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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 [FEE REQUIRED]
For the fiscal year ended August 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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.)
1700 Broadway
New York, New York 10019
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 212-315-4000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, New York Stock Exchange
$.01 par value
Securities registered pursuant to Section 12(g) of the Act:
None
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(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
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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. [ ]
The aggregate market value of the Common Stock of the
registrant held by non-affiliates as of November 15, 1994 was approximately
$1.008 billion.
As of November 15, 1994, there were 36,768,874 outstanding
shares of the registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement for its 1995
annual meeting of stockholders (which is to be filed pursuant to Regulation 14A
not later than December 29, 1994) is incorporated by reference into Part III of
this Form 10-K.
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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 President and Chief Executive Officer, and Diana King, a Vice
President and the Secretary of King World, are actively involved in the
management of King World. 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 1700 Broadway, New York, New York 10019 ((212)
315-4000). 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.
As a result of the deconsolidation of Buffalo Broadcasting Co.
Inc. from the financial statements of King World as of August 4, 1992 (see Note
2 of Notes to Consolidated Financial Statements), 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.
PROGRAMMING AND RELATED OPERATIONS
First-run Television Syndication
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 series in national syndication, as reported in the July 1994 Nielsen
Designated Market Area Ranking Report: Wheel of Fortune and Jeopardy! had the
two highest ratings among all syndicated television shows;
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and The Oprah Winfrey Show had the highest ratings among all national
television talk shows. According to Nielsen, Wheel of Fortune has had the
highest ratings among shows in national syndication for the last 43 consecutive
sweeps periods, Jeopardy! has had the second highest ratings among such shows
for each of the last 36 consecutive sweeps periods and The Oprah Winfrey Show
has had the third highest ratings among such shows for 24 of the last 32 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 $480.7 million in fiscal 1994 and its net income has increased
from $9.8 million in fiscal 1985 to $88.3 million in fiscal 1994. 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 82% of King World's revenues for the fiscal year
ended August 31, 1994. Information for the 1994 fiscal year gives effect to a
change in accounting for revenue recognition adopted by the Company on a
prospective basis in the fourth quarter of fiscal 1994. See Note 1 of Notes
to Consolidated Financial Statements.
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
primarily with other first-run syndicated programming, network reruns and
programming produced by local television stations.
The United States television market is served primarily by
network-owned-and-operated stations, network-affiliated stations, independent
stations and cable operators. 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 (the
ABC Television Network, the CBS Television Network, the NBC Television Network
and the Fox Broadcasting Company), and stations affiliated with those networks,
broadcast schedules consisting primarily of programming produced for initial
exhibition by the networks. 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 cable operators, in addition to other services
that they offer, telecast syndicated programming.
Nielsen divides the United States into 211 designated market
areas and approximately 29 additional special market areas
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that, on the basis of size and the other Nielsen criteria, do not qualify as
designated market areas. The approximately 240 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 1993-1994 broadcast season, Wheel of Fortune 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, covering approximately 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 1993-1994 broadcast season,
Jeopardy! was licensed to television stations in 192 Nielsen market areas in
the United States, covering approximately 98% of total domestic television
households, and for the current broadcast season has been licensed to
television stations in 192 Nielsen market areas, covering approximately 98% 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, until October 1988, 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
1993-1994 broadcast season, The Oprah Winfrey Show was licensed to television
stations in 206 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 stations in 210 Nielsen market areas, covering more
than 99% of total domestic television households.
Inside Edition, a half-hour first-run syndicated newsmagazine
series that is produced and distributed by King World, premiered in January
1989. It is 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 1993-1994 broadcast season, Inside
Edition was licensed to television stations in 154 Nielsen market areas,
covering approximately 92% of total domestic television households, and for the
current broadcast season, the series has been licensed to television stations
in 151 Nielsen market areas, covering approximately 91% of total domestic
television households.
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American Journal, a half-hour first-run syndicated
newsmagazine series that is also produced by King World in New York, premiered
in September 1993. American Journal is anchored by Nancy Glass, the Emmy
Award-winning former senior correspondent of Inside Edition. For the 1993-1994
broadcast season, American Journal was licensed to television stations in 111
Nielsen market areas, covering approximately 83% of total domestic television
households, and for the current broadcast season, the series has been licensed
to television stations in 120 Nielsen market areas, covering approximately 85%
of total domestic television households.
Rolonda, a daytime talk show that is also produced by King
World in New York, premiered in January 1994 following the cancellation of The
Les Brown Show. It is hosted by Rolonda Watts, a popular broadcast journalist.
For the 1993-1994 broadcast season, Rolonda was licensed to television stations
in 96 Nielsen market areas, covering approximately 77% of total domestic
television households. For the current broadcast season, Rolonda has been
licensed to television stations in 79 Nielsen market areas, covering
approximately 70% of total domestic television households.
Each of The Oprah Winfrey Show, Wheel of Fortune, Jeopardy!,
Inside Edition, and American Journal has been licensed to television stations
for exhibition in future broadcast seasons, commencing with the 1995-1996
broadcast season and extending, in certain cases, as far into the future as the
1999-2000 broadcast season. Revenues and related expenses under license
agreements with respect to future broadcast seasons will not be recognized
until the license periods thereunder have begun and certain other conditions
are satisfied. As of October 31, 1994, the gross amount of license fees under
such agreements approximated $2.1 billion, of which approximately $1.2 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, 1994 is subject to the
satisfaction of several conditions, including, with respect to amounts
attributable to The Oprah Winfrey Show, the agreement of the producer and Ms.
Winfrey to continue to produce and host the show after the 1995-1996 television
season (which they are not contractually obligated to do). Such amounts do not
include sales of advertising time retained during the broadcast of such program
material or foreign license fees and do not reflect the production costs to be
incurred for programming produced by King World.
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 assur-
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ance that the key personalities on such programs, such as Oprah Winfrey, Pat
Sajak, Vanna White and Alex Trebek, 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 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 most recent amendment to
such agreement, the Company has been granted the exclusive right, and has
agreed, to distribute episodes of The Oprah Winfrey Show produced through the
1999- 2000 broadcast season, subject to Harpo's and Ms. Winfrey's right to
decline to produce and host the show in any season after the 1995-1996 season.
Such agreement, among other things, establishes the production fees payable to
Harpo in the first two subject seasons and commits the Company to guaranty
payments to Harpo at levels which, commencing with the 1995-1996 season, will
be substantially higher than those currently in effect. In addition, in the
1997-1998 season and thereafter, profit sharing arrangements between Harpo and
the Company currently in effect will terminate and the Company will instead
receive distribution fees based on a percentage of gross revenues derived from
the series. After the 1999-2000 television season, Harpo will not be obligated
to distribute the series through the Company.
Under the terms of the amended agreement with Harpo, Ms.
Winfrey is subject until the 2000-2001 television season to certain
restrictions on her ability to appear in television shows with the same or
similar format as The Oprah Winfrey Show. In the event of certain corporate
transactions constituting a "change in control" of the Company under the
modified agreement, Harpo has the right to terminate such restrictions and,
under certain circumstances, receive additional consideration for producing the
series.
The financial arrangements in the amended agreement with Harpo
are less favorable to the Company than those contained in prior agreements
between the Company and Harpo and, unless offset by significant increases in
license fees paid for the series in forthcoming seasons, increased barter
revenues from the series or both, the Company's net profits derived from The
Oprah Winfrey Show will decline in the coming years. However, the Company
believes that the modified arrangements provide Harpo and Ms. Winfrey
additional incentives to continue to produce and host the series for the
1996-1997 and subsequent broadcast seasons and that the series will continue
to be an important and profitable distribution property for the Company.
The Company's agreements with Columbia TriStar Television
(formerly Merv Griffin Enterprises), the producer of Wheel of Fortune and
Jeopardy!, provide that King World shall be the exclusive distributor for such
series so long as the Company has obtained sufficient broadcast commitments to
cover production and distribution costs and that the Company may not, unless
otherwise agreed by Columbia TriStar Television, distribute game shows for
first-run strip syndication so long as the Company is distributing Wheel of
Fortune or Jeopardy!.
