-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TJaSOBiN3/NOIePYD8DpGSvTtpf0xeFXsO4U70QaRD8bq/hPNSBYYvnpIerRBHqw JfFPT5Utnl25hWZhecRt7w== 0000904454-99-000116.txt : 19990709 0000904454-99-000116.hdr.sgml : 19990709 ACCESSION NUMBER: 0000904454-99-000116 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990708 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KING WORLD PRODUCTIONS INC CENTRAL INDEX KEY: 0000756764 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE DISTRIBUTION [7822] IRS NUMBER: 132565808 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09244 FILM NUMBER: 99660495 BUSINESS ADDRESS: STREET 1: 1700 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2123154000 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended May 31, 1999 [ ] 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 1-9244 KING WORLD PRODUCTIONS, INC. (Exact name of registrant as specified in its charter) Delaware 13-2565808 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 12400 Wilshire Boulevard Suite 1200 Los Angeles, California 90025 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 310 826-1108 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 par value, 71,244,985 shares outstanding as of July 1, 1999. KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS (Dollars in thousands)
May 31, August 31, 1999 1998 ----------- ---------- (Unaudited) CURRENT ASSETS: Cash and cash equivalents.................... $ 375,268 $ 188,778 Short-term investments....................... 31,841 88,016 Accounts receivable (net of allowance for doubtful accounts of $3,014 and $3,301 at May 31, 1999 and August 31, 1998, respectively)...................... 102,052 75,423 Producer advances and deferred costs......... 91,810 99,965 Other current assets......................... 3,708 1,146 ---------- ---------- Total current assets................ 604,679 453,328 ---------- ---------- LONG-TERM INVESTMENTS, at cost, which approximates market value.......... 387,616 470,715 ---------- ---------- FIXED ASSETS, at cost............................ 35,640 31,353 Less - accumulated depreciation and amortization............................. (15,863) (13,613) ---------- ---------- 19,777 17,740 ---------- ---------- PRODUCER ADVANCES AND OTHER ASSETS............... 94,221 81,815 ---------- ---------- $1,106,293 $1,023,598 ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets. 2 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) LIABILITIES AND STOCKHOLDERS' EQUITY (Dollars in thousands)
May 31, August 31, 1999 1998 ---------- ---------- (Unaudited) CURRENT LIABILITIES: Accounts payable and accrued liabilities...................... $ 12,565 $ 15,913 Payable to producers and others.............. 91,670 96,118 Income taxes payable......................... 38,473 30,356 ---------- ---------- Total current liabilities........ 142,708 142,387 ---------- ---------- STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 5,000,000 shares authorized, none issued.............................. -- -- Common stock, $.01 par value; 150,000,000 shares authorized, 89,493,185 shares and 88,650,301 shares issued at May 31, 1999 and August 31, 1998, respectively....................... 895 887 Paid-in capital.............................. 150,775 138,219 Retained earnings............................ 1,257,712 1,137,238 Treasury stock, at cost; 18,253,194 and 16,284,794 shares at May 31, 1999 and August 31, 1998, respectively.............. (445,797) (395,133) ---------- ---------- 963,585 881,211 ---------- ---------- $1,106,293 $1,023,598 ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets. 3 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended May 31, May 31, ------------------ ----------------- 1999 1998 1999 1998 -------- -------- -------- -------- (Dollars in thousands except per share data) REVENUES....................... $192,737 $167,968 $584,487 $514,810 -------- -------- -------- -------- EXPENSES: Producers' fees, programming and other direct operating costs............ 118,249 106,510 357,002 324,439 Selling, general and administrative expenses.... 22,075 18,564 69,620 57,720 -------- -------- -------- -------- 140,324 125,074 426,622 382,159 -------- -------- -------- -------- Income from operations..... 52,413 42,894 157,865 132,651 INVESTMENT INCOME.............. 7,716 7,620 27,509 21,692 -------- -------- -------- -------- Income before provision for income taxes......... 60,129 50,514 185,374 154,343 PROVISION FOR INCOME TAXES..... 20,723 16,312 64,900 52,194 -------- -------- -------- -------- Net income................. $ 39,406 $ 34,202 $120,474 $102,149 ======== ======== ======== ======== BASIC EARNINGS PER SHARE....... $ .56 $ .47 $ 1.69 $ 1.40 ======== ======== ======== ======== DILUTED EARNINGS PER SHARE..... $ .53 $ .45 $ 1.62 $ 1.34 ======== ======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 4 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended May 31, ----------------------- 1999 1998 --------- --------- (Dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income........................................... $120,474 $102,149 Items not affecting cash: Depreciation and amortization................... 