<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): November 22, 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
Acquisition of King World Productions, Inc.
On November 15, 1999, CBS Corporation (CBS) and it subsidiary companies
(together, the Corporation) completed its merger with King World Productions,
Inc. (King World). Under the terms of the agreement, King World shareholders
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 merger will be accounted for under the purchase method of accounting.
Financial Statements and Exhibits
(a) Financial Statements of Acquired Business
King World Audited Financial Statements:
(i) Report of Arthur Andersen LLP, dated November 18, 1999
(ii) King World Consolidated Balance Sheets as of August 31, 1999 and
1998
(iii) King World Consolidated Statements of Income for the years ended
August 31, 1999, 1998 and 1997
(iv) King World Consolidated Statements of Stockholders' Equity for
the years ended August 31, 1999, 1998 and 1997
(v) King World Consolidated Statements of Cash Flows for the years
ended August 31, 1999, 1998 and 1997
(vi) King World Notes to Consolidated Financial Statements
(b) Exhibits
23.1 Consent of Arthur Andersen LLP, Independent Accountants
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AUGUST 31, 1999 AND 1998
AND FOR THE THREE YEARS ENDED AUGUST 31, 1999
TOGETHER WITH AUDITORS' REPORT
<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, 1999 and 1998, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended August 31, 1999. 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended August 31, 1999 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
New York, New York
November 18, 1999
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AUGUST 31,
-----------------------------------
1999 1998
--------- ---------
(Dollars in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 467,778 $ 188,778
Short-term investments.................................... 37,943 88,016
Accounts receivable (net of allowance
for doubtful accounts of $3,014 and
$3,301 in 1999 and 1998, respectively).................. 80,808 75,423
Producer advances and
deferred costs.......................................... 106,993 99,965
Other current assets...................................... 3,077 1,146
----------- -----------
Total current assets.................................. 696,599 453,328
----------- -----------
LONG-TERM INVESTMENTS, at cost,
which approximates market value......................... 339,812 470,715
----------- -----------
FIXED ASSETS, at cost:
Office and transportation equipment....................... 23,484 20,304
Furniture, leaseholds and other
improvements............................................ 9,757 8,371
Film and videotape masters................................ 2,760 2,678
----------- -----------
36,001 31,353
Less-accumulated depreciation and
amortization........................................... (16,649) (13,613)
----------- -----------
19,352 17,740
----------- -----------
PRODUCER ADVANCES
AND OTHER ASSETS.......................................... 95,852 81,815
----------- -----------
$ 1,151,615 $ 1,023,598
=========== ===========
</TABLE>
The accompanying Notes to Consolidated
Financial Statements are an integral part of these balance sheets.
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
AUGUST 31,
-----------------------------------
1999 1998
---------- ---------
(Dollars in thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities............................................. $ 16,280 $ 15,913
Payable to producers and others........................... 98,590 96,118
Income taxes payable...................................... 36,924 30,356
----------- ------------
Total current liabilities ............................ 151,794 142,387
----------- ------------
COMMITMENTS AND CONTINGENCIES
(Note 5)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
5,000,000 shares authorized,
none issued............................................. -- --
Common stock, $.01 par value;
150,000,000 shares authorized,
89,532,010 and 88,650,301
shares issued in 1999 and 1998,
respectively............................................ 895 887
Paid-in capital........................................... 152,857 138,219
Retained earnings......................................... 1,291,866 1,137,238
Treasury stock, at cost; 18,253,194
and 16,284,794 shares in 1999 and
1998, respectively...................................... (445,797) (395,133)
----------- ------------
999,821 881,211
----------- ------------
$ 1,151,615 $ 1,023,598
=========== ============
</TABLE>
The accompanying Notes to Consolidated
Financial Statements are an integral part of these balance sheets.
