Market Overview

Viacom Reports Third Quarter Results

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Diluted EPS was $1.27; Adjusted Diluted EPS Grew in the Quarter,
Increased 4% Year-to-Date

Paramount Pictures Turnaround Drove Increased Filmed Entertainment
Profitability in the Quarter, with Adjusted Operating Income Up $160
Million Year-to-Date

Media Networks Delivered Sequential Improvement in Domestic Affiliate
Revenue Growth, Strong Gains in Year-Over-Year Ancillary Revenues and
Benefits of Cost Transformation

Viacom Inc. (NASDAQ:VIAB, VIA)) today reported financial results for the
third quarter of fiscal 2018 ended June 30, 2018.

This press release features multimedia. View the full release here:
https://www.businesswire.com/news/home/20180809005186/en/

Paramount Network's "Yellowstone" is cable's most-watched scripted series of 2018 after "The Walking ...

Paramount Network's "Yellowstone" is cable's most-watched scripted series of 2018 after "The Walking Dead." (Credit: Paramount Network)

Bob Bakish, President and Chief Executive Officer, said, "Viacom
produced another quarter of strong progress, with clear evidence that
our turnaround is delivering results and that our evolution into a truly
global, multiplatform, brand- and IP-driven entertainment company is
well underway. Paramount Pictures is revitalized, with outstanding box
office performance and growing television production revenues driving
substantial gains in profitability. Our Media Networks brands posted
significant gains in both linear flagship share and digital consumption,
in addition to sequential improvements in domestic affiliate revenue
growth.

"In the quarter, Viacom concluded a strong advertising upfront that
combined robust price increases, as well as improved packaging that
included increased demand for our advanced marketing solutions.
Additionally, we continued to diversify our business with growth in
worldwide live event attendance and the expansion of a cross-company
studio production initiative that leverages our sizable creative assets
and global capabilities to drive incremental opportunities.

"This improvement in operating performance -- combined with meaningful
actions over the past 18 months to de-lever our balance sheet -- have
resulted in a stronger credit profile to help support Viacom's return to
long-term sustainable growth. We remain focused on building this
momentum with an even stronger September quarter as we continue to
position Viacom for the future."

FISCAL YEAR 2018 RESULTS

               
(in millions, except per share amounts) Quarter Ended
June 30,
  B/(W) Nine Months Ended
June 30,
  B/(W)
2018     2017   2018 vs. 2017 2018     2017   2018 vs. 2017
   

GAAP

Revenues $ 3,237 $ 3,364 (4 )% $ 9,458 $ 9,944 (5 )%
Operating income 752 746 1 1,925 1,784 8
Net earnings from continuing operations attributable to Viacom 511 680 (25 ) 1,302 1,197 9
Diluted EPS from continuing operations 1.27 1.69 (25 ) 3.23 2.99 8
 

Non-GAAP*

Adjusted operating income $ 767 $ 805 (5 )% $ 2,125 $ 2,165 (2 )%
Adjusted net earnings from continuing operations attributable to
Viacom
475 471 1 1,259 1,201 5
Adjusted diluted EPS from continuing operations 1.18 1.17 1 3.12 3.00 4
                                             

* Non-GAAP measures referenced in this release are detailed in the
Supplemental Disclosures at the end of this release.

Revenues in the third fiscal quarter decreased 4% to $3.24
billion. Operating income grew 1% to $752 million, principally
driven by a restructuring charge in the prior year quarter and
improvement in Filmed Entertainment operating results. Adjusted
operating income
decreased 5% to $767 million in the quarter. Net
earnings
from continuing operations attributable to Viacom declined
to $511 million, primarily due to the gain on sale of an investment in
EPIX in the prior year quarter. Adjusted net earnings from
continuing operations attributable to Viacom increased 1% to $475
million in the quarter. Diluted earnings per share
decreased $0.42 to $1.27 in the quarter, and adjusted diluted
earnings per share
increased $0.01 to $1.18.

MEDIA NETWORKS

Media Networks increased its momentum with growth in television
share, significant gains in digital consumption and live event
attendance, sequential improvement in domestic affiliate revenue growth
and savings from cost transformation initiatives.

