SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURI-
TIES EXCHANGE ACT OF 1934
For transition period from to
Commission file number: 1-9244
KING WORLD PRODUCTIONS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-2565808
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12400 Wilshire Boulevard
Suite 1200
Los Angeles, California 90025
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 310-826-1108
------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -----------------------
Common Stock, New York Stock Exchange
$.01 par value
Securities registered pursuant to Section 12(g) of the Act:
None
----------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value of the Common Stock of the registrant held
by non-affiliates as of November 10, 1998 was approximately $ 1.7 billion.
As of November 10, 1998, there were 71,553,731 outstanding shares of
the registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement for its 1999 annual
meeting of stockholders (which is to be filed pursuant to Regulation 14A not
later than December 29, 1998) is incorporated by reference into Part III of this
Form 10-K.
PART I
Item 1. BUSINESS
General
King World was founded in 1964 by the late Charles and Lucille King to
distribute or syndicate feature length films and television programs to
television stations. King World currently distributes programming to
approximately 400 television stations in over 200 of the 211 designated
television markets in the United States (as defined by A.C. Nielsen Co.
("Nielsen")) and in Canada and a number of other foreign countries directly and
through sales agents and subdistributors. Three of Mr. and Mrs. King's children,
namely Roger King, King World's Chairman of the Board, Michael King, King
World's Vice Chairman and Chief Executive Officer, and Diana King, a Vice
President and the Secretary of King World, are directors of the Company and are
actively involved in its management. In addition, one other child of King
World's founders, Richard King, serves as a director of the Company and another,
Robert King, is Senior Vice President for Strategic Planning/Acquisitions.
King World Productions, Inc., a Delaware corporation, was incorporated
in October 1984 and is the successor to a corporation incorporated in 1964
under the laws of the State of New Jersey. King World's corporate headquarters
are located at 12400 Wilshire Boulevard, Suite 1200, Los Angeles, California
90025. Except as otherwise indicated or as implied by the context, references to
"King World" or the "Company" include King World Productions, Inc., its
consolidated subsidiaries and its predecessor corporation.
The Company operates in only one business segment: production and
distribution of television programming in the United States, Canada and a number
of other foreign countries, and related operations.
This Report 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.
Programming and Related Operations
FIRST-RUN TELEVISION SYNDICATION
In general terms, television syndication is a process by which
a company, such as King World, sells programming on a market-by-market basis to
television stations (whether network affiliates or independents); "first-run"
refers to programming that airs initially in syndication (in contrast to "off
network" programming, which airs initially on a network); and "strip" refers to
programming that airs Monday through Friday at the same time of day. King
World's revenues currently are derived primarily from the first-run strip
syndication of the television series THE OPRAH WINFREY SHOW, WHEEL OF FORTUNE,
JEOPARDY! and INSIDE EDITION. These series are four of the top ten first-run
series in national syndication, as reported in the July 1998 Nielsen Designated
Market Area Ranking Report. WHEEL OF FORTUNE and JEOPARDY! had the two highest
ratings among all syndicated television shows and THE OPRAH WINFREY SHOW had the
highest ratings among all national television talk shows (based on original
telecasts). According to Nielsen, WHEEL OF FORTUNE has had the highest ratings
among shows in national syndication for the last 59 consecutive sweeps periods,
JEOPARDY! has had the second highest ratings among such shows for each of the
last 52 consecutive sweeps periods and THE OPRAH WINFREY SHOW has had the third
highest ratings among such shows for 40 of the last 47 sweeps periods. Based
primarily on the success of THE OPRAH WINFREY SHOW, WHEEL OF FORTUNE and
JEOPARDY!, King World's revenues have grown from $80.6 million in fiscal 1985 to
$683.9 million in fiscal 1998 and its net income has increased from $9.8 million
in fiscal 1985 to $136.0 million in fiscal 1998. Revenues derived from THE OPRAH
WINFREY SHOW, WHEEL OF FORTUNE, JEOPARDY! and INSIDE EDITION (including revenues
derived from the sale of retained advertising time) accounted for approximately
88% of King World's revenues for the fiscal year ended August 31, 1998. The
Company distributes two other first-run syndicated shows, HOLLYWOOD SQUARES and
THE ROSEANNE SHOW, both of which premiered in September 1998.
The United States market for television programming is
currently comprised principally of four components: (i) the major broadcast
television networks (ABC, CBS, NBC, FOX and two emerging networks, UPN and WB)
in conjunction with their respective affiliated stations; (ii) independent
broadcast television stations (that is, stations that are not affiliated with
such networks); (iii) basic cable services (such as USA Network, The Discovery
Channel, MTV and Nickelodeon); and (iv) pay cable services (such as HBO and
Showtime). Although this market is still dominated by the broadcast networks,
each of which has affiliations with television stations that enable such
networks to reach virtually all of the significant television markets in the
United States, cable television networks (the most successful of which reach
more than 70% of all U.S. television households) have generally been achieving
increasing ratings in recent years. Recently developed digital compression
technology, combined with fiber optics or small-sized satellite dishes may in
coming years permit cable companies or direct broadcast satellite systems (which
2
carry, among other programming, many cable television networks) to expand the
domestic television market to hundreds of channels.
During hours commonly referred to as "prime-time" (currently, with
limited exceptions, 8 p.m. to 11 p.m. in the Eastern and Pacific time zones and
7 p.m. to 10 p.m. in the Central and Mountain time zones), stations owned and
operated by the four major broadcast networks, and stations affiliated with
those networks, broadcast schedules consisting primarily of programming produced
for initial exhibition by the networks. (The WB and the UPN each currently
supplies its respective affiliates with prime-time programming five evenings per
week and with several hours per week of non-prime-time programming.) In
non-prime time, such stations broadcast network programming, off-network
programming (reruns), programming produced by the local stations themselves or
by independent producers and first-run syndicated programming (programming
produced for initial distribution on a syndicated basis). Independent television
stations, during both prime and non-prime time, broadcast their own programming,
off-network programming and first-run syndicated programming; some of such
stations are affiliated with the WB or the UPN. Some cable operators, in
addition to other services that they offer, telecast syndicated programming.
At present, King World distributes television programming primarily to
network-owned-and-operated stations and network-affiliated stations. First-run
syndicated programming distributed by the Company competes for available time
periods primarily with other first-run syndicated programming, network reruns
and programming produced by local television stations.
Nielsen divides the United States into 211 designated market areas and
approximately 30 additional special market areas that, on the basis of size and
the other Nielsen criteria, do not qualify as designated market areas. The 241
Nielsen designated and special market areas are referred to below as the
"Nielsen market areas".
In the 1983-1984 broadcast season, King World introduced a syndicated
version of WHEEL OF FORTUNE, which had premiered on daytime network television
in 1975. For the 1997-1998 broadcast season, WHEEL OF FORTUNE was licensed to
television stations in 207 Nielsen market areas in the United States, covering
over 99% of total domestic television households, and for the current broadcast
season has been licensed to television stations in 204 Nielsen market areas,
also covering over 99% of total domestic television households.
For the 1984-1985 broadcast season, the Company introduced JEOPARDY!,
a remake of the successful game show originally broadcast on network television
between 1964 and 1975. For the 1997-1998 broadcast season, JEOPARDY! was
licensed to television stations in 200 Nielsen market areas in the United
States, covering approximately 99% of total domestic television households, and
for the current broadcast season has been licensed to television stations in
198 Nielsen market areas, also covering approximately 99% of total domestic
television households.
For the 1986-1987 broadcast season, King World introduced into
national television syndication THE OPRAH WINFREY SHOW, a talk show hosted by
Oprah Winfrey which originally was produced by WLS-TV, an ABC owned-and-operated
station. Commencing in October 1988, Harpo, Inc. ("Harpo"), an entity controlled
by Ms. Winfrey, assumed production of the series. For the 1997-1998 broadcast
season, THE OPRAH WINFREY SHOW was licensed to television stations in 208
Nielsen market areas in the United States, covering more than 99% of total
domestic television households, and for the current broadcast season has been
licensed to television stations in 206 Nielsen market areas, also covering more
than 99% of total domestic television households.
INSIDE EDITION, a half-hour first-run syndicated newsmagazine series
hosted by Deborah Norville that is produced and distributed by King World,
premiered in January 1989. It was the first television series produced by King
World. INSIDE EDITION is produced at the Company's production facility in New
York and has a correspondent bureau in Los Angeles to enhance the ability of the
program to provide nationwide coverage. For the 1997-1998 broadcast season,
INSIDE EDITION was licensed to television stations in 148 Nielsen market areas,
covering approximately 90% of total domestic television households, and for the
current broadcast season, the series has been licensed to television stations in
130 Nielsen market areas, covering approximately 85% of total domestic
television households.
3
HOLLYWOOD SQUARES, a new half-hour strip version of the popular game
show featuring Whoopi Goldberg as the "Center Square," premiered in September
1998. For the current broadcast season, HOLLYWOOD SQUARES has been licensed to
television stations in 159 Nielsen market areas, covering approximately 90% of
total domestic television households.
THE ROSEANNE SHOW, an hour-long strip talk show hosted by Roseanne,
premiered in September 1998. For the current broadcast season, THE ROSEANNE SHOW
has been licensed to television stations in 158 Nielsen market areas, covering
approximately 92% of total domestic television households.
AMERICAN JOURNAL, a half-hour first-run syndicated newsmagazine series
that was produced by King World, premiered in September 1993. For the 1997-1998
broadcast season, AMERICAN JOURNAL was licensed to television stations in 104
Nielsen market areas, covering approximately 82% of total domestic television
households. The distribution of AMERICAN JOURNAL ceased at the end of that
season.
Each of THE OPRAH WINFREY SHOW, WHEEL OF FORTUNE, JEOPARDY!, INSIDE
EDITION, HOLLYWOOD SQUARES and THE ROSEANNE SHOW has been licensed to television
stations for exhibition in the current and in future broadcast seasons. The
licenses for future seasons commence with the 1999-2000 broadcast season and
extend, in certain cases, as far into the future as the 2004-2005 broadcast
season. Revenues and related expenses under such license agreements will not be
recognized until the license periods thereunder have begun and certain other
conditions are satisfied. As of November 10, 1998, the gross amount of license
fees under such agreements approximated $2.0 billion, of which approximately
$1.3 billion is payable to producers and others and is to be recognized as an
expense. The recognition of such amounts in the consolidated financial
statements of the Company in fiscal years subsequent to August 31, 1998 is
subject to several conditions, including the Company's continued distribution of
such programming. Such amounts do not include sales of advertising time
retained during the broadcast of such programming or foreign license fees.
There can be no assurance that any of these programs will be licensed
for additional years through renewal of existing licenses or issuance of new
licenses or, if so licensed, that the terms of the license agreements will be as
favorable to King World as those of the existing licenses. There can be no
assurance that the key personalities on such programs, such as Oprah Winfrey,
Pat Sajak, Vanna White, Alex Trebek, Whoopi Goldberg and Roseanne will continue
to participate in the production of their respective programs. If for any reason
they do not do so, there could be a material adverse effect on the Company's
business.
ACQUISITION AND DEVELOPMENT OF PROPERTIES FOR DISTRIBUTION
King World's business is dependent on obtaining or creating new
television programs and series for distribution. King World may acquire
properties for domestic, foreign or worldwide television distribution by
entering into distribution agreements with independent producers, by producing
its own programs, by co-producing programs in association with others, or by
purchasing distribution rights.
The terms under which the Company obtains the right to distribute
programming from independent producers vary in each instance. The Company
distributes THE OPRAH WINFREY SHOW pursuant to an agreement with Harpo, the
producer of the series. Under the terms of the agreement currently in effect,
the Company has been granted the exclusive right, and has agreed, to distribute
episodes of THE OPRAH WINFREY SHOW produced through the 2001- 2002 broadcast
season. In October 1995, Harpo and Ms. Winfrey committed to produce and host the
series through the 1997-1998 season; in September 1997, Harpo and Ms. Winfrey
committed to continue to produce and host the series through the 1999-2000
broadcast season; and in September 1998, Harpo and Ms. Winfrey committed to
continue to produce and host the series through the 2001-2002 broadcast season.
Under the terms of its agreement with Harpo, following the 1996- 1997
broadcast season, the profit sharing arrangements between Harpo and the Company
previously in effect were terminated and, in the 1997-1998 broadcast season and
thereafter, the Company instead receives distribution fees based on a percentage
of gross revenues derived from the series. These arrangements are less favorable
4
to the Company than those contained in prior agreements between the Company and
Harpo. As a result of these changes, the Company's net profits and cash flow
have declined. Also, the distribution fees payable to the Company for the
2000-2001 and 2001-2002 broadcast seasons are significantly lower than those
applicable to seasons through the 1999-2000 broadcast season, and, as a result,
the contribution of THE OPRAH WINFREY SHOW to the Company's net profits and cash
flow will further decline.
After the 2001-2002 broadcast season, Harpo will not be obligated to
distribute the series through the Company, if it elects to produce the series at
all, and Ms. Winfrey will no longer be subject to any contractual restrictions
with the Company on her ability to appear in television shows with the same or
similar format as THE OPRAH WINFREY SHOW. See Item 7, "Management's Discussion
and Analysis of Results of Operations and Financial Condition -- Liquidity and
Capital Resources".
The Company's agreements with Columbia TriStar Television, the
producer of WHEEL OF FORTUNE and JEOPARDY!, provide that King World will be the
exclusive distributor for each such series so long as the Company has obtained
sufficient broadcast commitments to cover the production and distribution costs
of that series and that the Company may not, unless otherwise agreed by Columbia
TriStar Television, distribute other game shows for first-run strip syndication
so long as the Company is distributing WHEEL OF FORTUNE or JEOPARDY!.
