenues increased $21 million, or 2%, to $985 million, principally reflecting rate increases and the impact of SVOD and other OTT agreements, partially offset by a modest decline in subscribers and the impact of rate equalization due to the consolidation of a major distribution agreement. Excluding the impact from the timing of product available under SVOD and other OTT agreements, domestic affiliate revenues were substantially flat. International affiliate revenues increased $4 million, or 3%, to $159 million. Excluding foreign exchange, which had a 9-percentage point unfavorable impact, international affiliate revenues increased 12%, which reflects the impact of rate increases, subscriber growth and new channel launches, as well as higher revenues from SVOD and other OTT agreements.
Ancillary
Worldwide ancillary revenue increased $25 million, or 20%, to $151 million in the quarter. Excluding foreign exchange, which had a 4-percentage point unfavorable impact, worldwide ancillary revenues increased 24%, including a 4-percentage point favorable impact from the acquisition of Telefe. Domestic ancillary revenues increased $7 million, or 10%, to $79 million, principally driven by higher home video sales. International ancillary revenues increased $18 million, or 33%, to $72 million. Excluding foreign exchange, which had a 10-percentage point unfavorable impact, international ancillary revenues increased 43%, principally driven by higher consumer product revenue and the acquisition of Telefe, which had a 10-percentage point favorable impact on international ancillary revenues.

20

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


Expenses
Media Networks segment expenses increased $94 million, or 6%, to $1.602 billion in the quarter. Excluding foreign exchange, which had a 3-percentage point favorable impact, worldwide expenses increased 9%, including an unfavorable 2-percentage point impact from the acquisition of Telefe.
Operating
Operating expenses increased $45 million, or 5%, to $1.002 billion in the quarter, driven by higher programming costs of $48 million, or 6%, primarily reflecting our continuing investment in original content. Distribution and other expenses declined $3 million, or 3%.
Selling, General and Administrative
SG&A expenses increased $47 million, or 9%, to $557 million in the quarter, principally driven by an increase in incentive compensation costs. We anticipate SG&A expenses will be higher in the second quarter due to costs associated with the integration of Telefe.
Adjusted Operating Income
Adjusted operating income decreased $70 million, or 7%, to $987 million in the quarter, reflecting the operating results discussed above and foreign exchange, which had a 2-percentage point unfavorable impact.
Filmed Entertainment
 
Quarter Ended  
 December 31,
 
Better/(Worse)
(in millions)
2016
 
2015
 
$        
 
%    
Revenues by Component
 
 
 
 
 
 
 
Theatrical
$
192

 
$
94

 
$
98

 
104
 %
Home entertainment
243

 
239

 
4

 
2

Licensing
245

 
237

 
8

 
3

Ancillary
78

 
42

 
36

 
86

Total revenues by component
$
758

 
$
612

 
$
146

 
24
 %
Expenses
 
 
 
 
 
 
 
Operating
$
847

 
$
663

 
$
(184
)
 
(28
)%
Selling, general and administrative
79

 
82

 
3

 
4

Depreciation and amortization
12

 
13

 
1

 
8

Total expenses
$
938

 
$
758

 
$
(180
)
 
(24
)%
Adjusted Operating Loss
$
(180
)
 
$
(146
)
 
$
(34
)
 
(23
)%
 
 
 
 
 
 
 
 
Revenues
Worldwide revenues increased $146 million, or 24%, to $758 million in the quarter ended December 31, 2016. Domestic revenues increased 50% to $465 million. International revenues decreased 3% to $293 million, driven by the unfavorable impact of foreign exchange.
Theatrical
Worldwide theatrical revenues increased $98 million, or 104%, to $192 million in the quarter due to higher revenues from our current year releases. Significant current quarter releases were Jack Reacher: Never Go Back, Arrival, Allied, Office Christmas Party and Fences, compared with Daddy’s Home, Paranormal Activity: The Ghost Dimension and The Big Short in the prior year quarter. Domestic theatrical revenues increased 128% and international theatrical revenues increased 73%. Foreign exchange had a 3-percentage point unfavorable impact on international theatrical revenues.
Home Entertainment
Worldwide home entertainment revenues increased $4 million, or 2%, to $243 million in the quarter. Significant current quarter releases were Star Trek Beyond, Ben-Hur and Florence Foster Jenkins, while the prior year quarter included Mission: Impossible - Rogue Nation and Terminator: Genisys. Domestic home entertainment revenues increased 12% on strong holiday sales, while international home entertainment revenues decreased 14%. Foreign exchange had a 6-percentage point unfavorable impact on international home entertainment revenues.

21

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


Licensing
Licensing revenues increased $8 million, or 3%, to $245 million in the quarter. Domestic licensing revenues increased 41%, primarily driven by the release of television product, while international licensing revenues decreased 17%.

Ancillary
Ancillary revenues increased $36 million, or 86%, to $78 million in the quarter. Domestic ancillary revenues increased 109%, driven by the sale of a partial copyright interest in certain films released in the quarter in connection with a slate financing arrangement. International ancillary revenues increased 10%.

Expenses
Total expenses increased $180 million, or 24%, to $938 million in the quarter, driven by higher operating expenses.
Operating
Operating expenses increased $184 million, or 28%, to $847 million in the quarter. Distribution and other costs, principally print and advertising expenses, increased $151 million, or 47%, primarily driven by higher marketing costs for our current year slate. Film costs increased $33 million, or 10%, driven by higher television production costs.
Selling, General and Administrative
SG&A expenses decreased $3 million, or 4%, to $79 million in the quarter.
Adjusted Operating Loss
Adjusted operating loss was $180 million in the quarter compared with $146 million for the prior year quarter. The decline of $34 million in operating results principally reflects higher print and advertising expenses associated with our fiscal 2017 theatrical releases. Operating losses reflect 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.
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 the repayment of debt, quarterly cash dividends, capital expenditures and acquisitions of businesses, as well as discretionary share repurchases under our stock repurchase program, as deemed appropriate.
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.


