<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER , 1998
REGISTRATION NO. 333-61515
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
FOX ENTERTAINMENT GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 4833 95-4066193
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NO.)
OF INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
1211 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
(212) 852-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ARTHUR M. SISKIND, ESQ.
SENIOR EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
FOX ENTERTAINMENT GROUP, INC.
1211 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
(212) 852-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
JEFFREY W. RUBIN, ESQ. STEPHEN H. KAY, VINCENT J. PISANO, ESQ.
ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM
SQUADRON, ELLENOFF, PLESENT & LLP
SHEINFELD, LLP 919 THIRD AVENUE
551 FIFTH AVENUE NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10176 (212) 735-3000
(212) 661-6500
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in connection with a concurrent offering
outside the United States and Canada (the "International Prospectus"). The two
prospectuses are identical in all respects except for the front cover page,
the Section entitled "Underwriting" and the back cover page. Pages included in
the International Prospectus and not in the U.S. Prospectus are marked
"Alternate Page for International Prospectus."
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 21, 1998
PROSPECTUS
SHARES
[LOGO] FOX ENTERTAINMENT GROUP, INC.
CLASS A COMMON STOCK
-----------
All of the shares of Class A Common Stock, par value $.01 per share (the
"Class A Common Stock"), offered hereby are being sold by Fox Entertainment
Group, Inc. (the "Company"). Of the shares of Class A Common Stock
offered hereby, shares are being offered for sale initially in the
United States and Canada by the U.S. Underwriters (the "U.S. Offering") and
shares are being offered for sale initially in a concurrent offering
outside the United States and Canada by the International Managers (the
"International Offering" and, together with the U.S. Offering, the
"Offerings"). The initial public offering price and the underwriting discount
per share will be identical for both Offerings. See "Underwriting."
Prior to the Offerings, there has been no public market for the Class A
Common Stock. It is currently estimated that the initial public offering price
of the Class A Common Stock offered hereby will be between $ and $
per share. For a discussion of the factors considered in determining the
initial public offering price of the Class A Common Stock, see "Underwriting."
Application will be made to list the Class A Common Stock on the New York Stock
Exchange ("NYSE") under the symbol "FOX."
Following the Offerings, the Company will have two classes of authorized
common stock, the Class A Common Stock and Class B Common Stock, par value $.01
per share (the "Class B Common Stock" and, together with the Class A Common
Stock, the "Common Stock"). The rights of the holders of Class A Common Stock
and Class B Common Stock are substantially identical, except with respect to
voting, conversion and transfer. Each share of Class A Common Stock entitles
its holder to one vote, and each share of Class B Common Stock entitles its
holder to ten votes on all matters submitted to a vote of stockholders. The
News Corporation Limited, a South Australia corporation ("News Corporation"),
indirectly beneficially owns all of the Company's outstanding common stock and
will, immediately after the Offerings, indirectly beneficially own all of the
Company's issued and outstanding Class B Common Stock. Upon consummation of the
Offerings, such Class B Common Stock will represent approximately % of the
voting power of the Company. As a result of such ownership, News Corporation
will be able to control the vote on substantially all matters submitted to a
vote of stockholders, including the election of directors and the approval of
extraordinary corporate transactions. See "Risk Factors--Relationships Between
the Company and News Corporation," "Principal Stockholder and Stock Ownership"
and "Relationships Between the Company and News Corporation."
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK
OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
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<S> <C> <C> <C>
Per Share.................................. $ $ $
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Total (3).................................. $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including certain liabilities under the Securities Act
of 1933, as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at
$ .
(3) The Company has granted the U.S. Underwriters and the International
Managers options, exercisable within 30 days after the date hereof, to
purchase up to and additional shares of Class A Common
Stock, respectively, solely to cover over-allotments, if any. If such
options are exercised in full, the Total Price to Public, Underwriting
Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See
"Underwriting."
-----------
The shares of Class A Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offers and to reject orders in whole or in part. It is
expected that delivery of the shares of Class A Common Stock will be made in
New York, New York on or about , 1998.
-----------
MERRILL LYNCH & CO.
ALLEN & COMPANY INCORPORATED
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
J. P. MORGAN & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
SALOMON SMITH BARNEY INC.
-----------
The date of this Prospectus is , 1998.
<PAGE>
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by an independent public accounting firm and
quarterly reports for the first three fiscal quarters of each fiscal year
containing interim unaudited financial information.
----------------
For investors outside the United States: No action has been or will be taken
in any jurisdiction by the Company or by any Underwriter that would permit a
public offering of the Class A Common Stock or possession or distribution of
this Prospectus in any jurisdiction where action for that purpose is required,
other than in the United States. Persons into whose possession this Prospectus
comes are required by the Company and the Underwriters to inform themselves
about and to observe any restrictions as to the offering of the Class A Common
Stock and the distribution of this Prospectus.
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZATION, THE PURCHASE OF THE CLASS
A COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
The "Fox" name and mark and the Company's associated brand names and logos,
as well as the names of several of its television series and motion picture
titles, are trademarks and service marks of the Company. This Prospectus also
includes trade names and trademarks of companies other than the Company.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus, including information under "Risk Factors." Throughout this
Prospectus, except where the context otherwise requires, the term "Company"
refers collectively to Fox Entertainment Group, Inc. and its direct and
indirect subsidiaries, and their respective predecessors. Except where the
context otherwise requires, all information in this Prospectus assumes that:
(i) the Recapitalization and Reorganization (as such terms are herein defined)
have been effected; (ii) an initial public offering price of $ per share of
Class A Common Stock; and (iii) the Underwriters' over-allotment options, as
described in "Underwriting," are not exercised. In this Prospectus, references
to "dollars" and "$" are to United States dollars, and the terms "United
States" and "U.S." mean the United States of America, its states, territories,
possessions and all areas subject to its jurisdiction. The Company maintains a
52-53 week fiscal year ending on the Sunday nearest to June 30 in each year. As
set forth in this Prospectus, references to fiscal years of the Company or its
predecessors are to the fiscal years of the Company or its predecessors ending
in June or July, as appropriate, in each such year.
THE COMPANY
Fox Entertainment Group, Inc. is one of the world's leading vertically
integrated entertainment companies. The Company is principally engaged in the
development, production and worldwide distribution of feature films and
television programs, television broadcasting and cable network programming. The
Company's studios, production facilities and film and television library
provide high-quality creative content, and the Company's broadcasting and cable
networks provide extensive distribution platforms for the Company's
programming, thus allowing the Company to retain a substantial portion of the
economic value of its film and television programming. The Company's objective
is to create successful film and television programming, to own substantially
all rights to such programming and to maximize the value of such rights,
including by owning significant segments of the programming distribution chain.
The Fox brand names are recognized throughout the world and are leveraged by
the Company to enhance existing businesses and successfully launch new ones. In
fiscal 1998, the Company generated approximately $7 billion in combined
revenues and approximately $900 million in EBITDA (as herein defined).
The Company's three principal operating areas and related businesses are
summarized below.
Feature Film and Television Production and Distribution. The Company engages
in feature film and television production and distribution principally through
the following businesses: Fox Filmed Entertainment ("FFE"), a leading producer
and distributor of feature films; Twentieth Century Fox Television, a leading
producer of network television programming; Twentieth Television, a producer
and distributor of syndicated programming; and Fox Television Studios, a
producer of television programming for both broadcast and cable networks. FFE
is committed to maintaining its position as a leading producer and distributor
of successful feature films in a wide variety of genres and expects to place in
general release in the United States approximately 25 motion pictures each
year. Feature films recently released by units of FFE include The Full Monty,
Anastasia, The X-Files, Dr. Dolittle, There's Something About Mary, Ever After
and How Stella Got Her Groove Back. Units of FFE have produced or distributed
six of the top ten domestic box office grossing movies of all time, including
the Star Wars trilogy (Star Wars, The Empire Strikes Back, Return of the Jedi),
Home Alone, Independence Day, and most recently, Titanic (together with
Paramount Pictures), which through September 14, 1998 had generated worldwide
gross box office receipts of approximately $1.8 billion.
Twentieth Century Fox Television is the leading television production studio
based on hours of weekly programming ordered for broadcast on network
television for the Fall 1998 television season. These television programs
include such top-rated and highly-acclaimed series as The Simpsons, Ally
McBeal, The X-Files, King of the Hill, Buffy the Vampire Slayer, Dharma & Greg,
The Practice and Chicago Hope. In the United States,
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Twentieth Television distributes programming originally broadcast on the
networks ("off-network programming") and first-run syndication programming to
individual stations for broadcast during non-prime time periods and to basic
cable programming services. Such programs include programs produced by
Twentieth Century Fox Television such as The Simpsons and The X-Files, popular
library series such as M*A*S*H, and original programs developed for first-run
syndication. Fox Television Studios produces original television programming
for the networks and cable programming services, as well as other specialized
programming.
Television Broadcasting. The Company's television broadcasting operations
consist primarily of the Fox Broadcasting Company ("FOX"), a leading free-to-
air television network that reaches 98% of U.S. television households during
prime time, and a group of 22 Company-owned and operated television broadcast
stations (the "Fox Television Stations"). Since its launch 11 years ago, FOX,
which consists of 198 television station affiliates (including the Fox
Television Stations), has become the nation's second highest-rated network in
prime time competition based on viewership of adults aged 18-49, the audience
most sought after by advertisers. FOX broadcasts 15 hours per week of prime
time programming to its affiliated stations, including such popular series as
The Simpsons, The X-Files, Ally McBeal, King of the Hill, Beverly Hills 90210,
Melrose Place and Party of Five, as well as games of the National Football
League ("NFL"), Major League Baseball ("MLB") and the National Hockey League
("NHL"). During the 1998-1999 broadcast season, FOX will air the NFL's Super
Bowl XXXIII, MLB's World Series and certain games of the NHL's Stanley Cup
playoffs and finals.
The Fox Television Stations group is the largest station group in the United
States in terms of both audience reach and advertising revenues. The 22 Fox
Television Stations include stations in nine of the top 10 designated market
areas ("DMAs"). The Fox Television Stations operate in markets representing, in
the aggregate, over 40% of U.S. television households and 50% of local
television station advertising revenues. Among the entire group, 19 of the 22
Fox Television Stations ranked first or second in common prime time competition
with stations affiliated with other broadcast networks in each station's
respective market among adults aged 18-49, based on the November 1997 ratings
sweep period.
Cable Network Programming. The Company's cable network programming interests
include the Fox News Channel ("Fox News"), a 50% interest in Fox/Liberty
Networks, LLC ("Fox/Liberty Networks") and a 49.5% interest in Fox Family
Worldwide, Inc. ("FFW"). Fox News is a 24-hour all-news cable programming
service which is currently available to approximately 34 million cable and
direct broadcast satellite ("DBS") households in the United States. Fox News
benefits from the worldwide news gathering capabilities of News Corporation's
subsidiaries and affiliates. Fox/Liberty Networks is the largest regional
sports network ("RSN") programmer in the United States, holding interests in 21
RSNs (the "Fox Sports RSNs") and Fox Sports Net, a 24-hour national sports
programming service. The Fox Sports RSNs, together with five additional Fox
Sports Net affiliated RSNs, have rights to telecast games of 71 professional
sports teams to over 61 million U.S. cable and DBS households. Fox/Liberty
Networks also owns and operates FX, the eighth highest-rated basic cable
network during prime time among adults aged 18-49, which reaches approximately
37 million U.S. cable and DBS households. FFW is an integrated global family
entertainment company that acquires and produces family and children's
programming and distributes this programming on a worldwide basis. FFW's
programming is distributed to U.S. broadcast outlets through the Fox Kids
Network, a children's daytime programming slate provided to affiliates of FOX,
and through FFW's Fox Family Channel, one of the top 10 most widely distributed
cable networks in the United States, which reaches approximately 73 million
U.S. cable and DBS households. FFW's programming is distributed to broadcasters
internationally and through Fox Kids branded channels in 28 countries.
Related Businesses. The Company holds interests in several professional
sports teams and venues which complement its integrated programming and
distribution businesses. The Company owns and operates the Los Angeles Dodgers
MLB franchise, and through Fox/Liberty Networks, owns a minority interest in
each of the New York Knickerbockers National Basketball Association ("NBA")
franchise, the New York Rangers NHL franchise, the Madison Square Garden
entertainment complex and Radio City Music Hall. The Company, through its 50%
interest in Fox/Liberty Ventures, LLC, has a minority interest in the Staples
Center, a sports and
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entertainment complex under construction in Los Angeles, California. The
Company also holds certain rights which could lead to the acquisition of
minority interests in each of the Los Angeles Lakers NBA franchise and Los
Angeles Kings NHL franchise.
BUSINESS STRATEGY
The Company's objective is to create successful film and television
programming, to own substantially all rights to such programming and to
maximize the value of such rights, including by owning significant segments of
the programming distribution chain. The Company intends to continue to execute
the following strategies:
Create high-quality franchise programming. The Company aims to continue to
produce high-quality film and television programming. The Company earned 21
Academy Award(TM) nominations in 1997 (more than any other film studio) and 52
Emmy (R) Award nominations for the 1997-1998 television season (more than any
other television studio). In addition, during fiscal 1998, the Company's film
studio ranked number one in worldwide gross box office receipts. Twentieth
Century Fox Television is the leading television production studio based on
hours of weekly programming ordered for broadcast on network television for the
Fall 1998 television season. This success is due to several factors, among them
a stable and experienced management team and strong relationships with the
creative talent community.
Maximize the value of the Company's programming, including through Company-
owned distribution outlets. Because the Company owns multiple distribution
outlets, the Company can provide many opportunities for new programming to
develop a widespread audience and increase the programming's revenue potential.
Once an FFE feature film is produced, the Company can generate revenues through
theatrical release, home video, broadcast television and cable television.
Furthermore, once a television series is produced by Twentieth Century Fox
Television, its first-run rights can be licensed to FOX for distribution on the
Fox Television Stations and other FOX affiliates and it can be syndicated by
Twentieth Television. In addition, the Company derives revenues from foreign
distribution of its feature films and television programs, as well as through
licensing, merchandising, music publishing and interactive media. Furthermore,
distributing popular programming through the Company's own distribution outlets
enhances the franchise value of those outlets, as well as the value of the
programming.
Retain rights to programming licensed to third parties. In addition to
distributing its creative content through Company-owned distribution channels,
the Company actively seeks opportunities to sell programming to other networks.
In contrast to independent producers that rely solely on third-party owned
networks for distribution, the Company's ownership of a major broadcast
distribution platform in FOX has strengthened its position as a programmer and
has generally enabled the Company to retain substantial rights to its
television programming in ancillary markets, such as syndication, where
additional revenues can be generated to recover production costs and generate
profits.
Leverage the Fox brand. The Company believes that the Fox brand is recognized
throughout the world and can be leveraged by the Company to enhance existing
businesses and successfully launch new ones. Substantially all of the Company's
businesses, including its joint ventures, carry Fox brand names. The public's
familiarity with the Company's substantial film and television library, content
creation capabilities and commitment to quality production have drawn viewers
to the Company's newer distribution channels, such as Fox News, Fox Sports Net,
the Fox Sports RSNs and FXM: Movies from Fox, and have contributed to the
success of ventures such as FOX, the Fox Television Stations and FX.
Benefit from relationship with News Corporation. The Company historically has
benefited from, and believes it will continue to benefit from, its access to
News Corporation's worldwide distribution outlets and other assets, management
experience and financial resources. News Corporation is a leading global media
company that distributes its programming through multiple distribution outlets,
including broadcast television, cable networks, DBS services, newspapers,
magazines and book publishing. The Company benefits from
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<PAGE>
access to distribution platforms owned, in whole or in part, by News
Corporation, including British Sky Broadcasting Group plc ("BSkyB"), Satellite
Television Asian Region Limited ("STAR TV") and the Sky Latin America
platforms, thereby enhancing the reach and value of its programming. Further,
the Company expects to continue to benefit from the management services that
certain key executive officers of News Corporation render to the Company.
THE X-FILES: VERTICAL INTEGRATION AT WORK
The Company's popular series The X-Files provides an excellent example of the
enhanced value that can be created by the Company through its distribution of
Company-created programming through Company-owned distribution channels.
Production and distribution of The X-Files operates as follows: (i) Twentieth
Century Fox Television, in cooperation with the program's creator, produces the
series; (ii) FOX licenses the first-run rights to the series from Twentieth
Century Fox Television, including episodes of the series for airing during its
Sunday prime time schedule, and FOX retains and sells the national advertising
spots; (iii) the Fox Television Stations sell local advertising during these
episodes in their respective markets; (iv) Twentieth Television then sells the
series in syndication for exhibition on FX and various television stations,
including the Fox Television Stations group; (v) FX sells the national
advertising for these episodes and the Fox Television Stations sell local
advertising; and (vi) units of FFE sell the series in markets outside the
United States. By building an audience for The X-Files on FOX, the Company
created a valuable programming franchise, from which many of its distribution
outlets have benefitted. Most recently, FFE produced a major motion picture
based on The X-Files, which, as of September 14, 1998, had grossed over $83
million in U.S. box office receipts and will ultimately be released in most
major international markets, distributed to the home video, cable and broadcast
television marketplaces and licensed for merchandising.
RISK FACTORS
See "Risk Factors" for a discussion of certain risks that should be
considered in connection with an investment in the shares of Class A Common
Stock offered hereby, including risks associated with feature film and
television production and distribution, dependence upon affiliation and
carriage agreements and risks associated with sports programming.
6
<PAGE>
[CHART APPEARS HERE]
[THE CHART INSERTED SETS FORTH THE ORGANIZATION OF THE COMPANY. THE CHART
DIVIDES THE COMPANY'S OPERATIONS INTO THREE PRINCIPAL AREAS: FEATURE FILM AND
TELEVISION PRODUCTION AND DISTRIBUTION (INCLUDING FOX FILMED ENTERTAINMENT AND
ITS UNITS, TWENTIETH TELEVISION AND FOX TELEVISION STUDIOS); TELEVISION
BROADCASTING (INCLUDING FOX BROADCASTING COMPANY AND FOX TELEVISION STATIONS;
AND CABLE NETWORK PROGRAMMING (INCLUDING FOX NEWS CHANNEL, FOX/LIBERTY NETWORKS,
FOX/LIBERTY VENTURES AND FOX FAMILY WORLDWIDE). THE CHART AND ITS FOOTNOTES ALSO
INDICATE THE COMPANY'S OWNERSHIP OF BUSINESSES IN WHOLE OR IN PART (INCLUDING
PERCENTAGES FOR INTERESTS THAT ARE LESS THAN 100%).]
<PAGE>
RELATIONSHIPS WITH NEWS CORPORATION
News Corporation indirectly beneficially owns all of the Company's
outstanding common stock. Pursuant to a recapitalization to be effected prior
to the consummation of the Offerings (the "Recapitalization"), the Company will
authorize two new classes of common stock, Class A Common Stock and Class B
Common Stock, and the shares of common stock indirectly beneficially owned by
News Corporation will be converted into shares of Class B Common Stock,
which will represent all of the Company's issued and outstanding Class B Common
Stock. After the Offerings, such Class B Common Stock will represent
approximately % of the equity and % of the voting power of the Company. As
a result of such ownership, News Corporation will be able to control the vote
on substantially all matters submitted to a vote of the Company's stockholders,
including the election of directors and the approval of extraordinary corporate
transactions. All of the Company's executive officers are also executive
officers of News Corporation. In addition, upon completion of the Offerings,
Mr. K. Rupert Murdoch, Chairman and Chief Executive of News Corporation and
Chairman and Chief Executive Officer of the Company, will own voting preferred
stock representing 76% of the voting power of the Company's subsidiary Fox
Television Holdings, Inc. See "Risk Factors--Relationships Between the Company
and News Corporation," "Reorganization," "Principal Stockholder and Stock
Ownership," "Relationships Between the Company and News Corporation" and
"Shares Eligible for Future Sale."
The Company expects to enter into a Master Intercompany Agreement with News
Corporation prior to the consummation of the Offerings, pursuant to which News
Corporation will furnish to the Company the services of Mr. Murdoch, the
Company's Chairman and Chief Executive Officer; Peter Chernin, the Company's
President and Chief Operating Officer; Chase Carey, the Company's Co-Chief
Operating Officer; David F. DeVoe, the Company's Senior Executive Vice
President and Chief Financial Officer; and Arthur M. Siskind, the Company's
Senior Executive Vice President and General Counsel, and certain other
executives and employees of News Corporation. The Master Intercompany Agreement
will also provide that News Corporation or its affiliates will continue to
provide cash management, financial, tax, legal and other services to the
Company. In addition, the Company and News Corporation expect to enter into a
tax sharing agreement. See "Relationships Between the Company and News
Corporation."
News Corporation and certain of its subsidiaries, including the Company and
certain of its significant subsidiaries, including Fox Television Holdings,
Inc., FOX, Twentieth Century Fox Film Corporation ("TCFFC"), and Twentieth
Century Fox Home Entertainment, Inc. (collectively, the "Fox Guarantors"), are
guarantors of various obligations of News America Incorporated ("NAI"), a
subsidiary of News Corporation, under various guaranteed debt instruments (the
"Guaranteed Debt Instruments"). The principal amount of indebtedness
outstanding under such Guaranteed Debt Instruments at June 30, 1998 was
approximately $9.3 billion, which amount includes approximately $1 billion of
obligations under Exchangeable Trust Originated Preferred Securities SM due
2016. The Guaranteed Debt Instruments mature at various times between 1999 and
2096, with a weighted average maturity of over 20 years, and are generally not
redeemable prior to maturity. The indentures governing the Guaranteed Debt
Instruments limit the ability of News Corporation and its subsidiaries
(including the Fox Guarantors) to subject their properties to liens, and
certain of the indentures impose limitations on the ability of News Corporation
and its subsidiaries (including the Fox Guarantors) to incur indebtedness in
certain circumstances. Additional subsidiaries of the Company may from time to
time be required to become guarantors of the Guaranteed Debt Instruments in
certain circumstances.
In addition, the Fox Guarantors have guaranteed the obligations of News
Corporation and certain of its subsidiaries under a revolving credit agreement
dated May 19, 1993, by and among certain subsidiaries of News Corporation and
various banks (such agreement, as amended, the "Revolving Credit Agreement").
The Revolving Credit Agreement provides for borrowings of up to approximately
$2.0 billion, and expires on June 30, 2004. As of September 21, 1998, there
were no borrowings outstanding under the Revolving Credit Agreement. Additional
subsidiaries of the Company may from time to time be required to become
guarantors under the Revolving Credit Agreement in certain circumstances.
8
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In the case of any event of default by any of the obligors under the
Guaranteed Debt Instruments or the Revolving Credit Agreement (including events
of default which may arise from conduct or events outside the control of the
Company), the Fox Guarantors will be directly liable to the holders of the
Guaranteed Debt Instruments and the banks under the Revolving Credit Agreement
under the terms of the various guarantees. News Corporation has agreed to
indemnify the Fox Guarantors from and against any obligations they may incur
pursuant to the guarantees. See "Risk Factors--Contingent Liabilities for
Obligations of News Corporation" and "Relationships Between the Company and
News Corporation."
9
<PAGE>
THE OFFERINGS
Of the shares of Class A Common Stock being offered by the Company,
shares are being offered for sale initially in the United States and
Canada by the U.S. Underwriters and shares are being offered for sale
initially in a concurrent offering outside the United States and Canada by the
International Managers. See "Underwriting."
<TABLE>
<S> <C>
Class A Common Stock Offered by the
Company(1):
U.S. Offering.............................. shares
International Offering..................... shares
Total.................................... shares
Common Stock Outstanding After the Offerings:
Class A Common Stock....................... shares(1)
Class B Common Stock....................... shares(2)
Total Common Stock....................... shares(1)
</TABLE>
Relative Rights of Class A Common
Stock and Class B Common Stock........
The Class A Common Stock and the
Class B Common Stock have identical
rights other than with respect to
voting, conversion and transfer.
The Class A Common Stock is
entitled to one vote per share
while the Class B Common Stock is
entitled to ten votes per share on
all matters submitted to a vote of
stockholders. The shares of Class B
Common Stock are convertible at any
time at the option of the holder
into shares of Class A Common Stock
on a share-for-share basis. In
addition, shares of Class B Common
Stock will be automatically
converted into a like number of
shares of Class A Common Stock upon
any transfer to any person or
entity which is not a Permitted
Transferee, which generally will
include News Corporation, its
direct and indirect subsidiaries,
any partnership, limited liability
company or trust at least 50%
controlled by News Corporation, and
any successor of any of the
foregoing. All of the outstanding
shares of Class B Common Stock are
beneficially owned by News
Corporation. See "Principal
Stockholder and Stock Ownership"
and "Description of Capital Stock."
Use of Proceeds....................... The Company currently intends to
use the net proceeds from the
Offerings to repay certain
indebtedness to News Corporation or
its subsidiaries.
Listing............................... Application will be made to list
the Class A Common Stock on the
NYSE under the symbol "FOX."
- --------
(1) Does not include up to an aggregate of shares subject to over-
allotment options granted by the Company to the Underwriters.
(2) All of the Class B Common Stock will be indirectly beneficially owned by
News Corporation.
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<PAGE>
SUMMARY COMBINED FINANCIAL DATA
The summary historical combined financial data of the Company presented below
for the years ended June 30, 1996, 1997 and 1998 and at June 30, 1998, have
been derived from, and are qualified by reference to, the audited Combined
Financial Statements of the Company included elsewhere in this Prospectus. The
summary historical combined financial data of the Company presented below for
the years ended June 30, 1994 and 1995 have been derived from unaudited
combined financial statements of the Company not included in this Prospectus.
The summary combined financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Combined Financial Statements and the related Notes thereto
and the other financial information included elsewhere in this Prospectus.
The historical financial information may not be indicative of the Company's
future performance and does not necessarily reflect what the financial position
and results of operations of the Company would have been had the Company
operated as a separate, stand-alone entity during the periods covered.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
1994 1995(1) 1996(2) 1997(3) 1998
------ ------- ------- ------- ------
(DOLLARS IN MILLIONS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Filmed Entertainment................. $2,094 $2,215 $2,324 $3,112 $3,876
Television Broadcasting and Related
Businesses.......................... 1,294 1,700 2,224 2,698 3,075
Cable Network Programming............ -- -- -- 37 72
------ ------ ------ ------ ------
Total revenues.................... 3,388 3,915 4,548 5,847 7,023
Operating income..................... 325 391 481 320 663
Income (loss) before income taxes.... 213 (39) 585 79 311
Net income (loss).................... $ 127 $ (23) $ 411 $ 30 $ 176
====== ====== ====== ====== ======
Earnings (loss) per share............ $ $ $ $ $ (4)
====== ====== ====== ====== ======
OTHER OPERATING DATA:
Segment EBITDA:
Filmed Entertainment................ 114 139 142 138 292
Television Broadcasting and Related
Businesses......................... 291 333 436 490 727
Cable Network Programming........... -- -- -- (123) (96)
Other charges....................... -- -- -- (5) (17)
------ ------ ------ ------ ------
Total EBITDA(5)................... $ 405 $ 472 $ 578 $ 500 $ 906
====== ====== ====== ====== ======
Capital expenditures................. $ 55 $ 108 $ 85 $ 338 $ 208
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1998
----------------------
(UNAUDITED)
PRO FORMA
ACTUAL AS ADJUSTED(6)
------- --------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
BALANCE SHEET
DATA:
Cash and cash
equivalents................................... $ 101 $
Total assets................................... 12,630
Due to intercompany affiliates................. 3,702
Borrowings..................................... 375
Shareholders' equity........................... 3,941
</TABLE>
(footnotes on following page)
11
<PAGE>
FOOTNOTES:
(1) Effective at the beginning of fiscal 1995, the Company changed its method
of accounting for multi-year programming contracts resulting in a charge of
$590 million related to FOX's NFL broadcast contract. Additionally, during
fiscal 1995, the Company changed its estimate of the performance of this
contract, resulting in a reversal of the charge of approximately $237
million. The net effect in fiscal 1995 of these two accounting changes was
approximately $353 million and has been presented as other expense (not
within operating income) to allow for comparable analyses of the results of
operations and trends.
(2) The Company sold its television stations in Dallas and Atlanta in July and
December 1995, respectively, resulting in a $183 million gain in fiscal
1996.
(3) Fiscal 1997 includes the operating performance of the ten television
stations acquired as part of the January 1997 acquisition of New World
Communications Group, Inc.
(4) Pro forma supplemental earnings per share for fiscal 1998 is $ , and
reflects adjustments for (i) the shares outstanding as the result of the
Recapitalization and the Offerings and (ii) the after tax impact on
interest expense resulting from (a) the application of the net proceeds
from the Offerings as set forth under "Use of Proceeds," and (b) the
adjusted interest rate on the remaining intercompany debt after the
Reorganization and the Offerings.
(5) EBITDA is defined as income (loss) before income taxes, equity in earnings
(loss) of affiliates, external interest expense, intercompany interest
expense, other income (expense), and depreciation and amortization. EBITDA
is presented supplementally as management believes it allows for the most
appropriate measure for evaluating operating performance. The Company
believes EBITDA is a standard measure commonly reported and widely used by
analysts, investors and others associated with the media and entertainment
industry. EBITDA eliminates the uneven effect across business segments of
considerable amounts of depreciation and amortization primarily resulting
from the value of intangible assets acquired in business combinations
accounted for by the purchase method of accounting. The exclusion of
amortization charges is consistent with management's belief that the
Company's intangible assets, such as broadcast television licenses, film
and television libraries, franchises and the goodwill associated with its
brands, are generally increasing in value as the Company implements its
business strategies of creating, extending and distributing recognizable
brands and copyrights throughout the world. While many in the financial
community consider EBITDA to be an important measure of comparative
operating performance, it should be considered in addition to, but not as a
substitute for, operating income, net income, cash flow and other measures
of financial performance prepared in accordance with generally accepted
accounting principles which are presented in the audited financial
statements included elsewhere in this Prospectus. Additionally, the
Company's calculation of EBITDA may be different than the calculation used
by other companies and therefore, comparability may be affected.
(6) Adjusted to give effect to the Reorganization (as herein defined), the
Recapitalization and the application of the net proceeds of the Offerings.
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<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following risk factors,
in addition to the other information set forth in this Prospectus, in
connection with an investment in the shares of Class A Common Stock offered
hereby. Certain statements in the Prospectus Summary and under the captions
"Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business" and elsewhere in this Prospectus
constitute forward-looking statements. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements.
RISKS ASSOCIATED WITH FEATURE FILM AND TELEVISION PRODUCTION AND DISTRIBUTION
Feature film and television production and distribution are speculative
businesses since the revenues derived from the production and distribution of
a feature film or television series depend primarily upon its acceptance by
the public, which is difficult to predict. The commercial success of a feature
film or television series also depends upon the quality and acceptance of
other competing films and television series released into the marketplace at
or near the same time, the availability of alternative forms of entertainment
and leisure time activities, general economic conditions and other tangible
and intangible factors, all of which can change and cannot be predicted with
certainty. Further, the theatrical success of a feature film and the audience
ratings for a television series are generally key factors in generating
revenues from other distribution channels, such as home video and premium pay
television with respect to feature films and syndication with respect to
television series. The production and marketing of feature films and
television series require substantial capital; and, in recent years, increases
in production and marketing costs have generally outpaced domestic box office
revenues (with respect to feature films) and license fees (with respect to
television series). See "Business--Feature Film and Television Production and
Distribution."
DEPENDENCE UPON AFFILIATION AND CARRIAGE AGREEMENTS
FOX has entered into network affiliation agreements with 198 television
station affiliates, including the Fox Television Stations. Third-party owned
FOX affiliates reach approximately 57% of all U.S. television households, with
no single owner group reaching more than approximately 12% of U.S. television
households. FOX programming is provided to its affiliates pursuant to
affiliation agreements of varying durations and staggered expirations. The
Company is dependent upon the maintenance of affiliation agreements with
third-party owned television stations, and there can be no assurance that such
affiliation agreements will be renewed in the future on terms acceptable to
the Company. The loss of a significant number of such affiliation arrangements
could reduce the distribution of FOX, thereby adversely affecting the
Company's ability to sell national advertising time. See "Business--Television
Broadcasting."
Similarly, the cable networks in which the Company holds interests,
including Fox News, FX and the Fox Family Channel, and the Fox Sports RSNs
maintain affiliation and carriage arrangements that enable them to reach a
large percentage of cable and DBS households across the United States. Such
cable networks also depend on achieving and maintaining carriage within the
basic cable programming package, as the subscriber penetration rate for
premium cable programming packages is substantially lower than that of basic
cable programming packages. The loss of a significant number of carriage or
affiliation arrangements or the loss of such carriage on basic programming
tiers could reduce the distribution of such cable networks, thereby adversely
affecting such networks' revenues from subscriber fees and ability to sell
advertising time. See "Business--Cable Network Programming."
RISKS ASSOCIATED WITH SPORTS PROGRAMMING
The sports rights contracts between FOX, the Fox Sports RSNs, Fox Sports Net
and FX, on the one hand, and various professional sports leagues and teams, on
the other, have varying duration and renewal terms. As
13
<PAGE>
these contracts expire, renewals on favorable terms may be sought; however,
third parties may outbid the current rights holders for such rights contracts
or the renewal costs could substantially exceed the original contract cost.
The loss of rights could impact the extent of the sports coverage offered by
the Company and its affiliates and could adversely affect the Company's or
such affiliates' advertising revenues and distribution. In addition, if
escalations in sports programming rights costs are unmatched by increases in
advertising rates and, in the case of cable networks, subscriber fees, the
Company's businesses that acquire or own such rights could be adversely
affected. See "Business--Television Broadcasting" and "Business--Cable Network
Programming."
RISKS OF FOREIGN DISTRIBUTION
The Company distributes motion picture and television programming in foreign
countries and derives a material portion of its combined revenues from foreign
sources. Furthermore, the Company's revenues derived from foreign sources have
increased over time and may continue to increase in the future. As a result,
the Company's business is subject to certain risks inherent in international
trade, many of which are beyond its control, such as changes in laws and
policies affecting trade, investment and taxes (including laws and policies
relating to the repatriation of funds and to withholding taxes), differing
degrees of protection for intellectual property and the instability of foreign
economies and governments. In addition, fluctuations in foreign exchange rates
may affect the Company's results of operations.
REGULATION
In general, the television broadcasting and cable industries in the United
States are highly regulated by Federal laws and regulations issued and
administered by various federal agencies, including the Federal Communications
Commission (the "FCC"). In particular, the Fox Television Stations are
dependent upon the continuation and renewal of licenses granted by the FCC,
and there can be no assurance that such stations' licenses will be renewed at
their expiration dates or, if renewed, that the renewal terms will be for the
maximum permitted period. The FCC has promulgated rules and regulations which
require U.S. television broadcasting stations to transition from analog to
digital transmission over the next several years. It is difficult to assess
how digital television will affect the Company's broadcasting business with
respect to competition with other broadcasters and video program providers. In
addition, the U.S. Congress and the FCC are considering and may in the future
consider and adopt new laws, regulations and policies regarding a wide variety
of matters that may affect, directly or indirectly, the operation, ownership
and profitability of several of the Company's businesses, including the Fox
Television Stations, cable networks and television and cable programming
businesses. It is impossible to predict the outcome of federal legislation and
regulatory proposals currently under consideration or the potential effect
thereof on the Company's business and results of operations. See "Business--
Regulation."
COMPETITION
As a diversified entertainment and media company with operations principally
in the film, broadcast television and cable network programming businesses,
the Company competes with other large diversified entertainment companies with
substantial resources. The Company's businesses each compete, in varying
degrees, with other leisure-time activities such as movie theaters,
television, radio, print media, personal computers and other alternative
sources of entertainment and information. In addition, future technological
developments may affect competition within these businesses.
Each of the film, broadcast television and cable network programming
businesses is highly competitive. The Company competes with other film
studios, independent production companies and others for the acquisition of
artistic properties, the services of creative and technical personnel,
exhibition outlets and the public's interest in its products. FOX directly
competes for viewers and advertisers and, to a lesser extent, programming with
ABC, NBC, CBS (collectively, the "Other Major Networks"), the WB and the UPN
Network (collectively, with FOX and the Other Major Networks, the "Networks").
Each of the Other Major Networks broadcasts a greater number of hours of
network programming than FOX and, accordingly, may be able to designate or
change time
14
<PAGE>
periods in which programming is to be broadcast with greater flexibility than
FOX. Further, each of the Other Major Networks has a greater number of
affiliates with VHF signals, which are generally considered to be stronger
affiliates in their markets and, therefore, more appealing to advertisers.
Cable network programming services compete for distribution with other pay
television programming services and, when distribution is obtained, compete
for viewers and advertisers with broadcast television networks, radio and
print media. See "Business--Competition."
LIMITATIONS ON CONTROL OF AFFILIATED COMPANIES
The Company holds its interests in certain businesses, including certain
cable network programming businesses and certain professional sports teams, in
partnership with nonaffiliated third parties. As a result of such
arrangements, the Company may be unable to control the operations, strategies
and financial decisions of such partnership entities which could in turn
result in limitations on the Company's ability to implement strategies that
the Company may favor, or to cause dividends or distributions to be paid. In
addition, the Company's ability to transfer its interests in businesses owned
jointly with third parties is limited under certain partnership or similar
agreements. See "Certain Arrangements Regarding the Company's Ownership of
Other Entities."
RELATIONSHIPS BETWEEN THE COMPANY AND NEWS CORPORATION
News Corporation indirectly beneficially owns all of the Company's
outstanding common stock and will, immediately after the Offerings, indirectly
beneficially own all of the Company's issued and outstanding Class B Common
Stock. After the Offerings, such Class B Common Stock will represent
approximately % of the voting power of the Company. As a result of such
ownership, News Corporation will be able to control the vote on substantially
all matters submitted to a vote of stockholders, including the election of
directors and the approval of extraordinary corporate transactions. Mr. K.
Rupert Murdoch, Chairman and Chief Executive of News Corporation and Chairman
and Chief Executive Officer of the Company, beneficially owns approximately
30% of the outstanding Ordinary Shares of News Corporation, which amount
includes Ordinary Shares owned by Mr. Murdoch and Ordinary Shares owned by a
corporation which is controlled by trustees of settlements and trusts set up
for the benefit of the Murdoch family, certain charities and other persons. By
virtue of such beneficial ownership and Mr. Murdoch's positions at News
Corporation and the Company, Mr. Murdoch may be deemed to control the
operations of News Corporation and the Company. In addition, upon completion
of the Offerings, Mr. Murdoch will own voting preferred stock representing 76%
of the voting power of Fox Television Holdings, Inc. and therefore continue to
have control of the Fox Television Stations. Such voting preferred stock will
be issued pursuant to FCC requirements relating to control of FCC broadcasting
licenses by U.S. persons. Mr. Murdoch is a U.S. citizen, and the Restated
Certificate of Incorporation of Fox Television Holdings, Inc. will provide
that the voting preferred stock may not be transferred to a non-U.S. citizen.
The Company intends to use the net proceeds from the Offerings to repay
certain indebtedness to News Corporation and its subsidiaries. See
"Reorganization," "Use of Proceeds," "Business--Regulation," "Principal
Stockholder and Stock Ownership," "Relationships Between the Company and News
Corporation" and "Shares Eligible for Future Sale."
