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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1996
COMMISSION FILE NUMBER 0-23592
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NEW WORLD COMMUNICATIONS GROUP INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 13-3743606
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3200 WINDY HILL ROAD
SUITE 1100 - WEST
ATLANTA, GEORGIA 30339
(Address of principal executive offices)
(770) 955-0045
(Registrant's telephone number, including area code)
-----------------------
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 AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS: YES X NO
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT. YES X NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
AS OF NOVEMBER 8, 1996 THE REGISTRANT HAD 33,993,229 SHARES OF CLASS A
COMMON STOCK, PAR VALUE $0.01 PER SHARE, 38,040,370 SHARES OF CLASS B COMMON
STOCK, PAR VALUE $0.01 PER SHARE, NO SHARES OF VOTING PREFERRED STOCK, PAR
VALUE $0.01 PER SHARE AND NO CLASS A WARRANTS, SERIES 2 ("NEW $0.01 WARRANTS")
OUTSTANDING.
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NEW WORLD COMMUNICATIONS GROUP INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION
Page
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<TABLE>
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Item 1. Financial Statements:
Condensed Consolidated Balance Sheet
September 30, 1996 and December 31, 1995 ............ I-1
Condensed Consolidated Statement of Operations
Three Months Ended September 30, 1996 and 1995 ...... I-2
Condensed Consolidated Statement of Operations
Nine Months Ended September 30, 1996 and 1995 ....... I-3
Consolidated Statement of Stockholders' Equity ........ I-4
Condensed Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1996 and 1995 ....... I-5
Notes to Condensed Consolidated Financial Statements ... I-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. I-13
</TABLE>
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PART II. OTHER INFORMATION
Page
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<TABLE>
<S> <C> <C>
Item 1. Legal Proceedings .................................... II-1
Item 2. Changes in Securities ................................ II-1
Item 3. Defaults Upon Senior Securities ...................... II-1
Item 4. Submission of Matters to a Vote of Security-Holders .. II-2
Item 5. Other Information .................................... II-2
Item 6. Exhibits and Reports on Form 8-K ..................... II-2
Signatures ........................................... II-3
</TABLE>
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NEW WORLD COMMUNICATIONS GROUP INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................................... $ 141,798 $ 75,361
Receivables.............................................................. 168,953 175,210
Television program contract rights....................................... 31,992 23,735
Film costs............................................................... 70,837 83,761
Prepaid expenses......................................................... 4,768 3,705
Deferred income taxes.................................................... 4,410 4,410
------------ -----------
Total current assets.................................................... 422,758 366,182
Property, plant and equipment............................................. 201,450 213,059
Long-term receivables..................................................... 11,890 22,819
Television program contract rights........................................ 6,546 5,419
Film costs................................................................ 49,572 35,393
Intangible assets and excess reorganization value......................... 1,373,883 1,522,337
Equity investments........................................................ 39,624 36,549
Other assets.............................................................. 33,684 30,864
Assets held for sale...................................................... - 16,727
------------ -----------
$ 2,139,407 $ 2,249,349
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.................................... $ 79,444 $ 82,542
Television program contracts payable..................................... 33,404 26,872
Deferred income.......................................................... 25,097 35,532
Participations and residuals payable..................................... 47,753 43,434
Current portion of long-term debt and notes payable...................... 36,467 32,069
------------ -----------
Total current liabilities............................................... 222,165 220,449
Non-current television program contract rights............................ 9,678 7,448
Long-term debt............................................................ 854,170 976,392
Other non-current liabilities............................................. 22,575 26,257
Participations and residuals payable...................................... 7,859 23,908
Deferred tax credits...................................................... 89,424 77,510
Series A preferred stock, $.01 par value, 1,200,000 shares
authorized, 712,128 and 1,200,000 issued and outstanding................. 35,532 59,867
Series C preferred stock, $.01 par value, 25,000 shares authorized, issued
and outstanding.......................................................... 246,019 245,444
Series E preferred stock, $.01 par value, 300,000 shares authorized,issued
and outstanding.......................................................... 30,000 30,000
Commitments and contingencies
Stockholders' equity:
Series B preferred stock, $.01 par value, 250,000 shares authorized,
issued and outstanding.................................................. 224,850 224,850
Class A common stock, $.01 par value, 400,000,000 shares
authorized, 33,691,048 and 28,056,860 issued and outstanding............ 337 281
Class B common stock, $.01 par value, 400,000,000 shares authorized,
38,041,324 and 40,548,431 issued and outstanding........................ 380 405
Common stock warrants.................................................... 10,500 10,500
Additional paid-in capital............................................... 790,632 761,329