2,250 1,364 Change in assets and liabilities: Accounts receivable............................. (26,629) (6,688) Producer advances and deferred costs................................ 2,405 (81,296) Accounts payable and accrued liabilities................................... (3,347) (1,334) Payable to producers and others................. (4,448) 9,224 Income taxes payable............................ 8,117 (1,995) Other, net...................................... (9,219) (2,049) --------- --------- Net cash provided by operating activities..................................... 89,603 19,375 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Sales (purchases) of investments..................... 139,274 (87,769) Additions to fixed assets............................ (4,287) (7,894) --------- --------- Net cash provided by (used in) investing activities...................................... 134,987 (95,663) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock............... 12,564 9,069 Purchase of treasury stock........................... (50,664) (25,811) --------- --------- Net cash used in financing activities............................... (38,100) (16,742) --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................................... 186,490 (93,030) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................................ 188,778 317,782 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................................ $375,268 $224,752 ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 5 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) Summary of significant accounting policies PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of King World Productions, Inc. ("King World") and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated. Unless the context suggests otherwise, the "Company", as used herein, means King World and its subsidiaries. The unaudited consolidated financial statements for the nine months and three months ended May 31, 1999 have been prepared in accordance with the instructions to Form 10-Q and include, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for such periods. They do not, however, include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. For further information, reference is made to the consolidated financial statements for the fiscal year ended August 31, 1998 and the footnotes related thereto included in the Company's Annual Report on Form 10-K from which the August 31, 1998 balances presented herein have been derived. The results of operations for the nine months and three months ended May 31, 1999 are not necessarily indicative of the results of operations for the full year. REVENUE RECOGNITION License fees from first-run syndicated television properties are recognized at the commencement of the license period pursuant to noncancelable agreements and as each show is made available to the licensee via satellite transmission. Because transmission to the satellite takes place, on the average, no more than two to three days prior to the broadcast of the programming, revenues are recognized on or about the air date. The Company typically receives a portion of the fees derived from the licensing of syndicated television programming in the form of retained advertising time, which is sold to advertisers by King World Media Sales Inc., a wholly-owned subsidiary of the Company. Such revenues are recognized at the same time as the cash portion of the license fees derived from such programming is recognized, in amounts adjusted for expected ratings. 6 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) Summary of significant accounting policies (continued) License fees for non-first-run syndicated properties are recognized at the gross contract amount (net of discount to present value for license periods greater than one year) at the commencement of the license period and when certain other conditions are satisfied. PRINCIPAL PROPERTIES The Company's principal properties are licenses to distribute THE OPRAH WINFREY SHOW, WHEEL OF FORTUNE and JEOPARDY!. The Company co-produces and distributes HOLLYWOOD SQUARES, a first-run strip syndicated game show, and THE ROSEANNE SHOW, a first-run strip syndicated talk show. The Company also produces and distributes INSIDE EDITION, a first-run strip syndicated newsmagazine. The contribution of each program to the Company's total revenues are as follows: Nine Months Ended May 31, -------------------- 1999 1998 --------- ------- THE OPRAH WINFREY SHOW 38% 42% WHEEL OF FORTUNE 19% 21% JEOPARDY! 16% 18% HOLLYWOOD SQUARES(1) 9% -- THE ROSEANNE SHOW(1) 7% -- INSIDE EDITION 6% 7% (1) HOLLYWOOD SQUARES and THE ROSEANNE SHOW premiered in September 1998. 