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
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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, for the most part, been developing and producing original
programming on its own or in cooperation with others.
In addition to Inside Edition, the Company is currently
producing American Journal and Rolonda for first-run strip syndication.
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 programming 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 programs and the amounts paid by
national advertisers for advertising time retained by the Company and sold in
connection with such programs. The Company also recoups certain 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 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.
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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 retains the net profits derived from the exploitation of the programming.
License fees payable by stations for the rights to broadcast
television programs and series 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 or series 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 programming in question. Advertising
time retained by King World in connection with program distribution is sold to
national advertisers by a wholly-owned subsidiary of the Company. See "Sale of
Advertising Time".
In the 1994 fiscal year, approximately 11% of the Company's
revenues were derived from license fees under contracts with television
stations owned by Capital Cities/ABC, Inc. No other television station,
broadcast group or advertiser accounted for ten percent or more of the
Company's revenues in the fiscal year.
Marketing
In the United States, there are approximately 240 Nielsen
designated and special market areas containing commercial and/or public
television stations. Sales to domestic television stations are made by the
Company through a sales force that numbered 13 persons as of November 15, 1994.
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.
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Sale of Advertising Time
Camelot Entertainment Sales, Inc. ("Camelot"), a wholly-owned
subsidiary of King World, sells advertising time within television programs.
As of November 15, 1994, Camelot employed eight salespersons.
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 1994-1995 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 been
licensed to stations covering approximately 99% and 98%, respectively, of the
total domestic television households; Inside Edition has been licensed to
stations covering approximately 91% of the total domestic television
households; American Journal has been licensed to stations covering
approximately 85% of the total domestic television households; and Rolonda has
been licensed to stations covering approximately 70% 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, Camelot is obligated 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 underdelivery.
Generally, a portion of the Company's contracts for the sale
of its advertising time may be cancelled 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, Camelot has sold advertising time primarily on
television programs distributed by King World. However, a portion of Camelot'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
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World. Camelot has agreements currently in effect with, among others,
Metro-Goldwyn-Mayer, Inc. to sell advertising time in Pink Panther, an animated
children's series, and Western International Syndication to sell advertising
time in It's Showtime at the Apollo, a variety program.
Foreign Sales
The Company licenses episodes of Wheel of Fortune, Jeopardy!,
The Oprah Winfrey Show and Inside Edition in Canada and certain other
English-speaking foreign territories. The Company also licenses the production
of foreign versions of Wheel of Fortune and Jeopardy! in a number of other
major foreign territories, including, among others, Australia, Germany and
Poland. Under licenses from King World, EC-TV, on behalf of 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 8% of King World's
revenues in fiscal 1994.
Merchandising and Film Library
The Company has granted licenses to others to produce Wheel of
Fortune and Jeopardy! boxed board games and to exploit certain of its
merchandising rights in The Little Rascals. King World also distributes its
own library of 68 feature length films and 210 television programs, including
14 Sherlock Holmes, 13 The East Side Kids, 9 Mr. Moto and 11 Charlie Chan
feature length films 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 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
1994.
Direct Response Marketing
The Company has launched King World Direct Inc., a new 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 the Wild America video series and
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Sears Craftsman Robogrip pliers. Revenue from direct response marketing
activities accounted for approximately 1% of the Company's revenues in fiscal
1994.
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
Prime-Time Access Rule
A rule promulgated by the Federal Communications Commission
("FCC") known as the "prime-time access rule" prohibits (subject to certain
significant exceptions) network-owned and network-affiliated television
stations 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 acquire either one
hour or one-half hour of program material for exhibition during the prime-time
access period from independent television producers and syndicators.
On October 20, 1994, the FCC initiated proceedings looking
toward reconsideration or modification of the prime-time access rule. These
proceedings were begun in response to petitions filed by a television station
in Orlando, Florida, seeking a determination that the prime-time access rule is
unconstitutional and a petition filed by a station group owner urging that the
rule be modified to permit the network-owned and -affiliated stations now
subject to the rule to broadcast, during the prime-
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time access period, programming that has previously aired on a network.
Proposals for modification or repeal are vigorously supported by the television
networks and certain major producers of programming intended for initial airing
on network television; such proposals are opposed by other station groups, by
organizations representing independent broadcasters (that is, those
unaffiliated with television networks) and by producers and distributors of
first-run syndicated programming, including the Company.
King World believes that the prime-time access rule is an
important counter-balance to the market power of the networks and that any rule
change that alters the prime-time access period, or that permits the prime-time
access period to be used for the exhibition of programming supplied by or
previously aired on the networks, probably will have a negative impact on
independently produced television programming broadcast in the prime-time
access period, such as Wheel of Fortune, Jeopardy! and Inside Edition.
The FCC is expected to conclude its reexamination of the
prime-time access rule during the first half of 1995. King World intends to
participate vigorously in the proceedings regarding such reexamination and to
urge that the rule be retained in its present form. However, King World is
unable to predict the outcome of such proceedings.
Syndication and Financial Interest Rules
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 (as defined under the
Rules) to acquire financial interests in, and to syndicate, television programs
previously aired by that network (a sector of programming in which King
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World has not to date had substantial involvement). The 1991 Decision retained
stringent limitations on network involvement in first-run syndication
activities. Under the Rules as revised in 1991, a network could retain a
continuing financial interest in a first-run program or series only if the
program or series were produced solely by such network; any such first-run
syndicated programming could be syndicated domestically only through a
syndicator that was not owned or controlled by the network. The 1991 Decision
defined a network as an entity regularly providing more than 15 hours per week
of programming during prime-time hours to interconnected affiliated stations
that reached, in the aggregate, at least 75 percent of television households
nationwide. Under this definition, each of ABC, CBS and NBC was subject to the
1991 Rules as a network unless such entity reduced the amount of prime-time
programming it provided to less than 15 hours per week; Fox Broadcasting
Company was not a network for purposes of the Rules because it did not meet the
15 hour per week threshold.
The 1991 Decision was appealed to the United States Court of
Appeals for the Seventh Circuit, which, in early November 1992, overturned the
1991 Decision and remanded the matter to the FCC for further proceedings. In
April 1993, after further proceedings, the FCC voted to further modify the
Rules (the "1993 Decision"), in the following principal respects:
(a) The restrictions contained in the 1991 Decision with
respect to network involvement in first- run syndicated programming within the
United States have been retained. Accordingly, networks (as defined) continue
to be prohibited from acquiring any financial interests in, or actively
syndicating, any first-run syndicated programming within the United States;
provided that networks continue to be permitted to own financial interests and
syndication rights in first-run syndicated programming produced solely
in-house, subject to the active syndication prohibition. That is, networks
must engage independent syndicators to effect the actual distribution of such
programming.
(b) The definition of a network has been retained.
However, the 1993 Decision permanently excludes from the application of the
Rules any entity that did not fall within the definitional criteria as of June
1993. As a result, the Fox Broadcasting Company and other emerging networks
are not and will not be subject to the Rules even if and when they reach the 15
hour per week threshold.
(c) The prohibition contained in the 1991 Decision on
active network syndication in the United States of certain off-network
programming has been made applicable to all network programming, regardless of
whether the program in question was
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produced by a network in-house or when the network came to acquire the
syndication rights.
(d) All other restrictions (except for certain
anti-warehousing rules applicable to off-network programming and reporting
requirements) on network acquisition of financial interest and syndication
rights in United States network programming have been eliminated.
In the 1993 Decision, the FCC stated that it would conduct a review of the
remaining Rules 18 months after the lifting of Consent Decrees (which in fact
occurred in November 1993). In such review proceeding, the burden of proof
will be placed on those (such as the Company) who seek to retain the remaining
restrictions. If, within six months after the launching of such review, the
proponents of retention have failed to persuade the FCC that retention is
justified, the remaining Rules will automatically expire.