The Company has an agreement with Columbia TriStar Television to
co-produce a new strip version of HOLLYWOOD SQUARES for distribution by the
Company in first-run syndication. This series premiered in September 1998. As of
November 10, 1998, the series had been licensed for the 1998-1999, 1999-2000 and
2000-2001 broadcast seasons to televisions stations covering approximately 80%
of the total domestic television viewing households.
The Company also has an agreement with Full Moon & High Tide
Productions, Inc., a company controlled by Roseanne, to co-produce THE ROSEANNE
SHOW, an hour-long, strip talk show hosted by Roseanne and distributed by the
Company in first-run syndication. The series premiered in September 1998. Under
the terms of the agreement, the Company has the exclusive right to distribute
the show through the 2003-2004 broadcast season. As of November 10, 1998, the
series had been licensed for the 1998-1999 and 1999-2000 broadcast seasons to
televisions stations covering approximately 86% of total domestic television
viewing households.
In acquiring new programming, King World has attempted, based on
research concerning television programs currently being broadcast, to identify
programs and series that King World believes will have broad-based audience
appeal and satisfy the programming needs of television stations for particular
time periods. Historically, the Company had relied on independent producers for
new programming. In recent years, however, in order to satisfy what King World
believes to be audience demands and station programming needs, the Company has,
5
for the most part, been developing and producing original programming on its own
or in cooperation with others.
For several years, the Company has been, and is now, in the process of
developing new television shows for syndication that it hopes will gain
widespread audience appeal and generate significant revenues and income for the
Company. The Company has entered into an agreement with Dolshor Productions,
Inc., a company controlled by Martin Short, to co-produce THE MARTIN SHORT SHOW,
a talk/variety show to be hosted by Martin Short and distributed by the Company
in first-run syndication. The series is scheduled to premiere in the Fall of
1999. Under the terms of that agreement, the Company will have the exclusive
right to distribute the show through the 2004-2005 broadcast season.
The introduction of new television programs requires substantial
capital investment to fund programming development costs, the production of
pilot programs and the production, distribution and promotion of the initial
episodes of programming for syndication. The Company has funded and intends to
continue to fund such capital investments out of its internal cash resources.
LICENSE AND DISTRIBUTION FEES
For certain first-run syndicated programs produced by independent
companies for distribution by King World, the Company earns distribution fees
that are based on a percentage of the license fees paid by television stations
for the right to broadcast the program and the amounts paid by national
advertisers for advertising time retained by the Company and sold in connection
with such program. The Company also recoups some or all of the distribution
expenses that it incurs in connection with the distribution of these series,
which consist principally of advertising, promotion, satellite and tape costs
and related expenses. Amounts remaining in excess of King World's distribution
fees and recouped expenses are remitted to the producers of such series.
In other cases, the Company's fees for distributing first-run
syndicated programming produced by independent companies are based upon a
negotiated percentage of the profits derived from the exploitation of the
programming after recoupment of the production, advertising, promotion and other
distribution fees and expenses of the programming. In such cases, the Company
generally finances all or a substantial portion of the production costs and may
commit itself to advancing the producer and/or talent fixed minimum amounts as
advances against their participation fees, irrespective of the amount of license
fees and other revenues that may actually be generated by the programming. In
acquiring distribution rights for new programming from independent producers,
King World has generally tried to limit its risk by not making major commitments
to independent producers until it has obtained commitments from a substantial
number of television station licensees.
6
In recent years, the new shows introduced by the Company in first-run
syndication have been developed and produced by the Company itself. In such
cases, the Company hires a production team, leases production facilities,
engages talent, assumes all of the costs and expenses of developing, producing,
advertising, promoting and distributing the programming and, after any required
payments to the production team and talent, retains the net profits derived from
the exploitation of the programming.
License fees payable by stations for the rights to broadcast
television programs are payable in the form of cash, retained advertising time
or both. A television station that enters into a license agreement for a
particular program becomes obligated to pay the contracted license fee (which
will often depend on the time period in which the program is aired by that
station) and provide advertising time, if applicable, upon the delivery by the
Company of the program in question. By licensing a program to television
stations throughout the United States, the Company creates, in effect, an "ad
hoc" network of stations that have agreed to carry the program. The creation of
this ad hoc network, typically representing a penetration of at least 70% of
total U.S. television households, enables the Company to sell the resulting
commercial inventory to sponsors desiring national coverage. (See "Sale of
Advertising Time".)
In the 1998 fiscal year, approximately 14% of the Company's revenues
were derived from license fees under contracts with television stations owned by
ABC, Inc. No other television station, broadcast group or advertiser accounted
for ten percent or more of the Company's revenues in such fiscal year.
MARKETING
Sales to domestic television stations are made by the Company through
a sales force that numbered 11 persons as of November 10, 1998. The Company's
marketing strategy concentrates on a select number of programs that the Company
considers to have good prospects for high audience ratings and expects will meet
television stations' programming needs for specific time periods.
Although the Company has been dependent upon the active participation
of members of the King family since its formation in 1964, the Company believes
that it has significantly lessened its reliance on certain key executive
officers by adding experienced executive, programming and marketing personnel.
Nevertheless, the loss of key personnel might have an adverse effect on the
Company's operations.
SALE OF ADVERTISING TIME
King World Media Sales Inc. ("KWM"), a wholly-owned subsidiary of King
World, sells advertising time within television programs. As of November 10,
1998, KWM (formerly known as Camelot Entertainment Sales, Inc.) employed 8
salespersons.
7
The value of advertising on any particular program varies
significantly depending on the audience ratings and demographics for such
program and conditions in the market for television advertising time in general.
In order for advertising time on a particular syndicated television program to
be valuable to national advertisers, the program must, as a general rule, be
broadcast in television markets covering at least 70% of the total domestic
television households. For the 1998-1999 broadcast season, THE OPRAH WINFREY
SHOW has been licensed to stations covering more than 99% of the total domestic
television households; WHEEL OF FORTUNE and JEOPARDY! have each been licensed to
stations covering approximately 99% of the total domestic television households;
INSIDE EDITION has been licensed to stations covering approximately 85% of the
total domestic television households; HOLLYWOOD SQUARES has been licensed to
stations covering approximately 90% of the total domestic television households;
and THE ROSEANNE SHOW has been licensed to stations covering approximately 92%
of the total domestic television households.
Fees for advertising time are established on the basis of household
audience ratings or, more frequently, on the basis of the delivery of a certain
demographic category of the viewing audience. The desired household rating or
demographic delivery, as the case may be, is negotiated in advance with the
advertiser or its agency. If the television program does not deliver at least
the agreed-upon audience coverage, KWM is obligated either to make available, at
no additional cost, additional advertising time within the same program or other
programs that are expected to deliver at least the agreed-upon audience
coverage, or to refund that portion of the advertising fee attributable to the
under delivery.
Generally, a portion of the Company's contracts for the sale of its
advertising time may be canceled by the advertiser upon 90 days' notice. Each
television station is obligated to broadcast advertising time retained by King
World even if the program or episode on which the time was retained is preempted
by the station.
Historically, KWM has sold advertising time primarily on television
programs distributed by King World. However, a portion of KWM's revenues has in
recent years been attributable to commissions earned on sales of advertising
time on television programs distributed by companies other than King World. KWM
has agreements currently in effect with, among others, Western International
Syndication, Don Cornelius Productions, Inc. and Allied Communications
Incorporated to sell advertising time in IT'S SHOWTIME AT THE APOLLO and SOUL
TRAIN, variety programs, and the "Film Leader" package of films, respectively.
FOREIGN SALES
The number of outlets for television programming outside the United
States has been increasing with the worldwide proliferation of broadcast, cable
and satellite delivery systems. In recent years, many European governments have
8
privatized television systems. The Company believes that privatized systems are
more likely to broadcast U.S. programming than government-owned networks. In
addition, both the number of pay and satellite television systems in Europe and
the number of subscribers to these systems have increased. Pay television and
satellite distribution systems are also developing in other geographic areas,
including many Asian and South American markets. In some international markets,
suppliers of programming may, however, be subject to local content and quota
requirements that prohibit or limit the amount of U.S. programming that may be
acquired.
The Company licenses episodes of WHEEL OF FORTUNE, JEOPARDY!, THE
OPRAH WINFREY SHOW, INSIDE EDITION, HOLLYWOOD SQUARES and THE ROSEANNE SHOW in
Canada and in certain other English-speaking foreign territories (or to
English-speaking channels in non-English-speaking territories). The Company also
licenses the production of local versions of WHEEL OF FORTUNE and JEOPARDY! in a
number of other major foreign territories. Under licenses from King World,
Unilever, N.V. licenses the production of local versions of WHEEL OF FORTUNE and
JEOPARDY! for broadcast in a number of Western European markets. In addition,
the Company has recently become more active in acquiring rights for the
distribution of television programming solely outside the United States.
Revenues from foreign sales (including Canada) accounted for
approximately 6% of King World's revenues in fiscal 1998.
DIRECT RESPONSE MARKETING
The Company operates King World Direct Inc., a direct response
marketing subsidiary. King World Direct handles key aspects of direct response
marketing campaigns, including production, order fulfillment and media
placement.
King World Direct has developed direct response telemarketing
campaigns for, among others, the WILD AMERICA video series and the Sears
Craftsman line of hardware. Revenue from direct response marketing activities
accounted for approximately 1% of the Company's revenues in fiscal 1998.
MERCHANDISING AND FILM LIBRARY
The Company has granted licenses to others to produce WHEEL OF FORTUNE
and JEOPARDY! non-electronic boxed board games and to exploit certain of its
merchandising rights in THE LITTLE RASCALS and HOLLYWOOD SQUARES. King World
also distributes its own library of over 60 feature length films and over 200
television programs, including feature length films from Sherlock Holmes, The
East Side Kids, Mr. Moto and Charlie Chan series and episodes from THE LITTLE
RASCALS, TOPPER, BRANDED and THE GUNS OF WILL SONNETT television series. In
acquiring feature length films and television programs for its own library, the
Company has attempted to emphasize classic programming -- films and television
series with broad and enduring audience appeal. King World holds long-term
9
television and related distribution rights to the properties in its library. The
Company is not generally required to make any material royalty or similar
payments with respect to the properties in its library. Revenues from
merchandising and the film library accounted for less than 1% of the Company's
revenues in fiscal 1998.
COMPETITION
The production and distribution of television programming and the sale
of associated advertising time is a highly competitive business. King World
competes with many companies that have resources substantially greater than
those of King World.
The most important competitive factors in television program
distribution are marketing, quality and variety of programming and research and
promotional services. King World's success is highly dependent upon those
factors as well as the continuing availability of writers, performers and other
creative talent and the viewing preferences of television audiences. King World
has attempted to concentrate on the distribution of programs that it believes
will have broad or enduring audience appeal in order to reduce its exposure to
changes in viewer preferences. King World has also developed an experienced
television syndication sales organization as well as strong programming
acquisition, research and advertising and promotion departments. See "Marketing"
above.
REGULATION OF THE TELEVISION INDUSTRY
Legislation and Other FCC Rules and Proposals Affecting the
Television Industry Generally
The Telecommunications Act of 1996 (the "1996 Act"), signed in
February 1996, among other things, requires the Federal Communications
Commission (the "FCC") to relax its regulation (the "Multiple Ownership Rules")
limiting the aggregate number of television stations that may be under common
ownership. Prior to passage of the 1996 Act, the Multiple Ownership Rules
permitted common ownership of, in most circumstances, up to twelve television
stations, subject (in the case of station groups) to certain limitations based
upon audience reach. As required by the 1996 Act, the FCC (in March 1996)
eliminated the numerical limitation on common ownership and relaxed the audience
reach limitation to 35% of domestic television households.
The 1996 Act also requires the FCC to re-examine provisions of the
Multiple Ownership Rules that prohibit the common ownership of stations serving
the same market. In proceedings now pending before it, the FCC is considering
relaxing the existing restrictions on common ownership of television stations
serving the same market and permitting, subject to certain restrictions, joint
venture (including joint programming) arrangements between independently owned
stations in circumstances where common ownership would otherwise be prohibited.
10
The 1996 Act further requires the FCC to review its broadcast ownership rules
every two years to "determine whether any of such rules are necessary in the
public interest as a result of competition" and to repeal or modify any rules
that are deemed no longer to serve the public interest. Pursuant to this
requirement, in March 1998, the FCC began a formal inquiry to review those rules
relating to broadcast ownership that were not either modified by the 1996 Act or
already under consideration in pending FCC proceedings. Among other things, this
inquiry solicits comments on the rules that prohibit common ownership of a
broadcast television station and daily newspaper, or of a broadcast television
station and cable system, serving the same market. In addition, the FCC has
asked whether further relaxation of the national audience reach cap is warranted
and whether competition warrants relaxation of the dual network rule, which, as
revised by the 1996 Act, forbids common ownership of multiple broadcast networks
by the four major broadcast networks (ABC, CBS, NBC and Fox) or by any of these
four networks in combination with one of the two "emerging" broadcast networks
(the WB and UPN). The FCC has stated that if, in its review, it determines that
any of its broadcast ownership rules were no longer in the public interest, it
would subsequently commence appropriate rulemaking proceedings to modify or
repeal the rule or rules in question. During the pendency of these various
proceedings, the FCC has granted waivers of the existing restrictions on common
ownership of television stations serving the same market but it has not
otherwise waived or granted exceptions to any other broadcast ownership
restrictions.
King World is unable to predict the outcome of these proceedings. King
World believes that increases in the concentration of television station
ownership by broadcast groups will tend to increase the relative power of the
broadcast groups in the market for television programming and, consequently,
could adversely affect King World's bargaining position vis-a-vis its principal
customers.