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------
1999 1998 1997
------- -------- ---------
(Dollars in thousands except
per share data)
<S> <C> <C> <C>
REVENUES.................................................. $775,887 $683,869 $671,277
-------- -------- --------
EXPENSES:
Producers' fees, programming and
other direct operating costs.......................... 481,632 430,653 395,489
Selling, general and admini-
strative expenses..................................... 92,409 76,949 83,507
-------- -------- --------
574,041 507,602 478,996
-------- -------- --------
Income from operations.................................. 201,846 176,267 192,281
INTEREST AND DIVIDEND INCOME.............................. 36,075 29,140 29,645
-------- -------- --------
Income before provision for
income taxes.......................................... 237,921 205,407 221,926
PROVISION FOR INCOME TAXES................................ 83,293 69,359 78,544
-------- -------- --------
Net income.............................................. $154,628 $136,048 $143,382
======== ======== ========
BASIC EARNINGS PER SHARE.................................. $2.17 $1.86 $1.93
======== ======== ========
DILUTED EARNINGS PER SHARE................................ $2.07 $1.79 $1.91
======== ======== ========
</TABLE>
The accompanying Notes to Consolidated
Financial Statements are an integral part of these statements.
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------- PAID-IN RETAINED TREASURY
SHARES $ CAPITAL EARNINGS STOCK
---------- ----- ------- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
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)
Exercise of stock options.............. 881,709 8 14,638 -- --
Purchase of treasury stock............. -- -- -- -- (50,664)
Net income............................. -- -- -- 154,628 --
---------- ---- -------- --------- ---------
Balance -
August 31, 1999........................ 89,532,010 $895 $152,857 $1,291,866 $(445,797)
========== ==== ======== ========== =========
</TABLE>
The accompanying Notes to Consolidated
Financial Statements are an integral part of these statements.
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------
1999 1998 1997
------- ------- -----
(Dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................ $ 154,628 $ 136,048 $ 143,382
Items not affecting cash:
Depreciation and amortization 3,036 1,907 1,203
Change in assets and liabilities:
Accounts receivable .......... (5,385) (331) (14,597)
Producer advances and
deferred costs ............. (12,194) (92,480) 60,173
Accounts payable and accrued
liabilities ................ 367 (2,101) 2,777
Payable to producers and
others ..................... 2,472 26,519 (2,321)
Income taxes payable ......... 6,568 (16) 1,273
Other, net ................... (2,547) (3,269) (965)
--------- --------- ---------
Net cash provided by operating
activities ...................... 146,945 66,277 190,925
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in investments 180,976 (146,464) (112,653)
Increase in other investments ..... (8,255) -- --
Additions to fixed assets ......... (4,648) (9,898) (8,071)
--------- --------- ---------
Net cash provided by (used in)
investing activities ............ 168,073 (156,362) (120,724)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock ........................... 14,646 14,099 13,834
Purchase of treasury stock ........ (50,664) (53,018) (36,176)
Payment of special dividend ....... -- -- (74,843)
--------- --------- ---------
Net cash used in
financing activities ............ (36,018) (38,919) (97,185)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS .............. 279,000 (129,004) (26,984)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR ................. 188,778 317,782 344,766
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF YEAR ....................... $ 467,778 $ 188,778 $ 317,782
========= ========= =========
</TABLE>
The accompanying Notes to Consolidated
Financial Statements are an integral part of these statements.
<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. ("King World" or the "Company") and its
subsidiaries. All significant intercompany transactions have been eliminated.
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. On November 15, 1999, the Company
merged with and became a wholly-owned subsidiary of CBS Corporation ("CBS"). See
Note 2.
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 syndicated game show, and THE
ROSEANNE SHOW, a first-run syndicated talk show. The Company also produces and
distributes INSIDE EDITION, a first-run syndicated news-magazine show.
1
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of significant accounting policies (continued)
The contribution of each program to the Company's total
revenues for fiscal 1999, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
THE OPRAH WINFREY SHOW 38% 42% 40%
WHEEL OF FORTUNE 19% 21% 20%
JEOPARDY! 16% 18% 17%
HOLLYWOOD SQUARES (1) 10% -- --
THE ROSEANNE SHOW (1) 7% -- --
INSIDE EDITION 6% 7% 8%
</TABLE>
(1) HOLLYWOOD SQUARES and THE ROSEANNE SHOW premiered in
September 1998.