The 1993 Decision was appealed to the United States Court of
Appeals for the Seventh Circuit and, in July 1994, it was upheld. However, the
Court's affirmance of the 1993 Decision rested significantly on the procedures
described above, which provide for automatic expiration of the remaining Rules
unless proponents of retention successfully persuade the FCC that retention is
justified.
As a result of these decisions (and the November 1993 decision
by the Federal District Court lifting the Consent Decrees), further proceedings
before the FCC by those (including the Company) that believe the remaining
Rules should be retained must be initiated not later than May 8, 1995. The
Company is unable to predict the outcome of such further proceedings. In any
event, under the terms of the 1993 Decision, network entry into the syndication
business will continue to be governed by the Rules, as modified by the 1993
Decision, for at least six months from the initiation of such proceedings (that
is, at least until November 1995).
The Company anticipates that, if the Rules are permitted to
expire as described above, the Company will have more difficulty licensing its
programming to stations owned and operated by the three major television
networks and that, even if the Company were able to so license its programming,
the profitability of such programming to the Company would, as a result of
terms imposed by such stations, be likely to be reduced. To the extent,
however, that the restrictions on network acquisition of financial interests
in, and active syndication of, first-run syndicated programming within the
United States continue beyond the above-described period, such Rules should not
have a material adverse effect on the Company's first-run syndication
activities.
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Other FCC Rules
FCC rules currently permit the common ownership of, in most
circumstances, up to twelve television stations, subject (in the case of
station groups) to certain limitations based on audience reach. The rules also
prohibit the common ownership of stations if certain defined service contours
overlap. In May 1992, the FCC initiated proceedings requesting comments on
various proposals to relax the ownership restrictions placed on television
broadcasters and networks. The FCC is considering proposals to increase the
number of stations that a network or station group may control and/or to relax
the audience reach limitations; it is also considering relaxing the limitations
on the number of stations with overlapping service contours that may be under
common ownership. King World is unable to predict the outcome of these
proceedings. King World believes that increases in the concentration of
television station ownership, either by the networks or by broadcast groups,
will tend to increase the power of the networks and the broadcast groups in the
market for television programming and, consequently, could adversely affect
King World's bargaining position vis-a-vis its customers.
A federal district court has held unconstitutional, on First
Amendment grounds, provisions of the 1992 Cable Act that require the FCC to
prescribe rules and regulations establishing "reasonable limits on the number
of cable subscribers" that a cable operator is authorized to reach through
cable systems it owns or controls. The U.S. Justice Department has appealed
this determination. However, the rationale for this decision (if ultimately
affirmed) may implicate the constitutionality of other FCC structural
regulations, including the rules that limit the number of television stations
that a television network or station group may own.
In October 1992, Congress enacted legislation imposing certain
new regulations on the cable television industry. 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. Since the advent of these
"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, and in the future other cable
systems could refuse or fail to reach such agreements. Although the Company
has suffered
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17
no discernible adverse impact to date, any such future decreases in audience
could come to adversely affect the license fees and revenues from the sale of
retained advertising time received by the Company from its programming. Turner
Broadcasting System and a number of cable television networks and cable systems
have brought or joined in lawsuits challenging the constitutionality of the
retransmission consent and "must carry" provisions of the legislation. In
April 1993, a three-judge district court, by a divided vote, upheld the
must-carry provisions of the 1992 Cable Act. In June 1994, the United States
Supreme Court overturned that decision and remanded the case to the District
Court for a trial. The burden of proving that the must-carry rules do not
infringe upon cable operators' rights under the First Amendment has been placed
upon those who seek to justify the rules. The must-carry rules will remain in
effect during the pendency of the trial. In a lawsuit that is related to, but
separate from, the litigation concerning must-carry, the retransmission consent
provisions of the 1992 Cable Act were upheld by the United States Court of
Appeals for the District of Columbia; this decision was not disturbed by the
United States Supreme Court.
Legislation governing the cable television industry, and FCC
implementing regulations, impose significant limits on the ability of a local
telephone company to enter into the business of creating and of distributing
video programming within its franchised telephone service area. In August
1993, a federal district court in Virginia held that these restrictions are
unconstitutional on First Amendment grounds. The Department of Justice, which
is responsible for the defense of this action, has appealed this determination.
In 1992, the FCC adopted regulations which permit telephone
companies to make their common carrier facilities available for the carriage of
video programming ("video dialtone"). As promulgated, the rules severely
limited the ability of a local telephone company to acquire financial interests
in video programming distributed over its own telephone facilities. In October
of 1994, the FCC revised its video dialtone rules but retained the restrictions
on a telephone company's acquisition of financial interests in programming
transmitted over its own telephone facilities. Judicial appeals of this
determination, and legislation addressing the question of telephone company
entry into the television programming business, are expected. King World is
unable to predict the outcome of any of these proceedings. However, to the
extent that telephone companies are permitted to engage in the production and
distribution of video programming (or to acquire financial interests in video
programming distributed over telephone company facilities), the position of
over-the-air television stations in the video marketplace could be
substantially weakened, thus resulting in decreased audiences for King World
programming aired on those stations.
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BROADCASTING
In December 1988, the Company acquired Buffalo Broadcasting
Co. Inc. ("Buffalo"), which owns and operates WIVB-TV, Channel 4, a VHF
television station in Buffalo, New York. WIVB-TV is affiliated with the CBS
Television Network.
Buffalo entered into a Restructuring Agreement dated as of
April 30, 1992, with its lenders and a newly formed subsidiary of King World,
Buffalo Management Enterprises Co. Inc., providing for a restructuring of
Buffalo's debt and substantial modifications to Buffalo's equity and governance
structure. As a result of such restructuring, Buffalo ceased to be a
consolidated subsidiary of King World. See Note 2 of Notes to Consolidated
Financial Statements.
Employees
As of November 15, 1994, the Company employed 430 persons. Of
this number, 292 are involved in the production of Inside Edition, American
Journal and Rolonda. Thirty-two of the Company's employees are covered by
collective bargaining agreements.
Item 2. DESCRIPTION OF PROPERTIES
The Company's corporate headquarters are located in New York,
New York, where it leases office space for executive offices, the operations of
Camelot and the Company's eastern U.S. and foreign sales staff. The Company's
accounting, contract administration and research departments are located in
leased offices in Short Hills, New Jersey. The Company also leases office
space in Los Angeles for executive offices, its creative services department,
program development and direct response marketing operations and its western
U.S. sales staff, and in Chicago, West Palm Beach 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.
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None.
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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 1993
First Quarter Ended
November 30, 1992 . . . . . . . . . . 33 24 1/4
Second Quarter Ended
February 28, 1993 . . . . . . . . . . 36 32 1/4
Third Quarter Ended
May 31, 1993 . . . . . . . . . . . . . 35 3/4 32
Fourth Quarter Ended
August 31, 1993 . . . . . . . . . . . 38 3/8 32 5/8
Fiscal 1994
First Quarter Ended
November 30, 1993 . . . . . . . . . . 42 5/8 36 1/4
Second Quarter Ended
February 28, 1994 . . . . . . . . . . 42 3/8 37
Third Quarter Ended
May 31, 1994 . . . . . . . . . . . . . 42 33 5/8
Fourth Quarter Ended
August 31, 1994 . . . . . . . . . . . 44 37 1/4
As of the close of business on October 31, 1994, there were
835 holders of record of the Company's Common Stock.
The Company has not paid cash dividends since 1979. The
Company has no present intention to pay dividends on its Common Stock. The
Company requires substantial amounts 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 "Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Liquidity and Capital Resources".
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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, 1994, which have been audited and reported upon
by Arthur Andersen LLP, independent public accountants. The unaudited 1994 pro
forma data 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.
