<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 8, 1999
Commission file number 1-977
CBS CORPORATION
---------------
(Exact name of registrant as
specified in its charter)
PENNSYLVANIA 25-0877540
------------ ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
51 WEST 52ND STREET, NEW YORK, NY 10019
---------------------------------------
(Address of principal executive offices; zip code)
(212) 975-4321
--------------
(Registrant's Telephone No., including area code)
<PAGE>
Item 5. Other Events
Pending Transaction
On March 31, 1999, CBS Corporation (CBS) and one of its subsidiary
companies (together, the Corporation) entered into a definitive merger
agreement with King World Productions, Inc. (King World) under which CBS will
issue approximately $2.5 billion in common stock in exchange for all of the
outstanding common stock of King World. Under the terms of the agreement,
King World shareholders will receive 0.81 shares of CBS common stock for each
share of King World common stock. King World is the distributor of a number
of shows which include "The Oprah Winfrey Show," "Wheel of Fortune,"
"Jeopardy!," and "Hollywood Squares." The consummation of the CBS/King World
merger is subject to certain conditions, including approval by King World
stockholders. Assuming King World stockholder approval is secured, the
Corporation expects to close the King World transaction during the fourth
quarter of 1999. The CBS/King World merger will be accounted for under the
purchase method of accounting.
On September 7, 1999, the special meeting of King World stockholders,
which was scheduled to vote on the approval and adoption of the merger
agreement entered into with CBS, was adjourned until September 14, 1999. King
World adjourned the special meeting to consider the impact of the merger of
Viacom Inc. and CBS announced earlier that day. On September 14, 1999, King
World again adjourned its special meeting of stockholders held to consider
the merger with CBS until October 1, 1999. King World announced at that
adjournment that it would seek further adjournments as may be necessary to
allow sufficient time to consider the impact of the Vicacom/CBS merger. On
September 8, 1999, CBS and King World entered into Amendment No. 1 of the
CBS/King World merger agreement which, among other things, changed the
direction of the CBS/King World merger. The original CBS/King World merger
agreement provided that K Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of CBS, would merge with and into King World, with
King World being the surviving corporation in the CBS/King World merger.
Under Amendment No. 1, King World will be merged with and into K Acquision
Corp. with K Acquisition Corp. being the surviving corporation. For
additional information regarding Amendment No. 1 of the CBS/King World merger
agreement refer to the CBS Form 8-K filed on September 15, 1999.
Financial Statements and Exhibits
(a) Financial Statements of Businesses to be Acquired
King World Productions, Inc. 1998 Annual Consolidated Financial
Statements and Notes Thereto:
(i) Report of Arthur Andersen LLP, dated October 16, 1998
(ii) King World Consolidated Balance Sheets as of August 31, 1998
and 1997
(iii) King World Consolidated Statements of Income for the years
ended August 31, 1998, 1997 and 1996
(iv) King World Consolidated Statements of Stockholders' Equity for
the years ended August 31, 1998, 1997 and 1996
(v) King World Consolidated Statements of Cash Flows for the years
ended August 31, 1998, 1997 and 1996
(vi) King World Notes to Consolidated Financial Statements
King World Productions, Inc. May 31, 1999 Quarterly Consolidated
Financial Statements and Notes Thereto:
(i) King World Consolidated Balance Sheets as of May 31, 1999
(unaudited) and August 31, 1998
(ii) King World Consolidated Statements of Income for the three
months ended May 31, 1999 and 1998 (unaudited) and for the
nine months ended May 31, 1999 and 1998 (unaudited)
(iii) King World Consolidated Statements of Cash Flows for the nine
months ended May 31, 1999 and 1998 (unaudited)
(iv) King World Notes to Consolidated Financial Statements
(unaudited)
(b) Exhibits
23.1 Consent of Arthur Andersen LLP, Independent Accountants
2
<PAGE>
KING WORLD PRODUCTIONS, INC.
