SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended May 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 1-9244
KING WORLD PRODUCTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2565808
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12400 Wilshire Boulevard
Suite 1200
Los Angeles, California 90025
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 310 826-1108
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. Common
Stock, $.01 par value, 71,244,985 shares outstanding as of July 1,
1999.
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Dollars in thousands)
<TABLE>
<CAPTION>
May 31, August 31,
1999 1998
----------- ----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................... $ 375,268 $ 188,778
Short-term investments....................... 31,841 88,016
Accounts receivable (net of allowance
for doubtful accounts of $3,014 and
$3,301 at May 31, 1999 and August 31,
1998, respectively)...................... 102,052 75,423
Producer advances and deferred costs......... 91,810 99,965
Other current assets......................... 3,708 1,146
---------- ----------
Total current assets................ 604,679 453,328
---------- ----------
LONG-TERM INVESTMENTS, at cost,
which approximates market value.......... 387,616 470,715
---------- ----------
FIXED ASSETS, at cost............................ 35,640 31,353
Less - accumulated depreciation
and amortization............................. (15,863) (13,613)
---------- ----------
19,777 17,740
---------- ----------
PRODUCER ADVANCES AND OTHER ASSETS............... 94,221 81,815
---------- ----------
$1,106,293 $1,023,598
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
2
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
May 31, August 31,
1999 1998
---------- ----------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and
accrued liabilities...................... $ 12,565 $ 15,913
Payable to producers and others.............. 91,670 96,118
Income taxes payable......................... 38,473 30,356
---------- ----------
Total current liabilities........ 142,708 142,387
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
5,000,000 shares authorized,
none issued.............................. -- --
Common stock, $.01 par value;
150,000,000 shares authorized,
89,493,185 shares and
88,650,301 shares issued
at May 31, 1999 and August 31,
1998, respectively....................... 895 887
Paid-in capital.............................. 150,775 138,219
Retained earnings............................ 1,257,712 1,137,238
Treasury stock, at cost; 18,253,194 and
16,284,794 shares at May 31, 1999 and
August 31, 1998, respectively.............. (445,797) (395,133)
---------- ----------
963,585 881,211
---------- ----------
$1,106,293 $1,023,598
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
3
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
------------------ -----------------
1999 1998 1999 1998
-------- -------- -------- --------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C>
REVENUES....................... $192,737 $167,968 $584,487 $514,810
-------- -------- -------- --------
EXPENSES:
Producers' fees, programming
and other direct
operating costs............ 118,249 106,510 357,002 324,439
Selling, general and
administrative expenses.... 22,075 18,564 69,620 57,720
-------- -------- -------- --------
140,324 125,074 426,622 382,159
-------- -------- -------- --------
Income from operations..... 52,413 42,894 157,865 132,651
INVESTMENT INCOME.............. 7,716 7,620 27,509 21,692
-------- -------- -------- --------
Income before provision
for income taxes......... 60,129 50,514 185,374 154,343
PROVISION FOR INCOME TAXES..... 20,723 16,312 64,900 52,194
-------- -------- -------- --------
Net income................. $ 39,406 $ 34,202 $120,474 $102,149
======== ======== ======== ========
BASIC EARNINGS PER SHARE....... $ .56 $ .47 $ 1.69 $ 1.40
======== ======== ======== ========
DILUTED EARNINGS PER SHARE..... $ .53 $ .45 $ 1.62 $ 1.34
======== ======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
4
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
May 31,
-----------------------
1999 1998
--------- ---------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $120,474 $102,149
Items not affecting cash:
Depreciation and amortization................... 2,250 1,364
Change in assets and liabilities:
Accounts receivable............................. (26,629) (6,688)
Producer advances and
deferred costs................................ 2,405 (81,296)
Accounts payable and accrued
liabilities................................... (3,347) (1,334)
Payable to producers and others................. (4,448) 9,224
Income taxes payable............................ 8,117 (1,995)
Other, net...................................... (9,219) (2,049)
--------- ---------
Net cash provided by operating
activities..................................... 89,603 19,375
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales (purchases) of investments..................... 139,274 (87,769)
Additions to fixed assets............................ (4,287) (7,894)
--------- ---------
Net cash provided by (used in) investing
activities...................................... 134,987 (95,663)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock............... 12,564 9,069
Purchase of treasury stock........................... (50,664) (25,811)
--------- ---------
Net cash used in
financing activities............................... (38,100) (16,742)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS..................................... 186,490 (93,030)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................................ 188,778 317,782
--------- ---------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD............................................ $375,268 $224,752
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
5
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Summary of significant accounting policies
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of King World Productions, Inc. ("King World") and its wholly-owned
subsidiaries. All significant intercompany transactions have been eliminated.