Statements of Income: Year Ended August 31,
--------------------------------------------------------------------------------------
1994(1) 1994 Pro forma(1) 1993 1992 1991 1990
---- -------------- ---- ---- ---- ----
(unaudited)
(Dollars in thousands except per share data)
Revenues . . . . . . . . . . . . . . . $480,659 $541,390 $474,312 $503,174 $475,909 $453,749
Income from opera-
tions . . . . . . . . . . . . . . . 127,578 148,151 150,950 152,481 154,084 142,828
Income before provi-
sion for income
taxes . . . . . . . . . . . . . . . . 140,839 161,412 162,592 164,725 154,028 139,651
Net income . . . . . . . . . . . . . . 88,300 101,196 101,936 94,880(2) 90,591(3) 84,100
======== ======== ======== ======= ======== ========
Primary earnings per
share . . . . . . . . . . . . . . . . $ 2.33 $ 2.67 $ 2.65 $ 2.43(2) $ 2.31(3) $ 2.15
======== ======== ======== ======= ======== ========
Balance Sheets: August 31,
--------------------------------------------------------------------------------------
1994(1) 1994 Pro forma(1) 1993 1992 1991 1990
---- -------------- ---- ---- ---- ----
(unaudited)
(Dollars in thousands)
Cash and invest-
ments . . . . . . . . . . . . . . . . $430,048 $430,048 $384,489 $355,612 $241,915 $153,201
Working capital . . . . . . . . . . . . 294,336 307,232 286,348 273,086 126,489(4) 125,119
Total assets . . . . . . . . . . . . . 569,562 630,293 535,546 498,240 500,834 406,950
Long-term debt . . . . . . . . . . . . -- -- -- -- 97,238(4) 90,683
Stockholders'
equity . . . . . . . . . . . . . . . 459,077 471,973 394,173 342,919 241,655 146,402
======== ======== ======== ======== ======== ========
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___________________________
(1) The results of operations for fiscal 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 and primary earnings per share to be
approximately $60.7 million, $20.6 million, $20.6 million, $12.9
million and $.34 lower, respectively, than they would have been under
the Company's prior revenue recognition practice. Such revenues will
be recognized in subsequent periods under the modified accounting
practice. The unaudited 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 fiscal quarter
of 1994. See Note 1 of Notes to Consolidated Financial Statements.
(2) Net income and primary earnings per share include the effect of a net
loss from the deconsolidated operations of Buffalo Broadcasting Co.
Inc. ("Buffalo"), a former subsidiary of the Company, of approximately
$7.7 million and $.20, respectively. See Note 2 of Notes to
Consolidated Financial Statements.
(3) Net income and primary earnings per share include the effect of an
extraordinary loss of approximately $2.6 million and $.07,
respectively, in fiscal 1991, as a result of the write-off of King
World's investment in Financial News Network, Inc.
(4) Working capital in fiscal 1991 reflects the reduction of $97.2 million
of long-term debt, which was reclassified as a current liability.
Such long-term debt was collateralized by all of the assets of Buffalo
and King World's stock in Buffalo. Such long-term debt was
restructured in fiscal 1992, as a result of which Buffalo was
deconsolidated from King World's financial statements. See Note 2 of
Notes to Consolidated Financial Statements.
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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.
Historically, King World has followed a practice of recognizing
license fees from the distribution of first-run syndicated television
properties at the commencement of the license period and as each show was
produced (even though the particular show may not have been broadcast by a
television station for several months). This practice has had the effect
of creating variations in the Company's reported revenues and earnings from
quarter to quarter, corresponding to the greater or smaller number of shows
that were produced in a particular quarter, which were not necessarily
indicative of longer term trends in the Company's business.
In the fourth quarter of the 1994 fiscal year, the Company
adopted a change in accounting for revenue recognition which has been
accounted for prospectively as a change in accounting estimate as opposed
to a change in accounting principle. Under the modified practice, 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,
rather than at the time the show is produced. Because transmission to the
satellite takes place, on the average, no more than two to three days prior
to the broadcast of the programming and in some cases several months after
the programming is produced, the effect of adopting the modified practice
will be to cause revenues from certain series to be recognized closer to
the air date than under the prior practice. This effect is greater for
Wheel of Fortune and Jeopardy!, which have a longer lag time between
production and satellite transmission, and less for The Oprah Winfrey Show,
Inside Edition, American Journal and Rolonda, which are produced closer to
the time the shows are transmitted to the licensee. In addition, the
accounting change will eliminate the quarterly revenue and earnings
fluctuations that resulted from variations in production schedules.
The one-time impact of adopting the change was to cause fourth
quarter fiscal 1994 revenues, net income and earnings per share to be
approximately $60.7 million, $12.9 million and $.34 lower, respectively,
than they would have been under the prior practice, with no impact on cash
flow. Such revenues will be
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24
recognized in subsequent periods under the modified accounting practice.
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 Camelot Entertainment
Sales, Inc. ("Camelot"), 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. That portion of recognized revenue that is to be paid to
the producers and owners of the licensed program material is accrued as the
license fees are earned. See Note 1 of Notes to Consolidated Financial
Statements.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL 1994 AND FISCAL 1993
Revenues
Due to the adoption of the accounting change referred to above,
the Company's revenues for the fiscal year ended August 31, 1994 increased
by 1% over the prior year. Had revenues in the fourth quarter of fiscal
1994 been recognized on a basis comparable to prior periods, revenues for
fiscal 1994 would have been approximately 14% higher than fiscal 1993, due
primarily to the introduction of new shows produced and distributed by the
Company (American Journal, which debuted in September 1993, and Rolonda,
which debuted in January 1994, and The Les Brown Show, which debuted in
September 1993 and was cancelled in January 1994), increased cash license
fees from The Oprah Winfrey Show and Inside Edition and, to a lesser
extent, an increase in revenues derived from the sale of retained
advertising time on Wheel of Fortune, Jeopardy! and Inside Edition.
The Oprah Winfrey Show, Wheel of Fortune, Jeopardy! and Inside
Edition accounted for approximately 41%, 17%, 15% and 9%, respectively, of
the Company's revenues for fiscal 1994, compared to 39%, 24%, 20% and 8%,
respectively, for the prior year. American Journal, Rolonda and The Les
Brown Show accounted for approximately 5%, 2% and 2%, respectively, of the
Company's revenues for fiscal 1994. The decreases in the relative contri-
butions of Wheel of Fortune and Jeopardy! to the Company's fiscal 1994
revenues are primarily attributable to the impact of the accounting change,
which had the effect of decreasing fourth quarter revenues derived from
these two series. On a basis of accounting comparable to that employed
prior to the fourth quarter of fiscal 1994, The Oprah Winfrey Show, Wheel
of Fortune, Jeopardy! and Inside Edition would have accounted for approxi-
mately 36%, 21%, 18% and 8%, respectively, of the Company's
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25
revenues for fiscal 1994. American Journal, Rolonda and The Les Brown Show
would have accounted for approximately 4%, 2%, and 1%, respectively, of the
Company's revenues for fiscal 1994.
Producers' fees, programming and other direct operating costs
Producers' fees, programming and other direct operating costs
primarily include the producers' share of both cash license fees from the
sale of programming to television stations and revenues derived from the
sale of retained advertising time to advertisers with respect to
programming distributed by the Company; participation fees payable by the
Company to producers and talent; and production and distribution costs for
first-run syndicated programming. The share of license fees 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.
Producers' fees, programming and other direct operating costs
increased by approximately 5% for fiscal 1994 compared with fiscal 1993.
Because the recognition of these costs and expenses generally coincides
with the recognition of the revenues with which they are associated, the
adoption of the modified accounting practice in the fourth quarter of
fiscal 1994 caused the increase in producers' fees, programming and other
direct operating costs in fiscal 1994 to be substantially lower than it
would have been under the prior revenue recognition practice. On a basis
of accounting comparable to that employed prior to the fourth quarter of
fiscal 1994, producers' fees, programming and other direct operating costs
would have increased by approximately 20% in fiscal 1994 over the prior
year, primarily as a result of production costs associated with American
Journal, Rolonda and The Les Brown Show, and as a result of the higher
level of revenues generated by The Oprah Winfrey Show, of which the
producer was entitled to a greater percentage in the 1993-1994 broadcast
season compared with the prior season.