Historically, the Company has derived certain tangible and intangible
benefits from being a subsidiary of News Corporation. The Company and News
Corporation have developed and maintained a number of financial and other
arrangements and have engaged in certain transactions which both the Company
and News Corporation believe to have been of mutual benefit. As a subsidiary
of News Corporation, the Company has used, and pursuant to the Master
Intercompany Agreement with News Corporation, expects that it will continue to
use various cash management, financial, tax, legal, and other services
provided by News Corporation. It is anticipated that after completion of the
Offerings various existing arrangements and transactions will continue and
that additional arrangements and transactions will be entered into in the
ordinary course of business. The Master Intercompany Agreement, as well as the
other arrangements and transactions described above are, or will be,
negotiated in the context of a parent-subsidiary relationship, rather than
through arm's-length negotiations. There
15
<PAGE>
can be no assurance, therefore, that each of such agreements, or the
transactions provided for therein, or any amendments thereof, will be effected
on terms at least as favorable to the Company as could have been obtained from
unaffiliated third parties. Pursuant to the Master Intercompany Agreement, the
Company and News Corporation will compensate each other with respect to the
services provided thereunder. Furthermore, although all material future
arrangements and transactions will be subject to approval by the Company's
Board of Directors, there can be no assurance that they will continue to be as
favorable to the Company, that News Corporation will continue to provide
services for the Company's financial and other needs as it has in the past, or
that future arrangements and transactions will not involve conflicts of
interest. There can be no assurance that the Company, upon termination of any
such assistance from News Corporation, will be able to provide adequately such
services internally or obtain favorable arrangements from third parties to
replace such services. See "Reorganization," "Management" and "Relationships
Between the Company and News Corporation."
Although the Company or its subsidiaries have, in the past, entered into
various financing arrangements relating to the production of motion pictures
and television programs, the Company does not currently have any other
independent credit facilities with banks or other institutions and may
therefore be dependent upon News Corporation for its credit needs in excess of
internally-generated funds. Although the Company believes that News
Corporation currently has adequate financial capacity to fund its anticipated
needs, there can be no assurance that such financing will remain adequate or
that any additional financing will be available. If such financing is not
available, the Company may be materially limited in its ability to fund
capital expenditures and other investments. In addition, the Company's
contingent obligations under its guarantees of the Guaranteed Debt Instruments
and the Revolving Credit Agreement and the limitations imposed on the Fox
Guarantors thereunder regarding the creation of liens on or other security
interests in their properties, may affect the availability of independent
credit facilities to the Company, as well as the terms thereof. See
"Relationships Between the Company and News Corporation" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
Following the Offerings, the senior management of the Company will consist
of the senior management of News Corporation. Although it is contemplated that
such executives will spend a considerable amount of their business time in
connection with the business of the Company, no specific time requirements
have been established. Furthermore, such executives will also be engaged in
activities for News Corporation not related directly to the business of the
Company. In addition, the senior officers and certain other employees of the
Company may, from time to time, render services to affiliates of News
Corporation in addition to the Company. The executive officers and certain
other employees of the Company will be eligible to participate in the News
Corporation stock option plans. See "Management" and "Certain Relationships
Between the Company and News Corporation."
In addition, although the Company has historically had a close strategic
relationship with News Corporation and certain of its subsidiaries and
affiliates, neither the Company nor News Corporation or its subsidiaries and
affiliates are obligated to engage in any future business transactions or
jointly participate in any opportunities with the other, except as expressly
provided in certain agreements discussed elsewhere in this Prospectus. News
Corporation is not restricted from owning or acquiring businesses which engage
in activities which are similar to, or compete with, those of the Company.
Although News Corporation and the Company are subject to provisions of
applicable corporate law relating to transactions with affiliates, the
Company's organizational documents do not set forth any specific mechanism for
dealing with potential conflicts of interest or corporate opportunities. See
"Relationships Between the Company and News Corporation."
CONTINGENT LIABILITIES FOR OBLIGATIONS OF NEWS CORPORATION
News Corporation and certain of its subsidiaries, including the Fox
Guarantors, are guarantors of the obligations of NAI under the Guaranteed Debt
Instruments. The principal amount of indebtedness outstanding under such
Guaranteed Debt Instruments at June 30, 1998 was approximately $9.3 billion,
which amount includes approximately $1 billion of obligations under
Exchangeable Trust Originated Preferred Securities SM due 2016. The Guaranteed
Debt Instruments mature at various times between 1999 and 2096, with a
weighted
16
<PAGE>
average maturity of over 20 years, and are generally not redeemable prior to
maturity. The indentures governing the Guaranteed Debt Instruments limit the
ability of News Corporation and its subsidiaries (including the Fox
Guarantors) to subject their properties to liens, and certain of the
indentures impose limitations on the ability of News Corporation and its
subsidiaries (including the Fox Guarantors) to incur indebtedness in certain
circumstances. In addition, the holders of the Guaranteed Debt Instruments
have the right to require NAI to make an offer to repurchase the outstanding
debt in the event that both a change of control of News Corporation and a
rating decline involving the Guaranteed Debt Instruments should occur. The
Offerings do not constitute such a change of control. The indentures governing
the Guaranteed Debt Instruments may require additional subsidiaries of the
Company to guarantee certain Guaranteed Debt Instruments in certain
circumstances. In addition, there can be no assurance that certain
subsidiaries of the Company will not be required to guarantee additional
indebtedness of News Corporation and its subsidiaries.
In addition, the Fox Guarantors have guaranteed the obligations of News
Corporation and certain of its subsidiaries under the Revolving Credit
Agreement. The Revolving Credit Agreement provides for borrowings of up to
approximately $2.0 billion, and expires on June 30, 2004. As of September 21,
1998, there were no borrowings outstanding under the Revolving Credit
Agreement. Additional subsidiaries of the Company may from time to time be
required to become guarantors under the Revolving Credit Agreement in certain
circumstances.
The guarantees, including those of the Company, represent contingent and not
current obligations of the Fox Guarantors. In the case of any event of default
under the Guaranteed Debt Instruments or the Revolving Credit Agreement
(including events of default which may arise from conduct or events outside
the control of the Company), the Fox Guarantors will be directly liable to the
trustees and the holders of the Guaranteed Debt Instruments and to the banks
under the Revolving Credit Agreement under the terms of the various
guarantees. Although News Corporation and certain of its subsidiaries have
agreed to indemnify the Fox Guarantors from and against any liabilities they
may incur pursuant to the guarantees, there can be no assurance that, if any
such default occurs, News Corporation will have the financial capacity to
adequately and timely provide such indemnity. The Company believes that the
current fair market value of News Corporation's assets (including the value of
its equity in the Company but excluding the value of the assets of the Fox
Guarantors) is substantially in excess of the obligations guaranteed by the
Fox Guarantors. See "Relationships between the Company and News Corporation--
Credit Arrangements."
ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for shares of the
Class A Common Stock. Although application will be made for listing of the
Class A Common Stock on the NYSE, there can be no assurance that an active
trading market will develop or, if one does develop, that it will be
maintained. The initial public offering price of the Class A Common Stock
offered hereby will be established by negotiation between the Company and the
representatives of the Underwriters. See "Underwriting." In recent years, the
stock market in general, and the publicly-traded securities of companies in
the entertainment industry in particular, have experienced extreme price
fluctuations, sometimes without regard to the performance of particular
companies. Factors such as variations in actual or anticipated operating
results, changes in or failure to meet earnings estimates of securities
analysts, market conditions in the industry, regulatory actions and general
economic conditions, among others, may have a significant effect on the market
price of the Class A Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have
shares of Class A Common Stock outstanding ( shares if the
Underwriters' over-allotment options are exercised in full). In addition, the
Company will have outstanding shares of Class B Common Stock, all of which
will be indirectly beneficially owned by News Corporation and will be
convertible into Class A Common Stock on a share-for-share basis at the
election of the holder or upon transfer or disposition to persons who are not
Permitted Transferees (as defined in the Company's Restated Certificate of
Incorporation). Substantially all of the shares of Class A Common Stock
outstanding following the Offerings will be freely tradeable, except for any
such shares
17
<PAGE>
held at any time by an "affiliate" of the Company, as such term is defined
under Rule 144 promulgated under the Securities Act ("Rule 144"). The Company
and News Corporation have agreed, subject to certain exceptions, not to sell,
offer or otherwise dispose of any securities of the Company for a period of
180 days from the date of this Prospectus without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). Subject
to such restrictions and applicable law, News Corporation will be free to sell
any and all of the shares of Class B Common Stock of the Company that it
directly or indirectly beneficially owns. No predictions can be made as to the
effect, if any, that sales of such shares, or the availability of such shares
for future sale, will have on the market price of the Class A Common Stock.
Sales of a significant number of such shares, or the perception that such
sales could occur, could adversely affect prevailing market prices for the
Class A Common Stock and could impair the Company's future ability to raise
capital through an offering of equity securities, which in turn could
adversely affect the Company's business or results of operations. See
"Description of Capital Stock," "Shares Eligible for Future Sale" and
"Underwriting."
RISKS RELATED TO THE YEAR 2000
Many existing computer programs were designed and developed without
considering the upcoming change in the century, which could lead to the
failure of computer applications or create erroneous results by or at the Year
2000. The Year 2000 issue is a broad business issue, whose impact extends
beyond traditional computer hardware and software to possible failure of
automated systems and instrumentation. Also, there can be no guarantee that
third parties of business importance to the Company will successfully
reprogram or replace, and test, all of their own computer hardware, software
and process control systems to ensure such systems are Year 2000 compliant.
Based on the Company's current assessment, the costs of addressing potential
problems are not currently expected to have a material adverse impact on the
Company's financial position, results of operations or cash flows in future
periods. However, if the Company, its customers or vendors identify Year 2000
issues in the future and are unable to resolve such issues in a timely manner,
it could result in a material financial risk. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000."
ABSENCE OF DIVIDENDS
Following the Offerings, the Company does not anticipate paying any
dividends on shares of its Common Stock. The payment of any future dividends
will be determined by the Board of Directors in light of the conditions then
existing, including the Company's financial condition and requirements, future
prospects, business conditions and other factors deemed relevant by the Board
of Directors. See "Dividend Policy" and "Description of Capital Stock."
POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
may make a change in control of the Company more difficult to effect. The
Company's Class A Common Stock is entitled to one vote per share on all
matters submitted to a vote of stockholders and the Company's Class B Common
Stock is entitled to ten votes per share on all such matters. News Corporation
indirectly beneficially owns all of the Company's outstanding common stock and
will, immediately offer the Offerings, indirectly beneficially own all of the
Company's issued and outstanding Class B Common Stock. Upon consummation of
the Offerings, such Class B Common Stock will represent approximately % of
the voting power of the Company.
18
<PAGE>
REORGANIZATION
The Company was incorporated in Delaware in 1985 as Twentieth Holdings
Corporation and changed its corporate name to Fox Entertainment Group, Inc. in
1998.
Prior to the date of this Prospectus, News Corporation will contribute to
the Company certain assets and subsidiaries related to the production and
distribution of feature films and television programming (the
"Reorganization"). Included in this contribution will be TCFFC, certain of
News Corporation's interests in Fox/Liberty Networks and other interests.
Prior to the Offerings, 76% of the voting power of the Company, in the form
of voting preferred shares, was held by Mr. K. Rupert Murdoch, the Chairman
and Chief Executive Officer of the Company and Chairman and Chief Executive of
News Corporation. Mr. Murdoch, who is a United States citizen, acquired such
interest in accordance with a 1985 order of the FCC granting approval for the
Company's initial acquisition of U.S. television stations. Prior to the
consummation of the Offerings, such voting preferred stock will be redeemed by
the Company for its par value of $760,000 plus accrued dividends, and Mr.
Murdoch will acquire voting preferred stock of Fox Television Holdings, Inc.,
representing 76% of the voting power thereof. Through such ownership, Mr.
Murdoch will retain voting control over the Company's subsidiaries which hold
interests in the Fox Television Stations group. The voting preferred stock of
Fox Television Holdings, Inc. will have the same rights and preferences as the
voting preferred stock currently held by Mr. Murdoch, including a par value of
$760,000, and cumulative dividends at the rate of 12% per annum. The voting
preferred stock will be subject to redemption by the affirmative vote of the
holder or holders of 66 2/3% of the issued and outstanding shares of common
stock of Fox Television Holdings, Inc. All of such common stock of Fox
Television Holdings, Inc., representing substantially all of the equity
thereof, will be owned by the Company. See "Business--Regulation."
The following chart sets forth, in summary form, the structure of the
Company and certain of its affiliates following the Offerings.
[CHART APPEARS HERE]
- --------
(1) News Corporation is a South Australia corporation. Ordinary Shares and
Preferred Limited Voting Ordinary Shares of News Corporation are currently
traded publicly on the Australian Stock Exchange and on the London Stock
Exchange, and American Depositary Shares representing such shares are
currently traded on the NYSE.
(2) Following the consummation of the Offerings, Mr. Murdoch will own voting
preferred stock representing 76% of the voting power of Fox Television
Holdings, Inc.
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Class A Common Stock
offered hereby, after deducting the underwriting discount and estimated
offering expenses payable by the Company, are estimated to be approximately
$ ($ if the Underwriters' over-allotment
options are exercised in full), assuming an initial public offering price of
$ per share, which represents the mid-point of the range set forth
on the cover of this Prospectus.
The Company currently intends to use the net proceeds from the Offerings to
repay certain indebtedness to News Corporation or its subsidiaries.
DIVIDEND POLICY
Following the Offerings, the Company does not anticipate paying any
dividends on shares of its Common Stock. The payment of any future dividends
will be determined by the Board of Directors in light of the conditions then
existing, including the Company's financial condition and requirements, future
prospects, business conditions and other factors deemed relevant by the Board
of Directors.
20
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of June 30, 1998; (ii) the pro forma capitalization to give effect to
(a) the Reorganization and (b) the Recapitalization; and (iii) the pro forma
adjusted capitalization of the Company which gives effect to (a) the
Reorganization, (b) the Recapitalization and (c) the Offerings. See "Use of
Proceeds." This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Combined Financial Statements and the related Notes thereto included
elsewhere in this Prospectus.
The historical financial information may not be indicative of the Company's
future performance and does not necessarily reflect what the financial
position and results of operations of the Company would have been had the
Company operated as a separate, stand-alone entity during the periods covered.
<TABLE>
<CAPTION>
AT JUNE 30, 1998
----------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Due to intercompany affiliates and borrowings:
Due to intercompany affiliates.................. $3,702 $ $
Borrowings...................................... 375
------ ------ -------
Total due to intercompany affiliates and
borrowings................................... 4,077
------ ------ -------
Shareholders' equity:
Preferred Stock, $100 par value per share;
10,000, no and no shares authorized; 7,600, no
and no shares issued and outstanding........... 1
Common Stock, $1.00 par value per share; 3,000
shares, no and no shares authorized; 2,400, no
and no shares issued and outstanding........... --
Preferred Stock, $.01 par value per share; ,
and shares authorized; no shares issued
and outstanding................................
Class A Common Stock, $.01 par value per share;
no, , and shares authorized;
no, no and shares issued and
outstanding....................................
Class B Common Stock, $.01 par value per share;
no, , and shares authorized;
no, , and shares issued and
outstanding....................................
Paid-in capital................................. 3,132
Retained earnings and comprehensive income...... 808
------ ------ -------
Total shareholders' equity.................... 3,941
------ ------ -------
Total capitalization.............................. $8,018 $ $
====== ====== =======
</TABLE>
21
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The selected historical combined financial data of the Company presented
below for the years ended June 30, 1996, 1997 and 1998 and at June 30, 1997
and 1998, have been derived from, and are qualified by reference to, the
audited Combined Financial Statements of the Company included elsewhere in
this Prospectus. The selected historical combined financial data of the
Company presented below for the years ended June 30, 1994 and 1995 and at June
30, 1994, 1995 and 1996, have been derived from unaudited combined financial
statements of the Company not included in this Prospectus. The selected
combined financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Combined Financial Statements and the related Notes thereto and the other
financial information included elsewhere in this Prospectus.
The historical financial information may not be indicative of the Company's
future performance and does not necessarily reflect what the financial
position and results of operations of the Company would have been had the
Company operated as a separate, stand-alone entity during the periods covered.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
------------------------------------------------
1994 1995 1996 1997(3) 1998
------ ------ ------ ------- ------
(DOLLARS IN MILLIONS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Filmed Entertainment... $2,094 $2,215 $2,324 $3,112 $3,876
Television Broadcasting
and Related
Businesses............ 1,294 1,700 2,224 2,698 3,075
Cable Network
Programming........... -- -- -- 37 72
------ ------ ------ ------ ------
Total revenues...... 3,388 3,915 4,548 5,847 7,023
Operating expenses..... 2,587 2,945 3,442 4,667 5,351
Selling, general and
administrative
expenses.............. 396 498 528 675 749
Depreciation and
amortization.......... 80 81 97 180 243
Other charges.......... -- -- -- 5 17
------ ------ ------ ------ ------
Operating income.... 325 391 481 320 663
Intercompany interest
expense, net.......... (81) (77) (97) (144) (174)
External interest
expense, net.......... (31) -- -- (47) (97)
Equity in earnings
(loss) of affiliates.. -- -- 18 (50) (81)
Other income (expense). -- (353)(/1/) 183(/2/) -- --
------ ------ ------ ------ ------
Income (loss) before
income taxes....... 213 (39) 585 79 311
Income tax benefit
(expense) on a stand-
alone basis........... (86) 16 (174) (49) (135)
------ ------ ------ ------ ------
Net income (loss)... $ 127 $ (23) $ 411 $ 30 $ 176
====== ====== ====== ====== ======
Earnings (loss) per
share.............. $ $ $ $ $ (4)
====== ====== ====== ====== ======
OTHER OPERATING DATA:
Segment EBITDA:
Filmed Entertainment.. 114 139 142 138 292
Television
Broadcasting and
Related Businesses... 291 333 436 490 727
Cable Network
Programming.......... -- -- -- (123) (96)
Other charges......... -- -- -- (5) (17)
------ ------ ------ ------ ------
Total EBITDA(5)..... $ 405 $ 472 $ 578 $ 500 $ 906
====== ====== ====== ====== ======
Capital expenditures... $ 55 $ 108 $ 85 $ 338 $ 208
====== ====== ====== ====== ======
<CAPTION>
AT JUNE 30,
------------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents........... $13 $24 $55 $256 $101
Total assets........... 4,379 5,008 6,207 11,697 12,630
Due to intercompany
affiliates............ 1,695 1,955 2,587 2,581 3,702
Borrowings............. 3 172 141 1,065 375
Shareholders' equity... 958 942 1,358 3,767 3,941
</TABLE>
(footnotes on following page)
22
<PAGE>
FOOTNOTES:
(1) Effective at the beginning of fiscal 1995, the Company changed its method
of accounting for multi-year programming contracts resulting in a charge
of $590 million related to FOX's NFL broadcast contract. Additionally,
during fiscal 1995, the Company changed its estimate of the performance of
this contract, resulting in a reversal of the charge of approximately $237
million. The net effect in fiscal 1995 of these two accounting changes was
approximately $353 million and has been presented as other expense to
allow for comparable analyses of the results of operations and trends.
(2) The Company sold its television stations in Dallas and Atlanta in July and
December 1995, respectively, resulting in a $183 million gain in fiscal
1996.
(3) Fiscal 1997 includes the operating performance of the ten television
stations acquired as part of the January 1997 acquisition of New World
Communications Group, Inc.
(4) Pro forma supplemental earnings per share for fiscal 1998 is $ , and
reflects adjustments for (i) the shares outstanding as the result of the
Recapitalization and the Offerings and (ii) the after tax impact on
interest expense resulting from (a) the application of the net proceeds
from the Offerings as set forth under "Use of Proceeds," and (b) the
adjusted interest rate on the remaining intercompany debt after the
Reorganization and the Offerings.
(5) EBITDA is defined as income (loss) before income taxes, equity in earnings
(loss) of affiliates, external interest expense, intercompany interest
expense, other income (expense), and depreciation and amortization. EBITDA
is presented supplementally as management believes it allows for the most
appropriate measure for evaluating operating performance. The Company
believes EBITDA is a standard measure commonly reported and widely used by
analysts, investors and others associated with the media and entertainment
industry. EBITDA eliminates the uneven effect across business segments of
considerable amounts of depreciation and amortization primarily resulting
from the value of intangible assets acquired in business combinations
accounted for by the purchase method of accounting. The exclusion of
amortization charges is consistent with management's belief that the
Company's intangible assets, such as broadcast television licenses, film
and television libraries, franchises and the goodwill associated with its
brands, are generally increasing in value as the Company implements its
business strategies of creating, extending and distributing recognizable
brands and copyrights throughout the world. While many in the financial
community consider EBITDA to be an important measure of comparative
operating performance, it should be considered in addition to, but not as
a substitute for, operating income, net income, cash flow and other
measures of financial performance prepared in accordance with generally
accepted accounting principles which are presented in the audited
financial statements included elsewhere in this Prospectus. Additionally,
the Company's calculation of EBITDA may be different than the calculation
used by other companies and therefore, comparability may be affected.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Combined
Financial Statements and the related Notes thereto included elsewhere in this
Prospectus.
The Company manages and reports its businesses in three segments: Filmed
Entertainment, which principally consists of the production and acquisition of
live-action and animated motion pictures for distribution and licensing in all
formats in all entertainment media worldwide and the production of original
television programming; Television Broadcasting and Related Businesses, which
principally consists of the distribution of network programming, the operation
of broadcast television stations, the production and distribution of certain
syndicated television programming and professional sports team ownership; and
Cable Network Programming, which principally consists of the production and
licensing of programming distributed through cable television systems and DBS
operators. The Company's interests in certain cable network programming and
related ventures, including Fox/Liberty Networks, FFW, Fox/Liberty Ventures
and International Sports Programming Partners, are included in equity in
earnings (loss) of affiliates and, accordingly, are not reported in the
segments set forth above.
Prior to the Offerings, News Corporation will effect a Reorganization by
contributing to the Company, at book value, certain of its subsidiaries
engaged in the production and distribution of feature films and television
programming. The Combined Financial Statements of the Company, which are
discussed below, reflect the historical results of operations, financial
position and cash flows of the Company's wholly owned subsidiaries prior to
the Reorganization combined with the historical financial information of the
businesses to be contributed to the Company from News Corporation as part of
the Reorganization. Management believes the assumptions underlying the
Company's Combined Financial Statements to be reasonable. The combined
financial information included herein is not necessarily indicative of the
consolidated results of operations, financial position and cash flows of the
Company had the Reorganization occurred as of the beginning of the three year
period ended June 30, 1998, and had the Company operated as a separate, stand-
alone entity during this three year period. The combined financial information
included herein does not reflect the changes that will occur in the funding
and operations of the Company as a result of the Reorganization,
Recapitalization and the Offerings. See "Reorganization" and "Relationships
Between the Company and News Corporation."
SOURCES OF REVENUE
Filmed Entertainment. The Filmed Entertainment segment derives revenue from
theatrical distribution, home video sales, and distribution through pay-per-
view, pay television services, broadcast and cable television. The revenues
and operating results of the Filmed Entertainment segment are significantly
impacted by the timing of the Company's theatrical and home video releases,
the number of its original and returning television series that are aired by
FOX and the other Networks and the number of its television series licensed in
off-network syndication. Theatrical release dates are determined by several
factors, including timing of vacation and holiday periods and competition in
the marketplace. Each motion picture is a separate and distinct product with
its financial success dependent upon many factors, including audience
acceptance.
Television Broadcasting and Related Businesses. The Television Broadcasting
and Related Businesses segment derives revenues principally from the sale of
advertising time. Generally, advertising time is sold to national advertisers
by FOX and to local advertisers by the Fox Television Stations in their
respective markets. The sale of advertising time is affected by viewer
demographics, program ratings and market conditions. Adverse changes in
general market conditions for advertising may also affect revenues.
Cable Network Programming. The Cable Network Programming segment derives
revenues from monthly subscriber fees as well as from the sale of advertising
time. Monthly subscriber fees are dependent on maintenance of carriage
arrangements with cable television systems and DBS operators. The sale of
advertising time is affected by viewer demographics, program ratings and
general market conditions.
24
<PAGE>
COMPONENTS OF EXPENSES
Filmed Entertainment. Costs incurred by the Filmed Entertainment segment
include production, certain exploitation costs, primarily including prints and
advertising, capitalized overhead and interest costs, participations and
talent residuals. General and administrative expenses include salaries,
employee benefits, rent and other routine overhead expenses as well as legal,
accounting and consulting fees.
Television Broadcasting and Related Businesses and Cable Network
Programming. Expenses of the Television Broadcasting and Related Businesses
segment and the Cable Network Programming segment include expenses related to
producing original programming and acquiring programming and rights to
programming, as well as general and administrative expenses. Production and
technical expenses typically include expenses related to operating the
technical facilities of the broadcaster or cable network. Marketing expenses
include all promotional expenses related to improving the market visibility
and awareness of the broadcaster or cable network. Advertising expenses
include sales commissions paid to the in-house sales force involved in the
sale of advertising and commissions paid to outside representatives.
INDUSTRY ACCOUNTING PRACTICES
Revenue Recognition. Revenues from theatrical distribution of feature films
are recognized on the dates of exhibition. Revenues from home video
distribution, together with related costs, are recognized in the period in
which the product is made widely available for sale by retailers. Revenues
from television distribution are recognized when the motion picture or
television program is available to the licensee for broadcast. Television
advertising revenue is recognized as the commercials are aired. Subscriber
fees received from cable system and DBS operators are recognized as revenue
when services are provided.
Accounting for Filmed Entertainment and Television Programming Costs. In
accordance with generally accepted accounting principles ("GAAP") and industry
practice, the Company amortizes filmed entertainment and television
programming costs using the individual-film-forecast method under which such
costs are amortized for each film or television program in the ratio that
revenue earned in the current period for such title bears to management's
estimate of the total revenues to be realized from all media and markets for
such title. Program rights for entertainment programs and sporting events are
amortized over the license period. Management regularly reviews, and revises
when necessary, its total revenue estimates on a title-by-title and contract
basis, which may result in a change in the rate of amortization and/or a
write-down of the film or television asset to net realizable value.
USE OF EBITDA
Management believes that an appropriate measure for evaluating the operating
performance of the Company's business segments is operating income before
depreciation and amortization of primarily intangible assets ("EBITDA"). See
"Summary Combined Financial Data" for a definition of EBITDA. EBITDA provides
a basis to measure liquidity and operating performance of each business
segment and is not intended to be indicative of future results (as operating
performance is highly contingent on many factors including consumer tastes and
preferences). EBITDA eliminates the uneven effect across business segments of
considerable amounts of depreciation and amortization primarily resulting from
the value of intangible assets acquired in business combinations accounted for
by the purchase method of accounting, including the Company's January 1997
acquisition (the "New World Acquisition") of New World Communications Group,
Inc. ("New World"). The exclusion of amortization charges is consistent with
management's belief that the Company's intangible assets, such as broadcast
television licenses, film and television libraries, franchises and the
goodwill associated with its brands, are generally increasing in value as the
Company implements its business strategies of creating, extending and
distributing recognizable brands and copyrights throughout the world. As such,
the following comparative discussion of the results of operations of the
Company includes, among other factors, an analysis of changes in business
segment EBITDA. However, EBITDA should be considered in addition to, not as a
substitute for, operating income, net income and other measures of financial
performance reported in accordance with GAAP.
25
<PAGE>
COMBINED RESULTS OF OPERATIONS--SUMMARY TABLE
Combined Revenues, EBITDA and Operating Income for each of its 1996, 1997
and 1998 fiscal years were as follows. Fiscal 1997 and 1998 include the
operating results of the 10 television stations acquired as part of the New
World Acquisition.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------
REVENUES EBITDA(1) OPERATING INCOME
-------------------- --------------- ------------------
1996 1997 1998 1996 1997 1998 1996 1997 1998
------ ------ ------ ---- ---- ---- ----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Filmed Entertainment.... $2,324 $3,112 $3,876 $142 $138 $292 $118 $113 $266
Television Broadcasting
and Related Businesses. 2,224 2,698 3,075 436 490 727 363 360 555
Cable Network
Programming............ -- 37 72 -- (123) (96) -- (148) (141)
------ ------ ------ ---- ---- ---- ----- ----- -----
4,548 5,847 7,023 578 505 923 481 325 680
Other charges .......... -- -- -- -- (5) (17) -- (5) (17)
------ ------ ------ ---- ---- ---- ----- ----- -----
Total................. $4,548 $5,847 $7,023 $578 $500 $906 $481 $320 $663
====== ====== ====== ==== ==== ==== ===== ===== =====
</TABLE>
- --------
(1) EBITDA should be considered in addition to, but not as a substitute for,
other measures of financial performance reported in accordance with GAAP
in the Company's audited financial statements included elsewhere in this
Prospectus. See "Summary Combined Financial Data" for definition of
EBITDA.
26
<PAGE>
RESULTS OF OPERATIONS--FISCAL 1998 VS. FISCAL 1997
The following table sets forth the Company's operating results, by segment,
for fiscal 1998 as compared to fiscal 1997:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
--------------
1997 1998 CHANGE
------ ------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
Revenues:
Filmed Entertainment.................................. $3,112 $3,876 $764
Television Broadcasting and Related Businesses........ 2,698 3,075 377
Cable Network Programming............................. 37 72 35
------ ------ -----
Total revenues...................................... 5,847 7,023 1,176
EBITDA:
Filmed Entertainment.................................. 138 292 154
Television Broadcasting and Related Businesses........ 490 727 237
Cable Network Programming............................. (123) (96) 27
------ ------ -----
505 923 418
Other charges......................................... (5) (17) (12)
------ ------ -----
Total EBITDA........................................ 500 906 406
Depreciation and Amortization:
Filmed Entertainment.................................. 25 26 1
Television Broadcasting and Related Businesses........ 130 172 42
Cable Network Programming............................. 25 45 20
------ ------ -----
Total depreciation and amortization................. 180 243 63
Operating Income:
Filmed Entertainment.................................. 113 266 153
Television Broadcasting and Related Businesses........ 360 555 195
Cable Network Programming............................. (148) (141) 7
------ ------ -----
325 680 355
Other charges......................................... (5) (17) (12)
------ ------ -----
Total operating income.............................. 320 663 343
Intercompany interest expense, net...................... (144) (174) (30)
External interest expense, net.......................... (47) (97) (50)
Equity in loss of affiliates............................ (50) (81) (31)
------ ------ -----
Income before income taxes.............................. 79 311 232
Income tax expense on a stand-alone basis............... (49) (135) (86)
------ ------ -----
Net income.............................................. $30 $176 $146
====== ====== =====
</TABLE>
Filmed Entertainment. For fiscal 1998, revenues increased approximately 25%
to $3.9 billion. During fiscal 1998, the Company released 25 new feature films
as compared to 23 films released during fiscal 1997. The increase in revenues
was primarily attributable to the international box office success of Titanic,
the highest grossing motion picture of all time, the successful worldwide
theatrical release of The Full Monty and the successful home video releases of
The Star Wars Trilogy Special Edition and William Shakespeare's Romeo +
Juliet. The late fiscal 1998 domestic theatrical releases of The X-Files and
Dr. Dolittle have also contributed to these revenues, although a substantial
percentage of these films' successes will be reflected in fiscal 1999 results.
For fiscal 1998, operating expenses increased primarily as a result of the
increased amortization of filmed entertainment costs related to the production
of Titanic. Operating expenses also increased due to the increase in the
number of full season series produced by Twentieth Century Fox Television for
FOX and the other Networks to 11.5 hours in fiscal 1998 from 5.5 hours in
fiscal 1997. In addition, operating expenses increased in fiscal 1998 due to
increased costs relating to marketing and distribution initiatives for home
video sales in certain targeted international markets.
27
<PAGE>
For fiscal 1998, operating income increased approximately 135% to $266
million. Operating results from the successful films mentioned above were
partially offset by the disappointing results of Out to Sea, Home Alone 3,
Bulworth and The Newton Boys, for which ultimate losses were recognized during
fiscal 1998 in accordance with GAAP and industry practice. The growth in
operating income was partially offset by the increase in the number of full
season series produced by Twentieth Century Fox Television for FOX and the
other Networks because original series license fees paid by broadcast networks
generally do not fully recover production costs. Generally, a series must be
broadcast for at least three to four television seasons for there to be a
sufficient number of episodes to offer the series in syndication where
additional revenues will be generated.
For fiscal 1998, EBITDA increased approximately 112% to $292 million
primarily as a result of the factors described above.
Television Broadcasting and Related Businesses. For fiscal 1998, revenues
increased approximately 14% to $3.1 billion. The segment experienced revenue
growth as a result of a full-year's contribution from the 10 television
stations acquired as part of the New World Acquisition, as well as revenue
growth at both the group's 12 base owned and operated television stations and
the New World stations. This revenue growth was attributed to increases in
market share and advertising rates. At FOX, revenue increased due to a strong
programming line-up, resulting in strong ratings in the key targeted audience,
adults aged 18-49 years old. FOX's ratings were supported by its new hit
series Ally McBeal, as well as the continued success of The Simpsons, The X-
Files and King of the Hill. As a result of FOX's strong ratings, advertising
revenues increased as FOX was able to obtain higher rates for advertising
targeted at adults aged 18-49 years old.
For fiscal 1998, operating expenses of the Fox Television Stations increased
primarily as a result of operating the New World stations for a full year in
fiscal 1998, as well as the costs associated with the investment in local
programming. This increase was partially offset by a decrease of operating
expenses of FOX, which resulted from a reduction of general advertising and
promotion costs, coupled with the absence of the development and production
costs associated with the series 13 Bourbon Street, which was abandoned during
fiscal 1997.
For fiscal 1998, operating income increased approximately 54% to $555
million. Despite increased costs, operating margins at the Fox Television
Stations improved under the Company's management. In addition, the operating
performance of FOX in fiscal 1998 did not reflect the contribution from the
broadcast of the Super Bowl, which was broadcast by FOX in fiscal 1997.
For fiscal 1998, EBITDA increased approximately 48% to $727 million
primarily as a result of the factors described above, as well as the increase
in depreciation and amortization. Depreciation and amortization reflects a
full year's amortization of intangible assets relating to the New World
Acquisition versus five months in fiscal 1997.
Cable Network Programming. For fiscal 1998, Fox News' revenues increased
approximately 95% to $72 million, reflecting a full year of operations as well
as a larger subscriber base. Fox News was launched on October 7, 1996.
For fiscal 1998, operating expenses increased as a result of the increased
costs of news gathering and the operation of Fox News for a full year as
compared to only nine months in fiscal 1997.
For fiscal 1998, operating losses decreased approximately 5%, or $7 million,
to a loss of $141 million from a loss of $148 million in fiscal 1997. Fox News
continues to experience losses but has increased subscriber revenues as a
result of its strengthened distribution base. Current subscribers now
constitute approximately 34 million with future commitments above 41 million
subscribers.
For fiscal 1998, EBITDA increased approximately 22% or $27 million, to a
loss of $96 million from a loss of $123 million in fiscal 1997 primarily as a
result of the factors described above, as well as the increase in depreciation
and amortization. Depreciation and amortization principally represents a full
year depreciation of Fox News' studio facilities and additional amortization
of cable carriage fees.
Other Charges. In fiscal 1998, the Company closed one of its film divisions
resulting in a non-recurring charge.
28
<PAGE>
Interest Expense. For fiscal 1998, intercompany interest expense increased
approximately 21% to $174 million from $144 million in fiscal 1997,
principally reflecting the increase in average balances due to News
Corporation and its affiliates.
The increase in external interest expense reflects increases in the full
year average balances of New World debt and production financing associated
with feature films.
Equity in Loss of Affiliates. For fiscal 1998, equity in loss of affiliates
increased approximately 62% to $81 million as compared to equity in loss of
affiliates of $50 million in fiscal 1997. This loss resulted primarily from
additional interest expenses related to the expansion of Fox/Liberty Networks
including its acquisition of a 40% interest in Regional Programming Partners
and expanded services at International Sports Programming Partners. FFW also
reported losses resulting primarily from interest expense incurred in
connection with its acquisition of International Family Entertainment, Inc. in
fiscal 1998.
Income Tax Expense on a Stand-alone Basis. The Company has not provided for
or paid current income taxes due to its net taxable losses. Deferred income
tax expense on a stand-alone basis represents the federal, state and foreign
taxes on earnings before income taxes. The effective income tax rate for
fiscal 1998 was 43% compared with 62% in the prior year. The lower effective
tax rate resulted from the relationship of non-deductible items to lower
taxable income in fiscal 1997.
RESULTS OF OPERATIONS--FISCAL 1997 VS. FISCAL 1996
The following table sets forth the Company's operating results, by segment,
for fiscal 1997 as compared to fiscal 1996:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
--------------
1996 1997 CHANGE
------ ------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
Revenues:
Filmed Entertainment.................................. $2,324 $3,112 $788
Television Broadcasting and Related Businesses........ 2,224 2,698 474
Cable Network Programming............................. -- 37 37
------ ------ ------
Total revenues...................................... 4,548 5,847 1,299
EBITDA:
Filmed Entertainment.................................. 142 138 (4)
Television Broadcasting and Related Businesses........ 436 490 54
Cable Network Programming............................. -- (123) (123)
------ ------ ------
578 505 (73)
Other charges......................................... -- (5) (5)
------ ------ ------
Total EBITDA........................................ 578 500 (78)
Depreciation and Amortization:
Filmed Entertainment.................................. 24 25 1
Television Broadcasting and Related Businesses........ 73 130 57
Cable Network Programming............................. -- 25 25
------ ------ ------
Total depreciation and amortization................. 97 180 83
Operating Income:
Filmed Entertainment.................................. 118 113 (5)
Television Broadcasting and Related Businesses........ 363 360 (3)
Cable Network Programming............................. -- (148) (148)
------ ------ ------
481 325 (156)
Other charges......................................... -- (5) (5)
------ ------ ------
Total operating income.............................. 481 320 (161)
Intercompany interest expense, net...................... (97) (144) (47)
External interest expense, net.......................... -- (47) (47)
Equity in earnings (loss) of affiliates................. 18 (50) (68)
Other income............................................ 183 -- (183)
------ ------ ------
Income before income taxes.............................. 585 79 (506)
Income tax expense on a stand-alone basis............... (174) (49) 125
------ ------ ------
Net income.............................................. $411 $30 $(381)
====== ====== ======
</TABLE>
29
<PAGE>
Filmed Entertainment. For fiscal 1997, revenues increased approximately 34%
to $3.1 billion. During fiscal 1997, the Company released 23 new feature films
as compared to 13 films released during fiscal 1996. The increase in revenues
was mainly a result of the highly successful theatrical and video performance
of Independence Day, as well as the theatrical release of The Star Wars
Trilogy Special Edition and William Shakespeare's Romeo + Juliet.
Additionally, fiscal 1997 revenues included the worldwide video sales of a
number of episodes of The X-Files series and increased sales of television
programming in the international free television marketplace.
For fiscal 1997, operating expenses increased due to increased filmed
entertainment production and exploitation costs, as well as the expansion of
the Company's domestic and international video sell-through capabilities,
including costs associated with its point of sale and inventory management
initiatives designed to support the marketing and distribution of video
product.
For fiscal 1997, operating income decreased approximately 4% to $113
million, as a result of the disappointing results of Speed 2, Chain Reaction
and Volcano, for which ultimate losses were recognized in fiscal 1997 in
accordance with GAAP and industry practice.
For fiscal 1997, EBITDA decreased approximately 3% to $138 million primarily
as a result of the factors described above.