22

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


In December 2016, we entered into a three-year strategic agreement with Shanghai Film Group and Huahua Media. As part of the agreement, Shanghai Film Group and Huahua Media will co-finance approximately twenty-five percent of Paramount’s slate of films for a three-year period, with an option for an additional year.
Cash Flows
Cash and cash equivalents were $443 million as of December 31, 2016, an increase of $64 million compared with September 30, 2016.
The following tables include information driving the change in cash and cash equivalents and a reconciliation of net cash provided by/(used in) operating activities (GAAP) to free cash flow and operating free cash flow (non-GAAP). We define free cash flow as net cash provided by/(used in) operating activities minus capital expenditures, plus excess tax benefits from equity-based compensation awards (actual tax deductions in excess of amounts previously recognized, which is included within financing activities in the statement of cash flows), as applicable. We define operating free cash flow as free cash flow, excluding the impact of the cash premium on the extinguishment of debt, as applicable. Free cash flow and operating free cash flow are non-GAAP measures. Management believes the use of this measure provides investors with an important perspective on, in the case of free cash flow, our liquidity, including our ability to service debt and make investments in our businesses, and, in the case of operating free cash flow, our liquidity from ongoing activities.
Change in cash and cash equivalents
(in millions)
Quarter Ended 
 December 31,
 
Better/(Worse)
2016
 
2015
 
$
Net cash provided by/(used in) operating activities
$
159

 
$
(126
)
 
$
285

Net cash flow used in investing activities
(349
)
 
(56
)
 
(293
)
Net cash flow provided by financing activities
292

 
10

 
282

Effect of exchange rate changes on cash and cash equivalents
(38
)
 
(7
)
 
(31
)
Increase/(decrease) in cash and cash equivalents
$
64

 
$
(179
)
 
$
243

Reconciliation of net cash provided by/(used in) operating activities
to free cash flow and operating free cash flow
 
 
 
 
 
Net cash provided by/(used in) operating activities (GAAP)
$
159

 
$
(126
)
 
$
285

Capital expenditures
(52
)
 
(26
)
 
(26
)
Free cash flow (Non-GAAP)
107

 
(152
)
 
259

Debt retirement premium
6

 

 
6

Operating free cash flow (Non-GAAP)
$
113

 
$
(152
)
 
$
265

 
 
 
 
 
 
Operating Activities
Cash provided by operating activities improved $285 million for the quarter ended December 31, 2016, primarily reflecting the timing of film and programming spend.
Investing Activities
Cash used in investing activities increased $293 million for the quarter ended December 31, 2016, principally driven by the acquisition of Telefe for $336 million, net of cash acquired, in the current quarter.
Financing Activities
Cash provided by financing activities increased $282 million for the quarter ended December 31, 2016, primarily driven by debt transactions totaling $95 million and lower dividend payments of $80 million. In addition, we did not repurchase stock in the current quarter compared with stock repurchase payments of $100 million in the prior year quarter.
Capital Resources
Capital Structure and Debt
Total debt was $12.300 billion as of December 31, 2016, an increase of $387 million from $11.913 billion at September 30, 2016.
In October 2016, we issued a total of $1.3 billion of senior notes as follows:
$400 million in aggregate principal amount of 2.250% senior notes due 2022 at a price equal to 99.692% of the principal amount (the “2022 Senior Notes”); and

23

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


$900 million in aggregate principal amount of 3.450% senior notes due 2026 at a price equal to 99.481% of the principal amount (the “2026 Senior Notes” and, together with the 2022 Senior Notes, the “Senior Notes”).

The proceeds, net of discount and other issuance fees and expenses, from the issuance of the Senior Notes were $1.285 billion, a portion of which was used to redeem the senior notes described below.

In November 2016, we redeemed all $400 million of our outstanding 2.500% senior notes due December 2016 and all $500 million of our outstanding 3.500% senior notes due April 2017 at a redemption price equal to the sum of the principal amount and a make-whole amount, together totaling $906 million, and accrued interest of $6 million. As a result of the redemption, we recognized a pre-tax extinguishment loss of $6 million.
Credit Facility
At December 31, 2016, there were no amounts outstanding under our credit facility. The credit facility is used for general corporate purposes and to support commercial paper outstanding, if any. 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, 2016.
Commitments and Contingencies
Legal Matters
See Note 7 to the Consolidated Financial Statements for information regarding legal matters.
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 14 to the Consolidated Financial Statements.
On December 12, 2016, our Board of Directors announced that it had discontinued the exploration of a potential combination of Viacom and CBS following receipt of a related letter and request from National Amusements, and that it had dissolved the Special Committee that was formed to evaluate a potential transaction.
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 effect of recent changes in management and our board of directors; the public acceptance of our brands, programs, motion pictures and other entertainment content on the various platforms on which they are distributed; the impact of inadequate audience measurement on our program ratings and advertising and affiliate revenues; 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, number 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 or other 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 below and in our news releases and filings with the Securities and Exchange Commission, including but not limited to our 2016 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

24

Table of Contents

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.
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, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


25

Table of Contents

PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
Since our 2016 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 7 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 2016 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.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.

26

Table of Contents

Item 6. Exhibits.
Exhibit No.
 
Description of Exhibit
 
 
 
10.1*
 
Summary of Viacom Inc. Compensation for Outside Directors.
 
 
 
10.2*
 
Viacom Inc. 2011 RSU Plan for Outside Directors, as amended and restated as of January 1, 2016, and as further amended and restated as of October 31, 2016.
 
 
 
10.3
 
Viacom Inc. Senior Executive Short-Term Incentive Plan, as amended and restated effective December 12, 2016 (incorporated by reference to Exhibit A to the Definitive Proxy Statement of Viacom Inc. filed on December 16, 2016) (File No. 001-32686).
 
 
 
10.4*
 
Employment Agreement between Viacom Inc. and Robert Bakish, dated as of December 12, 2016.
 
 
 
10.5*
 
Letter Agreement between Viacom Inc. and Robert Bakish, dated as of December 12, 2016.
 
 
 
10.6*
 
Viacom Inc. 2016 Long-Term Management Incentive Plan: Form of Terms and Conditions to the Performance Share Units.
 
 
 
10.7*
 
Employment Agreement between Viacom Inc. and Robert Bakish, dated as of October 31, 2016 (superseded by Employment Agreement between Viacom Inc. and Robert Bakish dated as of December 12, 2016).
 
 
 
10.8*
 
Letter Agreement between Viacom Inc. and Robert Bakish, dated as of October 31, 2016 (superseded by Employment Agreement between Viacom Inc. and Robert Bakish dated as of December 12, 2016).
 
 
 
10.9*
 
Letter Agreement between Viacom Inc. and Michael D. Fricklas, dated as of December 12, 2016.
 
 
 
10.10*
 
Employment Agreement between Viacom Inc. and DeDe Lea, dated as of November 14, 2016.
 
 
 
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

27

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: February 9, 2017
By:
 
/s/    WADE DAVIS
 
 
 
Wade Davis
 
 
 
Executive Vice President, Chief Financial Officer
 
 
 
 
Date: February 9, 2017
By:
 
/s/    KATHERINE GILL-CHAREST
 
 
 
Katherine Gill-Charest
 
 
 
Senior Vice President, Controller
(Chief Accounting Officer)

28
Exhibit

Exhibit 10.1

Summary of Viacom Inc. Compensation for Outside Directors
(Effective as of October 31, 2016)
Cash Compensation
 
The Chair of the Board receives an annual Board retainer of $300,000, the Vice Chair of the Board receives an annual retainer of $200,000 and all other outside directors receive an annual retainer of $100,000, in each case payable in equal installments quarterly in advance.