Accumulated deficit...................................................... (404,714) (415,291)
------------ -----------
Total stockholders' equity.............................................. 621,985 582,074
------------ -----------
$ 2,139,407 $ 2,249,349
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
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NEW WORLD COMMUNICATIONS GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1995
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<S> <C> <C>
Net revenue
Broadcasting............................................ $ 96,339 $ 90,605
Television production and distribution.................. 46,592 47,889
-------- --------
142,931 138,494
Operating expenses
Direct costs-
Broadcasting.......................................... 44,597 45,690
Television production and distribution................ 41,030 37,773
Selling, general and administrative-
Broadcasting.......................................... 21,456 20,906
Television production and distribution................ 11,056 10,519
Depreciation and amortization of intangible assets....... 19,203 16,594
Corporate expenses....................................... 6,716 6,279
-------- --------
Income (loss) from operations........................... (1,127) 733
-------- --------
Other income (expense):
Interest expense........................................ (22,552) (22,925)
Gain on the sale of broadcast television station........ 103,227 -
Merger costs............................................ (3,026) -
Interest and investment income and other................ 1,856 1,770
-------- --------
Other income (expense), net............................. 79,505 (21,155)
-------- --------
Income (loss) before income taxes........................ 78,378 (20,422)
Provision for income taxes............................... (52,867) 1,618
Equity in earnings of affiliates......................... 1,418 (152)
-------- --------
Net income (loss)....................................... 26,929 (18,956)
Preferred stock dividends and accretion.................. (1,576) (1,491)
-------- --------
Net income (loss) to common shareholders................ $ 25,353 $(20,447)
======== ========
Net income (loss) per common and common
equivalent share........................................ $ .28 $ (.30)
======== ========
Weighted average common and common
equivalent shares outstanding.......................... 94,296 68,533
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-2
<PAGE> 6
NEW WORLD COMMUNICATIONS GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1995
-------- ---------
<S> <C> <C>
Net revenue
Broadcasting........................................... $304,481 $268,124
Television production and distribution................. 173,924 152,782
-------- --------
478,405 420,906
Operating expenses
Direct costs-
Broadcasting......................................... 132,158 128,029
Television production and distribution............... 145,691 121,525
Selling, general and administrative-
Broadcasting......................................... 64,952 57,709
Television production and distribution............... 32,342 28,866
Depreciation and amortization of intangible assets...... 57,584 48,138
Corporate expenses...................................... 16,967 15,144
-------- --------
Income from operations................................. 28,711 21,495
-------- --------
Other income (expense):
Interest expense....................................... (68,464) (63,763)
Gain on the sale of broadcast television stations...... 103,227 40,471
Merger costs (3,026) (3,026) -
Interest and investment income and other............... 3,947 7,262
-------- --------
Other income (expense), net.......................... 35,684 (16,030)
-------- --------
Income before income taxes.............................. 64,395 5,465
Provision for income taxes.............................. (51,708) (34,220)
Equity in earnings of affiliates........................ 2,815 (455)
-------- --------
Net income (loss)...................................... 15,502 (29,210)
Preferred stock dividends and accretion................. (4,925) (3,693)
-------- --------
Income (loss) to common shareholders................... $ 10,577 $(32,903)
======== ========
Net income (loss) per common and common equivalent
share share............................................ $ .12 $ (.48)
======== ========
Weighted average common and common
equivalent shares outstanding......................... 88,358 68,377
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-3
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NEW WORLD COMMUNICATIONS GROUP INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SERIES B CLASS A CLASS B COMMON ADDITIONAL TOTAL
PREFERRED COMMON COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK STOCK STOCK WARRANTS CAPITAL DEFICIT EQUITY
---------- ---------- ---------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 224,850 $ 281 $ 405 $ 10,500 $ 761,329 $ (415,291) $ 582,074
Net income...................... - - - - - 15,502 15,502
Preferred stock dividends and
accretion...................... - - - - - (4,925) (4,925)
Interest on note receivable from
stockholder.................... - - - - (405) - (405)
Exercise of employee stock
options, $8.47 warrants and
conversion of Series A
preferred stock................ - 7 24 - 29,708 - 29,739
Conversion of Class B common
stock into Class A common
stock.......................... - 49 (49) - - - -
---------- ---------- ---------- ---------- ---------- ------------ -----------
Balance at September 30, 1996... $ 224,850 $ 337 $ 380 $ 10,500 $ 790,632 $ (404,714) $ 621,985
========== ========== ========== ========== ========== ============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-4
<PAGE> 8
NEW WORLD COMMUNICATIONS GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1996 1995
--------- ----------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss).......................................... $ 15,502 $ (29,210)
Adjustments to reconcile net income (loss) to net cash
provided by (used in)operating activities:
Gain on sale of broadcast television stations.............. (103,227) (40,471)