Media Networks revenues decreased 2% to $2.50 billion in the quarter, as
a 17% increase in worldwide ancillary revenues to $158 million was more
than offset by a 4% decrease in worldwide advertising revenues to $1.19
billion and a 3% decrease in worldwide affiliate revenues to $1.15
billion. Domestic and international revenues each declined 2% in the
quarter to $1.99 billion and $509 million, respectively. Excluding a
2-percentage point unfavorable impact from foreign exchange,
international revenues were flat in the quarter.

Domestic advertising revenues decreased 3% to $922 million, reflecting
lower linear impressions, partially offset by higher pricing and growth
in Advanced Marketing Solutions revenues, which increased 33%.
International advertising revenues decreased 4% to $269 million, driven
by an unfavorable impact from foreign exchange. Excluding a 5-percentage
point unfavorable impact from foreign exchange, international
advertising revenues increased 1% in the quarter.

Domestic affiliate revenues decreased 3% to $978 million, a sequential
improvement of 100-basis points from the prior quarter. Excluding the
impact of SVOD revenues in the quarter, domestic affiliate revenues were
flat. International affiliate revenues declined 2% to $175 million in
the quarter.

Domestic ancillary revenues increased 31% to $93 million, driven by
revenues from live events and consumer products, while
international ancillary revenues increased 2% to $65 million.

Benefits from cost transformation initiatives helped drive a 2% decrease
in SG&A expenses for the quarter.

Adjusted operating income for Media Networks decreased 8% to $799
million in the quarter, primarily reflecting lower segment revenues.

Performance highlights:

  • Viacom flagship brands grew year-over-year audience share for the
    fifth consecutive quarter, and Viacom continues to hold the top share
    of basic U.S. cable viewing among key demos, including Adults 18-34,
    African Americans 18-49 and Kids 2-11, among others.

    • MTV was the fastest growing network in primetime among the top 50
      broadcast and cable channels in the Adults 18-34 demo for the
      quarter. It has increased year-over-year primetime ratings for
      four straight quarters -- its best streak in seven years -- and,
      collectively with VH1, held nine of the top 10 unscripted cable
      series this year. The second season premiere of Floribama Shore in
      July 2018 brought in nearly 1 million viewers, with ratings up
      double-digits from its series debut.
    • BET posted its highest-rated third quarter since 2014 -- up 24% in
      C3 among Adults 18-49 -- culminating in the 2018 BET Awards,
      cable's #1 awards show for the fourth straight year.
    • Comedy Central produced its biggest year-over-year primetime
      ratings gain for a quarter since fiscal 2014. The network
      continued to broaden its audience base, growing year-over-year
      ratings among women 18-49 for seven consecutive months as of July
      2018.
    • The premiere week of Nickelodeon's Double Dare averaged 1.4
      million viewers, making it the most-watched series debut on kids'
      TV so far in 2018.
    • Paramount Network's Yellowstone is the most watched
      scripted cable series of 2018 after The Walking Dead, with
      an average audience of approximately 4.4 million viewers in Live+3.
    • VH1 has delivered 12 consecutive quarters of year-over-year share
      growth. Franchise favorite RuPaul's Drag Race garnered 12
      Emmy nominations in 2018 -- the most for any unscripted series on
      TV.
  • Viacom Digital Studios continues to drive tremendous growth in digital
    consumption of its content, increasing quarterly total video views and
    watch-time 112% and 104% year-over-year, respectively. Since the third
    quarter of fiscal 2016, the company has tripled its total digital
    video streams across O&O and social platforms to 7.0 billion in the
    quarter. Additionally, Nick's Noggin app has flourished on Amazon
    Prime Video Channels, with strong subscriber growth since its launch
    on the platform in May 2018.
  • The company secured distribution of leading Viacom brands on the new
    AT&T Watch entertainment-only skinny bundle service. The partnership
    expands the broad representation of Viacom networks across the AT&T
    subscriber footprint through a new, differentiated platform that
    targets mobile users.
  • Viacom's Media Networks is quickly executing on the company's studio
    production strategy to create and license content for digital and
    linear partners. Viacom International Studios launched in the quarter,
    uniting the extensive production capabilities of Telefe and
    majority-owned Brazilian comedy brand Porta dos Fundos with those of
    Viacom's Latin American brands. VIS is already producing shows for
    Netflix, Amazon, Telemundo and Fox, among others. In the U.S.,
    Nickelodeon delivered its first title under a multi-year agreement
    with Netflix to produce and license animated series Pinky Malinky.
    And MTV Studios, launched in June, will capitalize on one of the TV
    industry's largest libraries of youth-focused and music-related IP in
    the world that -- up until now -- has been largely untapped.
  • Accelerating the growth of Viacom's live events business, Bellator
    formed a nine-figure, multi-year distribution partnership with global
    sports streaming service DAZN that positions the league to become an
    even more significant player in MMA. The sixth annual BET Experience
    attracted 165,000 attendees, and cable's #1 comedy brand also
    continued to build success in live events, with more than 45,000 fans
    attending Comedy Central's second annual Clusterfest in June 2018.