7 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) Summary of significant accounting policies (continued) The Company distributes THE OPRAH WINFREY SHOW pursuant to an agreement with Harpo, Inc., the producer of the series ("Harpo"). Under the terms of the Company's agreement in effect through August 1998 with Harpo, King World was engaged as the exclusive distributor of THE OPRAH WINFREY SHOW through the 1999- 2000 broadcast season. Such agreement was amended in September 1998 to provide for Harpo and Ms. Winfrey to produce and host the show for the 2000-2001 and 2001-2002 broadcast seasons and to extend the engagement of King World as the exclusive distributor of the show for those seasons. The Company's agreements with Columbia TriStar Television provide that King World will be the exclusive distributor for WHEEL OF FORTUNE and JEOPARDY! so long as the Company has obtained sufficient broadcast commitments to cover such series' respective production and distribution costs and that the Company may not, unless otherwise agreed by Columbia TriStar Television, distribute other game shows for strip first-run syndication so long as the Company is distributing WHEEL OF FORTUNE or JEOPARDY!. In September 1997, the Company and Columbia TriStar Television announced their agreement to co-produce a new version of the game show HOLLYWOOD SQUARES, which is distributed by the Company in first-run strip syndication and premiered in September 1998. The Company has entered into an agreement with Full Moon & High Tide Productions, Inc., a company controlled by Roseanne, to co-produce THE ROSEANNE SHOW, an hour-long talk show hosted by Roseanne and distributed by the Company in first-run strip syndication. The series premiered in September 1998. Under the terms of the agreement, the Company will have the exclusive right to distribute the show through the 2003-2004 broadcast season. PRODUCERS' FEES, PROGRAMMING AND OTHER DIRECT OPERATING COSTS Producers' fees, programming and other direct operating costs primarily include the producers' share of both cash license fees from the sale of programming to television stations and revenues derived from the sale of 8 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) Summary of significant accounting policies (continued) retained advertising time to advertisers with respect to programming distributed by the Company; participation fees payable by the Company to producers and talent; production and distribution costs for first-run syndicated programming; and the direct operating costs of King World Direct, the Company's direct response marketing subsidiary. That portion of any recognized revenue that is to be paid to producers and owners of programming is accrued as such revenues are earned. The share of revenues payable by the Company to such producers and others is generally paid as cash license fees and revenues derived from the sale of retained advertising time are received from television stations and advertisers. STOCKHOLDERS' EQUITY Basic earnings per share has been computed using the weighted average shares of Common Stock outstanding of 70,913,978 and 72,921,000 for the three months ended May 31, 1999 and 1998, respectively, and 71,263,286 and 73,193,000 for the nine months ended May 31, 1999 and 1998, respectively. Diluted earnings per share, which includes the dilutive effect of the assumed exercise of vested and unvested stock options outstanding as of the end of each period reported, has been computed using the weighted average shares of Common Stock outstanding of 74,656,849 and 76,512,000 for the three months ended May 31, 1999 and 1998, respectively, and 74,402,961 and 76,458,000 for the nine months ended May 31, 1999 and 1998, respectively. COMPREHENSIVE INCOME In the first quarter of fiscal 1999 the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income. SFAS 130 establishes new rules for the reporting and presentation of comprehensive income and its components. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. The components of comprehensive income include, but are not limited to, foreign currency translation adjustments and unrealized gains and losses on certain investment securities. The Company has no material items required to be reported in the presentation of comprehensive income. 9 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (2) Proposed Merger with CBS Corporation The Company has entered into an Agreement and Plan of Merger, dated as of March 31, 1999 (the "Merger Agreement"), by and among the Company, CBS Corporation, a Pennsylvania corporation ("CBS"), and K Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of CBS ("Merger Sub"), pursuant to which (a) Merger Sub will be merged with and into the Company and the Company will become a wholly-owned subsidiary of CBS and (b) each outstanding share of the Company (other than shares owned by CBS or Merger Sub) will be converted into the right to receive .81 shares of common stock, par value $1.00 per share, of CBS. Concurrently with the execution of the Merger Agreement, Michael King, Roger King, Richard