1998 ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO
3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To King World Productions, Inc.:
We have audited the accompanying consolidated balance sheets of King World
Productions, Inc. (a Delaware corporation) and subsidiaries as of August 31,
1998 and 1997, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended August 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of King World Productions, Inc.
and subsidiaries as of August 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1998, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
New York, New York
October 16, 1998
4
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
AUGUST 31,
---------------------------------
1998 1997
===================================================================================================================
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 188,778 $ 317,782
Short-term investments 88,016 234,677
Accounts receivable (net of allowance for doubtful accounts
of $3,301 and $4,101 in 1998 and 1997, respectively) 75,423 75,092
Producer advances and deferred costs 99,965 74,652
Other current assets 1,146 1,857
- -------------------------------------------------------------------------------------------------------------------
Total current assets 453,328 704,060
- -------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS, at cost,
which approximates market value 470,715 177,590
- -------------------------------------------------------------------------------------------------------------------
FIXED ASSETS, at cost:
Office and transportation equipment 20,304 12,522
Furniture, leaseholds and other improvements 8,371 6,255
Film and videotape masters 2,678 2,678
- -------------------------------------------------------------------------------------------------------------------
31,353 21,455
Less-accumulated depreciation and amortization (13,613) (11,706)
- -------------------------------------------------------------------------------------------------------------------
17,740 9,749
- -------------------------------------------------------------------------------------------------------------------
PRODUCER ADVANCES AND OTHER ASSETS 81,815 10,668
- -------------------------------------------------------------------------------------------------------------------
$ 1,023,598 $ 902,067
===================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 15,913 $ 18,014
Payable to producers and others 96,118 69,599
Income taxes payable 30,356 30,372
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 142,387 117,985
- -------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, none issued -- --
Common stock, $.01 par value; 150,000,000 shares
authorized, 88,650,301 and 87,664,828 shares
issued in 1998 and 1997, respectively 887 877
Paid-in capital 138,219 124,130
Retained earnings 1,137,238 1,001,190
Treasury stock, at cost; 16,284,794 and 14,413,594 shares
in 1998 and 1997, respectively (395,133) (342,115)
- -------------------------------------------------------------------------------------------------------------------
881,211 784,082
- -------------------------------------------------------------------------------------------------------------------
$ 1,023,598 $ 902,067
===================================================================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
5
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------------------
1998 1997 1996
====================================================================================================================
<S> <C> <C> <C>
REVENUES $ 683,869 $ 671,277 $ 663,426
- --------------------------------------------------------------------------------------------------------------------
EXPENSES:
Producers' fees, programming and other direct operating costs 430,653 395,489 397,494
Selling, general and administrative expenses 76,949 83,507 74,347
- --------------------------------------------------------------------------------------------------------------------
507,602 478,996 471,841
- --------------------------------------------------------------------------------------------------------------------
Income from operations 176,267 192,281 191,585
INTEREST AND DIVIDEND INCOME 29,140 29,645 25,965
NONRECURRING GAIN - Sale of Buffalo Broadcasting Co. Inc. -- -- 14,060
- --------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 205,407 221,926 231,610
PROVISION FOR INCOME TAXES 69,359 78,544 81,610
- --------------------------------------------------------------------------------------------------------------------
Net income $ 136,048 $ 143,382 $ 150,000
====================================================================================================================
BASIC EARNINGS PER SHARE $ 1.86 $ 1.93 $ 2.02
====================================================================================================================
DILUTED EARNINGS PER SHARE $ 1.79 $ 1.91 $ 1.99
====================================================================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
6
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS, IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------ PAID-IN RETAINED TREASURY
SHARES $ CAPITAL EARNINGS STOCK
=================================================================================================================================
<S> <C> <C> <C> <C> <C>
Balance -
August 31, 1995 85,373,896 $ 855 $ 87,261 $ 782,651 $ (295,041)
Exercise of stock options 1,681,988 16 23,038 -- --
Purchase of treasury stock -- -- -- -- (10,898)
Net income -- -- -- 150,000 --
- ---------------------------------------------------------------------------------------------------------------------------------
Balance -
August 31, 1996 87,055,884 871 110,299 932,651 (305,939)
Exercise of stock options 608,944 6 13,831 -- --
Purchase of treasury stock -- -- -- -- (36,176)
Special dividend -- -- -- (74,843) --
Net income -- -- -- 143,382 --
- ---------------------------------------------------------------------------------------------------------------------------------
Balance -
August 31, 1997 87,664,828 877 124,130 1,001,190 (342,115)
Exercise of stock options 985,473 10 14,089 -- --
Purchase of treasury stock -- -- -- -- (53,018)
Net income -- -- -- 136,048 --
- ---------------------------------------------------------------------------------------------------------------------------------
Balance -
August 31, 1998 88,650,301 $ 887 $ 138,219 $ 1,137,238 $ (395,133)