FILMED ENTERTAINMENT

Paramount Pictures is delivering on its turnaround, with strong
current quarter releases driving domestic theatrical revenues up 58%,
continuing growth in television production and increasing profitability.

Filmed Entertainment revenues decreased 9% to $772 million in the
quarter, as a 20% increase in domestic revenues to $464 million was more
than offset by a 33% decline in international revenues to $308 million.
Theatrical revenues were down 21% to $208 million principally
due to lower carryover revenues. Domestic theatrical revenues grew 58%,
driven by the strong performance of current quarter releases A Quiet
Place
and Book Club, while international theatrical revenues
decreased 58%, reflecting comparisons against the release of Transformers:
The Last Knight
and Ghost in the Shell in the prior year
quarter. Licensing revenues increased 35% to $404 million in the
quarter, primarily due to the release of Paramount Television product,
including the second season of 13 Reasons Why. Domestic licensing
revenues were up 122%, while international licensing decreased 8%. Home
entertainment revenues declined 45% to $119 million, reflecting
the mix and number of titles in release. Domestic and international home
entertainment revenues decreased 47% and 41%, respectively. Ancillary
revenues decreased 38% to $41 million, with domestic and international
ancillary revenues down 40% and 27%, respectively.

Filmed Entertainment reported adjusted operating income of $44 million
in the quarter compared to $9 million in the prior year quarter, an
improvement of $35 million that reflects lower operating expenses and
higher domestic revenues driven by the strong performance of current
quarter releases and television production.

Performance highlights:

  • Paramount Pictures has improved adjusted operating income in six
    consecutive quarters, and was profitable in the second and third
    quarters of fiscal 2018.
  • A Quiet Place has grossed more than $188 million domestically
    to date, making it the second highest grossing horror film in the U.S.
    over the past decade. The film has so far earned more than $332
    million at the worldwide box office at a production cost of
    approximately $20 million.
  • Released in May 2018, Book Club has gone on earn more than $68
    million to date at the domestic box office -- more than six times its
    acquisition cost of $10 million.
  • The fourth quarter release of Mission: Impossible - Fallout
    grossed nearly $330 million globally in its first two weekends -- the
    biggest opening ever for the franchise. The film has received
    universal acclaim, with critics hailing it as the best in the series.
  • Looking ahead to the fall, Paramount Players and BET will release
    Tyler Perry's Nobody's Fool -- starring Tiffany Haddish and
    Tika Sumpter -- followed by the studio's November 2018 release of
    World War II horror film Overlord, produced by J.J. Abrams.
    Including the recently announced live-action adaptation of the iconic
    Nickelodeon series Rugrats, Paramount Players has already
    slated at least five branded feature films with Viacom's leading media
    networks.
  • In all, Paramount's fiscal 2019 slate will nearly double the number of
    worldwide theatrical releases compared to fiscal 2018.
  • Paramount Television has continued to drive substantial growth in
    licensing revenues from hit series, including the second season of 13
    Reasons Why
    . The Alienist, which Paramount produced for
    TNT, received six Emmy nominations, including Outstanding Limited
    Series. And Amazon ordered a second season of Tom Clancy's Jack Ryan
    well before the series premieres in August 2018. Paramount TV is
    expected to double its production output in 2019, and currently has 19
    series ordered or in production.

BALANCE SHEET AND LIQUIDITY

Continued progress in operating performance over the last 18 months,
including increased Filmed Entertainment profitability, sequential
improvement in domestic affiliate revenue growth and strong gains in
Viacom International Media Networks, combined with de-levering actions
taken, are driving an improved credit outlook.