King and Diana King (the "Principal Stockholders" of the Company) entered into a Stockholders Agreement with CBS whereby the Principal Stockholders agreed, among other things, that, while the Merger Agreement was in effect, they would vote their shares of Common Stock, which represent approximately 19% of the total outstanding shares of Common Stock of the Company, in favor of the merger and against any alternative proposal that may be brought before the stockholders of the Company for a vote. The consummation of the merger is subject to certain conditions, including approval by the stockholders of the Company and the expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The Company was granted early termination of the waiting period in April 1999. Pursuant to the Merger Agreement, the Company will prepare and file a proxy statement/prospectus to be mailed to stockholders in connection with calling a meeting of the stockholders of the Company to vote on the merger. The transaction is expected to close in August 1999. (3) Producer advances In September 1997, the Company made advances to Harpo in the aggregate amount of $130 million against Harpo's guaranteed share of gross revenues for the 1998-1999 and 1999-2000 broadcast seasons. As of May 31, 1999, the entire $65 million advance associated with the 1998-1999 broadcast season had been 10 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (3) Producer advances (continued) recouped by the Company. None of the $65 million advance related to the 1999-2000 broadcast season was recouped as of May 31, 1999. As part of the most recent amendment to its agreement with Harpo, the Company paid an advance to Harpo of $75 million against Harpo's guaranteed share of gross revenues for the 2000-2001 broadcast season. Also, the Company agreed to pay, in June 2000, an additional $75 million against Harpo's guaranteed share of gross revenues for the 2001-2002 broadcast season. Based on the license agreements in place for such broadcast seasons, the Company believes that revenues from the series will be sufficient to enable the Company to recoup such advances for such seasons. All of the advances paid to Harpo are refundable to the Company by Harpo and Ms. Winfrey if King World terminates its agreement with Harpo due to Harpo's failure to deliver episodes of THE OPRAH WINFREY SHOW. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The discussion herein contains certain forward-looking statements covering the Company's objectives, planned or expected activities and anticipated financial performance. These forward-looking statements may generally be identified by words such as "expects", "anticipates", "believes", "plans", "should", "will" "may", "projects" (or variants of these words or phrases), or similar language indicating the expression of an opinion or view concerning the future with respect to the Company's financial position, results of operations, prospects or business. The Company's actual results may differ significantly from the results described in or suggested by such forward-looking statements. RESULTS OF OPERATIONS Comparison of Nine Months and Three Months Ended May 31, 1999 and 1998 REVENUES Revenues for the first nine months of fiscal 1999 increased by approximately 14% over revenues for the first nine months of the prior fiscal year, primarily due to the introduction of HOLLYWOOD SQUARES, a first-run strip syndicated game show co-produced and distributed by the Company, and THE ROSEANNE SHOW, a first-run strip syndicated talk show co-produced and distributed by the Company, each of which premiered in September 1998. The additional revenues generated by such programs were partially offset by the discontinuation of AMERICAN JOURNAL (which was canceled following the 1997-1998 broadcast season) and, to a lesser extent, lower revenues from INSIDE EDITION, a strip first-run syndicated newsmagazine produced and distributed by the Company. The Company's revenues for the three months ended May 31, 1999 increased by approximately 15% over revenues for the three months ended May 31, 1998, primarily due to the same factors discussed above with respect to the nine month period. 12 The principal components of the Company's revenues for the nine months and three months ended May 31, 1999 and 1998 are as follows:
Nine Months Ended Three Months Ended May 31, May 31, ----------------- ------------------ 1999 1998 1999 1998 ---- ---- ---- ---- THE OPRAH WINFREY SHOW 38% 42% 38% 42% WHEEL OF FORTUNE 19% 21% 19% 21% JEOPARDY! 16% 18% 16% 18% HOLLYWOOD SQUARES (1) 9% -- 10% -- THE ROSEANNE SHOW (1) 7% -- 7% -- INSIDE EDITION 6% 7% 6% 7% AMERICAN JOURNAL (2) -- 4% -- 4%