The 1996 Act requires that all television sets manufactured or
imported into the United States be equipped with a device (the "V-chip") that
will enable viewers to block display of certain programs based upon content. The
1996 Act afforded the program production and distribution industries a period of
twelve months (until February 1997) within which to establish voluntary rules
for identifying and rating video programming that contains sexual, violent or
other indecent material and to agree to voluntarily transmit such ratings in a
format capable of being read by the V-chip technology. If a voluntary code was
not established (or if such a code was not acceptable to the FCC) within that
time frame, then the FCC was to be required, in consultation with an advisory
committee, to establish and enforce a rating code. The Company has participated
actively in industry efforts to establish the voluntary code. In January 1997,
the industry submitted to the FCC its proposal for a voluntary rating system,
and, in August 1997, the industry submitted a revised proposal that added to the
rating categories originally proposed. The revised proposal changed the
descriptions used to identify certain age group categories and, in some
situations, added symbols to indicate the nature of violence or sexual
situations depicted, or language used, in certain programs. In March 1998, the
FCC adopted an order finding the revised code acceptable; the FCC also
11
adopted technical rules requiring television receivers (and computers) with
picture screens 13" or greater to be equipped with the V-chip technology. That
technology is, under the FCC's rules, required to be compatible with the
approved code; however, manufacturers are encouraged, but not required, to
market technology that is compatible with other potential rating systems. Under
the rules, all television receivers manufactured after January 1, 2000 to which
the rule applies must meet the V-chip requirements. The programming industry
has established an oversight monitoring board to ensure that the rating
guidelines are applied accurately and consistently to television programming.
The Company does not believe that these requirements will have a material
adverse effect on its revenues or profits. However, to the extent that any
program series (or episodes of such series) produced or distributed by King
World are subjected to restrictive ratings, there may be an adverse effect on
the distribution and/or viewing of such series.
In June 1995, the FCC initiated two proceedings in which it is
considering repeal or relaxation of certain of its regulations restricting or
forbidding certain contractual arrangements between a broadcast network and its
affiliates. Among the matters under examination are: a rule that forbids a
network from entering into a contract with any affiliate that either enables the
network to reserve any time on the affiliate's station before the network has
committed to use the time, or requires the station to make time available for
network programming in substitution for programming already scheduled by the
affiliate ("Time Optioning Rule"); a rule that forbids a network from penalizing
affiliated stations for rejecting network programming and substituting
programming deemed by the station to be of greater local or national interest;
and a rule that forbids stations from affiliating with any network organization
that operates more than one network. Separately, the FCC is re-examining a rule
that prohibits a network from directly or indirectly controlling the advertising
rates charged by an affiliate in connection with the broadcast of non-network
programming ("Station Rates Rule") and a rule that forbids a network from acting
as a sales representative for affiliated stations for the sale of advertising
time in connection with non-network programming ("Station Rep Rule").
The Company is unable to predict the outcome of these proceedings.
Although the Company believes that certain of the conduct prohibited by the
FCC's rules, such as the Station Rates Rule, are proscribed or curtailed under
the anti-trust laws, the Company anticipates that repeal or substantial
relaxation of the Time Optioning Rule and the Station Rep Rule will tend to
increase the relative power of the networks in the market for television
programming and for the sale of advertising time and will consequently
adversely affect King World's bargaining position vis-a-vis sales of its
programming to network-affiliated stations, as well as the sale of King World's
barter time.
12
PRIME-TIME ACCESS RULE/FINANCIAL INTEREST AND SYNDICATION RULE
Until August 1996, a rule promulgated by the FCC in the 1970's and
known as the "prime-time access rule" prohibited (subject to certain significant
exceptions) television stations owned by or affiliated with the three major
broadcast networks (ABC, CBS and NBC) in the 50 largest television markets from
broadcasting more than a total of three hours per day of programming supplied by
or previously aired on a network during the prime-time period (defined under the
rule as 7-11 p.m. Eastern and Pacific time and 6-10 p.m. Central and Mountain
time). Due to the rule, network-owned and network-affiliated stations often
acquired either one hour or one-half hour of program material for exhibition
during the prime-time access period from independent television producers and
syndicators such as the Company.
In July 1995, following proceedings looking toward reconsideration or
modification of the prime-time access rule, the FCC issued a decision concluding
that the rule no longer served the public interest because the networks no
longer had market power sufficient to foreclose access by independent producers
and syndicators of first-run programming to the prime-time access period. In
order to permit an orderly transition, the FCC held that programming supplied by
or previously aired on a network may not be aired during the prime-time access
period for 12 months from the August 1995 effective date of its decision, but
during such period stations subject to the rule were permitted to enter into
contracts providing for the airing of such programming in the access period
after August 1996.
Pursuant to consent decrees entered into in the mid to late 1970's
between the three largest television networks (the ABC Television Network, the
CBS Television Network and the NBC Television Network) and the United States
Department of Justice (the "Consent Decrees"), such networks were, until
mid-November 1993 (when the Decrees were lifted), prohibited from domestically
syndicating television programs and from acquiring financial interests in such
programs or in network programming (other than the right to network exhibitions)
produced by independent production companies. In the mid 1970's, the FCC
implemented rules (the "Rules") that substantially paralleled the prohibitions
of the Consent Decrees. The Rules enhanced the Company's ability to license its
programs to stations owned and operated by the major television networks
(licensees that are, in most instances, very important to the success of a
series distributed through first-run syndication).
In May 1991, the FCC issued a decision (the "1991 Decision") to
modify, but not to repeal, the Rules. The modified Rules substantially relaxed
the restrictions upon the ability of a network to acquire financial interests
in, and to syndicate, television programs previously aired by that network (a
sector of programming in which King World has not to date had substantial
involvement). However, the 1991 Decision retained stringent limitations on
network involvement in first-run syndication activities, which remained in
place after the FCC further relaxed the Rules in 1993.
In August 1995, upon further review of the remaining Rules, the FCC
held that the Rules, including the restrictions on network entry into
13
first-run syndication activities, were no longer necessary. Under the resulting
FCC order, the Rules expired in August 1995.
As a result of the repeal of the prime-time access rule and the
elimination of the remaining restrictions of the financial interest and
syndication rules, the Company may have more difficulty licensing its
programming to stations owned and operated by the three major television
networks and anticipates that, even if the Company is able to so license its
programming, the profitability of such programming to the Company may, as a
result of terms imposed by such stations, be reduced.
OTHER REGULATORY AND LEGISLATIVE MATTERS
In October 1992, Congress enacted legislation imposing certain new
regulations on the cable television industry (the "1992 Cable Act"). The
legislation includes provisions that require each local television station (as
defined) to make an election between demanding carriage on any cable system
within its service area on a "must-carry" basis (for which the station receives
no compensation) or demanding that such cable system obtain the consent of the
station and pay compensation (and/or furnish other consideration) to the station
for the right to carry its signal. The election made by the station as to each
such cable system remains in effect for three years. In March 1997, the United
States Supreme Court, after protracted litigation and by a 5 to 4 vote, upheld
the constitutionality of the "must carry" rules, against a First Amendment
challenge initiated by cable interests. Under regulations promulgated by the
FCC, stations were required to make an election between "must carry" and
"retransmission consent" in October 1998, with the election to take effect as of
January 1, 1999. Since the advent of the "retransmission consent" provisions,
which became operative in October 1993, a small number of cable systems have
refused to or failed to reach carriage agreements with particular local
television stations and consequently ceased the carriage of such stations, thus
resulting in decreased audience for King World programming aired on those
stations. The Company has suffered no discernible adverse impact to date from
such provisions.
In April 1997, the FCC adopted comprehensive regulations relating to
the deployment of Advanced Television Technologies ("ATV"), as required by the
1996 Act. ATV technologies will, among other things, enable existing television
stations to broadcast more than one program at the same time; and the FCC has
concluded that stations will be permitted to use the additional channel capacity
resulting from ATV for entertainment programming purposes, including
subscription programming, so long as at least one of the additional channels is
used for free, over-the-air broadcasting. The rules adopted by the FCC provide
that stations owned by or affiliated with the four major broadcast networks
(ABC, CBS, Fox and NBC) in each of the top ten markets must complete
construction of ATV facilities by May 1, 1999, that stations in markets 11-30
affiliated with those four networks must complete construction of ATV facilities
by November 1, 1999 and that all other commercial television stations must
complete construction of ATV facilities by May 1, 2002. Under the FCC rules,
14
television stations will not be required to simultaneously broadcast programming
on both a conventional analog channel and any ATV channel until 2003;
thereafter, each station will be required to broadcast simultaneously on its
analog channel specified percentages of programming carried on its ATV channel
until the expected expiration of analog broadcasting, in 2006. Under the 1996
Act, the additional channels resulting from ATV technology will have "must
carry/retransmission consent" rights.
In July 1998, the FCC initiated a proceeding in which it is
considering the implementation of the must carry/retransmission consent options
in application to ATV technology. The FCC has proposed a series of implementing
options, ranging from a rule that would require cable operators to immediately
recognize the must carry/retransmission consent rights of broadcasters with
respect to the ATV channels when those channels come on the air to one under
which the question of must carry would be deferred until at least the expiration
of the ATV transition period (2006) (which latter rule would effectively require
broadcasters to rely exclusively upon their retransmission consent rights to
negotiate arrangements with cable operators with respect to the carriage of
their ATV channels during the transition period). As a part of this proceeding,
the FCC has, among other issues, raised a question of whether its "program
exclusivity rules" should be repealed. Under these rules, stations may, with the
consent of the copyright owner/distributor, require a cable system not to carry
(that it, to "blackout") a particular program or program series that is aired on
a distant television station carried by the cable system. King World has, as a
general rule, granted its station licensees the right to exercise these blackout
rights. The FCC has invited comment on whether these blackout rights might be
equally well protected through negotiations between stations and cable systems
under the retransmission consent procedures. King World has submitted comments
to the FCC contending that, under the 1992 Cable Act, any repeal of the program
exclusivity rules would not relieve broadcasters of their obligations, or expand
their rights, under existing or future program licensing agreements between them
and King World. King World is unable to predict the outcome of this proceeding.
Moreover, because the deployment of ATV technologies and the availability to
consumers of television receivers capable of delivering ATV channels to
consumers remain uncertain, the Company is unable to predict the outcome of
these developments or their impact on the Company, if any.
The 1996 Act repealed provisions of the Communications Act that
prohibited any telephone company from acquiring financial interests in video
programming and from distributing video programming in the same geographic area
in which such telephone company provides telephone service. Under the 1996 Act,
telephone companies are permitted, in most circumstances, to own and operate
cable television systems, in which event they are subject to all of the
requirements applicable to such systems including the "must
carry"/retransmission consent requirements of the 1992 Cable Act. Alternatively,
the 1996 Act permits telephone companies to directly enter the multi-channel
video distribution business on a quasi-common carrier basis ("Open Video
Systems"), pursuant to which the Open Video System operator leases channel
15
capacity to programmers on a non-discriminatory basis; each such operator is
required to reserve, in cases where demand exceeds channel capacity, up to
two-thirds of its channel capacity for programmers with which such operator is
not affiliated. The statute also requires that Open Video System operators
extend "must carry"/ retransmission consent rights to over-the-air television
stations in the market served. The FCC has adopted rules to implement these
requirements, but the Company cannot predict the extent of telephone company
entry into the program delivery market. However, to the extent that telephone
company entry into the production and distribution of video programming weakens
the position of over-the-air television stations in the video marketplace or
increases the cost to such stations of access to audience, this could result in
decreased audience for King World programming aired on those stations, or a
reduction in the profitability to King World of such programming.
The 1996 Act, among other requirements, directed the FCC to establish
rules requiring that new video programming be closed captioned for the hearing
impaired, and to establish timetables for implementing those captioning
obligations. The FCC adopted closed captioning rules in August 1997, which took
effect on January 1, 1998. The regulations require that all video programming
first aired after January 1, 1998, that is not exempt pursuant to the rules be
closed captioned. Legal responsibility generally falls on the "video programming
distributors," including television stations. Program producers and
distributors, however, are expected to cooperate in the process, and
distributors will be able to rely on certifications from their programming
sources indicating that the programming supplied is either captioned or exempt
under the FCC rules. All of the programming currently produced or distributed by
the Company, as well as all advertising programming produced by King World
Direct that is more than five minutes in length, will be subject to the
captioning requirements. However, the Company does not anticipate that
compliance with these new rules will have a material adverse effect on the
profitability of this programming to King World.
EMPLOYEES
As of November 10, 1998, the Company employed approximately 418
persons. Of this number, approximately 230 are involved in the production of
INSIDE EDITION, HOLLYWOOD SQUARES and THE ROSEANNE SHOW. Approximately 21 of the
Company's employees are covered by collective bargaining agreements.
Item 2. DESCRIPTION OF PROPERTIES
The Company's corporate headquarters are located in Los Angeles,
California, where the Company maintains executive offices, its advertising and
promotion department, programming development, direct response marketing and
licensing operations and its Western U.S. sales staff. The Company leases office
space in New York City for executive offices, the operations of KWM and the
Company's Eastern U.S. and foreign sales staff. The Company's accounting and
finance, contract administration and research departments are located in leased
offices in Short Hills, New Jersey. The Company also leases office space in
Chicago, Boca Raton and Dallas for regional sales offices.
The Company leases office and production facilities in New York and
Los Angeles for its internally produced programming.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings other than routine
litigation incidental to the conduct of its business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None.
16
PART II
Item 5. MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
King World's Common Stock is listed and traded on the New York Stock
Exchange under the symbol KWP. The following table sets forth, for the fiscal
periods indicated, the range of high and low closing sale prices for the Common
Stock as reported by the New York Stock Exchange.
HIGH LOW
Fiscal 1997
First Quarter Ended
November 30, 1996............ 19 3/8 17 3/8
Second Quarter Ended
February 28, 1997............ 20 18 1/16
Third Quarter Ended
May 31, 1997................. 19 3/16 17 5/8
Fourth Quarter Ended
August 31, 1997.............. 20 1/4 17 3/16
Fiscal 1998
First Quarter Ended
November 30, 1997............ 28 9/16 19 17/32
Second Quarter Ended
February 28, 1998............ 29 19/32 26 1/2
Third Quarter Ended
May 31, 1998................. 30 1/4 25 5/16
Fourth Quarter Ended
August 31, 1998.............. 30 1/16 21
As of the close of business on November 10, 1998, there were 568
holders of record of the Company's Common Stock.