=================================================================================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
7
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS, IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------
1998 1997 1996
====================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 136,048 $ 143,382 $ 150,000
Items not affecting cash:
Gain on sale of Buffalo Broadcasting Co. Inc. -- -- (14,060)
Depreciation and amortization 1,907 1,203 800
Changes in assets and liabilities:
Accounts receivable (331) (14,597) (9,022)
Producer advances and deferred costs (92,480) 60,173 (46,740)
Accounts payable and accrued liabilities (2,101) 2,777 4,167
Payable to producers and others 26,519 (2,321) 1,829
Income taxes payable (16) 1,273 3,469
Other, net (3,269) (965) 3,391
- ----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 66,277 190,925 93,834
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investments (146,464) (112,653) (217,485)
Proceeds from sale of Buffalo Broadcasting Co. Inc. -- -- 9,802
Additions to fixed assets (9,898) (8,071) (429)
- ----------------------------------------------------------------------------------------------------
Net cash used in investing activities (156,362) (120,724) (208,112)
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 14,099 13,834 23,046
Purchase of treasury stock (53,018) (36,176) (10,898)
Payment of special dividend -- (74,843) --
- ----------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (38,919) (97,185) 12,148
NET DECREASE IN CASH AND CASH EQUIVALENTS (129,004) (26,984) (102,130)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 317,782 344,766 446,896
- ----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 188,778 $ 317,782 $ 344,766
====================================================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
8
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of significant accounting policies
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
King World Productions, Inc. and its subsidiaries. All significant intercompany
transactions have been eliminated. Unless the context suggests otherwise, the
"Company", as used herein, means King World Productions, Inc. ("King World") and
its consolidated subsidiaries. All share (excluding treasury shares) and per
share data presented in these Consolidated Financial Statements have been
adjusted to give effect to a two-for-one stock split, effected in the form of a
100% stock dividend, which was paid by the Company on February 17, 1998.
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.
("KWM"), 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.
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!; and INSIDE EDITION, a first-run
syndicated series produced and distributed by the Company.
The contribution of each program to the Company's total revenues for fiscal
1998, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
THE OPRAH WINFREY SHOW 42% 40% 39%
WHEEL OF FORTUNE 21% 20% 19%
JEOPARDY! 18% 17% 17%
INSIDE EDITION 7% 8% 8%
</TABLE>
The Company distributes THE OPRAH WINFREY SHOW pursuant to an agreement
with Harpo, Inc. ("Harpo"), the producer of the series. Under the terms of King
World's previous agreement with Harpo, King World was 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.
9
<PAGE>
Under the terms of its agreement with Harpo, following the 1996-1997
broadcast season, the profit sharing arrangements between Harpo and the Company
previously in effect were terminated and, in the 1997-1998 broadcast season and
thereafter, the Company instead receives distribution fees based on a percentage
of gross revenues derived from the series. These arrangements are less favorable
to the Company than those contained in prior agreements between the Company and
Harpo. As a result of these changes, the Company's net profits and cash flow
have declined. Also, the distribution fees payable for the 2000-2001 and
2001-2002 broadcast seasons are significantly less than those applicable to
seasons through the 1999-2000 season, and as a result, the contribution of THE
OPRAH WINFREY SHOW to the Company's net profits and cash flow will further
decline.
The Company's agreements with Columbia TriStar Television provide that the
Company shall 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 game
shows for syndication so long as the Company is distributing WHEEL OF FORTUNE or
JEOPARDY!.
For several years, the Company has been, and is now, in the process of
developing new television shows for syndication that it hopes will gain
widespread audience appeal, generate significant profits and cash flows for the
Company and reduce the significance of any one broadcast property on the
Company's operating results. Two such shows, THE ROSEANNE SHOW and a new version
of the game show HOLLYWOOD SQUARES, premiered in September 1998, and a
variety/talk show hosted by Martin Short is being developed for distribution by
the Company, with a possible premiere in Fall 1999.
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 syndication and debuted 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 strip talk show hosted by Roseanne and distributed by the
Company in first-run 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 include
primarily the producers' share of both cash license fees from the sale of
programming to television stations and revenues derived from the sale of
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 wholly-owned
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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include advertising and
promotion costs associated with programming distributed by the Company, which
amounted to $22,876,000, $33,150,000 and $31,329,000 in fiscal 1998, 1997 and
1996, respectively. These amounts include the producers' share of such costs.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents and short-term investments are comprised principally of
municipal obligations, money market funds, money market preferred investments,
commercial paper and United States Treasury and other agency obligations whose
maturities are one year or less and are carried at amortized cost, which
approximates market value. The Company considers its highly liquid short-term
investments purchased with a maturity of three months or less to be cash
equivalents.
10
<PAGE>
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). The Statement establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet and measured at its fair value. This statement also requires
that changes in the derivative's fair value be recognized currently in earnings.