The Chairs of the Audit and Compensation Committees each receive an annual retainer of $20,000, payable in equal installments quarterly in advance, and the members of those Committees receive a per meeting attendance fee of $2,000.

The Chair of the Governance and Nominating Committee receives an annual retainer of $15,000, payable in equal installments quarterly in advance, and the members of that Committee receive a per meeting attendance fee of $1,500.

Outside directors may elect to defer their cash compensation under the Viacom Inc. Deferred Compensation Plan for Outside Directors.
Equity Compensation

Each outside director receives an annual grant on January 31st of each year of Restricted Share Units (RSUs), the number of which is determined by dividing (i) $175,000 by (ii) the fair market value of one share of Class B Common Stock on The NASDAQ Global Select Market (NASDAQ) on the date of grant.

In addition, the Lead Independent Director receives an annual grant on January 31st of each year of RSUs, the number of which is determined by dividing (i) $50,000 by (ii) the fair market value of one share of Class B Common Stock on NASDAQ on the date of grant.
All RSUs vest one year from the date of grant and are payable to outside directors in shares of Class B Common Stock upon vesting unless the outside director has previously elected to defer settlement of the RSUs to a future date. Outside directors are entitled to receive dividend equivalents on the RSUs in the event the Company pays a regular cash dividend on its Class B Common Stock.




Exhibit

Exhibit 10.2
VIACOM INC.
2011 RSU PLAN FOR OUTSIDE DIRECTORS

(Amended and Restated as of January 1, 2016 and as Further Amended and Restated as of
October 31, 2016)
ARTICLE I
GENERAL
Section 1.1 Purpose.
The purpose of the Viacom Inc. 2011 RSU Plan for Outside Directors, as amended and restated as of January 1, 2016 and as further amended and restated as of October 31, 2016 (the “Plan”) is to benefit and advance the interests of Viacom Inc., a Delaware corporation (the “Company”), and its subsidiaries by obtaining and retaining the services of qualified persons who are not employees of the Company or its subsidiaries to serve as directors and to induce them to make a maximum contribution to the success of the Company and its subsidiaries.
Section 1.2  Definitions.
As used in the Plan, the following terms shall have the following meanings:
(a)    “2016 Effective Date” shall mean January 1, 2016.
(b)    “Annual LID Grant” shall have the meaning set forth in Section 2.1(d).
(c)    “Annual RSU Grant” shall have the meaning set forth in Section 2.1(a).
(d)    “Award” shall mean any Director RSU or Dividend Equivalent.
(e)    “Board” shall mean the Board of Directors of the Company.
(f)    “Class B Common Stock” shall mean the shares of Class B Common Stock, par value $0.001 per share, of the Company.
(g)    “Code” shall mean the Internal Revenue Code of 1986, as amended, including any successor law thereto, and the rules and regulations promulgated thereunder from time to time.
(h)    “Company” shall have the meaning set forth in Section 1.1.
(i)    “Deferred Compensation Plan” means the Viacom Inc. Deferred Compensation Plan for Outside Directors, as may be amended from time to time.
(j)    “Director RSUs” shall mean a contractual right granted to a Participant pursuant to Article II to receive shares of Class B Common Stock, subject to the terms and conditions set forth in the Plan. Director RSUs shall be settled exclusively in Class B Common Stock, with fractional shares payable in cash.
(k)    “Dividend Equivalent” shall mean a right to receive a payment based upon the value of the regular cash dividend paid on a specified number of shares of Class B Common




Stock as set forth in Article III below. Payment in respect of Dividend Equivalents upon settlement shall be in shares of Class B Common Stock except as set forth in Article III below.
(l)    “Elective RSU Grant” shall have the meaning set forth in Section 2.1(e).
(m)    “Fair Market Value” of a share of Class B Common Stock on a given date shall be the closing price on such date on the NASDAQ Global Select Market or other principal stock exchange on which the Class B Common Stock is then listed, as reported by The Wall Street Journal (Northeast edition) as the 4:00 p.m. (New York time) closing price or as reported by any other authoritative source selected by the Company. If such date is not a business day on which the Fair Market Value can be determined, then the Fair Market Value shall be determined as of the last preceding business day on which the Fair Market Value can be determined.
(n)    “Initial LID Grant” shall have the meaning set forth in Section 2.1(c).
(o)    “Lead Independent Director” shall have the meaning set forth in Section 2.1(c).
(p)    “LID Grants” shall have the meaning set forth in Section 2.1(d).
(q)    “Outside Director” shall mean any member of the Board who is not an employee of the Company or any of its Subsidiaries, except that the Chairman Emeritus shall not be deemed to be an Outside Director.
(r)    “Participant” shall mean any Outside Director to whom Awards have been granted under the Plan.
(s)    “Plan” shall have the meaning set forth in Section 1.1.
(t)    “Stock Option Plan” shall mean the Viacom Inc. 2011 Stock Option Plan for Outside Directors.
(u)     “Stock Unit Account” shall have the meaning assigned to such term in the Deferred Compensation Plan.
(v)    “Subsidiary” shall mean a corporation (or a partnership or other enterprise) in which the Company owns or controls, directly or indirectly, more than 50% of the outstanding shares of stock normally entitled to vote for the election of directors (or comparable equity participation and voting power).
(w)    “Substitute Awards” means Awards granted upon assumption of, or in substitution for, outstanding awards previously granted by a company or other entity all or a portion of the assets or equity of which is acquired by the Company, with which the Company merges or otherwise combines or from which the Company is spun-off or otherwise separated.
Section 1.3  Administration of the Plan.
The Plan shall be administered by the members of the Board and such Board members shall determine all questions of interpretation, administration and application of the Plan. References in the Plan to actions or determinations by the Board will be understood to mean actions or determinations by those members of the Board responsible for administering the Plan. Such Board members' determinations shall be final and binding in all matters relating to the Plan.