The Company's cash balance was $929 million at June 30, 2018, a decrease
from $1.39 billion at September 30, 2017. In the nine months, net cash
provided by operating activities increased $343 million, or 52%, to $997
million, free cash flow increased $380 million, or 74%, to $895 million
and operating free cash flow increased $347 million, or 63%, to $895
million.

At June 30, 2018, total debt outstanding was $10.09 billion, compared
with $11.12 billion at September 30, 2017, a reduction of $1.03 billion.

About Viacom

Viacom is home to premier global media brands that create compelling
entertainment content - including television programs, motion pictures,
short-form content, games, consumer products, podcasts, live events and
social media experiences - for audiences in 183 countries. Viacom's
media networks, including Nickelodeon, Nick Jr., MTV, BET, Comedy
Central, Paramount Network, VH1, TV Land, CMT, Logo, Channel 5 (UK),
Telefe (Argentina), Colors (India) and Paramount Channel, reach
approximately 4.3 billion cumulative television subscribers worldwide.
Paramount Pictures is a major global producer and distributor of filmed
entertainment. Paramount Television develops, finances and produces
original programming for television and digital platforms.

For more information about Viacom and its businesses, visit www.viacom.com.
Viacom may also use social media channels to communicate with its
investors and the public about the company, its brands and other
matters, and those communications could be deemed to be material
information. Investors and others are encouraged to review posts on
Viacom's company blog (blog.viacom.com), Twitter feed
(twitter.com/viacom) and Facebook page (facebook.com/viacom).

Cautionary Statement Concerning Forward-Looking Statements

This news release 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 public
acceptance of our brands, programs, motion pictures and other
entertainment content on the various platforms on which they are
distributed; technological developments, alternative content offerings
and their effects in our markets and on consumer behavior; the potential
for loss of carriage or other reduction in the distribution of our
content; significant changes in our senior leadership and the ability of
our strategic initiatives to achieve their operating objectives;
economic fluctuations in advertising and retail markets, and economic
conditions generally; evolving cybersecurity and similar risks; the
impact of piracy; increased costs for programming, motion pictures and
other rights; the loss of key talent; competition for content,
audiences, advertising and distribution; fluctuations in our results due
to the timing, mix, number and availability of our motion pictures and
other programming; other domestic and global economic, political,
business, competitive and/or regulatory factors affecting our businesses
generally; changes in the Federal communications or other laws and
regulations; and other factors described in our news releases and
filings with the Securities and Exchange Commission, including but not
limited to our 2017 Annual Report on 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. If applicable, reconciliations for
any non-GAAP financial information contained in this news release are
included in this news release or available on our website at
www.viacom.com.

 
VIACOM INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

    Quarter Ended
June 30,
    Nine Months Ended
June 30,
(in millions, except per share amounts) 2018     2017 2018     2017
 
Revenues $ 3,237 $ 3,364 $ 9,458 $ 9,944
Expenses:
Operating 1,681 1,788 4,925 5,551
Selling, general and administrative 738 756 2,249 2,205
Depreciation and amortization 51 53 159 167
Restructuring and related costs 15   21   200   237  
Total expenses 2,485 2,618 7,533 8,160
Operating income 752 746 1,925 1,784
Interest expense, net (138 ) (155 ) (428 ) (469 )
Equity in net earnings of investee companies 2 47 5 78
Gain on sale of EPIX 285 285
Other items, net (9 ) (2 ) (15 ) (37 )
Earnings from continuing operations before provision for income taxes 607 921 1,487 1,641
Provision for income taxes (93 ) (233 ) (158 ) (417 )
Net earnings from continuing operations 514 688 1,329 1,224
Discontinued operations, net of tax 11   3   23   3  
Net earnings (Viacom and noncontrolling interests) 525 691 1,352 1,227
Net earnings attributable to noncontrolling interests (3 ) (8 ) (27 ) (27 )
Net earnings attributable to Viacom $ 522   $ 683   $ 1,325   $ 1,200  
Amounts attributable to Viacom:
Net earnings from continuing operations $ 511 $ 680 $ 1,302 $ 1,197
Discontinued operations, net of tax 11   3   23   3  
Net earnings attributable to Viacom $ 522   $ 683   $ 1,325   $ 1,200  
Basic earnings per share attributable to Viacom:
Continuing operations $ 1.27 $ 1.69 $ 3.23 $ 3.00
Discontinued operations 0.03   0.01   0.06   0.01  
Net earnings $ 1.30   $ 1.70   $ 3.29   $ 3.01  
Diluted earnings per share attributable to Viacom:
Continuing operations $ 1.27 $ 1.69 $ 3.23 $ 2.99
Discontinued operations 0.02   0.01   0.06   0.01  
Net earnings $ 1.29   $ 1.70   $ 3.29   $ 3.00  
Weighted average number of common shares outstanding:
Basic 402.8 402.0 402.6 399.1
Diluted 403.3 402.6 402.9 400.0
Dividends declared per share of Class A and Class B common stock $ 0.20 $ 0.20 $ 0.60 $ 0.60
                                         
