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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
JUNE 30, 1996
COMMISSION FILE NUMBER 33-82274
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NWCG HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3771996
(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)
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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 CORPORATE ISSUERS:
AS OF AUGUST 8, 1996 THE REGISTRANT HAD 100 SHARES OF COMMON STOCK, PAR VALUE
$0.01 PER SHARE, ALL OF WHICH WERE INDIRECTLY HELD BY ANDREWS GROUP
INCORPORATED.
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NWCG HOLDINGS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements:
Condensed Consolidated Balance Sheet
June 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . I-1
Condensed Consolidated Statement of Operations
Three months ended June 30, 1996 and 1995 . . . . . . . . . . . . . . I-2
Condensed Consolidated Statement of Operations
Six months ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . I-3
Consolidated Statement of Stockholder's Equity (Deficit) . . . . . . . . I-4
Condensed Consolidated Statement of Cash Flows
- Six months ended June 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-10
</TABLE>
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PART II. OTHER INFORMATION
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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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NWCG HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $ 59,376 $ 75,361
Receivables 180,187 175,210
Television program contract rights 11,599 23,735
Film costs . . . . . . . . . . . . . . . . . . . . . . . . . . 81,415 83,761
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . 4,608 3,876
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 4,410 4,410
------------- ------------
Total current assets . . . . . . . . . . . . . . . . . . . . 341,595 366,353
Property, plant and equipment . . . . . . . . . . . . . . . . . . . 212,808 213,059
Long-term receivables . . . . . . . . . . . . . . . . . . . . . . . 16,292 22,819
Television program contract rights . . . . . . . . . . . . . . . . 5,132 5,419
Film costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,996 35,393
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . 1,485,798 1,508,870
Equity investments 38,106 36,549
Other assets 32,150 34,076
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . - 16,727
------------- ------------
$ 2,167,877 $ 2,239,265
============= ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 77,992 $ 82,553
Television program contracts payable . . . . . . . . . . . . . 14,375 26,872
Deferred income.. . . . . . . . . . . . . . . . . . . . . . . . 20,364 35,532
Participations and residuals payable . . . . . . . . . . . . . 54,178 43,434
Current portion of long-term debt and notes payable . . . . . 34,092 32,069
------------- ------------
Total current liabilities . . . . . . . . . . . . . . . . 201,001 220,460
Non-current television program contracts payable . . . . . . . . . 6,611 7,448
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . 1,232,612 1,237,511
Other non-current liabilities . . . . . . . . . . . . . . . . . . . 23,702 26,257
Participations and residuals payable . . . . . . . . . . . . . . . 13,303 23,908
Deferred tax credits . . . . . . . . . . . . . . . . . . . . . . . 74,904 77,510
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . 347,183 353,692
Subsidiary's redeemable preferred stock . . . . . . . . . . . . . . 335,698 335,311
Commitments and contingencies
Stockholder's equity:
Preferred stock, $.01 par value, 1,000 shares authorized, none
issued or outstanding . . . . . . . . . . . . . . . . . . . - -
Common stock, $.01 par value, 1,000 shares authorized, 100
shares issued and outstanding . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . 519,757 519,767
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . (586,894) (562,599)
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Total stockholder s equity (deficit) . . . . . . . . . . . (67,137) (42,832)
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$ 2,167,877 $ 2,239,265
============= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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NWCG HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-----------------------------------------------
1996 1995
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<S> <C> <C>
Net revenue:
Broadcasting . . . . . . . . . . . . . . . . . . . . . . . . $ 115,565 $ 110,413
Television production and distribution . . . . . . . . . . . 58,040 57,135
--------------------- -----------------------
173,605 167,548
Operating expenses:
Direct costs-
Broadcasting . . . . . . . . . . . . . . . . . . . . . . 44,042 44,194
Television production and distribution . . . . . . . . . 46,151 46,869
Selling, general and administrative-
Broadcasting . . . . . . . . . . . . . . . . . . . . . . 21,592 20,694
Television production and distribution . . . . . . . . . 11,118 9,394
Depreciation and amortization of intangible assets . . . . . . . 19,232 18,689