Television Broadcasting and Related Businesses. For fiscal 1997, revenues
increased approximately 21% to $2.7 billion. The segment experienced continued
revenue growth at the group's 12 base owned and operated television stations
combined with the initial five month revenue contribution from the 10
television stations acquired as part of the New World Acquisition. This
revenue growth was attributable to increases in market share and advertising
rates. The New World Acquisition increased the coverage of the Fox Television
Stations from approximately 27% to approximately 40% of U.S. television
households. FOX's revenue growth resulted from its broadcast of Super Bowl
XXXI, the initial full year broadcast of MLB, including the World Series, as
well as increases in prime time advertising rates.
For fiscal 1997, operating expenses increased at the Fox Television Stations
primarily as a result of including the operation of the New World stations for
their initial five-month period. Operating expenses at FOX increased relating
to the programming and production costs associated with the broadcast of MLB
and Super Bowl XXXI. FOX's programming costs also increased as a result of the
addition of a second movie night, the launch of daytime programming and the
development costs associated with the abandonment of 13 Bourbon Street.
For fiscal 1997, operating income decreased 1% to $360 million.
For fiscal 1997, EBITDA increased approximately 12% to $490 million
reflecting the increase in amortization of intangible assets relating to the
New World Acquisition for five months.
Cable Network Programming. Fox News, which was launched on October 7, 1996
into 17 million cable and DBS homes, reported $37 million of initial revenues
and contributed EBITDA losses of $123 million and operating losses of $148
million during fiscal 1997. Depreciation and amortization relate to the
initial amortization of cable carriage fees over their term and the
depreciation of the Fox News' studio facilities.
Interest Expense. For fiscal 1997, intercompany interest expense increased
to $144 million from $97 million in fiscal 1996, principally reflecting the
increase in average balances due to News Corporation and its affiliates.
The increase in external interest expense reflects interest on the New World
debt and production financing associated with feature films.
Equity in Earnings (Loss) of Affiliates. For fiscal 1997, equity in loss of
affiliates was $50 million as compared to equity in earnings of affiliates of
$18 million in fiscal 1996. The results in fiscal 1997 reflected the Company's
share of the first full year losses of Fox/Liberty Networks and International
Sports Programming Partners.
30
<PAGE>
Income Tax Expense on a Stand-alone Basis. The Company has not provided for
or paid current income taxes due to its net taxable losses. Deferred income
tax expense on a stand-alone basis represents the federal, state and foreign
taxes on earnings before income taxes. The effective income tax rate for
fiscal 1997 was 62% compared with 30% in the prior fiscal year. The higher
effective tax rate resulted from the initial amortization of non-deductible
intangible assets arising from the New World Acquisition.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of cash flow are from internally generated
funds and borrowings from News Corporation and its subsidiaries. In accordance
with industry practice, the Company classifies the costs it incurs in
developing motion pictures and television programming as an investing
activity.
Net cash flows from operating activities in fiscal 1998 increased to $3.0
billion from $2.5 billion in fiscal 1997. This increase was primarily
attributable to the increase in earnings and amortization of filmed
entertainment costs.
Net cash flows used in investing activities were $3.6 billion and $2.6
billion in fiscal 1998 and 1997, respectively. Capital expenditures during
this period were principally for construction of new office buildings and
renovations at the Company's Los Angeles Fox studios lot and the construction
of Fox News, operations in New York. The Company's major acquisitions and
investments during this period included the Los Angeles Dodgers MLB franchise
and the sports programming and related joint ventures with Liberty Media
Corporation. During fiscal 1997, the Company acquired New World in a noncash
transaction which included the issuance of News Corporation stock and the
assumption of New World's indebtedness.
Future minimum payments under the Company's eight-year contract for program
rights to broadcast certain NFL games aggregated approximately $4.6 billion at
June 30, 1998, and are payable over the eight-year term. The Company's minimum
commitments and guarantees under certain programming, production, licensing,
artists, athletes, franchise and other agreements aggregated approximately
$2.3 billion at June 30, 1998, which are payable principally over a five-year
period.
Financing activities reflect advances received from News Corporation and the
repayments of outstanding indebtedness. The cash provided by News Corporation
was primarily used to fund capital expenditures and to repay external debt
assumed in connection with the New World Acquisition. The remaining New World
debt matures during fiscal 1999.
Pursuant to a series of film rights agreements with an independent third
party, the Company has agreed to sell completed feature films produced over
the period 1997-2001 to the third party at amounts which approximate cost. The
Company is the distributor of these films. Additionally, the Company has the
option to reacquire the films after a period when significantly all of the
ultimate revenues have been earned based on a formula which considers the
remaining projected ultimate revenues net of costs, as defined, at the time of
reacquisition. Cumulatively, through June 30, 1997 and 1998, 24 and 45 films
had been sold, respectively. No films have been reacquired as of June 30,
1998. As of June 30, 1997 and 1998, $474 million and $455 million of amounts
due under these agreements were included in participations, residuals and
royalties payable.
Prior to the Offerings, the Company's net cash flow requirements were funded
through News Corporation. Subsequent to the Offerings, it is contemplated that
the Company will utilize the treasury and cash management services, including
the use of bank overdraft facilities, of News Corporation and its
subsidiaries. Interest expense or income on funds borrowed from or lent to
News Corporation will be calculated at rates set forth in the Master
Intercompany Agreement, or otherwise, and will approximate commercial market
rates.
31
<PAGE>
YEAR 2000
The Company is currently working to resolve the potential impact of the Year
2000 on the processing of date-sensitive information by its computerized
information systems. The Year 2000 problem is the result of computer programs
being written using two digits (rather than four) to define the applicable
year. Certain programs may recognize a date using "00" as the year 1900 rather
than the year 2000, which could result in miscalculations or system failures.
The Company has been focused on the Year 2000 issue for several years since
its normal capital spending plan requires it to ensure that significant
investments in technology in the periods prior to December 31, 1999, would be
for systems which would be operational after December 31, 1999. As a result of
its assessment and capital planning, no acceleration of material planned
systems replacements were made due to Year 2000 issues.
Between now and January 1, 2000, the Company will proceed through its
various phases of assessment, strategy, detailed planning, implementation,
testing and management. The Company expects to be fully Year 2000 compliant
with respect to all significant business systems during the first half of
calendar 1999.
The Company has in place a Year 2000 program in each of its operating
divisions. These programs, which are executed by project teams, do not rely to
a significant degree on outside consultants. The objectives of these Year 2000
programs are to determine and assess the risks of the Year 2000 issue and to
plan and institute mitigating actions to minimize those risks to acceptable
levels.
The Company's standard for compliance requires that for a computer system or
a business process to be Year 2000 compliant, it must be designed to be used
prior to, on and after January 1, 2000. Such systems or processes must be able
to operate without error in dates and date-related data, including without
limitation, calculating, comparing, indexing and sequencing prior to, on and
after January 1, 2000.
The Company's Year 2000 project teams are focusing on the following major
areas:
Core Computer Systems. Information technology systems account for much of
the Year 2000 work and include all computer systems and technology managed by
the Company. All core systems have been assessed, plans are in place and work
is being undertaken to test and implement changes where required. No major
remediation has been identified. In Filmed Entertainment, in-house systems
play a limited role in the development and distribution of product. In
Television and Cable Network Programming, the core systems relate to the
broadcasting of programming and the placement of advertising, with respect to
both of which the Company relies on standard package systems developed by
vendors whose products are widely used in the industry. Information Technology
vendors and suppliers have been contacted as to their Year 2000 compliance and
their responses have been factored into the Company's plans.
Equipment and Facilities. An inventory of all critical broadcast equipment,
office equipment and building infrastructure has been completed for all major
sites including the Company's Los Angeles lot and television stations.
Customers and Vendors. The Company is communicating with its significant
customers and vendors to understand their Year 2000 issues and how they might
prepare themselves to manage those issues as they relate to the Company. To
date, no significant customers or vendors have informed the Company that a
material Year 2000 issue exists which will have a material effect on the
Company.
During calendar 1998 and 1999, the Company will continually review its
progress against its Year 2000 plans and conclude on the appropriate and
feasible contingency plans to reduce its exposure to Year 2000 related issues.
Based on the Company's current assessment, the costs of addressing potential
problems are not currently expected to have a material adverse impact on the
Company's financial position, results of operations or cash flows in future
periods. However, if the Company, its customers or vendors identify Year 2000
issues in the future and are unable to resolve such issues in a timely manner,
it could result in a material financial risk. Accordingly, the Company plans
to devote the necessary resources to resolve all significant Year 2000 issues
in a timely manner.
32
<PAGE>
BUSINESS
COMPANY OVERVIEW
Fox Entertainment Group, Inc. is one of the world's leading vertically
integrated entertainment companies. The Company is principally engaged in the
development, production and worldwide distribution of feature films and
television programs, television broadcasting and cable network programming.
The Company's studios, production facilities and film and television library
provide high-quality creative content, and the Company's broadcasting and
cable networks provide extensive distribution platforms for the Company's
programming, thus allowing the Company to retain a substantial portion of the
economic value of its film and television programming. The Company's objective
is to create successful film and television programming, to own substantially
all rights to such programming and to maximize the value of such rights,
including by owning significant segments of the programming distribution
chain. The Fox brand names are recognized throughout the world and are
leveraged by the Company to enhance existing businesses and successfully
launch new ones. In fiscal 1998, the Company generated approximately $7
billion in combined revenues and approximately $900 million in EBITDA.
The address of the Company's principal executive offices is 1211 Avenue of
the Americas, New York, New York 10036, and the telephone number is (212) 852-
7000.
BUSINESS STRATEGY
The Company's objective is to create successful film and television
programming, to own substantially all rights to such programming and to
maximize the value of such rights, including by owning significant segments of
the programming distribution chain. The Company intends to continue to execute
the following strategies:
Create high-quality franchise programming. The Company aims to continue to
produce high-quality film and television programming. The Company earned 21
Academy Award(TM) nominations in 1997 (more than any other film studio) and 52
Emmy Award nominations for the 1997-1998 television season (more than any
other television studio). In addition, during fiscal 1998, the Company's film
studio ranked number one in worldwide gross box office receipts. Twentieth
Century Fox Television is the leading television production studio based on
hours of weekly programming ordered for broadcast on network television for
the Fall 1998 television season. This success is due to several factors, among
them a stable and experienced management team and strong relationships with
the creative talent community.
Maximize the value of the Company's programming, including through Company-
owned distribution outlets. Because the Company owns multiple distribution
outlets, the Company can provide many opportunities for new programming to
develop a widespread audience and increase the programming's revenue
potential. Once an FFE feature film is produced, the Company can generate
revenues through theatrical release, home video, broadcast television and
cable television. Furthermore, once a television series is produced by
Twentieth Century Fox Television, its first-run rights can be licensed to FOX
for distribution on the Fox Television Stations and other FOX affiliates and
it can be syndicated by Twentieth Television. In addition, the Company derives
revenues from foreign distribution of its feature films and television
programs, as well as through licensing, merchandising, music publishing and
interactive media. Furthermore, distributing popular programming through the
Company's own distribution outlets enhances the franchise value of those
outlets, as well as the value of the programming.
Retain rights to programming licensed to third parties. In addition to
distributing its creative content through Company-owned distribution channels,
the Company actively seeks opportunities to sell programming to other
networks. In contrast to independent producers that rely solely on third-party
owned networks for distribution, the Company's ownership of a major broadcast
distribution platform in FOX has strengthened its position as a programmer and
has generally enabled the Company to retain substantial rights to its
television programming in ancillary markets, such as syndication, where
additional revenues can be generated to recover production costs and generate
profits.
Leverage the Fox brand. The Company believes that the Fox brand is
recognized throughout the world and can be leveraged by the Company to enhance
existing businesses and successfully launch new ones. Substantially
33
<PAGE>
all of the Company's businesses, including its joint ventures, carry Fox brand
names. The public's familiarity with the Company's substantial film and
television library, content creation capabilities and commitment to quality
production have drawn viewers to the Company's newer distribution channels,
such as Fox News, Fox Sports Net, the Fox Sports RSNs and FXM: Movies from
Fox, and have contributed to the success of ventures such as FOX, the Fox
Television Stations and FX.
Benefit from the Company's relationship with News Corporation. The Company
historically has benefited from, and believes it will continue to benefit
from, its access to News Corporation's worldwide distribution outlets and
other assets, management experience and financial resources. News Corporation
is a leading global media company that distributes its programming through
multiple distribution outlets, including broadcast television, cable networks,
DBS services, newspapers, magazines and book publishing. The Company benefits
from access to distribution platforms owned in whole or in part by News
Corporation, including BSkyB, STAR TV and the Sky Latin America platforms,
thereby enhancing the reach and value of its programming. Further, the Company
expects to continue to benefit from the management services that certain key
executive officers of News Corporation render to the Company.
VERTICAL INTEGRATION AT WORK
The X-Files
The Company's popular series The X-Files provides an excellent example of
the enhanced value that can be created by the Company through its distribution
of Company-created programming through Company-owned distribution channels.
The production and distribution history of The X-Files is as follows: (i)
Twentieth Century Fox Television, in cooperation with the program's creator,
produces the series; (ii) FOX licenses the first-run rights to the series from
Twentieth Century Fox Television, including episodes of the series for airing
during its Sunday prime time schedule, and FOX retains and sells the national
advertising spots; (iii) the Fox Television Stations sell local advertising
during these episodes in their respective markets; (iv) Twentieth Television
then sells the series in syndication for exhibition on FX and various
television stations, including the Fox Television Stations group; (v) FX sells
the national advertising for these episodes and the Fox Television Stations
sell local advertising; and (vi) units of FFE sell the series in markets
outside the United States and Canada. By building an audience for The X-Files
on FOX, the Company created a valuable programming franchise, from which many
of its distribution outlets have benefitted. Most recently, FFE produced a
major motion picture based on The X-Files, which, as of September 14, 1998,
had grossed over $83 million in U.S. box office receipts and will ultimately
be released in most major international markets, distributed to the home
video, cable and broadcast television marketplaces and licensed for
merchandising.
Other Examples
The Simpsons represents another example of how the Company increases
programming revenues and enhances value by distributing its creative content
through Company-owned distribution outlets. The series was (i) produced by
Twentieth Century Fox Television in cooperation with the program's creator,
(ii) licensed to FOX, where it has been a perennial ratings winner, (iii)
syndicated by Twentieth Television to local broadcasting stations, including
the Fox Television Stations, which used the program effectively as a lead-in
to FOX's prime time programming, and (iv) sold in markets outside the U.S. and
Canada by units of FFE, including sales to entities owned in whole or in part
by News Corporation such as BSkyB and STAR TV. The program's characters have
also been licensed and merchandised in connection with a wide range of highly
popular consumer products. In addition, other Company-produced film and
television programming has been distributed on various Company-owned
distribution outlets, including such programming as Mrs. Doubtfire, the Star
Wars trilogy, the Alien films, In Living Color and M*A*S*H.
FEATURE FILM AND TELEVISION PRODUCTION AND DISTRIBUTION
The Company is an industry leader in producing and acquiring live-action and
animated motion pictures for distribution and licensing to the theatrical,
television and home video markets, and producing original television
programming for distribution to broadcast networks, cable networks and
television stations.
34
<PAGE>
Feature Film Production and Distribution
FFE is one of the world's largest producers and distributors of motion
pictures. TCFFC, FFE's distribution unit, traces its origins to the earliest
days of the motion picture business in the United States. In 1915, William Fox
founded Fox Film Corporation, which became a leading producer and distributor
of motion pictures. In the early 1930's, Darryl Zanuck founded Twentieth
Century Pictures. In 1935, Zanuck's company merged with Fox Film Corporation
to form the Twentieth Century-Fox Film Corporation. Under Darryl Zanuck the
studio achieved great success with such films as The Grapes of Wrath, All
About Eve and Miracle on 34th Street. News Corporation acquired TCFFC in 1985.
FFE produces, finances, acquires and distributes motion pictures throughout
the world under a variety of arrangements and during the current fiscal year,
expects to place in general release in the United States approximately 25
motion pictures. During fiscal 1996, 1997 and 1998, FFE placed 13, 23 and 25
films, respectively, in general release in the United States. Those motion
pictures were produced or acquired by the following units of FFE: Twentieth
Century Fox and Fox 2000, which produce motion pictures for mainstream
audiences; Fox Searchlight Pictures, which produces and acquires specialized
motion pictures; and Fox Animation Studios, which produces feature length
animated motion pictures. Successful motion pictures produced and/or
distributed by FFE since the beginning of fiscal 1996 include Independence
Day, Courage Under Fire, William Shakespeare's Romeo + Juliet, The Star Wars
Trilogy Special Edition, The Full Monty, Nine Months, Broken Arrow, Waiting to
Exhale, Anastasia, Hope Floats, The X-Files, Dr. Dolittle, There's Something
About Mary, Ever After, How Stella Got Her Groove Back and Titanic (with
Paramount Pictures Corporation).
In addition, pursuant to an agreement that became effective at the end of
May 1998 with Monarchy Enterprises Holdings B.V. ("MEH"), parent company of
Regency Entertainment, Inc. ("New Regency"), a major independent production
company headed by Arnon Milchan, TCFFC will distribute (subject to certain
exceptions) essentially all New Regency films and all films co-financed by
TCFFC and New Regency produced over a 15-year term in all media worldwide,
including theatrical, home video, licensing and merchandising and domestic
free television, but not including international television in most instances.
The Company expects to release approximately four to six New Regency films
during its current fiscal year. Among New Regency's previous motion pictures
are such hits as Pretty Woman, A Time to Kill, Under Siege and L.A.
Confidential. In connection with this distribution arrangement, an affiliate
of the Company acquired a 20% interest in MEH. The parties also agreed to
enter into certain motion picture financing arrangements and have formed
Regency Television, a 50/50 joint venture to produce television programming.
The following chart contains certain information regarding recent and
forthcoming motion pictures distributed and to be distributed by TCFFC:
<TABLE>
<CAPTION>
PROJECTED
RELEASE
MOTION PICTURE(1) TALENT GENRE PRODUCTION UNIT DATE
----------------- ------ ----- --------------- ---------
<C> <C> <C> <C> <S>
Dr. Dolittle Eddie Murphy Comedy Twentieth Century Fox June
1998
The X-Files David Duchovny, Sci-Fi Twentieth Century Fox June
Gillian Anderson 1998
There's Something Ben Stiller, Comedy Twentieth Century Fox July
About Mary Cameron Diaz, Matt 1998
Dillon
Ever After... A Drew Barrymore, Modern-Day Twentieth Century Fox July
Cinderella Story Angelica Huston Fairy Tale 1998
Slums of Beverly Natasha Lyonne, Comedy Fox Searchlight August
Hills Marisa Tomei, Alan 1998
Arkin
How Stella Got Her Angela Bassett, Drama Twentieth Century Fox August
Groove Back Whoopi Goldberg 1998
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
PROJECTED
MOTION PICTURE(1) TALENT GENRE PRODUCTION UNIT RELEASE DATE
- ----------------- ------ ----- --------------- ------------
<S> <C> <C> <C> <C>
The Siege Ed Zwick Action/Adventure Twentieth Century Fox Thanksgiving 1998
(director), Bruce
Willis, Denzel
Washington, Annette
Benning
The Impostors Stanley Tucci, Comedy Fox Searchlight Fall 1998
Oliver Platt
Thin Red Line Terrence Mallick Drama Fox 2000 Christmas 1998
(director), Sean
Penn, George
Clooney, Woody
Harrelson, John
Travolta, John
Cusack, Bill
Pullman
Office Space Mike Judge Comedy Twentieth Century Fox Winter 1999
(director),
Jennifer Aniston
Brokedown Palace Claire Danes, Bill Drama Fox 2000 Winter 1999
Pullman
Pushing Tin Mike Newell Comedy Fox 2000/ Spring 1999
(director), John New Regency
Cusack, Billy Bob
Thornton, Cate
Blanchette
Never Been Kissed Drew Barrymore Comedy Fox 2000 Spring 1999
Anywhere But Here Susan Sarandon, Drama Fox 2000 Spring 1999
Natalie Portman
Entrapment Sean Connery, Action/Adventure Twentieth Century Fox/ Spring/
Catherine Zeta- New Regency Summer 1999
Jones
William Kevin Kline, Drama Fox Searchlight/ Summer 1999
Shakespeare's A Michelle Pfeiffer, New Regency
Midsummer Night's Calista Flockhart,
Dream Rupert Everett
Star Wars Prequel George Lucas Sci-Fi Twentieth Century Fox Summer 1999
(currently (director), Liam
untitled) Neeson, Ewan
McGregor, Natalie
Portman, Samuel L.
Jackson
Fight Club Brad Pitt, Edward Drama Fox 2000/New Regency Summer 1999
Norton, Helena
Bonham-Carter
The Beach Leonardo DiCaprio Drama Twentieth Century Fox Christmas 1999
Planet Ice Voices of Matt Animated Fox Animation Studios Summer 2000
Damon, Drew Sci-Fi
Barrymore, Bill
Pullman, Nathan
Lane
</TABLE>
- --------
(1) There can be no assurance that the Company will release motion pictures in
accordance with this schedule, or under the titles listed above, or that
other changes in the information contained in this chart will not take
place.
36
<PAGE>
Units of FFE have entered into arrangements with many highly regarded
producers and directors, including Arnold and Anne Kopelson (The Fugitive),
James Cameron (Terminator 2, Titanic), Jan de Bont (Speed), Chris Columbus
(Home Alone, Mrs. Doubtfire), Ed Zwick (Legends of the Fall, Courage Under
Fire), Mike Newell (Four Weddings and a Funeral, Donnie Brasco), John Davis
(The Firm, Dr. Dolittle), Baz Lurhman (William Shakespeare's Romeo + Juliet),
Peter and Bobby Farrelly (Dumb and Dumber, There's Something About Mary) and
Art Linson (Heat, The Untouchables) with respect to the production and
distribution of motion pictures. While these arrangements do not ensure that
any of these individuals will produce or direct any films for distribution by
TCFFC, the Company believes that the existence of such arrangements provides
it with a strategic advantage in producing and distributing films from well-
regarded producers and directors in a competitive environment for such films.
The production and marketing of theatrical motion pictures require
substantial capital, and the costs of producing and marketing motion pictures
have generally increased in recent years at a faster rate than increases in
revenues from domestic theatrical releases. Accordingly, motion picture
companies, such as FFE, typically seek to generate revenues from other
distribution channels. FFE derives its worldwide motion picture revenues
primarily from four basic sources (set forth in general chronology of
exploitation): (i) distribution of motion pictures for theatrical exhibition
in the United States and Canada and markets outside of the United States and
Canada ("International" markets); (ii) distribution of motion pictures in
various home video formats; (iii) distribution of motion pictures for
exhibition on pay-per-view and premium pay television programming services;
and (iv) distribution of motion pictures for exhibition on free television
networks, other broadcast program services, independent television stations
and basic cable programming services, including certain services which are
affiliates of the Company and News Corporation. The Company does not always
have rights in all media of exhibition to all motion pictures which it
releases, and does not necessarily distribute a given motion picture in all of
the foregoing media in all markets.
The Company typically seeks to acquire substantially all worldwide
distribution rights to films it places in general release, although from time
to time it may acquire distribution rights for certain specified territories
only. The Company distributes and markets its films worldwide principally
through its own distribution and marketing companies. The Company believes
that the pre-release marketing of a feature film is an integral part of its
motion picture distribution strategy and generally begins marketing efforts
three to six months in advance of a film's release date in any given
territory. In addition, the Company has released motion pictures
internationally for more than 50 years, and is committed to capitalizing on
opportunities in European, Asian, Latin American and other International
markets.
Home video exhibition has become an increasingly important part of the
Company's feature film and television production and distribution operations.
Through Twentieth Century Fox Home Entertainment, Inc., the Company
distributes motion pictures and other programming produced by units of FFE,
its affiliates and other producers in the United States, Canada and
International markets in all home media formats including rental and sell-
through titles. Approximately 210 produced and acquired titles were released
or re-released to the domestic home entertainment market in fiscal 1998. In
International markets, the Company distributes both directly and through
foreign distribution channels and approximately 100 produced and acquired
titles were made available to the Company to the international home
entertainment market in fiscal 1998. The Company has sold five of the top 10
live-action sell-through titles in the United States, including the Star Wars
trilogy, The Star Wars Trilogy Special Edition, Independence Day, Mrs.
Doubtfire and Home Alone. In addition, the Company also intends to further
develop its activities in the direct-to-video business.
Units of FFE license motion pictures and other programs in the United
States, Canada and International markets to various third-party licensees and
certain affiliated entities, including pay television services, pursuant to
license agreements which generally provide for a specified number of
exhibitions of the program during a fixed term in exchange for a license fee
which is based on a variety of factors, including the number of subscribers to
the service or system. Among third-party license agreements that units of FFE
have in place in the United States for pay television exhibition of its motion
pictures are exclusive agreements with Home Box Office ("HBO"), providing for
the licensing of films initially released for theatrical exhibition through
the year 2003, as well as arrangements with Encore and American Movie
Classics. Units of FFE also license motion pictures in
37
<PAGE>
the United States to pay-per-view services such as Viewer's Choice and the
pay-per-view service operated by DirecTV. In addition, in International
markets, units of FFE license motion pictures to leading third-party pay
television operators as well as to programming services operated by various
affiliated entities.
Units of FFE also license motion pictures to broadcast television networks,
including FOX, independent broadcast television stations and basic cable
networks, pursuant to agreements which generally allow a fixed number of
telecasts of a motion picture over a stated period of time in exchange for a
specified license fee.
Television Programming, Production and Distribution
As television came into prominence in the United States, many of the motion
picture studios, including FFE, entered into the television industry by
producing television programming. Today, the Company is engaged in the
production and distribution of television programming through a variety of its
business units and affiliated entities, including Twentieth Century Fox
Television, Twentieth Television, Fox Television Studios and Fox Family
Worldwide. The Company believes that its television programming and
distribution businesses benefit materially from the Company's and News
Corporation's ownership interests in various domestic and international
distribution channels for television programming, including FOX, the Fox
Television Stations, FX, BSkyB Group and STAR TV. In many cases, the Company
is able to develop an audience for and enhance the value of its television
programming assets by licensing such programming to affiliated entities.
Twentieth Century Fox Television
Twentieth Century Fox Television produces original television programming
for Network television exhibition, including many hit shows currently airing
on the Networks. During the past three fiscal years, Twentieth Century Fox
Television produced television programs for the FOX, ABC, CBS, NBC, WB and UPN
television networks and the USA cable network. Twentieth Century Fox
Television is the leading television production studio, based on hours of
weekly programming ordered for broadcast on network television. The Networks
have ordered from Twentieth Century Fox Television a total of 15 television
series, including 12 returning series, for the Fall 1998 television season.
Twentieth Century Fox Television currently produces or has orders to produce
episodes of the following Network television series: Dharma & Greg, Two Guys,
a Girl and a Pizza Place and The Practice for ABC; Chicago Hope and Martial
Law (co-produced with CBS) for CBS; The Simpsons, Ally McBeal, The X-Files,
King of the Hill, Millennium, Living in Captivity, Getting Personal and
Holding the Baby (co-produced with Granada) for FOX; The Pretender (co-
produced with NBC Studios) for NBC; Buffy the Vampire Slayer for WB; and Silk
Stalkings for the USA cable network. Generally, a Network will license a
specified number of episodes for exhibition on the Network during the license
period. All other distribution rights, including international and off-network
syndication rights, are typically retained by Twentieth Century Fox
Television. Twentieth Century Fox Television also has long-term television
programming development deals with the following highly-regarded creators of
successful television programming: David Kelley (Ally McBeal, The Practice,
Chicago Hope), Chris Carter (The X-Files, Millennium), Mike Judge (King of the
Hill), Greg Daniels (King of the Hill), Chuck Lorre (Dharma & Greg), Danny
Jacobson (Two Guys, a Girl and a Pizza Place) and Joss Whedon (Buffy the
Vampire Slayer). In general, pursuant to such arrangements, Twentieth Century
Fox Television acquires the producing or writing services of such individuals
on an exclusive basis during the terms of such arrangements. In addition, many
television series are produced in cooperation with their creators.
Generally, television programs are produced under contracts that provide for
license fees which may cover only a portion of the anticipated production
costs. As these costs have increased in recent years, the resulting deficit
between production costs and license fees for domestic first-run programming
has also increased. Successful network television series are licensed (i) for
first-run exhibition in International and Canadian markets, (ii) for off-
network exhibition in the United States (including in syndication or to cable
programmers) and (iii) for syndication in International markets. Such
additional licensing is often critical to the financial success of a series
since the license fee paid by a Network generally does not fully recover
production costs. Generally, a series must be broadcast for at least three to
four television seasons for there to be a sufficient number of
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<PAGE>
episodes to offer the series in syndication in the United States or to cable
and DBS programmers in the United States. The decision of a television network
to continue a series through an entire television season or to renew a series
for another television season depends largely on the series' audience ratings.
Twentieth Television
The Company is also engaged in television programming, production,
distribution and licensing through Twentieth Television, Inc. ("Twentieth
Television"). Twentieth Television produces and distributes television
programs and distributes feature motion pictures for first-run syndication and
on basic cable television in the United States. Twentieth Television also
licenses programming which it, Twentieth Century Fox Television or third
parties have produced and which has previously been exhibited on network
television. The off-network television programming currently distributed by
Twentieth Television in the United States includes The Simpsons, The X-Files,
King of the Hill, NYPD Blue (a Steven Bochco production), Picket Fences, Cops
and M*A*S*H. Twentieth Television produces and distributes for first-run
syndication Access Hollywood (in association with NBC Productions) and Student
Bodies (in association with Telecine Film Group).
Fox Television Studios
During fiscal 1998, the Company formed a new unit, Fox Television Studios,
to produce television programming for the Networks and cable programming
services. Fox Television Studios has three principal lines of business:
production of original television programming for the Networks, primarily
through its interest in Greenblatt/Janollari Studios, production of original
television programming for cable programming services, including affiliates of
the Company such as the Fox Family Channel and Fox Sports Net, and production
of natural history programming through its interest in Natural History Limited
(jointly owned by the Company and Television New Zealand).
Greenblatt/Janollari Studios recently received orders for three Network
television series, The Hughleys, a comedy for ABC; Maggie Winters (co-produced
with CBS), a comedy starring Faith Ford for CBS; and To Have and To Hold (co-
produced with CBS), a romantic drama for CBS.
Fox Family Worldwide ("FFW")
FFW, an entity in which the Company has a 49.5% interest, creates, produces
and acquires live-action and animated family and childrens' television
programming through its various operating subsidiaries and divisions,
principally Saban Entertainment, Saban International and the Fox Family
Channel. These programs are broadcast in the United States on the Fox Kids
Network and the Fox Family Channel. The Fox Kids Network broadcasts 19 hours
of children's programming each week through its affiliates, of which
approximately 11.5 hours is being programmed for Fall 1998 with product owned
or controlled by FFW. Childrens' programming on the Fox Kids Network is
largely based on brand-name characters and themes which are either widely
known to children, such as the Mighty Morphin Power Rangers ("Power Rangers"),
Young Hercules, Godzilla and Mr. Potato Head, or which are or have been
developed or purchased due to their likelihood of maturing into popular
brands, such as Mystic Knights of Tir Na Nog or NASKIDS (in association with
NASCAR), both of which will be supported by major toy and merchandise lines.
The Fox Family Channel's programming format includes day-time programming for
children followed by evening programming which targets adult viewers and
demographics but which is suitable for the entire family. The childrens'
programming on the Fox Family Channel is drawn largely from FFW's library.
Programming produced or acquired by FFW is distributed internationally through
Saban International. See "--Cable Network Programming--Fox Family Worldwide."
Motion Picture and Television Libraries
The Company's motion picture and television library (the "Fox Library")
consists of varying rights to over 2,500 previously released films, of which
almost 300 have been released since 1980, and many well known television
series. The motion pictures in the Fox Library include many successful, well-
known and well-loved titles, such as The Sound of Music and Star Wars, and six
of the top 10 domestic box office grossing films of all time. The Company
earns significant revenues through the licensing of titles in the Fox Library
in many media,
39
<PAGE>
including television and home entertainment formats, and through licensing and
merchandising of films and characters in films. The Company expects to
continue to earn significant revenues from the Fox Library as new technologies
for the licensing of films evolve and as the Fox Library is continuously
refreshed with the addition of new properties.
In addition, the Fox Library provides the Company with many opportunities to
realize the value inherent in established properties through remakes and
sequels. For example, the Company released the original version of the
science-fiction picture The Fly, starring Vincent Price, in 1954 and released
a successful remake of The Fly, starring Jeff Goldblum, in 1986. Similarly,
the Company recently released a remake of Dr. Dolittle, starring Eddie Murphy
and based on the 1967 original, which, as of September 14, 1998, had generated
theatrical box office gross receipts in excess of $140 million in North
America. The original Alien, released in 1979, spawned Aliens (1986), Alien 3
(1992) and Alien Resurrection (1997), and the original Die Hard, released in
1987, led to two sequels. The Company's film properties can also have value as
the basis for television programming. For example, the Company's film M*A*S*H
led to the Company's perennially successful television series of the same
name. The Company has also had success turning its original television
programming into feature films as with The X-Files, a recent successful motion
picture based on the Company's television series of the same name.
Many titles in the Fox Library are now considered to be Hollywood classics,
and many have won or been nominated for Academy Awards(TM). The following list
contains a sampling of some of the well-known films in the Fox Library, listed
by decade of original release:
<TABLE>
<CAPTION>
DECADE MOTION PICTURE(1) TALENT
- ------ ----------------- ------
<S> <C> <C>
1930's Cavalcade (1933) Frank Lloyd (director), Clive Brook, Frank Lawton
The Little Colonel (1935) Shirley Temple, Lionel Barrymore
Poor Little Rich Girl (1936) Shirley Temple, Gloria Stuart
In Old Chicago (1938) Tyrone Power, Alice Faye
1940's The Grapes of Wrath (1940) John Ford (director), Henry Fonda, Jane Darwell,
John Carradine
How Green Was My Valley (1941) John Ford (director), Maureen O'Hara, Walter Pidgeon,
Roddy McDowell
Gentleman's Agreement (1947) Elia Kazan (director), Gregory Peck, Dorothy McGuire,
John Garfield, Celeste Holm
Miracle on 34th Street (1947) Maureen O'Hara, Natalie Wood, Edward Gwenn
1950's All About Eve (1950) Joseph L. Mankiewicz (director), Bette Davis,
Anne Baxter, George Sanders, Celeste Holm
How to Marry a Millionaire (1953) Marilyn Monroe, Betty Grable, Lauren Bacall
The King and I (1956) Yul Brynner, Deborah Kerr, Rita Moreno
Peyton Place (1957) Hope Lange, Lana Turner, Lloyd Nolan
1960's The Hustler (1961) Paul Newman, Piper Laurie, Jackie Gleason,
George C. Scott
Cleopatra (1963) Joseph L. Mankiewicz (director), Elizabeth Taylor,
Richard Burton, Rex Harrison
The Sound of Music (1965) Robert Wise (director), Julie Andrews, Christopher Plummer
Planet of the Apes (1968) Charlton Heston, Kim Hunter, Roddy McDowell
Butch Cassidy and the George Roy Hill (director), Paul Newman, Robert Redford,
Sundance Kid (1969) Katherine Ross
Hello Dolly (1969) Barbra Streisand, Walter Matthau, Louis Armstrong
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
DECADE MOTION PICTURE(1) TALENT
- ------ ----------------- ------
<S> <C> <C>
1970's Patton (1970) George C. Scott, Karl Malden
The French Connection (1971) William Friedkin (director), Gene Hackman, Roy Scheider
The Poseidon Adventure (1972) Gene Hackman, Ernest Borgnine, Shelley Winters,
Red Buttons, Roddy McDowell
Young Frankenstein (1974) Mel Brooks (director), Gene Wilder, Marty Feldman,
Madeline Kahn, Cloris Leachman
Star Wars (1977) George Lucas (director), Mark Hamill, Harrison Ford,
Carrie Fisher, Alec Guinness
Alien (1979) Sigourney Weaver, Tom Skerritt, Harry Dean Stanton
Norma Rae (1979) Sally Field, Beau Bridges
1980's Nine to Five (1980) Jane Fonda, Lily Tomlin, Dolly Parton, Dabney Coleman
Chariots of Fire (1981) Ben Cross, John Gielgud
Return of the Jedi (1983) Harrison Ford, Carrie Fisher, Mark Hamill, Billy Dee Williams
Broadcast News (1987) James Brooks (director), Holly Hunter, William Hurt,
Albert Brooks
Wall Street (1987) Oliver Stone (director), Michael Douglas, Charlie Sheen,
Martin Sheen, Daryl Hannah
Die Hard (1987) Bruce Willis, Alan Rickman, Alexander Gudunov,
Bonnie Bedelia
Working Girl (1988) Mike Nichols (director), Melanie Griffith, Sigourney Weaver,
Harrison Ford, Alec Baldwin, Joan Cusack
Big (1988) Penny Marshall (director), Tom Hanks, Elizabeth Perkins
1990's Home Alone (1990) Chris Columbus (director), Macaulay Culkin, Joe Pesci,
Daniel Stern, Catherine O'Hara
Die Hard 2 (1990) Bruce Willis, Bonnie Bedelia
Mrs. Doubtfire (1993) Chris Columbus (director), Robin Williams, Sally Field
Speed (1994) Jan de Bont (director), Keanu Reeves, Sandra Bullock, Dennis Hopper
True Lies (1994) James Cameron (director), Arnold Schwarzeneger, Jamie Lee Curtis
Braveheart (1995) Mel Gibson, Sophie Marceau, Catherine McCormack
Independence Day (1996) Will Smith, Bill Pullman, Jeff Goldblum
The Full Monty (1997) Robert Carlyle, Mark Addy
Titanic (1997) James Cameron (director), Leonardo DiCaprio,
Kate Winslet, Gloria Stuart, Billy Zane, Kathy Bates, Bill Paxton
</TABLE>
- -------
(1) The Company's rights to distribute and otherwise exploit the filmed
entertainment product in the Fox Library are in some instances subject to
material restrictions relating to the term of their rights and the media
and geographical markets in which such rights may be exploited.
In addition, the Fox Library contains varying rights to certain television
series and made-for-television motion pictures. The television library
contains such classic series as Batman, The Mary Tyler Moore Show, M*A*S*H,
Hill Street Blues, Doogie Howser, M.D., L.A. Law, The Wonder Years, Peyton
Place, Picket Fences, Room 222, Trapper John, M.D. and Daniel Boone, and such
recent hits as The Simpsons, The X-Files, NYPD Blue, Chicago Hope and King of
the Hill. M*A*S*H, for example, which ran for 11 years on Network television
through 1983, is currently syndicated on 184 stations in the United States,
including certain of the Fox Television Stations.
41
<PAGE>
Licensing and Merchandising
The Company believes that the diversity and quality of the Fox Library, as
well as the popularity of certain of its film and television characters,
affords it significant competitive advantages. The Company capitalizes on its
characters and properties by entering into licensing agreements. For example,
the characters in The Simpsons appear on approximately 1,800 consumer
products. Additional programs and films which have experienced success in
licensing and merchandising include The X-Files, Alien and Anastasia. See "--
Cable Network Programming--Fox Family Worldwide."