Selling, general and administrative expenses
Selling, general and administrative expenses for fiscal 1994
increased by approximately 27% over the prior year. The increase is
primarily attributable to advertising and promotion costs associated with
American Journal, Rolonda and The Les Brown Show and higher promotion
expenditures for The Oprah Winfrey Show. (During fiscal 1993, no new shows
were introduced.) To a lesser extent, the increase is attributable to
payment of the new show bonuses and reserves for the other executive
bonuses referred to below.
In December 1993, the Company entered into new employment
agreements with four executive officers. The agreements
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26
provide, among other things, for new bonuses that are intended to qualify
as "performance based compensation" (within the meaning of Section 162(m)
of the Internal Revenue Code of 1986, as amended), including bonuses
payable upon the introduction of new shows and bonuses contingent upon the
Company's Common Stock achieving specified target prices during
preestablished measurement periods. As a result, the Company's
compensation expense will increase if the Common Stock price exceeds the
specified target prices during the applicable measurement periods.
As of August 31, 1994, the first measurement date for such
bonuses, the applicable target prices of the Company's Common Stock for
certain of such bonuses had not been met. However, as of such date, the
Company provided for the probability that such target prices will be met in
future measurement periods and such bonuses will be paid pursuant to the
terms of such employment agreements.
Net income and primary earnings per share
The Company's operating income for fiscal 1994 decreased by
approximately 15% compared to the prior year, primarily due to the change
in accounting practice adopted by the Company in the fourth quarter of
fiscal 1994. But for such change, the Company's operating income would
have been slightly less than 2% below the prior year. The accounting
change further resulted in a 13% decrease in net income, which, but for the
accounting change, would have been approximately equal to that of the prior
year, reflecting higher interest income earned on the Company's cash and
investments due to a higher level of investments in fiscal 1994 and
moderate increases in interest rates over the prior year, offset by a
slight decrease in operating income. Primary earnings per share, which
decreased by $.34 due to the accounting change, would have been slightly
higher than fiscal 1993 had the prior method of revenue recognition been
employed in the fourth quarter of fiscal 1994, due to a smaller number of
shares outstanding as a result of the Company's ongoing stock repurchase
program.
COMPARISON OF FISCAL 1993 AND FISCAL 1992
Revenues
The Company's revenues for the year ended August 31, 1993
decreased by approximately 6% over the prior year. The reduction was
primarily due to reduced cash license fees from Wheel of Fortune and, to a
lesser extent, Jeopardy!, reflecting lower license fees per show and the
production of a smaller number of Wheel of Fortune and Jeopardy! shows in
fiscal 1993 as compared to the prior year. Revenues were further reduced
due to the cancellation of Candid Camera, which was not renewed for the
1992-1993 broadcast season. These decreases were partially
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27
offset by increases in cash license fees from The Oprah Winfrey Show and
Inside Edition, due to higher license fees per show. In addition, revenues
derived from the sale of retained advertising time on all shows increased
on a per show basis, reflecting a general improvement in the market for
television advertising time.
The Oprah Winfrey Show, Wheel of Fortune, Jeopardy! and Inside
Edition accounted for approximately 39%, 24%, 20% and 8%, respectively, of
the Company's revenues for fiscal 1993, compared to 34%, 28%, 20% and 7%,
respectively, for the prior year. Revenues from Candid Camera accounted
for approximately 4% of the Company's revenues for fiscal 1992.
Producers' fees, programming and other direct operating costs
Producers' fees, programming and other direct operating costs
decreased for fiscal 1993, primarily as a result of decreased revenues from
Wheel of Fortune and Jeopardy!, a portion of which is payable to the
producer of such programming, and the elimination of production costs
associated with Candid Camera. This decrease was partially offset by
increased participation fees paid to the producer of The Oprah Winfrey
Show, due to the higher level of revenues generated by the show.
Selling, general and administrative expenses
Selling, general and administrative expenses for fiscal 1993 were
comparable to fiscal 1992. Advertising and promotion expenditures
decreased in fiscal 1993 compared to fiscal 1992, primarily as a result of
substantially higher advertising and promotion expenditures in fiscal 1992
associated with the introduction of Candid Camera and higher advertising
and promotion expenditures for the 1991-1992 season of The Oprah Winfrey
Show. However, such decrease was offset by increases in other areas,
primarily increased costs associated with the development of American
Journal and The Les Brown Show, two new programs produced and distributed
by King World that debuted in first-run syndication in September 1993.
Net income and primary earnings per share
The Company's income before provision for income taxes decreased
slightly in fiscal 1993 compared to the prior year. This was due to the
factors discussed above and slightly lower interest income, reflecting
lower interest rates in fiscal 1993, increased levels of tax-exempt
investments by the Company (which generally have lower yields than taxable
investments of a similar nature) and the use of cash (which had been
invested in interest-bearing instruments) to repurchase Common Stock. The
Company's 1993 financial statements also reflect a slightly lower effective
tax rate, which resulted, despite an increase in the Federal tax
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28
rate (enacted in the Company's fourth fiscal quarter but effective
retroactively as of January 1, 1993), primarily from the increased levels
of tax-exempt investments.
In addition, the Company's 1993 financial statements reflect the
absence of the results of operations of Buffalo Broadcasting Co. Inc.
("Buffalo"), formerly a wholly-owned subsidiary of the Company, which was
deconsolidated from the Company's financial statements as a result of a
financial restructuring of Buffalo effective August 4, 1992. The results
of operations of Buffalo decreased net income by $7.7 million and primary
earnings per share by $.20 in fiscal 1992.
Overall, net income for fiscal 1993 increased by $7.1 million or
approximately 7% over the prior year. As a result of such increase in net
income and the smaller weighted average number of shares outstanding
following the Company's repurchases of Common Stock in fiscal 1993, primary
earnings per share increased by $.22, or approximately 9%, in fiscal 1993
compared to the prior year.
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. In the recent past,
the advertising market has been somewhat depressed, although conditions
generally improved in fiscal 1993 compared to fiscal 1992 and the improve-
ment continued into fiscal 1994.
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 1999-2000 broadcast season. In
general, these licenses and renewals have been at rates as favorable or
more favorable to the Company than the rates applicable to the 1993-1994
and 1994-1995 broadcast seasons. All such licenses and renewals are
contingent upon the continued production of the series by their respective
producers through the broadcast seasons for which the licenses run.
The Company believes that the impact of inflation on its
operations has not been significant.
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29
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital resources to fund development,
production and promotion costs of independently produced programming,
including, in some instances, advances to producers and talent, to produce
its own programs and to acquire distribution rights to new programming. In
acquiring distribution rights from independent producers, King World has
tried to avoid making significant capital commitments to such producers
until it has obtained broadcast commitments from a substantial number of
television stations. As a result of this strategy and the success of its
existing syndication properties, to date, King World has funded
substantially all programming acquisition, development and production costs
and advances from its operations.
As King World has developed and produced its own programming for
syndication, it has assumed a greater portion of the risk associated with
the introduction of new series. The introductions of American Journal and
The Les Brown Show in the 1993-1994 broadcast season, and Rolonda, which
premiered in January 1994, have necessitated the expenditure by King World
of substantial amounts to fund development, production and promotion costs.
The Company has funded and intends to continue to fund such costs out of
its internal cash resources.