[FN] (1) HOLLYWOOD SQUARES and THE ROSEANNE SHOW premiered in September 1998. [FN] (2) The production of AMERICAN JOURNAL was discontinued after the 1997-1998 broadcast season. PRODUCERS' FEES, PROGRAMMING AND OTHER DIRECT OPERATING COSTS Producers' fees, programming and other direct operating costs increased by approximately 10% in the first nine months of fiscal 1999 compared to the first nine months of fiscal 1998. The increase was primarily attributable to the production and participation costs associated with HOLLYWOOD SQUARES and THE ROSEANNE SHOW, partially offset by a decrease in production costs due to the discontinuation of AMERICAN JOURNAL. For the three months ended May 31, 1999, producers' fees, programming and other direct operating costs increased by approximately 11% due primarily to the same factors as those discussed above for the nine month period. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company has entered into employment agreements with its Chairman of the Board, its Vice Chairman and Chief Executive Officer and certain other executive officers. Such agreements provide, among other things, for performance-based bonuses, including bonuses payable upon the introduction of new shows and bonuses which vary depending on the Company's net income and Common Stock price during pre-established measurement periods. 13 As a result, the Company's compensation expense will increase if the Company introduces a new series in syndication, if the Company's net income increases or if the Company's Common Stock price exceeds the specified levels during the applicable measurement periods. The Company has recognized the impact of certain of these bonuses in its operating results for the first, second and third quarters of fiscal 1999, which include all amounts payable in accordance with the terms of such employment agreements. Selling, general and administrative expenses for the first nine months of fiscal 1999 increased by approximately 21% from the comparable period of fiscal 1998 as a result of advertising and promotion costs incurred in connection with the introduction of HOLLYWOOD SQUARES and THE ROSEANNE SHOW, and certain performance-based bonuses incurred in connection with the launch of these shows as described above. Such increase was partially offset by the elimination of marketing costs for AMERICAN JOURNAL. Selling, general and administrative expenses for the three months ended May 31, 1999 increased by 19% compared to the corresponding period of fiscal 1998, primarily due to the same factors as those discussed above for the nine month period. NET INCOME AND EARNINGS PER SHARE Due to the factors discussed above, the Company's operating income for the nine months and three months ended May 31, 1999 increased by approximately 19% and 22%, respectively, compared to the corresponding period of the prior year. Net income increased by approximately $18.8 million, or 18%, for the nine months ended May 31, 1999 in comparison to the nine months ended May 31, 1998, reflecting the increase in operating income and the realization, in the first quarter of fiscal 1999, of non-recurring capital gains on the sale of various investment securities, partially offset by a slightly higher effective tax rate for the first nine months of fiscal 1999. Basic earnings per share increased by 21% from $1.40 per share in the first nine months of fiscal 1998 to $1.69 per share in the first nine months of the current fiscal year as a result of the increase in net income and a decrease in the number of shares outstanding resulting from the Company's stock repurchase program. Diluted earnings per share increased by 21% from $1.34 per share in the first nine months of the prior year to $1.62 in the first nine months of fiscal 1999, due to the same factors as basic earnings per share. Absent the non-recurring capital gains, basic and diluted earnings per share would have been $1.66 and $1.59, respectively, in the first nine months of fiscal 1999. 14 For the three months ended May 31, 1999, net income increased by 15%, compared to the same period of the prior year, from $34.2 million to $39.4 million; basic earnings per share increased by 19% from $.47 per share to $.56 per share; and diluted earnings per share increased by 18% from $.45 per share to $.53 per share, all for the same reasons discussed above for the nine month period. Due to the success of the shows distributed by the Company and in order to mitigate the influence of some of the factors referred to above, the Company has been obtaining multi-year licenses and license renewals from television stations for its principal distribution properties, extending as far into the future as the 2004-2005 broadcast season. In general, these licenses and renewals have been at rates as favorable or more favorable to the Company than the rates applicable to the 1998-1999 broadcast season. All such licenses and renewals are contingent upon the continued production of the series by their respective producers through the broadcast seasons for which the licenses run. The Company believes that the impact of inflation on its operations has not been significant. YEAR 2000 The year 2000 ("Y2K") problem, which confronts the business community generally, is a result of computer programs that use two digits (rather than four) to define the