Unless the context suggests otherwise, the "Company", as used herein, means King
World and its subsidiaries.
The unaudited consolidated financial statements for the nine months
and three months ended May 31, 1999 have been prepared in accordance with the
instructions to Form 10-Q and include, in the opinion of management, all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of the results of operations for such periods. They do not,
however, include all of the information and disclosures required by generally
accepted accounting principles for complete financial statements. For further
information, reference is made to the consolidated financial statements for the
fiscal year ended August 31, 1998 and the footnotes related thereto included in
the Company's Annual Report on Form 10-K from which the August 31, 1998 balances
presented herein have been derived. The results of operations for the nine
months and three months ended May 31, 1999 are not necessarily indicative of the
results of operations for the full year.
REVENUE RECOGNITION
License fees from first-run syndicated television properties are
recognized at the commencement of the license period pursuant to noncancelable
agreements and as each show is made available to the licensee via satellite
transmission. Because transmission to the satellite takes place, on the average,
no more than two to three days prior to the broadcast of the programming,
revenues are recognized on or about the air date.
The Company typically receives a portion of the fees derived from the
licensing of syndicated television programming in the form of retained
advertising time, which is sold to advertisers by King World Media Sales Inc., a
wholly-owned subsidiary of the Company. Such revenues are recognized at the same
time as the cash portion of the license fees derived from such programming is
recognized, in amounts adjusted for expected ratings.
6
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Summary of significant accounting policies (continued)
License fees for non-first-run syndicated properties are recognized at
the gross contract amount (net of discount to present value for license periods
greater than one year) at the commencement of the license period and when
certain other conditions are satisfied.
PRINCIPAL PROPERTIES
The Company's principal properties are licenses to distribute THE
OPRAH WINFREY SHOW, WHEEL OF FORTUNE and JEOPARDY!. The Company co-produces and
distributes HOLLYWOOD SQUARES, a first-run strip syndicated game show, and THE
ROSEANNE SHOW, a first-run strip syndicated talk show. The Company also produces
and distributes INSIDE EDITION, a first-run strip syndicated newsmagazine.
The contribution of each program to the Company's total revenues are
as follows:
Nine Months
Ended
May 31,
--------------------
1999 1998
--------- -------
THE OPRAH WINFREY SHOW 38% 42%
WHEEL OF FORTUNE 19% 21%
JEOPARDY! 16% 18%
HOLLYWOOD SQUARES(1) 9% --
THE ROSEANNE SHOW(1) 7% --
INSIDE EDITION 6% 7%
(1) HOLLYWOOD SQUARES and THE ROSEANNE SHOW premiered in September 1998.
7
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Summary of significant accounting policies (continued)
The Company distributes THE OPRAH WINFREY SHOW pursuant to an
agreement with Harpo, Inc., the producer of the series ("Harpo"). Under the
terms of the Company's agreement in effect through August 1998 with Harpo, King
World was engaged as the exclusive distributor of THE OPRAH WINFREY SHOW through
the 1999- 2000 broadcast season. Such agreement was amended in September 1998 to
provide for Harpo and Ms. Winfrey to produce and host the show for the 2000-2001
and 2001-2002 broadcast seasons and to extend the engagement of King World as
the exclusive distributor of the show for those seasons.
The Company's agreements with Columbia TriStar Television provide that
King World will be the exclusive distributor for WHEEL OF FORTUNE and JEOPARDY!
so long as the Company has obtained sufficient broadcast commitments to cover
such series' respective production and distribution costs and that the Company
may not, unless otherwise agreed by Columbia TriStar Television, distribute
other game shows for strip first-run syndication so long as the Company is
distributing WHEEL OF FORTUNE or JEOPARDY!.