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. In
connection with the extension for the 1993-1994 and 1994-1995 broadcast
seasons of the commitment by Harpo, Inc. ("Harpo"), the producer of The
Oprah Winfrey Show, to produce The Oprah Winfrey Show for those seasons,
the Company made an interest-free loan to Harpo and became obligated to pay
Harpo certain minimum amounts against its participation fees for such
periods, irrespective of the amount of license fees generated by the series
in such periods. Harpo's participation fees for the 1993-1994 broadcast
season exceeded such minimum amounts for the 1993-1994 and 1994-1995
broadcast seasons. The loan is due in two installments of $8,625,000 each,
one of which was paid in July 1994 and the other of which is due in July
1995.
Under the terms of the Company's agreement with Harpo, the
Company has the exclusive right, and has agreed, to distribute episodes of
The Oprah Winfrey Show produced through the 1999-2000 television season,
subject to Harpo's and Ms. Winfrey's right to decline to produce and host
the show in any season after the 1995-1996 season. Under the agreement,
the Company has, among other things, agreed to pay Harpo production fees
and to guaranty payments to Harpo at levels which, commencing with the
1995-1996 season, will be substantially higher than those cur-
27
30
rently in effect. In addition, in the 1997-1998 season and thereafter,
profit sharing arrangements between Harpo and the Company currently in
effect will terminate and the Company will instead receive distribution
fees based on a percentage of gross revenues derived from the series. The
Company has paid Harpo a $60,000,000 advance against its minimum
participation fees for the 1995-1996 broadcast season. Based on the
license agreements in place for the 1995-1996 broadcast season, the
revenues from the series will be sufficient to cover such amount.
From time to time, the Company has used cash reserves and/or
borrowed funds 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 development and production 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.
In December 1992, the Company announced that the Board of
Directors had approved a program to repurchase up to 2,000,000 shares of
its Common Stock from time to time in the open market and in privately
negotiated transactions. In the fiscal years ended August 31, 1994 and
1993, 753,100 and 765,200 shares, respectively, of Common Stock were
repurchased in open market transactions, for aggregate consideration of
approximately $28.9 million (or approximately $38.40 per share) and $24.8
million (or approximately $32.40 per share), respectively. As of October
31, 1994, the Company had repurchased an aggregate 40,000 shares in fiscal
1995 for aggregate consideration of approximately $1.44 million (or
approximately $36.00 per share), and as a result, as of such date, there
were 441,700 shares available for repurchase under such program. The
Company intends to continue to repurchase shares of Common Stock in the
open market and in privately negotiated transactions if and when it deems
it advantageous to do so.
Commitments and receivables
The Company has entered into agreements with television stations
for the future distribution of program material in television seasons
commencing with the 1994-1995 season and extending as far into the future
as the 1999-2000 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 October 31, 1994,
the gross amount of license fees under such agreements approximated
$2.1 billion, of which approximately $1.2 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, 1994 is subject to the satisfaction of
several condi-
28
31
tions, including, with respect to amounts attributable to The Oprah Winfrey
Show, the agreement of the producer and Ms. Winfrey to continue to produce
and host the show after the 1995-1996 television season (which they are not
contractually obligated to do). Such amounts do not include sales of
advertising time retained during the broadcast of such program material or
foreign license fees and do not reflect the production costs to be incurred
for programming produced by King World.
As of August 31, 1994 and 1993, the Company's accounts receivable
amounted to approximately $41.4 million and $102.2 million, respectively
(net of allowance for doubtful accounts and unamortized discount to present
value), substantially all of which was due within one year. The lower
level of receivables as of August 31, 1994 compared with August 31, 1993 is
attributable to the change in revenue recognition practice adopted in the
fourth quarter of fiscal 1994. See Note 1 of Notes to Consolidated
Financial Statements.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements and Supplementary Data listed in the
accompanying Index to Consolidated Financial Statements and Schedules which
appear elsewhere in this Annual Report. Information required by other
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.
29
32
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page
----
Report of Independent Public Accountants . . . . . . . . 31
Consolidated Balance Sheets as of August 31, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . . . 32
Consolidated Statements of Income for the years
ended August 31, 1994, 1993 and 1992 . . . . . . . . . 34
Consolidated Statements of Stockholders' Equity for
the years ended August 31, 1994, 1993 and 1992 . . . . 35
Consolidated Statements of Cash Flows for the years
ended August 31, 1994, 1993 and 1992 . . . . . . . . . 36
Notes to Consolidated Financial Statements . . . . . . . 37
Schedule I - Long-term Investments as of
August 31, 1994 and 1993 . . . . . . . . . . . . . . . 53
30
33
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, 1994 and 1993, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in
the period ended August 31, 1994. These financial statements and the
schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the schedule 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, 1994 and 1993,
and the results of their operations and their cash flows for each of the
three years in the period ended August 31, 1994, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in the
Index to Consolidated Financial Statements and Schedule is presented for
purposes of complying with the Securities and Exchange Commission's rules
and are not part of the basic financial statements. The schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
Arthur Andersen LLP
New York, New York
October 31, 1994
31
34
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
August 31,
----------------------
1994 1993
-------- --------
(Dollars in thousands)
CURRENT ASSETS:
Cash and cash equivalents . . . . . . $341,857 $300,219
Accounts receivable (net of
allowance for doubtful accounts
of $4,412 and $4,212 in 1994 and
1993, respectively) . . . . . . . . 41,231 101,667
Producer loans, advances and
deferred costs . . . . . . . . . . 21,314 25,600
Other current assets . . . . . . . . 419 235
-------- --------
Total current assets . . . . . . . 404,821 427,721
-------- --------
LONG-TERM INVESTMENTS, at
cost, which approximates market . . 88,191 84,270
-------- --------
FIXED ASSETS, at cost:
Furniture and office equipment . . . 7,028 6,766
Leasehold improvements . . . . . . . 1,959 2,195
Film and videotape masters . . . . . 1,644 1,423
-------- --------
10,631 10,384
Less-accumulated depreciation and
amortization . . . . . . . . . . . (9,099) (8,573)
-------- --------
1,532 1,811
-------- --------
OTHER ASSETS:
Producer loans and advances . . . . . 65,500 11,625
Other non-current assets . . . . . . 9,518 10,119
-------- --------
75,018 21,744
-------- --------
$569,562 $535,546
======== ========
The accompanying Notes to Consolidated Financial
Statements are an integral part of these balance sheets.
32
35
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
August 31,
-------------------
1994 1993
-------- --------
(Dollars in thousands)
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities . . . . . . . . . . . . $ 14,780 $ 7,832
Payable to producers and others . . . 69,647 109,016
Income taxes payable:
Current . . . . . . . . . . . . . . 23,506 13,559
Deferred . . . . . . . . . . . . . 2,552 10,966
--------- ---------
Total current liabilities . . . . 110,485 141,373
--------- ---------
COMMITMENTS AND CONTINGENCIES
(Note 5)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
5,000,000 shares authorized,
none issued . . . . . . . . . . . . -- --
Common stock, $.01 par value;
75,000,000 shares authorized,
49,722,218 shares and 49,505,363
shares issued in 1994 and 1993,
respectively . . . . . . . . . . . 497 495
Paid-in capital . . . . . . . . . . . 82,171 76,647
Retained earnings . . . . . . . . . . 665,339 577,039
Treasury stock, at cost; 12,960,894
and 12,207,794 shares in 1994 and
1993, respectively . . . . . . . . . (288,930) (260,008)
--------- --------
459,077 394,173
--------- ---------
$ 569,562 $ 535,546
========= =========
The accompanying Notes to Consolidated Financial
Statements are an integral part of these balance sheets.