To date, the Company has not, and has no present intention, to invest in any
derivative instruments or participate in any hedging activities. Accordingly,
the adoption of SFAS 133 will not have any effect on the Company.
PRODUCER ADVANCES AND DEFERRED COSTS
Producer advances and deferred costs include pre-production, production and
promotion costs, as well as talent and producer participation advances, in
connection with certain first-run syndicated programs distributed by the Company
for broadcast during seasons subsequent to August 31, 1998. Such costs are
charged to expense as the revenues from such programs are earned. Advances are
recouped from the share of revenues payable by the Company to producers, talent
and others.
In January 1996, the Company paid Harpo a $65 million advance against
Harpo's guaranteed share of gross revenues for the 1997-1998 broadcast season,
which was fully recouped as of August 31, 1998. 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, none of which had been recouped as of August 31, 1998. Subsequent to
August 31, 1998, the Company paid an advance to Harpo of $75 million against
Harpo's guaranteed share of gross revenues for the 2000-2001 broadcast season
and 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 the 1998-1999 through the 2001-2002
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.
LONG-TERM INVESTMENTS
Long-term investments are comprised principally of intermediate-term
municipal obligations and United States Treasury and other agency obligations
whose maturities are between one and seven years and are carried at amortized
cost which approximates market value.
FIXED ASSETS
Fixed assets are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight-line
method for financial reporting purposes and accelerated methods for tax
purposes, with estimated useful lives of 3 to 5 years for furniture, office and
transportation equipment and 5 years for film and videotape masters. Leaseholds
and other improvements are amortized over the shorter of their useful lives and
the lease term. Depreciation and amortization expense was approximately
$1,907,000, $1,203,000 and $800,000 in fiscal 1998, 1997 and 1996, respectively.
STOCKHOLDERS' EQUITY
In the first quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS
128 requires the presentation of "basic" earnings per share, which excludes any
common stock equivalents and their related dilution, and "diluted" earnings per
share, which includes the potential dilution from all common stock equivalents
including options, warrants and convertible securities. Basic earnings per share
has been computed using the weighted average shares of Common Stock outstanding
of 73,157,000, 74,180,000 and 74,343,000 for the fiscal years ended August 31,
1998, 1997 and 1996, 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 76,078,000, 74,992,000
and 75,368,000 for the fiscal years ended August 31, 1998, 1997 and 1996,
respectively. Reported earnings per share in prior periods have been restated to
conform with the provisions of SFAS 128.
11
<PAGE>
The Company is authorized to issue 5,000,000 shares of Preferred Stock,
$.01 par value. The Board of Directors is empowered, without further stockholder
approval, to establish from time to time one or more series of Preferred Stock
and to determine the powers, preferences and special rights of any unissued
series of Preferred Stock, including voting rights, dividend rights, terms of
redemption, liquidation preferences, conversion rights and the designation of
any such series.
INDUSTRY SEGMENTS AND CUSTOMERS
The Company operates in one business segment, television programming. The
Company's major customers and principal facilities are located within the United
States. In the 1998, 1997 and 1996 fiscal years, approximately 14%, 13% and 12%,
respectively, of the Company's revenues were derived from license fees under
contracts with a single broadcast group.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) Pension and profit sharing plans
The Company maintains the King World Productions, Inc. Retirement Savings
Plan with an employee pre-tax salary deferral contribution program under Section
401(k) of the Internal Revenue Code. Under the plan, employer matching
contributions may not exceed 3% of annual compensation per employee and employer
fixed contributions are limited to 3% of annual salary per employee, subject to
a maximum total employer contribution of approximately $10,000 per employee for
fiscal 1998. The plan covers substantially all of the Company's employees other
than those involved in the production of programming produced by the Company.
Contributions by the Company to the plan were approximately $709,000,
$576,000 and $491,000 in fiscal 1998, 1997 and 1996, respectively.
(3) Income taxes
The components of the Company's provision for income taxes are summarized
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEAR ENDED AUGUST 31, 1998 1997 1996
=============================================================================
<S> <C> <C> <C>
Federal:
Current $ 59,076 $ 64,824 $ 71,525
Deferred 2,081 1,562 (2,293)
- -----------------------------------------------------------------------------
61,157 66,386 69,232
- -----------------------------------------------------------------------------
State and local:
Current 8,115 12,067 12,511
Deferred 87 91 (133)
- -----------------------------------------------------------------------------
8,202 12,158 12,378
- -----------------------------------------------------------------------------
Total $ 69,359 $ 78,544 $ 81,610
=============================================================================
</TABLE>
Deferred income taxes and benefits are provided for any income and expense
items that are recognized in different years for tax return and financial
reporting purposes. No individual temporary difference gives rise to significant
deferred tax assets or liabilities.