On February 17, 1998, the Company effected a two-for-one stock split
(the "1998 Stock Split") in the form of a 100% stock dividend, which was paid to
stockholders of record on February 3, 1998. In connection with the stock split,
the Company increased the number of authorized shares of Common Stock from 75
million to 150 million, which increase was approved by the stockholders of the
Company in January 1998. All share and per share data presented herein have been
adjusted for all periods presented to reflect the stock split.
In May 1997, a special dividend distribution of $1.00 per share was
paid to stockholders of record on April 25, 1997. The Company used approximately
$74.8 million of its cash and liquid investments to pay the special dividend.
The Company has no present plan to declare additional cash dividends in the
foreseeable future. The Company requires capital resources to fund development,
production and promotion costs for its programming, and intends to use its cash
reserves and future earnings to finance such expenses and the development and
expansion of its business. See Item 7, "Management's Discussion and Analysis of
Results of Operations and Financial Condition -- Liquidity and Capital
Resources".
17
Item 6. SELECTED FINANCIAL DATA
The following selected financial data have been derived from the
consolidated financial statements of King World and its subsidiaries for the
five years ended August 31, 1998, which have been audited and reported upon by
Arthur Andersen LLP, independent public accountants. The unaudited 1995 and 1994
pro forma information presents selected financial data assuming that a change in
accounting for revenue recognition adopted prospectively in the fourth quarter
of fiscal 1994 had not been made. The information set forth below should be read
in conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and the Consolidated Financial Statements
and the Notes thereto included elsewhere in this Annual Report.
18
Statements of Income: Year Ended August 31,
1995 1994
1998 1997 1996 1995(1) PRO FORMA(1) 1994(1) PRO FORMA(1)
---- ---- ---- ---- --------- ---- ---------
(unaudited) (unaudited)
(Dollars in thousands except per share data)
Revenues.......................... $683,869 $671,277 $663,426 $574,186 $575,732 $480,659 $541,390
Income from operations............ 176,267 192,281 191,585 162,416 162,736 127,578 148,151
Income before provision
for income taxes................ 205,407 221,926 231,610(2) 183,258 183,578 140,839 161,412
Net income........................ 136,048 143,382 150,000(2) 117,312 117,490 88,300 101,196
======== ======== ======== ======== ======== ======== ========
Basic earnings per share.......... $1.86 $1.93 $2.02(2) $1.60 $1.60 $1.19 $1.36
======== ======== ======== ======== ======== ======== ========
Diluted earnings per share........ $1.79 $1.91 $1.99(2) $1.57 $1.58 $1.17 $1.34
======== ======== ======== ======== ======== ======== ========
Special dividend per share........ -- $1.00 -- -- -- -- --
======== ======== ======== ======== ======== ======== ========
Balance Sheets: August 31,
1995 1994
1998 1997 1996 1995(1) PRO FORMA(1) 1994(1) PRO FORMA(1)
---- ---- ---- ---- --------- ---- ---------
(unaudited) (unaudited)
(Dollars in thousands)
Cash and investments.............. $ 747,509 $730,049 $644,380 $529,025 $529,025 $430,048 $430,048
Advances to producers............. 130,000 65,000 130,000 60,000 60,000 60,000 60,000
Working capital................... 310,941 586,075 519,613 477,972 477,972 294,336 307,232
Total assets...................... 1,023,598 902,067 854,141 686,786 688,332 569,562 630,293
Stockholders' equity.............. 881,211 784,082 737,885 575,737 575,915 459,077 471,973
========= ======== ======== ======== ======= ======== ========
19
- -----------------------
1. The results of operations for fiscal 1995 and 1994 reflect a change in
accounting for revenue recognition adopted prospectively in the fourth
quarter of fiscal 1994. The one-time impact of adopting such change was to
cause revenues, income from operations, income before provision for income
taxes, net income, basic earnings per share and diluted earnings per share
in the fourth quarter of fiscal 1994 to be approximately $60.7 million,
$20.6 million, $20.6 million, $12.9 million, $.17 and $.17, lower,
respectively, than they would have been under the Company's prior revenue
recognition practice. Such revenues were recognized in fiscal 1995 under
the modified accounting practice. The results of operations for fiscal 1995
would have been substantially the same as that actually reported if the
Company's prior revenue recognition practice had been in effect for all of
fiscal 1995. The unaudited 1995 and 1994 pro forma data are presented for
comparison purposes only and represent the results of operations and
balance sheet information assuming the Company's prior revenue recognition
practice had been in effect in the fourth quarter of fiscal 1994 and in
fiscal 1995.
2. Income before provision for income taxes, net income, basic earnings per
share and diluted earnings per share include a nonrecurring gain of
approximately $14.1 million, $10.3 million, $.14 and $.14, respectively, as
a result of the Company's sale of Buffalo Broadcasting Co. Inc. to LIN
Television Corporation in October 1995. See Note 8 of Notes to Consolidated
Financial Statements.
20
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
GENERAL
The Company's revenues consist principally of fees from the licensing
of syndicated television programs and series which may be in the form of cash,
retained advertising time or both. In addition, revenues include fees from the
sale of advertising time on programs distributed to television stations by
others.
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.
("KWM"), 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. See Note 1
of Notes to Consolidated Financial Statements.
All share (excluding treasury shares) and per share data have been
adjusted to give effect to a two-for-one stock split, effected in the form of a
100% stock dividend, which was paid by the Company on February 17, 1998.
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 Fiscal 1998 and Fiscal 1997
REVENUES
Revenues for fiscal 1998 increased by approximately 2% compared to
fiscal 1997, primarily due to increased revenues from the sale of retained
advertising time on and increased cash license fees from THE OPRAH WINFREY SHOW,
WHEEL OF FORTUNE and JEOPARDY!, offset by lower revenues from ROLONDA, a
first-run syndicated talk-show produced and distributed by the Company (due to
the discontinuation of the show), and King World Direct, the Company's wholly
owned, direct response marketing subsidiary. The decrease in revenues from King
World Direct was attributable to significantly lower sales of the WILD AMERICA
video series and the Company's reduced participation in the revenues from Sears
Craftsman Robogrip pliers.
21
The principal components of the Company's revenues for fiscal 1998 and
1997 are as follows:
1998 1997
---- ----
THE OPRAH WINFREY SHOW 42% 40%
WHEEL OF FORTUNE 21% 20%
JEOPARDY! 18% 17%
INSIDE EDITION 7% 8%
AMERICAN JOURNAL (1) 4% 4%
ROLONDA (2) -- 1%
King World Direct 1% 4%
(1) The production of AMERICAN JOURNAL was discontinued after the 1997-1998
broadcast season.
(2) The production of ROLONDA was discontinued after the 1996-1997 broadcast
season.
PRODUCERS' FEES, PROGRAMMING AND OTHER DIRECT OPERATING COSTS
Producers' fees, programming and other direct operating costs include
primarily the producers' share of both cash license fees from the sale of
programming to television stations and revenues derived from the sale of
retained advertising time to advertisers with respect to program ming
distributed by the Company; participation payments 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. 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 producers, talent 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.
Under the terms of its agreement with Harpo, Inc. ("Harpo"), the
producer of THE OPRAH WINFREY SHOW, following the 1996-1997 broadcast season,
the profit sharing arrangements between Harpo and the Company previously in
effect were terminated and, in the 1997-1998 broadcast season and thereafter,
the Company instead receives distribution fees based on a percentage of gross
revenues derived from the series. These arrangements are less favorable to the
Company than those contained in prior agreements between the Company and Harpo.
22
As a result of these changes, the contribution of THE OPRAH WINFREY SHOW to the
Company's net profits and cash flow has declined.
Producers' fees, programming and other direct operating costs
increased by approximately 9% in fiscal 1998 compared to fiscal 1997. The
increase was primarily due to the greater portion of revenues payable to Harpo,
as discussed above, as well as the increase in revenues generated by THE OPRAH
WINFREY SHOW, WHEEL OF FORTUNE and JEOPARDY! (a portion of which is payable to
the producer of each such series). These effects were partially offset by the
lower operating costs of King World Direct and a decrease in production costs
due to the discontinuation of ROLONDA.
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. Certain of 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. 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 fiscal 1998, which include all amounts
payable in accordance with the terms of such employment agreements.
Selling, general and administrative expenses for fiscal 1998 decreased
by approximately 8% from fiscal 1997. The decrease was primarily due to a
decrease in advertising and promotion costs for THE OPRAH WINFREY SHOW, ROLONDA
and AMERICAN JOURNAL, a first-run syndicated newsmagazine produced and
distributed by the Company, partially offset by an increase in the cost of
programming under development and greater costs incurred in connection with the
sales of programs distributed by the Company.
NET INCOME AND EARNINGS PER SHARE
Due to the factors discussed above, the Company's operating income for
fiscal 1998 decreased by approximately 8% compared to fiscal 1997.
Net income decreased by approximately $7.3 million, or 5%, for fiscal
1998 compared to fiscal 1997, reflecting the decrease in operating income and
slightly lower interest income earned on the Company's cash and investments,
partially offset by a lower effective tax rate for fiscal 1998. Basic earnings
per share decreased by approximately 4%, from $1.93 per share in fiscal 1997 to
$1.86 per share in fiscal 1998 as a result of the decrease in net income, offset
by a decrease in the weighted average shares of Common Stock outstanding
resulting from the Company's stock repurchase program. Diluted earnings per
23
share decreased by 6% from $1.91 per share in fiscal 1997 to $1.79 per share in
fiscal 1998, due primarily to a higher average Common Stock price during fiscal
1998 (which resulted in a greater dilutive effect of outstanding stock options
under the method used by the Company to calculate diluted earnings per share).
The Company's results of operations are highly dependent upon the
viewing preferences of television audiences and the Company's ability to acquire
distribution rights to, or itself produce, television programming that achieves
broad and enduring audience acceptance. The success of the Company's programming
could be significantly affected by changes in viewer preferences or the
unavailability of new programming or talent. Moreover, the amount of revenue
derived from the sale of retained advertising time is dependent upon a large
number of factors, such as household ratings, the demographic composition of the
viewing audience and economic conditions in general and in the advertising
business in particular.
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 as
the rates applicable to the 1997-1998 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 state of readiness with regard to the
year 2000 compliance of its various information systems is adequate. Also, the
Company is communicating with its significant customers and vendors to
understand their year 2000 issues and, to date, no significant customers or
vendors have informed the Company that a material year 2000 issue exists.
The Company believes that the impact of inflation on its operations
has not been significant.
Comparison of Fiscal 1997 and Fiscal 1996
REVENUES
Revenues for fiscal 1997 increased by approximately 1% compared to
fiscal 1996, primarily due to increased cash license fees from THE OPRAH WINFREY
SHOW, WHEEL OF FORTUNE and, to a lesser extent, JEOPARDY!, offset by lower
revenues derived from the sale of retained advertising time on INSIDE EDITION,
AMERICAN JOURNAL and ROLONDA.
24
The principal components of the Company's revenues for fiscal 1997 and
1996 are as follows:
1997 1996
---- ----
THE OPRAH WINFREY SHOW 40% 39%
WHEEL OF FORTUNE 20% 19%
JEOPARDY! 17% 17%
INSIDE EDITION 8% 8%
AMERICAN JOURNAL 4% 4%
ROLONDA 1% 2%
King World Direct 4% 4%
PRODUCERS' FEES, PROGRAMMING AND OTHER DIRECT OPERATING COSTS
Producers' fees, programming and other direct operating costs for
fiscal 1997 were comparable to fiscal 1996, decreasing by less than 1%,
primarily as a result of a significant decrease in operating costs of King World
Direct, offset by a modest increase in revenues generated by THE OPRAH WINFREY
SHOW, WHEEL OF FORTUNE and, to a lesser extent, JEOPARDY! (a portion of which
revenues is payable to the producer of each such series).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for fiscal 1997 increased
by approximately 12% from fiscal 1996. Such increase was primarily due to higher
compensation costs associated principally with the hiring of new executives and
additional personnel and a general increase in advertising and promotion costs.
In addition, selling, general and administrative expenses for fiscal 1997 were
impacted by increased activity with respect to programming under development.
NET INCOME AND EARNINGS PER SHARE
Due to the factors discussed above, the Company's operating income for
fiscal 1997 was comparable to fiscal 1996, increasing by less than 1%. Reported
net income for fiscal 1997 decreased by approximately $6.6 million compared to
fiscal 1996 as a result of the Company recording a nonrecurring gain of
approximately $14.1 million on the sale of Buffalo Broadcasting Co. Inc.
("Buffalo") to LIN Television Corporation during the first quarter of fiscal
1996. Reported basic earnings per share decreased for fiscal 1997 to $1.93 per
share from $2.02 per share for fiscal 1996, and reported diluted earnings per
25
share decreased for fiscal 1997 to $1.91 per share from $1.99 per share for
fiscal 1996, as a result of the nonrecurring gain from the sale of Buffalo.
Absent the nonrecurring gain on the sale of Buffalo, net income
increased by approximately $3.7 million, or 3%, for fiscal 1997 in comparison
to fiscal 1996, reflecting the slight increase in operating income, higher
interest income earned on the Company's cash and investments and a marginally
lower effective tax rate for fiscal 1997 compared with fiscal 1996. Absent the
nonrecurring gain on the sale of Buffalo, basic earnings per share increased by
$.05 per share, or approximately 3%, for fiscal 1997 compared to fiscal 1996,
and diluted earnings per share increased by $.06 per share, or approximately 3%,
for fiscal 1997 compared to fiscal 1996, as a result of the increase in net
income.