Fox Interactive
Fox Interactive develops and markets entertainment computer software and
video game titles. Since the reorganization of the division in 1996, Fox
Interactive has experienced significant revenue growth, primarily as a result
of the success of games based on film and television properties, including Die
Hard, Independence Day, and The Simpsons. In addition to creating games and
entertainment software inspired by Company properties, Fox Interactive
develops or acquires games based on original characters, such as Croc, which
can then be exploited in other media by the Company. Fox Interactive has also
launched a line of Fox Sports Interactive games including Fox Sports NHL
Hockey '99, Fox Sports NCAA College Hoops '99, Fox Sports Soccer '99, and Fox
Sports Golf '99.
Fox Music and Music Publishing
Fox Music produces and licenses for distribution through third parties
soundtracks of the Company's film and television productions. The Company's
successful film and television soundtracks include Titanic, Back to Titanic,
Soul Food, Hope Floats, Ally McBeal, The X-Files, Dr. Dolittle and How Stella
Got Her Groove Back. As of the week of September 17, 1998, five of the top 10
selling soundtracks in release were from Fox Music. In addition, Fox Music
Publishing generally owns the publishing rights for songs and scores
commissioned for the Company's film and television programming. Fox Music
Publishing licenses these rights to third parties for many uses in different
media.
Studio Facilities
Covering approximately 53 acres near Century City in Los Angeles,
California, Twentieth Century Fox Studios (the "Fox Studios Lot") is one of
the premiere motion picture and television production facilities of its kind
in the world. The Fox Studios Lot, which dates back to 1925, encompasses 15
sound stages used in the production of motion pictures and television
programming. In addition, the Fox Studios Lot is currently undergoing certain
improvements, which include the construction of a new FOX operations center,
the first all digital network facility in the United States, which is used to
broadcast Fox Sports News, as well as a 172,000 square feet office building, a
production services facility and certain other improvements.
In September 1996, the Company completed the construction of a studio
facility in Rosarito, Mexico. The facility is located on approximately 37
acres of land and consists of approximately 150,000 square feet of office and
studio space and fresh and salt water tanks aggregating an area of over nine
acres. The facility, which was built for the filming of Titanic, is the
largest underwater filming studio facility in the world, and is rented out by
the Company to other film studios and production companies for the production
of motion pictures.
In November 1995, News Corporation and its subsidiary, Fox Studios
Australia, entered into an agreement with the Government of New South Wales to
construct an integrated facility for film and television production with an
associated public entertainment facility in Sydney. Fox Studios Australia is a
50/50 joint venture between the Company and Lend Lease Corporation. In
September 1996, Fox Studios Australia entered into a 40-year lease for the
site with an option to renew for an additional 10 years. The production
facility, which opened in May 1998, incorporates six state-of-the-art sound
stages, back lots for exterior filming, comprehensive post-production
facilities, workshops and space for production offices, set construction,
wardrobe and storage.
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<PAGE>
Members of the public will be able to visit areas of Fox Studios Australia,
which are scheduled to open in the last quarter of calendar 1999 and will
include two multiplexed movie theaters, restaurants, cafes and bars, street
theaters, retail shops as well as a ticketed studio tour that will take
visitors on a behind-the-scenes journey through the world of film and
television.
TELEVISION BROADCASTING
The Company is engaged in the distribution of network programming and the
operation of broadcast television stations. FOX and the Fox Television
Stations are Fox Television's principal operating units.
Fox Broadcasting Company ("FOX")
FOX has 198 affiliated stations, including the 22 Fox Television Stations,
which reach, during prime time, approximately 98% of all U.S. television
households. Each week, FOX regularly delivers to its affiliates generally 15
hours of prime time programming, one hour of late-night programming on
Saturday and, through the Fox Kids Network, programmed by FFW, 19 hours of
children's daytime programming. FOX's prime time programming features such
series as The Simpsons, The X-Files, Ally McBeal, King of the Hill,
Beverly Hills 90210, Melrose Place, Party of Five and various movies and
specials. In addition, a significant component of FOX's programming consists
of Fox Sports programming, with FOX providing live coverage of three major
professional sports leagues to its affiliates: the National Football
Conference ("NFC") of the NFL, the MLB and the NHL. During the 1998-1999
television season, FOX will broadcast Super Bowl XXXIII, the World Series and
certain games of the Stanley Cup playoffs and finals.
FOX derives its revenues from sales in the national advertising marketplace
of commercial advertising time. FOX's programming line-up is intended to
appeal primarily to target audiences of 18 to 49-year old adults, the
demographic group that advertisers seek to reach most often. Since the
creation of FOX, FOX's ratings have increased substantially. Furthermore, with
respect to household ratings and shares for FOX and the Other Major Networks
based on viewership of adults aged 18-49, FOX improved from fourth place for
the 1987-1988 broadcast season (with a 2.8 rating and a 7 share in total prime
time for all U.S. television households) to second place for the 1997-1998
broadcast season (with a 5.0 rating and a 14 share in total prime time for all
U.S. television households). The median age of the FOX viewer is 33 years, as
compared to 40 years for each of ABC and NBC and 52 years for CBS.
The Company believes that its ownership of film and television production
companies is highly advantageous to its television broadcasting business
because the Company's television broadcasting business has access to popular
programming produced by the Company's production businesses and is better able
to ensure a consistent supply of high quality programming to its broadcasting
business. The Company obtains programming for FOX from Twentieth Century Fox
Television, Twentieth Television and Fox Television Studios as well as other
major television studios and independent television production companies
pursuant to license agreements. The terms of such agreements generally provide
the Company with the right to broadcast a television series for four seasons.
FOX licenses its film programming from many sources, including FFE, and
licenses made-for-television films from a number of sources, including Fox
Television Studios.
National sports programming, such as NFL, MLB and NHL programming, is
obtained under license agreements with professional sports leagues. The
Company's current licenses with the NFL, MLB and NHL extend until 2006, 2000
and 1999, respectively. According to Nielsen Media Research Inc. ("Nielsen"),
during calendar 1997, the Company's sports programming line-up achieved the
highest rating of any Network's sport programming line-up.
The Company is entering the first year of an eight-year agreement with the
NFL, which contains certain termination clauses. Under this agreement, the
Company holds the rights to broadcast Super Bowls in 1999, 2002 and 2005.
Under the terms of this agreement, the Company has rights to broadcast regular
season and playoff games of the National Football Conference to its
affiliates. Under the terms of the NFL's various television rights
43
<PAGE>
agreements, the NFL may elect, in 2003, to simultaneously renegotiate all of
its current television rights agreements. In addition, the Company is in the
third year of a five-year agreement with MLB pursuant to which FOX is MLB's
exclusive regular season national broadcast carrier through 2000. In addition,
FOX will broadcast the World Series in 1998 and 2000 and the All-Star Game in
1999. Under the terms of this agreement, the Company has rights to broadcast
four regional MLB games on 18 consecutive Saturday afternoons from June to
September, as well as certain games of the division and league championship
series. Further, FOX will be entering the final year of a five-year agreement
with the NHL pursuant to which FOX will broadcast 11 weekend season games and
certain games of the Stanley Cup playoffs and finals. FOX's contract with the
NHL will not be renewed following the expiration of its current term.
FOX provides programming to each of its television station affiliates in
accordance with affiliation agreements of varying durations, which grant to
each affiliate the right to broadcast network television programming on the
affiliated station (the "Fox Affiliates"). Such agreements typically run for
five to ten years. The Company's affiliation agreements have staggered
expiration dates. These affiliation agreements generally require FOX's full-
time television station affiliates to carry FOX programming in all time
periods in which FOX programming is offered to such affiliates, subject to
certain exceptions stated in affiliation agreements. In addition, the Fox Kids
Network, which is owned and distributed by FFW, is broadcast on primary and
secondary affiliates covering 98% of all U.S. television households. The Fox
Kids Network carries such popular programs as Power Rangers, Teenage Mutant
Ninja Turtles, Goosebumps, Bobby's World and the X-Men. See "--Cable Network
Programming--Fox Family Worldwide."
Fox Television Stations
The 22 Fox Television Stations are located in nine of the top 10 largest
DMAs, and all are affiliates of FOX. The Fox Television Stations reach over
40% of all U.S. television households, giving the Fox Television Stations the
broadest coverage of any television station group in the United States. Fox
Television Stations are located in markets representing, in the aggregate,
approximately 50% of local television market advertising revenues. In March
1986, the Company acquired its first six television stations and various other
assets from Metromedia Broadcasting Corporation. The acquired television
stations were located in New York City, Los Angeles, Chicago, Dallas/Ft.
Worth, Washington, DC and Houston. Thereafter, the Company created the FOX
broadcast network, having as network affiliates the various Fox Television
Stations, as well as independently owned television stations. The Fox
Television Stations group has grown from the initial six stations to
22 television stations. The Company acquired 10 of these additional stations
in January 1997 through its acquisition of New World.
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<PAGE>
The following table lists certain information, as of January 1, 1998, about
each Fox Television Station.
<TABLE>
<CAPTION>
PERCENTAGE OF U.S.
TELEVISION
DMA/RANK STATION CHANNEL/TYPE HOUSEHOLDS REACHED(3)
------------------------------- ------------ ---------------------
<S> <C> <C> <C> <C> <C>
New York, NY 1 WNYW 5 VHF 6.9%
Los Angeles, CA 2 KTTV 11 VHF 5.1%
Chicago, IL 3 WFLD 32 UHF 3.2%
Philadelphia, PA 4 WTXF 29 UHF 2.7%
Boston, MA 6 WFXT 25 UHF 2.2%
Washington, DC 7 WTTG 5 VHF 2.0%
Dallas, TX(1) 8 KDFW 4 VHF 1.9%
Detroit, MI 9 WJBK 2 VHF 1.8%
Atlanta, GA 10 WAGA 5 VHF 1.7%
Houston, TX 11 KRIV 26 UHF 1.7%
Cleveland, OH 13 WJW 8 VHF 1.5%
Tampa, FL 15 WTVT 13 VHF 1.5%
Phoenix, AZ 17 KSAZ 10 VHF 1.3%
Denver, CO(2) 18 KDVR 31 UHF 1.2%
St. Louis, MO 21 KTVI 2 VHF 1.1%
Kansas City, MO 31 WDAF 4 VHF 0.8%
Milwaukee, WI 32 WITI 6 VHF 0.8%
Salt Lake City, UT 36 KSTU 13 VHF 0.7%
Memphis, TN 42 WHBQ 13 VHF 0.6%
Greensboro, NC 46 WGHP 8 VHF 0.6%
Birmingham, AL 51 WBRC 6 VHF 0.6%
Austin, TX 60 KTBC 7 VHF 0.5%
-----
Total: 40.4%
=====
</TABLE>
- --------
(1) The Company also has an operating agreement with KDFI, Channel 27, Dallas,
TX.
(2) The Company also owns and operates KFCT, Channel 22, Fort Collins, CO, as
a satellite station of KDVR, Channel 31, Denver, CO.
(3) VHF stations transmit on Channels 2 through 13 and UHF stations on
Channels 14 through 69. UHF television stations in many cases have a
weaker signal and therefore do not achieve the same coverage as VHF
stations. To address this disparity, the FCC's ownership rule applies a
UHF discount (the "UHF Discount") which attributes only 50% of the
television households in a local television market to the audience reach
of a UHF station for purposes of calculating whether that station's owner
complies with the 35% national audience reach cap imposed by FCC
regulations. The percentages listed do not take into account the UHF
Discount. The FCC is currently reviewing whether the 35% cap should be
raised and whether the UHF Discount should be retained, modified or
eliminated. See "--Regulation."
Several benefits accrue to the Company from owning a large group of FOX
affiliate stations, together with its motion picture and television
programming production and other network operations. The Fox Television
Stations, due to their coverage of over 40% of all U.S. television households
and most major DMAs, are attractive local vehicles for national advertisers,
and have the exclusive services of a single national advertising
representative firm. The Fox Television Stations are located in 12 of the 15
NFC local markets, 19 of 26 U.S. MLB local markets and in 15 of 20 U.S. NHL
local markets and garner top local advertising rates from FOX's telecasts of
such games. The Fox Television Stations' substantial audience coverage also
provides greater bargaining power in acquiring programming to fill off-network
hours. In addition, because the Fox Television Stations can also provide
distribution of Twentieth Television's syndicated programming to 40% of the
total potential audience, Twentieth Television can more easily sell those
programs to other station groups.
In recent years, individual Fox Television Stations have increased their own
production of television programming, including local programming such as news
and public affairs programs, although the Fox Television Stations continue to
depend to a significant degree on FOX programming and syndicated motion
pictures and television series as sources of programming. The Company believes
that the production and broadcasting of local news can provide a link to the
community and lead to increased viewership. In addition, local news
programming can provide access to advertising sources targeted specifically to
local news. Of the 22
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Fox Television Stations, 20 broadcast local news programs in the morning, 17
broadcast local news programs at midday, 13 broadcast local news programs in
the late afternoon or early evening, 21 broadcast local news in prime time and
13 of the 22 stations broadcast local news programs in all four day parts.
Certain stations in heavy news markets such as New York City and Washington,
D.C., run three news programs daily.
The Fox Television Stations derive substantially all of their revenues from
national spot and local advertising. Advertising rates are determined by each
Fox Television Station in response to market conditions in the area which it
serves. In addition to cash sales, the Fox Television Stations enter into
customary barter agreements with syndicators, pursuant to which the Fox
Television Stations acquire programming and the rights to sell a specified
amount of advertising time for use in national spot and local advertising
markets in exchange for allowing the syndicator to retain a specified amount
of advertising time for sale in the national advertising market in lieu of
cash consideration.
CABLE NETWORK PROGRAMMING
The Company holds interests in cable network programming businesses in the
areas of news, sports, general entertainment, family entertainment and movies.
Fox News Channel ("Fox News")
In October 1996, the Company launched Fox News, a 24-hour all news cable
programming service which is currently available to approximately 34 million
U.S. cable and DBS households and has commitments that will expand Fox News'
distribution to approximately 41 million U.S. cable and DBS households by the
end of 2001.
In launching Fox News, the Company sought to take advantage of the worldwide
news gathering capabilities that exist among News Corporation's subsidiaries
and affiliates, as well as the strength of the "Fox News" brand that has been
created by FOX's affiliates. The programming and appearance of Fox News are
designed to appeal to young audiences by providing faster-paced coverage with
news updates every half hour.
Fox News' access to a worldwide news gathering network, including 3,300
print journalists and 14 news bureaus worldwide (with 10 located across the
United States), produces both cost savings for the network and better coverage
of breaking news for the audience. In addition, the Company has established
cooperative relationships among Fox News and the Fox Television Stations
whereby Fox News receives news footage from the Fox Television Stations and,
through Fox News Edge, sells a news feed to FOX affiliates to use as part of
their local news broadcasts. Fox News also produces programming, including a
weekly news magazine, Fox Files, and a popular weekend commentary show, Fox
News Sunday, for broadcast on FOX.
Fox/Liberty Networks; Fox/Liberty Ventures and International Sports
Programming Partners
The Company and Liberty Media Corporation ("Liberty"), a wholly owned
subsidiary of Tele-Communications, Inc. ("TCI") have formed three separate
50/50 joint ventures: (i) Fox/Liberty Networks, LLC (together with its
subsidiaries, "Fox/Liberty Networks"); (ii) Fox/Liberty Ventures, LLC
(together with its subsidiaries, "Fox/Liberty Ventures"); and (iii)
International Sports Programming Partners (together with its subsidiaries,
"ISPP"). See "Certain Arrangements Regarding the Company's Ownership of Other
Entities."
Fox/Liberty Networks
The Company and Liberty each own 50% of Fox/Liberty Networks. Fox/Liberty
Networks operates two principal business units: (i) cable sports programming
and (ii) general entertainment. See "Certain Arrangements Regarding the
Company's Ownership of Other Entities."
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Sports Programming. Fox/Liberty Networks is the largest RSN programmer in
the United States, focusing on live professional and major collegiate home
team sports events. Fox/Liberty Networks' sports programming business consists
of equity interests in 21 RSNs and Fox Sports Net, a national sports
programming service, which is owned in a 50/50 partnership between Fox/Liberty
Networks and Rainbow Media Sports Holdings, Inc. ("Rainbow"), an indirect
subsidiary of Cablevision Systems Corporation ("Cablevision"). Fox Sports Net
provides 24-hour national sports programming featuring live and replay
sporting events and original programming, a national sports news program, Fox
Sports News, and other national sports programming services. See "Certain
Arrangements Regarding the Company's Ownership of Other Entities."
Fox/Liberty Networks owns an equity interest in, or, through Fox Sports Net,
is affiliated with, 26 RSNs. These RSNs reach over 61 million households,
covering each of the top 14 DMAs and 22 of the top 25 DMAs in the United
States. These RSNs have rights to telecast live games of 71 professional
sports teams in the NBA, NHL and MLB (out of a total of 75 such teams in the
United States) and numerous collegiate sports teams. The average term of the
Fox Sports RSNs rights agreements (from commencement to scheduled termination)
is eight years. Because of their home team programming, RSNs have strong local
appeal in their respective markets, generating high prime time ratings and
attractive subscriber fees from cable operators. Fox/Liberty Networks strategy
is to utilize its RSNs and Fox Sports Net to build a national cable sports
network under the Fox brand name.
Fox Sports Net has been structured based on the "broadcast network
affiliate" model, in which each RSN airs a slate of local programming, which
is supplemented by a schedule of network-provided national programming
consistent across all regions. Unlike the typical "broadcast network
affiliate" model, however, Fox Sports Net's programming is anchored by highly
rated local programming during prime time, with national Fox Sports Net
programming during the balance of the schedule. Fox Sport Net's model is
designed to increase the number of viewers before and after, as well as
during, local sports events. Fox Sports Net also provides corporate, marketing
and technical operations to the Fox Sports RSNs helping to create one cohesive
network. Fox/Liberty Networks' approach offers national advertisers the
opportunity to purchase national and local advertising from one source in each
of the top DMAs in the United States. The Company believes that sports
programming is extremely attractive to both national and local advertisers due
to the high ratings such programming generally achieves in the key demographic
of 18-49 year old males. All of the Fox Sports RSNs are represented by one
national advertising firm that is owned in a 50/50 joint venture between
Fox/Liberty Networks and Rainbow. See "Certain Arrangements Regarding the
Company's Ownership of Other Entities."
RSNs enter into affiliation agreements with MSOs and/or individual cable
system operators and DBS distributors. Such agreements typically run for five
to seven years and generally provide for annual rate increases. The Fox Sports
RSNs' affiliation agreements have staggered expiration dates, with an average
maturity of six years (from commencement to scheduled termination). Under
affiliation agreements, cable system operators must distribute the network
service to a certain number of subscribers and/or maintain a certain
subscriber base penetration level. The same criteria are generally used as the
basis for calculating the monthly fees paid by the cable operator to
Fox/Liberty Networks for its programming.
In December 1997, Fox/Liberty Networks consummated a transaction with
Rainbow, pursuant to which Fox/Liberty Networks acquired a 40% interest in
Regional Programming Partners ("RPP"), a partnership to which Rainbow
contributed various interests in RSNs (including two in which Fox/Liberty
Networks already held minority interests), the New York Knickerbockers NBA
franchise, the New York Rangers NHL franchise, the Madison Square Garden
entertainment complex, and Radio City Music Hall.
General Entertainment Programming. FX is a leading general entertainment
cable network. In 1996, the Company contributed all of the assets and
liabilities of FX to Fox/Liberty Networks in connection with the formation of
the Fox/Liberty Networks joint venture. See "Certain Arrangements Regarding
the Company's Ownership of Other Entities."
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As of September 1998, FX reached approximately 37 million U.S. cable and DBS
households. Based on Nielsen ratings for the first half of calendar 1998, FX
ranked as the eighth highest-rated basic cable network in the United States
during prime time among adults aged 18-49. The Company expects that FX will
expand its distribution to approximately 50 million subscribers by the end of
1999.
FX has a strong ratings performance history and continues to be a leader in
cable ratings. For the second half of calendar 1997, FX received a 0.8 average
prime time rating among adults aged 18-49. The Company expects FX will
continue to increase its presence as a leading general entertainment network
based largely on its ability to bring award-winning television series to cable
and from its access to the Fox Library. FX draws from the Company's extensive
programming libraries, including television hits like M*A*S*H, Batman, The A-
Team and Mission: Impossible and feature films, including the Alien films,
Independence Day, Predator and the Star Wars trilogy. FX's line-up for the
Fall 1998 television season includes In Living Color, The X-Files and NYPD
Blue. Recently, FX acquired the cable rights to Beverly Hills 90210 and Buffy
the Vampire Slayer.
Fox/Liberty Networks also owns a 92% profit interest and a 100% capital
interest in FIT TV Partnership, which develops health and fitness related
programming, as well as a 20% interest in Body by Jake Enterprises, which
markets related products.
Fox/Liberty Ventures
In February 1998, the Company and Liberty formed Fox/Liberty Ventures to
hold interests in certain additional sports and sports-related businesses.
Currently, Fox/Liberty Ventures owns approximately 34% of each of the
Speedvision and Outdoor Life programming services. Speedvision focuses
exclusively on the world of racing, including cars, motorcycles, airplanes and
boats, and its programming consists primarily of live racing events, news and
information and documentaries. Speedvision currently reaches approximately 16
million cable and DBS households. Outdoor Life seeks to provide a
comprehensive and authoritative source of information and entertainment on
nature, the environment and outdoor recreation by featuring original
entertainment and instruction for campers, skiers, rock climbers, hunters,
kayakers, conservationists, saltwater sportsmen, sailors, fly fishermen,
photographers, cyclists and nature enthusiasts. Outdoor Life currently reaches
approximately 15 million cable and DBS households. Fox/Liberty Ventures'
partners in Speedvision and Outdoor Life are Cox Communications, Comcast
Corporation, Media One, Roger Werner and Daniels Programming.
In April 1998, Fox/Liberty Ventures acquired a 40% interest in an entity
that is developing the Staples Center, a new sports and entertainment complex
in downtown Los Angeles, California. The Staples Center is scheduled to be the
home of the Los Angeles Kings NHL franchise and the Los Angeles Lakers and the
Los Angeles Clippers NBA franchises beginning in October 1999.
In connection with this transaction, the Company obtained the right to be
granted an option to acquire a minority share of the Los Angeles Kings,
subject to NHL approval. The Company also entered into a letter of intent to
participate in the acquisition of a minority stake in the Los Angeles Lakers,
subject to various conditions including NBA approval. The Company has granted
Fox/Liberty Ventures rights to participate in these transactions.
International Sports Programming Partners ("ISPP")
ISPP serves as the international arm of the worldwide sports alliance
between the Company and TCI. The Company and a partnership between Liberty and
Tele-Communications International, Inc. each own a 50% interest in ISPP. ISPP
holds interests in the following programming services: Fox Sports Americas,
Fox Sports World and Fox Sports World-Middle East. Fox Sports Americas is the
only Spanish-language sports network which airs throughout the Americas, with
feature programming such as events of the Argentine, Chilean, English and
German soccer leagues, in addition to other major international sports such as
the NFL, MLB, U.S. Open Tennis and the PGA Tour. Fox Sports World is the only
sports network in the United States featuring 24-hour international sports in
the English language. The channel's key programming includes the English,
Italian and German soccer leagues, as well as soccer's Gold Cup, the rugby
league in New Zealand and Australia and
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English rugby, Davis Cup Tennis, Formula One racing and daily international
sports news. Fox Sports World-Middle East delivers a variety of international
sports programming in the English language to subscribers in the Middle East
region. In addition, the Company is preparing to launch Fox Sports Brazil, a
24-hour Portuguese language sports network in Brazil, which the Company
expects to launch in September 1998 as a 50/50 partnership between a
subsidiary of ISPP and Globosat Programadora Ltda. Featured programming will
include Copa Mercosur, a new South American soccer tournament, local Brazilian
soccer leagues, Brazilian volleyball and basketball, U.S. Open and Wimbledon
tennis and the PGA Golf Tour. See "Certain Arrangements Regarding the
Company's Ownership of Other Entities."
Fox Family Worldwide
FFW was formed in August 1996 and is owned 49.5% by the Company and 49.5% by
Haim Saban and certain limited partnerships controlled by Mr. Saban. See
"Certain Arrangements Regarding the Company's Ownership of Other Entities."
FFW is an integrated global family entertainment company which develops,
acquires, produces, broadcasts and distributes quality television programming.
The Company's principal operations comprise (i) International Family
Entertainment, Inc. ("IFE"), which operates the Fox Family Channel, (ii) SEI,
whose library of completed and in-production children's programming is among
the largest in the world, (iii) the Fox Kids Network and (iv) a growing
portfolio of Fox Kids branded cable and DTH satellite channels operating in
approximately 28 countries worldwide. Through these operating units, FFW has
the ability to manage properties and brands from their creation through
production, distribution and the merchandising of related consumer products.
As the distributor of Fox Kids Network programming on FOX and owner and
operator of the Fox Family Channel, FFW controls the distribution of
programming on both a Major Broadcast Network and a widely distributed cable
network. This ownership structure creates valuable opportunities for FFW to
cross-promote and cross-market Fox Kids Network and Fox Family Channel
programming.
The Fox Family Channel is a basic cable network that provides family-
oriented programming to approximately 73 million, or approximately 95%, of the
cable and DBS households in the United States. The Fox Family Channel is the
successor to The Family Channel, which FFW acquired as part of its acquisition
of IFE in 1997. In August 1998, FFW reintroduced the Family Channel as the Fox
Family Channel with a new programming schedule, marketing campaign and on-air
look. The Fox Family Channel's programming format includes day-time
programming for children followed by evening programming which is targeted to
the entire family. Evening programming consists principally of original
series, specials and movies produced or licensed by the Fox Family Channel.
Fox Family Channel continues to air the 700 Club, produced by the Christian
Broadcasting Network ("CBN"), pursuant to agreements previously in place
between CBN and IFE.
The Fox Family Channel earns revenues through the sale of advertising time
and through subscriber fees. In general, pursuant to the Fox Family Channel's
affiliation agreements, each cable system operator or other delivery service
distributing the Fox Family Channel agrees to pay FFW a monthly fee per
subscriber. Fox Family Channel affiliation agreements are generally three,
five or ten years in duration and provide for annual per subscriber rate
increases. Increases in per subscriber fees and, to a lesser extent, increased
household penetration have generated growth in the Fox Family Channel
subscriber fee revenue.
FFW, through SEI, seeks to develop or acquire appealing characters and
concepts that can be commercially exploited in the United States, Canada and
International markets through broadcast network and cable television
exhibition, home video sales, licensing and merchandising. FFW produced,
financed or co-financed 14 programs for the 1997-1998 broadcast seasons,
including Power Rangers, which since shortly after its launch in 1993 has been
the highest rated children's weekday strip broadcast television program in the
United States among boys aged 2-11. FFW currently distributes its programming
over terrestrial broadcast services in most major television markets
throughout the world.
FFW's library of various rights to approximately 5,600 half-hour episodes of
completed and in-production television programming is one of the largest
children's television libraries in the world. The two principal sources
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of FFW's programming library are (i) television series that have been
originally produced by FFW for broadcast in the United States and
internationally (approximately 2,200 half-hours) and (ii) programming produced
by others for which FFW has acquired various distribution rights
(approximately 3,400 half-hours), of which approximately 38% have been updated
or "freshened" with new scripts, voices and music prior to distribution. Of
FFW's library, including episodes in production as of June 30, 1998,
approximately 1,500 half-hours are original co-produced programming that meet
applicable European content requirements and are intended for initial
broadcast in Europe.
FFW has and will continue to pursue ideas and properties for original
production from a number of sources. For example, FFW may acquire production,
distribution and possibly other rights to an existing property (such as the
Saturday Night Live character, Mr. Bill, and The Addams Family), develop
internally a new property based on an existing public domain property (such as
SEI's Adventures of Oliver Twist) or create or acquire an entirely new idea or
character (such as Mystic Knights of Tir Na Nog). FFW also maintains a state-
of-the-art post-production facility in Los Angeles, California.
FFW through affiliated companies and subsidiaries has entered into
merchandise license agreements with a number of manufacturers pursuant to
which the manufacturers are granted the right to create, manufacture and
develop products representing characters from FFW's series, including such
shows as Power Rangers and Captain Kangaroo. These licenses generally grant
the exclusive right to manufacture and sell products based upon the characters
and other creative elements in the television series. FFW has licensing
arrangements in place with approximately 479 different licensees worldwide for
consumer products targeting children, such as toys, apparel, publishing,
software, dinnerware/lunch boxes, watches, bedding and soft vinyl goods, such
as boots, backpacks and raincoats. Merchandise based on FFW's characters and
properties is sold throughout the world.
FFW released in August 1997 the direct-to-video film, Casper - A Spirited
Beginning, and has completed direct-to-video films scheduled for release
during fiscal 1999 based upon the characters of Richie Rich and The Addams
Family. FFW also acquired the rights to a second direct-to-video film based
upon the character "Casper," and has acquired rights to produce new live-
action television specials and series programs based upon the characters of
The Addams Family.
The Fox Kids Network, the leading U.S. children's broadcast television
network, broadcasts 19 hours of children's programming each week to 98% of
U.S. television households, the broadest reach of any network targeting
children. The Fox Kids Network has had the highest broadcast television
viewership among children in its time period during 20 consecutive quarterly
"sweeps" periods through November 1997. According to Nielsen, during the 1997-
1998 broadcast season, more than 23 million children and teenagers,
approximately 38% of all children and teenagers (aged 2-17) in the United
States, watched the Fox Kids Network at least once each month. The Fox Kids
Network affords advertisers the opportunity to reach children in a cost-
effective manner, in part by ensuring consistent nationwide placement of their
advertisements by generally broadcasting its programming at the same local
time and on the same day ("day-and-date") in each television market.
FFW believes that it is positioned strategically, particularly through its
relationship with News Corporation, to take advantage of growth in
international DTH satellite and cable television services and the resulting
increase in demand for television programming. In addition to its recent
launch of Fox Kids branded DTH satellite and cable channels in the United
Kingdom, the Republic of Ireland, Latin America, including Central and South
America and the Caribbean, France, Poland, Spain, Scandinavia, The
Netherlands, and Australia, FFW is in active discussions and negotiations to
launch additional Fox Kids branded channels on other distribution platforms
throughout the world, with particular emphasis in Germany, Italy, Central and
Eastern Europe, Austria, Belgium, Switzerland, Russia, Israel and Iceland.
FFW's objective is to become the leading operator of international children's
channels by creating fully localized Fox Kids branded channels in each
territory.
Other Cable Networks
The Golf Channel. The Company owns a 33.33% interest in The Golf Channel,
Inc., which owns and operates the Golf Channel. The Golf Channel broadcasts
studio shows and has rights to broadcast seven
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Professional Golf Association ("PGA") tournaments and other European PGA, LPGA
and Nike Tour events. The Golf Channel currently reaches approximately 15
million U.S. cable and DBS households in the United States. The Company's
partners in the Golf Channel include Comcast Corporation, Times Mirror Co.,
Adelphia Communications Corp. and Arnold Palmer.
FXM: Movies From Fox. Launched in November 1994 and reaching approximately
6.4 million U.S. cable and DBS households in the United States, FXM, wholly-
owned by the Company, is the only Hollywood-based movie network featuring the
films of the vast Fox Library. Films are unedited and commercial-free and
presented in a convenient genre-based schedule of dramas, action, romance,
musicals and comedy.
Canal Fox. The Company, through its wholly owned subsidiary Fox Latin
American Channel, Inc., operates Canal Fox, a general entertainment cable
service covering Latin America, including Central and South America and the
Caribbean. Canal Fox broadcasts in the Portuguese language in Brazil and in
the Spanish language to the rest of Central and South America and the
Carribean. Canal Fox currently reaches approximately 9.7 million cable and DBS
households making it one of the most highly-distributed channels in Latin
America.
Cinecanal. The Company, through Fox LAPTV L.L.C., holds a 20.2% equity
interest in Cinecanal, a Latin American (except for Brazil) premium pay
television service which primarily features theatrical motion pictures of
Twentieth Century Fox and the three motion picture studio partners of United
International Pictures (which also hold interests in Cinecanal), in the
English language with Spanish subtitles. Cinecanal currently reaches
approximately 4.3 million cable and DBS households.
Telecine. In addition, the Company, through Fox Latin America, Inc., holds a
12.5% equity interest in Telecine, a Brazilian premium pay television service
which offers its features in the English language with Portuguese subtitles.
Telecine currently reaches approximately 1.4 million cable and DBS households.
LOS ANGELES DODGERS
The Company owns and operates the Los Angeles Dodgers MLB franchise (the
"Dodgers"), one of the premiere sports franchises in the world, along with
Dodger Stadium and other related real estate. The Company acquired its
interest in the Los Angeles Dodgers, Inc. in March 1998. The Dodgers are
currently in their 108th year in the National League and in each of the last
three seasons have achieved attendance of approximately three million fans at
Dodger Stadium. In addition, telecasts of Dodger games are an important part
of the programming of Fox Sports West 2, a Fox Sports RSN covering Los
Angeles, the second largest DMA in the United States. The Dodgers will
increase the number of games telecast on Fox Sports West 2 by 40 during the
1999 season.
The Company also owns Dodger Stadium, which is the home stadium of the
Dodgers. Dodger Stadium is situated on approximately 275 acres of property in
Los Angeles, California and has seating capacity for approximately 56,000
people and parking for 17,500 automobiles. In addition, the Company owns
Dodgertown in Vero Beach, Florida, which is the home of the Dodgers' spring
training facilities. Dodgertown is situated on 467 acres of property, which
include seven baseball fields, including a 6,500 seat stadium, two golf
courses, a conference center and 133 acres of undeveloped real estate. The
Company also owns 68 acres of property in Campo Las Palmas in the Dominican
Republic, which is the home of the Dodgers' Academia Nacional de Beisbol.
COMPETITION
The Company faces competition from companies within the motion picture and
television industry and alternative forms of leisure and entertainment
activities. The entertainment industry is also subject to rapid developments
in technology and shifting consumer tastes.
Feature Film and Television Production and Distribution
Motion picture and television production and distribution are highly
competitive businesses. The Company competes with other film studios,
independent production companies and others for the acquisition of artistic
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properties, the services of creative and technical personnel, exhibition
outlets and the public's interest in its products. The number of films
released by the Company's competitors, particularly the other major film
studios, in any given period may create an oversupply of product in the
market, and that may reduce the Company's shares of gross box office
admissions and may make it more difficult for the Company's films to succeed.
The commercial success of the motion pictures produced and/or distributed by
the Company is substantially affected by the public's often unpredictable
response to the motion pictures produced and distributed by it. In addition,
television networks are now producing more programs internally and thus may
reduce such networks' demand for programming from other parties.
Television Broadcasting
The network television broadcasting business is highly competitive. FOX
directly competes for programming and for viewers with ABC, NBC, CBS, and the
WB and the UPN Networks. Each of the Other Major Networks broadcasts a
significantly greater number of hours of programming than FOX and accordingly,
may be able to designate or change time periods in which programming is to be
broadcast with greater flexibility than FOX. FOX also competes with other non-
network sources of television service, including cable television and DBS
services. Other sources of competition may include home video exhibition and
home computer usage. In addition, future technological developments may affect
competition within the television marketplace.
FOX also competes with other television networks to secure affiliations with
independently owned television stations in markets across the country, which
are necessary to ensure the effective distribution of network programming to a
nationwide audience. In recent years, competition among the networks for
affiliates has intensified.
FOX competes for advertising revenues with the other broadcast networks, as
well as with all other forms of advertising. Each of the Other Major Networks
has a greater number of affiliates with VHF signals, which are generally
considered to be stronger in their markets and, therefore, more appealing to
advertisers. The Other Major Networks also realize greater advertising
revenues than FOX for most of their programming in various time periods. In
addition, each of the Fox Television Stations competes for audiences and
advertising revenues with radio and television stations and cable systems in
its market area and with other advertising media such as newspapers,
magazines, outdoor advertising and direct mail. All of the Fox Television
Stations are located in highly competitive markets. Additional elements which
are material to the competitive position of television stations include
management experience, authorized power and assigned frequency. Competition
for sales of broadcast advertising time is based primarily on the anticipated
and actually delivered size and demographic characteristics of audiences as
determined by various rating services, price, the time of day when the
advertising is to be broadcast, competition from the other broadcast networks,
cable television systems, DBS services and other media and general economic
conditions. Competition for audiences is based primarily on the selection of
programming, the acceptance of which is dependent on the reaction of the
viewing public which is often difficult to predict.
Cable Networks and Related Businesses
General
The cable network programming business is another highly competitive field.
Cable programming services compete for distribution and, when distribution is
obtained, compete for viewers and advertisers with over-the-air broadcast
television, radio, print media, motion picture theaters, videocassettes and
other sources of information and entertainment. Important competitive factors
are the prices charged for programming, the quantity, quality and variety of
programming offered and the effectiveness of marketing efforts. More
generally, the Company's cable networks compete with various other leisure-
time activities such as home videos, movie theaters, personal computers and
other alternative sources of entertainment and information.
Sports Programming
A number of basic and pay television programming services (such as ESPN) as
well as free over-the-air broadcast networks provide programming that targets
the Fox Sports RSNs' audience. Fox/Liberty Networks is
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currently the only programming service distributing a full range of sports
programming on both a national and regional level. On a national level,
Fox/Liberty Networks' primary competitor is ESPN.
In addition, the Fox Sports RSNs and Fox Sports Net compete, to varying
degrees, for sports programming rights. The Fox Sports RSNs compete for local
and regional rights with local broadcast television stations, other local and
regional sports networks and the owners of distribution outlets such as cable
television systems. Fox Sport Net competes for national rights principally
with the national broadcast television networks, a number of national cable
services that specialize in or carry sports programming, and television
"superstations," which distribute sports and other programming to cable
television systems by satellite, and with independent syndicators that acquire
and resell such rights nationally, regionally and locally.
FX
A number of basic and pay television programming services (such as the USA
cable network and Turner Network Television) as well as free over-the-air
broadcast networks provide programming that targets the same viewing audience
as FX. FX faces competition in the acquisition of distribution rights to
programming produced by other diversified media companies, due to industry
consolidation and the elimination of the financial interest and syndication
rules. With the repeal of certain governmental regulations which formerly
prohibited the broadcast networks from acquiring financial interests in, and
syndication rights to, television programming, competition in the industry is
expected to increase.
Fox Family Worldwide
FFW currently competes and expects to continue to compete, through the Fox
Kids Network and the Fox Family Channel, with the other broadcast television
networks, public television and cable television channels, such as
Nickelodeon, the USA cable network, the Disney Channel, Turner Network
Television and the Cartoon Network, for market acceptance of its programming
and for viewership ratings and advertising revenues. To the extent that FFW
produces original programming for distribution outlets it does not own, it
competes with other producers of children's programming. Internationally, FFW
competes with a large number of U.S.-based and international distributors of
children's programming, including The Walt Disney Company, Warner Bros. and
Nickelodeon, in the development or acquisition of programming expected to
appeal to international audiences. Such programming often must comply with
foreign broadcast rules and regulations, which may stipulate certain minimum
local content requirements.
REGULATION
Filmed Entertainment--Theatrical Motion Picture Distribution
TCFFC is subject to the provisions of so-called "trade practice laws" in
effect in 25 states relating to theatrical distribution of motion pictures.
These laws substantially restrict the licensing of motion pictures unless
theater owners are first invited to attend a screening of such motion pictures
and, in certain instances, also prohibit payment of advances and guarantees to
motion picture distributors by exhibitors. Further, pursuant to various
consent judgments, TCFFC and certain other motion picture companies are
subject to certain restrictions on their trade practices in the United States,
including a requirement to offer motion pictures for exhibition to theaters on
a theater-by-theater basis and, in some cases, a prohibition against the
ownership of theaters.