applicable year. Information technology ("IT") systems that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in system malfunctions and various systems failures. This problem may also be significant in non-IT systems (operating systems and equipment that rely on embedded chip systems). Also, as with other business enterprises, the Company must rely on the Y2K readiness of its customers' and vendors' IT and non-IT systems, the failure of which is beyond the Company's control. During fiscal 1997 the Company began to address the issues and concerns surrounding the Y2K problem. A task force, consisting of executive and operating personnel, was assembled to develop a Y2K compliance plan which included assessing the effectiveness of the Company's present information systems and identifying critical financial and operating systems that may be vulnerable to the Y2K problem. This task force was also responsible for understanding the Company's significant customers' and vendors' Y2K issues and for developing a contingency plan should the systems currently in place fail. The Company recently replaced the majority of its IT systems (software and hardware) as a result of the above systems review and modernization assessment. The Company has been testing, and will continue to test, such 15 systems to obtain reasonable assurance of their Y2K compliance. To date, no significant system uncertainties related to the Y2K problem have been identified. The Company does not anticipate that the remaining third-party costs related to Y2K compliance by its IT systems and non-IT systems will be significant. The Company plans to have all critical systems tested and compliant by the end of fiscal 1999. The Company is currently communicating with its significant customers and vendors to determine and assess their state of Y2K readiness, and anticipates continuing this process for the next several months. To date, no significant customers or vendors have informed the Company of the existence of a material Y2K issue that can be expected to affect the Company. The Company is placing great emphasis on understanding the Y2K compliance of its primary satellite distribution providers. Although the Company has received assurances that such satellite distribution providers are addressing the Y2K problem and anticipate being Y2K compliant, the Company is actively working on a contingency plan should such systems fail. This plan includes, but is not limited to, utilizing alternative vendors in the event of a Y2K-related problem with its primary satellite distribution providers. Based on its current plan, the Company believes it will have adequate time to prepare for such contingency measures if the need arises. The Company believes that it has adequately addressed the Y2K issues affecting its internal systems and believes that any material Y2K risks that the Company faces arise from its significant customers' and vendors' Y2K compliance. The inability of the Company or its significant customers and vendors to adequately address the Y2K problem on a timely basis could have a material adverse effect on the Company. LIQUIDITY AND CAPITAL RESOURCES The Company requires capital resources to fund development, production and promotion costs of independently produced programming, including, in some instances, advances to producers and talent, to produce its own programs and to acquire distribution rights to new programming. In acquiring distribution rights from independent producers, King World has tried to avoid making significant capital commitments to such producers until it has obtained broadcast commitments from a substantial number of television stations. As a result of this strategy and the success of its existing syndication properties, to date, King World has funded substantially all programming acquisition, development, production and promotion costs and advances from its operations. The Company is currently funding the development and production costs of THE MARTIN SHORT SHOW, an hour-long, first-run strip syndicated talk/variety show hosted by Martin Short. This series is scheduled to premiere in the Fall of 1999. 16 The distribution of television programming is highly competitive and the Company may be obliged to offer, among other things, guarantees and cash advances to acquire, renew or extend distribution rights. Under the terms of the Company's agreement in effect through August 1998 with Harpo, Inc. ("Harpo"), the producer of THE OPRAH WINFREY Show, the Company was engaged as the exclusive distributor of THE OPRAH WINFREY Show through the 1999-2000 broadcast season. Such agreement was amended in September 1998 to provide for a commitment by Harpo and Ms. Winfrey to produce and host the show for the 2000-2001 and 2001- 2002 broadcast seasons and to extend the engagement of King World as the exclusive distributor of the show for those seasons. Under the amended agreement, King World will continue to receive distribution fees based on a percentage of the gross