2



Section 1.4  Eligible Persons.
Awards shall be granted only to Outside Directors.
Section 1.5  Class B Common Stock Subject to the Plan.
Subject to adjustment in accordance with the provisions of Article IV hereof, the maximum number of shares of Class B Common Stock that may be issued during the five-year period starting on the 2016 Effective Date shall be 500,000 shares. Any shares of Class B Common Stock underlying Substitute Awards shall not be counted against this limit. The shares of Class B Common Stock shall be made available from authorized but unissued shares of Class B Common Stock or from shares of Class B Common Stock issued and held in the treasury of the Company. The settlement of any Awards under the Plan in any manner shall result in a decrease in the number of shares of Class B Common Stock which thereafter may be issued for purposes of this Section 1.5 by the number of shares issued upon such settlement. Shares of Class B Common Stock with respect to which Awards lapse, expire or are cancelled without being settled or are otherwise terminated may be regranted under the Plan.
ARTICLE II
RESTRICTED SHARE UNITS
Section 2.1  Grants of Restricted Share Units; Settlement Election.
(a)    On January 31st of each year until the Plan terminates in accordance with the terms hereof, each Outside Director shall automatically be granted a number of Director RSUs determined by dividing (i) $175,000 by (ii) the Fair Market Value of one share of Class B Common Stock on the date of grant (an “Annual RSU Grant”).
(b)    The Annual RSU Grants shall not be prorated and persons who become Outside Directors after the date of a particular Award shall first become eligible to receive an Award under the Plan as of the date of the next Annual RSU Grant.
(c)    In connection with the election of a Lead Independent Director of the Board (the “Lead Independent Director”), the Board may authorize a grant to the Lead Independent Director of a number of Director RSUs determined by dividing (i) $50,000 (or such lesser amount as the Board may determine) by (ii) the Fair Market Value of one share of Class B Common Stock on the date of grant (an “Initial LID Grant”).
(d)    On January 31st of each year until the Plan terminates in accordance with the terms hereof, in addition to any Annual RSU Grant granted in accordance with paragraph 2.1(a) above, the Lead Independent Director shall automatically be granted a number of Director RSUs determined by dividing (i) $50,000 by (ii) the Fair Market Value of one share of Class B Common Stock on the date of grant (an “Annual LID Grant” and together with the “Initial LID Grant,” the LID Grants”).
(e)    On the first day of each calendar quarter, each Outside Director who has made an election under the Deferred Compensation Plan to defer fees in the form of Director RSUs shall automatically be granted a number of Director RSUs determined by dividing (i) the dollar amount of the balance in such Outside Director’s Stock Unit Account as of the first day of such calendar quarter, as determined under Section 3(b) of the Deferred Compensation Plan by (ii) the Fair Market Value of one share of Class B Common Stock on the first day of such calendar quarter (an “Elective RSU Grant”).

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(f)    In addition to shares delivered in settlement of Annual RSU Grants, LID Grants and Elective RSU Grants, shares subject to the Plan shall be available to satisfy the Company’s obligations pursuant to Section 3(c) of the Deferred Compensation Plan and pursuant to Article III hereof.
(g)    The Company shall periodically issue (or arrange for the issuance of) statements or other communications to Participants advising them of grants and vesting of Director RSUs.
Section 2.2  Vesting.
Director RSUs shall be settled only to the extent the Participant is vested therein. Subject to Section 2.3(b), each Annual RSU Grant and LID Grant shall vest on the first anniversary of the relevant date of grant. Each Elective RSU Grant shall be vested in full upon grant.
Section 2.3  Settlement of Restricted Share Units.
(a)    Settlement. All restrictions contained in the Plan or any supplemental documentation relating to Director RSUs shall lapse as follows: (i) in the case of Annual RSU Grants and LID Grants, on the date on which Director RSUs included in the relevant Annual RSU Grant and LID Grants vest; and (ii) in the case of Elective RSU Grants, on the applicable payment date determined in accordance with the Outside Director’s payment election made pursuant to the Deferred Compensation Plan. Upon the lapse of such restrictions, Director RSUs shall be payable in shares of Class B Common Stock, with any fractional shares payable in cash, and shall be evidenced in such manner as the Board in its discretion shall deem appropriate, including, without limitation, book-entry registration. Any fractional shares of Class B Common Stock to which a Participant becomes entitled shall not be settled by delivery of shares but instead shall be paid in cash, based on the Fair Market Value of the Class B Common Stock on the date of payment.
(b)    Settlement in the Event of Termination of Services. If the services of a Participant as a director of the Company terminate for any reason, the Participant shall forfeit all unvested Director RSUs as of the date of such event.
(c)    Deferral of Settlement. Notwithstanding Section 2.3(a), a Participant may elect to defer settlement of any or all Director RSUs included in an Annual RSU Grant or in an LID Grant to a date subsequent to the vesting date of such Director RSUs, provided that such election to defer is made no later than December 31 of the taxable year prior to the year in which the Outside Director performs the services for which such Director RSUs are granted. Settlement of any such deferred Director RSUs shall be made in a single distribution or three or five annual installments in accordance with the Participant's deferral election. The single distribution or first annual installment, as applicable, will be payable on the later of (i) six months following the date of the Participant's termination of services as a director of the Company for any reason or (ii) January 31 of the calendar year following the calendar year in which the Participant's services as a director of the Company terminate for any reason.
ARTICLE III
DIVIDEND EQUIVALENTS
Section 3.  Dividend Equivalents.
(a)    General. The Participant shall be entitled to receive Dividend Equivalents on the Director RSUs in the event the Company pays a regular cash dividend with respect to the Class B Common Stock. The Company shall maintain a bookkeeping record that credits the dollar amount of the