Television Broadcasting
In general, the television broadcast industry in the United States is highly
regulated by Federal laws and regulations issued and administered by various
Federal agencies, including the FCC. The FCC regulates television broadcast
stations pursuant to the Communications Act of 1934, as amended (the
"Communications Act"). The Communications Act permits the operation of
television broadcast stations only in accordance with a license issued by the
FCC upon a finding that grant of the license would serve the public interest,
convenience and necessity. The FCC grants television broadcast station
licenses for specific periods of time and, upon
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application, may renew the licenses for additional terms. Under the
Communications Act, television broadcast licenses may be granted for a maximum
permitted term of eight years. Generally, the FCC renews broadcast licenses
upon finding that (i) the television station has served the public interest,
convenience and necessity, (ii) there have been no serious violations by the
licensee of the Communications Act or FCC rules and regulations; and (iii)
there have been no other violations by the licensee of the Communications Act
or FCC rules and regulations which, taken together, indicate a pattern of
abuse. After considering these factors, the FCC may grant the license renewal
application with or without conditions, including renewal for a term lesser
than the maximum otherwise permitted, or hold an evidentiary hearing. There
can be no assurance that the licenses of the Fox Television Stations will be
renewed at their expiration date or, if renewed, that the renewal terms will
be for the maximum permitted period.
In February 1998, the FCC adopted a final table of digital channel
allotments and rules for the implementation of digital television ("DTV")
service (including high-definition television) in the United States. The
digital table of allotments provides each existing full power television
station licensee or permittee, including the 22 Fox Television Stations, with
a second broadcast channel in order to facilitate a transition from analog to
digital transmission, conditioned upon the surrender of one of the channels at
the end of the DTV transition period. FTS is constructing digital facilities
in Dallas, TX, Detroit, MI and Philadelphia, PA, which are scheduled to be
completed by November 1, 1998. The FCC will require completion of digital
facilities in the remainder of the top ten markets, Los Angeles, CA; Atlanta,
GA; Chicago, IL; Boston, MA; New York, NY and Washington, DC, in FTS's case,
by May 1, 1999; in Denver, CO; Houston, TX; Phoenix, AZ; St. Louis, MO;
Cleveland, OH and Tampa, FL by November 1, 1999; and in Salt Lake City, UT;
Austin, TX; Birmingham, AL; Kansas City, MO; High Point, NC; Memphis, TN and
Milwaukee, WI by May 1, 2002. Under FCC rules, television stations may use
their second channel to broadcast either one or two streams of "high
definition" digital programming or to "multicast" several streams of standard
definition digital programming or mixture of both. Broadcasters may also
deliver data over these channels, provided that such supplemental services do
not derogate the mandated, free over-the-air program service. The Company is
currently formulating plans for use of its digital channels. It is difficult
to assess how digital television will affect the Company's broadcast business
with respect to other broadcasters and video program providers.
Under the Communications Act, a broadcast license may not be granted to or
held by any corporation that has more than one-fifth of its capital stock
owned or voted by non-U.S. citizens or entities or their representatives, by
foreign governments or their representatives, or by non-U.S. corporations. The
Communications Act further provides that no FCC broadcast license may be
granted to any corporation directly or indirectly controlled by any other
corporation of which more than one-fourth of its capital stock is owned of
record or voted by non-U.S. citizens if the FCC finds the public interest will
be served by the refusal of such license. In 1995, the FCC acknowledged that
News Corporation owns the vast preponderance of equity of the corporate parent
of the Fox Television Stations. The FCC also concluded that Mr. Murdoch, a
U.S. citizen, controls the corporate licensee and thus found the level of
alien equity to be consistent with the public interest. After the Offerings,
Mr. Murdoch will retain 76% voting control of the corporate parent of the Fox
Television Stations and News Corporation will continue to hold indirectly
stock representing the majority of equity of the corporate licensee. Although
this structure is substantially equivalent to the one previously found by the
FCC to be consistent with the public interest, the proposed ownership
structure following the Reorganization and the Offerings will be subject to
approval by the FCC, and applications seeking such approval were filed with
the FCC on July 27, 1998. While no assurances can be given with respect to
continued compliance with the foreign ownership restrictions applicable to Fox
Television Stations, the Restated Certificate of Incorporation of Fox
Television Holdings, Inc. will provide that the preferred stock representing
76% of the voting power of the company may not be transferred to anyone who is
not a U.S. citizen.
Under current FCC rules governing multiple ownership of broadcast stations,
a license to operate a television station will not be granted (unless
established waiver standards are met) to any party (or parties under common
control) that has an attributable interest (defined generally as a 5% or
greater voting stockholding, or a positional interest, such as officer or
director) in another television station with an overlapping coverage area
54
<PAGE>
(the "Local Restriction"). The rules also currently prohibit (with certain
qualifications) the holder of an attributable interest in a television station
from also having an attributable interest in a radio station, daily newspaper
or cable television system serving a community located within the coverage
area of that television station. Separately, the FCC's "cross interest" policy
may, in certain circumstances, prohibit the common ownership of an
attributable interest in one media outlet combined with (i) a non-attributable
equity interest in another media outlet in the same market, (ii) joint
ventures with another outlet in the market or (iii) common key employees among
competitors.
FCC rules permit a party to have an attributable interest in an unlimited
number of television stations nationally so long as such stations do not
exceed, in the aggregate and after application of the UHF Discount, the
National Restriction at 35% (calculated as 100% of VHF station coverage and
50% UHF station coverage). In pending rulemaking proceedings, the FCC is
considering (i) the modification of its attribution rules and "cross-interest"
policy and (ii) the modification of the Local Restriction. Pursuant to
Congressional directive, the FCC is also conducting a formal inquiry of all
its broadcast ownership rules, including the radio, newspaper and cable cross-
ownership rules, the National Restriction, the UHF Discount and the dual
network rule. It is not possible to predict the extent to which the Local or
National Restrictions may be modified or the timing or effect of other changes
in FCC rules or policies pursuant to the 1996 Telecom Act or pending FCC
proceedings.
The FCC has adopted rules requiring closed captioning of most broadcast and
cable programming on a phased-in basis, beginning in the year 2000. The
broadcast and cable industries have adopted, and the FCC has approved, a
voluntary content ratings system which, when used in conjunction with so-
called "V-Chip" technology, will permit the blocking of programs with a common
rating. The FCC has directed that all television receiver models with picture
screens 13 inches or greater be equipped with "V-Chip" technology under a
phased implementation beginning July 1, 1999.
FCC regulations implementing the 1992 Cable Act require each television
broadcaster to elect, at three-year intervals beginning June 17, 1993, either
to (i) require carriage of its signal by cable systems in the station's market
("must carry") or (ii) negotiate the terms on which such broadcast station
would permit transmission of its signal by the cable systems within its market
("retransmission consent"). The constitutionality of the analog must-carry
provisions was upheld by the U.S. Supreme Court. The FCC recently has
initiated a rulemaking proceeding to determine carriage requirements for
digital broadcast television systems on cable systems, including carriage
during the period of transition from analog to digital signals.
Legislation enacted in 1990 limits the amount of commercial matter that may
be broadcast during programming designed for children 12 years of age and
younger. In addition, under FCC license renewal processing guidelines,
television stations are generally required to broadcast a minimum of three
hours per week of programming, which, among other requirements, must have, as
a "significant purpose," the educational and informational needs of children
16 years of age. A television station found not to have complied with the
programming requirements or commercial limitations could face sanctions,
including monetary fines and the possible non-renewal of its license. The FCC
recently has indicated its intent to enforce its children's television rules
strictly.
The FCC continues to enforce strictly its regulations concerning "indecent"
programming, political advertising, environmental concerns, technical
operating matters and antenna tower maintenance. The FCC also has
traditionally enforced its equal employment opportunity rules vigorously, with
respect both to compliance with numerical employment guidelines and
recruitment efforts and recordkeeping requirements. The FCC's employment
rules, as they relate to outreach efforts for recruiting minorities, were
recently struck down as unconstitutional by the U.S. Court of Appeals for the
D.C. Circuit. That decision has been stayed pending reconsideration en banc.
The FCC has filed a petition for rehearing en banc of that decision. In
addition, FCC regulations governing network affiliation agreements mandate
that television broadcast station licensees retain the right to reject or
refuse network programming in certain circumstances or to substitute
programming that the licensee reasonably believes to be of greater national
importance. Violation of FCC regulations can result in
55
<PAGE>
substantial monetary forfeitures, periodic reporting conditions, short-term
license renewals and, in egregious cases, denial of license, renewal or
revocation of license.
The FCC also regulates the relationships among all Networks and their
affiliates, and FCC rules permit the affiliates of any Network to preempt
programming offered by any Network that its affiliates deem to be contrary to
the public interest or unsuitable. The rules also permit the affiliates of any
Network to preempt Network programming for programming of greater local or
national importance.
Cable Television
The 1992 Cable Act subjected all cable television operators not subject to
"effective competition" to rate regulation. Rate regulation under the 1992 Act
resulted in a reduction of rates to some subscribers in some markets. The 1996
Telecom Act phases out cable rate regulation, except with respect to the
"basic" tier (which must include all local broadcast stations and public,
educational and governmental access channels, and must be provided to all
subscribers). Rate regulation of all non-basic services is scheduled to be
completely eliminated on March 31, 1999. In response to the 1992 Cable Act and
the FCC's implementing regulations, many cable systems retiered channels to
create an attractively priced "basic" tier, while offering satellite-delivered
programming services such as the Company's on a different service tier or on
an a la carte basis. To the extent such retiering or repricing of the
Company's networks induces customers to discontinue their subscriptions, the
Company's financial performance could be adversely affected. Deregulation of
rates pursuant to the 1996 Telecom Act may reverse such tiering and pricing
decisions by cable system operators and, correspondingly, reverse or
ameliorate any adverse effects of the 1992 Cable Act. On the other hand, to
the extent that rate deregulation causes a material increase in cable rates,
the individual subscriber base of the Company could be decreased, potentially
affecting the Company's subscriber revenues.
FCC regulations adopted pursuant to the 1992 Cable Act prevent a cable
operator that has an attributable interest (including voting or non-voting
stock ownership of 5% or more or limited partnership equity interests of 5% or
more) in a programming vendor from exercising undue or improper influence over
the vendor in its dealings with competitors to cable. The regulations also
prohibit a cable programmer in which a cable operator has an attributable
interest from entering into exclusive contracts with any cable operator or
from discriminating among competing multichannel program distributors in the
price, terms and conditions of sale or delivery of programming. With respect
to cable systems having channel capacity of less than 76 channels, the FCC's
regulations limit to 40% the number of programming channels that may be
occupied by video programming services in which the cable operator has an
attributable interest. As a result of TCI's ownership of Liberty, the Fox
Family Channel, Fox/Liberty Networks and FX are subject to these requirements.
The FCC has recently adopted regulations to speed the processing of program
access complaints, and Congress is considering legislation which, if enacted,
would extend program access rules to terrestrially-delivered programming.
Similarly, Cablevision is deemed to have an attributable interest in Regional
Programming Partners ("RPP"). The FCC's program access and non-discrimination
regulations therefore affect the ability of these cable programming services
to enter into exclusive contracts. The rules also permit multichannel video
programming distributors (such as MMDS, satellite master antenna televisions
("SMATV"), DBS and DTH operators) to bring complaints against the Company to
the FCC charging they are unable to obtain the affected programming networks
on nondiscriminatory terms. While cable systems are expanding their capacity,
there may be instances in which a TCI or a Cablevision system with 75 channels
or less will not be able to carry one or more of the Company's channels (or in
the case of Cablevision, an RPP channel) or will have to remove another
affiliated channel.
The FCC's regulations concerning the commercial limits in children's
programs and political advertising also apply to certain cable television
programming services carried by cable system operators. The Company must
provide program ratings information and increased closed captioning of its
cable programming services to comply with FCC regulations, which could
increase its operating expenses.
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<PAGE>
EMPLOYEES
As of September 14, 1998, the Company had approximately 10,000 full time and
part time employees. Of that total, approximately 3,000 were primarily engaged
in operations of the units of FFE and Twentieth Century Fox Television;
approximately 200 were primarily engaged in operations of Twentieth Television
and Fox Television Studios; approximately 800 were primarily engaged in the
operations of FOX; approximately 4,600 were primarily engaged in the
operations of the Fox Television Stations; approximately 500 were primarily
engaged in the operations of the Dodgers; approximately 800 were primarily
engaged in the operations of Fox News; and approximately 200 were primarily
engaged in management and administration of the Company. Approximately 1,600
of the Company's employees are currently covered by employment agreements. The
Company also hires additional employees on a picture-by-picture or program-by-
program basis in connection with the production of the Company's motion
picture and television programming or on a game-by-game basis in connection
with the production of the Company's broadcast of sports programming.
Approximately 2,200 of the Company's employees are represented under
industry-wide collective bargaining agreements with various unions, including
IATSE, the Basic Crafts Unions, HERE and OPEIU. A strike, job action or labor
disturbance by the members of any of these organizations may have a material
adverse effect on the production of motion picture or television programs
within the United States. The Company believes that its employee and labor
relations are good.
PROPERTIES
The Company maintains executive offices and certain of its operations, as
well as the Fox News studios at 1211 Avenue of the Americas, New York, New
York. These offices cover approximately 115,000 square feet and are provided
by NAI, which maintains its executive offices at such location.
The Company owns the Fox Studios Lot at 10201 West Pico Boulevard, Los
Angeles, California, which consists of approximately 53 acres containing sound
stages, production facilities, administrative, technical and dressing room
structures, screening theaters and machinery and equipment facilities. The
Company also leases approximately 320,000 square feet of office space at Fox
Plaza, located adjacent to the Fox Studios Lot. The Company owns a studio
facility in Rosarito, Mexico, which consists of approximately 37 acres
containing office space, production facilities and the largest fresh and
saltwater tanks used in motion picture production in the world. Fox Studios
Australia has entered into a 40-year lease, with a 10-year renewal option,
with respect to integrated film and television production and public
entertainment facilities in Sydney, Australia, which consists of approximately
60 acres. See "--Los Angeles Dodgers."
The Company also owns and leases office space, broadcast and production
facilities and other facilities in various cities in the United States and
several countries around the world for its businesses. The Company considers
its properties adequate for its present needs.
LEGAL PROCEEDINGS
The Company experiences routine litigation in the normal course of its
business. The Company believes that none of its pending litigation will have a
material adverse effect on its consolidated financial condition, future
results of operations or liquidity.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Directors and Executive Officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
K. Rupert Murdoch. 67 Chairman and Chief Executive Officer
Peter Chernin..... 47 President, Chief Operating Officer and Director
Chase Carey....... 44 Co-Chief Operating Officer and Director
David F. DeVoe.... 51 Senior Executive Vice President, Chief Financial
Officer and Director
Arthur M. Siskind. 59 Senior Executive Vice President, General Counsel
and Director
</TABLE>
Upon the consummation of the Offerings, two independent Directors will be
appointed to the Board of Directors.
The Senior Executives of the Company (in addition to persons identified as
Executive Officers above) are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
David Hill....... 52 Chairman and Chief Executive Officer of Fox
Broadcasting Company, President of Fox Sports and
Chairman of Fox/Liberty Networks
William Mechanic. 48 Chairman of Fox Filmed Entertainment
Mitchell Stern... 44 Chairman and Chief Executive Officer of Fox
Television Stations, Inc.
</TABLE>
All of the executive officers of the Company are also executive officers of
News Corporation. As executive officers of News Corporation, the executive
officers of the Company will continue to render services to News Corporation.
Set forth below is certain information with respect to the Directors and
Senior Executives of the Company:
BACKGROUNDS OF CURRENT DIRECTORS AND EXECUTIVE OFFICERS
K. Rupert Murdoch has been a Director of the Company since 1985, Chairman
since 1992 and Chief Executive Officer of the Company since 1995. Mr. Murdoch
has been Chairman of the Board of Directors of News Corporation since 1991,
and an Executive Director and Chief Executive of News Corporation since its
formation in 1979. Mr. Murdoch has served as a Director of News Limited, News
Corporation's principal subsidiary in Australia since 1953, a Director of News
International plc, News Corporation's principal subsidiary in the United
Kingdom, since 1969, and a Director of NAI, News Corporation's principal
subsidiary in the United States, since 1973. Mr. Murdoch served as Chairman of
STAR TV from 1993 to 1998, and has served as a Director of BSkyB since 1990,
and as a Director of FFW since 1996. Mr. Murdoch is also a member of the board
of directors of Philip Morris Companies, Inc.
Peter Chernin has been a Director and President and Chief Operating Officer
of the Company since August 1998. Mr Chernin has been an Executive Director,
President and Chief Operating Officer of News Corporation and a Director,
Chairman and Chief Executive Officer of NAI, since 1996. Mr. Chernin was
Chairman and Chief Executive Officer of FFE from 1994 until 1996, Chairman of
TCFFC from 1992 until 1994 and President of FOX from 1989 until 1992.
Chase Carey has been a Director of the Company since 1992 and Co-Chief
Operating Officer of the Company since August 1998. Mr. Carey was President of
the Company from 1995 to 1998, Executive Vice
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<PAGE>
President and Chief Operating Officer from 1991 to 1995 and Senior Vice
President from 1988 to 1991. Mr. Carey is an Executive Director and has been
the Co-Chief Operating Officer of News Corporation and a Director and
Executive Vice President of NAI since 1996. Mr. Carey has served as the
Chairman and Chief Executive Officer of Fox Television since July 1994. Mr.
Carey joined Fox, Inc. (predecessor of the Company) in 1988 as Executive Vice
President, served as Chief Financial Officer, and assumed the title of Chief
Operating Officer in February 1992. Prior to joining Fox Television, Mr. Carey
worked at Columbia Pictures in several executive positions, including
President of Pay/Cable and Home Entertainment and Executive Vice President of
Columbia Pictures International. Mr. Carey is a member of the Boards of
Directors of FFW, Gateway 2000 and Colgate University.
David F. DeVoe has been a Director of the Company since 1991 and Senior
Executive Vice President and Chief Financial Officer of the Company since
August 1998. Mr. DeVoe has been an Executive Director, Chief Financial Officer
and Finance Director of News Corporation since 1990 and Senior Executive Vice
President of News Corporation since 1996. Mr. DeVoe was an Executive Vice
President of News Corporation from 1990 until 1996, and has been a Director of
NAI since July 1991 and Senior Executive Vice President of NAI since January
1998. Mr. DeVoe served as Executive Vice President of NAI from 1991 to 1997.
Mr. DeVoe has also been a Director of STAR TV since 1993 and a Director of
BSkyB since 1994.
Arthur M. Siskind has been a Director and Senior Executive Vice President
and General Counsel of the Company since August 1998. Mr. Siskind has been an
Executive Director and Group General Counsel of News Corporation since 1991
and a Senior Executive Vice President of News Corporation since 1996. Mr.
Siskind served as Executive Vice President of News Corporation from 1991 until
1996. Mr. Siskind has been a Director of NAI since 1991 and Senior Executive
Vice President of NAI since January 1998. Mr. Siskind served as an Executive
Vice President of NAI from 1991 to 1997. Mr. Siskind has been a Director of
BSkyB since 1992 and a Director of STAR TV since 1993. Mr. Siskind has been a
member of the Bar of the State of New York since 1962.
BACKGROUNDS OF SENIOR EXECUTIVES
David Hill has served as Chairman and Chief Executive Officer of FOX since
October 1997 and, since December 1993, as President of Fox Sports, a division
of Fox Television. Prior thereto, from July 1996 until October 1997, Mr. Hill
served as Chief Operating Officer of Fox Television. In addition, Mr. Hill has
served as Chairman of Fox/Liberty Networks since April 1996. From April 1996
through October 1997, Mr. Hill also served as Fox/Liberty Networks' Chief
Executive Officer. From April 1988 until October 1993, Mr. Hill was employed
at Sky Television and its successor company, BSkyB, in various capacities,
including head of Sky Sports.
William Mechanic has been Chairman and Chief Executive Officer of FFE since
December 1996. Mr. Mechanic was President and Chief Operating Officer of FFE
from 1994 until 1996 and President and Chief Operating Officer of Twentieth
Century Fox from 1993 until 1994. Prior to joining Twentieth Century Fox,
Mr. Mechanic worked at The Walt Disney Studios as President of International
Distribution and Worldwide Video.
Mitchell Stern has been Chairman and Chief Executive Officer of Fox
Television Stations, Inc. since June 1998. Mr. Stern was President and Chief
Operating Officer of Fox Television Stations, Inc. from 1993 to 1998 and
Executive Vice President and Chief Operating Officer of Fox Television
Stations, Inc. from 1992 to 1993.
BOARD COMPOSITION
The Company's Restated Certificate of Incorporation provides that the number
of Directors may be fixed from time to time by resolution of the Company's
Board of Directors. The Board is currently comprised of five Directors and
will be increased to seven Directors upon the consummation of the Offerings.
The two additional Directors will be independent Directors. All members of the
Board of Directors are elected annually by the stockholders of the Company for
a one-year term.
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<PAGE>
COMMITTEES OF THE BOARD
The Board expects to establish an Audit Committee and a Remuneration
Committee following consummation of the Offerings. The Audit Committee is
expected to include the two independent Directors. The Audit Committee is
expected to meet not less than two times a year. Its purpose is to consider
and recommend the appointment of the Company's auditors, approve the audit
fee, consider any questions of resignation or dismissal of the auditors,
discuss with the auditors the nature and scope of the audit, review the annual
financial statements before submission to the Board, discuss problems and
reservations, if any, arising from interim and final audits and any other
matters the auditors may wish to discuss, review the auditors' management
letter and management's response, review the Company's statement on internal
control systems, consider the major findings of internal investigations and
management's response and, if requested by the Board, to review potential
conflicts of interest. The members of the Remuneration Committee are expected
to consist of three Directors, including one independent Director. The
Remuneration Committee is expected to meet not less than once a year in order
to approve and recommend to the Board the hiring and the remuneration of the
Executive Directors and key personnel. In particular, the Remuneration
Committee is required to approve any new service agreement entered into
between the Company and any of the Senior Executives.
DIRECTOR COMPENSATION
During fiscal 1998, no compensation was paid to the Directors for services
provided in such capacity. Upon the consummation of the Offerings, the Board
of Directors intends to adopt a policy whereby each independent director will
be paid customary amounts for services provided as a director as well as
reimbursement for his or her out-of-pocket expenses in attending Board
meetings.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by applicable provisions of the Delaware General Corporation
Law (the "DGCL"), the Company's Restated Certificate of Incorporation contains
a provision eliminating, to the fullest extent permitted by the DGCL as it
exists or may in the future be amended, the liability of a Director to the
Company and its stockholders for monetary damages for breaches of fiduciary
duty as a Director. However, in accordance with the DGCL, such provision does
not limit the liability of a Director for (i) any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) payment of dividends, stock purchases or redemptions that
violate the DGCL or (iv) any transaction from which the director derived an
improper personal benefit. Such limitation of liability also does not affect
the availability of equitable remedies such as injunctive relief or
rescission.
The Restated Certificate of Incorporation and Bylaws of the Company also
provide that, to the fullest extent permitted by the DGCL as its exists or may
in the future be amended, the Company will indemnify each of the officers and
directors of the Company (or their estates, if applicable), and may indemnify
any employee or agent of the Company (or their estates, if applicable), who is
or was a party to, or is threatened to be made a party to, any threatened,
pending or completed action, suit or proceeding, by reason of the fact that
such person is or was an officer, director, employee or agent of the Company
or is or was serving at the request of Company as an officer, director,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise. The Company will so indemnify such officer or director, and
may so indemnify such employee or agent (if indemnification is authorized by
the Board of Directors), in the case of such actions (whether or not by or in
the right of the Company) if such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests
of the Company, and with respect to any criminal action or proceeding other
than by or in the right of the Company, had no reasonable cause to believe
such person's conduct was unlawful. With respect to indemnification other than
by or in the right of the Company, the termination of any action, suit or
proceeding by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, will not, of itself, create a presumption
that the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, that such
person had reasonable cause to believe that such person's
60
<PAGE>
conduct was unlawful. No indemnification will be made in connection with
actions by or in the right of the Company in respect of any claim, issue or
matter as to which such person has been adjudged to be liable for negligence
or misconduct in the performance of such person's duty to the Company unless
and only to the extent that the Court of Chancery or the court in which such
action or suit was brought determines upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court deems proper. In addition, to
the fullest extent permitted by the DGCL, expenses (including attorneys'
fees), judgments, fines incurred by and amounts paid in settlement may be
advanced by the Company prior to the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on the behalf of such
director, officer, employee or agent to repay such amounts if it shall
ultimately be determined that he or she is not entitled to be indemnified as
authorized in accordance with the DGCL and the Company's Certificate of
Incorporation. The Company's Certificate of Incorporation and Bylaws also
state that such indemnification is not exclusive of any other rights of the
indemnified party, including rights under any indemnification agreements or
otherwise.
News Corporation maintains insurance on behalf of its officers and directors
and officers and directors of its subsidiaries, including the Company, against
any liability which may be asserted against any such officer or director,
subject to certain customary exclusions.
EXECUTIVE SERVICES AND COMPENSATION
All of the executive officers of the Company are also executive officers of
News Corporation. Prior to the Offerings, News Corporation or other parent
entities of the Company paid all compensation of such officers. The Company
and News Corporation or its subsidiaries will enter into a Master Intercompany
Agreement, to be effective following the consummation of the Offerings,
pursuant to which the Company will pay fees to News Corporation or its
subsidiaries which will include consideration for the services rendered to the
Company by such executive officers or other persons. As executive officers of
News Corporation, the executive officers of the Company will continue to
render services to News Corporation and its subsidiaries in addition to the
Company. See "Relationships between the Company and News Corporation--Master
Incompany and Other Agreements."
The executive officers and certain other employees of the Company will be
eligible to participate in News Corporation's Share Option Plan and the
Company will be charged appropriately for the provision of such benefits.
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<PAGE>
PRINCIPAL STOCKHOLDER AND STOCK OWNERSHIP
STOCK OWNERSHIP OF THE COMPANY
After the Offerings, all of the outstanding shares of Class B Common
Stock (entitled to 10 votes per share) will be owned by FEG Holdings, Inc., a
Delaware corporation. FEG Holdings, Inc. is an indirect wholly owned
subsidiary of News Corporation. Such shares will be entitled to % of the
voting power of the Company after the Offerings.
Following the Offerings, Mr. K. Rupert Murdoch will own all of the 7,600
outstanding shares of voting preferred stock of the Company's subsidiary, Fox
Television Holdings, Inc., representing 76% of the voting power of such
company. See "Reorganization" and "Business--Regulation."
STOCK OWNERSHIP OF NEWS CORPORATION
The following table sets forth, as of September 21, 1998, the beneficial
ownership of the outstanding Ordinary Shares of News Corporation (the only
class of shares of News Corporation generally entitled to voting rights) by
each person who at such time owned more than five percent thereof, by the
Company's Directors and executive officers and by all of the Directors and
executive officers of the Company as a group. The following table does not
include beneficial ownership of Preferred Limited Voting Ordinary Shares of
News Corporation ("Preferred Ordinary Shares").
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
BENEFICIAL OWNER NUMBER OF ORDINARY SHARES PERCENTAGE OF CLASS
------------------- ------------------------- -------------------
<S> <C> <C>
Cruden Investments Pty.
Limited................... 605,459,903(1) 30.04%
Level 2
306 Little Collins Street
Melbourne, Victoria
Australia
K. Rupert Murdoch.......... 605,459,903(1) 30.04%
Peter Chernin.............. -- (2) --
Chase Carey................ 680,000(3) *
David F. DeVoe............. 32,000(4) *
Arthur M. Siskind.......... 227,871(5) *
All Directors and executive
officers of the Company as
a group (5 persons)....... 606,399,774 30.07%
</TABLE>
- --------
(1) Includes Ordinary Shares owned by Mr. Murdoch, Ordinary Shares owned by
Cruden Investments Pty. Limited, a corporation organized under the laws of
the State of Victoria, Australia and a subsidiary thereof, and Ordinary
Shares owned by a corporation which is controlled by trustees of
settlements and trusts set up for the benefit of the Murdoch family,
certain charities and other persons. Cruden Investments Pty. Limited is a
private Australian incorporated investment company owned by Mr. Murdoch,
members of his family and various corporations and trusts, the
beneficiaries of which include Mr. Murdoch, members of his family and
certain charities. By virtue of shares of News Corporation owned by such
persons and entities, and Mr. Murdoch's positions as Chairman and Chief
Executive of News Corporation and Chairman and Chief Executive Officer of
the Company, Mr. Murdoch may be deemed to control the operations of News
Corporation and the Company. In addition, Mr. Murdoch, Cruden Investments
Pty. Limited and such other entities beneficially own 281,321,738
Preferred Ordinary Shares.
(2) Mr. Chernin has been granted options to purchase 7,800,000 Preferred
Ordinary Shares, of which 3,375,000 are currently exercisable or become
exercisable within 60 days.
(3) Such shares are subject to currently exercisable options. In addition, Mr.
Carey has been granted options to purchase 2,780,000 Preferred Ordinary
Shares, of which 1,205,000 are currently exercisable or become exercisable
within 60 days.
(4) In addition, Mr. DeVoe beneficially owns 24,000 Preferred Ordinary Shares
and has been granted options to purchase 1,460,000 Preferred Ordinary
Shares, of which 440,000 are currently exercisable or become exercisable
within 60 days.
(5) Includes 200,000 shares subject to currently exercisable options. In
addition, Mr. Siskind beneficially owns 67,983 Preferred Ordinary Shares
and has been granted options to purchase 1,560,000 Preferred Ordinary
Shares, of which 540,000 are currently exercisable or become exercisable
within 60 days.
* Less than one percent.
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<PAGE>
RELATIONSHIPS BETWEEN THE COMPANY AND NEWS CORPORATION
BUSINESS RELATIONSHIPS
News Corporation and its subsidiaries have, in the past, engaged in a broad
range of relationships with the Company and its subsidiaries. These
relationships have included the purchase by programming platforms owned, in
whole or in part, by News Corporation of programming created or owned by the
Company; the purchase by the Company of television and movie rights related to
books published by HarperCollins Publishers or other News Corporation
publications; the purchase of advertising in TV Guide and in free-standing
inserts or other publications of News Corporation; and the purchase of certain
television broadcasting equipment services from News Corporation. The Company
believes that the terms and conditions of all such arrangements were
comparable to those the Company believes would pertain to transactions with
unaffiliated third parties.
MASTER INTERCOMPANY AND OTHER AGREEMENTS
For purposes of governing certain on-going relationships between the Company
and News Corporation and to facilitate the Reorganization, the Company and
News Corporation will enter into various agreements and relationships,
including those described below. The agreements described below were
negotiated in the context of a parent-subsidiary relationship and therefore
are not the result of arm's-length negotiations between independent parties.
There can be no assurance, therefore, that each of such agreements, or the
transactions provided for therein, or any amendments thereof will be effected
on terms at least as favorable to the Company as could have been obtained from
unaffiliated third parties.
Certain agreements summarized below are included as exhibits to the
Registration Statement on Form S-1 of which this Prospectus is a part, and the
following summaries are qualified in their entirety by reference to such
exhibits which are herein incorporated by reference. The following
descriptions summarize all material terms of such agreements.
Master Intercompany Agreement
Prior to the consummation of the Offerings, the Company and News Corporation
will have entered into a Master Intercompany Agreement which will provide,
among other things, for the principal transactions required to effect the
Reorganization and the Offerings, and certain other agreements governing the
relationship between the Company and News Corporation following the
Reorganization and the Offerings.
Reorganization
To effect the Reorganization, News Corporation will transfer or cause its
subsidiaries to transfer its equity interests in certain of News Corporation's
subsidiaries engaged in the production and distribution of feature films and
television and other businesses to the Company or to a subsidiary of the
Company and the Company or its subsidiaries will assume substantially all of
the liabilities of such transferred businesses. All transfers between News
Corporation and the Company and their respective subsidiaries will be on an
"as is, where is" basis, and without any representations or warranties.
Use of Proceeds and Repayment of Intercompany Obligations
The Master Intercompany Agreement provides that the Company will use the
proceeds of the Offerings to repay certain indebtedness to News Corporation or
its subsidiaries. Generally, all one-time costs, including fees and taxes
directly relating to the Offerings or the Reorganization, are to be paid by
News Corporation under the terms of the Master Intercompany Agreement.
Cash Management and Financing
Pursuant to the Master Intercompany Agreement, the Company will utilize the
worldwide treasury and cash management function, including the use of bank
overdraft facilities, of News Corporation and its subsidiaries, subject to
certain limitations. In addition, the Company's cash balances will be
available to News Corporation
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and its subsidiaries. Prior to the Offerings, no interest has been charged to
the Company on bank overdrafts nor has any interest been paid to the Company
on cash deposits. At June 30, 1998, the Company had overdrafts of $ million
and cash balances of $ million. It is expected that following the
Offerings, the Company will receive interest on cash balances and pay interest
on overdrafts at commercial interest rates which shall not exceed News
Corporation's average cost of borrowings.
Executive Officer Services
The Master Intercompany Agreement will provide that News Corporation or its
subsidiaries will make available to the Company the services of Messrs. K.
Rupert Murdoch, the Company's Chairman and Chief Executive Officer; Peter
Chernin, the Company's President and Chief Operating Officer; Chase Carey, the
Company's Co-Chief Operating Officer; David F. DeVoe, the Company's Senior
Executive Vice President and Chief Financial Officer; and Arthur M. Siskind,
the Company's Senior Executive Vice President and General Counsel, and such
other employees of News Corporation as the Company and News Corporation may
from time to time designate. Although it is contemplated that such executives
will spend a considerable portion of their business time in connection with
the business of the Company, they will also be engaged in activities for News
Corporation not related directly to the business of the Company.
Lease Arrangements
Certain of the Company's facilities are located on premises leased by News
Corporation, or entities in which News Corporation has an interest.
Furthermore, certain facilities of News Corporation, or entities in which News
Corporation has an interest, are located on premises leased by the Company. It
is contemplated that the Master Intercompany Agreement will provide for the
apportionment of costs related to such facilities.
Employee Matters
The Master Intercompany Agreement will set forth the understanding between
the parties with respect to current and former employees of News Corporation
and the Company, including without limitation claims arising out of or
relating to any employee benefit or compensation plan, agreement, arrangement
or program, as well as collective bargaining agreements, accrued wages and
workers' compensation, holiday, vacation and sick day benefits. It is expected
that following the Offerings, the Company will assume and be solely
responsible for all liabilities and obligations whatsoever with respect to
current officers and employees of the businesses owned and operated by the
Company and former officers and employees of such businesses who, immediately
prior to the termination of their employment, were employed in such
businesses.
Services
The Master Intercompany Agreement will provide that News Corporation and its
subsidiaries will continue to provide various services to each other at
allocated cost, including material procurement, transportation and financial
and administrative services.
Trademarks
The Master Intercompany Agreement will provide that News Corporation and its
subsidiaries and the Company will be entitled to use certain trademarks of the
Company and that the Company will be entitled to use certain trademarks of
News Corporation and its subsidiaries.
Indemnities by the Company
News Corporation or its subsidiaries have, in the past, given certain
guarantees or made commitments relating to the businesses that are, or will
following the Reorganization, be conducted by the Company. These include
commitments made in connection with film rights agreements; funding and other
obligations made to Liberty IFE, Inc., the holder of Series A Preferred Stock
of FFW having a liquidation preference of $345 million;
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and certain obligations to Liberty relating to the formation of ISPP. The
Master Intercompany Agreement will provide that the Company will assume all
such obligations and commitments, and will indemnify and hold News Corporation
and its subsidiaries harmless from and against all liabilities arising from
any default thereunder.
Tax Sharing Agreement
Following the Offerings, the Company and certain of its subsidiaries will
continue to be included in the consolidated group of News Publishing Australia
Limited, the principal U.S. subsidiary of News Corporation, for U.S. federal
income tax purposes (the "Consolidated Group") as well as in certain
consolidated, combined or unitary groups which include News Publishing
Australia Limited and/or certain of its subsidiaries (a "Combined Group") for
state and local income tax purposes. Prior to the consummation of the
Offerings, the Company and News Publishing Australia Limited will enter into a
tax sharing agreement (the "Tax Sharing Agreement"). Pursuant to the Tax
Sharing Agreement, the Company and News Publishing Australia Limited generally
will make payments between them such that, with respect to tax returns for any
taxable period in which the Company or any of its subsidiaries is included in
the Consolidated Group or any Combined Group, the amount of such consolidated
or combined taxes to be paid by the Company will be determined, subject to
certain adjustments, as if the Company and each of its subsidiaries included
in the Consolidated Group or Combined Group filed their own consolidated,
combined or unitary tax return. Only losses and other tax benefits actually
availed of to reduce the tax liabilities of the Consolidated Group or Combined
Group will be taken into account for this purpose. The Company and News
Publishing Australia Limited will cooperate in preparing any tax return filed
with respect to the Consolidated Group or any Combined Group.
News Publishing Australia Limited will be primarily responsible for
preparing and filing any tax return with respect to the Consolidated Group or
any Combined Group, as well as for controlling and contesting any audit or
other tax proceeding with respect to the Consolidated Group or any Combined
Group. The Company will be responsible for preparing and filing any tax
returns that include only the Company and its subsidiaries and for any taxes
with respect to such tax returns.
In general, the Company will be included in the Consolidated Group for so
long as News Publishing Australia Limited beneficially owns at least 80% of
the total voting power and value of the outstanding stock of the Company. Each
member of a consolidated group for federal income tax purposes is jointly and
severally liable for the federal income tax liability of each other member of
the consolidated group. Accordingly, although the Tax Sharing Agreement
allocates tax liabilities between the Company and News Publishing Australia
Limited, during the period in which the Company is included in the
Consolidated Group, the Company could be liable in the event that any federal
tax liability is incurred, but not discharged, by any other member of the
Consolidated Group.
CREDIT ARRANGEMENTS
News Corporation and certain of its subsidiaries, including the Fox
Guarantors, are guarantors of the obligations of NAI under the Guaranteed Debt
Instruments. Such guarantees, including those of the Company, represent
contingent and not current obligations of the Fox Guarantors. The principal
amount of indebtedness outstanding under such Guaranteed Debt Instruments at
June 30, 1998 was approximately $9.3 billion, which amount includes
approximately $1 billion of obligations under Exchangeable Trust Originated
Preferred Securities SM due 2016. The Guaranteed Debt Instruments mature at
various times between 1999 and 2096, with a weighted average maturity of over
20 years, and are generally not redeemable prior to maturity. The indentures
governing the Guaranteed Debt Instruments limit the ability of News
Corporation and its subsidiaries (including the Fox Guarantors) to subject
their properties to liens. Certain Guaranteed Debt Instruments issued prior to
March 1993 also may impose limitations on the ability of News Corporation and
its subsidiaries, including the Company to incur indebtedness in certain
circumstances. The Guaranteed Debt Instruments also contain customary
representations, warranties, covenants and events of default. Under the terms
of the Guaranteed Debt Instruments, the holders thereof have the right to
require NAI to make an offer to repurchase the outstanding
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debt instruments in the event of a "Change of Control Triggering Event." A
Change of Control Triggering Event occurs when the Guaranteed Debt Instrument
is downgraded below investment grade following a "Change of Control" of News
Corporation or an announcement of an intended Change of Control (or in the
event the Guaranteed Debt Instrument is not investment grade at such time, a
reduction in the rating by one or more gradations). A Change of Control occurs
when a person other than News Corporation, subsidiaries and certain affiliates
of News Corporation and the Murdoch Family (as defined in the Guaranteed Debt
Instruments) owns (i) 30% or more of the voting power of News Corporation's
common shares or (ii) if the Murdoch Family is the beneficial owner of more
than 30% of such voting power of News Corporation, a percentage greater than
that owned by the Murdoch Family. Certain Guaranteed Debt Instruments require
any subsidiary of News Corporation which issues any guarantee for money
borrowed in excess of $50 million to guarantee all outstanding and future
senior indebtedness issued by News Corporation or its affiliates pursuant to
the indentures governing the Guaranteed Debt Instruments. Therefore,
additional subsidiaries of the Company may from time to time be required to
become guarantors under certain Guaranteed Debt Instruments.