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . 4,428 4,811
--------------------- -----------------------
Income from operations . . . . . . . . . . . . . . . . . . . 27,042 22,897
Other income (expense):
Interest and investment income . . . . . . . . . . . . . . . 1,071 1,793
Interest expense . . . . . . . . . . . . . . . . . . . . . . (32,551) (32,275)
Gain on sale of interest in NWCG . . . . . . . . . . . . . . 269 15
Preferred stock requirements of consolidated
subsidiary and other . . . . . . . . . . . . . . . . . . . (1,890) (1,610)
--------------------- -----------------------
Other income (expense), net . . . . . . . . . . . . . . (33,101) (32,077)
Loss before income taxes, minority interest and equity in --------------------- -----------------------
earnings . . . . . . . . . . . . . . . . . . . . . . . . . . (6,059) (9,180)
Provision for income taxes . . . . . . . . . . . . . . . . . . . (3,442) (2,759)
Equity in earnings of affiliates . . . . . . . . . . . . . . . . 1,549 (151)
Minority interest in consolidated subsidiary . . . . . . . . . . (822) 2,343
--------------------- -----------------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $ (8,774) $ (9,747)
====================== =======================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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NWCG HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------------
1996 1995
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<S> <C> <C>
Net revenue:
Broadcasting . . . . . . . . . . . . . . . . . . . . . . . . $ 208,142 $ 177,519
Television production and distribution . . . . . . . . . . . 127,332 104,893
--------------------- -----------------------
335,474 282,412
Operating expenses:
Direct costs-
Broadcasting . . . . . . . . . . . . . . . . . . . . . . 87,561 82,339
Television production and distribution . . . . . . . . . 104,661 83,752
Selling, general and administrative-
Broadcasting . . . . . . . . . . . . . . . . . . . . . . 43,496 36,803
Television production and distribution . . . . . . . . . 21,286 18,347
Depreciation and amortization of intangible assets . . . . . . . 38,207 31,298
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . 10,349 8,888
--------------------- -----------------------
Income from operations . . . . . . . . . . . . . . . . . . 29,914 20,985
Other income (expense):
Interest and investment income . . . . . . . . . . . . . . . 2,479 4,285
Interest expense . . . . . . . . . . . . . . . . . . . . . . (64,793) (57,108)
Gain (loss) on sale of interest in NWCG . . . . . . . . . . 303 (26)
Gain on sale of WSBK-TV . . . . . . . . . . . . . . . . . . - 40,471
Preferred stock requirements of consolidated
subsidiary and other . . . . . . . . . . . . . . . . . . . (3,737) (995)
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Other income (expense), net . . . . . . . . . . . . . . (65,748) (13,373)
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Income (loss) before income taxes, minority interest and
equity in earnings . . . . . . . . . . . . . . . . . . . . . (35,834) 7,612
Benefit (provision) for income taxes . . . . . . . . . . . . . . 1,159 (35,838)
Equity in earnings of affiliates . . . . . . . . . . . . . . . . 1,397 (303)
Minority interest in consolidated subsidiary . . . . . . . . . . 8,983 7,554
--------------------- ------------------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $ (24,295) $ (20,975)
==================== ========================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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NWCG HOLDINGS CORPORATION
CONSOLIDATED STATEMENT OF
COMMON STOCKHOLDER S EQUITY (DEFICIT)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------------------ -------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 . . . . . $ $ 519,767 $ (562,599) $ (42,832)
Net loss . . . . . . . . . . . . . . . - - (24,295) (24,295)
Capital distribution . . . . . . . . . - (10) - (10)
------------------- --------------------- --------------------- -----------------------
Balance at June 30, 1996 . . . . . . . $ $ 519,757 $ (586,894) $ (67,137)
==================== ===================== ===================== =======================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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NWCG HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------------------------
1996 1995
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<S> <C> <C>
Cash flow from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (24,295) $ (20,975)
Adjustments to reconcile net loss to net cash used in
operating activities:
Minority interest in loss of consolidated subsidiary . . . (8,983) (7,554)
Loss (gain) on sale of interest in NWCG . . . . . . . . . (303) 30
Gain on sale of WSBK-TV . . . . . . . . . . . . . . . . . - (40,471)
Deferred tax provision (benefit) . . . . . . . . . . . . . (2,606) 26,840
Equity in earnings of affiliates . . . . . . . . . . . . . (1,397) 303
Depreciation and amortization of intangible and
other assets . . . . . . . . . . . . . . . . . . . . . . 38,207 31,298
Television program contract rights amortization