 
VIACOM INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in millions, except par value)     June 30,
2018
    September 30,
2017
 
ASSETS
Current assets:
Cash and cash equivalents $ 929 $ 1,389
Receivables, net 3,149 2,970
Inventory, net 916 919
Prepaid and other assets 579   523  
Total current assets 5,573 5,801
Property and equipment, net 875 978
Inventory, net 3,851 3,982
Goodwill 11,610 11,665
Intangibles, net 311 313
Other assets 941   959  
Total assets $ 23,161   $ 23,698  
 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 305 $ 431
Accrued expenses 764 869
Participants' share and residuals 774 825
Program obligations 654 712
Deferred revenue 317 463
Current portion of debt 23 19
Other liabilities 460   434  
Total current liabilities 3,297 3,753
Noncurrent portion of debt 10,065 11,100
Participants' share and residuals 414 384
Program obligations 465 477
Deferred tax liabilities, net 350 294
Other liabilities 1,254 1,323
Redeemable noncontrolling interest 245 248
Commitments and contingencies
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; 353.7
and 353.0 outstanding, respectively
Additional paid-in capital 10,132 10,119
Treasury stock, 393.1 and 393.8 common shares held in treasury,
respectively
(20,562 ) (20,590 )
Retained earnings 18,247 17,124
Accumulated other comprehensive loss (811 ) (618 )
Total Viacom stockholders' equity 7,006 6,035
Noncontrolling interests 65   84  
Total equity 7,071   6,119  
Total liabilities and equity $ 23,161   $ 23,698  
 
   

VIACOM INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
Nine Months Ended
June 30,
(in millions) 2018     2017
OPERATING ACTIVITIES
Net earnings (Viacom and noncontrolling interests) $ 1,352 $ 1,227
Discontinued operations, net of tax (23 ) (3 )
Net earnings from continuing operations 1,329 1,224
Reconciling items:
Depreciation and amortization 159 167
Feature film and program amortization 3,402 3,475
Equity-based compensation 45 52
Equity in net earnings and distributions from investee companies 2 (11 )
Gain on sale of EPIX (285 )
Deferred income taxes 27 (118 )
Operating assets and liabilities, net of acquisitions:
Receivables (211 ) (504 )
Production and programming (3,373 ) (3,252 )
Accounts payable and other current liabilities (384 ) (139 )
Other, net 1   45  
Net cash provided by operating activities 997   654  
 
INVESTING ACTIVITIES
Acquisitions and investments, net (90 ) (358 )
Capital expenditures (102 ) (139 )
Proceeds from asset sales 57 108
Proceeds from sale of EPIX 593
Proceeds from grantor trusts 7   52  
Net cash provided by/(used in) investing activities (128 ) 256  
 
FINANCING ACTIVITIES
Borrowings 2,569
Debt repayments (1,000 ) (3,300 )
Dividends paid (241 ) (239 )
Exercise of stock options 2 172
Other, net (70 ) (64 )
Net cash used in financing activities (1,309 ) (862 )
Effect of exchange rate changes on cash and cash equivalents (20 ) (2 )
Net change in cash and cash equivalents (460 ) 46
Cash and cash equivalents at beginning of period 1,389   379  
Cash and cash equivalents at end of period $ 929   $ 425  
 