The Fox Guarantors have also guaranteed the obligations of News Corporation
and certain of its subsidiaries under the Revolving Credit Agreement. The
Revolving Credit Agreement provides for borrowings of up to approximately $2.0
billion and expires on June 30, 2004. As of September 21, 1998, there were no
borrowings outstanding under the Revolving Credit Agreement. The Revolving
Credit Agreement contains certain covenants which, among other things, limit
the ability of News Corporation and the Fox Guarantors to subject their
properties to liens, to incur indebtedness, to make certain investments and to
prepay certain indebtedness. News Corporation is also required to maintain
certain financial covenants, calculated on a consolidated basis, including a
leverage ratio, interest coverage ratio and fixed charge covenant ratio. The
Revolving Credit Agreement also contains representations, warranties,
covenants and events of default customary to senior unsecured credit
facilities of similar size and nature. Each subsidiary of News Corporation,
including subsidiaries of the Company, which account for greater than 5% of
the consolidated income of News Corporation are required to become guarantors
under the Revolving Credit Agreement. Therefore, additional subsidiaries of
the Company may from time to time be required to become guarantors under the
Revolving Credit Agreement in certain circumstances.
Indemnity Agreement
Prior to the consummation of the Offerings, News Corporation will enter into
an Indemnity Agreement with the Company, pursuant to which News Corporation
and certain of its subsidiaries will agree to indemnify and hold the Company
and its subsidiaries harmless from and against all liabilities arising from
any default under the debt instruments or obligations of News Corporation or
its subsidiaries (other than the Company) which have been guaranteed by the
Company or its subsidiaries.
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CERTAIN ARRANGEMENTS REGARDING THE COMPANY'S OWNERSHIP OF OTHER ENTITIES
FOX/LIBERTY NETWORKS, LLC
Fox/Liberty Networks is a limited liability company organized under the
Delaware Limited Liability Company Act. Fox/Liberty Networks is governed by an
operating agreement dated April 29, 1996 among its members, LMC Newco U.S.,
Inc. ("LMCI") (a wholly owned subsidiary of Liberty), Fox Regional Sports
Holdings, Inc. ("FRSH") (an indirect wholly owned subsidiary of the Company,
and Fox/Liberty Sports Financing LLC (a Delaware limited liability company in
which each of LMCI and the Company hold a 50% interest).
Fox/Liberty Networks owns a 99% interest in each of Fox Sports Net, LLC
("Fox/Liberty Sports"), Fox Sports RPP Holdings, LLC ("Fox Sports RPP") and FX
Networks, LLC ("Fox/Liberty FX"). The remaining 1% interests in each of
Fox/Liberty Sports, Fox Sports RPP and Fox/Liberty FX are owned by affiliates
of the Company and Liberty.
In connection with the formation of Fox/Liberty Networks, the Company
contributed $244 million in cash, certain assets related to the operation of a
regional sports business (which were purchased from Liberty for $100 million)
and all of the assets and liabilities of FX to Fox/Liberty Networks in
exchange for a 50% ownership interest. Liberty contributed its interests in
RSNs, programming assets and rights in return for a 50% ownership interest.
Pursuant to the Fox/Liberty Networks formation documents, at any time after
October 30, 2000, if the members of Fox/Liberty Networks fail to approve an
annual budget for Fox/Liberty Sports and Fox Sports RPP or Fox/Liberty FX for
two consecutive fiscal years or fail to appoint a chief executive officer of
Fox/Liberty Networks for such period, or at any time after April 29, 2002,
either the Company or Liberty may initiate a buy/sell procedure, regarding the
various assets of Fox/Liberty Networks. Upon a Change of Control (as defined),
the party not experiencing the Change of Control has a call option on all
interests held by the other party. The Offerings do not constitute a Change of
Control. In connection with the formation of Fox/Liberty Networks, News
Corporation and NAI, on the one hand, and TCI and Liberty, on the other,
agreed on behalf of themselves and their controlled affiliates, subject to
certain exceptions, not to engage in certain business activities within the
scope of this joint venture in competition with the joint venture.
REGIONAL PROGRAMMING PARTNERS, NATIONAL SPORTS PARTNERS AND NATIONAL
ADVERTISING PARTNERS
On June 22, 1997, Rainbow and Fox/Liberty Networks entered into a Formation
Agreement pursuant to which they agreed to form Regional Programming Partners
("RPP"), to hold various programming interests in connection with the
operation of certain RSNs. In accordance with the terms of the Formation
Agreement, upon consummation of the transactions contemplated thereby (the
"Rainbow Transaction") on December 18, 1997, Rainbow contributed various
interests in RSNs, the Madison Square Garden Entertainment Complex, Radio City
Music Hall, the New York Rangers NHL franchise, and the New York
Knickerbockers NBA franchise, to RPP in exchange for a 60% partnership
interest in RPP, and Fox/Liberty Networks contributed $850 million in cash for
a 40% partnership interest in RPP. Rainbow serves as managing partner of RPP.
Pursuant to the partnership agreement of RPP (the "RPP Agreement"), after
the third anniversary of the closing of the Rainbow Transaction, upon the
occurrence of a Buy-Out Trigger (as defined), or upon the date on which Fox
Sports RPP, a subsidiary of Fox/Liberty Networks, submits a notice, pursuant
to the RPP Agreement, to remove the managing partner of RPP following a Change
of Control of RPP (as defined), Rainbow Regional Holdings, Inc. ("RRH"), a
subsidiary of Rainbow, has the right to purchase from Fox Sports RPP all of
Fox Sports RPP's interests in RPP.
Additionally, for each of the (i) 30 days following the fifth anniversary of
the closing of the Rainbow Transaction, (ii) 30 days following each third year
anniversary of the fifth anniversary of the closing of the Rainbow Transaction
and (iii) 30 days following receipt of a notice initiating the buy-out
procedure described above, so long as RPP has not commenced an initial public
offering of its securities, RPP has the right to cause
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RRH, at RRH's option, to either (i) purchase all of its interests in Fox
Sports RPP or (ii) consummate an initial public offering of RPP's securities.
In connection with the Rainbow Transaction, Rainbow National Sports
Holdings, Inc. ("RNSH"), an indirect subsidiary of Cablevision, and Fox Sports
NSP Holdings LLC ("Fox Sports NSP"), a subsidiary of Fox/Liberty Networks,
agreed to form the National Sports Partners, a New York general partnership
("NSP") to operate FSN. NSP is owned 50% by RNSH and 50% by Fox Sports NSP.
Fox Sports NSP is the managing partner of NSP. For the 30 days following the
fifth anniversary of the closing of the Rainbow Transaction and for the 30
days following each third year anniversary of the first anniversary of the
closing of the Rainbow Transaction, so long as NSP has not consummated an
initial public offering of its securities, RNSH has the right to cause Fox
Sports NSP, at Fox Sports NSP's option, to either (i) purchase all of its
interests in NSP or (ii) consummate an initial public offering of NSP's
securities. Further, upon a Change of Control (as defined), the party not
experiencing the Change of Control has a call option on all interests held by
the other party.
Also in connection with the Rainbow Transaction, a subsidiary of Rainbow and
Fox Sports Ad Sales, LLC, a subsidiary of Fox/Liberty Networks, agreed to form
the National Advertising Partners, a New York general partnership ("NAP") to
act as the national advertising sales representative for the Fox/Liberty
Networks-owned RSNs and the RPP-owned and managed RSNs. NAP is owned 50% by a
subsidiary of Rainbow ("Rainbow Ad Sales") and 50% by Fox Sports Ad Sales. Fox
Sports Ad Sales is the managing partner of NAP.
For the 30 days following the fifth anniversary of the closing of the
Rainbow Transaction and for the 30 days following each third year anniversary
of the fifth anniversary of the closing of the Rainbow Transaction, so long as
NAP has not consummated an initial public offering of its securities, Rainbow
Ad Sales has the right to cause Fox Sports Ad Sales, at Fox Sports Ad Sales'
option, to either (i) purchase all of its interests in NAP or (ii) consummate
an initial public offering of NAP's securities. Further, upon a Change of
Control (as defined), the party not experiencing the Change of Control has a
call option on all interests held by the other party.
INTERNATIONAL SPORTS PROGRAMMING PARTNERS
International Sports Programming Partners ("ISPP") is a general partnership
formed under the Delaware General Partnership Act. The Company, on the one
hand, and a partnership between Liberty and Tele-Communications International,
Inc. ("TINTA" and together with Liberty, "Liberty/TINTA"), on the other, each
hold 50% partnership interests in ISPP. In connection with the formation of
ISPP, News Corporation contributed certain sports programming rights
agreements to ISPP in exchange for its partnership interest. Liberty/TINTA
contributed its interest in certain programming assets and rights to ISPP in
return for its partnership interest. News Corporation's outstanding
obligations to Liberty relating to the formation of ISPP will be assumed by
the Company. Pursuant to the ISPP formation documents, at any time after
October 30, 2000, if the partners of ISPP fail to approve an annual budget for
ISPP for two consecutive fiscal years or fail to appoint a chief executive
officer of ISPP for such period, or at any time after April 29, 2002, either
News Corporation or Liberty/TINTA may initiate a buy/sell procedure, regarding
the assets of ISPP. Upon a Change of Control (as defined) the party not
experiencing the Change of Control has a call option on all interests held by
the other party. The Offerings do not constitute a Change of Control. In
connection with the formation of ISPP, News Corporation, on the one hand, and
TINTA and Liberty, on the other, agreed on behalf of themselves and their
controlled affiliates, subject to certain exceptions, not to engage in certain
business activities within the scope of this joint venture in competition with
the joint venture.
FOX/LIBERTY VENTURES, LLC
Fox/Liberty Ventures is a limited liability company organized under the
Delaware Limited Liability Company Act. Fox/Liberty Ventures is governed by an
operating agreement among its members, Liberty Sports Holding, Inc. (an
indirect wholly owned subsidiary of Liberty) and Fox Regional Sports Holdings,
Inc. ("FRSH") (an indirect wholly owned subsidiary of the Company.) Each
member owns a 50% interest in Fox/Liberty Ventures.
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Pursuant to the Fox/Liberty Ventures formation documents, at any time after
October 30, 2000, if the members of Fox/Liberty Ventures fail to approve an
annual budget for two consecutive fiscal years or fail to appoint a chief
executive officer of Fox/Liberty Networks for such period, or at any time
after April 29, 2002, either the Company or Liberty may initiate a buy/sell
procedure, regarding the various assets of Fox/Liberty Ventures. Upon a Change
of Control (as defined), the party not experiencing the Change of Control has
a call option on all interests held by the other party. The Offerings do not
constitute a Change of Control.
FOX FAMILY WORLDWIDE, INC.
FFW was incorporated in August 1996 under Delaware law as a holding company
of FCN Holding, SEI and Fox Kids Worldwide, L.L.C. ("Fox Kids LLC"). Between
August 1996 and August 1997, FFW conducted no business or operations. On
August 1, 1997, in connection with the Company's acquisition of a controlling
interest in International Family Entertainment, Inc. ("IFE"), (i) Fox
Broadcasting Sub, Inc., a wholly owned indirect subsidiary of Fox Broadcasting
("Fox Broadcasting Sub"), exchanged its capital stock in FCN Holding, which
indirectly owns the Fox Children's Network, Inc. ("FCN") for 7,920,000 shares
of Class B Common Stock of FFW, (ii) the other stockholder of FCN Holding
exchanged its capital stock in FCN Holding for an aggregate of 160,000 shares
of Class A Common Stock of FFW, (iii) Haim Saban and the other stockholders of
SEI (together, the "SEI Stockholders") (none of whom is affiliated with News
Corporation) exchanged their capital stock of Saban for and aggregate of
7,920,000 shares of Class B Common Stock of FFW, and (iv) all outstanding
management options to purchase SEI capital stock became options to purchase an
aggregate of 646,548 shares of Class A Common Stock of FFW. In addition, Fox
Broadcasting exchanged its preferred, non-voting interest in the LLC and its
$50 million contingent note receivable from Fox Kids LLC for a new
subordinated pay-in-kind note from FFW (the "FOX/FWW Note"), which accrues
interest at the rate of 10.42% and currently has an outstanding principal
amount of approximately $110 million, as of June 30, 1998. The payment of
principal and interest under the FOX/FWW Note are subordinated in right to the
obligations of FFW and its subsidiaries under the Second Amended and Restated
Credit Agreement dated as of October 28, 1997 between certain subsidiaries of
FFW and certain banks (as amended, supplemented or otherwise modified from
time to time, the "FFW Credit Agreement") and the indentures relating to FFW's
9 1/4% Senior Notes and 10 1/4% Senior Discount Notes (collectively, the "FFW
Notes"), each dated as of October 28, 1997 between FFW and The Bank of New
York, as Trustee (collectively, the "FFW Indentures").
As part of the formation of the Fox Kids LLC, SEI, the SEI Stockholders,
FOX, FCN Holding and one of its subsidiaries entered into a Strategic
Stockholders Agreement, which provided, among other things, for restrictions
on transfer of the stock held by the parties, certain reciprocal agreements as
to management actions, as well as the terms of the Reorganization. The parties
to the Strategic Stockholders Agreement also agreed to provide Haim Saban and
the SEI Stockholders and FOX certain registration rights. On August 1, 1997,
the Strategic Stockholders Agreement was amended and restated to add
provisions regarding voting between FOX and the former SEI Stockholders.
Pursuant to a Stock Ownership Agreement dated December 22, 1995, the LLC was
granted an option to purchase, upon the occurrence of certain events, all of
the Class B Common Stock of FFW held by the SEI Stockholders, and any of their
transferees. The option may be exercised as follows: (i) for a period of one
year following the death of Haim Saban, if he dies prior to December 22, 2012;
(ii) upon delivery of written notice by Fox Broadcasting at any time on or
after December 22, 2002, or before December 22, 2012; or (iii) upon receipt by
FOX of written notice (which generally cannot be delivered prior to December
22, 2000) from Haim Saban of his desire to cause FOX to purchase all of the
shares of Class B Common Stock of FFW held by the SEI Stockholders. Fox Kids
LLC paid to the SEI Stockholders an aggregate of $80.1 million for the grant
of the option. The purchase price formula under the option is based on the
fair market value of the Company. In September 1996, Fox Kids LLC distributed
the Stock Ownership Agreement to FCN Holding, which immediately distributed
that agreement to Fox Broadcasting Sub.
On August 29, 1997, in connection with the acquisition of the remaining
interests of IFE, FFW issued to NAI a $345.5 million subordinated pay-in kind
note (the "NAI/FFW Note") , which accretes interest at the rate
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of 10.42% per annum. Upon consummation of the offering of the FFW Notes
pursuant to the FFW Indentures, approximately $270.7 million was repaid to
NAI, leaving approximately $114 million outstanding as of the date hereof. The
payment of principal and interest under the NAI/FFW Note are subordinated in
right to the obligations of FFW and its subsidiaries under the FFW Credit
Agreement and the FFW Indentures.
In connection with the acquisition of IFE, FFW issued to Liberty IFE, Inc.
$345 million of Series A Preferred Stock which receive cash dividends of 9%
per annum in arrears, paid quarterly. Any accrued and unpaid dividends are
added to the liquidation price and until such accrued and unpaid dividends are
paid in full, the dividend rate increases to 11.5%. The Series A Preferred
Stock will be redeemed by FFW in 2027 at a price equal to the liquidation
price as of the date of redemption, payable in cash. Holders of the Series A
Preferred Stock can require FFW to redeem the Series A Preferred Stock in
years 2017 and 2022 and FFW has an option to repurchase the Series A Preferred
Stock at any time following August 1, 2007.
Pursuant to a Funding Agreement among News Corporation, NPAL and FFW (the
"Funding Agreement"), each of News Corporation and NPAL, jointly and
severally, agreed to provide FFW with the funds necessary to redeem in full or
pay the liquidation distribution on and all other amounts owing in respect of
the Series A Preferred Stock in the event of an event of default under the
provisions governing the Series A Preferred Stock contained in FFW's
certificate of incorporation or a liquidation, dissolution or similar event of
FFW. In addition, pursuant to the Exchange Agreement among NPAL, Liberty Media
Corporation and Liberty IFE, Inc., each holder of the Series A Preferred Stock
has the right, in the event of an event of default under the provisions
governing the Series A Preferred Stock contained in FFW's certificate of
incorporation or a liquidation, dissolution or similar event of FFW, to
exchange its shares for an equivalent number of shares of preferred stock of
NPAL. It is contemplated that, prior to the consummation of the Offerings, the
Company will indemnify News Corporation and NPAL with respect to any liability
they may incur in connection with their obligations under the Funding
Agreement.
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DESCRIPTION OF CAPITAL STOCK
The following summary of the terms of the Company's capital stock is
qualified in its entirety by reference to the applicable provisions of
Delaware law and the Company's Restated Certificate of Incorporation and
Company's By-Laws as proposed to be in effect upon consummation of the
Offerings.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
General
The holders of Class A Common Stock and Class B Common Stock have identical
rights except with respect to voting, conversion and transfer.
Voting Rights
Holders of Class A Common Stock are entitled to one vote per share while
holders of Class B Common Stock are entitled to 10 votes per share on all
matters to be voted on by stockholders. Holders of shares of Class A Common
Stock and Class B Common Stock are not entitled to cumulate their votes in the
election of directors. Generally, all matters to be voted on by stockholders
must be approved by a majority of the votes entitled to be cast by all shares
of Class A Common Stock and Class B Common Stock present in person or
represented by proxy, voting together as a single class, subject to any voting
rights granted to holders of any Preferred Stock. Except as otherwise provided
by law or in the Restated Certificate of Incorporation, and subject to any
voting rights granted to holders of any outstanding Preferred Stock,
amendments to the Restated Certificate of Incorporation must be approved by a
majority of the votes entitled to be cast by all shares of Class A Common
Stock and Class B Common Stock present in person or represented by proxy,
voting together as a single class. However, amendments to the Restated
Certificate of Incorporation that would alter or change the powers,
preferences or special rights of the Class A Common Stock so as to affect them
adversely also must be approved by a majority of the votes entitled to be cast
by the holders of the Class A Common Stock, voting as a separate class. Any
amendment to the Restated Certificate of Incorporation to increase the
authorized shares of any class requires the approval only of a majority of the
votes entitled to be cast by all shares of Class A Common Stock and Class B
Common Stock present in person or represented by proxy, voting together as a
single class, subject to the rights set forth in any series of Preferred Stock
created as described below.
Dividends
Holders of Class A Common Stock and Class B Common Stock will share equally
on a per share basis in any dividend declared by the Board of Directors,
subject to any preferential rights of any outstanding Preferred Stock.
Dividends consisting of shares of Class A Common Stock and Class B Common
Stock may be paid only as follows: (i) shares of Class A Common Stock may be
paid only to holders of Class A Common Stock, and shares of Class B Common
Stock may be paid only to holders of Class B Common Stock; and (ii) the number
of shares so paid will be equal on a per share basis with respect to each
outstanding share of Class A Common Stock and Class B Common Stock.
The Company may not reclassify, subdivide or combine shares of either class
of Common Stock without at the same time proportionally reclassifying,
subdividing or combining shares of the other class.
Issuance of Class B Common Stock, Options or Warrants
Subject to certain provisions regarding dividends and other distributions
described above, the Company will not be entitled to issue additional shares
of Class B Common Stock, or issue options, rights or warrants to subscribe for
additional shares of Class B Common Stock, except that the Company may make a
pro rata offer to all holders of Common Stock of rights to purchase additional
shares of the class of Common Stock held by
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them. The Class A Common Stock and the Class B Common Stock will be treated
equally with respect to any offer by the Company to holders of Common Stock of
options, rights or warrants to subscribe for any other capital stock of the
Company.
Merger
In the event of a merger, the holders of Class A Common Stock and Class B
Common Stock will be entitled to receive the same per share consideration, if
any, except that if such consideration includes voting securities (or the
right to acquire voting securities or securities exchangeable for or
convertible into voting securities), the Company may (but is not required to)
provide for the holders of Class B Common Stock to receive consideration
entitling them to 10 times the number of votes per share as the consideration
being received by holders of the Class A Common Stock.
Conversion of Class B Common Stock
The Class B Common Stock will be convertible into Class A Common Stock on a
share-for-share basis (i) at the option of the holder thereof at any time, or
(ii) automatically upon transfer to a person or entity which is not a
Permitted Transferee (as defined in the Restated Certificate of
Incorporation). In general, Permitted Transferees will include News
Corporation, its direct and indirect subsidiaries, any partnership, limited
liability company or trust at least 50% controlled by News Corporation, and
any successor of any of the foregoing.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to shares of Preferred Stock in one or more
series and to fix the powers, rights, preferences, privileges and restrictions
thereof, any or all of which may be greater than the rights of the Class A
Common Stock or the Class B Common Stock. The issuance of Preferred Stock
could adversely affect the voting power of holders of the Class A Common Stock
or the Class B Common Stock and reduce the likelihood that such holders will
receive dividend payments and payments upon liquidation and could have the
effect of delaying, deterring or preventing a change in control of the
Company. The Company has no present plans to issue any shares of Preferred
Stock.
CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS
Certain provisions of the Company's Restated Certificate of Incorporation
and By-laws may make a change in control of the Company more difficult to
effect. The Company's Class A Common Stock is entitled to one vote per share
on all matters submitted to a vote of stockholders and the Company's Class B
Common Stock is entitled to ten votes per share on all such matters. News
Corporation indirectly beneficially owns, and will continue to indirectly
beneficially own after the Offerings, all of the Company's Class B Common
Stock. Upon consummation of the Offerings, such Class B Common Stock will
represent approximately % of the voting power of the Company. See "Risk
Factors--Possible Anti-Takeover Effects of Certain Charter Provisions."
The Restated Certificate of Incorporation provides that, to the fullest
extent permitted by the Delaware General Corporate Law or any other applicable
laws, directors of the Company will not be personally liable to the Company or
its stockholders for any acts or omissions in the performance of their duties.
Such limitation of liability does not affect the availability of non-monetary
remedies such as injunctive relief or rescission. These provisions will not
limit the liability of directors under federal securities law.
TRANSFER AGENT AND REGISTRAR
will serve as Transfer Agent and Registrar for the Company's Class A
Common Stock.
72
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offerings, the Company will have
shares of Class A Common Stock outstanding ( shares if Underwriters' over-
allotment options are exercised in full). In addition, the Company will have
outstanding shares of Class B Common Stock, all of which will be
indirectly beneficially owned by News Corporation, which is convertible into
Class A Common Stock on a share-for-share basis at the election or the holder
or upon transfer or disposition to persons who are not Permitted Transferees.
All of the shares of Class A Common Stock offered hereby will generally be
freely tradeable without restriction under the Securities Act, except for any
such shares held at any time by an "affiliate" of the Company, as such term is
defined under Rule 144 promulgated under the Securities Act ("Rule 144"),
described below. Subject to such restrictions and applicable law, News
Corporation will be free to sell any and all shares of Class B Common Stock
that it indirectly beneficially owns.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
within the meaning of Rule 144 ("Restricted Securities") for at least one
year, and including the holding period of any prior owner other than an
"affiliate," as that term is defined in Rule 144, is entitled to sell, within
any three-month period, a number of shares that does not exceed the greater of
1% of the then-outstanding shares of Class A Common Stock and the average
weekly trading volume of the Class A Common Stock during the four calendar
weeks preceding such sale. Sales under Rule 144 are subject to certain manner
of sale limitations, notice requirements and the availability of current
public information about the Company. Rule 144(k) provides that a person (or
persons whose shares are aggregated) who is not deemed an "affiliate" during
the three months preceding a sale and who has beneficially owned shares for at
least two years (including any period of ownership of preceding non-affiliated
holders) is entitled to sell such shares at any time under Rule 144 without
regard to the limitations described above. An "affiliate" of an issuer is a
person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or under common control with such issuer.
The Company and News Corporation have agreed, subject to certain exceptions,
not to sell, offer or otherwise dispose of any securities of the Company for a
period of 180 days from the date of this Prospectus without the prior written
consent of Merrill Lynch. See "Underwriting."
The Company can make no predictions as to the number of shares that may be
sold in the future or the effect, if any, that sales of such shares, or the
availability of such shares for future sale, will have on the market price of
the Class A Common Stock prevailing from time to time. Sales of a significant
number of shares of Class A Common Stock, or the perception that such sales
could occur, could adversely affect prevailing market prices for the Class A
Common Stock and could impair the Company's future ability to raise capital
through an offering of equity securities. See "Risk Factors--Shares Eligible
for Future Sale."
73
<PAGE>
CERTAIN UNITED STATES TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS
The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of the
Class A Common Stock applicable to Non-United States Holders of such Class A
Common Stock. For the purpose of this discussion, a "Non-United States Holder"
is any holder that for United States federal income tax purposes is not a
"United States person" (as defined below). This discussion does not address
all aspects of United States federal income and estate taxation that may be
relevant in light of such Non-United States Holder's particular facts and
circumstances (such as being a U.S. expatriate) and does not address any tax
consequences arising under the laws of any state, local or non-United States
taxing jurisdiction. Furthermore, the following discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended (the "Code") and
administrative and judicial interpretations thereof, all as in effect on the
date hereof, and all of which are subject to change, possibly with retroactive
effect. For purposes of this discussion, the term "United States person" means
(i) a citizen or resident of the United States, (ii) a corporation,
partnership, or other entity created or organized in the United States or
under the laws of the United States or of any political subdivision thereof,
(iii) an estate whose income is includible in gross income for United States
federal income tax purposes regardless of its source (iv) or a trust whose
administration is subject to the primary supervision of a United States court
and which has one or more United States persons who have the authority to
control all substantial decisions of the trust. PROSPECTIVE NON-UNITED STATES
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES
FEDERAL, STATE, LOCAL AND NON-UNITED STATES INCOME AND OTHER TAX CONSEQUENCES
OF OWNING AND DISPOSING OF CLASS A COMMON STOCK.
DIVIDENDS
If the Company pays a dividend, any dividend paid to a Non-United States
Holder of Class A Common Stock generally will be subject to United States
withholding tax either at a rate of 30% of the gross amount of the dividend or
such lower rate as may be specified by an applicable tax treaty. Dividends
received by a Non-United States Holder that are effectively connected with a
United States trade or business conducted by such Non-United States Holder are
exempt from such withholding tax. However, such effectively connected
dividends, net of certain deductions and credits, are taxed at the same
graduated rates applicable to United States persons.
In addition to the graduated tax described above, dividends received by a
corporate Non-United States Holder that are effectively connected with a
United States trade or business of the corporate Non-United States Holder may
also be subject to a branch profits tax at a rate of 30% or such lower rate as
may be specified by an applicable tax treaty.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-United States Holder generally will not be subject to United States
federal income tax on any gain realized upon the sale or other disposition of
his Class A Common Stock unless: (i) such gain is effectively connected with a
United States trade or business of the Non-United States Holder; (ii) the Non-
United States Holder is an individual who holds such Class A Common Stock as a
capital asset and who is present in the United States for a period or periods
aggregating 183 days or more during the calendar year in which such sale or
disposition occurs and certain other conditions are met; or (iii) the Company
is or has been a "United States real property holding corporation" for federal
income tax purposes at any time within the shorter of the five-year period
preceding such disposition or such holder's holding period. The Company has
determined that it is not and does not believe that it will become a "United
States real property holding corporation" for United States federal income tax
purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, the Company must report to the IRS the amount of dividends paid,
the name and address of the recipient, and the amount, if any, of tax
withheld. A similar report is sent to the holder. Pursuant to tax treaties or
other agreements, the IRS may make its reports available to tax authorities in
the recipient's country of residence.
74
<PAGE>
Dividends paid to a Non-United States Holder at an address within the United
States may be subject to backup withholding at a rate of 31% if the Non-United
States Holder fails to establish that it is entitled to an exemption or to
provide a correct taxpayer identification number and other information to the
payer. Backup withholding will generally not apply to dividends paid to Non-
United States Holders at an address outside the United States (unless the
payer has knowledge that the payee is a United States person).
Under current Treasury Regulations, the payment of the proceeds of the
disposition of Class A Common Stock to or through the United States office of
a broker is subject to information reporting and backup withholding at a rate
of 31% unless the holder certifies its non-United States status under
penalties of perjury or otherwise establishes an exemption. Generally, the
payment of the proceeds of the disposition by a Non-United States Holder of
Class A Common Stock outside the United States to or through a foreign office
of a broker will not be subject to backup withholding but will be subject to
information reporting requirements if the broker is (a) a United States
person, (b) a "controlled foreign corporation" for United States tax purposes
or (c) a foreign person 50% or more of whose gross income for certain periods
is from the conduct of a United States trade or business unless such broker
has documentary evidence in its files of the holder's non-United States status
and certain conditions are met or the holder otherwise establishes an
exemption.
Recently, the Treasury Department has promulgated final regulations (the
"Final Regulations") regarding the withholding and information reporting rules
discussed above. In general, the Final Regulations do not significantly alter
the substantive withholding and information reporting requirements but would
alter the procedures for claiming benefits of an income tax treaty and change
the certification procedures relating to the receipt by intermediaries of
payments on behalf of the beneficial owner of shares of Class A Common Stock.
Non-United States Holders should consult their tax advisors regarding the
effect, if any, of the Final Regulations on an investment in the Class A
Common Stock. The Final Regulations are generally effective for payments made
after December 31, 1999.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the IRS.
ESTATE TAX
An individual Non-United States Holder who owns Class A Common Stock at the
time of his death or had made certain lifetime transfers of an interest in
Class A Common Stock will be required to include the value of such Class A
Common Stock in such holder's gross estate for United States federal estate
tax purposes, unless an applicable estate tax treaty provides otherwise.
THE FOREGOING DISCUSSION IS A SUMMARY OF THE PRINCIPAL FEDERAL INCOME AND
ESTATE TAX CONSEQUENCES OF THE OWNERSHIP, SALE OR OTHER DISPOSITION OF CLASS A
COMMON STOCK BY NON-UNITED STATES HOLDERS. ACCORDINGLY, INVESTORS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE INCOME TAX CONSEQUENCES OF
THE OWNERSHIP AND DISPOSITION OF CLASS A COMMON STOCK, INCLUDING THE
APPLICATION AND EFFECT OF THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER
TAXING JURISDICTION.
75
<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"); Allen
& Company Incorporated; Goldman, Sachs & Co.; Morgan Stanley & Co.
Incorporated; Bear, Stearns & Co. Inc.; Donaldson, Lufkin & Jenrette
Securities Corporation; J.P. Morgan Securities Inc., NationsBanc Montgomery
Securities LLC; and Smith Barney Inc. are acting as representatives (the "U.S.
Representatives") of each of the Underwriters named below (the "U.S.
Underwriters"). Subject to the terms and conditions set forth in a U.S.
purchase agreement (the "U.S. Purchase Agreement") among the Company and the
U.S. Underwriters, and concurrently with the sale of shares of Class A
Common Stock to the International Managers (as defined below), the Company has
agreed to sell to the U.S. Underwriters, and each of the U.S. Underwriters
severally and not jointly has agreed to purchase from the Company, the number
of shares of the Class A Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
OF
U.S. UNDERWRITER SHARES
---------------- -------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................
Allen & Company Incorporated......................................
Goldman, Sachs & Co. .............................................
Morgan Stanley & Co. Incorporated.................................
Bear, Stearns & Co. Inc. .........................................
Donaldson, Lufkin & Jenrette Securities Corporation...............
J.P. Morgan Securities Inc. ......................................
NationsBanc Montgomery Securities LLC.............................
Smith Barney Inc. ................................................
-------
Total........................................................
=======
</TABLE>
The Company has also entered into an international purchase agreement (the
"International Purchase Agreement" and, together with the U.S. Purchase
Agreement, the "Purchase Agreements") with certain underwriters outside the
United States and Canada (the "International Managers" and together with the
U.S. Underwriters, the "Underwriters"), for whom Merrill Lynch International;
Allen & Company Incorporated; Goldman Sachs International; Morgan Stanley &
Co. International Limited; Bear, Stearns International Limited; Donaldson,
Lufkin & Jenrette International; J.P. Morgan Securities Ltd., NationsBanc
Montgomery Securities LLC; and Smith Barney Inc. are acting as lead managers
(the "Lead Managers"). Subject to the terms and conditions set forth in the
International Purchase Agreement, and concurrently with the sale of
shares of Class A Common Stock to the U.S. Underwriters pursuant to the U.S.
Purchase Agreement, the Company has agreed to sell to the International
Managers, and the International Managers severally have agreed to purchase
from the Company, an aggregate of shares of Class A Common Stock. The
initial public offering price per share and the total underwriting discount
per share of Class A Common Stock are identical under the U.S. Purchase
Agreement and the International Purchase Agreement.
76
<PAGE>
In the U.S. Purchase Agreement and the International Purchase Agreement, the
several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of the Class A Common Stock being sold
pursuant to each such Purchase Agreement if any of the shares of Class A
Common Stock being sold pursuant to such Purchase Agreements are purchased. In
certain circumstances under the Purchase Agreements, the commitments of non-
defaulting Underwriters may be increased. The closings with respect to the
sale of shares of Class A Common Stock to be purchased by the U.S.
Underwriters and the International Managers are conditioned upon one another.
The U.S. Representatives have advised the Company that the U.S. Underwriters
propose initially to offer the shares of Class A Common Stock to the public at
the initial public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in
excess of $ per share of Class A Common Stock. The U.S. Underwriters
may allow, and such dealers may reallow, a discount not in excess of $
per share of Class A Common Stock on sales to certain other dealers. After the
initial public offering, the public offering price, concession and discount
may be changed.
The Company has granted options to the U.S. Underwriters, exercisable for 30
days after the date of this Prospectus, to purchase up to an aggregate of
additional shares of Class A Common Stock at the initial public
offering price set forth on the cover page of this Prospectus, less the
underwriting discount. The U.S. Underwriters may exercise these options solely
to cover over-allotments, if any, made on the sale of the Class A Common Stock
offered hereby. To the extent that the U.S. Underwriters exercise these
options, each U.S. Underwriter will be obligated, subject to certain
conditions, to purchase a number of additional shares of the Class A Common
Stock proportionate to such U.S. Underwriter's initial amount reflected in the
foregoing table. The Company has also granted options to the International
Managers, exercisable for 30 days after the date of this Prospectus, to
purchase up to an aggregate of additional shares of Class A Common
Stock to cover over-allotments, if any, on terms similar to those granted to
the U.S. Underwriters.
At the request of the Company, the U.S. Underwriters have reserved for sale,
at the initial public offering price, up to % of the shares offered hereby
to be sold to certain directors, officers, employees and related persons of
the Company. The number of shares of Class A Common Stock available for sale
to the general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares which are not orally confirmed for
purchase within one day of the pricing of the Offerings will be offered by the
Underwriters to the general public on the same terms as the other shares
offered by this Prospectus.
The Company and News Corporation have agreed, subject to certain exceptions,
not to directly or indirectly (i) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant for the sale of or otherwise dispose of or
transfer any shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock, whether now owned or thereafter
acquired by the person executing the agreement or with respect to which the
person executing the agreement thereafter acquires the power of disposition,
or file a registration statement under the Securities Act with respect to the
foregoing or (ii) enter into any swap or other agreement that transfers, in
whole or in part, the economic consequence of ownership of the Common Stock
whether any such swap or transaction is to be settled by delivery of Common
Stock or other securities, in cash or otherwise, without the prior written
consent of Merrill Lynch on behalf of the Underwriters for a period of 180
days after the date of this Prospectus. See "Shares Eligible for Future Sale."
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate
Agreement, the U.S. Underwriters and the International Managers are permitted
to sell shares of Class A Common Stock to each other for purposes of resale at
the initial public offering price, less an amount not greater than the selling
concession. Under the terms of the Intersyndicate Agreement, the U.S.
Underwriters and any dealer to whom they sell shares of Class A Common Stock
will not offer to sell or sell shares of Class A Common Stock to persons who
are non-U.S. or non-Canadian persons or to persons they believe intend to
resell to persons who are non-U.S. or non-Canadian persons, and the
International Managers and any dealer to whom they sell shares of Class A
Common Stock will not offer to sell or sell shares of Class A Common Stock to
U.S. persons or to Canadian persons or to persons they believe intend to
resell to U.S. persons or to Canadian persons, except in the case of
transactions pursuant to the Intersyndicate Agreement.
77
<PAGE>
Prior to the Offerings, there has been no public market for the Class A
Common Stock of the Company. The initial public offering price will be
determined through negotiations between the Company and the U.S.
Representatives and the Lead Managers. The factors considered in determining
the initial public offering price, in addition to prevailing market
conditions, are price-earnings ratios of publicly traded companies that the
U.S. Representatives and Lead Managers believe to be comparable to the
Company, certain financial information of the Company, the history of, and the
prospects for, the Company and the industry in which it competes, and an
assessment of the Company's management, its past and present operations, the
prospects for, and timing of, future revenues of the Company, the present
state of the Company's development, and the above factors in relation to
market values and various valuation measures of other companies engaged in
activities similar to the Company. There can be no assurance that an active
trading market will develop for the Class A Common Stock or that the Class A
Common Stock will trade in the public market subsequent to the Offerings at or
above the initial public offering price.
Application will be made for listing the Class A Common Stock on the New
York Stock Exchange under the symbol "FOX." In order to meet the requirements
for listing of the Class A Common Stock on that exchange, the U.S.
Underwriters and the International Managers have undertaken to sell lots of
100 or more shares to a minimum of 2,000 beneficial owners.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act, or to
contribute to payments the U.S. Underwriters and International Managers may be
required to make in respect thereof.
Until the distribution of the Class A Common Stock is completed, rules of
the Securities and Exchange Commission may limit the ability of the
Underwriters and certain selling group members to bid for and purchase the
Class A Common Stock. As an exception to these rules, the U.S. Representatives
are permitted to engage in certain transactions that stabilize the price of
the Class A Common Stock. Such transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of the Class A Common
Stock.
If the Underwriters create a short position in the Class A Common Stock in
connection with the Offerings, i.e., if they sell more shares of the Class A
Common Stock than are set forth on the cover pages of this Prospectus, the
U.S. Representatives and Lead Managers, respectively, may reduce that short
position by purchasing Class A Common Stock in the open market. The U.S.
Representatives and Lead Managers, respectively, may also elect to reduce any
short position by exercising all or part of the over-allotment option
described above.