In September 1997, the Company and Columbia TriStar Television
announced their agreement to co-produce a new version of the game show HOLLYWOOD
SQUARES, which is distributed by the Company in first-run strip syndication and
premiered in September 1998.
The Company has entered into an agreement with Full Moon & High Tide
Productions, Inc., a company controlled by Roseanne, to co-produce THE ROSEANNE
SHOW, an hour-long talk show hosted by Roseanne and distributed by the Company
in first-run strip syndication. The series premiered in September 1998. Under
the terms of the agreement, the Company will have the exclusive right to
distribute the show through the 2003-2004 broadcast season.
PRODUCERS' FEES, PROGRAMMING AND OTHER DIRECT OPERATING COSTS
Producers' fees, programming and other direct operating costs
primarily include the producers' share of both cash license fees from the sale
of programming to television stations and revenues derived from the sale of
8
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Summary of significant accounting policies (continued)
retained advertising time to advertisers with respect to programming distributed
by the Company; participation fees payable by the Company to producers and
talent; production and distribution costs for first-run syndicated programming;
and the direct operating costs of King World Direct, the Company's direct
response marketing subsidiary. That portion of any recognized revenue that is to
be paid to producers and owners of programming is accrued as such revenues are
earned. The share of revenues payable by the Company to such producers and
others is generally paid as cash license fees and revenues derived from the sale
of retained advertising time are received from television stations and
advertisers.
STOCKHOLDERS' EQUITY
Basic earnings per share has been computed using the weighted average
shares of Common Stock outstanding of 70,913,978 and 72,921,000 for the three
months ended May 31, 1999 and 1998, respectively, and 71,263,286 and 73,193,000
for the nine months ended May 31, 1999 and 1998, respectively. Diluted earnings
per share, which includes the dilutive effect of the assumed exercise of vested
and unvested stock options outstanding as of the end of each period reported,
has been computed using the weighted average shares of Common Stock outstanding
of 74,656,849 and 76,512,000 for the three months ended May 31, 1999 and 1998,
respectively, and 74,402,961 and 76,458,000 for the nine months ended May 31,
1999 and 1998, respectively.
COMPREHENSIVE INCOME
In the first quarter of fiscal 1999 the Company adopted Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive
Income. SFAS 130 establishes new rules for the reporting and presentation of
comprehensive income and its components. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. The components of
comprehensive income include, but are not limited to, foreign currency
translation adjustments and unrealized gains and losses on certain investment
securities. The Company has no material items required to be reported in the
presentation of comprehensive income.
9
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(2) Proposed Merger with CBS Corporation
The Company has entered into an Agreement and Plan of Merger, dated as
of March 31, 1999 (the "Merger Agreement"), by and among the Company, CBS
Corporation, a Pennsylvania corporation ("CBS"), and K Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of CBS ("Merger Sub"),
pursuant to which (a) Merger Sub will be merged with and into the Company and
the Company will become a wholly-owned subsidiary of CBS and (b) each
outstanding share of the Company (other than shares owned by CBS or Merger Sub)
will be converted into the right to receive .81 shares of common stock, par
value $1.00 per share, of CBS. Concurrently with the execution of the Merger
Agreement, Michael King, Roger King, Richard King and Diana King (the "Principal
Stockholders" of the Company) entered into a Stockholders Agreement with CBS
whereby the Principal Stockholders agreed, among other things, that, while the
Merger Agreement was in effect, they would vote their shares of Common Stock,
which represent approximately 19% of the total outstanding shares of Common
Stock of the Company, in favor of the merger and against any alternative
proposal that may be brought before the stockholders of the Company for a vote.
The consummation of the merger is subject to certain conditions,
including approval by the stockholders of the Company and the expiration or
early termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended. The Company was granted early termination
of the waiting period in April 1999. Pursuant to the Merger Agreement, the
Company will prepare and file a proxy statement/prospectus to be mailed to
stockholders in connection with calling a meeting of the stockholders of the
Company to vote on the merger. The transaction is expected to close in August
1999.