SUPPLEMENTAL DISCLOSURES REGARDING NON-GAAP FINANCIAL INFORMATION

The following tables reconcile our results of operations reported in
accordance with accounting principles generally accepted in the United
States of America ("GAAP") for the quarter and nine months ended June
30, 2018 and 2017 to adjusted results that exclude the impact of certain
items identified as affecting comparability (non-GAAP). We use
consolidated adjusted operating income, adjusted earnings from
continuing operations before provision for income taxes, adjusted
provision for income taxes, adjusted net earnings from continuing
operations attributable to Viacom and adjusted diluted earnings per
share ("EPS") from continuing operations, as applicable, 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
Viacom's results with those of other companies and allow investors to
review performance in the same way as our management. Since these are
not measures of performance calculated in accordance with accounting
principles generally accepted in the United States of America, they
should not be considered in isolation of, or as a substitute for,
operating income, earnings from continuing operations before provision
for income taxes, provision for income taxes, net earnings from
continuing operations attributable to Viacom and diluted EPS from
continuing operations as indicators of operating performance, and they
may not be comparable to similarly titled measures employed by other
companies.

(in millions, except per share amounts)
    Quarter Ended
June 30, 2018

Operating
Income

   

Earnings from
Continuing
Operations
Before
Provision

for Income Taxes

   

Provision for
Income Taxes (1)

   

Net Earnings
from Continuing
Operations

Attributable to
Viacom

   

Diluted EPS
from Continuing
Operations

Reported results (GAAP) $ 752 $ 607 $ 93 $ 511 $ 1.27
Factors Affecting Comparability:
Restructuring and related costs (2) 15 15 4 11 0.03
Discrete tax benefit (3)     47   (47 ) (0.12 )
Adjusted results (Non-GAAP) $ 767   $ 622   $ 144   $ 475   $ 1.18  
                                                   
(in millions, except per share amounts)
    Nine Months Ended
June 30, 2018

Operating
Income

   

Earnings from
Continuing
Operations
Before
Provision

for Income Taxes

   

Provision for
Income Taxes (1)

   

Net Earnings
from Continuing
Operations
Attributable
to

Viacom

   

Diluted EPS
from Continuing
Operations

Reported results (GAAP) $ 1,925 $ 1,487 $ 158 $ 1,302 $ 3.23
Factors Affecting Comparability:
Restructuring and related costs (2) 200 200 48 152 0.38
Gain on extinguishment of debt (4) (25 ) (6 ) (19 ) (0.05 )
Gain on asset sale (5) (16 ) (16 ) (0.04 )
Investment impairments (6) 46 10 36 0.09
Discrete tax benefit (3)     196   (196 ) (0.49 )
Adjusted results (Non-GAAP) $ 2,125   $ 1,692   $ 406   $ 1,259   $ 3.12  
 
(in millions, except per share amounts)
    Quarter Ended
June 30, 2017

Operating
Income

   

Earnings from
Continuing
Operations
Before
Provision

for Income Taxes

   

Provision for
Income Taxes (1)

   

Net Earnings
from Continuing
Operations
Attributable
to

Viacom

   

Diluted EPS
from Continuing
Operations

Reported results (GAAP) $ 746 $ 921 $ 233 $ 680 $ 1.69
Factors Affecting Comparability:
Restructuring and programming charges (7) 59 59 21 38 0.09
Gain on extinguishment of debt (4) (16 ) (5 ) (11 ) (0.03 )
Gain on sale of EPIX (8) (285 ) (96 ) (189 ) (0.47 )
Investment impairment (6) 10 4 6 0.01
Discrete tax benefit (3)     53   (53 ) (0.12 )
Adjusted results (Non-GAAP) $ 805   $ 689   $ 210   $ 471   $ 1.17  
 
(in millions, except per share amounts)
    Nine Months Ended
June 30, 2017

Operating
Income

   

Earnings from
Continuing
Operations
Before
Provision

for Income Taxes

   

Provision for
Income Taxes (1)

   

Net Earnings
from Continuing
Operations
Attributable
to

Viacom

   

Diluted EPS
from Continuing
Operations

Reported results (GAAP) $ 1,784 $ 1,641 $ 417 $ 1,197 $ 2.99
Factors Affecting Comparability:
Restructuring and programming charges (7) 381 381 135 246 0.62
Loss on extinguishment of debt (4) 20 7 13 0.03
Gain on sale of EPIX (8) (285 ) (96 ) (189 ) (0.47 )
Investment impairment (6) 10 4 6 0.02
Discrete tax benefit (3)     72   (72 ) (0.19 )
Adjusted results (Non-GAAP) $ 2,165   $ 1,767   $ 539   $ 1,201   $ 3.00  
 

(1) The tax impact has been calculated by applying the tax rates
applicable to the adjustments presented.