over(under) payments . . . . . . . . . . . . . . . . . . (913) 2,927
Film cost amortization over additions . . . . . . . . . . 1,743 11,381
Noncash interest expense, foreign exchange and
compensation . . . . . . . . . . . . . . . . . . . . . 20,412 18,098
(Increase) decrease in receivables and other assets . . 415 (27,305)
Decrease in liabilities . . . . . . . . . . . . . . . . . (22,645) (13,955)
----------------------- ---------------------
Total adjustments . . . . . . . . . . . . . . . . . . . 23,930 1,592
----------------------- ---------------------
Net cash used in operating activities . . . . . . . . . . . . (365) (19,383)
Cash flow from investing activities:
Broadcast station acquisitions, net of cash acquired . . . . . - (360,084)
Proceeds from sale of broadcast stations . . . . . . . . . . . - 207,500
Capital expenditures and equity investments . . . . . . . . . (14,055) (25,941)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201 33
----------------------- ---------------------
Net cash used in investing activities . . . . . . . . . . . . (13,854) (178,492)
Cash flow from financing activities:
Capital contributions (distributions) . . . . . . . . . . . . (10) 6,585
Subsidiary's issuance of preferred and common stock . . . . . 3,009 992
Issuance of debt, net of issuance and restructuring costs . . - 476,000
Repayment of debt . . . . . . . . . . . . . . . . . . . . . . (4,765) (398,104)
----------------------- ---------------------
Net cash provided by (used in) financing activities . . . . . (1,766) 85,473
----------------------- ---------------------
Net decrease in cash . . . . . . . . . . . . . . . . . . . . . . . (15,985) (112,402)
Cash balance, beginning of period . . . . . . . . . . . . . . . . . 75,361 155,699
----------------------- ----------------------
Cash balance, end of period . . . . . . . . . . . . . . . . . . . . $ 59,376 $ 43,297
======================= ======================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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NWCG HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------------
1996 1995
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<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for interest . . . . . . . . . . $ 46,432 $ 37,247
Supplemental schedule of noncash investing and financing ==================== ========================
activities:
Purchase of television program contract rights . . . . . $ 5,530 $ 2,084
Additions to film costs . . . . . . . . . . . . . . . . $ 62,145 $ 27,737
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
========================
</TABLE>
See accompanying notes to condensed financial statements.
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NWCG HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(unaudited)
1. DESCRIPTION OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
NWCG Holdings Corporation ("Holdings" or the "Company") was formed and
incorporated on June 2, 1994 by NWCG ("Parent") Holdings Corporation
("Parent"), which is a wholly-owned subsidiary of Andrews Group
Incorporated ("Andrews"). Andrews subsequently contributed
37,192,236 shares of New World Communications Group Incorporated ("NWCG")
Class B Common Stock, $.01 par value to the Company. In September 1994,
the Company distributed 2,682,236 of such shares to Parent in the form
of a dividend. As a result of the above, the Company assumed Andrews'
basis in NWCG. Assuming conversion of NWCG Series B Preferred Stock, the
Company controls approximately 39.1% of NWCG's equity and approximately
77.1% of NWCG's voting power.
INTERIM REPORTING
The accompanying unaudited condensed 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.
NWCG, Parent, 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") pursuant
to which (a) a subsidiary of News Corp. will merge with and into NWCG and
NWCG will become a subsidiary of News Corp. (the "Merger"), and each
outstanding share of common stock of NWCG (other than shares held by News
Corp.) will be converted into the right to receive 1.45 American
Depository Receipts ("ADRs") of News Corp., each representing four
Preferred Limited Voting Ordinary Shares of News Corp. (b) News Corp.
will purchase from Parent (i) all of the
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NWCG HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(unaudited)
shares of capital stock of NWCG owned by Parent and (ii) all of the
outstanding stock of Holdings for 1.45 ADRs per share of common stock of
NWCG owned in the aggregate by Parent and Holdings, reduced by the amount
of certain indebtedness of Holdings, (c) News Corp. will purchase from an
affiliate of Parent certain real estate consisting of an office building
that serves as NWCG's headquarters in Los Angeles, California, and (d) News
Corp. will assume all of the obligations of an affiliate of Parent under
certain promissory notes issued in connection with the acquisition of NW
Entertainment. In addition, Parent has agreed to vote, or cause to be
voted, all of the shares of capital stock of NWCG beneficially owned by it
or its subsidiaries in favor of the Merger and, if applicable, the other
transactions contemplated by the Agreement.