(3) Producer advances
In September 1997, the Company made advances to Harpo in the aggregate
amount of $130 million against Harpo's guaranteed share of gross revenues for
the 1998-1999 and 1999-2000 broadcast seasons. As of May 31, 1999, the entire
$65 million advance associated with the 1998-1999 broadcast season had been
10
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) Producer advances (continued)
recouped by the Company. None of the $65 million advance related to the
1999-2000 broadcast season was recouped as of May 31, 1999. As part of the most
recent amendment to its agreement with Harpo, the Company paid an advance to
Harpo of $75 million against Harpo's guaranteed share of gross revenues for the
2000-2001 broadcast season. Also, the Company agreed to pay, in June 2000, an
additional $75 million against Harpo's guaranteed share of gross revenues for
the 2001-2002 broadcast season. Based on the license agreements in place for
such broadcast seasons, the Company believes that revenues from the series will
be sufficient to enable the Company to recoup such advances for such seasons.
All of the advances paid to Harpo are refundable to the Company by Harpo and Ms.
Winfrey if King World terminates its agreement with Harpo due to Harpo's failure
to deliver episodes of THE OPRAH WINFREY SHOW.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The discussion herein contains certain forward-looking statements
covering the Company's objectives, planned or expected activities and
anticipated financial performance. These forward-looking statements may
generally be identified by words such as "expects", "anticipates", "believes",
"plans", "should", "will" "may", "projects" (or variants of these words or
phrases), or similar language indicating the expression of an opinion or view
concerning the future with respect to the Company's financial position, results
of operations, prospects or business. The Company's actual results may differ
significantly from the results described in or suggested by such forward-looking
statements.
RESULTS OF OPERATIONS
Comparison of Nine Months and Three Months Ended May 31, 1999 and 1998
REVENUES
Revenues for the first nine months of fiscal 1999 increased by
approximately 14% over revenues for the first nine months of the prior fiscal
year, primarily due to the introduction of HOLLYWOOD SQUARES, a first-run strip
syndicated game show co-produced and distributed by the Company, and THE
ROSEANNE SHOW, a first-run strip syndicated talk show co-produced and
distributed by the Company, each of which premiered in September 1998. The
additional revenues generated by such programs were partially offset by the
discontinuation of AMERICAN JOURNAL (which was canceled following the 1997-1998
broadcast season) and, to a lesser extent, lower revenues from INSIDE EDITION, a
strip first-run syndicated newsmagazine produced and distributed by the Company.
The Company's revenues for the three months ended May 31, 1999
increased by approximately 15% over revenues for the three months ended May 31,
1998, primarily due to the same factors discussed above with respect to the nine
month period.
12
<PAGE>
The principal components of the Company's revenues for the nine months
and three months ended May 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
May 31, May 31,
----------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
THE OPRAH WINFREY SHOW 38% 42% 38% 42%
WHEEL OF FORTUNE 19% 21% 19% 21%
JEOPARDY! 16% 18% 16% 18%
HOLLYWOOD SQUARES (1) 9% -- 10% --
THE ROSEANNE SHOW (1) 7% -- 7% --
INSIDE EDITION 6% 7% 6% 7%
AMERICAN JOURNAL (2) -- 4% -- 4%
</TABLE>
[FN]
(1) HOLLYWOOD SQUARES and THE ROSEANNE SHOW premiered in September 1998.
[FN]
(2) The production of AMERICAN JOURNAL was discontinued after the 1997-1998
broadcast season.
PRODUCERS' FEES, PROGRAMMING AND OTHER DIRECT OPERATING COSTS
Producers' fees, programming and other direct operating costs
increased by approximately 10% in the first nine months of fiscal 1999 compared
to the first nine months of fiscal 1998. The increase was primarily attributable
to the production and participation costs associated with HOLLYWOOD SQUARES and
THE ROSEANNE SHOW, partially offset by a decrease in production costs due to the
discontinuation of AMERICAN JOURNAL. For the three months ended May 31, 1999,
producers' fees, programming and other direct operating costs increased by
approximately 11% due primarily to the same factors as those discussed above
for the nine month period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
The Company has entered into employment agreements with its Chairman
of the Board, its Vice Chairman and Chief Executive Officer and certain other
executive officers. Such agreements provide, among other things, for
performance-based bonuses, including bonuses payable upon the introduction of
new shows and bonuses which vary depending on the Company's net income and
Common Stock price during pre-established measurement periods.