The current provision in each period presented above does not include
reductions to income taxes payable attributable to the exercise of stock
options. See Note 5.
12
<PAGE>
Following is a reconciliation of the Company's provision for income taxes
to the tax computed at the U.S. statutory rate:
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEAR ENDED AUGUST 31, 1998 1997 1996
=============================================================================
<S> <C> <C> <C>
Tax at U.S. statutory rate $ 71,892 $ 77,674 $ 81,064
State tax provision, net of Federal benefit 5,331 7,903 8,046
Tax-exempt interest and dividend income (7,780) (6,892) (5,370)
Other, net (84) (141) (2,130)
- -----------------------------------------------------------------------------
$ 69,359 $ 78,544 $ 81,610
=============================================================================
</TABLE>
Income taxes paid approximated $67.5 million, $73.3 million and $76.8
million in fiscal 1998, 1997 and 1996, respectively.
(4) Commitments and contingencies
LICENSE FEES
The Company has entered into agreements with television stations for the
future distribution of programming in broadcast television seasons commencing
with the 1998-1999 season and extending as far into the future as the 2004-2005
broadcast season, under which the revenues and related expenses will not be
recognized until the license periods thereunder have begun and certain other
conditions are satisfied. As of November 10, 1998, the gross amount of license
fees under such agreements approximated $2.0 billion, of which approximately
$1.3 billion is payable to producers and others and is to be recognized as an
expense. The recognition of such amounts in the consolidated financial
statements of the Company in fiscal years subsequent to August 31, 1998 is
subject to the Company's continued distribution of such programming. Such
amounts do not include sales of advertising time retained during the broadcast
of such programming or foreign license fees.
OPERATING LEASES
Rent expense under operating leases covering office facilities, production
studios and equipment amounted to approximately $4,078,000, $2,849,000 and
$2,559,000 for fiscal 1998, 1997 and 1996, respectively. Office and studio
leases are subject to price escalations for certain costs. Aggregate future
minimum rental commitments for these leases as of August 31, 1998 were as
follows:
<TABLE>
<CAPTION>
YEAR ENDING AUGUST 31,
----------------------
(Dollars in thousands)
<S> <C>
1999...................................... $6,519
2000...................................... 5,742
2001...................................... 1,845
2002...................................... 1,435
2003...................................... 872
</TABLE>
13
<PAGE>
EMPLOYMENT AND PRODUCTION AGREEMENTS
As of August 31, 1998, the Company had entered into employment agreements
and agreements with independent contractors relating to programming being or to
be produced by King World which provide for aggregate minimum annual
compensation as follows:
<TABLE>
<CAPTION>
YEAR ENDING AUGUST 31,
----------------------
(Dollars in thousands)
<S> <C>
1999................................. $33,531
2000................................. 12,548
2001................................. 1,223
2002................................. 156
2003................................. -
</TABLE>
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. Certain of 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. The Company has
recognized the impact of certain of these bonuses in its operating results for
fiscal 1998, which include all amounts payable in accordance with the terms of
such employment agreements.
LEGAL MATTERS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability, if any, with respect to such actions will not have a
material adverse effect on the results of operations and financial position of
the Company.
(5) Stock plans
In fiscal 1998, the Company, reserved 2,000,000 additional shares for
grants and awards under the 1996 Amended and Restated Stock Option and
Restricted Stock Purchase Plan (the "Option/Stock Plan"). As of August 31, 1998
there were 1,806,862 shares available for grant under the Option/Stock Plan. The
Option/Stock Plan provides for grants of incentive stock options ("ISOs") and
non-qualified stock options, as well as awards of shares of restricted stock,
subject to certain conditions. The Option/Stock Plan is currently administered
by the Compensation Committee of the Board of Directors.
For ISOs granted pursuant to the Option/Stock Plan, the exercise price of
options may not be less than the fair market value of the shares on the date of
grant and the options may not have a term in excess of ten years. The
Compensation Committee has the power to determine the vesting periods for
options granted under the Option/Stock Plan. Only full-time employees of the
Company and its subsidiaries may be granted ISOs under the Option/Stock Plan.
ISOs granted under the Option/Stock Plan are intended to qualify as "incentive
stock options" within the meaning of Section 422(b) of the Internal Revenue Code
of 1986, as amended (the "Code").