LIQUIDITY AND CAPITAL RESOURCES
For several years, the Company has been, and is now, in the process of
developing new television shows for syndication that it hopes will gain
widespread audience appeal, generate significant profits and cash flow for the
Company, and reduce the significance of any one broadcast property on the
Company's operating results. Two such shows, THE ROSEANNE SHOW and a new version
of the game show HOLLYWOOD SQUARES, premiered in September 1998, and a
variety/talk show hosted by Martin Short is being developed for distribution by
the Company, with a possible premiere in Fall 1999.
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 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
King World's previous agreement with Harpo, King World was the exclusive
distributor of THE OPRAH WINFREY SHOW through the 1999-2000 broadcast season.
Such agreement was amended in September 1998 to provide for Harpo and Ms.
Winfrey to produce and host the show for the 2000-2001 and 2001-2002 broadcast
seasons and to extend the engagement of King World as the exclusive distributor
of the show for those seasons.
Under the 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
26
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 January 1996, the Company paid Harpo a $65 million advance against
Harpo's guaranteed share of gross revenues for the 1997-1998 broadcast season,
which was fully recouped as of August 31, 1998. 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, none of which had been recouped as of August 31, 1998. Subsequent to
August 31, 1998, the Company paid an advance to Harpo of $75 million against
Harpo's guaranteed share of gross revenues for the 2000-2001 broadcast season
and agreed to pay, in June 2000, an additional $75 million against Harpo's
guaranteed share of gross revenues for the 2001-2002 broadcast season. Based on
the license agreements in place for the 1998-1999 through the 2001-2002
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 used its cash reserves to make acquisitions of and
investments in broadcast and related properties in the entertainment field, to
repurchase shares of its Common Stock and to fund the cost of development,
production and promotion of new programming. The Company continues to evaluate
opportunities in these areas, and may seek to raise capital in public or private
securities markets to finance such activities if it considers it advantageous to
do so.
On April 15, 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 November 10, 1998, 4,923,100 shares of its Common Stock had been
repurchased in open market transactions for aggregate consideration of
approximately $113.6 million, or approximately $23.07 per share. The Company
intends to continue to repurchase shares of its Common Stock in the open market
and in privately negotiated transactions if and when it deems it advantageous
to do so. Purchases under the share repurchase program will be financed out of
the Company's available cash and liquid investments.
In May 1997, a special dividend distribution of $1.00 per share was
paid to stockholders of record on April 25, 1997. The Company used approximately
$74.8 million of its cash and liquid investments to pay the special dividend.
The Company has no present plan to declare additional cash dividends in the
foreseeable future.
In January 1998, the Company's Board of Directors declared a
two-for-one stock split, effected in the form of a 100% stock dividend, which
was paid on February 17, 1998 to stockholders of record on February 3,
27
1998. In connection with the stock split, the Company increased the number of
authorized shares of Common Stock from 75 million to 150 million, which increase
was approved by the stockholders of the Company in January 1998. The par value
of the additional 36,738,470 shares of Common Stock issued in connection with
the stock split was credited to Common Stock and a like amount was charged to
paid-in capital.
The Company has entered into agreements with television stations for
the future distribution of programming commencing with the 1998-1999 broadcast
season and extending as far into the future as the 2004-2005 broadcast season,
under which the revenues and related expenses will not be recognized until the
license periods thereunder have begun and certain other conditions are
satisfied. As of November 10, 1998, the gross amount of license fees under such
agreements approximated $2.0 billion, of which approximately $1.3 billion is
payable to producers and others and is to be recognized as an expense. The
recognition of such amounts in the consolidated financial statements of the
Company in fiscal years subsequent to August 31, 1998 is subject to the
Company's continued distribution of such programming. Such amounts do not
include sales of advertising time retained during the broadcast of such
programming or foreign license fees.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements listed in the accompanying Index to
Consolidated Financial Statements which appear elsewhere in this Annual Report.
Information required by the schedules called for under Regulation S-X is either
not applicable or is included in the consolidated financial statements or notes
thereto.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
28
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Public Accountants . . . . . . . . 32
Consolidated Balance Sheets as of August 31, 1998
and 1997 . . . . . . . . . . . . . . . . . . . . . . . 33
Consolidated Statements of Income for the years
ended August 31, 1998, 1997 and 1996 . . . . . . . . . 35
Consolidated Statements of Stockholders' Equity for
the years ended August 31, 1998, 1997 and 1996 . . . . 36
Consolidated Statements of Cash Flows for the years
ended August 31, 1998, 1997 and 1996 . . . . . . . . . 37
Notes to Consolidated Financial Statements . . . . . . . 38
29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To King World Productions, Inc.:
We have audited the accompanying consolidated balance sheets of King
World Productions, Inc. (a Delaware corporation) and subsidiaries as of August
31, 1998 and 1997, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended August 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of King World
Productions, Inc. and subsidiaries as of August 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended August 31, 1998, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
New York, New York
October 16, 1998
30
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
AUGUST 31,
1998 1997
(Dollars in thousands)
CURRENT ASSETS:
Cash and cash equivalents.............. $ 188,778 $ 317,782
Short-term investments................. 88,016 234,677
Accounts receivable (net of
allowance for doubtful accounts
of $3,301 and $4,101 in 1998
and 1997, respectively).............. 75,423 75,092
Producer advances and
deferred costs....................... 99,965 74,652
Other current assets................... 1,146 1,857
--------- --------
Total current assets................. 453,328 704,060
--------- --------
LONG-TERM INVESTMENTS, at cost,
which approximates market value...... 470,715 177,590
--------- --------
FIXED ASSETS, at cost:
Office and transportation equipment.... 20,304 12,522
Furniture, leaseholds and other
improvements......................... 8,371 6,255
Film and videotape masters............. 2,678 2,678
--------- --------
31,353 21,455
Less-accumulated depreciation and
amortization......................... (13,613) (11,706)
---------- --------
17,740 9,749
---------- --------
PRODUCER ADVANCES
AND OTHER ASSETS....................... 81,815 10,668
---------- --------
$1,023,598 $902,067
========== ========
The accompanying Notes to Consolidated
Financial Statements are an integral part
of these balance sheets.
31
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
AUGUST 31,
1998 1997
(Dollars in thousands)
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities.......................... $ 15,913 $ 18,014
Payable to producers and others........ 96,118 69,599
Income taxes payable................... 30,356 30,372
---------- ---------
Total current liabilities.......... 142,387 117,985
---------- ---------
COMMITMENTS AND CONTINGENCIES
(Note 4)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
5,000,000 shares authorized,
none issued.......................... -- --
Common stock, $.01 par value;
150,000,000 shares authorized,
88,650,301 and 87,664,828
shares issued in 1998 and 1997,
respectively......................... 887 877
Paid-in capital........................ 138,219 124,130
Retained earnings...................... 1,137,238 1,001,190
Treasury stock, at cost; 16,284,794
and 14,413,594 shares in 1998 and
1997, respectively................... (395,133) (342,115)
---------- ---------
881,211 784,082
---------- ---------
$1,023,598 $ 902,067
========== =========
The accompanying Notes to Consolidated
Financial Statements are an integral part
of these balance sheets.
32
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED AUGUST 31,
1998 1997 1996
(Dollars in thousands except
per share data)
REVENUES............................... $683,869 $671,277 $663,426
-------- -------- --------
EXPENSES:
Producers' fees, programming and
other direct operating costs....... 430,653 395,489 397,494
Selling, general and admini-
strative expenses.................. 76,949 83,507 74,347
-------- -------- --------
507,602 478,996 471,841
-------- -------- --------
Income from operations............... 176,267 192,281 191,585
INTEREST AND DIVIDEND INCOME........... 29,140 29,645 25,965
NONRECURRING GAIN - Sale of
Buffalo Broadcasting Co. Inc......... -- -- 14,060
-------- ------- --------
Income before provision for
income taxes....................... 205,407 221,926 231,610
PROVISION FOR INCOME TAXES............. 69,359 78,544 81,610
-------- ------- --------
Net income........................... $136,048 $143,382 $150,000
======== ======== ========
BASIC EARNINGS PER SHARE............... $1.86 $1.93 $2.02
======== ======== ========
DILUTED EARNINGS PER SHARE............. $1.79 $1.91 $1.99
======== ======== ========
The accompanying Notes to Consolidated
Financial Statements are an integral
part of these statements.
33
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Paid-in Retained Treasury
Shares $ Capital Earnings Stock
---------- ----- ------- -------- -------
(Dollars in thousands)
Balance -
August 31, 1995........................ 85,373,896 $855 $ 87,261 $ 782,651 $(295,041)
Exercise of stock options.............. 1,681,988 16 23,038 -- --
Purchase of treasury stock............. -- -- -- -- (10,898)
Net income............................. -- -- -- 150,000 --
---------- ---- -------- ---------- ---------
Balance-
August 31, 1996 87,055,884 871 110,299 932,651 (305,939)
Exercise of stock options.............. 608,944 6 13,831 -- --
Purchase of treasury stock............. -- -- -- -- (36,176)
Special dividend....................... -- -- -- (74,843) --
Net income............................. -- -- -- 143,382 --
---------- ---- -------- ---------- ---------
Balance -
August 31, 1997........................ 87,664,828 877 124,130 1,001,190 (342,115)
Exercise of stock options.............. 985,473 10 14,089 -- --
Purchase of treasury stock ............ -- -- -- -- (53,018)
Net income ............................ -- -- -- 136,048 --
---------- ---- -------- ---------- ---------
Balance -
August 31, 1998........................ 88,650,301 $887 $138,219 $1,137,238 $(395,133)
========== ==== ======== ========== =========
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
34
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED AUGUST 31,
1998 1997 1996
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................. $136,048 $143,382 $150,000
Items not affecting cash:
Gain on sale of Buffalo
Broadcasting Co. Inc............................................ -- -- (14,060)
Depreciation and amortization..................................... 1,907 1,203 800
Change in assets and liabilities:
Accounts receivable............................................... (331) (14,597) (9,022)
Producer advances and
deferred costs.................................................. (92,480) 60,173 (46,740)
Accounts payable and accrued
liabilities..................................................... (2,101) 2,777 4,167
Payable to producers and
others.......................................................... 26,519 (2,321) 1,829
Income taxes payable.............................................. (16) 1,273 3,469
Other, net........................................................ (3,269) (965) 3,391
-------- -------- --------
Net cash provided by operating
activities........................................................... 66,277 190,925 93,834
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investments................................................ (146,464) (112,653) (217,485)
Proceeds from sale of Buffalo
Broadcasting Co. Inc................................................. -- -- 9,802
Additions to fixed assets.............................................. (9,898) (8,071) (429)
-------- -------- --------
Net cash used in
investing activities................................................. (156,362) (120,724) (208,112)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock................................................................ 14,099 13,834 23,046
Purchase of treasury stock............................................. (53,018) (36,176) (10,898)
Payment of special dividend............................................ -- (74,843) --
-------- -------- --------
Net cash (used in) provided by
financing activities................................................. (38,919) (97,185) 12,148
-------- -------- --------
NET DECREASE IN CASH
AND CASH EQUIVALENTS................................................... (129,004) (26,984) (102,130)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR...................................................... 317,782 344,766 446,896
-------- -------- --------
CASH AND CASH EQUIVALENTS AT
END OF YEAR............................................................ $188,778 $317,782 $344,766
======== ======== ========
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
35
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of significant accounting policies
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of King World Productions, Inc. and its subsidiaries. All significant
intercompany transactions have been eliminated. Unless the context suggests
otherwise, the "Company", as used herein, means King World Productions, Inc.
("King World") and its consolidated subsidiaries. All share (excluding treasury
shares) and per share data presented in these Consolidated Financial Statements
have been adjusted to give effect to a two-for-one stock split, effected in the
form of a 100% stock dividend, which was paid by the Company on February 17,
1998.
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.
("KWM"), a wholly-owned subsidiary of the Company. Such revenues are recognized
at the same time as the cash portion of the license fees derived from such
programming is recognized, in amounts adjusted for expected ratings.
License fees for non-first-run syndicated properties are recognized
at the gross contract amount (net of discount to present value for license
periods greater than one year) at the commencement of the license period and
when certain other conditions are satisfied.
PRINCIPAL PROPERTIES
The Company's principal properties are licenses to distribute THE
OPRAH WINFREY SHOW, WHEEL OF FORTUNE and JEOPARDY!; and INSIDE EDITION, a
first-run syndicated series produced and distributed by the Company.
36
(1) Summary of significant accounting policies
The contribution of each program to the Company's total revenues for
fiscal 1998, 1997 and 1996 was as follows:
1998 1997 1996
---- ---- ----
THE OPRAH WINFREY SHOW 42% 40% 39%
WHEEL OF FORTUNE 21% 20% 19%
JEOPARDY! 18% 17% 17%
INSIDE EDITION 7% 8% 8%
The Company distributes THE OPRAH WINFREY SHOW pursuant to an
agreement with Harpo, Inc. ("Harpo"), the producer of the series. Under the
terms of King World's previous agreement with Harpo, King World was the
exclusive distributor of THE OPRAH WINFREY SHOW through the 1999-2000 broadcast
season. Such agreement was amended in September 1998 to provide for Harpo and
Ms. Winfrey to produce and host the show for the 2000-2001 and 2001-2002
broadcast seasons and to extend the engagement of King World as the exclusive
distributor of the show for those seasons.
Under the terms of its agreement with Harpo, following the 1996-1997
broadcast season, the profit sharing arrangements between Harpo and the Company
previously in effect were terminated and, in the 1997-1998 broadcast season and
thereafter, the Company instead receives distribution fees based on a percentage
of gross revenues derived from the series. These arrangements are less favorable
to the Company than those contained in prior agreements between the Company and
Harpo. As a result of these changes, the Company's net profits and cash flow
have declined. Also, the distribution fees payable for the 2000-2001 and
2001-2002 broadcast seasons are significantly less than those applicable to
seasons through the 1999-2000 season, and as a result, the contribution of THE
OPRAH WINFREY SHOW to the Company's net profits and cash flow will further
decline.