Deferred taxes............................................. 39,482 24,620
Equity in (income) loss of affiliates...................... (2,815) 455
Depreciation and amortization of intangible assets......... 57,584 48,138
Television program contract rights amortization
over (under) payments..................................... (721) 4,007
Film cost amortization over additions...................... (429) (9,012)
Noncash interest expense, compensation, foreign exchange
and other................................................. 1,922 1,266
Changes in assets and liabilities, net of acquisitions and
dispositions:
Receivables.............................................. 12,153 (18,492)
Prepaid expenses and other assets........................ (5,997) (2,861)
Current liabilities...................................... (23,738) 6,547
Other noncurrent liabilities............................. (3,622) (305)
--------- ---------
Total adjustments....................................... (29,408) 13,892
--------- ---------
Net cash used in operating activities...................... (13,906) (15,318)
Cash flow from investing activities:
Capital expenditures and equity investments................ (19,451) (34,731)
Broadcast station acquisitions, net of cash acquired....... - (360,084)
Proceeds from sale of broadcast stations................... 200,000 207,500
Other...................................................... - 33
--------- ---------
Net cash provided by (used in) investing activities........ 180,549 (187,282)
Cash flow from financing activities:
Proceeds from issuance of preferred stock.................. - 62,790
Issuance of debt........................................... - 482,429
Preferred stock dividends paid............................. (4,343) (3,219)
Repayment of debt.......................................... (101,097) (400,267)
Proceeds from exercise of stock options and warrants....... 5,234 1,944
--------- ---------
Net cash provided by (used in) financing activities........ (100,206) 143,677
--------- ---------
Net increase (decrease) in cash............................. 66,437 (58,923)
Cash balance, beginning of period........................... 75,361 155,699
--------- ---------
Cash balance, end of period................................. $ 141,798 $ 96,776
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-5
<PAGE> 9
NEW WORLD COMMUNICATIONS GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1995
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<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for interest........................... $78,162 $ 69,073
======= =========
Supplemental schedule of noncash investing and financing activities:
Purchase of television program contract rights..................... $37,063 $ 32,934
======= =========
Additions to film costs............................................ $93,771 $ 64,713
======= =========
Noncash reduction in note payable.................................. $16,727 $ 23,702
======= =========
Argyle stations purchase:
Fair value of assets acquired...................................... $ 778,527
Purchase option applied to purchase price.......................... (100,000)
Cash paid, net of cash received.................................... (360,084)
---------
Liabilities assumed................................................ $ 318,443
=========
Cannell purchase:
Fair value of assets acquired...................................... $ 37,643
Preferred stock issued............................................. (30,000)
---------
Liabilities assumed................................................ $ 7,643
=========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-6
<PAGE> 10
NEW WORLD COMMUNICATIONS GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
1. DESCRIPTION OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
New World Communications Group Incorporated ("NWCG" or the "Company") is a
vertically integrated entertainment company which operates, through
wholly-owned subsidiaries, eleven broadcast television stations, television
production operations, filmed entertainment libraries, and filmed
entertainment distribution businesses.
INTERIM REPORTING
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
the rules and regulations of the Securities and Exchange Commission. In
the opinion of management the statements reflect all adjustments, which are
of a normal recurring nature, necessary to present fairly the Company's
financial position, results of operations and cash flows for the unaudited
interim periods presented. Results for the interim periods presented are
not necessarily indicative of the results which might be expected for the
entire year. The unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements
for the year ended December 31, 1995. Certain prior period amounts have
been reclassified to conform to current presentation.
2. PROPOSED MERGER WITH NEWS CORP.
The Company, NWCG (Parent) Holdings Corporation, a Delaware corporation and
a subsidiary of Andrews Group Incorporated ("NWCGP"), NWCG Holdings
Corporation, a Delaware corporation and a subsidiary of NWCGP ("Holdings"),
and The News Corporation Limited, a South Australia corporation ("News
Corp."), entered into a binding Memorandum of Understanding, dated as of
July 17, 1996 (the "Agreement"). The Agreement provided that the parties
thereto may execute definitive agreements to consummate the transactions
contemplated by the Agreement. On September 24, 1996, the parties entered
into definitive agreements in furtherance of the transactions contemplated
by the Agreement.
Fox Television Stations, Inc. ("Fox"), a corporation in which News Corp.
has an indirect interest, will acquire all of the shares of Common Stock of
NWCG (other than any shares owned, directly or indirectly, by News Corp. or
any News Corp. Subsidiary or as to which dissenters' rights are properly
exercised) and NWCG will become a subsidiary of Fox. The
I-7
<PAGE> 11
NEW WORLD COMMUNICATIONS GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
term "News Corp. Subsidiary" means any subsidiary of News Corp., Twentieth
Holdings Corporation, a Delaware corporation in which News Corp. has an
indirect interest ("THC"), or any other subsidiary of THC, including Fox.