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Dividend Equivalents to a Participant's account on the date that it pays such regular cash dividend on the shares of Class B Common Stock.
(b)    Dividend Equivalents on Annual RSU Grants and LID Grants. Dividend Equivalents shall accrue on the Director RSUs included in Annual RSU Grants and in LID Grants until the Director RSUs vest. Except to the extent that the Participant has made a deferral election pursuant to Section 2.3(c) above, upon vesting the Dividend Equivalents shall be paid in shares of Class B Common Stock determined by dividing (i) the aggregate amount credited in respect of such Dividend Equivalents by (ii) the Fair Market Value on the vesting date, with any fractional shares resulting from this calculation paid in cash. If, however, the Participant has made an election to defer settlement of Director RSUs, then the Dividend Equivalents related to such Director RSUs will not be paid when the Director RSUs vest but instead will be credited to the Participant’s account as additional whole and/or fractional Director RSUs based on the Fair Market Value of the Class B Common Stock on the vesting date and will be settled when the related Director RSUs are settled. Payment of Dividend Equivalents that have been credited to the Participant's account will not be made with respect to any Director RSUs that do not vest and are cancelled. If the Participant elects to defer settlement of the Director RSUs included in an Annual RSU Grant or in an LID Grant pursuant to Section 2.3(c) above, the Participant will continue to earn Dividend Equivalents on the deferred Director RSUs (including any deferred Director RSUs that resulted from crediting Dividend Equivalents on the vesting date, or any subsequent date, pursuant to this Section 3(b)) through the settlement date. All such Dividend Equivalents credited to the Participant's account with respect to deferred Director RSUs shall be converted, on the first day of the first calendar quarter commencing after the dividend payment date (or if the dividend payment date is the first day of a calendar quarter, on the dividend payment date), into additional whole and/or fractional Director RSUs, based on the Fair Market Value of the Class B Common Stock on such first day of the relevant calendar quarter. Such additional Director RSUs shall be deferred subject to the same terms and conditions (including payment schedule) as the Director RSUs to which the Dividend Equivalents originally related.
(c)    Dividend Equivalents on Elective RSU Grants. Dividend Equivalents shall accrue on Director RSUs included in Elective RSU Grants through the relevant settlement date. All such Dividend Equivalents credited to the Participant's account shall be converted, as of the first day of the first calendar quarter commencing after the dividend payment date (or if the dividend payment date is the first day of a calendar quarter, on the dividend payment date), into additional whole and/or fractional Director RSUs, based on the Fair Market Value of the Class B Common Stock on such first day of the relevant calendar quarter. Such additional Director RSUs shall be subject to the same terms and conditions (including payment schedule) as the Director RSUs to which the Dividend Equivalents originally related.
(d)    Settlement of Cash Balance. The aggregate dollar amount of Dividend Equivalents on deferred Director RSUs and Director RSUs included in Elective RSU Grants that have not yet converted to additional Director RSUs at the time any such Director RSUs are settled shall be paid in shares of Class B Common stock determined by dividing (i) the aggregate amount of such unconverted Dividend Equivalents credited on the Director RSUs that are being settled by (ii) the Fair Market Value on the settlement date, with any fractional shares resulting from this calculation paid in cash.

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ARTICLE IV
EFFECT OF CERTAIN CORPORATE CHANGES
In the event of any merger, consolidation, stock‑split, dividend (other than a regular cash dividend), distribution, combination, recapitalization, reclassification, reorganization, split-off or spin-off that changes the character or amount of the shares of Class B Common Stock or any other changes in the corporate structure, equity securities or capital structure of the Company, the Board shall make such proportionate adjustments to (i) the number and kind of securities subject to any outstanding Awards, (ii) the number and kind of securities subject to the Annual RSU Grants, LID Grants and Elective RSU Grants, and (iii) the maximum number and kind of securities available for issuance under the Plan referred to in Section 1.5, in each case, as it deems appropriate. The Board may, in its sole discretion, also make such other adjustments as it deems appropriate in order to preserve, but not increase, the benefits or potential benefits intended to be made available hereunder upon the occurrence of any of the foregoing events. The Board's determination as to what, if any, adjustments shall be made shall be final and binding on the Company and all Participants. Adjustments under this Article shall be conducted in a manner consistent with any adjustments under the Stock Option Plan.
ARTICLE V
SUBSTITUTE AWARDS
Notwithstanding any terms or conditions of the Plan to the contrary, the Board may provide for Substitute Awards under the Plan upon assumption of, or in substitution for, outstanding awards previously granted to a director by a company or other entity all or a portion of the assets or equity of which is acquired by the Company, with which the Company mergers or otherwise combines or from which the Company is spun-off or otherwise separated. Notwithstanding any terms or conditions of the Plan to the contrary, Substitute Awards may have substantially the same terms and conditions, including without limitation provisions relating to vesting, expiration, payment, forfeiture, and the consequences of termination of employment and changes in control, as the awards that they replace.
ARTICLE VI
MISCELLANEOUS
Section 6.1  No Right to Re-election.
Nothing in the Plan shall be deemed to create any obligation on the part of the Board to nominate any of its members for re-election by the Company's stockholders, nor confer upon any Participant the right to remain a member of the Board for any period of time, or at any particular rate of compensation.
Section 6.2  Restriction on Transfer.
The rights of a Participant with respect to any Awards under the Plan shall not be transferable by the Participant to whom such Awards are granted, except (i) by will or the laws of descent and distribution, (ii) upon prior notice to the Company, for transfers to members of the Participant's immediate family or trusts whose beneficiaries are members of the Participant's immediate family, provided, however, that such transfer is being made for estate and/or tax planning purposes without consideration being received therefor, (iii) upon prior notice to the Company, for transfers to a former spouse incident to

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a divorce or (iv) for such other transfers as the Board may approve, subject to any conditions and limitations that it may, in its sole discretion, impose.
Section 6.3  Stockholder Rights.
No grant of an Award under the Plan shall entitle a Participant, a Participant's estate or a permitted transferee to any rights of a holder of shares of Class B Common Stock, except upon the delivery of shares through book-entry registration upon settlement of an Award and as provided in Section 2.3.
Section 6.4  No Restriction on Right of Company to Effect Corporate Changes.
The Plan shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the shares of Class B Common Stock or the rights thereof or which are convertible into or exchangeable for shares of Class B Common Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.
Section 6.5  Headings.
The headings of articles and sections herein are included solely for convenience of reference and shall not affect the meaning of any of the provisions of the Plan.
Section 6.6  Governing Law.
The Plan and all rights hereunder shall be construed in accordance with and governed by the laws of the State of Delaware.
ARTICLE VII
AMENDMENT AND TERMINATION
The Board may at any time and from time to time alter, amend, suspend or terminate the Plan in whole or in part, including, without limitation, amend the provisions for determining the amount of Director RSUs to be issued to an Outside Director, provided, however, that any amendment which under the requirements of applicable law or under the rules of the NASDAQ Global Select Market or other principal stock exchange on which the shares of Class B Common Stock are then listed must be approved by the stockholders of the Company shall not be effective unless and until such stockholder approval has been obtained in compliance with such law or rule; and no alteration, amendment, suspension or termination of the Plan that would adversely affect a Participant's rights under the Plan with respect to any Award made prior to such action shall be effective as to such Participant unless he or she consents thereto, provided, however, that no such consent shall be required if the Board determines in its sole discretion that any such alteration, amendment, suspension or termination is necessary or advisable to comply with any law, regulation, ruling, judicial decision or accounting standards or to ensure that Director RSUs or Dividend Equivalents are not subject to federal, state or local income tax prior to settlement.

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ARTICLE VIII
EFFECTIVE DATE
The Plan is effective as of January 1, 2016 and approval of the Company’s stockholders was obtained at the Company’s 2015 annual meeting of stockholders. Unless earlier terminated in accordance with Article VII above, the Plan shall terminate on the fifth anniversary of the 2016 Effective Date, and no further Awards may be granted hereunder after such date.