33
36
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended August 31,
-----------------------------
1994(1) 1993 1992
-------- -------- --------
(Dollars in thousands except
per share data)
REVENUES . . . . . . . . . . . . . . . $480,659 $474,312 $503,174
-------- -------- --------
EXPENSES:
Producers' fees, programming and
other direct operating costs . . . 279,465 265,357 291,976
Selling, general and admini-
strative expenses . . . . . . . . . 73,616 58,005 58,717
-------- -------- --------
353,081 323,362 350,693
-------- -------- --------
Income from operations . . . . . . . 127,578 150,950 152,481
INTEREST AND DIVIDEND INCOME . . . . . 13,261 11,642 12,244
-------- -------- --------
Income before provision for
income taxes . . . . . . . . . . . 140,839 162,592 164,725
PROVISION FOR INCOME TAXES . . . . . . 52,539 60,656 62,178
NET LOSS FROM DECONSOLIDATED
OPERATION (Note 2) . . . . . . . . . -- -- (7,667)
-------- -------- --------
Net income . . . . . . . . . . . . . $ 88,300 $101,936 $ 94,880
======== ======== ========
PRIMARY EARNINGS PER SHARE . . . . . . $ 2.33 $ 2.65 $ 2.43
======== ======== ========
____________________
(1) The results of operations for fiscal 1994 reflect a change in accounting
for revenue recognition adopted prospectively in the fourth quarter of fiscal
1994. See Note 1.
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
34
37
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, 1991 . . . . . . 47,254,921 $473 $23,013 $380,223 $ (162,054)
Amortization of deferred
compensation . . . . . . -- -- 3,390 -- --
Exercise of stock options . 118,771 1 2,993 -- --
Net income . . . . . . . . -- -- -- 94,880 --
---------- ---- ------- -------- ----------
Balance -
August 31, 1992 . . . . . . 47,373,692 474 29,396 475,103 (162,054)
Amortization of deferred
compensation . . . . . . -- -- 2,898 -- --
Exercise of stock
options . . . . . . . . . 2,131,671 21 44,353 -- --
Purchase of treasury stock -- -- -- -- (97,954)
Net income . . . . . . . . -- -- -- 101,936 --
---------- ---- ------- -------- ----------
Balance -
August 31, 1993 . . . . . . 49,505,363 495 76,647 577,039 (260,008)
Amortization of deferred
compensation . . . . . . -- -- 152 -- --
Exercise of stock options . 216,855 2 5,372 -- --
Purchase of Treasury Stock -- -- -- -- (28,922)
Net income . . . . . . . . -- -- -- 88,300 --
---------- ---- ------- -------- ----------
Balance -
August 31, 1994 . . . . . . 49,722,218 $497 $82,171 $665,339 $ (288,930)
========== ==== ======= ======== ==========
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
35
38
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended August 31,
---------------------------------------
1994 1993 1992
-------- -------- --------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . $ 88,300 $101,936 $ 94,880
Items not affecting cash:
Net loss from deconsolidated
operation . . . . . . . . . . . -- -- 7,667
Depreciation and amortization . . 577 1,845 1,701
Non-current deferred income
taxes . . . . . . . . . . . . . -- 2,001 1,372
Amortization of deferred
compensation . . . . . . . . . 152 2,898 3,390
Effect of deconsolidated
operation . . . . . . . . . . . -- -- (10,734)
Change in assets and liabilities,
net of deconsolidated operation:
Accounts receivable . . . . . . 60,298 (2,862) (4,067)
Producer loans, advances
and deferred costs . . . . . (49,589) (1,092) 8,836
Accounts payable and accrued
liabilities . . . . . . . . . 6,948 466 2,183
Payable to producers and
others . . . . . . . . . . . (39,369) 1,733 (1,799)
Income taxes payable . . . . . 1,533 (16,147) 8,890
Other, net . . . . . . . . . . . 554 867 (1,290)
-------- -------- --------
Net cash provided by operating
activities . . . . . . . . . . . . 69,404 91,645 111,029
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investments . . . . . . . (3,921) (47,240) (44,530)
Additions to fixed assets . . . . . . (567) (1,688) (263)
Other . . . . . . . . . . . . . . . . 270 -- (63)
-------- -------- --------
Net cash used in investing
activities . . . . . . . . . . . . (4,218) (48,928) (44,856)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock . . . . . . . . . . . . . . . 5,374 44,374 2,994
Purchase of treasury stock . . . . . (28,922) (97,954) --
-------- -------- --------
Net cash (used in) provided by
financing activities . . . . . . . (23,548) (53,580) 2,994
-------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS . . . . . . . . 41,638 (10,863) 69,167
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR . . . . . . . . . . 300,219 311,082 241,915
-------- -------- --------
CASH AND CASH EQUIVALENTS AT
END OF YEAR . . . . . . . . . . . . . $341,857 $300,219 $311,082
======== ======== ========
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
36
39
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, including, prior
to the fiscal year ended August 31, 1992, Buffalo Broadcasting Co. Inc.
("Buffalo"), the operator of WIVB-TV, the CBS-affiliated VHF television station
in Buffalo, New York, which the Company acquired on December 5, 1988. 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.
Revenue recognition
Historically, King World has followed a practice of recognizing
license fees from the distribution of first-run syndicated television properties
at the commencement of the license period and as each show was produced (even
though the particular show may not have been broadcast by a television station
for several months). This practice has had the effect of creating variations in
the Company's reported revenues and earnings from quarter to quarter,
corresponding to the greater or smaller number of shows that were produced in a
particular quarter, which were not necessarily indicative of longer term trends
in the Company's business.
In the fourth quarter of the 1994 fiscal year, the Company adopted a
change in accounting for revenue recognition which has been accounted for
prospectively as a change in accounting estimate as opposed to a change in
accounting principle. Under the modified practice, 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, rather than at the time
the show is produced. Because transmission to the satellite takes place, on the
average, no more than two to three days prior to the broadcast of the pro-
gramming and in some cases up to three months after the programming is produced,
the effect of adopting the modified practice will be to cause revenues from
certain series to be recognized closer to the air date than under the prior
practice. This effect is greater for Wheel of Fortune and Jeopardy!, which have
a longer lag time between production and satellite transmission, and less for
The Oprah Winfrey Show, Inside Edition, American Journal and Rolonda, which are
produced closer to the time the shows are transmitted to the licensee. In
addition, the account-
37
40
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of significant accounting policies (continued)
ing change will eliminate the quarterly revenue and earnings fluctuations that
resulted from variations in production schedules.
The one-time impact of adopting the change was to cause fourth quarter
fiscal 1994 revenues, net income and earnings per share to be approximately
$60.7 million, $12.9 million and $.34 lower, respectively, than they would have
been under the prior practice, with no impact on cash flow. Such revenues will
be recognized in subsequent periods under the modified accounting practice.
The following pro forma financial information assumes the Company's
prior revenue recognition practice was in effect for the fourth quarter of
fiscal 1994:
Year Ended August 31,
------------------------------------------
1994 Pro forma 1993 1992
-------------- -------- -------
(unaudited)
(Dollars in thousands except per share data)
Revenues . . . . . . . . . . . . . . $541,390 $474,312 $503,174
Income from operations . . . . . . . 148,151 150,950 152,481
Income before provision for
income taxes . . . . . . . . . . . 161,412 162,592 164,725
Net income . . . . . . . . . . . . . 101,196 101,936 94,880
======== ======== ========
Primary earnings per
share . . . . . . . . . . . . . . . $ 2.67 $ 2.65 $ 2.43
======== ======== ========
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 Camelot Entertainment Sales,
Inc. ("Camelot"), 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. That
portion of recognized revenue that is to be paid to the producers and owners of
the licensed program material is accrued as the license fees are earned.
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.