Immediately prior to the time (the "Effective Time") the certificate of
merger relating to the Merger, filed with the Secretary of State of
Delaware, becomes effective pursuant to the General Corporation Law of the
State of Delaware (the "DGCL"), Fox will purchase (the "Stock Purchase")
from NWCG Parent, pursuant to the Stock Purchase Agreement, 2,682,236
shares of Class B Common Stock owned by NWCG Parent and all of the
outstanding shares of capital stock of NWCG Holdings Corporation, a
Delaware corporation and a wholly owned subsidiary of NWCG Parent ("NWCG
Holdings"). NWCG Parent and NWCG Holdings are affiliates of Mafco Holdings
Inc., a Delaware corporation ("Mafco"), which is wholly owned by Mr.
Ronald O. Perelman, the Chairman of the Board of Directors of NWCG. The
principal asset of NWCG Holdings consists of 34,510,000 shares of Class B
Common Stock. As of September 30, 1996, NWCG Parent and NWCG Holdings
owned, in the aggregate, 37,192,236 shares of Class B Common Stock,
representing approximately 52% of the outstanding Common Stock and
approximately 90% of the outstanding voting power of the outstanding Common
Stock. The consideration for such purchase will be 1.45 American Depository
Shares of News Corp. ("ADSs"), each of which represents four fully-paid and
non-assessable Preferred Limited Voting Ordinary Shares of A$.50 each of
News Corp., for each share of Common Stock directly or indirectly acquired
by Fox, with the aggregate number of ADSs issued to NWCG Parent reduced to
approximate the accreted amount of certain indebtedness of NWCG Holdings
outstanding as of the Effective Time. Pursuant to the Merger Agreement, (a)
each outstanding share of Common Stock (other than any shares owned,
directly or indirectly, owned by News Corp. or any News Corp. Subsidiary,
including the shares purchased pursuant to the Stock Purchase Agreement,
and any shares of Class B Common Stock as to which dissenters' rights are
properly exercised) will be converted into the right to receive 1.45 ADSs;
(b) pursuant to the DGCL, conversion of the shares of Series A Preferred
Stock into ADSs pursuant to the Merger Agreement requires the approval of
the Merger Proposal by a majority of the issued and outstanding shares of
Series A Preferred Stock (the "Series A Approval"); if the Series A
Approval is obtained, each issued and outstanding share of Series A
Preferred Stock (other than any shares owned, directly or indirectly, by
News Corp. or any News Corp. Subsidiary and any shares as to which
dissenters' rights are properly exercised) will be converted into the right
to receive the number of ADSs equal to the product of (i) 1.45 times (ii)
the number of shares of Class B Common Stock that a holder of such share of
Series A Preferred Stock would have received if such share of Series A
Preferred Stock had been converted into shares of Class B Common Stock
immediately prior to the Effective Time; and (c) pursuant to the DGCL,
conversion of the shares of Series E Preferred Stock into ADSs pursuant to
the Merger Agreement requires the approval of the Merger Proposal by a
majority of the issued
I-8
<PAGE> 12
NEW WORLD COMMUNICATIONS GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
and outstanding shares of Series E Preferred Stock (the "Series E
Approval"); if the Series E Approval is obtained, each issued and
outstanding share of Series E Preferred Stock (other than any shares owned,
directly or indirectly, by News Corp. or any News Corp. Subsidiary and any
shares as to which dissenters' rights are properly exercised) will be
converted into the right to receive the number of ADSs equal to the product
of (i) 1.45 times (ii) the number of shares of Class A Common Stock that a
holder of such share of Series E Preferred Stock would have received if
such share of Series E Preferred Stock had been converted into shares of
Class A Common Stock immediately prior to the Effective Time. The
transactions contemplated by the Merger Agreement and the Stock Purchase
Agreement are referred to herein as the "Transaction."
Pursuant to a Voting Agreement, dated as of September 24, 1996, among Fox,
NWCG Parent and NWCG Holdings (the "NWCG Parent Voting Agreement"), NWCG
Parent and NWCG Holdings agreed to vote for the Merger Proposal.
Accordingly, approval of the Merger Proposal is assured regardless of the
vote of any other stockholder of NWCG. In addition, pursuant to a Voting
Agreement, dated as of September 24, 1996, among Apollo Advisors, L.P.