(2) In the second quarter of fiscal 2018, we launched a program of cost
transformation initiatives to improve our margins, including an
organizational realignment of support functions across Media Networks,
new sourcing and procurement policies, real estate consolidation and
technology enhancements. We recognized pre-tax restructuring and related
costs of $15 million and $200 million in the quarter and nine months
ended June 30, 2018, respectively. The charges included severance
charges of $123 million and exit costs principally resulting from
vacating certain leased properties of $40 million in the nine months,
and $15 million and $37 million in the quarter and nine months,
respectively, of related costs comprised of third-party professional
services.

(3) The net discrete tax benefit in the quarter ended June 30, 2018 was
principally related to a tax accounting method change granted by the
Internal Revenue Service and the release of tax reserves with respect to
certain effectively settled tax positions. In addition to the items in
the quarter, the net discrete tax benefit in the nine months ended June
30, 2018 was principally related to tax reform, as well as the
measurement of the deferred tax balances from the retroactive
reenactment of legislation allowing for accelerated tax deductions on
certain qualified film and television productions.

The net discrete tax benefit in the quarter ended June 30, 2017 was
principally related to the reversal of a valuation allowance on capital
loss carryforwards in connection with the sale of our investment in EPIX
and the release of tax reserves with respect to certain effectively
settled tax positions. In addition to the items in the quarter, the net
discrete tax benefit in the nine months ended June 30, 2017 included the
reversal of valuation allowances on net operating losses upon receipt of
a favorable tax authority ruling.

(4) We redeemed senior notes and debentures totaling $1.039 billion in
the nine months ended June 30, 2018. As a result, we recognized a
pre-tax extinguishment gain of $25 million.

We redeemed senior notes and debentures totaling $3.3 billion in the
nine months ended June 30, 2017, of which $1.0 billion was redeemed in
the quarter ended June 30, 2017. As a result of these transactions, we
recognized a pre-tax extinguishment gain of $16 million in the quarter
ended June 30, 2017 and a pre-tax extinguishment loss of $20 million in
the nine months ended June 30, 2017.

(5) We completed the sale of a 1% equity interest in Viacom18 to our
joint venture partner for $20 million, resulting in a gain of $16
million in the nine months ended June 30, 2018.

(6) We recognized impairment losses of $46 million in the nine months
ended June 30, 2018 and $10 million in the quarter and nine months ended
June 30, 2017 resulting from the write-off of certain cost method
investments.

(7) We recognized pre-tax restructuring and programming charges of $59
million and $381 million in the quarter and nine months ended June 30,
2017, respectively, resulting from the execution of our flagship brand
strategy and strategic initiatives at Paramount.

(8) During the quarter ended June 30, 2017, we completed the sale of our
49.76% interest in EPIX, resulting in a gain of $285 million.

The following table reconciles our net cash provided by operating
activities (GAAP) for the quarter and nine months ended June 30, 2018
and 2017 to free cash flow and operating free cash flow (non-GAAP). We
define free cash flow as net cash provided by operating activities minus
capital expenditures, 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 these
measures 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.

 
Reconciliation of net cash provided by operating activities

to free cash flow and operating free cash flow

(in millions)

    Quarter Ended
June 30,
    Better/

(Worse)

    Nine Months Ended
June 30,
    Better/

(Worse)

    2018     2017 $ 2018     2017 $
Net cash provided by operating activities (GAAP) $ 698 $ 249 $ 449 $ 997 $ 654 $ 343
Capital expenditures (38 ) (44 ) 6   (102 ) (139 ) 37  
Free cash flow (Non-GAAP) 660 205 455 895 515 380
Debt retirement premium         33   (33 )
Operating free cash flow (Non-GAAP) $ 660   $ 205   $ 455   $ 895   $ 548   $ 347  
 

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