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Exhibit

Exhibit 10.4
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11375681&doc=22
As of December 12, 2016
Robert Bakish
90 Hemlock Hill Road
New Canaan, Connecticut 06840
Dear Mr. Bakish:
Viacom Inc. (the “Company”) agrees to employ you, and you accept such employment, on the terms and conditions set forth in this letter agreement (“Agreement”). For purposes of this Agreement, “Viacom” shall mean Viacom Inc. and its subsidiaries.
1.    Contract Period. The term of your employment under this Agreement shall begin on December 12, 2016 (the “Effective Date”) and, unless terminated earlier as set forth herein, shall continue through and including December 31, 2019.  The period from the Effective Date through December 31, 2019 is referred to as the “Contract Period”, even if your employment terminates earlier for any reason.
2.    Position and Duties. You shall devote your entire business time, attention and energies to the business of the Company during your employment with the Company. You shall be President and Chief Executive Officer of the Company and a director of the Board of Directors of the Company (the “Board”). You shall perform all duties reasonable and consistent with the offices of President and Chief Executive Officer of the Company as may be assigned to you from time to time by, and you shall report directly to, the Board (either collectively or to any one or more individual members of the Board). You will be the highest ranking executive of the Company and all employees shall report directly or indirectly to you. You shall render your services under this Agreement from the Company’s executive offices in the New York metropolitan area or such other location mutually agreeable to you and the Company (except for services rendered during business trips as may be reasonably necessary), and you shall not be required to relocate outside of the New York metropolitan area.
3.    Compensation.
(a)    Salary.  The Company shall pay you base salary (as may be increased, “Salary”) at a rate Three Million Dollars ($3,000,000) per year for all of your services as an employee of the Company. Your Salary shall be subject to annual merit reviews while actively employed during the Contract Period and may, at that time, be increased but not decreased. Your Salary, less deductions and income and payroll tax withholding as may be required under applicable law, shall be payable in accordance with the Company’s ordinary payroll policy, but no less frequently than monthly.
(b)    Bonus.  You also shall be eligible to earn a bonus (“Bonus”) or a Pro-Rated Bonus (as defined in paragraph 19(e)(ii)), as applicable, determined as set forth below and in paragraph 19(e)(ii).
(i)
Your Bonus for each Company fiscal year, regardless of whether such fiscal year is a 12-month period or a shorter period of time, shall be determined in accordance with the Viacom Inc. Senior Executive Short-Term Incentive Plan as it may be

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Robert Bakish
As of December 12, 2016
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amended from time to time, or any successor plan, as determined by the Board or a committee of the Board (the “STIP”).
(ii)
Your target Bonus for each Company fiscal year during the Contract Period shall be Seven Million Dollars ($7,000,000) (your “Target Bonus”) and shall be adjusted based on the Company’s performance (the “Company Performance Factor”) and your individual performance (the “Individual Performance Factor”), in each case as determined by the Company and as further provided in the STIP; provided, however, that the Viacom Board of Directors Compensation Committee will review your Target Bonus during the Contract Term and may increase, but not decrease, your Target Bonus at that time. The result of such review shall be reported to you promptly after it occurs.
(c)    Long-Term Incentive Compensation. During your employment under this Agreement, you shall be eligible to receive annual grants of long-term compensation under the Viacom Inc. 2016 Long-Term Management Incentive Plan, or any successor plan, as determined by the Board or a committee of the Board, in its discretion, based on a target value of Ten Million Dollars ($10,000,000), comprised 50% of Performance Share Units (“PSUs”) and 50% of stock options.
(d)    Compensation During Short-Term Disability. Your compensation for any period that you are absent due to a short-term disability (“STD”) and are receiving compensation under a Viacom STD plan shall be determined in accordance with the terms of such STD plan. The compensation provided to you under the applicable STD plan shall be in lieu of the Salary provided under this Agreement. Your participation in any other Viacom benefit plans or programs during the STD period shall be governed by the terms of the applicable plan or program documents, award agreements and certificates.
4.    Benefits.
(a)    Benefits in General. During your employment under this Agreement, you shall be eligible to participate in any vacation programs, medical and dental plans and life insurance plans, STD and long-term disability (“LTD”) plans, retirement and other employee benefit plans the Company may have, establish or maintain from time to time in which Company executives with corporate-wide responsibilities are eligible to participate.
(b)    Life Insurance. The Company shall provide you with no less than Five Million Dollars ($5,000,000) of life insurance coverage during the Contract Period.
(c)    Taxation. Upon your written request, the Company shall work with you in good faith to reasonably attempt to minimize any additional tax liability resulting from your international travel on behalf of Viacom. In addition, if deemed reasonably appropriate by the Company, the Company shall reimburse you for professional tax and accounting advice.
5.    Business Expenses and Travel. During your employment under this Agreement, the Company shall reimburse you for such reasonable travel and other expenses, incurred in the performance of your duties for Viacom in accordance with the Company’s policies, as are customarily reimbursed to a Company executive at your level. You shall be entitled to the use of the Company’s private plane (or equivalent charter aircraft), if available, to travel on Company business (accompanied by your spouse, at your option and at no cost to you, provided that any taxable amount associated with your spouse’s travel will be treated as your imputed income, subject to withholding and reporting, and further provided that if your spouse’s travel was for Company business purposes, then you will be provided a gross-up payment so that you are not out-of-pocket for any taxes resulting from the imputation of such costs as income to you).


Robert Bakish
As of December 12, 2016
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6.    Non-Competition and Non-Solicitation.
(a)    Non-Competition.
(i)
Your employment with the Company is on an exclusive and full-time basis, and while you are employed by the Company, you shall not engage in any other business activity which is in conflict with your duties and obligations (including your commitment of time) to the Company. During the Non-Competition Period, you shall not directly or indirectly engage in or participate as an owner, partner, holder or beneficiary of stock, stock options or other equity interest, officer, employee, director, manager, partner or agent of, or consultant for, any business competitive with any business of Viacom without the prior written consent of the Company. This provision shall not limit your right to own and have options or other rights to purchase not more than one percent (1%) of any of the debt or equity securities of any business organization that is then filing reports with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, unless such ownership constitutes a significant portion of your net worth.
(ii)
The “Non-Competition Period” begins on the Effective Date and ends on the last day of the Contract Period, provided that:
1.
If the Company terminates your employment without Cause or if you validly resign for Good Reason before the end of the Contract Period, then the Non-Competition Period shall end on the earlier of (i) the end of the period in which you are receiving payments pursuant to paragraph 11(c)(i) or (ii) the effective date of your waiver in writing of any right to receive or continue to receive compensation and benefits under paragraph 11. You shall be deemed to have irrevocably provided such waiver if you accept competing employment.
2.
If the Company terminates your employment for Cause or you resign other than for Good Reason, the Non-Competition Period shall end on the earlier of (i) the last day of the Contract Period or (ii) eighteen (18) months after such termination or resignation.
(b)    Non-Solicitation.
(i)
During the Non-Solicitation Period, you shall not directly or indirectly engage or attempt to engage in any of the following acts:
1.
Employ or solicit the employment of any person who is then, or has been within six (6) months prior thereto, an employee of Viacom; or
2.
Interfere with, disturb or interrupt the relationships (whether or not such relationships have been reduced to formal contracts) of Viacom with any customer, supplier, independent contractor, consultant, joint venture or other business partner (to the extent each of the limitations in this paragraph 6(b)(i)(2) is permitted by applicable law).