("Apollo"), News Corp. and Fox (the "Apollo Voting Agreement"), Apollo
agreed, with respect to itself and its affiliates, as the sole holder of
the issued and outstanding shares of Series A Preferred Stock, to vote, or
cause to be voted, any shares of NWCG capital stock owned as of the Record
Date for the Merger Proposal. As of September 30, 1996, Apollo and its
affiliates owned all of the issued and outstanding shares of Series A
Preferred Stock. Accordingly, receipt of the Series A Approval is assured.
Affiliates of Mafco have also entered into certain other agreements in
connection with the Transaction. Pursuant to a Purchase and Sale
Agreement, dated as of September 24, 1996, between 1440 Sepulveda Limited
Partnership, a California limited partnership (the "1440 Partnership"), and
Fox (the "Real Estate Agreement"), Fox agreed to purchase (the "Real Estate
Purchase") the land, building and related improvements where New World's
principal Los Angeles office is located (the "Real Property"). The
aggregate purchase price to be paid by Fox under the Real Estate Agreement
is $50 million. Pursuant to the Assignment and Assumption Agreement, dated
as of September 24, 1996, between Four Star Holdings Corp., a Delaware
corporation and an affiliate of Mafco ("Four Star Holdings"), and Fox (the
"Four Star Agreement"), Fox agreed to assume an aggregate of $46.2 million
principal amount of debt of Four Star Holdings. The liabilities
represented by the Four Star Notes (as defined herein) were retained by
Four Star Holdings at the time of the 1994 reorganization of NWCG that
included the transfer by an affiliate of Mafco of New World Entertainment
Ltd., a Delaware corporation ("NW Entertainment"), to NWCG. Pursuant to a
Guaranty, dated as of September 24, 1996, Mafco has agreed to guarantee the
payment and performance of certain obligations of its affiliates pursuant
to the Stock
I-9
<PAGE> 13
NEW WORLD COMMUNICATIONS GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
Purchase Agreement, the NWCG Parent Voting Agreement, the Real Estate
Agreement and the Four Star Agreement. Similarly, News Corp. has entered
into a Guaranty, dated as of September 24, 1996, pursuant to which News
Corp. has agreed to guarantee the payment and performance by Fox of its
obligations pursuant to the Merger Agreement, the Stock Purchase Agreement
(including the registration rights agreement attached, thereto), the NWCG
Parent Voting Agreement, the Real Estate Agreement and the Four Star
Agreement.
The consummation of the transactions contemplated by the Real Estate
Agreement is conditioned upon the satisfaction or waiver of all conditions
of the Merger other than consummation of the Real Estate Purchase. The
consummation of the transactions contemplated by the Four Star Agreement is
similarly conditioned upon satisfaction or waiver of all conditions to the
Merger other than those relating to the Four Star Agreement. The
consummation of the transactions contemplated by the Stock Purchase
Agreement is conditioned upon, among other things, satisfaction or waiver
of all conditions to the Merger (including the Real Estate Purchase and the
consummation of the transactions contemplated by the Four Star Agreement),
other than the Stock Purchase.
The Merger and the other transactions are conditioned on one another and
the Merger is subject to certain other conditions, including regulatory
approvals and the approval of the shareholders of the Company. On November
7, 1996, the FCC issued an order, subject to finality, granting approval of
the Merger and the Stock Purchase Agreement. There can be no assurance
that all of the conditions to the consummation of the Merger will be
satisfied. No effects of the proposed merger with News Corp. are reflected
in the accompanying unaudited condensed consolidated financial statements.
3. ACQUISITIONS, DISPOSITIONS AND PRO FORMA FINANCIAL INFORMATION
WSBK-TV
In March 1995 the Company sold its investment in WSBK-TV (the "Boston
Station") for gross proceeds of $107.5 million. The Company repaid $19.5
million of the Bank Credit Agreement Loans in March 1995 and $77.3 million
of the Step-Up Notes in April 1995 from the net proceeds of the Boston
Station sale.
I-10
<PAGE> 14
NEW WORLD COMMUNICATIONS GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
ARGYLE STATIONS
The Company purchased certain debt and equity securities of Argyle
Television Holding Inc. ("Argyle") for total consideration of approximately
$750.4 million, including the $100 million in cash paid for an option in
1994 and assumption of debt of approximately $283.6 million. Argyle
controlled four VHF television stations, KDFW-TV (Dallas, Texas), KTBC-TV
(Austin, Texas), KTVI-TV (St. Louis, Missouri) and WVTM-TV (Birmingham,
Alabama). For financial reporting purposes, the acquisition occurred on
March 31, 1995. FCC approval for change in control of the television
stations occurred on April 14, 1995. The acquisition has been accounted
for as a purchase.