The Company's agreements with Columbia TriStar Television provide that
the Company shall be the exclusive distributor for WHEEL OF FORTUNE and
JEOPARDY! so long as the Company has obtained sufficient broadcast commitments
to cover such series' respective production and distribution costs and that the
Company may not, unless otherwise agreed by Columbia TriStar Television,
distribute game shows for syndication so long as the Company is distributing
WHEEL OF FORTUNE or JEOPARDY!.
For several years, the Company has been, and is now, in the process of
developing new television shows for syndication that it hopes will gain
widespread audience appeal, generate significant profits and cash flows for the
Company and reduce the significance of any one broadcast property on the
Company's operating results. Two such shows, THE ROSEANNE SHOW and a new version
37
(1) Summary of significant accounting policies
of the game show HOLLYWOOD SQUARES, premiered in September 1998, and a
variety/talk show hosted by Martin Short is being developed for distribution by
the Company, with a possible premiere in Fall 1999.
In September 1997, the Company and Columbia TriStar Television
announced their agreement to co-produce a new version of the game show HOLLYWOOD
SQUARES, which is distributed by the Company in first-run syndication and
debuted in September 1998.
The Company has entered into an agreement with Full Moon & High Tide
Productions, Inc., a company controlled by Roseanne, to co-produce THE ROSEANNE
SHOW, an hour-long strip talk show hosted by Roseanne and distributed by the
Company in first-run syndication. The series premiered in September 1998. Under
the terms of the agreement, the Company will have the exclusive right to
distribute the show through the 2003-2004 broadcast season.
PRODUCERS' FEES, PROGRAMMING AND OTHER DIRECT OPERATING COSTS
Producers' fees, programming and other direct operating costs include
primarily the producers' share of both cash license fees from the sale of
programming to television stations and revenues derived from the sale of
retained advertising time to advertisers with respect to programming
distributed by the Company; participation fees payable by the Company to
producers and talent; production and distribution costs for first-run syndicated
programming; and the direct operating costs of King World Direct, the Company's
wholly-owned direct response marketing subsidiary. That portion of any
recognized revenue that is to be paid to producers and owners of programming is
accrued as such revenues are earned. The share of revenues payable by the
Company to such producers and others is generally paid as cash license fees and
revenues derived from the sale of retained advertising time are received from
television stations and advertisers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include advertising and
promotion costs associated with programming distributed by the Company, which
amounted to $22,876,000, $33,150,000 and $31,329,000 in fiscal 1998, 1997 and
1996, respectively. These amounts include the producers' share of such costs.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents and short-term investments are comprised principally
of municipal obligations, money market funds, money market preferred
investments, commercial paper and United States Treasury and other agency
obligations whose maturities are one year or less and are carried at amortized
cost, which approximates market value. The Company considers its highly liquid
38
(1) Summary of significant accounting policies
short-term investments purchased with a maturity of three months or less to be
cash equivalents.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). The Statement establishes
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance sheet and measured at its fair value. This statement
also requires that changes in the derivative's fair value be recognized
currently in earnings. To date, the Company has not, and has no present
intention, to invest in any derivative instruments or participate in any hedging
activities. Accordingly, the adoption of SFAS 133 will not have any effect on
the Company.
PRODUCER ADVANCES AND DEFERRED COSTS
Producer advances and deferred costs include pre-production,
production and promotion costs, as well as talent and producer participation
advances, in connection with certain first-run syndicated programs distributed
by the Company for broadcast during seasons subsequent to August 31, 1998. Such
costs are charged to expense as the revenues from such programs are earned.
Advances are recouped from the share of revenues payable by the Company to
producers, talent and others.
In January 1996, the Company paid Harpo a $65 million advance against
Harpo's guaranteed share of gross revenues for the 1997-1998 broadcast season,
which was fully recouped as of August 31, 1998. 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, none of which had been recouped as of August 31, 1998. Subsequent to
August 31, 1998, the Company paid an advance to Harpo of $75 million against
Harpo's guaranteed share of gross revenues for the 2000-2001 broadcast season
and agreed to pay, in June 2000, an additional $75 million against Harpo's
guaranteed share of gross revenues for the 2001-2002 broadcast season. Based on
the license agreements in place for the 1998-1999 through the 2001-2002
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.
LONG-TERM INVESTMENTS
Long-term investments are comprised principally of intermediate-term
municipal obligations and United States Treasury and other agency obligations
whose maturities are between one and seven years and are carried at amortized
cost which approximates market value.
39
(1) Summary of significant accounting policies
FIXED ASSETS
Fixed assets are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight-line
method for financial reporting purposes and accelerated methods for tax
purposes, with estimated useful lives of 3 to 5 years for furniture, office and
transportation equipment and 5 years for film and videotape masters. Leaseholds
and other improvements are amortized over the shorter of their useful lives and
the lease term. Depreciation and amortization expense was approximately
$1,907,000, $1,203,000 and $800,000 in fiscal 1998, 1997 and 1996, respectively.
STOCKHOLDERS' EQUITY
In the first quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS
128 requires the presentation of "basic" earnings per share, which excludes any
common stock equivalents and their related dilution, and "diluted" earnings per
share, which includes the potential dilution from all common stock equivalents
including options, warrants and convertible securities. Basic earnings per share
has been computed using the weighted average shares of Common Stock outstanding
of 73,157,000, 74,180,000 and 74,343,000 for the fiscal years ended August 31,
1998, 1997 and 1996, 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 76,078,000, 74,992,000
and 75,368,000 for the fiscal years ended August 31, 1998, 1997 and 1996,
respectively. Reported earnings per share in prior periods have been restated to
conform with the provisions of SFAS 128.
The Company is authorized to issue 5,000,000 shares of Preferred
Stock, $.01 par value. The Board of Directors is empowered, without further
stockholder approval, to establish from time to time one or more series of
Preferred Stock and to determine the powers, preferences and special rights of
any unissued series of Preferred Stock, including voting rights, dividend
rights, terms of redemption, liquidation preferences, conversion rights and the
designation of any such series.
INDUSTRY SEGMENTS AND CUSTOMERS
The Company operates in one business segment, television program ming.
The Company's major customers and principal facilities are located within the
United States. In the 1998, 1997 and 1996 fiscal years, approximately 14%, 13%
and 12%, respectively, of the Company's revenues were derived from license fees
under contracts with a single broadcast group.
40
(1) Summary of significant accounting policies
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) Pension and profit sharing plans
The Company maintains the King World Productions, Inc. Retirement
Savings Plan with an employee pre-tax salary deferral contribution program under
Section 401(k) of the Internal Revenue Code. Under the plan, employer matching
contributions may not exceed 3% of annual compensation per employee and employer
fixed contributions are limited to 3% of annual salary per employee, subject to
a maximum total employer contribution of approximately $10,000 per employee for
fiscal 1998. The plan covers substantially all of the Company's employees other
than those involved in the production of programming produced by the Company.
Contributions by the Company to the plan were approximately $709,000,
$576,000 and $491,000 in fiscal 1998, 1997 and 1996, respectively.
(3) Income taxes
The components of the Company's provision for income taxes are
summarized as follows:
YEAR ENDED AUGUST 31,
1998 1997 1996
---- ---- ----
(Dollars in thousands)
Federal:
Current..................... $59,076 $64,824 $71,525
Deferred.................... 2,081 1,562 (2,293)
------- ------- -------
61,157 66,386 69,232
------- ------- -------
State and local:
Current..................... 8,115 12,067 12,511
Deferred.................... 87 91 (133)
------- ------- -------
8,202 12,158 12,378
------- ------- -------
Total................... $69,359 $78,544 $81,610
======= ======= =======
Deferred income taxes and benefits are provided for any income and
expense items that are recognized in different years for tax return and
41
financial reporting purposes. No individual temporary difference gives
rise to significant deferred tax assets or liabilities.
The current provision in each period presented above does not include
reductions to income taxes payable attributable to the exercise of stock
options. See Note 5.
Following is a reconciliation of the Company's provision for income
taxes to the tax computed at the U.S. statutory rate:
YEAR ENDED AUGUST 31,
1998 1997 1996
---- ---- ----
(Dollars in thousands)
Tax at U.S. statutory
rate........................... $71,892 $77,674 $81,064
State tax provision, net
of Federal benefit............. 5,331 7,903 8,046
Tax-exempt interest and
dividend income................ (7,780) (6,892) (5,370)
Other, net....................... (84) (141) (2,130)
------- ------- -------
$69,359 $78,544 $81,610
======= ======= =======
Income taxes paid approximated $67.5 million, $73.3 million and $76.8
million in fiscal 1998, 1997 and 1996, respectively.
(4) Commitments and contingencies
LICENSE FEES
The Company has entered into agreements with television stations for
the future distribution of programming in broadcast television seasons
commencing with the 1998-1999 season and extending as far into the future as the
2004-2005 broadcast season, under which the revenues and related expenses will
not be recognized until the license periods thereunder have begun and certain
other conditions are satisfied. As of November 10, 1998, the gross amount of
license fees under such agreements approximated $2.0 billion, of which
approximately $1.3 billion is payable to producers and others and is to be
recognized as an expense. The recognition of such amounts in the consolidated
financial statements of the Company in fiscal years subsequent to August 31,
1998 is subject to the Company's continued distribution of such programming.
Such amounts do not include sales of advertising time retained during the
broadcast of such programming or foreign license fees.
OPERATING LEASES
Rent expense under operating leases covering office facilities,
production studios and equipment amounted to approximately $4,078,000,
$2,849,000 and $2,559,000 for fiscal 1998, 1997 and 1996, respectively. Office
and studio leases are subject to price escalations for certain costs.
42
Aggregate future minimum rental commitments for these leases as of August 31,
1998 were as follows:
YEAR ENDING AUGUST 31,
(Dollars in thousands)
1999......................... $6,519
2000......................... 5,742
2001......................... 1,845
2002......................... 1,435
2003......................... 872
EMPLOYMENT AND PRODUCTION AGREEMENTS
As of August 31, 1998, the Company had entered into employment
agreements and agreements with independent contractors relating to programming
being or to be produced by King World which provide for aggregate minimum annual
compensation as follows:
YEAR ENDING AUGUST 31,
(Dollars in thousands)
1999......................... $33,531
2000......................... 12,548
2001......................... 1,223
2002......................... 156
2003......................... 0
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. Certain of 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. The Company has
recognized the impact of certain of these bonuses in its operating results for
fiscal 1998, which include all amounts payable in accordance with the terms of
such employment agreements.
LEGAL MATTERS
The Company is subject to legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the amount of
ultimate liability, if any, with respect to such actions will not have a
material adverse effect on the results of operations and financial position of
the Company.
(5) Stock plans
In fiscal 1998, the Company, reserved 2,000,000 additional shares for
grants and awards under the 1996 Amended and Restated Stock Option and
Restricted Stock Purchase Plan (the "Option/Stock Plan"). As of August 31, 1998
there were 1,806,862 shares available for grant under the Option/Stock
43
Plan. The Option/Stock Plan provides for grants of incentive stock options
("ISOs") and non-qualified stock options, as well as awards of shares of
restricted stock, subject to certain conditions. The Option/Stock Plan is
currently administered by the Compensation Committee of the Board of Directors.
For ISOs granted pursuant to the Option/Stock Plan, the exercise price
of options may not be less than the fair market value of the shares on the date
of grant and the options may not have a term in excess of ten years. The
Compensation Committee has the power to determine the vesting periods for
options granted under the Option/Stock Plan. Only full-time employees of the
Company and its subsidiaries may be granted ISOs under the Option/Stock Plan.
ISOs granted under the Option/Stock Plan are intended to qualify as "incentive
stock options" within the meaning of Section 422(b) of the Internal Revenue Code
of 1986, as amended (the "Code").
For non-qualified stock options granted pursuant to the Option/Stock
Plan, the exercise price of options may be more than, less than or equal to the
fair market value of the shares on the date of grant (in the discretion of the
Compensation Committee), and the options may be immediately exercisable (in the
discretion of the Compensation Committee) and may have a term in excess of ten
years. Employees, directors and officers of, and consultants or suppliers to,
the Company and its subsidiaries may be granted non-qualified stock options
under the Option/Stock Plan.
Awards of restricted stock may be granted under the Option/Stock Plan
to purchase shares of Common Stock for a price per share that may be more than,
equal to or less than the fair market value of such shares on the date of the
award. The Compensation Committee has the right to determine vesting provisions,
transfer restrictions and other conditions or restrictions with respect to each
award. To date, no awards of restricted stock have been granted under the
Option/Stock Plan or its predecessor plans.
In fiscal 1997, the Company also adopted the Salesforce Bonus Plan
(the "Salesforce Plan"), and reserved 1,000,000 shares for grants of options
thereunder. The Salesforce Plan provides for grants of non-qualified stock
options and certain cash bonuses, subject to certain conditions. The Salesforce
Plan is currently administered by the Board of Directors and by the Chairman of
the Board of the Company, who is also the head of the Company's salesforce. Any
person employed by, or performing services for, the sales department of the
Company or any subsidiary of the Company on a full-time basis (excluding
directors and officers of the Company) is eligible to receive stock options and
cash bonuses under the Salesforce Plan.
The exercise price of options granted under the Salesforce Plan must
be equal to the fair market value of the shares on the date of grant, and the
options shall vest at a rate of 20% at the end of each of the first three
44
years from the date of grant and 40% at the end of the fifth year from grant and
shall expire on the date ten years from the date of grant.
In fiscal 1989, the Company adopted the Incentive Equity Plan for
Senior Executives, pursuant to which an aggregate 5,100,000 shares of Common
Stock were reserved for issuance to the Company's Chairman of the Board,
President and Chief Executive Officer (who is now its Vice Chairman and Chief
Executive Officer), and Executive Vice President and Chief Operating Officer,
upon the exercise of options granted thereunder. Each of the Chairman of the
Board and the President and Chief Executive Officer was granted non-qualified
stock options to purchase 2,400,000 shares of Common Stock, 1,950,000 at an
exercise price of $7.88 (the approximate fair market value on the date of grant)
and 450,000 at an exercise price of $.01; the Executive Vice President was
granted non-qualified stock options to purchase 300,000 shares of Common Stock,
240,000 at an exercise price of $7.88 and 60,000 at an exercise price of $.01.