The U.S. Representatives and Lead Managers, respectively, may also impose a
penalty bid on certain Underwriters and selling group members. This means that
if the U.S. Representatives or the Lead Managers purchase shares of the Class
A Common Stock in the open market to reduce the Underwriters' short position
or to stabilize the price of the Class A Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of the Class A Common Stock to the
extent that it were to discourage resales of the Class A Common Stock.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Class A Common
Stock. In addition, neither the Company nor any of the Underwriters makes any
representation that the U.S. Representatives or the Lead Managers will engage
in such transactions or that such transactions, once commenced, will not be
discontinued without notice.
The U.S. Underwriters and the International Managers have informed the
Company that they do not intend to confirm sales of the shares of the Class A
Common Stock offered hereby to any accounts over which they exercise
discretionary authority.
78
<PAGE>
Certain of the Underwriters have from time to time provided investment
banking financial advisory services to the Company, News Corporation and their
respective affiliates, for which they have received customary compensation,
and may continue to do so in the future. Stanley S. Shuman, an Executive Vice
President and Managing Director of Allen & Company Incorporated, is a director
of News Corporation and NAI. In addition, Allen & Company Incorporated and Mr.
Shuman hold an aggregate of 1% of the equity of FFW.
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Squadron, Ellenoff, Plesent & Sheinfeld, LLP,
New York, New York. Certain legal matters will be passed upon for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
Skadden, Arps, Slate, Meagher & Flom LLP have from time to time rendered legal
services to the Company.
EXPERTS
The combined financial statements of the Company as of June 30, 1998 and
1997, and for each of the three years in the period ended June 30, 1998,
included in this Prospectus and elsewhere in this registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and is included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
AVAILABLE INFORMATION
Upon the effectiveness of a Registration Statement on Form S-1, of which
this Prospectus is a part, the Company will become subject to the information
requirements of the Exchange Act, as amended, and in accordance therewith
files reports, proxy statements and other information with the Commission.
Such reports, proxy statements and other information may be inspected without
charge at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, DC 20549, and at
the Commission's Regional Offices at Suite 1400, Citicorp Center, 500 West
Madison Street, Chicago, Illinois 60661; and 13th Floor, Seven World Trade
Center, New York, New York 10048. Copies of such material may be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, DC 20549.
In addition, News Corporation is subject to the information requirements of
the Exchange Act, as amended, and in accordance therewith files reports and
other information with the Commission. Such reports and other information may
be inspected and copied at the locations set forth above.
The Company has filed with the Securities and Exchange Commission, a
Registration Statement on Form S-1 under the Securities Act with respect to
the Class A Common Stock offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits
and schedules thereto. For further information with respect to the Company and
the Class A Common Stock offered hereby, reference is made to the Registration
Statement and the exhibits and schedules filed as a part thereof. Statements
contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and, in each instance, if
such contract or document is filed as an exhibit to the Registration
Statement, each such statement is qualified in all respects by such reference
to such exhibit. The Registration Statement, including exhibits and schedules
thereto, may be inspected without charge at the Commission's principal office
at 450 Fifth Street, N. W., Washington, DC 20549, and copies of all or any
part thereof may be obtained from such office after payment of fees prescribed
by the Commission. Electronic filings made by the Company through the
Commission's Electronic Data Gathering, Analysis and Retrieval System are
publicly available through the Commission's World Wide Web site
(http://www.sec.gov), which contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission, including the Company. Upon listing on the NYSE (for which
application will be made), reports and other information concerning the
Company can also be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005.
79
<PAGE>
FOX ENTERTAINMENT GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Combined Balance Sheets as of June 30, 1997 and 1998...................... F-3
Combined Statements of Operations for the years ended June 30, 1996, 1997
and 1998................................................................. F-4
Combined Statements of Cash Flows for the years ended June 30, 1996, 1997
and 1998................................................................. F-5
Combined Statements of Shareholders' Equity for the years ended June 30,
1996, 1997 and 1998...................................................... F-6
Notes to Combined Financial Statements.................................... F-7
</TABLE>
F-1
<PAGE>
After the Offerings, discussed in Note 15 to Fox Entertainment Group, Inc.'s
Combined Financial Statements, are effected, we expect to be in a position to
render the following audit report. Specifically, the earnings per share
computation, which is required to be calculated using the number of shares
outstanding immediately prior to the Offerings, will be included for all years
presented, when the number of shares to be issued is known.
Arthur Andersen llp
Los Angeles, California
August 6, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Fox Entertainment Group, Inc.:
We have audited the accompanying combined balance sheets of Fox
Entertainment Group, Inc., a Delaware corporation, and Subsidiaries (the
"Company"), combined on the basis described in Note 1, as of June 30, 1997 and
1998, and the related combined statements of operations, shareholders' equity,
and cash flows for each of the three years in the period ended June 30, 1998.
These Combined Financial Statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
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 Combined Financial Statements referred to above present
fairly, in all material respects, the financial position of Fox Entertainment
Group, Inc. and Subsidiaries as of June 30, 1997 and 1998, and the results of
its operations and its cash flows for each of the three years in the period
ended June 30, 1998, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Los Angeles, California
August 6, 1998
(except with respect
to the items
referred to in Note
15, as to which the
date is )
F-2
<PAGE>
FOX ENTERTAINMENT GROUP, INC.
COMBINED BALANCE SHEETS
AS OF JUNE 30,
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
ASSETS
Cash and cash equivalents...................................... $256 $101
Accounts receivable, net....................................... 1,599 1,949
Filmed entertainment and television programming costs, net..... 2,057 2,071
Investments in equity affiliates............................... 740 791
Property and equipment, net.................................... 800 1,111
Intangible assets, net......................................... 5,769 5,941
Other assets and investments................................... 476 666
------- -------
Total assets................................................. $11,697 $12,630
======= =======
LIABILITIES
Accounts payable and accrued liabilities....................... $1,460 $1,613
Participations, residuals and royalties payable................ 1,114 1,153
Television programming rights payable.......................... 470 513
Deferred revenue............................................... 192 238
Borrowings..................................................... 1,065 375
Deferred income taxes.......................................... 802 874
Other liabilities.............................................. 246 221
------- -------
5,349 4,987
Due to intercompany affiliates................................. 2,581 3,702
------- -------
Total liabilities............................................ 7,930 8,689
------- -------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, $100 par value, 10,000 shares authorized and
7,600 shares issued
and outstanding............................................... 1 1
Common stock, $1 par value, 3,000 shares authorized and
2,400 shares issued and outstanding........................... -- --
Paid-in capital................................................ 3,132 3,132
Retained earnings and comprehensive income..................... 634 808
------- -------
Total shareholders' equity................................... 3,767 3,941
------- -------
Total liabilities and shareholders' equity................... $11,697 $12,630
======= =======
</TABLE>
The accompanying notes are an integral part of these Combined Financial
Statements.
F-3
<PAGE>
FOX ENTERTAINMENT GROUP, INC.
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30,
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Revenues............................................... $4,548 $5,847 $7,023
Expenses:
Operating............................................ 3,442 4,667 5,351
Selling, general and administrative.................. 528 675 749
Depreciation and amortization........................ 97 180 243
Other charges........................................ -- 5 17
------ ------ ------
Operating income....................................... 481 320 663
Other income (expense):................................
Intercompany interest expense, net................... (97) (144) (174)
External interest expense, net....................... -- (47) (97)
Equity in earnings (loss) of affiliates.............. 18 (50) (81)
Other income......................................... 183 -- --
------ ------ ------
Income before income taxes............................. 585 79 311
Income tax expense on a stand-alone basis.............. (174) (49) (135)
------ ------ ------
Net income............................................. $411 $30 $176
====== ====== ======
Basic and diluted earnings per share................... $ $ $
====== ====== ======
Weighted average number of common equivalent shares
outstanding...........................................
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these Combined Financial
Statements.
F-4
<PAGE>
FOX ENTERTAINMENT GROUP, INC.
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30,
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................. $411 $30 $176
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of filmed entertainment costs............ 1,692 2,286 2,666
Depreciation and amortization......................... 97 180 243
Gain on sale of assets................................ (183) -- --
Equity in (earnings) losses of affiliates............. (18) 50 81
Changes in operating assets and liabilities:
Accounts receivable and other assets................. (34) (280) (458)
Television programming costs......................... (108) (98) 20
Accounts payable and accrued liabilities............. 13 291 236
Participations, residuals and royalties payables..... 71 22 58
------ ------ ------
Net cash provided by operating activities.......... 1,941 2,481 3,022
INVESTING ACTIVITIES
Filmed entertainment costs............................. (1,934) (2,928) (2,838)
Proceeds from film rights agreements, net.............. 314 564 122
Acquisitions, net of cash acquired..................... -- 306 --
Cash used in acquisitions.............................. (643) -- (328)
Proceeds from sale of assets........................... 288 -- --
Investments in equity affiliates....................... (403) (2) (141)
Other investments...................................... 5 (244) (199)
Purchases of property and equipment.................... (85) (338) (208)
------ ------ ------
Net cash used in investing activities.............. (2,458) (2,642) (3,592)
FINANCING ACTIVITIES
Borrowings............................................. 349 623 282
Repayment of borrowings................................ (380) (959) (972)
Advances from affiliates, net.......................... 579 698 1,105
------ ------ ------
Net cash provided by financing activities.......... 548 362 415
------ ------ ------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS........ 31 201 (155)
CASH AND EQUIVALENTS, BEGINNING OF YEAR................ 24 55 256
------ ------ ------
CASH AND EQUIVALENTS, END OF YEAR...................... $55 $256 $101
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these Combined Financial
Statements.
F-5
<PAGE>
FOX ENTERTAINMENT GROUP, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
RETAINED
EARNINGS AND
PREFERRED COMMON PAID-IN COMPREHENSIVE
STOCK STOCK CAPITAL INCOME TOTAL
--------- ------- ------- ------------- ------
<S> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1995....... $1 $0 $756 $185 $942
Net income..................... 411 411
Foreign currency translation
adjustments .................. 5 5
------- ------- ------ ----------- ------
BALANCE AT JUNE 30, 1996....... 1 0 756 601 1,358
Net income..................... 30 30
Foreign currency translation
adjustments .................. 3 3
Capital contributions, net..... 2,376 2,376
------- ------- ------ ----------- ------
BALANCE AT JUNE 30, 1997....... 1 0 3,132 634 3,767
Net income..................... 176 176
Foreign currency translation
adjustments................... (2) (2)
------- ------- ------ ----------- ------
BALANCE AT JUNE 30, 1998....... $1 $0 $3,132 $808 $3,941
======= ======= ====== =========== ======
</TABLE>
The accompanying notes are an integral part of these Combined Financial
Statements.
F-6
<PAGE>
FOX ENTERTAINMENT GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Fox Entertainment Group, Inc. (the "Company") is principally engaged in the
development, production and worldwide distribution of feature films and
television programs, television broadcasting and cable network programming.
The Company was incorporated in Delaware in May 1985 as Twentieth Holdings
Corporation. In 1998, the Company changed its corporate name to Fox
Entertainment Group, Inc.
Prior to the transactions referred to in Note 15, The News Corporation
Limited ("News Corporation") will effect a reorganization (the
"Reorganization") by contributing to the Company at book value certain of its
assets and subsidiaries engaged in the production and distribution of feature
films and television programming. Included in this contribution will be
Twentieth Century Fox Film Corporation, which was acquired by News Corporation
in 1985, News Corporation's interest in Fox Family Worldwide, Inc. and
Fox/Liberty Networks, LLC, International Sports Programming Partners,
Fox/Liberty Ventures, LLC and other cable network programming and related
interests. During the period covered by these financial statements these
businesses were under common control as an integral part of News Corporation's
overall operations. These Combined Financial Statements have been prepared
from News Corporation's historical accounting records and present all of the
operations of the businesses that will be owned and operated by the Company as
if the Company had been a separate entity for all periods presented.
The financial information included herein may not necessarily reflect the
consolidated results of operations, financial position, changes in
shareholders' equity and cash flows of the Company in the future or what they
would have been had it been a separate, stand-alone entity during the periods
presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The Combined Financial Statements include the entities which the Company
controls and those entities contributed by News Corporation, as described in
Note 1. For financial reporting purposes, control generally means ownership of
a majority interest in an entity but may, in certain instances, result from
other considerations, including a company's capacity to dominate decision
making in relation to the financial and operating policies of the combined
entity. The Common Stock of the Company represents substantially all of its
equity interest. The Company has 7,600 shares of voting preferred stock issued
and outstanding with a liquidation value of $760,000. Such shares are held by
an executive of the Company and represent 76% of the voting power of the
Company. See Note 15.
The Company uses the equity basis of accounting for investments in
affiliates where it exercises significant influence but not control.
All material intracompany accounts and transactions have been eliminated.
FISCAL YEAR
The Company maintains a 52-53 week fiscal year ending on the Sunday nearest
to June 30 in each year. Each of the periods presented is a 52 week year.
BALANCE SHEET PRESENTATION
As an entertainment company which complies with the provisions of Statement
of Financial Accounting Standards No. 53, "Financial Reporting by Producers
and Distributors of Motion Picture Films" ("SFAS No. 53"), the Company has
elected to present an unclassified balance sheet.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and marketable securities
with original maturities of three months or less.
F-7
<PAGE>
FOX ENTERTAINMENT GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
REVENUE RECOGNITION
Filmed Entertainment
In accordance with SFAS No. 53, revenues from the theatrical distribution of
motion pictures are recognized when motion pictures are exhibited. Revenues
from video sales, net of a reserve for returns, are recognized on the date
that video units are made widely available for sale by retailers. Revenues
from the licensing of feature films and television programming are recorded
when the material is available for telecasting by the licensee and when
certain other conditions are met.
License agreements for the telecast of theatrical and television product in
the broadcast network, syndicated television and cable television markets are
routinely entered into in advance of their available date for telecast. Cash
received in connection with such contractual rights for which revenue is not
yet recognizable is classified as deferred revenue. Because deferred revenue
generally relates to contracts for the licensing of theatrical and television
product which have already been produced, the recognition of revenue for such
completed product is principally only dependent upon the commencement of the
availability period for telecast under the terms of the related licensing
agreement.
Television Broadcasting and Related Businesses and Cable Network Programming
In accordance with Statement of Financial Accounting Standards No. 63,
"Financial Reporting by Broadcasters" ("SFAS No. 63"), television advertising
revenue is recognized as the commercials are aired. Subscriber fees received
from cable system operators and direct broadcast satellite are recognized as
revenue when services are provided.
FILMED ENTERTAINMENT AND TELEVISION PROGRAMMING COSTS
Filmed Entertainment Costs
In accordance with SFAS No. 53, filmed entertainment costs include
production, certain exploitation costs expected to benefit future periods and
capitalized overhead and interest costs, net of any allocated amounts received
from outside investors. These costs, as well as participations and talent
residuals, are charged as operating expenses on an individual film basis in
the ratio that the current year's gross revenues bear to management's estimate
of total ultimate gross revenues from all sources.
Film costs are stated at the lower of unamortized cost or estimated net
realizable value on an individual film or television series basis. Revenue
forecasts for both motion picture and television products are continually
reviewed by management and revised when warranted by changing conditions. When
estimates of total revenues indicate that a motion picture or television
production will result in an ultimate loss, additional amortization is
provided to currently recognize such loss.
Pursuant to a series of film rights agreements with an independent third
party, the Company has agreed to sell completed feature films produced over
the period 1997-2001 to the third party at amounts which approximate cost. The
Company is the distributor of these films. Additionally, the Company has the
option to re-acquire the films after a period when significantly all of the
ultimate revenues have been earned, based on a formula which considers the
remaining projected ultimate revenues net of costs, as defined, at the time of
re-acquisition. Cumulatively, through June 30, 1997 and 1998, twenty-four and
forty-five films had been sold, respectively. No films have been re-acquired
as of June 30, 1998. As a distributor, the Company has recorded, in its
statements of operations, the revenues received from and operating expenses
related to the exploitation of the films in all markets, and, in external
interest expense, net, certain other costs relating to the agreements of $45
million and $67 million in 1997 and 1998, respectively. As of June 30, 1997
and 1998, $474 million and $455 million of amounts due under these agreements
were included in participations, residuals and royalties payable.
F-8
<PAGE>
FOX ENTERTAINMENT GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
Television Programming Costs
In accordance with SFAS No. 63, program rights for entertainment programs
and sporting events are amortized over their license periods. The Company has
single and multi-year contracts for broadcast rights of programs and sporting
events. At the inception of these contracts and periodically thereafter, the
Company evaluates the recoverability of the costs associated therewith against
the revenues directly associated with the program material and related
expenses. Where an evaluation indicates that a programming contract will
result in an ultimate loss, additional amortization is provided to currently
recognize that loss.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization for
financial statement purposes is provided using the straight-line method over
an estimated useful life of three to forty years. Leasehold improvements are
depreciated using the straight-line method over the shorter of their useful
lives or the life of the lease. Costs associated with the repair and
maintenance of property are expensed as incurred.
INTANGIBLE ASSETS
As a creator and distributor of branded information and entertainment
copyrights, the Company has a significant and growing amount of intangible
assets, including goodwill, free and cable television networks and stations,
film and television libraries, sports franchises, entertainment franchises,
and other copyright products and trademarks. In accordance with generally
accepted accounting principles the Company does not record the fair value of
these internally generated intangible assets. However, intangible assets
acquired in business combinations are recorded, as the difference between the
cost of acquiring entities and amounts assigned to their tangible net assets.
Such amounts are amortized on a straight-line basis over periods up to forty
years.
The Company periodically reviews the propriety of the carrying amount of
long-lived assets and the related intangible assets as well as the related
amortization period to determine whether current events or circumstances
warrant adjustments to the carrying value and/or the estimates of useful
lives. This evaluation consists of the Company's projection of undiscounted
operating income before depreciation, amortization and interest over the
remaining lives of the intangible assets, in accordance with FASB Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed of." Based on its review, the Company believes
that no significant impairment of its long-lived assets or related intangible
assets has occurred.
FINANCIAL INSTRUMENTS
The fair value of financial instruments, including cash and cash
equivalents, investments and long-term debt, is generally determined by
reference to market values resulting from trading on national securities
exchanges. In cases where quoted market prices are not available, such as for
derivative financial instruments, fair value is based on estimates using
present value or other valuation techniques.
INCOME TAXES
The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
SFAS No. 109 requires an asset and liability approach for financial accounting
and reporting for income taxes and allows recognition and measurement of
deferred tax assets based upon the likelihood of realization of tax benefits
in future years. Under the asset and liability approach, deferred taxes are
provided for the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Deferred taxes have not been provided on
the cumulative undistributed earnings of foreign subsidiaries since amounts
are expected to be reinvested indefinitely.
F-9
<PAGE>
FOX ENTERTAINMENT GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
EARNINGS PER SHARE
In February 1997, the FASB issued FASB No. 128, "Earnings per Share" ("SFAS
No. 128") which specifies the computation, presentation and disclosure
requirements for earnings per share ("EPS"). The Company has adopted SFAS No.
128 for the three years ended June 30, 1998. Basic and diluted earnings per
share has been calculated under SFAS No. 128 as if the number of common shares
outstanding immediately prior to the Offerings (see Note 15) had been
outstanding for all of the periods presented.
USE OF ESTIMATES
The preparation of combined 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,
disclosure of contingent assets and liabilities at the date of the combined
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Because of the use of estimates inherent in the
financial reporting process, especially for entertainment companies, actual
results could differ from those estimates. These differences could be
material.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and other Postretirement Benefits," effective for fiscal years
beginning after December 15, 1997. The new rules establish revised standards
relating to the reporting of financial and descriptive information about the
Company's pensions and postretirement benefits other than pensions in its
financial statements. The Company will adopt SFAS No. 132 in fiscal 1999 and
does not expect that the adoption will have a material effect on its financial
statements.
3. ACQUISITIONS
During fiscal 1996, the Company acquired six television stations (the
"Acquired Stations") for an aggregate purchase price of approximately $643
million.
In January 1997, a subsidiary of the Company acquired NWCG Holdings
Corporation and its subsidiary New World Communications Group, Inc. ("New
World") for approximately $3.4 billion which included the issuance of News
Corporation stock and the assumption of New World's indebtedness. The News
Corporation stock was acquired by the Company through an increase in amounts
due to intercompany affiliates. New World primarily owned ten television
stations in the United States.
The acquisitions of the Acquired Stations and New World (the "Acquisitions")
have been accounted for as purchase business combinations. The aggregate
purchase price of the Acquisitions, including net liabilities assumed of
approximately $350 million, has been allocated to the identifiable tangible
and intangible assets acquired based on their respective fair values.
Substantially all of the aggregate purchase price was allocated to FCC
licenses, resulting in a residual allocation of the aggregate purchase price
to goodwill of approximately $400 million. FCC licenses and goodwill are
amortized over forty years.
The Company's combined results of operations include activity from the
Acquisitions' effective dates. The unaudited pro forma information below
presents the combined results of operations as if the Acquisitions' had
occurred at the beginning of the respective years presented. The unaudited pro
forma information is not necessarily indicative of the results of operations
of the combined company had the Acquisitions' occurred at the beginning of the
years presented, nor is it necessarily indicative of future results (amounts
in millions, except per share data).
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Revenue....................................................... $5,206 $6,182
Net income (loss)............................................. 391 (21)
Basic and diluted earnings per share..........................
</TABLE>
F-10
<PAGE>
FOX ENTERTAINMENT GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
In April 1998, the Company acquired the Los Angeles Dodgers ("Dodgers") for
an aggregate purchase price of approximately $340 million, including the
assumption of liabilities. The Company has performed a preliminary purchase
price allocation and will finalize this allocation in fiscal 1999. The Dodgers
acquisition did not have a material effect on the pro forma information above.
4. FILMED ENTERTAINMENT AND TELEVISION PROGRAMMING COSTS
Filmed entertainment and television programming costs consisted of the
following (amounts in millions):
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Filmed entertainment costs:
Released, less amortization................................. $599 $788
Completed, not released..................................... 218 141
In process.................................................. 756 564
Television programming costs, less amortization............... 484 578
------ ------
$2,057 $2,071
====== ======
</TABLE>
As of June 30, 1998, the Company estimated that approximately 86% of
released unamortized filmed entertainment costs will be amortized within the
next three years.
5. INVESTMENTS
FOX FAMILY WORLDWIDE
In November 1995, the Company and Saban Entertainment Inc. formed a joint
venture, Fox Kids Worldwide, LLC, to jointly develop and acquire appealing
family programming that can be commercially exploited worldwide. This venture
was reorganized in August 1997 pursuant to which it became a wholly owned
subsidiary of Fox Family Worldwide, Inc. The Company has a 49.5% interest in
this venture.
FOX/LIBERTY JOINT VENTURES (FOX/LIBERTY NETWORKS, INTERNATIONAL SPORTS
PROGRAMMING PARTNERS AND FOX/LIBERTY VENTURES)
Beginning in April 1996, the Company and Liberty Media Corporation and its
related companies ("Liberty"), formed various 50/50 joint ventures to own and
operate programming services featuring predominantly sports and sports-related
programming for distribution in the United States and internationally. Liberty
primarily contributed its regional and national sports programming services
and the Company contributed cash, its FX cable programming service and certain
other assets.
SUMMARIZED COMBINED FINANCIAL DATA
Summarized combined financial data for affiliated companies is presented
below (amounts in millions):
<TABLE>
<CAPTION>
1996 1997 1998
---- ------ ------
<S> <C> <C> <C>
Current assets.......................................... $293 $516 $804
Non-current assets...................................... 624 1,052 3,898
Current liabilities..................................... 240 694 832
Non-current liabilities................................. 217 377 3,238
Revenues................................................ 227 661 1,317
Operating income (loss)................................. 54 (55) 63
Net income (loss)....................................... 36 (101) (162)
</TABLE>
F-11
<PAGE>
FOX ENTERTAINMENT GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
OTHER INVESTMENTS
Effective June 1998, the Company acquired a 20% interest in Monarchy
Enterprises Holdings B.V. and its wholly owned subsidiary, Regency
Entertainment, Inc., ("Monarchy") for approximately $200 million. The
investment is accounted for at cost as the Company does not exercise
significant influence over Monarchy. Monarchy is principally engaged in the
business of producing feature length films. The purchase price consisted of a
cash payment of $100 million and a future amount due in fiscal 1999 of $100
million. These amounts are included in other assets and investments in the
accompanying combined balance sheets.
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (amounts in millions):
<TABLE>
<CAPTION>
1997 1998
----- ------
<S> <C> <C>
Machinery and equipment....................................... $493 $570
Buildings and leaseholds...................................... 487 681
Land.......................................................... 77 143
----- ------
1,057 1,394
Less accumulated depreciation................................. (257) (283)
----- ------
$800 $1,111
===== ======
</TABLE>
Included in buildings and leaseholds were cumulative capital expenditures
for construction in progress of approximately $200 million and $314 million,
as of June 30, 1997 and 1998, respectively, principally relating to the
construction of new office buildings and improvements at the Company's Los
Angeles Fox studios lot.
7. BORROWINGS
Borrowings consisted of the following (amounts in millions):
<TABLE>
<CAPTION>
1997 1998
------ ----
<S> <C> <C>
New World Debt:
11% Secured Notes............................................. $340 $--
Senior Secured Discount Notes................................. 374 206
------ ----
714 206
------ ----
Film production financing....................................... 304 147
Other........................................................... 47 22
------ ----
$1,065 $375
====== ====
</TABLE>
During June 1998, the Company redeemed the outstanding balance of the 11%
Secured Notes for approximately $352 million which, after taking the
unamortized interest of approximately $13 million into account, resulted in no
material gain or loss on extinguishment.
The Senior Secured Discount Notes (the "Discount Notes") due 1999 were
issued by New World prior to its acquisition by the Company with a principal
amount of $420 million for which New World received net proceeds of $212
million. The carrying value will accrete using the effective interest method
to maturity. The Discount Notes are secured by a first priority pledge of
34,510,000 shares of New World's Class A Common Stock. The indenture governing
the Discount Notes includes various covenants for New World, including
restrictions on additional indebtedness, investments, capital expenditures,
transactions with affiliated companies and payment of dividends. New World was
in compliance with all such covenants throughout the three years ended June
30, 1998. The Company has made offers to purchase all or part of the Discount
Notes and has redeemed a portion of the notes resulting in no material gain or
loss on extinguishment.
F-12
<PAGE>
FOX ENTERTAINMENT GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
The Company has various single-film production financing arrangements which
are secured by the film assets and bear interest at approximately 6% in each
of the fiscal years presented.
The Company's total borrowing obligations of $375 million are due to mature
during the year ended June 30, 1999.
External interest paid net of amounts capitalized was $0, $41 million and
$100 million for the years ended June 30, 1996, 1997 and 1998, respectively.
The Company capitalizes interest on filmed entertainment and television
productions in process. The total interest capitalized was $27 million, $34
million and $26 million in 1996, 1997 and 1998, respectively.
8. INCOME TAXES
Although, during the periods presented, certain subsidiaries of the Company
were included in the consolidated tax returns of another News Corporation
entity, the Company has provided for income taxes as if it were a stand-alone
taxpayer, in accordance with SFAS No. 109.
Income before income taxes was attributable to the following jurisdictions
(amounts in millions):
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
United States (including exports)............................ $468 $60 $225
International................................................ 117 19 86
---- --- ----
$585 $79 $311
==== === ====
</TABLE>
Components of the provision for income taxes on income before income taxes
were as follows (amounts in millions):
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Current--
Foreign..................................................... $5 $-- $11
==== === ====
Deferred--
Federal..................................................... $139 $38 $100
State and local............................................. 25 6 18
Foreign..................................................... 5 5 6
---- --- ----
$169 $49 $124
==== === ====
</TABLE>
A reconciliation of the U.S. Federal statutory tax rate on income to the
Company's effective tax rate on earnings before income taxes is summarized as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
U.S. Federal income tax rate............................... 35% 35% 35%
State and local taxes (net of federal tax benefit)......... 3 6 5
Effect of foreign operations............................... 2 17 1
Non-deductible amortization and expenses................... -- 5 2
Other...................................................... (10) (1) --
---- ---- ----
Effective tax rate......................................... 30% 62% 43%
==== ==== ====
</TABLE>
F-13
<PAGE>
FOX ENTERTAINMENT GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
The following is a summary of the components of the deferred tax accounts
(amounts in millions):
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets (liabilities):
Amortization and basis difference on intangible assets... $(1,607) $(1,539)
Revenue recognition...................................... 197 166
Accrued liabilities...................................... 206 195
Other.................................................... (30) (63)
Net operating loss carryforwards......................... 432 367
------- -------
$(802) $(874)
======= =======
</TABLE>
As of June 30, 1998, the Company and its subsidiaries had approximately $900
million of combined unused tax net operating loss carryforwards (including
approximately $170 million relating to New World), expiring between 2001 and
2012. Realization of these net operating losses is dependent on generating
sufficient taxable income prior to the expiration of the loss carryforwards,
subject to any limitations on their use. Although realization is not assured,
management believes it is more likely than not that the deferred tax asset
relating to these loss carryforwards will be realized; accordingly, no
valuation allowance has been provided. The amount of the deferred tax assets
could be reduced through a charge to income, however, if estimates of future
taxable income during the carryforward period are reduced.
Following the Offerings, the Company and certain of its subsidiaries will
continue to be included in the consolidated group of News Publishing Australia
Limited, the principal U.S. subsidiary of News Corporation, for U.S. federal
income tax purposes (the "Consolidated Group") as well as in certain
consolidated, combined or unitary groups which include News Publishing
Australia Limited and/or certain of its subsidiaries (a "Combined Group") for
state and local income tax purposes. Prior to the consummation of the
Offerings, the Company and News Publishing Australia Limited will enter into a
tax sharing agreement (the "Tax Sharing Agreement"). Pursuant to the Tax
Sharing Agreement, the Company and News Publishing Australia Limited generally
will make payments between them such that, with respect to tax returns for any
taxable period in which the Company or any of its subsidiaries is included in
the Consolidated Group or any Combined Group, the amount of such consolidated
or combined taxes to be paid by the Company will be determined, subject to
certain adjustments, as if the Company and each of its subsidiaries included
in the Consolidated Group or Combined Group filed their own consolidated,
combined or unitary tax return. Only losses and other tax benefits actually
availed of to reduce the tax liabilities of the Consolidated Group or Combined
Group will be taken into account for this purpose. The Company will be
responsible for any taxes with respect to tax returns that include only the
Company and its subsidiaries.
Income taxes paid for the years ended June 30, 1996, 1997 and 1998 were not
material.
9. SHARE OPTION PLAN
Certain of the Company's employees have been granted News Corporation stock
options under News Corporation's Share Option Plan (the "Plan"). The price of
options granted under the Plan is the weighted average market price of the
shares sold on the Australian Stock Exchange during the five trading days
immediately prior to the date of the option being granted. Stock options are
exercisable at a ratio of four options per American Depositary Receipt (ADR).
Options issued under the Plan have a term of ten years, but are exercisable
only after they have been vested in the option holder. The options granted
vest and become exercisable as to one quarter on each anniversary of the grant
until all options have vested.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock Based
Compensation," which requires certain disclosures for fiscal years beginning
after December 15, 1995 for those companies that will
F-14
<PAGE>
FOX ENTERTAINMENT GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
continue to use an intrinsic value based method for measuring compensation
cost in connection with employee stock compensation plans in accordance with
Accounting Principles Board ("APB") No. 25, "Accounting for Stock Issued to
Employees." The Company will continue to use such method, under which no
compensation cost has been recognized.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model, with the following assumptions used
for grants in fiscal years 1997 and 1998, respectively: risk free interest
rates in the range from 6.40% to 8.44%; expected dividend yields of
approximately 1.5%; expected lives of 7 years; expected volatility in the
range from 24% to 35%.
On a pro forma basis, the impact of determining compensation cost in
accordance with SFAS No. 123, is not material to net income or earnings per
share.
A summary of the option scheme activity was as follows (in thousands of
shares and Australian dollars):
<TABLE>
<CAPTION>
1997 1998
----------------- -----------------
WTD. WTD.
AVG. EX. AVG. EX.
OPTIONS PRICE OPTIONS PRICE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.......... 3,500 A$7.06 15,627 A$5.63
Granted................................... 12,739 A$5.21 16,915 A$4.79
Exercised................................. (300) A$7.05 (529) A$5.31
Cancelled................................. (312) A$5.17 (532) A$5.02
------ ------ ------ ------
Outstanding at end of year................ 15,627 A$5.63 31,481 A$5.22
====== ======
Exercisable at end of year................ 2,038 5,494
Weighted average fair value of options
granted.................................. A$2.08 A$1.99
</TABLE>
At June 30, 1997, 90 of the outstanding options, which were all exercisable,
had an exercise price of A$2.56, and a remaining contractual life of 1 year.
Of the remaining 15,537 options, 1,948 were exercisable and had exercise
prices between A$5.06 and A$10.97, a weighted average exercise price of
A$9.02, and a remaining contractual life of 8.6 years.
At June 30, 1998, 16,553 of the outstanding options, which included no
exercisable options, had an exercise price of A$4.79, and a weighted average
remaining contractual life of 9.14 years. Of the remaining 14,928 options,
5,494 were exercisable and had exercise prices between A$5.06 and A$10.97, a
weighted average exercise price of A$10.14, and a remaining contractual life
of 7.67 years.
10. PENSION PLANS, OTHER POSTRETIREMENT BENEFITS AND POSTEMPLOYMENT BENEFITS
PENSION PLANS
The Company and certain of its subsidiaries have non-contributory pension
plans covering specific groups of employees. Effective December 1, 1997, the
pension plans of New World were merged with the Company's pension plans.
The benefits for these plans are based primarily on an employee's years of
service and pay near retirement. Participant employees are vested in the plans
after five years of service. The Company's policy for all pension plans is to
fund amounts in accordance with the Employee Retirement Income Security Act of
1974. Plan assets consist principally of common stocks, marketable bonds and
government securities.
F-15
<PAGE>
FOX ENTERTAINMENT GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
The components of net periodic pension costs were as follows (amounts in
millions):
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Service cost--benefits earned during the period............ $5 $8 $10
Interest cost on projected benefit obligation.............. 7 10 14
Actual return on plan assets............................... (7) (10) (18)
Net amortization and deferral.............................. -- (2) --
---- ---- ----
Net periodic pension cost................................ $5 $6 $6
==== ==== ====
</TABLE>
The funded status of the pension plans as of June 30, 1997 and 1998 was as
follows (amounts in millions):
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation:
Vested.................................................... $(138) $(172)
Non-vested................................................ (12) (15)
Effect of projected future salary increases................. (33) (35)
----- -----
Projected benefit obligation.................................. (183) (222)
Plan assets at fair value..................................... 173 204
----- -----
Projected benefit obligation greater than plan assets......... (10) (18)
Unrecognized net loss......................................... 3 9
Unrecognized prior service cost............................... (3) (3)
Unrecognized transition obligation............................ -- --
----- -----
Accrued pension liability at year end....................... $(10) $(12)
===== =====
</TABLE>
The following assumptions were used in accounting for the pension plans:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Discount rate.............................................. 8% 7.75% 7.25%
Expected return on plan assets............................. 10% 10% 10%
Rate of increase in future compensation.................... 4%-6% 4%-6% 6%
</TABLE>
OTHER POSTRETIREMENT BENEFIT PLANS
The Company provides postretirement medical benefits. The net periodic
benefit cost and accrued liabilities were not significant in the periods
presented.
POSTEMPLOYMENT BENEFIT PLANS
FASB Statement No. 112, "Employers' Accounting For Postemployment Benefits",
does not have a significant effect on the Company's combined financial
position or results of operations.
11. RELATED PARTY TRANSACTIONS
As a subsidiary of News Corporation, the Company has used and expects that
it will continue to use, pursuant to a Master Intercompany Agreement with News
Corporation, various cash management, financial, tax, legal and other services
provided by News Corporation or its subsidiaries. It is anticipated that after
completion of the Offerings various existing agreements and transactions will
continue and that additional arrangements and transactions will be entered
into in the ordinary course of business. All costs relating to direct
intercompany services have been reflected in the accompanying financial
statements. In addition, the Company and News Corporation plan to enter into a
Tax Sharing Agreement (see Note 8).
F-16
<PAGE>
FOX ENTERTAINMENT GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
The Company and its subsidiaries sell broadcast rights to certain of its
filmed entertainment products to other subsidiaries of News Corporation.
Management believes that the pricing of these transactions results from arms
length negotiations between the parties and are reflective of the market value
for these rights. The revenues associated with these sales were not
significant in the periods presented.
The Company has been funded primarily by loans from other subsidiaries and
affiliates of News Corporation. Intercompany interest expense presented on the
combined financial statements reflects the net interest expense associated
with the aggregate borrowings from subsidiaries or affiliates of News
Corporation for each period presented. For internal reporting purposes,
interest was charged on these average balances at the rate of 5%. Subsequent
to the transaction, interest will be charged at commercial market rates, to be
set forth in the Master Intercompany Agreement between the Company and News
Corporation.
The Company, through the normal course of business, is involved in
transactions with its affiliates that have not been material in any of the
periods presented.
12. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases transponders, office facilities, equipment and microwave
channels used to carry its broadcast signals. These leases, which are
classified as operating leases, expire at various dates through 2006. Future
minimum payments under non-cancelable long-term operating leases aggregate
$169 million, of which $138 million is payable over the next five years.
Total operating lease expense was approximately $30 million, $50 million and
$54 million for the years ended June 1996, 1997 and 1998, respectively.
COMMITMENTS AND CONTINGENCIES
Under the Company's eight year contract, which contains certain termination
clauses, future minimum payments for program rights to broadcast certain
National Football League games aggregated approximately $4.6 billion at June
30, 1998, and are payable over the eight year term.
The Company's minimum commitments and guarantees under certain other
programming, production, licensing, artists, athletes, franchise and other
agreements aggregated approximately $2.3 billion at June 30, 1998, which are
payable principally over a five year period.
In the ordinary course of business, the Company has become involved in
disputes or litigation. While the result of such disputes cannot be predicted
with certainty, in management's opinion, based in part on the advice of
counsel, the ultimate resolution of these disputes will not have a material
adverse effect on the Company's financial position or the results of its
operations.
GUARANTEES OF NEWS CORPORATION DEBT
News Corporation and certain of its subsidiaries, including the Company and
certain subsidiaries of the Company (collectively, the "Fox Guarantors") are
guarantors of various debt obligations of News Corporation and certain of its
subsidiaries. The principal amount of indebtedness outstanding under such debt
instruments at June 30, 1998 was approximately $9.2 billion, which amount
includes approximately $1 billion of obligations under Exchangeable Trust
Originated Preferred Securities SM due 2016. The debt instruments limit the
ability of News Corporation and the Fox Guarantors, to subject their
properties to liens, and certain of the debt instruments
F-17
<PAGE>
FOX ENTERTAINMENT GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
impose limitations on the ability of News Corporation and its subsidiaries,
including the Fox Guarantors, to incur indebtedness in certain circumstances.
Such debt instruments mature at various times between 1999 and 2096, with a
weighted average maturity of over 20 years. Additional subsidiaries of the
Company may from time to time be required to become guarantors of certain debt
obligations.
In the case of any event of default under such debt obligations the Fox
Guarantors will be directly liable to the creditors or debtholders. News
Corporation has agreed to indemnify the Fox Guarantors from and against any
obligations they may incur by reason of their guarantees of such debt
obligations.
F-18
<PAGE>
FOX ENTERTAINMENT GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
13. SEGMENT INFORMATION
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 revised standards for public
companies relating to the reporting of financial and descriptive information
about operating segments in the financial statements.