For non-qualified stock options granted pursuant to the Option/Stock Plan,
the exercise price of options may be more than, less than or equal to the fair
market value of the shares on the date of grant (in the discretion of the
Compensation Committee), and the options may be immediately exercisable (in the
discretion of the Compensation Committee) and may have a term in excess of ten
years. Employees, directors and officers of, and consultants or suppliers to,
the Company and its subsidiaries may be granted non-qualified stock options
under the Option/Stock Plan.
Awards of restricted stock may be granted under the Option/Stock Plan to
purchase shares of Common Stock for a price per share that may be more than,
equal to or less than the fair market value of such shares on the date of the
award. The Compensation Committee has the right to determine vesting provisions,
transfer restrictions and other conditions or restrictions with respect to each
award. To date, no awards of restricted stock have been granted under the
Option/Stock Plan or its predecessor plans.
14
<PAGE>
In fiscal 1997, the Company also adopted the Salesforce Bonus Plan (the
"Salesforce Plan"), and reserved 1,000,000 shares for grants of options
thereunder. The Salesforce Plan provides for grants of non-qualified stock
options and certain cash bonuses, subject to certain conditions. The Salesforce
Plan is currently administered by the Board of Directors and by the Chairman of
the Board of the Company, who is also the head of the Company's salesforce. Any
person employed by, or performing services for, the sales department of the
Company or any subsidiary of the Company on a full-time basis (excluding
directors and officers of the Company) is eligible to receive stock options and
cash bonuses under the Salesforce Plan.
The exercise price of options granted under the Salesforce Plan must be
equal to the fair market value of the shares on the date of grant, and the
options shall vest at a rate of 20% at the end of each of the first three years
from the date of grant and 40% at the end of the fifth year from grant and shall
expire on the date ten years from the date of grant.
In fiscal 1989, the Company adopted the Incentive Equity Plan for Senior
Executives, pursuant to which an aggregate 5,100,000 shares of Common Stock were
reserved for issuance to the Company's Chairman of the Board, President and
Chief Executive Officer (who is now its Vice Chairman and Chief Executive
Officer), and Executive Vice President and Chief Operating Officer, upon the
exercise of options granted thereunder. Each of the Chairman of the Board and
the President and Chief Executive Officer was granted non-qualified stock
options to purchase 2,400,000 shares of Common Stock, 1,950,000 at an exercise
price of $7.88 (the approximate fair market value on the date of grant) and
450,000 at an exercise price of $.01; the Executive Vice President was granted
non-qualified stock options to purchase 300,000 shares of Common Stock, 240,000
at an exercise price of $7.88 and 60,000 at an exercise price of $.01. No
additional options may be granted under the Executive Plan.
In connection with the extensions of the Company's rights to distribute THE
OPRAH WINFREY SHOW through the 1999-2000 broadcast season, the Company
previously granted to the principals of Harpo options to purchase an aggregate
5,000,000 shares of Common Stock. As of August 31, 1998, 3,900,000 of such
options were outstanding and exercisable. In addition, on September 24, 1998, in
connection with Harpo's and Ms. Winfrey's commitment to continue to produce and
host the show for the 2000-2001 and 2001-2002 broadcast seasons, the Company
granted to the principals of Harpo (including some key production executives)
options to purchase an aggregate 1,130,000 shares of Common Stock.
All of such options were fully vested at the time of grant and have a term of
ten years.
The following table summarizes stock option activity at
August 31 and for the fiscal years then ended:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
==================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 15,183,206 $17.31 13,341,974 $17.21 7,440,804 $13.85
Granted 1,833,040 $22.27 2,955,334 $18.05 7,855,000 $19.52
Exercised (1,104,640) $11.05 (598,102) $16.40 (1,692,830) $19.80
Canceled (570,200) $18.56 (516,000) $20.02 (261,000) $19.03
------------- ------------- -------------
Outstanding at end of year 15,341,406 $18.31 15,183,206 $17.31 13,341,974 $17.21
============= ============= =============
Exercisable at end of year 10,069,736 $17.46 8,014,872 $15.85 6,897,374 $15.07
============= ============= =============
</TABLE>
15
<PAGE>
The following table summarizes stock options outstanding and
exercisable at August 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
========================================================== ======================================
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE LIFE EXERCISE EXERCISE
PRICES SHARES (IN YEARS) PRICE SHARES PRICE
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
$.01 to $7.88 480,000 0.5 $ 6.40 480,000 $ 6.40
$7.89 to $14.25 1,251,700 2.3 $12.52 1,251,700 $ 12.52
$14.26 to $19.70 6,864,866 6.9 $18.07 4,661,668 $ 18.03
$19.71 to $29.43 6,744,840 7.4 $20.46 3,676,368 $ 19.86
------------------ -------------------
15,341,406 10,069,736
================== ===================
</TABLE>
In October 1995, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). As permitted under SFAS 123, the Company accounts
for employee stock compensation arrangements in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Under APB 25, compensation cost is recognized only when employee
stock options are granted at an exercise price lower than that of the market
price of the stock on the date of grant. The Company generally does not
recognize compensation expense with respect to stock option grants.