13
<PAGE>
As a result, the Company's compensation expense will increase if the Company
introduces a new series in syndication, if the Company's net income increases or
if the Company's Common Stock price exceeds the specified levels during the
applicable measurement periods. The Company has recognized the impact of
certain of these bonuses in its operating results for the first, second and
third quarters of fiscal 1999, which include all amounts payable in accordance
with the terms of such employment agreements.
Selling, general and administrative expenses for the first nine months
of fiscal 1999 increased by approximately 21% from the comparable period of
fiscal 1998 as a result of advertising and promotion costs incurred in
connection with the introduction of HOLLYWOOD SQUARES and THE ROSEANNE SHOW, and
certain performance-based bonuses incurred in connection with the launch of
these shows as described above. Such increase was partially offset by the
elimination of marketing costs for AMERICAN JOURNAL. Selling, general and
administrative expenses for the three months ended May 31, 1999 increased by 19%
compared to the corresponding period of fiscal 1998, primarily due to the same
factors as those discussed above for the nine month period.
NET INCOME AND EARNINGS PER SHARE
Due to the factors discussed above, the Company's operating income for
the nine months and three months ended May 31, 1999 increased by approximately
19% and 22%, respectively, compared to the corresponding period of the prior
year.
Net income increased by approximately $18.8 million, or 18%, for the
nine months ended May 31, 1999 in comparison to the nine months ended May 31,
1998, reflecting the increase in operating income and the realization, in the
first quarter of fiscal 1999, of non-recurring capital gains on the sale of
various investment securities, partially offset by a slightly higher effective
tax rate for the first nine months of fiscal 1999. Basic earnings per share
increased by 21% from $1.40 per share in the first nine months of fiscal 1998 to
$1.69 per share in the first nine months of the current fiscal year as a result
of the increase in net income and a decrease in the number of shares outstanding
resulting from the Company's stock repurchase program. Diluted earnings per
share increased by 21% from $1.34 per share in the first nine months of the
prior year to $1.62 in the first nine months of fiscal 1999, due to the same
factors as basic earnings per share. Absent the non-recurring capital gains,
basic and diluted earnings per share would have been $1.66 and $1.59,
respectively, in the first nine months of fiscal 1999.
14
<PAGE>
For the three months ended May 31, 1999, net income increased by 15%,
compared to the same period of the prior year, from $34.2 million to $39.4
million; basic earnings per share increased by 19% from $.47 per share to $.56
per share; and diluted earnings per share increased by 18% from $.45 per share
to $.53 per share, all for the same reasons discussed above for the nine month
period.
Due to the success of the shows distributed by the Company and in
order to mitigate the influence of some of the factors referred to above, the
Company has been obtaining multi-year licenses and license renewals from
television stations for its principal distribution properties, extending as far
into the future as the 2004-2005 broadcast season. In general, these licenses
and renewals have been at rates as favorable or more favorable to the Company
than the rates applicable to the 1998-1999 broadcast season. All such licenses
and renewals are contingent upon the continued production of the series by their
respective producers through the broadcast seasons for which the licenses run.
The Company believes that the impact of inflation on its operations
has not been significant.
YEAR 2000
The year 2000 ("Y2K") problem, which confronts the business community
generally, is a result of computer programs that use two digits (rather than
four) to define the applicable year. Information technology ("IT") systems that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000, which could result in system malfunctions and various
systems failures. This problem may also be significant in non-IT systems
(operating systems and equipment that rely on embedded chip systems). Also, as
with other business enterprises, the Company must rely on the Y2K readiness of
its customers' and vendors' IT and non-IT systems, the failure of which is
beyond the Company's control.
During fiscal 1997 the Company began to address the issues and
concerns surrounding the Y2K problem. A task force, consisting of executive and
operating personnel, was assembled to develop a Y2K compliance plan which
included assessing the effectiveness of the Company's present information
systems and identifying critical financial and operating systems that may be
vulnerable to the Y2K problem. This task force was also responsible for
understanding the Company's significant customers' and vendors' Y2K issues and
for developing a contingency plan should the systems currently in place fail.