CANNELL ENTERTAINMENT
In July 1995 the Company purchased Cannell Entertainment Inc. for Series E
Cumulative Convertible Redeemable Preferred Stock ("Series E Preferred
Stock") valued at approximately $30 million and certain other
consideration. The acquisition has been accounted for as a purchase.
NBC STATIONS
In May 1996 the Company entered into an agreement to sell substantially all
of the assets of KNSD-TV (the "San Diego Station") and WVTM-TV (the
"Birmingham Station") to National Broadcasting Company, Inc. ("NBC") for
$425 million, subject to certain adjustments. The Birmingham Station sale
was completed in August 1996 for $200 million, adjusted for working
capital. The San Diego Station sale is expected to be completed in the
fourth quarter of 1996 and is subject to various closing conditions
including regulatory approval which was granted on November 7, 1996.
PRO FORMA FINANCIAL INFORMATION
For the nine months ended September 30, 1995, the following condensed pro
forma financial information gives effect to, as of January 1, 1995, the
purchase of the four Argyle stations, the sale of the Boston Station, the
sale of the Birmingham Station, borrowings necessary to fund the
acquisition, repayment of a portion of NW Television's and NWC
Acquisition's debt and the issuance of preferred stock. For the nine
months ended
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<PAGE> 15
NEW WORLD COMMUNICATIONS GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
September 30, 1996, the following condensed pro forma financial information
gives effect to, as of January 1, 1996, the sale of the Birmingham Station
and the repayment of a portion of NWC Acquisition's debt. The pro forma
financial information does not necessarily reflect the future results or
the results that would have occurred had these transactions actually
occurred on the indicated dates (in thousands, except per share).
<TABLE>
<CAPTION>
Pro Forma for the Nine Months Ended
September 30,
1996 1995
------------------ ------------------
<S> <C> <C>
Net revenue $ 464,906 $ 430,606
Net loss $ (25,042) $ (32,271)
================== =================
Net loss per common and
common equivalent share $ (.43) $ (.54)
================== =================
</TABLE>
4. INCOME TAXES
Income tax expense resulted primarily from the recognition of income taxes
on the sale of WSBK-TV in 1995 and WVTM-TV in 1996 due to the lower
historical tax basis of the stations' net assets. The liability associated
with these taxes will be offset by utilization of net operating losses.
The reduction of the valuation allowance associated with the net operating
losses has been reflected as a reduction of excess reorganization value and
goodwill.
I-12
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company operates broadcast television stations, a television
production company and filmed entertainment distribution businesses.
The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
accompanying unaudited condensed consolidated financial statements and related
notes of the Company and its annual report for the year ended December 31,
1995. No effects of the proposed merger with News Corp. are reflected in the
accompanying unaudited condensed consolidated financial statements (Note 2).
RESULTS OF OPERATIONS
Three months ended September 30, 1996 Compared to 1995. Net revenue
increased $4.4 million or 3.2% in 1996 over 1995. The increase in broadcasting
revenue of $5.7 million is due primarily to political advertising and the
recovery of a portion of the market share enjoyed prior to the Fox conversion
offset by the effect of the sale of the Birmingham Station. The Company had
expected the conversion to Fox to result in an initial decline in revenues.
Pending the Merger, the Company agreed not to commence production of new
programming; therefore, the Company expects production and distribution revenue
to continue to decline. Production and distribution revenue decreased $1.3
million or 2.7% primarily due to a slow down in domestic syndication activity.
Operating expenses, excluding depreciation, amortization and corporate
expenses, increased $3.3 million in 1996 primarily due to film cost
amortization.
Depreciation and amortization expense increased $2.6 million primarily due
to broadcast equipment purchases.
In August 1996, the Company completed the sale of WVTM-TV (the "Birmingham
Station") to NBC. The Company used $95 million of the net proceeds to pay down
NWC Acquisition debt.
Merger costs represent costs incurred by the Company in connection with
the Merger. The majority of the merger costs reflect the cost to terminate the
production of "Lovelines", a television show scheduled for broadcast commencing
in the third quarter, including the write-off of the production costs. In the
event the Merger is not completed, other than by reason of the Company's breach
of the Merger Agreement, Fox has agreed to reimburse the Company for all costs
directly related to the production of, termination of and distribution of
"Lovelines" plus $15 million.
I-13
<PAGE> 17
The provision for income tax in 1996 primarily reflects the effect of the
sale of the Birmingham Station.