revenues generated by the show. Such distribution fees are significantly less than those applicable to seasons through the 1999-2000 broadcast season, and, as a result, the contribution of THE OPRAH WINFREY SHOW to King World's net profits and cash flow will decline. In September 1997, the Company made advances to Harpo in the aggregate amount of $130 million against Harpo's guaranteed share of gross revenues for the 1998-1999 and 1999-2000 broadcast seasons. As of May 31, 1999, the entire $65 million advance associated with the 1998-1999 broadcast season had been recouped by the Company. None of the $65 million related to the 1999-2000 broadcast season was recouped as of May 31, 1999. As part of the most recent amendment to its agreement with Harpo, the Company paid an advance to Harpo of $75 million against Harpo's guaranteed share of gross revenues for the 2000- 2001 broadcast season. Also, the Company agreed to pay, in June 2000, an additional $75 million against Harpo's guaranteed share of gross revenues for the 2001-2002 broadcast season. Based on the license agreements in place for such broadcast seasons, the Company believes that revenues from the series will be sufficient to enable the Company to recoup the advances for such seasons. All of the advances paid to Harpo are refundable to the Company by Harpo and Ms. Winfrey if King World terminates its agreement with Harpo due to Harpo's failure to deliver episodes of THE OPRAH WINFREY SHOW. The Company has entered into an Agreement and Plan of Merger, dated as of March 31, 1999 (the "Merger Agreement"), by and among the Company, CBS Corporation, a Pennsylvania corporation ("CBS"), and K Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of CBS ("Merger Sub"), pursuant to which (a) Merger Sub will be merged with and into the Company and 17 the Company will become a wholly-owned subsidiary of CBS and (b) each outstanding share of the Company (other than shares owned by CBS or Merger Sub) will be converted into the right to receive .81 shares of common stock, par value $1.00 per share, of CBS. Concurrently with the execution of the Merger Agreement, Michael King, Roger King, Richard King and Diana King (the "Principal Stockholders") entered into a Stockholders Agreement with CBS whereby the Principal Stockholders agreed, among other things, that, while the Merger Agreement was in effect, they would vote their shares of Common Stock, which represent approximately 19% of total outstanding shares of Common Stock of the Company, in favor of the merger and against any alternative proposal that may be brought before the stockholders of the Company for a vote. The consummation of the merger is subject to certain conditions, including approval by the stockholders of the Company and the expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The Company was granted early termination of the waiting period in April 1999. Pursuant to the Merger Agreement, the Company will prepare and file a proxy statement/prospectus to be mailed to stockholders in connection with calling a meeting of the stockholders of the Company to vote on the merger. The transaction is expected to close in August 1999. In April 1997, the Company announced that the Board of Directors had approved a program to repurchase up to 10,000,000 shares of its Common Stock from time to time in the open market and in privately negotiated transactions. Through July 1, 1999, 5,894,100 shares of Common Stock had been repurchased under this program for aggregate consideration of approximately $139.7 million or approximately $23.70 per share. Purchases under the share repurchase program have been financed out of the Company's available cash and liquid investments. The Company is not permitted to repurchase shares of its Common Stock pursuant to the Merger Agreement with CBS. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 27.1 Financial Data Schedule (b) Reports on Form 8-K On April 1, 1999, the Company filed a report on Form 8-K announcing its proposed merger with CBS Corporation. 18 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. KING WORLD PRODUCTIONS, INC. By: /s/ Steven A. LoCascio ------------------------------- Steven A. LoCascio Senior Vice President and Chief Financial Officer and on behalf of the Registrant July 8, 1999 19 EX-27 2 FDS --
5 FINANCIAL DATA SCHEDULE COMMERCIAL AND INDUSTRIAL COMPANIES ARTICLE 5 OF REGULATION S-X This schedule contains summary financial information extracted from the Consolidated Statements of Operations and Consolidated Balance Sheets of King World Productions, Inc. and its Subsidiaries and is qualified in its entirety by reference to such financial statements. 000756764 #x4hauwm 1,000 U.S. DOLLARS 3-MOS Aug-31-1999 Mar-01-1999 May-31-1999 1 $375,268 $0 $105,066 $3,014 $0 $604,679 $35,640 $15,863 $1,106,293 $142,708 $0 $895 $0 $0 $962,690 $1,106,293 $0 $192,737 $0 $118,249 $22,075 $0 $0 $60,129 $20,723 $39,406 $0 $0 $0 $39,406 0.56 0.53
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