No additional options may be granted under the Executive Plan.
In connection with the extensions of the Company's rights to
distribute THE OPRAH WINFREY SHOW through the 1999-2000 broadcast season, the
Company previously granted to the principals of Harpo options to purchase an
aggregate 5,000,000 shares of Common Stock. As of August 31, 1998, 3,900,000 of
such options were outstanding and exercisable. In addition, on September 24,
1998, in connection with Harpo's and Ms. Winfrey's commitment to continue to
produce and host the show for the 2000-2001 and 2001-2002 broadcast seasons,
the Company granted to the principals of Harpo (including some key production
executives) options to purchase an aggregate 1,130,000 million shares of Common
Stock. All of such options were fully vested at the time of grant and have a
term of ten years.
The following table summarizes stock option activity at August 31 and
for the fiscal years then ended:
1998 1997 1996
------ ------ -----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
SHARES PRICE SHARES PRICE SHARES PRICE
Outstanding at
beginning of
year 15,183,206 $17.31 13,341,974 $17.21 7,440,804 $13.85
Granted 1,833,040 $22.27 2,955,334 $18.05 7,855,000 $19.52
Exercised (1,104,640) $11.05 (598,102) $16.40 (1,692,830) $19.80
Canceled (570,200) $18.56 (516,000) $20.02 (261,000) $19.03
---------- ---------- ----------
Outstanding at
end of year 15,341,406 $18.31 15,183,206 $17.31 13,341,974 $17.21
========== ========== ==========
Exercisable at
end of year 10,069,736 $17.46 8,014,872 $15.85 6,897,374 $15.07
=========== ========== ==========
45
The following table summarizes stock options outstanding and
exercisable at August 31, 1998:
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Life Exercise Exercise
Prices Shares (in years) Price Shares Price
$ .01 to $ 7.88 480,000 0.5 $ 6.40 480,000 $ 6.40
$ 7.89 to $14.25 1,251,700 2.3 $12.52 1,251,700 $12.52
$14.26 to $19.70 6,864,866 6.9 $18.07 4,661,668 $18.03
$19.71 to $29.43 6,744,840 7.4 $20.46 3,676,368 $19.86
---------- ---------
15,341,406 10,069,736
========== ==========
In October 1995, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). As permitted under SFAS 123, the Company accounts
for employee stock compensation arrangements in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Under APB 25, compensation cost is recognized only when employee
stock options are granted at an exercise price lower than that of the market
price of the stock on the date of grant. The Company generally does not
recognize compensation expense with respect to stock option grants.
For stock options granted by the Company after August 31, 1995, SFAS
123 requires that pro forma information regarding net income and earnings per
share be disclosed as if the Company had accounted for its options under the
fair value method outlined in SFAS 123, which requires a compensation charge to
earnings for all options granted during the period. The fair value of the
Company's options was estimated using the Black-Scholes option valuation model.
The Black-Scholes option valuation model requires the use of highly subjective
assumptions, including the expected stock price volatility and expected life of
such options. Because the Company's stock options granted to employees have
characteristics significantly different from those of traded options (for which
the Black-Scholes model was created) and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of Company stock options granted to employees.
46
The fair value of the Company's stock options granted to employees
was estimated using the following weighted average assumptions at August 31:
1998 1997 1996
---------- ---------- ----------
Expected life (in years) 6.50 6.50 6.50
Risk-free interest rate 5.25% 6.50% 6.50%
Volatility 30.00% 30.00% 30.00%
Dividend yield 0.00% 0.00% 0.00%
The weighted average estimated fair value of employee stock options
granted during fiscal 1998, 1997 and 1996 was $9.41, $8.13 and $8.80 per share,
respectively. For purposes of the pro forma disclosures, the estimated fair
value of the options is generally amortized to compensation expense over the
options' vesting period. The Company's pro forma net income, basic earnings per
share and diluted earnings per share compared to that actually reported at
August 31 are as follows:
1998 1997 1996
-------- -------- --------
Net income (in thousands) As reported $136,048 $143,382 $150,000
Pro forma 121,011 134,720 139,762
Basic earnings per share As reported $1.86 $1.93 $2.02
Pro forma 1.65 1.82 1.88
Diluted earnings per share As reported $1.79 $1.91 $1.99
Pro forma 1.59 1.80 1.85
The effects on the pro forma disclosures of applying SFAS 123 to
fiscal 1998, 1997 and 1996 are not likely to be representative of the effects on
pro forma disclosures of future years. Because SFAS 123 is applicable only to
options granted subsequent to August 31, 1995, and the estimated fair value of
the options is generally amortized over the five-year vesting period of the
Company's employee stock options, the pro forma effect will not be fully
reflected until fiscal 2000.
The Company realizes a tax benefit in respect of non-qualified stock
options based on the difference between the exercise price of the Common Stock
subject to the option and the market price thereof on the date of exercise. Tax
deductions related to compensation expense in excess of that taken for financial
reporting purposes are added to paid-in capital in the period of the tax
deduction. The amount of such tax deductions added to paid-in capital
approximated $1,898,000, $3,976,000 and $1,342,000 in fiscal 1998, 1997 and
1996, respectively.
47
(6) Dividends and stock repurchases
In May 1997, a special dividend distribution of $1.00 per share was
paid to stockholders of record on April 25, 1997. The Company used approximately
$74.8 million of its cash and liquid investments to pay the special dividend.
In April 1997, the Company announced that the Board of Directors had
approved a program to repurchase up to 10,000,000 shares of its Common Stock
from time to time in the open market and in privately negotiated transactions.
Through November 10, 1998, 4,923,100 shares of Common Stock were repurchased in
open market transactions for aggregate consideration of approximately $113.6
million or approximately $23.07 per share. The Company intends to continue to
repurchase shares of its Common Stock in the open market and in privately
negotiated transactions if and when it deems it advantageous to do so. Purchases
under the share repurchase program will be financed out of the Company's
available cash and liquid investments.
In January 1998, the Company's Board of Directors declared a
two-for-one stock split, effected in the form of a 100% stock dividend, which
was paid on February 17, 1998 to stockholders of record on February 3, 1998. In
connection with the stock split, the Company increased the number of authorized
shares of Common Stock from 75 million to 150 million, which increase was
approved by the stockholders of the Company in January 1998. The par value of
the additional 36,738,470 shares of Common Stock issued in connection with the
stock split was credited to Common Stock and a like amount was charged to
paid-in capital.
(7) Quarterly financial summaries (unaudited)
1st 2nd 3rd 4th Fiscal
Quarter Quarter Quarter Quarter Year
(Dollars in thousands except per share data)
FISCAL 1998:
Revenues............... $172,926 $173,916 $167,968 $169,059 $683,869
Gross margin........... 65,691 63,222 61,458 62,845 253,216
Income before
provision
for income
taxes................ 52,544 51,285 50,514 51,064 205,407
Net income............. 34,369 33,578 34,202 33,899 136,048
Basic earnings
per share............ $.47 $.46 $.47 $.47 $1.86
======== ======== ======== ======== ========
Diluted earnings
per share............. $.45 $.44 $.45 $.45 $1.79
======== ======== ======== ======== ========
48
1st 2nd 3rd 4th Fiscal
Quarter Quarter Quarter Quarter Year
(Dollars in thousands except per share data)
FISCAL 1997:
Revenues...............$164,287 $175,169 $166,751 $165,070 $671,277
Gross margin........... 65,481 71,405 69,006 69,896 275,788
Income before
provision
for income
taxes................ 53,923 57,185 54,890 55,928 221,926
Net income............. 34,967 36,677 35,705 36,033 143,382
Basic earnings
per share............. $.47 $.49 $.48 $.49 $1.93
======== ======== ======== ======== ========
Diluted earnings
per share............. $.46 $.48 $.48 $.49 $1.91
======== ======== ======== ======== ========
(8) Buffalo Broadcasting Co. Inc.
In October 1995 the Company closed its agreement to sell WIVB-TV, the
CBS-affiliated VHF television station in Buffalo, New York, to LIN Television
Corporation for $95 million in cash. As a result of this transaction, the
Company recorded a nonrecurring gain of approximately $14.1 million, of which
approximately $9.8 million represents cash proceeds to the Company from the
sale. The remaining $4.3 million of such gain represents the reversal of
previously recognized accounting losses (with no associated income tax effect)
in excess of the Company's original investment.
The Company acquired Buffalo Broadcasting Co. Inc. ("Buffalo") in
December 1988 in a highly leveraged transaction. In April 1992, the Company and
Buffalo's lenders entered into an agreement providing for a financial
restructuring of Buffalo effective August 4, 1992. As a result of such
restructuring, Buffalo ceased to be a consolidated subsidiary of King World. The
Company's investment in Buffalo subsequent to the restructuring was carried at
cost.
49
PART III
The information required by Part III of Form 10-K is incorporated by
reference from the registrant's definitive proxy statement for its 1999 annual
meeting of stockholders, which is to be filed pursuant to Regulation 14A not
later than December 29, 1998.
PART IV
Item 10. EXHIBITS, FINANCIAL STATEMENTS
AND REPORTS ON FORM 8-K
(a)(1 and 2) Financial Statements. See Index to Consolidated Financial
Statements which appears on page 31 of this Annual Report.
(3) EXHIBITS:
Exhibit
NUMBER DESCRIPTION
3.1. Registrant's Restated Certificate of Incorporation (incorporated
by reference to Exhibit 3.1 to the Registrant's Registration
Statement No. 2-93987).
3.2. Certificate of Amendment to the Registrant's Restated
Certificate of Incorporation (incorporated by reference
to Exhibit 3.3 to the Registrant's Registration Statement No. 33-8357).
3.3. Certificate of Amendment to the Registrant's Restated
Certificate of Incorporation (incorporated by reference to
Exhibit 3(i) to the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended May 31,1998).
3.4. Registrant's By-laws, as amended through May 8, 1998
(incorporated by reference to Exhibit 3(ii) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended May 31, 1998).
10.1. Agreement dated July 12, 1984 between Leo A. Gutman,
Inc. and the Registrant with exhibits (incorporated by
reference to Exhibit 10.3 to the Registrant's Registration
Statement No. 2-93987).
10.2. Agreements dated August 6, 1970, July 31, 1970, and May 29,
1969, between Hal Roach Studios, Inc. and the Registrant, with
amendment dated June 8, 1983 and exhibits (incorporated by
reference to Exhibit 10.5 to the Registrant's Registration
Statement No. 2-93987).
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of the
Securities and Exchange Commission granting confidential treatment. Such
deleted information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
50
10.3.* Distribution Agreement dated December 15, 1982, between Califon
Productions, Inc. and the Registrant, with amendment dated July 8,
1983 (incorporated by reference to Exhibit 10.7 to the Registrant's
Registration Statement No. 2-93987).
10.4.* Amendment, dated April 23, 1990, to the Distribution Agreement dated
December 15, 1982, between Califon Productions, Inc. and the
Registrant (incorporated by reference to Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1995).
10.5.* Distribution Agreement dated November 1, 1983, between Califon
Productions, Inc. and the Registrant, with amendment dated March 26,
1984 (incorporated by reference to Exhibit 10.9 to the Registrant's
Registration Statement No. 2-93987).
10.6. Employment Agreement, dated December 20, 1995, between Mr. Roger King
and the Registrant (incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended February 29, 1996).
10.7. Employment Agreement, dated December 20, 1995, between Mr. Michael
King and the Registrant (incorporated by reference to Exhibit 10.2 to
the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended February 29, 1996).
10.8. Employment Agreement, dated as of June 6, 1997 between Jules Haimovitz
and the Registrant (incorporated by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended May 31, 1997).
10.9. Employment Agreements between the Registrant and the individuals named
below:
Name of Employee
OR CONSULTANT DATE OF AGREEMENT
Steven Hirsch . . . . . September 3, 1996
Jonathan Birkhahn . . . September 1, 1996
Michael Spiessbach. . . September 3, 1996
Robert V. Madden. . . . September 3, 1996
(incorporated by reference to Exhibit 10.9 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended August
31, 1996).
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment. Such
deleted information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
51
10.10. King World Productions, Inc. Retirement Savings Plan dated September
17, 1992 (incorporated by reference to Exhibit 10.7 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1993).
10.11. 1996 Amended and Restated Stock Option and Restricted Stock Purchase
Plan of the Registrant (incorporated by reference to Exhibit 10.11 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997).
10.12. Incentive Equity Compensation Plan for Senior Executives of the
Registrant (incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement No. 33-30695).
10.13. Form of Indemnification Agreement between the Registrant and the
Registrant's directors (incorporated by reference to Exhibit 10.13 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997).
10.14.* Agreement dated January 30, 1987 between the Registrant and Harpo,
Inc. and amendment thereto dated July 29, 1988 (incorporated by
reference to Exhibit 10.12 to the Registrant's Annual Report on Form
10-K for the fiscal year ended August 31, 1993).
10.15.* Amendment dated as of October 15, 1989 to the Agreement dated January
30, 1987 between the Registrant and Harpo, Inc. (incorporated by
reference to Exhibit 10.13 to the Registrant's Annual Report on Form
10-K for the fiscal year ended August 31, 1995).
10.16.* Agreement dated as of March 17, 1994 between the Registrant and
Harpo, Inc. (incorporated by reference to Form 8-K/A dated May 18,
1994).
10.17.* Agreement dated as of October 6, 1995 between the Registrant and
Harpo, Inc. (incorporated by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q/A for the fiscal quarter
ended February 29, 1996).