Fox Entertainment Group, Inc. operates in three business segments: Filmed
Entertainment, which principally consists of the production and acquisition of
live-action and animated motion pictures for distribution and licensing in all
formats in all entertainment media worldwide, and the production of original
television programming; Television Broadcasting and Related Businesses, which
principally consists of the distribution of network programming, the operation
of broadcast television stations, production and distribution of certain
television programming and professional sports team ownership; and Cable
Network Programming, which principally consists of the production and
licensing of programming distributed through cable television systems and DBS
operators.
<TABLE>
<CAPTION>
BUSINESS SEGMENTS 1996 1997 1998
----------------- ------ ------- -------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Filmed Entertainment...................................... $2,324 $3,112 $3,876
Television Broadcasting and Related Businesses............ 2,224 2,698 3,075
Cable Network Programming ................................ -- 37 72
------ ------- -------
4,548 5,847 7,023
------ ------- -------
EARNINGS (LOSS) BEFORE INTEREST, TAXES, DEPRECIATION AND
AMORTIZATION (EBITDA)
Filmed Entertainment...................................... 142 138 292
Television Broadcasting and Related Businesses............ 436 490 727
Cable Network Programming................................. -- (123) (96)
------ ------- -------
578 505 923
Other charges............................................. -- (5) (17)
------ ------- -------
Total.................................................... 578 500 906
------ ------- -------
DEPRECIATION AND AMORTIZATION
Filmed Entertainment...................................... 24 25 26
Television Broadcasting and Related Businesses............ 73 130 172
Cable Network Programming................................. -- 25 45
------ ------- -------
97 180 243
------ ------- -------
OPERATING INCOME
Filmed Entertainment...................................... 118 113 266
Television Broadcasting and Related Businesses............ 363 360 555
Cable Network Programming................................. -- (148) (141)
------ ------- -------
481 325 680
Other charges............................................. -- (5) (17)
------ ------- -------
Total.................................................... 481 320 663
------ ------- -------
CAPITAL EXPENDITURES
Filmed Entertainment...................................... 65 88 120
Television Broadcasting and Related Businesses............ 20 184 77
Cable Network Programming................................. -- 66 11
------ ------- -------
85 338 208
------ ------- -------
IDENTIFIABLE ASSETS
Filmed Entertainment...................................... 3,345 3,969
Television Broadcasting and Related Businesses............ 8,022 8,275
Cable Network Programming................................. 330 386
------- -------
$11,697 $12,630
======= =======
</TABLE>
F-19
<PAGE>
FOX ENTERTAINMENT GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
Equity in earnings (loss) of affiliates are principally Cable Network
Programming entities. Other income (expense) and income tax expense are not
allocated to segments as they are not under the control of the segment
management. As the Company's segments are based on differences in products and
services no additional disclosure of revenue information about products and
services is required.
<TABLE>
<CAPTION>
GEOGRAPHIC SEGMENTS 1996 1997 1998
------------------- ------- ------- -------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
REVENUES
United States............................................ $ 3,635 $ 4,474 $ 5,082
International............................................ 913 1,373 1,941
------- ------- -------
$ 4,548 $ 5,847 $ 7,023
======= ======= =======
</TABLE>
Revenues are attributed to geographic segment based on the origin of the
sale. There is no material reliance on any single customer. Revenues from any
individual foreign country were not material in the periods presented, and no
material long-lived assets are located in foreign countries.
14. DETAIL OF OTHER FINANCIAL STATEMENT ACCOUNTS
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- -----
(AMOUNTS IN
MILLIONS)
<S> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS AND RETURNS
Beginning balance..................................... $95 $104 $106
Charged to costs and expenses......................... 134 158 243
Write-offs/recoveries/other........................... (125) (156) (145)
----- ----- -----
Ending Balance........................................ $104 $106 $204
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
1997 1998
---------- ----------
(AMOUNTS IN MILLIONS)
<S> <C> <C>
INTANGIBLE ASSETS
Goodwill........................................... $901 $906
FCC licenses, franchises & other................... 5,471 5,770
Accumulated amortization........................... (603) (735)
---------- ----------
$ 5,769 $ 5,941
========== ==========
</TABLE>
15. SUBSEQUENT EVENTS
Subsequent to June 30, 1998, the Company intends to effect a reorganization
(as discussed in Note 1) and a recapitalization. Under the recapitalization,
the Company will issue Class A and Class B Common Stock with the Class B
Common Stock having supervoting rights. The Company plans to issue new shares
of Class A Common Stock in the Offerings with the net proceeds received being
used to repay amounts due to affiliates. At the time of the Offerings, the
Company plans to enter into certain arrangements with News Corporation or its
subsidiaries (see Notes 8 and 11).
Currently, 76% of the voting power of the Company, in the form of voting
preferred shares, is held by Mr. K. Rupert Murdoch, Chairman and Chief
Executive Officer of News Corp. and of the Company. Prior to the consummation
of the Offerings and Reorganization, such voting preferred stock will be
redeemed by the Company for its par value of $760,000, plus accrued dividends,
and Mr. Murdoch will acquire voting preferred stock of Fox Television
Holdings, Inc. (a consolidated subsidiary of the Company), representing 76% of
the voting control thereof.
F-20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE CLASS A
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 13
Reorganization............................................................ 19
Use of Proceeds........................................................... 20
Dividend Policy........................................................... 20
Capitalization............................................................ 21
Selected Combined Financial Data.......................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 24
Business.................................................................. 33
Management................................................................ 58
Principal Stockholder and Stock Ownership................................. 62
Relationships between the Company and News Corporation.................... 63
Certain Arrangements Regarding the Company's Ownership of Other Entities.. 67
Description of Capital Stock.............................................. 71
Shares Eligible for Future Sale........................................... 73
Certain United States Tax Considerations for Non-United States Holders.... 74
Underwriting.............................................................. 76
Legal Matters............................................................. 79
Experts................................................................... 79
Available Information..................................................... 79
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[LOGO]
FOX ENTERTAINMENT GROUP, INC.
CLASS A COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH & CO.
ALLEN & COMPANY INCORPORATED
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
J.P. MORGAN & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
SALOMON SMITH BARNEY INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION, DATED SEPTEMBER 21, 1998
PROSPECTUS
SHARES
[LOGO]
FOX ENTERTAINMENT GROUP, INC.
CLASS A COMMON STOCK
-----------
All of the shares of Class A Common Stock, par value $.01 per share (the
"Class A Common Stock"), offered hereby are being sold by Fox Entertainment
Group, Inc. (the "Company"). Of the shares of Class A Common Stock
offered hereby, shares are being offered for sale initially in the
United States and Canada by the U.S. Underwriters (the "U.S. Offering") and
shares are being offered for sale initially in a concurrent offering
outside the United States and Canada by the International Managers (the
"International Offering" and, together with the U.S. Offering, the
"Offerings"). The initial public offering price and the underwriting discount
per share will be identical for both Offerings. See "Underwriting."
Prior to the Offerings, there has been no public market for the Class A
Common Stock. It is currently estimated that the initial public offering price
of the Class A Common Stock offered hereby will be between $ and $
per share. For a discussion of the factors considered in determining the
initial public offering price of the Class A Common Stock, see "Underwriting."
Application will be made to list the Class A Common Stock on the New York Stock
Exchange ("NYSE") under the symbol "FOX."
Following the Offerings, the Company will have two classes of authorized
common stock, Class A Common Stock and Class B Common Stock, par value $.01 per
share (the "Class B Common Stock" and, together with the Class A Common Stock,
the "Common Stock"). The rights of the holders of Class A Common Stock and
Class B Common Stock are substantially identical, except with respect to
voting, conversion and transfer. Each share of Class A Common Stock entitles
its holder to one vote, and each share of Class B Common Stock entitles its
holder to ten votes on all matters submitted to a vote of stockholders. The
News Corporation Limited, a South Australia corporation ("News Corporation"),
indirectly beneficially owns all of the Company's outstanding common stock and
will, immediately after the Offerings, indirectly beneficially own all of the
Company's issued and outstanding Class B Common Stock. Upon consummation of the
Offerings, such Class B Common Stock will represent approximately % of the
voting power of the Company. As a result of such ownership, News Corporation
will be able to control the vote on substantially all matters submitted to a
vote of stockholders, including the election of directors and the approval of
extraordinary corporate transactions. See "Risk Factors--Relationships Between
the Company and News Corporation," "Principal Stockholder and Stock Ownership"
and "Relationships Between the Company and News Corporation."
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK
OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................. $ $ $
- -------------------------------------------------------------------------------
Total (3)............................. $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including certain liabilities under the Securities Act
of 1933, as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at
$ .
(3) The Company has granted the U.S. Underwriters and the International
Managers options, exercisable within 30 days after the date hereof, to
purchase up to and additional shares of Class A Common
Stock, respectively, solely to cover over-allotments, if any. If such
options are exercised in full, the Total Price to Public, Underwriting
Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See
"Underwriting."
-----------
The shares of Class A Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offers and to reject orders in whole or in part. It is
expected that delivery of the shares of Class A Common Stock will be made in
New York, New York on or about , 1998.
-----------
MERRILL LYNCH INTERNATIONAL
ALLEN & COMPANY INCORPORATED
GOLDMAN SACHS INTERNATIONAL
MORGAN STANLEY DEAN WITTER
BEAR, STEARNS INTERNATIONAL LIMITED
DONALDSON, LUFKIN & JENRETTE
J. P. MORGAN SECURITIES LTD.
NATIONSBANC MONTGOMERY SECURITIES LLC
SALOMON SMITH BARNEY INTERNATIONAL
-----------
The date of this Prospectus is , 1998.
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
Merrill Lynch International; Allen & Company Incorporated; Goldman Sachs
International; Morgan Stanley & Co. International Limited; Bear, Stearns
International Limited; Donaldson, Lufkin & Jenrette International; J.P. Morgan
Securities Ltd.; NationsBanc Montgomery Securities LLC; and Smith Barney Inc.
are acting as lead managers (the "Lead Managers") of each of the underwriters
named below (the "International Managers"). Subject to the terms and
conditions set forth in the international purchase agreement (the
"International Purchase Agreement"), among the Company and the International
Managers and concurrently with the sale of shares of Class A Common Stock to
the U.S. Underwriters (as defined below), the Company has agreed to sell to
the International Managers, and each of the International Managers severally
and not jointly has agreed to purchase from the Company, the number of shares
of the Class A Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
---------------------- ---------
<S> <C>
Merrill Lynch International.......................................
Allen & Company Incorporated......................................
Goldman Sachs International.......................................
Morgan Stanley & Co. International Limited........................
Bear, Stearns International Limited...............................
Donaldson, Lufkin & Jenrette International........................
J.P. Morgan Securities Ltd........................................
NationsBanc Montgomery Securities LLC.............................
Smith Barney Inc. ................................................
----
Total .......................................................
====
</TABLE>
The Company has also entered into a U.S. purchase agreement (the "U.S.
Purchase Agreement" and, together with the International Purchase Agreement,
the "Purchase Agreements") with certain underwriters in the United States and
Canada (the "U.S. Underwriters" and together with the International Managers,
the "Underwriters"), for whom Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), Allen & Company Incorporated; Goldman, Sachs &
Co.; Morgan Stanley & Co. Incorporated; Bear, Stearns & Co. Inc.; Donaldson,
Lufkin & Jenrette Securities Corporation; J.P. Morgan Securities Inc.;
NationsBanc Montgomery Securities LLC; and Smith Barney Inc. are acting as
representatives (the "U.S. Representatives"). Subject to the terms and
conditions set forth in the U.S. Purchase Agreement, and concurrently with the
sale of shares of Common Stock to the International Managers, the Company
has agreed to sell to the U.S. Underwriters, and
76
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
the U.S. Underwriters severally have agreed to purchase from the Company, an
aggregate of shares of Class A Common Stock. The initial public offering
price per share and the total underwriting discount per share of Class A
Common Stock are identical under the U.S. Purchase Agreement and the
International Purchase Agreement.
In the U.S. Purchase Agreement and the International Purchase Agreement, the
several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of the Class A Common Stock being sold
pursuant to each such Purchase Agreement if any of the shares of Class A
Common Stock being sold pursuant to such Purchase Agreement are purchased. In
certain circumstances under the Purchase Agreements, the commitments of non-
defaulting Underwriters may be increased. The closings with respect to the
sale of shares of Class A Common Stock to be purchased by the U.S.
Underwriters and the International Managers are conditioned upon one another.
The Lead Managers have advised the Company that the International Managers
propose initially to offer the shares of Class A Common Stock to the public at
the initial public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in
excess of $ per share of Class A Common Stock. The International Managers
may allow, and such dealers may reallow, a discount not in excess of $ per
share of Class A Common Stock on sales to certain other dealers. After the
initial public offering, the public offering price, concession and discount
may be changed.
The Company has granted options to the International Managers, exercisable
for 30 days after the date of this Prospectus, to purchase up to an aggregate
of additional shares of Class A Common Stock at the initial public
offering price set forth on the cover page of this Prospectus, less the
underwriting discount. The International Managers may exercise these options
solely to cover over-allotments, if any, made on the sale of the Class A
Common Stock offered hereby. To the extent that the International Managers
exercise these options, each International Manager will be obligated, subject
to certain conditions, to purchase a number of additional shares of the Class
A Common Stock proportionate to such International Manager's initial amount
reflected in the foregoing table. The Company has also granted options to the
U.S. Underwriters, exercisable for 30 days after the date of this Prospectus,
to purchase up to an aggregate of additional shares of Class A Common
Stock to cover over-allotments, if any, on terms similar to those granted to
the International Managers.
At the request of the Company, the U.S. Underwriters have reserved for sale,
at the initial public offering price, up to % of the shares offered hereby
to be sold to certain directors, officers, employees and related persons of
the Company. The number of shares of Class A Common Stock available for sale
to the general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares which are not orally confirmed for
purchase within one day of the pricing of the Offerings will be offered by the
Underwriters to the general public on the same terms as the other shares
offered by this Prospectus.
The Company and News Corporation have agreed, subject to certain exceptions,
not to directly or indirectly (i) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant for the sale of or otherwise dispose of or
transfer any shares of Class A Common Stock or securities convertible into or
exchangeable or exercisable for Class A Common Stock, whether now owned or
thereafter acquired by the person executing the agreement or with respect to
which the person executing the agreement thereafter acquires the power of
disposition, or file a registration statement under the Securities Act with
respect to the foregoing or (ii) enter into any swap or other agreement that
transfers, in whole or in part, the economic consequence of ownership of the
Common Stock whether any such swap or transaction is to be settled by delivery
of Class A Common Stock or other securities, in cash or otherwise, without the
prior written consent of Merrill Lynch on behalf of the Underwriters for a
period of 180 days after the date of this Prospectus. See "Shares Eligible for
Future Sale."
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate
Agreement, the U.S. Underwriters and the International Managers are permitted
to sell shares of Class A
77
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
Common Stock to each other for purposes of resale at the initial public
offering price, less an amount not greater than the selling concession. Under
the terms of the Intersyndicate Agreement, the U.S. Underwriters and any
dealer to whom they sell shares of Class A Common Stock will not offer to sell
or sell shares of Class A Common Stock to persons who are non-U.S. or non-
Canadian persons or to persons they believe intend to resell to persons who
are non-U.S. or non-Canadian persons, and the International Managers and any
dealer to whom they sell shares of Class A Common Stock will not offer to sell
or sell shares of Class A Common Stock to U.S. persons or to Canadian persons
or to persons they believe intend to resell to U.S. persons or to Canadian
persons, except in the case of transactions pursuant to the Intersyndicate
Agreement.
Prior to the Offerings, there has been no public market for the Class A
Common Stock of the Company. The initial public offering price will be
determined through negotiations between the Company and the U.S.
Representatives and the Lead Managers. The factors considered in determining
the initial public offering price, in addition to prevailing market
conditions, are price-earnings ratios of publicly traded companies that the
U.S. Representatives and Lead Managers believe to be comparable to the
Company, certain financial information of the Company, the history of, and the
prospects for, the Company and the industry in which it competes, and an
assessment of the Company's management, its past and present operations, the
prospects for, and timing of, future revenues of the Company, the present
state of the Company's development, and the above factors in relation to
market values and various valuation measures of other companies engaged in
activities similar to the Company. There can be no assurance that an active
trading market will develop for the Class A Common Stock or that the Class A
Common Stock will trade in the public market subsequent to the Offerings at or
above the initial public offering price.
Application will be made for listing the Class A Common Stock on the New
York Stock Exchange under the symbol "FOX." In order to meet the requirements
for listing of the Class A Common Stock on that exchange, the U.S.
Underwriters and the International Managers have undertaken to sell lots of
100 or more shares to a minimum of 2,000 beneficial owners.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act, or to
contribute to payments the U.S. Underwriters and International Managers may be
required to make in respect thereof.
Each of the International Managers has represented and agreed that (a) it
has not offered or sold and, prior to the date six months after the date of
this Prospectus, it will not offer or sell any shares of Class A Common Stock
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995, (b) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the shares of Class A Common Stock in, from
or otherwise involving the United Kingdom and (c) it has only issued or passed
on and will only issue or pass on in the United Kingdom any document received
by it in connection with the issue or sale of Class A Common Stock to a person
who is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996, as amended, or is a
person to whom the document may otherwise lawfully be issued or passed on.
Until the distribution of the Class A Common Stock is completed, rules of
the Securities and Exchange Commission may limit the ability of the
Underwriters and certain selling group members to bid for and purchase the
Class A Common Stock. As an exception to these rules, the U.S. Representatives
are permitted to engage in certain transactions that stabilize the price of
the Class A Common Stock. Such transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of the Class A Common
Stock.
If the Underwriters create a short position in the Class A Common Stock in
connection with the Offerings, i.e., if they sell more shares of the Class A
Common Stock than are set forth on the cover pages of this
78
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
Prospectus, the U.S. Representatives and Lead Managers, respectively, may
reduce that short position by purchasing Class A Common Stock in the open
market. The U.S. Representatives and Lead Managers, respectively, may also
elect to reduce any short position by exercising all or part of the over-
allotment option described above.
The U.S. Representatives and Lead Managers, respectively, may also impose a
penalty bid on certain Underwriters and selling group members. This means that
if the U.S. Representatives or the Lead Managers purchase shares of the Class
A Common Stock in the open market to reduce the Underwriters' short position
or to stabilize the price of the Class A Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of the Class A Common Stock to the
extent that it were to discourage resales of the Class A Common Stock.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Class A Common
Stock. In addition, neither the Company nor any of the Underwriters makes any
representation that the U.S. Representatives or the Lead Managers will engage
in such transactions or that such transactions, once commenced, will not be
discontinued without notice.
The U.S. Underwriters and the International Managers have informed the
Company that they do not intend to confirm sales of the shares of the Class A
Common Stock offered hereby to any accounts over which they exercise
discretionary authority.
Certain of the Underwriters have from time to time provided investment
banking financial advisory services to the Company, News Corporation and their
respective affiliates, for which they have received customary compensation,
and may continue to do so in the future. Stanley S. Shuman, an Executive Vice
President and Managing Director of Allen & Company Incorporated, is a director
of News Corporation and NAI. In addition, Allen & Company Incorporated and Mr.
Shuman hold an aggregate of 1% of the equity of FFW.
79
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE CLASS A
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 13
Reorganization............................................................ 19
Use of Proceeds........................................................... 20
Dividend Policy........................................................... 20
Capitalization............................................................ 21
Selected Combined Financial Data.......................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 24
Business.................................................................. 33
Management................................................................ 58
Principal Stockholder and Stock Ownership................................. 62
Relationships between the Company and News Corporation.................... 63
Certain Arrangements Regarding the Company's Ownership of Other Entities.. 67
Description of Capital Stock.............................................. 71
Shares Eligible for Future Sale........................................... 73
Certain United States Tax Considerations for Non-United States Holders.... 74
Underwriting.............................................................. 76
Legal Matters............................................................. 79
Experts................................................................... 79
Available Information..................................................... 79
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[LOGO]
FOX ENTERTAINMENT GROUP, INC.
CLASS A COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH INTERNATIONAL
ALLEN & COMPANY INCORPORATED
GOLDMAN SACHS INTERNATIONAL
MORGAN STANLEY DEAN WITTER
BEAR, STEARNS INTERNATIONAL LIMITED
DONALDSON, LUFKIN & JENRETTE
J.P. MORGAN SECURITIES LTD.
NATIONSBANC MONTGOMERY SECURITIES LLC
SALOMON SMITH BARNEY INTERNATIONAL
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemization of all expenses (subject to future
contingencies) incurred or expected to be incurred by the Company in
connection with the issuance and distribution of the securities being offered
hereby (items marked with an asterisk (*) represent estimated expenses):
<TABLE>
<S> <C>
SEC Registration Fee............................................ $29,500*
NASD Filing Fee................................................. 10,500*
New York Stock Exchange Listing Fee............................. +
Legal Fees and Expenses......................................... +
Blue Sky Fees and expenses (including counsel fees)............. +
Accounting Fees and Expenses.................................... +
Transfer Agent and Registrar Fees............................... +
Printing and Engraving Expenses................................. +
Underwriting Expense Allowance.................................. +
Miscellaneous Expenses.......................................... +
--------
Total........................................................... $
========
</TABLE>
- --------
* Previously paid.
+ To be furnished by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law ("DGCL") makes provision
for the indemnification of officers and directors in terms sufficiently broad
to indemnify officers and directors of the Company under certain circumstances
from liabilities (including reimbursement for expenses incurred) arising under
the Securities Act. The Certificate of Incorporation and Bylaws of the Company
provide, in effect, that, to the fullest extent and under the circumstances
permitted by the DGCL, the Company will indemnify any person (or the estate of
any person) who is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, by reason of the
fact that he or she is a director or officer of the Company or is or was
serving at the request of the Company as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise. In
addition, the Company has entered into indemnification agreements with its
directors and certain of its officers providing, subject to the terms therein,
that the Company will indemnify such individuals for damages suffered by
reason of the fact that any such individual is a director or officer of the
Company or is or was serving at the request of the Company as a director or
officer of another corporation or enterprise. The Certificate of Incorporation
of the Company, together with such indemnification agreements, relieve its
directors from monetary damages for breach of such director's fiduciary duty
as directors to the fullest extent permitted by the DGCL. Consequently, a
director or officer will not be personally liable to the Company or its
stockholders for monetary damages for any breach of their fiduciary duty as
directors except (i) for a breach of the duty of loyalty, (ii) for failure to
act in good faith, (iii) for intentional misconduct or knowing violation of
law, (iv) for willful or negligent violation of certain provisions in the DGCL
imposing certain requirements with respect to stock repurchases, redemption
and dividends, or (v) for any transactions from which the director derived an
improper personal benefit. In connection with proceedings whether or not by or
in the right of the Company, under the Bylaws, the Company will indemnify the
officers and directors against expenses (including attorneys' fees), actually
and reasonably incurred in connection with any action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Company, and
with respect to any criminal action or proceeding other than by or in the
right of the Company, had no reasonable cause to believe such person's conduct
was unlawful. With respect to indemnification other than by or in the right of
the Company, the termination of any action, suit or proceeding by judgment,
order, settlement or conviction, or upon a plea of nolo contendere or its
equivalent, will not, of itself, create a presumption that the person did not
act in good faith and in a manner which such person reasonably believed to be
in or not opposed to the best interests of the Company, and, with respect to
any
II-1
<PAGE>
criminal action or proceeding, that such person had reasonable cause to
believe that such person's conduct was unlawful. No indemnification will be
made in connection with actions by or in the right of the Company in respect
of any claim, issue or matter as to which such person has been adjudged to be
liable for negligence or misconduct in the performance of such person's duty
to the Company unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought determines upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
deems proper. Such expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement may, as permitted by Delaware law, be advanced by
the Company prior to the final disposition of such action upon receipt of an
undertaking by or on the behalf of such director or officer to repay such
amounts if it shall ultimately be determined that he or she is not entitled to
be indemnified as authorized in accordance with Delaware law. To the extent
that a director or officer of the Company has been successful in the defense
of any action, suit or proceeding referred to above, the Company will be
obligated to indemnify him or her against expenses (including attorneys' fees)
actually and reasonably incurred in connection therewith.
The DGCL provides that it is not exclusive of other indemnification that may
be granted by a corporation's charter, by-laws, disinterested director vote,
stockholder vote, agreement or otherwise. The Certificate of Incorporation of
the Company provides for such indemnification of its directors and officers as
permitted by Delaware law.
Reference is made to Article of the Certificate of Incorporation of
the Company for certain indemnification rights of officers and directors of
the Company.
The Directors of the Company will be covered under the directors' and
officers' liability insurance policy maintained by News Corporation.
The Purchase Agreements provide for reciprocal indemnification among the
Company and the Underwriters and their respective officers, directors and
control persons against certain liabilities in connection with this
Registration Statement, including liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
The Exhibits filed herewith are set forth in the Index to Exhibits.
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations
and registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being
II-2
<PAGE>
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared effective.
The Company hereby undertakes that, for the purpose of determining any
liability under the Securities Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF NEW YORK, STATE OF NEW YORK, ON SEPTEMBER 21, 1998.
Fox Entertainment Group, Inc.
By: /s/ Arthur M. Siskind
---------------------------------
ARTHUR M. SISKIND
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES STATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman and Chief Executive September 21, 1998
- ------------------------------------ Officer (Principal
K. RUPERT MURDOCH Executive Officer) and
Director
* Chief Financial Officer September 21, 1998
- ------------------------------------ (Principal Financial and
DAVID F. DEVOE Accounting Officer) and
Director
/s/ Arthur M. Siskind Director September 21, 1998
- ------------------------------------
ARTHUR M. SISKIND
* Director September 21, 1998
- ------------------------------------
PETER CHERNIN
* Director September 21, 1998
- ------------------------------------
CHASE CAREY
</TABLE>
*By: /s/ Arthur M. Siskind
----------------------------
AS ATTORNEY-IN-FACT
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
EXHIBIT NO. IN
IN DOCUMENT SEQUENTIALLY
EXHIBIT INCORPORATED NUMBERED
NO. DESCRIPTION BY REFERENCE DOCUMENT
------- ----------- ------------ ------------
<C> <S> <C> <C>
1.1 Form of the U.S. Purchase Agreement*
1.2 Form of International Purchase Agree-
ment*
3.1 Restated Certificate of Incorporation
of the Company*
3.2 By-Laws of the Company*
4.1 Specimen Certificate for Shares of
Class A Common Stock of the Company*
5.1 Opinion of Squadron, Ellenoff,
Plesent & Sheinfeld, LLP*
10.1 Indenture, dated as of January 28,
1993, by and among News America Hold-
ings Incorporated, the guarantors
named therein and State Street Bank
and Trust Company (as successor to
The First National Bank of Boston),
as Trustee, with respect to senior
debt securities 2(/1/)
10.2 First Supplemental Indenture, dated
as of March 24, 1993, by and among
News America Holdings Incorporated,
the guarantors named therein and
State Street Bank and Trust Company
(as successor to The First National
Bank of Boston), as Trustee, with re-
spect to senior debt securities 2(/2/)
10.3 Second Supplemental Indenture, dated
as of April 8, 1993, by and among
News America Holdings Incorporated,
the guarantors named therein and
State Street Bank and Trust Company
(as successor to The First National
Bank of Boston), as Trustee, with re-
spect to senior debt securities 3(/2/)
10.4 Third Supplemental Indenture, dated
as of May 20, 1993, by and among News
America Holdings Incorporated, the
guarantors named therein and State
Street Bank and Trust Company (as
successor to The First National Bank
of Boston), as Trustee, with respect
to senior debt securities 4.7(/3/)
10.5 Fourth Supplemental Indenture, dated
as of May 28, 1993, by and among News
America Holdings Incorporated, the
guarantors named therein and State
Street Bank and Trust Company (as
successor to The First National Bank
of Boston), as Trustee, with respect
to senior debt securities 4.8(/3/)
10.6 Fifth Supplemental Indenture, dated
as of July 21, 1993, by and among
News America Holdings Incorporated,
the guarantors named therein and
State Street Bank and Trust Company
(as successor to The First National
Bank of Boston), as Trustee, with re-
spect to senior debt securities 4.6(/4/)
10.7 Form of Sixth Supplemental Indenture,
dated as of January 25, 1994, by and
among News America Holdings Incorpo-
rated, the guarantors named therein
and State Street Bank and Trust Com-
pany (as successor to The First Na-
tional Bank of Boston), as Trustee,
with respect to senior debt securi-
ties 4.7(/5/)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE NUMBER
EXHIBIT NO. IN
IN DOCUMENT SEQUENTIALLY
EXHIBIT INCORPORATED NUMBERED
NO. DESCRIPTION BY REFERENCE DOCUMENT
------- ----------- ------------ ------------
<C> <S> <C> <C>
10.8 Form of Seventh Supplemental
Indenture, dated as of February 4,
1994, by and among News America
Holdings Incorporated, the guarantors
named therein and State Street Bank
and Trust Company (as successor to
The First National Bank of Boston),
as Trustee, with respect to senior
debt securities 4.8(/6/)
10.9 Form of Eight Supplemental Indenture,
dated as of May 12, 1994, by and
among News America Holdings
Incorporated, the guarantors named
therein and State Street Bank and
Trust Company (as successor to The
First National Bank of Boston), as
Trustee, with respect to senior debt
securities 4.9(/6/)
10.11 Form of Ninth Supplemental Indenture,
dated as of July 27, 1995 by and
among News America Holdings
Incorporated, the guarantors named
therein and State Street Bank and
Trust Company (as successor to The
First National Bank of Boston), as
Trustee, with respect to senior debt
securities 4.10(/7/)
10.12 Form of Indenture, dated as of March
11, 1993 by and among News America
Holdings Incorporated, the Guarantors
named therein and The Bank of New
York, as Trustee with respect to the
Liquid Yield Option(TM) Notes
("LYONs") due March 11, 2013 4.1(/8/)
10.13 First Supplemental Indenture, dated
as of May 20, 1993, among News
America Holdings Incorporated, the
guarantors named therein and The Bank
of New York, as Trustee, with respect
to the LYONs 4.2(/9/)
10.14 Second Supplemental Indenture, dated
as of July 21, 1993, among News
America Holdings, the guarantors
named therein and The Bank of New
York, as Trustee, with respect to the
LYONs 4.3(/9/)
10.15 Form of Amended and Restated
Indenture, dated as of March 24,
1993, by and among News America
Holdings Incorporated, the guarantors
named therein and The Bank of New
York, as Trustee, with respect to
senior debt securities 4.1(/1//0/)
10.16 First Supplemental Indenture, dated
as of May 20, 1993, by and among News
America Holdings Incorporated, the
guarantors named therein and The Bank
of New York, as Trustee, with respect
to senior debt securities 4.2(/3/)
10.17 Second Supplemental Indenture, dated
as of May 28, 1993, by and among News
America Holdings Incorporated, the
guarantors named therein and The Bank
of New York, as Trustee, with respect
to senior debt securities 4.3(/3/)
10.18 Third Supplemental Indenture, dated
as of July 21, 1993, by and among
News America Holdings Incorporated,
the guarantors named therein and The
Bank of New York, as Trustee, with
respect to senior debt securities 4.14(/1//1/)
10.19 Fourth Supplemental Indenture, dated
as of October 20, 1995, by and among
News America Holdings Incorporated,
the guarantors named therein and The
Bank of New York, as Trustee, with
respect to the senior debt securities 4.15(/1//1/)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE NUMBER
EXHIBIT NO. IN IN
DOCUMENT SEQUENTIALLY
EXHIBIT INCORPORATED BY NUMBERED
NO. DESCRIPTION REFERENCE DOCUMENT
------- ----------- --------------- ------------
<C> <S> <C> <C>
10.20 Fifth Supplemental Indenture,
dated as of January 8, 1998, by
and among News America Incorporat-
ed, the guarantors named therein
and The Bank of New York, as
Trustee, with respect to the se-
nior debt securities 4.6(/1//2/)
10.21 Composite Revolving Credit Agree-
ment, dated as of May 19, 1993
(including amendments dated August
9, 1993, September 14, 1993, May
12, 1994, March 30, 1995, February
29, 1996 and December 20, 1996)
among News America Incorporated et
al, several agents, managers and
banks*
10.22 Indenture for the 5% Subordinated
Discount Debentures, dated as of
November 12, 1996, among News
America Holdings Incorporated, The
News Corporation Limited, each of
the Subsidiary Guarantors named
therein and The Bank of New York,
as Trustee 4(i)(/1//3/)
10.23 Funding Agreement, dated as of
June 11, 1997 by and among The
News Corporation Limited, News
Publishing Australia Limited and
Fox Kids Worldwide, Inc. 10.33(/1//4/)
10.24 Amended and Restated Strategic
Stockholders Agreement, dated as
of August 1, 1997, by and among
Haim Saban, certain entities
listed on Schedule A thereto, Fox
Broadcasting Company, Fox
Broadcasting Sub, Inc. and Allen &
Company Incorporated 10.1(/1//4/)
10.25 Agreement Regarding Ownership
Interests, dated April 29, 1996,
by and among Liberty Media
Corporation, News America Holdings
Incorporated, Fox Regional Sports
Holdings, Inc., LMC Newco U.S.,
Inc., and Liberty/Fox Sports
Financing LLC 10.1(/1//5/)
10.26 First Amended and Restated
Agreement Regarding Ownership
Interests, dated as of December
15, 1997, by and among Liberty
Media Corporation, News America
Holdings Incorporated, Fox
Regional Sports Holdings, Inc.,
LMC Newco U.S. Inc., and
Liberty/Fox Sports Financing LLC 10.1(b)(/1//6/)
10.27 Operating Agreement of Fox/Liberty
Networks, LLC (f/k/a Liberty/Fox
U.S. Sports LLC), dated April 29,
1996, by and among LMC Newco U.S.,
Inc., Fox Regional Sports
Holdings, Inc. and Liberty/Fox
Sports Financing LLC 10.4(/1//5/)
10.28 First Amended and Restated
Operating Agreement of Fox/Liberty
Networks, LLC, dated December 15,
1997 by and among LMC Newco U.S.,
Inc., Fox Regional Sports
Holdings, Inc. and Liberty/Fox
Sports Financing LLC 10.4(b)(/1//6/)
10.29 Master Intercompany Agreement
between the Company and The News
Corporation Limited*
10.30 Indemnity Agreement between the
Company and The News Corporation
Limited*
10.31 Tax Sharing Agreement between the
Company and News Publishing
Australia Limited*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE NUMBER
EXHIBIT NO. IN
IN DOCUMENT SEQUENTIALLY
EXHIBIT INCORPORATED NUMBERED
NO. DESCRIPTION BY REFERENCE DOCUMENT
------- ----------- ------------ ------------
<C> <S> <C> <C>
10.32 Amendment No. 7, dated as of June 8,
1998, to the Composite Revolving
Credit Agreement dated as of May 19,
1993 (as amended on August 9, 1993,
September 14, 1993, May 12, 1994,
March 30, 1995, February 29, 1996 and
December 20, 1996) among News America
Incorporated et al, several agents,
managers and banks*
10.33 Amended and Restated Indenture, as
amended and restated as of September
30, 1994, between NWCG Holdings
Corporation and Nationsbank of
Georgia, National Association, as
Trustee, with respect to the Senior
Secured Discount Notes Due 1999 4.1A(/1//7/)
21.1 List of Principal Subsidiaries of the
Company*
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Squadron, Ellenoff,
Plesent & Sheinfeld, LLP (to be con-
tained in the Opinion filed as Ex-
hibit 5.1)*
24.1 Power of Attorney+
27 Financial Data Schedule+
</TABLE>
- --------
* To be filed by amendment.
+ Previously filed.
(1) Incorporated by reference to the Report on Form 6-K of The News
Corporation Limited, dated January 28, 1993.
(2) Incorporated by reference to the Report on Form 6-K of The News
Corporation Limited, dated April 26, 1993.
(3) Incorporated by reference to the Registration Statement on Form F-3 of
News America Holdings Incorporated (Registration No. 33-63604) and Post-
Effective Amendment No. 1 to the Registration Statement on Form F-3 of the
News America Holdings Incorporated (Registration No. 33-59688) filed with
the Securities and Exchange Commission on May 28, 1993.
(4) Incorporated by reference to the Registration Statement on Form F-3 of
News America Holdings Incorporated (Registration No. 33-74574) filed with
the Securities and Exchange Commission on January 28, 1994.
(5) Incorporated by reference to Amendment No. 1 to the Registration Statement
on Form F-3 of News America Holdings Incorporated (Registration No. 33-
74574) filed with the Securities and Exchange Commission on February 4,
1994.
(6) Incorporated by reference to Amendment No. 1 to the Registration Statement
on Form F-3 of News America Holdings Incorporated (Registration No. 33-
79334) filed with the Securities and Exchange Commission on June 14, 1994.
(7) Incorporated by reference to the Registration Statement on Form F-3 of
News America Holdings Incorporated (Registration No. 33-94868) filed with
the Securities and Exchange Commission on July 24, 1995.
(8) Incorporated by reference to Pre-Effective Amendment No. 2 to the
Registration Statement on Form F-3 of News America Holdings Incorporated
(Registration No. 33-62008) filed with the Securities and Exchange
Commission on August 18, 1993.
(9) Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement on Form F-3 of News America Holdings Incorporated
(Registration No. 33-62008) and Post-Effective Amendment No. 2 to the
Registration Statement on Form F-3 of News America Holdings Incorporated
(Registration No. 33-81272) filed with the Securities and Exchange
Commission on July 21, 1994.
<PAGE>
(10) Incorporated by reference to the Registration Statement of The News
Corporation Limited on Form F-3 (Registration No. 33-67008) filed with
the Securities and Exchange Commission on May 4, 1993.
(11) Incorporated by reference to Amendment No. 1 to the Registration
Statement of News America Holdings Incorporated on Form F-3 (Registration
No. 33-98238) filed with the Securities and Exchange Commission on
October 23, 1995.
(12) Incorporated by reference to the Registration Statement of News America
Incorporated on Form F-4 (Registration No. 333-8744) filed with the
Securities and Exchange Commission on May 12, 1998.
(13) Incorporated by reference to the Registration Statement on Form F-3 of
The News Corporation Limited (Registration No. 333-6896) filed with the
Securities and Exchange Commission on January 26, 1998.
(14) Incorporated by reference to Amendment No. 1 to the Registration
Statement on Form S-1 of Fox Kids Worldwide, Inc. (Registration No.
333-12995) filed with the Securities and Exchange Commission on January
26, 1998.
(15) Incorporated by reference to the Registration Statement of Fox/Liberty
Networks, LLC on Form S-4 (Registration No. 333-38689) filed with the
Securities and Exchange Commission on October 24, 1997.
(16) Incorporated by reference to Amendment No. 2 to Registration Statement
of Fox/Liberty Networks, LLC and FLN Finance, Inc. on Form S-4
(Registration No. 333-38689) filed with the Securities and Exchange
Commission on December 18, 1997.
(17) Incorporated by reference to Amendment No. 1 to the Registration
Statement of NWCG Holdings Corporation on Form S-1 (Registration No.
33-82274) filed with the Securities and Exchange Commission on October
18, 1994.
<PAGE>
EXHIBIT 23.1
After the Offerings, discussed in Note 15 to Fox Entertainment Group, Inc.'s
Combined Financial Statements, are effected, we expect to be in a position to
render an audit report in the form included herein. Specifically, the earnings
per share computation, which is required to be calculated using the number of
shares outstanding immediately prior to the Offerings, will be included for all
years presented, when the number of shares to be issued is known.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Los Angeles, California
September 18, 1998