For stock options granted by the Company after August 31, 1995, SFAS 123
requires that pro forma information regarding net income and earnings per share
be disclosed as if the Company had accounted for its options under the fair
value method outlined in SFAS 123, which requires a compensation charge to
earnings for all options granted during the period. The fair value of the
Company's options was estimated using the Black-Scholes option valuation model.
The Black-Scholes option valuation model requires the use of highly subjective
assumptions, including the expected stock price volatility and expected life of
such options. Because the Company's stock options granted to employees have
characteristics significantly different from those of traded options (for which
the Black-Scholes model was created) and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of Company stock options granted to employees.
The fair value of the Company's stock options granted to employees was
estimated using the following weighted average assumptions at August 31:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Expected life (in years) 6.50 6.50 6.50
Risk-free interest rate 5.25% 6.50% 6.50%
Volatility 30.00% 30.00% 30.00%
Dividend yield 0.00% 0.00% 0.00%
</TABLE>
16
<PAGE>
The weighted average estimated fair value of employee stock options granted
during fiscal 1998, 1997 and 1996 was $9.41, $8.13 and $8.80 per share,
respectively. For purposes of the pro forma disclosures, the estimated fair
value of the options is generally amortized to compensation expense over the
options' vesting period. The Company's pro forma net income, basic earnings per
share and diluted earnings per share compared to that actually reported at
August 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C> <C>
Net income (in thousands) As reported $ 136,048 $ 143,382 $ 150,000
Pro forma 121,011 134,720 139,762
Basic earnings per share As reported $ 1.86 $ 1.93 $ 2.02
Pro forma 1.65 1.82 1.88
Diluted earnings per share As reported $ 1.79 $ 1.91 $ 1.99
Pro forma 1.59 1.80 1.85
</TABLE>
The effects on the pro forma disclosures of applying SFAS 123 to fiscal
1998, 1997 and 1996 are not likely to be representative of the effects on pro
forma disclosures of future years. Because SFAS 123 is applicable only to
options granted subsequent to August 31, 1995, and the estimated fair value of
the options is generally amortized over the five-year vesting period of the
Company's employee stock options, the pro forma effect will not be fully
reflected until fiscal 2000.
The Company realizes a tax benefit in respect of non-qualified stock
options based on the difference between the exercise price of the Common Stock
subject to the option and the market price thereof on the date of exercise. Tax
deductions related to compensation expense in excess of that taken for financial
reporting purposes are added to paid-in capital in the period of the tax
deduction. The amount of such tax deductions added to paid-in capital
approximated $1,898,000, $3,976,000 and $1,342,000 in fiscal 1998, 1997 and
1996, respectively.
(6) Dividends and stock repurchases
In May 1997, a special dividend distribution of $1.00 per share was paid to
stockholders of record on April 25, 1997. The Company used approximately $74.8
million of its cash and liquid investments to pay the special dividend.
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 November 10, 1998, 4,923,100 shares of Common Stock were repurchased in
open market transactions for aggregate consideration of approximately $113.6
million or approximately $23.07 per share. The Company intends to continue to
repurchase shares of its Common Stock in the open market and in privately
negotiated transactions if and when it deems it advantageous to do so. Purchases
under the share repurchase program will be financed out of the Company's
available cash and liquid investments.
In January 1998, the Company's Board of Directors declared a two-for-one
stock split, effected in the form of a 100% stock dividend, which was paid on
February 17, 1998 to stockholders of record on February 3, 1998. In connection
with the stock split, the Company increased the number of authorized shares of
Common Stock from 75 million to 150 million, which increase was approved by the
stockholders of the Company in January 1998. The par value of the additional
36,738,470 shares of Common Stock issued in connection with the stock split was
credited to Common Stock and a like amount was charged to paid-in capital.