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.
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 contribution of THE
OPRAH WINFREY SHOW to 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.
2
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of significant accounting policies (continued)
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 strip game shows for first-run 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. 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.
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
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 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.
The Company has also entered into an agreement with Dolshor
Productions, Inc. to co-produce THE MARTIN SHORT SHOW, an hour-long, strip
talk/variety show hosted by Martin Short and distributed by the Company in
first-run syndication. The series premiered in September 1999. Under the terms
of the agreement, the Company will have the exclusive right to distribute the
show through the 2004-2005 broadcast season.
3
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of significant accounting policies (continued)
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 $33,763,000, $22,876,000 and $33,150,000 in fiscal
1999, 1998 and 1997, 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.
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"). SFAS 133 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.
4
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of significant accounting policies (continued)
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, 1999. 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. Producer advances and deferred costs are reviewed
periodically to determine that the carrying amount of such assets are
realizable.
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. On August 31, 1999,
an additional $20 million advance was paid to Harpo for the 1999-2000 broadcast
season. As of August 31, 1999, the entire $65 million advance related to the
1998-1999 broadcast season had been fully recouped by the Company. None of the
$85 million advance related to the 1999-2000 broadcast season was recouped as of
August 31, 1999. In fiscal 1999, 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 1999-2000 through the
2001-2002 broadcast season, 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 five 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 $3,036,000, $1,907,000 and $1,203,000 in fiscal 1999, 1998 and
1997, respectively.
5
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of significant accounting policies (continued)
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 71,264,000, 73,157,000 and 74,180,000 for the fiscal years
ended August 31, 1999, 1998 and 1997, 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
74,727,000, 76,078,000 and 74,992,000 for the fiscal years ended August 31,
1999, 1998 and 1997, respectively. Reported earnings per share in prior periods
have been restated to conform with the provisions of SFAS 128.
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.
BUSINESS SEGMENTS AND CUSTOMERS
In fiscal 1999, the Company adopted Statement of Financial
Accounting Standards No. 131 ("SFAS 131"). This Statement requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. The Company is managed as one
business segment, television programming.
The Company's major customers and principal facilities are
located within the United States. In the 1999, 1998 and 1997 fiscal years,
approximately 12%, 14% and 13%, respectively, of the Company's revenues were
derived from license fees under contracts with a single broadcast group.
6
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of significant accounting policies (continued)
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) Merger with CBS Corporation
The Company entered into an Agreement and Plan of Merger,
dated as of March 31, 1999, as amended on September 8, 1999 (the "Merger
Agreement"), by and among the Company, CBS, a Pennsylvania corporation, and K
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of CBS
("Merger Sub"), pursuant to which King World was merged with and into Merger
Sub.
In a Special Meeting on November 15, 1999, the stockholders of
King World voted to approve the Merger Agreement. The proposal to adopt the
Merger Agreement was approved by stockholders holding approximately 83% of King
World's Common Stock, representing over 99% of the shares voted. Under the terms
of the agreement, King World stockholders will receive 0.81 of a share of CBS
common stock for each share of King World Common Stock.
The CBS/King World merger was consummated immediately
following the stockholders' meeting. Effective upon the close of business on
November 15, 1999, King World's Common Stock ceased trading on the New York
Stock Exchange and the Company began operating as a wholly-owned subsidiary of
CBS.
(3) 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 1999. 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 $784,000, $709,000 and $576,000 in fiscal 1999, 1998 and 1997,
respectively.
7
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) Pension and profit sharing plans (continued)
Pursuant to the Merger Agreement with CBS, for a period of one
year after the closing of the transaction, CBS will cause to remain in effect,
for the benefit of the employees of the Company and its subsidiaries, all
benefit plans in effect on the date of the Merger Agreement or provide each
employee with benefits that are at least substantially equivalent on an
aggregate basis to the benefits of such Company benefit plans (other than any
stock option plans).