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 NWCG. There
can be no assurance that all of the conditions to the consummation of
the Merger will be satisfied or that, as a condition to the grant of
any approvals by government agencies, changes will not be required to the
terms of the Agreement. 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, NWCG sold its investment in WSBK-TV (the "Boston
Station") for gross proceeds of $107.5 million. NWCG 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.
ARGYLE STATIONS
NWCG 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.
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NWCG HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(unaudited)
CANNELL ENTERTAINMENT
In July 1995 NWCG 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.
PRO FORMA FINANCIAL INFORMATION
The following condensed pro forma financial information gives effect,
as of January 1, 1995, to the purchase of the four Argyle stations, the
sale of the Boston Station, borrowings necessary to fund the acquisition,
repayment of a portion of NW Television's debt, and the issuance of NWCG
preferred stock. 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 January 1, 1995 (in thousands).
Pro Forma Six
Months Ended
June 30, 1995
------------------
Net revenue $ 306,299
Net loss $ (21,957)
==================
PENDING DISPOSITION
In May 1996 NWCG 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 transaction is
subject to various closing conditions, including regulatory approval.
I-9
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
As of June 30, 1996, the Company owns approximately 39.1% of the equity
of NWCG and controls approximately 77.1% of its voting power, assuming the
conversion of NWCG's Series B Preferred Stock. NWCG 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 June 30, 1996 Compared to 1995. Net revenue increased
$6.1 million or 3.6% in 1996 over 1995. The increase in broadcasting
revenue of $5.2 million is 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 $.9 million or 1.6% primarily due to increases in network and cable
revenues.
Operating expenses, excluding depreciation, amortization and corporate
expenses, increased $1.8 million in 1996. Television broadcasting expense
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 $1.0 million due
primarily to amortization of production costs associated with increased
production activity.
Interest and investment income decreased $.7 million in 1996 primarily
due to lower cash and short-term investment balances.
Six months ended June 30, 1996 Compared to 1995. Net revenue increased
$53.1 million or 18.8% in 1996 over 1995. The increase in broadcasting revenue
of $30.6 million reflects an increase of $25.1 million for the four stations
acquired on March 31, 1995 from Argyle Television Holding, Inc. ("Argyle")
and an increase of $11.2 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 (Boston) in March of 1995. On a same station
basis for both periods, net revenue increased $6.7 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
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<PAGE> 14
increased $22.5 million or 21.4% primarily due to increases in network
and cable revenues, reflecting substantially increased production activity.
Operating expenses, excluding depreciation, amortization and corporate
expenses, increased $35.8 million in 1996. The television broadcasting
expense increase of $11.9 million includes $20.2 million from the Argyle
stations, offset by a decrease of $2.1 million for the Eight Stations and by
a decrease of $6.2 million reflecting the sale of WSBK-TV (Boston) in March of
1995. On a same station basis for both periods, operating expenses increased
$1.6 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 $23.8 million due
primarily to amortization of production costs associated with increased
production activity.
Depreciation and amortization of intangible assets increased $6.9
million in 1996 due primarily to the acquisition of the Argyle stations.
Corporate expenses increased $1.5 million in 1996 principally due to increased
personnel and salaries.
Interest expense increased $7.7 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. Interest and investment income decreased $1.8 million in 1996
primarily due to lower cash and short-term investment balances.
The income tax expense in 1995 resulted primarily from the recognition
of income taxes on the sale of the Boston Station. The liability associated
with these taxes was offset by utilization of pre-Plan Effective Date net
operating losses. The utilization was reflected as a reduction of excess
reorganization value.