The Company recently replaced the majority of its IT systems (software
and hardware) as a result of the above systems review and modernization
assessment. The Company has been testing, and will continue to test, such
15
<PAGE>
systems to obtain reasonable assurance of their Y2K compliance. To date, no
significant system uncertainties related to the Y2K problem have been
identified. The Company does not anticipate that the remaining third-party costs
related to Y2K compliance by its IT systems and non-IT systems will be
significant. The Company plans to have all critical systems tested and compliant
by the end of fiscal 1999.
The Company is currently communicating with its significant customers
and vendors to determine and assess their state of Y2K readiness, and
anticipates continuing this process for the next several months. To date, no
significant customers or vendors have informed the Company of the existence of a
material Y2K issue that can be expected to affect the Company. The Company is
placing great emphasis on understanding the Y2K compliance of its primary
satellite distribution providers. Although the Company has received assurances
that such satellite distribution providers are addressing the Y2K problem and
anticipate being Y2K compliant, the Company is actively working on a contingency
plan should such systems fail. This plan includes, but is not limited to,
utilizing alternative vendors in the event of a Y2K-related problem with its
primary satellite distribution providers. Based on its current plan, the Company
believes it will have adequate time to prepare for such contingency measures if
the need arises.
The Company believes that it has adequately addressed the Y2K issues
affecting its internal systems and believes that any material Y2K risks that the
Company faces arise from its significant customers' and vendors' Y2K compliance.
The inability of the Company or its significant customers and vendors to
adequately address the Y2K problem on a timely basis could have a material
adverse effect on the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital resources to fund development,
production and promotion costs of independently produced programming, including,
in some instances, advances to producers and talent, to produce its own programs
and to acquire distribution rights to new programming. In acquiring
distribution rights from independent producers, King World has tried to avoid
making significant capital commitments to such producers until it has obtained
broadcast commitments from a substantial number of television stations. As a
result of this strategy and the success of its existing syndication properties,
to date, King World has funded substantially all programming acquisition,
development, production and promotion costs and advances from its operations.
The Company is currently funding the development and production costs of THE
MARTIN SHORT SHOW, an hour-long, first-run strip syndicated talk/variety show
hosted by Martin Short. This series is scheduled to premiere in the Fall of
1999.
16
<PAGE>
The distribution of television programming is highly competitive and
the Company may be obliged to offer, among other things, guarantees and cash
advances to acquire, renew or extend distribution rights. Under the terms of the
Company's agreement in effect through August 1998 with Harpo, Inc. ("Harpo"),
the producer of THE OPRAH WINFREY Show, the Company was engaged as the exclusive
distributor of THE OPRAH WINFREY Show through the 1999-2000 broadcast season.
Such agreement was amended in September 1998 to provide for a commitment by
Harpo and Ms. Winfrey to produce and host the show for the 2000-2001 and 2001-
2002 broadcast seasons and to extend the engagement of King World as the
exclusive distributor of the show for those seasons.
Under the amended agreement, King World will continue to receive
distribution fees based on a percentage of the gross revenues generated by the
show. Such distribution fees are significantly less than those applicable to
seasons through the 1999-2000 broadcast season, and, as a result, the
contribution of THE OPRAH WINFREY SHOW to King World's net profits and cash flow
will decline.
In September 1997, the Company made advances to Harpo in the aggregate
amount of $130 million against Harpo's guaranteed share of gross revenues for
the 1998-1999 and 1999-2000 broadcast seasons. As of May 31, 1999, the entire
$65 million advance associated with the 1998-1999 broadcast season had been
recouped by the Company. None of the $65 million related to the 1999-2000
broadcast season was recouped as of May 31, 1999. As part of the most recent
amendment to its agreement with Harpo, the Company paid an advance to Harpo of
$75 million against Harpo's guaranteed share of gross revenues for the 2000-
2001 broadcast season. Also, the Company agreed to pay, in June 2000, an
additional $75 million against Harpo's guaranteed share of gross revenues for
the 2001-2002 broadcast season. Based on the license agreements in place for
such broadcast seasons, the Company believes that revenues from the series will
be sufficient to enable the Company to recoup the advances for such seasons. All
of the advances paid to Harpo are refundable to the Company by Harpo and Ms.
