Results Pay Dividends

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Viacom Inc. reported its best second-quarter results ever, prompting its board to approve a quarterly cash dividend, making it one of the few companies in the media sector to do so.

Viacom said it would issue a cash dividend of 6 cents per share on Oct. 1 to shareholders of record of its Class A and Class B common stock as of Aug. 15.

During an analysts' call, Viacom chairman Sumner Redstone said the decision to issue the dividend was prompted by changes in the tax laws, which made issuing dividends more attractive to companies, and a desire to attract a broader shareholder base.

Still on prowl

The dividend will not affect Viacom's ability to make acquisitions, Redstone stressed. The company is said to be one of five bidders for Vivendi Universal S.A.'s U.S. Entertainment assets.

"Given our strong fundamentals and consistent performance, we are able to comfortably pay out a dividend, while at the same time continue to invest internally and to pursue accretive acquisitions and to buy back our stock as part of our multiyear $3 billion buy-back program," Redstone said on the call. "We think this combination of attributes makes Viacom a more valuable investment for its current shareholders and a more attractive investment to a broader range of potential shareholders."

The news seemed to cheer investors. Viacom rose $1.33 in early trading July 24, to $44.28.

The dividend will also greatly benefit Redstone and other top Viacom executives. Based on Redstone's 94 million Class A shares and 104 million Class B shares, the Viacom chairman stands to reap about $11.9 million in dividends in the quarter.

Viacom president and chief operating officer Mel Karmazin's take will be considerably less. Karmazin owns about 3.8 million Class B shares, which would bring in about $225,000 in quarterly dividends.

Viacom intends to pay the dividends out of free cash flow. And in the second quarter, the media giant had another strong performance.

Revenue for the period rose 10%, to $6.4 billion, and operating income before depreciation and amortization (formerly called earnings before interest, taxes, depreciation and amortization, or EBITDA) was up 10.3% to $ $1.56 billion.

Free cash flow, or cash flow after interest payments and capital expenditures are made, was $890 million, down from $1.03 billion in the same period the prior year.

Viacom said that decrease was principally due to changes in working capital, higher cash taxes and capital expenditures versus the second quarter of 2002. For the six-month period, free cash flow was up slightly, to $1.48 billion from $1.41 billion.

Net income for the quarter was $660 million (or 37 cents per share), compared with $546.5 million (31 cents per share) in the same period last year.

Fueling that growth was a strong quarter for its cable networks. Cable revenue increased 22% in the quarter to $1.35 billion and operating income before depreciation and amortization rose 28% to $541 million.

Ad revenue at the cable networks was up 31%, spurred by a 33% rise in ad sales at MTV Networks and a 15% increase at Black Entertainment Television. Comedy Central contributed about 7% to ad-sales growth in the second quarter.

Based on the strong advertising growth, Viacom increased its full-year guidance slightly, expecting high-single digit revenue growth and double-digit operating income growth for 2003. The media conglomerate also expects mid-teen growth in net earnings and earnings per share for the year.

On the conference call, Karmazin said ad sales are expected to continue to rise, based on what he called a strong upfront market.

Cable ads up

Karmazin said that cable ad volume increased 10% to 15% and that CPMs (cost per thousand) increased in the double digits. Revenue from the cable upfront was up 21%, while broadcast was up 15%, he said.

Karmazin said he was disappointed in the recent move by Congress to block a ruling by the Federal Communications Commission to increase the cap on the number of broadcast stations a company could own nationally, from 35% to 45%.

While Viacom currently is at 39%, Karmazin said that there is no indication that the company would have to divest of stations if the rules were to revert back to the old 35% cap.

The bill still has to be passed by the Senate and signed by President Bush, he added.

"We're still optimistic, because the facts support there should be a relaxation [of the cap]," Karmazin said. " … We continue to monitor it and try to influence it to the best of our ability, but we think there is no substantive facts to it. We still have the court option, which we will look at as time goes on."

Radio revenue, a point of contention in the first quarter, appears to be back on track, Karmazin said on the conference call. While radio revenue was down 1% in April and flat in May, Karmazin said it was up 8% in June.

In the first quarter, radio revenue was down 2%, which Karmazin said was unacceptable at the time.

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