(4) Income taxes
The components of the Company's provision for income taxes are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------
1999 1998 1997
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
FEDERAL:
CURRENT ...... $ 76,778 $59,076 $64,824
DEFERRED ..... (2,964) 2,081 1,562
-------- ------- -------
73,814 61,157 66,386
-------- ------- -------
STATE AND LOCAL:
CURRENT ...... 9,602 8,115 12,067
DEFERRED ..... (123) 87 91
-------- ------- -------
9,479 8,202 12,158
-------- ------- -------
TOTAL .... $ 83,293 $69,359 $78,544
======== ======= =======
</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 6.
8
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Income taxes (continued)
Following is a reconciliation of the Company's provision for
income taxes to the tax computed at the U.S. statutory rate:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------
1999 1998 1997
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
TAX AT U.S. STATUTORY RATE $ 83,273 $ 71,892 $ 77,674
STATE TAX PROVISION, NET
OF FEDERAL BENEFIT ..... 6,161 5,331 7,903
TAX-EXEMPT INTEREST AND
DIVIDEND INCOME ........ (5,817) (7,780) (6,892)
OTHER, NET ............... (324) (84) (141)
-------- -------- --------
$ 83,293 $ 69,359 $ 78,544
======== ======== ========
</TABLE>
Income taxes paid approximated $71.6 million, $67.5 million
and $73.3 million in fiscal 1999, 1998 and 1997, respectively.
As discussed in Note 2, the Company merged with CBS effective
November 15, 1999. Accordingly, subsequent to such date, the Company will be
included in the consolidated Federal and applicable state income tax returns of
CBS.
(5) Commitments and contingencies
LICENSE FEES
The Company has entered into agreements with television
stations for the future distribution of programming in broadcast seasons
commencing with the 1999-2000 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 15, 1999, the gross amount of
license fees under such agreements approximated $2.0 billion, of which
approximately $1.4 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,
1999 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
$6,679,000, $4,078,000 and $2,849,000 for fiscal 1999, 1998 and 1997,
respectively. Office and studio leases are subject to price escalations for
9
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Commitments and contingencies (continued)
certain costs. Aggregate future minimum rental commitments for these leases as
of August 31, 1999 were as follows:
<TABLE>
<CAPTION>
YEAR ENDING AUGUST 31,
(Dollars in thousands)
<S> <C>
2000.................................. $6,216
2001.................................. 1,806
2002.................................. 1,417
2003.................................. 872
2004.................................. 690
</TABLE>
EMPLOYMENT AND PRODUCTION AGREEMENTS
As of August 31, 1999, 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>
2000.................................. $36,933
2001.................................. 5,193
2002.................................. 1,423
2003.................................. 0
2004.................................. 0
</TABLE>
The Company and CBS have entered into employment agreements
with Roger King, the Company's Chairman and Co-Chief Executive Officer, and
Michael King, the Company's Vice Chairman and Co-Chief Executive Officer. 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 operating results.
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.
10
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Stock plans
In December 1998, the Company adopted the 1998 Stock Option
and Restricted Stock Purchase Plan (the "1998 Plan"). A total of 2,000,000
shares were reserved for grant thereunder. The 1998 Plan replaced the Company's
1996 Amended and Restated Stock Option and Restricted Stock Purchase Plan,
which, together with predecessor plans (the "1996 Plan"), terminated on May 1,
1999 (the 1998 Plan, together with the 1996 Plan and its predecessor plans, are
hereinafter referred to together as the "Option/Stock Plans"). The Option/Stock
Plans provide 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 Plans are administered by the Compensation
Committee of the Board of Directors.
For ISOs granted pursuant to the Option/Stock Plans, 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 Plans. Only full-time employees of
the Company and its subsidiaries may be granted ISOs under the Option/Stock
Plans. ISOs granted under the Option/Stock Plans 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 1996
Plan, the exercise price of options could have been 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). Under the 1998 Plan, non-qualified
options may not have an exercise price of less than the fair market value of the
shares on the date of grant. The options granted under the Stock Option Plans
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 advisors to, the Company and its subsidiaries may be
granted non-qualified stock options under the Option/Stock Plans.