17
<PAGE>
(7) Quarterly financial summaries (unaudited)
<TABLE>
<CAPTION>
1ST 2ND` 3RD 4TH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
--------------------------------------------------------------------------
Fiscal 1998: (DOLLARS IN THOUSANDS EXCEPT PER-SHARE DATA)
============================================================================================================================
<S> <C> <C> <C> <C> <C>
Revenues $ 172,926 $ 173,916 $ 167,968 $ 169,059 $ 683,869
Gross Margin 65,691 63,222 61,458 62,845 253,216
Income before provision for income taxes 52,544 51,285 50,514 51,064 205,407
Net income 34,369 33,578 34,202 33,899 136,048
Basic earnings per share $ .47 $ .46 $ .47 $ .47 $ 1.86
========= ========= ========= ========= =========
Diluted earnings per share $ .45 $ .44 $ .45 $ .45 $ 1.79
========= ========= ========= ========= =========
<CAPTION>
1ST 2ND` 3RD 4TH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
--------------------------------------------------------------------------
Fiscal 1997: (DOLLARS IN THOUSANDS EXCEPT PER-SHARE DATA)
============================================================================================================================
<S> <C> <C> <C> <C> <C>
Revenues $ 164,287 $ 175,169 $ 166,751 $ 165,070 $ 671,277
Gross Margin 65,481 71,405 69,006 69,896 275,788
Income before provision for income taxes 53,923 57,185 54,890 55,928 221,926
Net income 34,967 36,677 35,705 36,033 143,382
Basic earnings per share $ .47 $ .49 $ .48 $ .49 $ 1.93
========= ========= ========= ========= =========
Diluted earnings per share $ .46 $ .48 $ .48 $ .49 $ 1.91
========= ========= ========= ========= =========
</TABLE>
(8) Buffalo Broadcasting Co. Inc.
In October 1995 the Company closed its agreement to sell WIVB-TV, the
CBS-affiliated VHF television station in Buffalo, New York, to LIN Television
Corporation for $95 million in cash. As a result of this transaction, the
Company recorded a nonrecurring gain of approximately $14.1 million, of which
approximately $9.8 million represents cash proceeds to the Company from the
sale. The remaining $4.3 million of such gain represents the reversal of
previously recognized accounting losses (with no associated income tax effect)
in excess of the Company's original investment.
The Company acquired Buffalo Broadcasting Co. Inc. ("Buffalo") in
December 1988 in a highly leveraged transaction. In April 1992, the Company and
Buffalo's lenders entered into an agreement providing for a financial
restructuring of Buffalo effective August 4, 1992. As a result of such
restructuring, Buffalo ceased to be a consolidated subsidiary of King World. The
Company's investment in Buffalo subsequent to the restructuring was carried at
cost.
18
<PAGE>
KING WORLD PRODUCTIONS, INC.
MAY 31, 1999 QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO
19
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1999 1998
===================================================================================================================
<S> <C> <C>
ASSETS
CURRENT ASSETS: (UNAUDITED)
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
===================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
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 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
===================================================================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
20
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31, NINE MONTHS ENDED MAY 31,
--------------------------- --------------------------
1999 1998 1999 1998
===============================================================================================================================
<S> <C> <C> <C> <C>
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
===============================================================================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
21
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MAY 31,
--------------------------------------
1999 1998
===================================================================================================================
<S> <C> <C>
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
===================================================================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
22
<PAGE>
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.
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:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MAY 31,
--------------------------------
1999 1998
---- ----
<S> <C> <C>
THE OPRAH WINFREY SHOW 38% 42%
WHEEL OF FORTUNE 19% 21%
JEOPARDY! 16% 18%
HOLLYWOOD SQUARES(a) 9% --
THE ROSEANNE SHOW(a) 7% --
INSIDE EDITION 6% 7%
</TABLE>
(a) HOLLYWOOD SQUARES and THE ROSEANNE SHOW premiered in September 1998.
23
<PAGE>
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
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.
(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.
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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
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.
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SIGNATURE
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 hereunto duly authorized.
CBS CORPORATION
(Registrant)
BY: /S/ ROBERT G. FREEDLINE
---------------------------
ROBERT G. FREEDLINE
VICE PRESIDENT AND CONTROLLER
Date: October 8, 1999
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EXHIBIT INDEX
Exhibit
No. Description Page
- --- ----------- ----
23.1 Consent of Independent Public Accountants. 28
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Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion of
our report dated October 16, 1998, with respect to the consolidated balance
sheets of King World Productions, Inc. as of August 31, 1998 and 1997, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the years in the three year period ended August 31, 1998,
which report appears in the Form 8-K of CBS Corporation dated October 8, 1999.
/s/ ARTHUR ANDERSEN LLP
New York, New York
October 8, 1999