Robert Bakish
As of December 12, 2016
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(ii)
The “Non-Solicitation Period” begins on the Effective Date and ends on the last day of the Contract Period, or, if longer, eighteen (18) months after the Company terminates your employment for Cause or you resign other than for Good Reason.
(c)    Severability. If any court determines that any portion of this Section 6 is invalid or unenforceable, the remainder of this Section 6 shall not thereby be affected and shall be given full effect without regard to the invalid provisions. If any court construes any of the provisions of this Section 6, or any part thereof, to be unreasonable because of the duration or scope of such provision, such court shall have the power to reduce the duration or scope of such provision and to enforce such provision as so reduced.
7.    Confidentiality and Other Obligations.
(a)    Confidential Information. You shall not use for any purpose or disclose to any third party any information relating to Viacom, Viacom’s clients or other parties with which Viacom has a relationship, or that may provide Viacom with a competitive advantage (“Confidential Information”), other than (i) in the performance of your duties under this Agreement consistent with the Company’s or Viacom's policies or (ii) as may otherwise be required by law or legal process; provided, however, that nothing in the foregoing prohibits you from reporting what you in good faith believe to be violations of federal law to any governmental agency you in good faith believe to have responsibility for enforcement of such law or from making any other disclosure that is protected under the whistleblower protections of federal law. Confidential Information shall include, without limitation, trade secrets; inventions (whether or not patentable); technology and business processes; business, product or marketing plans; negotiating strategies; sales and other forecasts; financial information; client lists or other intellectual property; information relating to compensation and benefits; public information that becomes proprietary as a result of Viacom’s compilation of that information for use in its business; documents (including any electronic record, videotapes or audiotapes) and oral communications incorporating Confidential Information. You shall also comply with any and all confidentiality obligations of Viacom to a third party of which you are aware, whether arising under a written agreement or otherwise. Information shall not be deemed Confidential Information if it is or becomes generally available to the public other than as a result of an unauthorized disclosure or action by you or at your direction.
(b)    Interviews, Speeches or Writings about Viacom. Except in the course of the performance of your duties and responsibilities or otherwise as authorized by the Board, you shall not prepare or assist any person or entity in the preparation of any books, articles, radio broadcasts, electronic communications, television or motion picture productions or other similar creations, in either case concerning the Company or any of its shareholders, subsidiaries or predecessors, or any of their officers or directors.
(c)    Non-Disparagement. You and, to the extent set forth in the next sentence, the Company agree that each party shall not, directly or indirectly, in any communications with any reporter, author, producer or any similar person or entity, the press or other media, or any customer, client or supplier of Viacom, criticize, ridicule or make any statement which is negative, disparages or is derogatory of the other party, including, with respect to the Company, any of its directors or senior officers. The Company’s obligations under the preceding sentence shall be limited to communications by its senior Viacom Corporate executives having the rank of Executive Vice President or above (“Specified Executives”) and members of the Board, and it is agreed and understood that any such communication by any Specified Executive or any member of the Board (or by any executive at the behest of a Specified Executive or member of the Board) shall be deemed to be a breach of this paragraph 7(c) by the


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Company. Notwithstanding the foregoing, (i) neither you nor the Company shall be prohibited from making truthful statements in response to statements by the other party that criticize or ridicule or are disparaging or derogatory provided that the responsive statements do not ridicule, disparage or derogate the other party and (ii) nothing in this paragraph 7(c) shall prevent you, the Specified Executives or members of the Board from making any statement in good faith in connection with a proceeding to resolve a dispute in accordance with paragraph 19(h)
(d)    Scope and Duration. The provisions of paragraph 7(a) shall be in effect during the Contract Period and at all times thereafter. The provisions of paragraphs 7(b) and 7(c) shall be in effect during the Contract Period and for one (1) year thereafter.
8.    Viacom Property.
(a)    Viacom Ownership.
(i)
The results and proceeds of your services to the Company, whether or not created during the Contract Period, including, without limitation, any works of authorship resulting from your services and any works in progress resulting from such services, shall be works-made-for-hire and Viacom shall be deemed the sole owner throughout the universe of any and all rights of every nature in such works, with the right to use, license or dispose of the works in perpetuity in any manner Viacom determines in its sole discretion without any further payment to you, whether such rights and means of use are now known or hereafter defined or discovered.
(ii)
If, for any reason, any of the results and proceeds of your services to the Company are not legally deemed a work-made-for-hire and/or there are any rights in such results and proceeds which do not accrue to Viacom under this paragraph 8(a), then you hereby irrevocably assign any and all of your right, title and interest thereto, including, without limitation, any and all copyrights, patents, trade secrets, trademarks and/or other rights of every nature in the work, and Viacom shall have the sole right to use, license or dispose of the work in perpetuity throughout the universe in any manner Viacom determines in its sole discretion without any further payment to you, whether such rights and means of use are now known or hereafter defined or discovered.
(iii)
Upon request by the Company, whether or not during the Contract Period, you shall do any and all things which the Company may reasonably deem useful or desirable to establish or document Viacom’s rights in the results and proceeds of your services to the Company, including, without limitation, the execution of appropriate copyright, trademark and/or patent applications, assignments or similar documents. You hereby irrevocably designate the General Counsel, Secretary or any Assistant Secretary of Viacom Inc. as your attorney-in-fact with the power to take such action and execute such documents on your behalf. To the extent you have any rights in such results and proceeds that cannot be assigned as described above, you unconditionally and irrevocably waive the enforcement of such rights.