Awards of restricted stock may be granted under the
Option/Stock Plans 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. Stock awards made under the 1998 Plan that are not
subject to restrictions may not be sold at less than 85% of the fair market
value on the date of the award. To date, no awards of restricted stock or
unrestricted stock have been granted under the Option/Stock Plans or its
predecessor plans.
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 administered by the Board of Directors and by the Chairman
and Co-Chief Executive Officer of the Company who is also the
11
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Stock plans (continued)
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.
Generally, Company stock 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 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, 1999, 3,810,000 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 million 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>
1999 1998 1997
-------------------------- --------------------------- ----------------------------
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 15,341,406 $18.31 15,183,206 $17.31 13,341,974 $17.21
Granted 1,301,666 $26.30 1,833,040 $22.27 2,955,334 $18.05
Exercised (881,709) $10.73 (1,104,640) $11.05 (598,102) $16.40
Canceled (275,864) $20.28 (570,200) $18.56 (516,000) $20.02
------------ ---------- ----------
Outstanding at
end of year 15,485,499 $19.38 15,341,406 $18.31 15,183,206 $17.31
============ ========== ==========
Exercisable at
end of year 12,336,939 $19.11 10,069,736 $17.46 8,014,872 $15.85
============ ========== ==========
</TABLE>
12
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Stock plans (continued)
The following table summarizes stock options outstanding and
exercisable at August 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- -----------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE LIFE EXERCISE EXERCISE
PRICES SHARES (IN YEARS) PRICE SHARES PRICE
------ ------ ---------- ----- ------ -----
<S> <C> <C> <C> <C> <C>
$ 7.89 to $14.25 1,087,200 1.3 $12.65 1,087,200 $12.65
$14.26 to $19.70 6,495,341 6.1 $18.09 5,139,341 $18.05
$19.71 to $29.43 7,902,958 6.7 $21.37 6,110,398 $21.16
----------- ----------
15,485,499 12,336,939
========== ==========
</TABLE>
Pursuant to the Merger Agreement with CBS (see Note 2),
following the closing of the transaction, each outstanding stock option for
Company common stock will be assumed by CBS. The share and exercise price of
each option will be adjusted in accordance with the exchange ratio outlined in
the Merger Agreement. Each such option shall continue to have and shall be
subject to the same terms and conditions set forth in the Company's option
plans.
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.
13
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Stock plans (continued)
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>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Expected life (in years) 6.50 6.50 6.50
Risk-free interest rate 6.00% 5.25% 6.50%
Volatility 30.00% 30.00% 30.00%
Dividend yield 0.00% 0.00% 0.00%
</TABLE>
The weighted average estimated fair value of employee stock
options granted during fiscal 1999, 1998 and 1997 was $11.55, $9.41 and $8.13
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>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income (in thousands) As reported $154,628 $136,048 $143,382
Pro forma 136,419 121,011 134,720
Basic earnings per share As reported $2.17 $1.86 $1.93
Pro forma 1.91 1.65 1.82
Diluted earnings per share As reported $2.07 $1.79 $1.91
Pro forma 1.82 1.59 1.80
</TABLE>
The effects on the pro forma disclosures of applying SFAS 123
to fiscal 1999, 1998 and 1997 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 $5,138,000, $1,898,000 and $3,976,000 in fiscal 1999, 1998 and
1997, respectively.
14
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) 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 March 1, 1999, 5,894,100 shares of Common Stock were
repurchased in open market transactions for aggregate consideration of
approximately $139.7 million or approximately $23.70 per share. Under the terms
of the Merger Agreement between King World and CBS (see Note 2), King World was
prohibited from repurchasing shares of its common stock and declaring dividends
without the prior written consent of CBS.
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.
15
<PAGE>
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: November 22, 1999
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
23.1 Consent of Independent Public Accountants.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion of
our report dated November 18, 1999, with respect to the consolidated balance
sheets of King World Productions, Inc. as of August 31, 1999 and 1998, 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, 1999,
which report appears in this Form 8-K of CBS Corporation.
/s/ ARTHUR ANDERSEN LLP
New York, New York
November 18, 1999