Nine Months Ended September 30, 1996 Compared to 1995. Net revenue
increased $57.5 million or 13.7% in 1996 over 1995. The increase in
broadcasting revenue of $36.4 million reflects an increase of $23.6 million for
the four stations acquired on March 31, 1995 from Argyle Television Holding,
Inc. ("Argyle"), net of the effect of the sale of WVTM-TV in August 1996, and
an increase of $18.5 million for the eight original stations owned for both
periods ("Eight Stations"), offset by a decrease of $5.7 million reflecting the
sale of WSBK-TV in March of 1995. On a same station basis for both periods,
net revenue increased $13.2 million due primarily to political advertising and
the recovery of a portion of the market share enjoyed prior to the Fox
conversion. The Company had expected the conversion to Fox to result in an
initial decline in revenues. Production and distribution revenue increased
$21.1 million or 13.8% primarily due to increases in network and cable
revenues, reflecting substantially increased production activity during the
first and second quarters of 1996.
Operating expenses, excluding depreciation, amortization and corporate
expenses, increased $39.0 million in 1996. The television broadcasting expense
increase of $11.4 million includes $18.8 million from the Argyle stations, net
of the effect of the sale of WVTM-TV in August 1996, offset by a decrease of
$1.2 million for the Eight Stations and by a decrease of $6.2 million
reflecting the sale of WSBK-TV in March of 1995. On a same station basis for
both periods, operating expenses increased $.8 million due to higher costs to
support the increase in local programming associated with the Company's
conversion of certain broadcast stations to the Fox Network offset by lower
programming contract costs. Production and distribution operating expenses
increased $27.6 million due primarily to amortization of production costs
associated with increased production activity in the first and second quarters
of 1996.
Depreciation and amortization of intangible assets increased $9.4 million
in 1996 due primarily to the acquisition of the Argyle stations. Corporate
expenses increased $1.8 million in 1996 principally due to increased personnel
and salaries.
Interest expense increased $4.7 million as a result of higher debt
balances for the acquisition of the broadcast television stations and the
Entertainment Line of Credit used primarily to fund the increased production
activity.
The 1996 gain on sale of broadcast television stations reflects the sale
of the Birmingham Station whereas the 1995 gain results from the March 1995
sale of WSBK-TV (Boston).
Merger costs represent costs incurred by the Company in connection with
the Merger. The majority of the merger costs reflect the cost to terminate the
production of "Lovelines" including the write-off of the production costs. In
the event the Merger is not completed, other than by reason of the Company's
breach of the Merger Agreement, Fox has agreed to reimburse
I-14
<PAGE> 18
the Company for all costs directly related to the production of, termination of
and distribution of "Lovelines" plus $15 million.
Interest and investment income and other decreased $3.3 million in 1996
primarily due to lower cash and short-term investment balances.
The provision for income tax results primarily from the recognition of
income taxes on the sale of the broadcast television stations.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company has total outstanding debt of $890.6
million and a cash balance of $141.8 million. The Company has limited
additional borrowing capacity under its borrowing facilities. Significant
expansion of the Company's broadcasting or production segments will require
additional funding not currently available to the Company.
The Company plans to reduce certain of its debt with the proceeds from the
pending sale of the San Diego Station to NBC. The gross proceeds from the sale
of the San Diego Station of $225 million, subject to certain adjustments, will
be used to pay off the Bank Credit Agreement Loans and to offer to repurchase
all of the outstanding Step-Up Notes and a portion of the 11% Notes. There is
no guarantee that the offers made to repurchase the Step-Up Notes and the 11%
Notes will be accepted by all of the holders; any remaining net proceeds will
be available for use by the Company as permitted by its various debt
instruments. The Company used $95 million of the net proceeds from the sale of
the Birmingham Station to reduce the Acquisition Credit Agreement balance.
Pending the anticipated closing of the Merger in the first quarter of
1997, the Company believes it has sufficient Working Capital on hand or
available from operations and the proceeds from the sale of KNSD-TV (San Diego)
to meet its needs. Should the Merger be substantially delayed or not occur at
all, the Company currently anticipates that any other necessary financing may
be obtained through restructuring or refinancing outstanding capitalization or
possibly through additional equity or debt financings or additional bank credit
arrangements. Should such additional sources of financing be needed to fund
acquisitions or operations and not be obtainable, the Company's liquidity would
be severely adversely affected. There can be no assurance that any of such
actions could be effected on satisfactory terms, that they would enable the
Company to continue to satisfy the Company's capital requirements or that they
would be permitted by the terms of existing or future debt agreements.
The Merger will result in a change of control under certain of the
Company's debt agreements, which will result in an event of default thereunder
or give the holders of such debt
I-15
<PAGE> 19
the right to require the Company to repurchase such indebtedness. No effect of
a change in control is reflected in the accompanying unaudited condensed
consolidated financial statements.