LIQUIDITY AND CAPITAL RESOURCES
Holdings' Discount Notes
Holdings is a holding company with no business operations or source of
income of its own other than its interest in NWCG. NWCG's ability to repay the
Discount Notes at maturity will be dependent on the value of the Security
Shares, and dividends and distributions, if any, related to the Security
Shares. NWCG or other affiliated entities are not required to declare
dividends or make distributions to Holdings. Holdings currently anticipates
that in order to make required payments under the Discount Notes, Holdings
will be required to adopt one or more alternatives, such as borrowing funds,
selling equity securities or seeking capital contributions or loans from
Andrews or other affiliates. None of Holdings' affiliates will be required to
make any such capital contributions or loans, and there can be no assurance
that any of the foregoing alternatives could be effected on satisfactory terms
or would be permitted by the terms of the Discount Notes, other agreements or
any future financing arrangements entered into by NWCG
I-11
<PAGE> 15
or its subsidiaries or Holdings' affiliates. The following discussion
relates to NWCG and its liquidity and capital resources.
NWCG
At June 30, 1996, NWCG has total outstanding debt of $987.0
million. NWCG has limited additional borrowing capacity under its borrowing
facilities. Significant expansion of NWCG's broadcasting or production
segments will require additional funding not currently available to NWCG.
NWCG plans to reduce certain of its debt with the proceeds from the
pending sales of the San Diego and Birmingham stations 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 NWCG as
permitted by its various debt instruments. A portion of the gross proceeds
from the sale of the Birmingham Station of $200 million, subject to certain
adjustments, will be used to reduce the Acquisition Credit Agreement balance.
NWCG 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, NWCG'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 NWCG
to continue to satisfy NWCG'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
NWCG's debt agreements, which will result in an event of default thereunder
or give the holders of such debt the right to require NWCG to repurchase
such indebtedness. No effect of a change in control is reflected in the
accompanying unaudited condensed consolidated financial statements.
NWCG'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-12
<PAGE> 16
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 NWCG other than the
defendants against NWCG, 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. NWCG believes that the consolidated
actions are entirely without merit and intends to contest them vigorously.
The registrant and its subsidiaries are defendants in a number of
other lawsuits which have arisen in the ordinary course of business. The
registrant is insured for a substantial portion of any potential losses and
believes the ultimate resolution of these matters will not have a material
adverse affect on the registrant.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
(a) Not applicable.
(b) Not applicable.
II-1
<PAGE> 17
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
10.1 Third Amendment, dated as of June 29, 1996, to the Credit
Agreement, dated as of September 29, 1994, by and among NW
Acquisition, the financial institutions from time to time
parties thereto, the Co-Agents named therein, the Managing
Agents named therein, The Chase Manhattan Bank (as successor
by merger to the Chase Manhattan Bank, N.A.), as Documentation
Agent, and the Chase Manhattan Bank (formerly named
Chemical Bank), as Administrative Agent (incorporated by
reference to Exhibit 10.1 of the New World Communications
Group Incorporated Form 10-Q for the quarter ended June 30,
1996).
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).
II-2
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
NWCG HOLDINGS CORPORATION
(Registrant)
By: /s/ Joseph P. Page
--------------------------
Joseph P. Page
Vice President and
Chief Financial Officer
Dated: August 12, 1996
II-3
<PAGE> 19
EXHIBIT INDEX
Exhibit No. Description
10.1 Third Amendment, dated as of June 29, 1996, to the
Credit Agreement, dated as of September 29, 1994, by and
among NW Acquisition, the financial institutions from
time to time parties thereto, the Co-Agents named
therein, the ManagingAgents named therein, The Chase
Manhattan Bank (as successor by merger to the Chase
Manhattan Bank, N.A.), as Documentation Agent, and the
Chase Manhattan Bank (formerly named Chemical Bank), as
Administrative Agent (incorporated by reference to
Exhibit 10.1 of the New World Communications Group
Incorporated Form 10-Q for the quarter ended June 30,
1996).
27 Financial Data Schedule (for SEC use only).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE
30, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 59,376
<SECURITIES> 0
<RECEIVABLES> 180,187
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 341,595
<PP&E> 212,808
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,167,877
<CURRENT-LIABILITIES> 201,001
<BONDS> 1,232,612
335,698
0
<COMMON> 0
<OTHER-SE> (67,137)
<TOTAL-LIABILITY-AND-EQUITY> 2,167,877
<SALES> 0
<TOTAL-REVENUES> 335,474
<CGS> 0
<TOTAL-COSTS> 192,222
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,793
<INCOME-PRETAX> (35,834)
<INCOME-TAX> 1,159
<INCOME-CONTINUING> (24,295)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,295)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