10.18. Stock Option Agreement dated as of January 28, 1991 between the
registrant and Oprah Winfrey (incorporated by reference to Exhibit
10.2 to the Registrant's Registration Statement No. 33-71696).
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment. Such
deleted information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
52
10.19. Stock Option Agreement dated as of January 28, 1991 between the
registrant and Jeffrey D. Jacobs (incorporated by reference to Exhibit
10.3 to the Registrant's Registration Statement No. 33-71696).
10.20. Form of Stock Option Agreement between the registrant and Oprah
Winfrey (incorporated by reference to Exhibit 10.19 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1995).
10.21. Form of Stock Option Agreement between the registrant and Jeffrey D.
Jacobs (incorporated by reference to Exhibit 10.20 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended August 31, 1995).
10.22.* Settlement Agreement, dated as of September 15, 1997, by and among
Califon Productions, Inc. on Jeopardy Productions, Inc., Sony Pictures
Entertainment Inc., The Game Show Network, L.P. and the Registrant
(incorporated by reference to Exhibit 10.22 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended August 31, 1997).
10.23.* Letter Agreement, dated October 1, 1991, between Orion Pictures
Corporation and the Registrant, under which Orion Picture Corporation
transferred to the Registrant trademark, copyright and other property
rights as more fully described therein to the television series
entitled "Hollywood Squares" with accompanying Security Agreement and
Assignment (incorporated by reference to Exhibit 10.23 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997).
10.24* Agreement made and entered into on the 14th day of May, 1997, by and
between K.W.M., Inc. and Full Moon & High Tide Productions, Inc.,
providing the services of Roseanne (incorporated by reference to
Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended August 31, 1997).
10.25.* Agreement dated as of June 2, 1988 between King World F.S.C.
Corporation and Unilever N.V. and amendment thereto dated as of June
13, 1989 (incorporated by reference to Exhibit 10.20 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1994).
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of the
Securities and Exchange Commission granting confidential treatment. Such
deleted information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
53
10.26.* Amendment dated as of September 19, 1991 to the Agreement dated as of
June 2, 1988 between King World F.S.C. Corporation and Unilever N.V.
(incorporated by reference to Exhibit 10.26 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended August 31, 1997).
10.27* Amendment dated June 13, 1994 to the Agreement dated June 2, 1988, as
amended as of June 13, 1989 and September 19, 1991, between King
World F.S.C. Corporation and Unilever N.V. (incorporated by reference
to Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended August 31, 1994).
10.28* Amendment dated as of July 11, 1995 to the Agreement dated June 2,
1988, as amended as of June 13, 1989, September 19, 1991 and as of
June 13, 1994 between King World F.S.C. Corporation and Unilever N.V.
(incorporated by reference to Exhibit 10.24 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended August 31, 1995).
10.29* Amendment dated as of September 1, 1996 to the Agreement dated June
2, 1988, as amended as of June 13, 1989, September 19, 1991, June 13,
1994 and July 11, 1995 between King World F.S.C. Corporation and
Unilever N.V. (incorporated by reference to Exhibit 10.28 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1996).
10.30** Agreement dated March 2, 1998 between the Registrant and MGM Domestic
Television Distribution Inc.
10.31** Agreement dated as of September 16, 1998 between the Registrant and
Harpo, Inc.
10.32 Employment Agreement, dated May 27, 1997, between the Registrant and
Fred Cohen, as amended.
10.33 Employment Agreement, dated September 28, 1995, between the Registrant
and Andrew Friendly, as amended.
10.34 Employment Agreement, dated June 23, 1989, between the Registrant and
Don Prijatel, as amended.
10.35 Employment Agreement, dated September 1, 1988, between the Registrant
and Stuart Stringfellow, as amended.
21.1. List of Subsidiaries of the Registrant.
23.1. Consent of Independent Public Accountants.
27.1 Financial Data Schedule.
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of the
Securities and Exchange Commission granting confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
54
(b) Reports on Form 8-K filed during the last quarter of the fiscal
year ended August 31, 1998:
On July 27, 1998, the Company filed a current report on Form 8-K
announcing that Jules Haimovitz, the Company's President and Chief Operating
Officer, had left the Company.
For the purposes of complying with the amendments to the rules
governing Form S-8 under the Securities Act of 1933, as amended, the
undersigned registrant hereby undertakes as follows, which undertaking
shall be incorporated by reference into registrant's Registration
Statement on Form S-8 No. 33-30695 (filed August 24, 1990):
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than for the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person
of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: November 24, 1998 KING WORLD PRODUCTIONS, INC.
By /s/ Steven A. LoCascio
Steven A. LoCascio
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/S/ MICHAEL KING Vice Chairman and November 24, 1998
- --------------------
Michael King Chief Executive Officer
and Director (principal
executive officer)
/S/ ROGER KING Director November 24, 1998
Roger King
/S/ DIANA KING Director November 24, 1998
Diana King
/S/ RICHARD KING Director November 24, 1998
Richard King
/S/ JOEL CHASEMAN Director November 24, 1998
Joel Chaseman
56
/S/ FREDRIC D. ROSEN Director November 24, 1998
- --------------------
Fredric D. Rosen
/S/ RAYMOND G. CHAMBERS Director November 24, 1998
- ------------------------
Raymond G. Chambers
/S/ AVRAM MILLER Director November 24, 1998
Avram Miller
/S/ STEVEN A. LOCASCIO November 24, 1998
- ------------------------ Senior Vice President
Steven A. LoCascio and Chief Financial
Officer (principal
financial and accounting
officer)
57
EXHIBIT INDEX
Exhibit
NO. DESCRIPTION PAGE
3.1. Registrant's Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration Statement
No. 2-93987).
3.2. Certificate of Amendment to the Registrant's Restated Certificate of
Incorporation (incorporated by reference to Exhibit 3.3 to the
Registrant's Registration Statement No. 33-8357).
3.3. Certificate of Amendment to the Registrant's Restated Certificate of
Incorporation (incorporated by reference to Exhibit 3(i) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended May 31, 1998).
3.4. Registrant's By-laws, as amended through May 8, 1998 (incorporated by
reference to Exhibit 3.3 to the Registrant's Annual Report on Form
10-K for the quarterly period ended May 31, 1998).
10.1. Agreement dated July 12, 1984 between Leo A. Gutman, Inc. and the
Registrant with exhibits (incorporated by reference to Exhibit 10.3 to
the Registrant's Registration Statement No. 2-93987).
10.2. Agreements dated August 6, 1970, July 31, 1970, and May 29, 1969,
between Hal Roach Studios, Inc. and the Registrant, with amendment
dated June 8, 1983 and exhibits (incorporated by reference to Exhibit
10.5 to the Registrant's Registration Statement No. 2-93987).
10.3.* Distribution Agreement dated December 15, 1982, between Califon
Productions, Inc. and the Registrant, with amendment dated July 8,
1983 (incorporated by reference to Exhibit 10.7 to the Registrant's
Registration Statement No. 2-93987).
10.4.* Amendment, dated April 23, 1990, to the Distribution Agreement dated
December 15, 1982, between Califon Productions, Inc. and the
Registrant (incorporated by reference to Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1995).
10.5.* Distribution Agreement dated November 1, 1983, between Califon
Productions, Inc. and the Registrant, with amendment dated March 26,
1984 (incorporated by reference to Exhibit 10.9 to the Registrant's
Registration Statement No. 2-93987).
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment. Such
deleted information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
58
Exhibit
NO. DESCRIPTION PAGE
10.6. Employment Agreement, dated December 20, 1995, between Mr. Roger King
and the Registrant (incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended February 29, 1996).
10.7. Employment Agreement, dated December 20, 1995, between Mr. Michael
King and the Registrant (incorporated by reference to Exhibit 10.2 to
the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended February 29, 1996).
10.8. Employment Agreement, date as of June 6, 1997 between Jules Haimovitz
and the Registrant (incorporated by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended May 31, 1997).
10.9. Employment Agreements between the Registrant and the individuals named
below:
Name of Employee
Or Consultant DATE OF AGREEMENT
Steven Hirsch . . . . . September 3, 1996
Jonathan Birkhahn . . . September 1, 1996
Michael Spiessbach. . . September 3, 1996
Robert V. Madden. . . . September 3, 1996
(incorporated by reference to Exhibit 10.9 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended August
31, 1996).
10.10. King World Productions, Inc. Retirement Savings Plan dated September
17, 1992 (incorporated by reference to Exhibit 10.7 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1993).
10.11. 1996 Amended and Restated Stock Option and Restricted Stock Purchase
Plan of the Registrant (incorporated by reference to Exhibit 10.11 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997).
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment. Such
deleted information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
59
Exhibit
NO. DESCRIPTION PAGE
10.12. Incentive Equity Compensation Plan for Senior Executives of the
Registrant (incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement No. 33-30695).
10.13. Form of Indemnification Agreement between the Registrant and the
Registrant's directors (incorporated by reference to Exhibit 10.13 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997).
10.14.* Agreement dated January 30, 1987 between the Registrant and Harpo,
Inc. and amendment thereto dated July 29, 1988 (incorporated by
reference to Exhibit 10.12 to the Registrant's Annual Report on Form
10-K for the fiscal year ended August 31, 1993).
10.15.* Amendment dated as of October 15, 1989 to the Agreement dated January
30, 1987 between the Registrant and Harpo, Inc. (incorporated by
reference to Exhibit 10.13 to the Registrant's Annual report on Form
10-K for the fiscal year ended August 31, 1995).
10.16.* Agreement dated as of March 17, 1994 between the Registrant and
Harpo, Inc. (incorporated by reference to 8- K/A dated May 18, 1994).
10.17.* Agreement dated as of October 6, 1995 between the Registrant and
Harpo, Inc. (incorporated by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q/A for the fiscal quarter
ended February 29, 1996).
10.18. Stock Option Agreement dated as of January 28, 1991 between the
registrant and Oprah Winfrey (incorporated by reference to Exhibit
10.2 to the Registrant's Registration Statement No. 33-71696).
10.19. Stock Option Agreement dated as of January 28, 1991 between the
registrant and Jeffrey D. Jacobs (incorporated by reference to
Exhibit 10.3 to the Registrant's Registration Statement No. 33-71696).
10.20. Form of Stock Option Agreement between the registrant and Oprah
Winfrey (incorporated by reference to Exhibit
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment. Such
deleted information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
60
Exhibit
NO. DESCRIPTION PAGE
10.19 to the Registrant's Annual report on Form 10-K for the fiscal
year ended August 31, 1995).
10.21. Form of Stock Option Agreement between the registrant and Jeffrey D.
Jacobs (incorporated by reference to Exhibit 10.20 to the Registrant's
Annual report on Form 10-K for the fiscal year ended August 31, 1995).
10.22.* Settlement Agreement, dated as of September 15, 1997, by and among
Califon Productions, Inc. on Jeopardy Productions, Inc., Sony Pictures
Entertainment Inc., The Game Show Network, L.P. and the Registrant
(incorporated by reference to Exhibit 10.22 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended August 31, 1997).
10.23* Letter Agreement, dated October 1, 1991, between Orion Pictures
Corporation and the Registrant, under which Orion Picture Corporation
transferred to the Registrant trademark, copyright and other property
rights as more fully described therein to the television series enti-
tled "Hollywood Squares" with accompanying Security Agreement and
Assignment (incorporated by reference to Exhibit 10.23 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997).
10.24* Agreement made and entered into on the 14th day of May, 1997, by and
between K.W.M., Inc. and Full Moon & High Tide Productions, Inc.,
providing the services of Roseanne (incorporated by reference to
Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended August 31, 1997).
10.25.* Agreement dated as of June 2, 1988 between King World F.S.C.
Corporation and Unilever N.V. and amendment thereto dated as of June
13, 1989 (incorporated by reference to Exhibit 10.20 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1994).
10.26.* Amendment dated as of September 19, 1991 to the Agreement dated as of
June 2, 1988 between King World F.S.C. Corporation and Unilever N.V.
(incorporated by reference to Exhibit 10.26 to the Registrant's Annual
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment. Such
deleted information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
61
Exhibit
NO. DESCRIPTION PAGE
Report on Form 10-K for the fiscal year ended August 31, 1997).
10.27* Amendment dated June 13, 1994 to the Agreement dated June 2, 1988, as
amended as of June 13, 1989 and September 19, 1991, between King
World F.S.C. Corporation and Unilever N.V. (incorporated by reference
to Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended August 31, 1994).
10.28* Amendment dated as of July 11, 1995 to the Agreement dated June 2,
1988, as amended as of June 13, 1989, September 19, 1991 and as of
June 13, 1994 between King World F.S.C. Corporation and Unilever N.V.
(incorporated by reference to Exhibit 10.24 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended August 31, 1995).
10.29* Amendment dated as of September 1, 1996 to the Agreement dated June
2, 1988, as amended as of June 13, 1989, September 19, 1991, June 13,
1994 and July 11, 1995 between King World F.S.C. Corporation and
Unilever N.V. (incorporated by reference to Exhibit 10.28 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1996).
10.30** Agreement dated March 2, 1998 between the Registrant and MGM Domestic
Television Distribution Inc.
10.31** Agreement dated as of September 16, 1998 between the Registrant and
Harpo, Inc.
10.32 Employment Agreement, dated May 27, 1997, between the Registrant and
Fred Cohen, as amended.
10.33 Employment Agreement, dated September 28, 1995, between the Registrant
and Andrew Friendly, as amended.
10.34 Employment Agreement, dated June 23, 1989, between the Registrant and
Don Prijatel, as amended.
10.35 Employment Agreement, dated September 1, 1988, between the Registrant
and Stuart Stringfellow, as amended.
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment. Such
deleted information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
62
Exhibit
NO. DESCRIPTION PAGE
21.1. List of Subsidiaries of the Registrant.
23.1. Consent of Independent Public Accountants.
27.1 Financial Data Schedule.
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment. Such
deleted information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
63