Winfrey if King World terminates its agreement with Harpo due to Harpo's failure
to deliver episodes of THE OPRAH WINFREY SHOW.
The Company has entered into an Agreement and Plan of Merger, dated as
of March 31, 1999 (the "Merger Agreement"), by and among the Company, CBS
Corporation, a Pennsylvania corporation ("CBS"), and K Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of CBS ("Merger Sub"),
pursuant to which (a) Merger Sub will be merged with and into the Company and
17
<PAGE>
the Company will become a wholly-owned subsidiary of CBS and (b) each
outstanding share of the Company (other than shares owned by CBS or Merger Sub)
will be converted into the right to receive .81 shares of common stock, par
value $1.00 per share, of CBS. Concurrently with the execution of the Merger
Agreement, Michael King, Roger King, Richard King and Diana King (the "Principal
Stockholders") entered into a Stockholders Agreement with CBS whereby the
Principal Stockholders agreed, among other things, that, while the Merger
Agreement was in effect, they would vote their shares of Common Stock, which
represent approximately 19% of total outstanding shares of Common Stock of the
Company, in favor of the merger and against any alternative proposal that may be
brought before the stockholders of the Company for a vote.
The consummation of the merger is subject to certain conditions,
including approval by the stockholders of the Company and the expiration or
early termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended. The Company was granted early termination
of the waiting period in April 1999. Pursuant to the Merger Agreement, the
Company will prepare and file a proxy statement/prospectus to be mailed to
stockholders in connection with calling a meeting of the stockholders of the
Company to vote on the merger. The transaction is expected to close in August
1999.
In April 1997, the Company announced that the Board of Directors had
approved a program to repurchase up to 10,000,000 shares of its Common Stock
from time to time in the open market and in privately negotiated transactions.
Through July 1, 1999, 5,894,100 shares of Common Stock had been repurchased
under this program for aggregate consideration of approximately $139.7 million
or approximately $23.70 per share. Purchases under the share repurchase program
have been financed out of the Company's available cash and liquid investments.
The Company is not permitted to repurchase shares of its Common Stock pursuant
to the Merger Agreement with CBS.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On April 1, 1999, the Company filed a report on Form 8-K announcing its
proposed merger with CBS Corporation.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KING WORLD PRODUCTIONS, INC.
By: /s/ Steven A. LoCascio
-------------------------------
Steven A. LoCascio
Senior Vice President and
Chief Financial Officer
and on behalf of the Registrant
July 8, 1999
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FINANCIAL DATA SCHEDULE
COMMERCIAL AND INDUSTRIAL COMPANIES
ARTICLE 5 OF REGULATION S-X
This schedule contains summary financial information extracted from
the Consolidated Statements of Operations and Consolidated Balance Sheets of
King World Productions, Inc. and its Subsidiaries and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 000756764
<NAME> #x4hauwm
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Aug-31-1999
<PERIOD-START> Mar-01-1999
<PERIOD-END> May-31-1999
<EXCHANGE-RATE> 1
<CASH> $375,268
<SECURITIES> $0
<RECEIVABLES> $105,066
<ALLOWANCES> $3,014
<INVENTORY> $0
<CURRENT-ASSETS> $604,679
<PP&E> $35,640
<DEPRECIATION> $15,863
<TOTAL-ASSETS> $1,106,293
<CURRENT-LIABILITIES> $142,708
<BONDS> $0
<COMMON> $895
$0
$0
<OTHER-SE> $962,690
<TOTAL-LIABILITY-AND-EQUITY> $1,106,293
<SALES> $0
<TOTAL-REVENUES> $192,737
<CGS> $0
<TOTAL-COSTS> $118,249
<OTHER-EXPENSES> $22,075
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $0
<INCOME-PRETAX> $60,129
<INCOME-TAX> $20,723
<INCOME-CONTINUING> $39,406
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $39,406
<EPS-BASIC> 0.56
<EPS-DILUTED> 0.53
</TABLE>