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As of December 12, 2016
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(iv)
The provisions of this paragraph 8(a) do not limit, restrict, or constitute a waiver by Viacom of any ownership rights to which Viacom may be entitled by operation of law by virtue of being your employer.
(v)
You and the Company acknowledge and understand that the provisions of this paragraph 8 requiring assignment of inventions to Viacom do not apply to any invention which qualifies fully under the provisions of California Labor Code Section 2870, to the extent that such provision applies to you. You agree to advise the Company promptly in writing of any inventions that you believe meet the criteria in California Labor Code Section 2870.
(b)    Return of Property. All documents, data, recordings, or other property, whether tangible or intangible, including all information stored in electronic form, obtained or prepared by or for you and utilized by you in the course of your employment with the Company (other than property that is the property of a third party) shall remain the exclusive property of Viacom. All property of the Company in your possession or control shall be returned to the Company promptly following your termination of employment or, if sooner, promptly following the written request of the Company.
9.    Legal Matters.
(a)    Communication. Except as required by law or legal process or at the request of the Company, you shall not communicate with anyone (other than your attorneys who agree to keep such matters confidential), except to the extent necessary in the performance of your duties under this Agreement in accordance with Viacom Inc.’s policies, with respect to the facts or subject matter of any claim, litigation, regulatory or administrative proceeding directly or indirectly involving Viacom (“Viacom Legal Matter”) without obtaining the prior consent of Viacom Inc. or its counsel; provided, however, that nothing in the foregoing prohibits you from reporting what you in good faith believe to be violations of federal law to any governmental agency you in good faith believe to have responsibility for enforcement of such law or from making any other disclosure that is protected under the whistleblower protections of federal law.
(b)    Cooperation. You agree to cooperate with Viacom and its attorneys in connection with any Viacom Legal Matter or Company investigation. Your cooperation shall include, without limitation, providing assistance to and meeting with Viacom’s counsel, experts or consultants, and providing truthful testimony in pretrial and trial or hearing proceedings. In the event that your cooperation is requested after the termination of your employment, Viacom shall (i) seek to minimize interruptions to your schedule to the extent consistent with its interests in the matter; and (ii) reimburse you for all reasonable and appropriate out-of-pocket expenses actually incurred by you in connection with such cooperation upon reasonable substantiation of such expenses.
(c)    Testimony. Except as required by law or legal process or at the request of Viacom Inc., you shall not testify in any lawsuit or other proceeding which directly or indirectly involves Viacom, or which is reasonably likely to create the impression that such testimony is endorsed or approved by Viacom.
(d)    Notice to Viacom. If you are requested or if you receive legal process requiring you to provide testimony, information or documents (including electronic documents) in any Viacom Legal Matter or that otherwise relates, directly or indirectly, to Viacom or any of its officers, directors, employees or affiliates, you shall give prompt notice of such event to Viacom Inc.’s General Counsel and


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As of December 12, 2016
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you shall follow any lawful direction of Viacom Inc.’s General Counsel or his/her designee with respect to your response to such request or legal process.
(e)    Adverse Party. The provisions of this paragraph 9 shall not apply to any litigation or other proceeding in which you are a party adverse to Viacom; provided, however, that Viacom expressly reserves its rights under paragraph 7 and its attorney-client and other privileges and immunities, including, without limitation, with respect to its documents and Confidential Information, except to the extent relating to your employment or termination of employment or otherwise expressly waived in writing by Viacom Inc.’s General Counsel or his/her designee.
(f)    Duration. The provisions of this paragraph 9 shall apply during the Contract Period and at all times thereafter, and shall survive the termination of your employment with the Company, with respect to any Viacom Legal Matter arising out of or relating to the business in which you were engaged during your employment with the Company. As to all other Viacom Legal Matters, the provisions of this paragraph 9 shall apply during the Contract Period and for one year thereafter or, if longer, during the pendency of any Viacom Legal Matter which was commenced, or which Viacom received notice of, during such period.
10.    Termination for Cause.
(a)    Termination Payments. The Company may terminate your employment under this Agreement for Cause and thereafter shall have no further obligations to you under this Agreement or otherwise, except for any earned but unpaid Salary through and including the date of termination of employment and any other amounts or benefits required to be paid or provided by law or under any plan of the Company (the “Accrued Compensation and Benefits”). Without limiting the generality of the preceding sentence, upon termination of your employment for Cause, you shall have no further right to any Bonus or to exercise or redeem any stock options or other equity compensation. For the sake of clarity, this paragraph 10 is subject to the provisions of paragraph 17(a).
(b)    Cause Definition. “Cause” shall mean: (i) the Company’s good faith and reasonably held belief that you have engaged in conduct constituting embezzlement, material misappropriation or intentional fraud, whether or not related to your employment by the Company; (ii) the Company’s good faith and reasonably held belief that you have engaged in conduct constituting a felony (not including traffic violations), whether or not related to your employment by the Company; (iii) the Company’s good faith and reasonably held belief that you have engaged in conduct constituting a financial crime, material act of dishonesty or material unethical business conduct, involving Viacom; (iv) your willful unauthorized disclosure or use of Confidential Information (other than an inadvertent disclosure) that results in demonstrable harm to the Company; (v) your failure to substantially follow a material lawful directive that is appropriate to your position from the Board; (vi) your material breach of any material obligation under this Agreement; (vii) your failure or refusal to substantially perform your material obligations under this Agreement (other than any such failure or refusal resulting from your STD or LTD); (viii) your willful failure to cooperate with a bona fide internal investigation or an investigation by regulatory or law enforcement authorities, whether or not related to your employment with the Company, after being instructed by Viacom to cooperate; (ix) your willful destruction of or willful failure to preserve documents or other material known by you to be relevant to any investigation referred to in subparagraph (viii) above; or (x) your willful inducement of others to engage in conduct which, if engaged in by you, would constitute Cause as described in subparagraphs (i) – (ix), including, without limitation, with regard to subparagraph (vi), obligations of others to Viacom.


Robert Bakish
As of December 12, 2016
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(c)    Notice/Cure. The Company shall give you written notice prior to terminating your employment for Cause or, if no cure period is applicable, contemporaneous with termination of your employment for Cause, setting forth in reasonable detail the nature of any alleged failure, breach or refusal in reasonable detail and the conduct required to cure such breach, failure or refusal, provided that, prior to termination, you shall be given an opportunity to discuss with the Board the basis for the Company’s assertion of Cause. Except for a failure, breach or refusal which, by its nature, cannot reasonably be expected to be cured, you shall have twenty (20) business days after the giving of such notice and opportunity to discuss with the Board the basis for the notice within which to cure; provided, however, that, if the Company reasonably expects irreparable injury from a delay of twenty (20) business days, the Company may give you notice of such shorter period within which to cure as is reasonable under the circumstances.
11.    Resignation for Good Reason and Termination Without Cause.
(a)    Resignation for Good Reason.
(i)
You may resign for Good Reason at any time that you are actively employed during the Contract Period by written notice to the Company no more than thirty (30) days after the occurrence of the event constituting Good Reason. Such notice shall state the grounds for such Good Reason resignation and an effective date no earlier than thirty (30) business days after the date it is given. The Company shall have thirty (30) business days from the giving