The Company's capital budget for 1996 is approximately $30 million,
primarily for the broadcasting segment. In connection with the broadcast
stations' change in affiliation to the Fox Network, the broadcasting segment
provides more locally-produced programming which requires additional capital
expenditures and operating expenses.
I-16
<PAGE> 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See "Item 3. Legal Proceedings" of the Company's Form 10-K for the year
ended December 31, 1995 for a discussion of the action, Steven Cooperman, On
Behalf of Himself and Derivatively on Behalf of SCI Television, Inc., a
Delaware corporation (or its successor corporation, SCI Parent Corporation to
be re-named New World Communications Group, Inc.) v. Ronald O. Perelman, et
al., and SCI Television, Inc., a Delaware corporation (or its successor
corporation, SCI Parent Corporation to be re-named New World Communications
Group, Inc.), Case No. BC100359 (Superior Court of the State of California,
County of Los Angeles).
In July and August 1996, Joseph Gorga, Brian Barry and Anthony Inguaggiato
commenced separate actions on behalf of themselves and, purportedly, all other
similarly situated shareholders of the Company other than the defendants
against the Company, its directors, News Corp. and Fox Television Stations,
Inc., asserting, among other things, breaches of fiduciary duty, unjust
enrichment and abuse of control in connection with the transactions
contemplated by the Merger and the Agreement with News Corp. These actions,
pending in the Delaware Court of Chancery, have been or will be consolidated
under the caption In re New World Communications Group Incorporated
Shareholders Litigation, C.A. No. 15110. The consolidated actions seek
equitable relief and damages, including an injunction against the Merger. The
Company believes that the consolidated actions are without merit and
intends to contest them vigorously.
The Company and its subsidiaries are defendants in a number of other
lawsuits which have arisen in the normal course of business. Management
believes that the ultimate resolution of this litigation will not have a
material adverse effect upon the Company or its subsidiaries.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
(a) Not applicable.
(b) Not applicable.
II-1
<PAGE> 21
Item 4. Submission of Matters to a Vote of Security-Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
11 Statement re: computation of per share earnings
27 Financial Data Schedule (for SEC use only)
(b) Reports filed on Form 8-K:
May 22, 1996 (Items 5 and 7).
July 17, 1996 (Items 1 and 7).
August 29, 1996 (Items 2 and 7)
October 7, 1996 (Items 1 and 7).
II-2
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
NEW WORLD COMMUNICATIONS GROUP INCORPORATED
(Registrant)
By: /s/ Joseph P. Page
-----------------------
Joseph P. Page
Executive Vice President and
Chief Financial Officer
Dated: November 13, 1996
II-3
<PAGE> 23
EXHIBIT INDEX
Exhibit No. Description
11 Statement re: computation of per share earnings.
27 Financial Data Schedule (for SEC use only).
<PAGE> 1
Exhibit 11
Computation of Primary Earnings Per Share
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
------------------ ------------------
<S> <C> <C>
Net income applicable to common stock................ $ 25,353 $ 10,577
Net effect of dilutive convertible preferred stock... 858 -
------------------ ------------------
$ 26,211 $ 10,577
================== ==================
Weighted average number of shares outstanding
during the period................................... 69,663 69,008
Net effect of dilutive options, warrants and
convertible preferred stock......................... 24,633 19,350
------------------ ------------------
Weighted average number of common and
common equivalent shares outstanding................ 94,296 88,358
================== ==================
Earnings per common and common
equivalent share.................................... $ .28 $ .12
================== ==================
</TABLE>
Computation of Fully-Diluted Earnings Per Share
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
------------------ ------------------
<S> <C> <C>
Net income applicable to common stock................ $ 25,353 $ 10,577
Net effect of dilutive convertible preferred stock... 858 -
------------------ ------------------
$ 26,211 $ 10,577
================== ==================
Primary weighted average number of common
and common equivalent shares outstanding........... 94,296 88,358
Weighted average number of common and
common equivalent shares and convertible
shares, assuming full dilution..................... 94,296 88,358
================== ==================
Earnings per common and common
equivalent share................................... $ .28 $ .12
================== ==================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 141,798
<SECURITIES> 0
<RECEIVABLES> 168,953
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 422,758
<PP&E> 201,450
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,139,407
<CURRENT-LIABILITIES> 222,165
<BONDS> 854,170
311,551
224,850
<COMMON> 717
<OTHER-SE> 396,418
<TOTAL-LIABILITY-AND-EQUITY> 2,139,407
<SALES> 0
<TOTAL-REVENUES> 478,405
<CGS> 0
<TOTAL-COSTS> 277,849
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,464
<INCOME-PRETAX> 64,395
<INCOME-TAX> 51,708
<INCOME-CONTINUING> 15,502
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,502
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