The Company's principal properties are licenses to distribute The
Oprah Winfrey Show, Wheel of Fortune and Jeopar-
38
41
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of significant accounting policies (continued)
dy!; and Inside Edition, a first-run syndicated series produced and distributed
by the Company. The Oprah Winfrey Show accounted for approximately 41%, 39% and
34% of revenues in fiscal 1994, 1993 and 1992, respectively. Wheel of Fortune
accounted for approximately 17%, 24% and 28% of revenues in fiscal 1994, 1993
and 1992, respectively. Jeopardy! accounted for approximately 15%, 20% and 20%
of revenues in fiscal 1994, 1993 and 1992, respectively. Inside Edition
accounted for approximately 9%, 8% and 7% of revenues in fiscal 1994, 1993 and
1992, respectively. American Journal, which debuted in September 1993, Rolonda,
which debuted in January 1994, and The Les Brown Show, which debuted in
September 1993 but was cancelled in January 1994, accounted for approximately
5%, 2% and 2%, respectively, of the Company's revenues for fiscal 1994. On a
basis of accounting comparable to that employed prior to the fourth quarter of
fiscal 1994, The Oprah Winfrey Show, Wheel of Fortune, Jeopardy!, and Inside
Edition would have accounted for approximately 36%, 21%, 18% and 8%,
respectively, of the Company's revenues for fiscal 1994. American Journal,
Rolonda and The Les Brown Show would have accounted for approximately 4%, 2% and
1%, respectively, of the Company's revenues for fiscal 1994.
The Company distributes The Oprah Winfrey Show pursuant to an
agreement with Harpo, Inc. ("Harpo"), the producer of the series. Under the
terms of the agreement, the Company has the exclusive right, and has agreed, to
distribute episodes of The Oprah Winfrey Show produced through the 1999-2000
television season, subject to Harpo's and Ms. Winfrey's right to decline to
produce and host the show in any season after the 1995-1996 season. Under the
agreement, the Company has, among other things, agreed to pay Harpo production
fees and to guaranty payments to Harpo at levels which, commencing with the
1995-1996 season, will be substantially higher than those currently in effect.
In addition, in the 1997-1998 season and thereafter, profit sharing arrangements
between Harpo and the Company currently in effect will terminate and the Company
will instead receive distribution fees based on a percentage of gross revenues
derived from the series.
The Company's agreements with Columbia TriStar Television (formerly
Merv Griffin Enterprises) 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 production and distribution
costs and that the Company may not, unless otherwise agreed by Columbia TriStar
Television, distribute game shows for "strip" first-run
39
42
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of significant accounting policies (continued)
syndication so long as the Company is distributing Wheel of Fortune or
Jeopardy!.
Producers' fees, programming and other direct operating costs
Producers' fees, programming and other direct operating costs
primarily include the producers' share of both cash license fees from the sale
of programming to television stations and revenues derived from the sale of
retained advertising time to advertisers with respect to programming distributed
by the Company; participation fees payable to producers and talent; and
production and distribution costs for first-run syndicated programming. The
share of license fees 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.
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 $29,824,000, $22,783,000 and $25,249,000 in fiscal 1994, 1993 and
1992, respectively.
Cash equivalents
Cash equivalents are comprised principally of short-term municipal
obligations, money market funds, money market preferred investments, commercial
paper and United States Treasury and other agency obligations, and are carried
at cost, which approximates market. For purposes of the consolidated statements
of cash flows, the Company considers its highly liquid short-term investments
purchased with a maturity of three months or less to be cash equivalents.
Accounts receivable
A provision for doubtful accounts of $200,000, $500,000 and $391,000
was recorded in fiscal 1994, 1993 and 1992, respectively. No material write-
offs to the reserve have been made.
Producer loans, advances and deferred costs
Producer advances and deferred costs includes production and promotion
costs, as well as talent and producer partici-
40
43
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of significant accounting policies (continued)
pation advances, in connection with certain first-run syndicated programs
distributed by the Company for broadcast during seasons subsequent to August 31,
1994. 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 connection with the extension for the 1993-1994 and 1994-1995
broadcast seasons of the commitment by Harpo to produce The Oprah Winfrey Show
for those seasons, the Company made an interest-free loan to Harpo and became
obligated to pay Harpo certain minimum amounts against its participation fees
for such periods, irrespective of the amount of license fees generated by the
series in such periods. Harpo's participation fees for the 1993-1994 broadcast
season exceeded such minimum amounts for the 1993-1994 and 1994-1995 broadcast
seasons. The loan is due in two installments of $8,625,000 each, one of which
was paid in July 1994 and the other of which is due in July 1995.
In connection with the extension of Harpo's commitment to produce The
Oprah Winfrey Show for the 1995-1996 broadcast season, the Company paid Harpo a
$60,000,000 advance against its minimum participation fees for such season.
Based on the license agreements in place for the 1995-1996 broadcast season, the
revenues from the series will be sufficient to cover such amount.
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 in excess of one year, and are carried at cost, which
approximates market.
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 and office
equipment and 5 years for film and videotape masters. Leasehold improvements
are amortized over the shorter of their useful lives and the lease term.
Depreciation and amortization expense was approximately $527,000, $1,437,000 and
$1,130,000 in fiscal 1994, 1993 and 1992, respectively.
41
44
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of significant accounting policies (continued)
Stockholders' equity
Primary earnings per share has been computed using the weighted
average number of common shares outstanding of 37,862,000, 38,408,000 and
39,017,000 for the fiscal years ended August 31, 1994, 1993 and 1992,
respectively, which includes the dilutive effect from the assumed exercise of
vested and unvested stock options outstanding as of the end of the year. The
difference between primary and fully diluted earnings per share for each such
fiscal year was not significant.
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
As discussed in Note 2, as a result of the deconsolidation of Buffalo
from the Company's financial statements, the Company operates in one business
segment, television programming. The Company's major customers and principal
facilities are located within the United States. In the 1994, 1993 and 1992
fiscal years, approximately 11%, 13% and 11%, respectively, of the Company's
revenues were derived from license fees under contracts with a single broadcast
group.
(2) Buffalo Broadcasting Co. Inc.
Buffalo entered into a Restructuring Agreement dated as of April 30,
1992 with its lenders and a newly formed subsidiary of King World, Buffalo
Management Enterprises Co. Inc., providing for a financial restructuring of
Buffalo (the "Restructuring"). The Restructuring became effective on August 4,
1992. Buffalo's lenders and equity holders have indicated their intention to
consummate a sale of Buffalo or its assets before June 30, 1998.
As a result of the Restructuring, Buffalo ceased to be a consolidated
subsidiary of King World. The net losses of Buffalo for the period ended
August 4, 1992, including related tax effects of the deconsolidation, have been
separately classified in the accompanying statement of income for the 1992
fiscal year. Buffalo's net losses amounted to approximately $7.7
42
45
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
million in fiscal 1992, which had the effect of decreasing primary earnings per
share by $.20 for such fiscal year. King World's remaining investment in the
equity of Buffalo is carried at cost.
(3) Pension and profit sharing plans
Effective September 1992, the King World Productions, Inc. Money
Purchase Pension Plan was renamed the King World Productions, Inc. Retirement
Savings Plan and was modified to include an employee pre-tax salary deferral
contribution program under Section 401(k) of the Internal Revenue Code, with an
employer matching contribution not to exceed 3% of annual compensation per
employee, and a revised employer fixed contribution equal to 3% of annual salary
per employee, subject to a maximum total employer contribution of approximately
$10,000 per employee for fiscal 1994. The plan covers substantially all of the
Company's employees.
Contributions by the Company to the plan and its predecessor plan were
approximately $576,000, $516,000 and $400,000 in fiscal 1994, 1993 and 1992,
respectively.
(4) Income taxes
The components of the Company's provision for income taxes are
summarized below:
Year Ended August 31,
-------------------------------------
1994 1993 1992
------- ------- -------
(Dollars in thousands)
Federal:
Current . . . . . . . . . . . . $51,176 $47,480 $50,382
Deferred . . . . . . . . . . . (7,867) 1,939 232
------- ------- -------
43,309 49,419 50,614
------- ------- -------
State and local:
Current . . . . . . . . . . . . 9,777 11,091 11,546
Deferred . . . . . . . . . . . (547) 146 18
------- ------- -------
9,230 11,237 11,564
------- ------- -------
Total . . . . . . . . . . . $52,539 $60,656 $62,178
======= ======= =======
The Company reports income tax data in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". The
impact of the Company's adopting this Statement in fiscal 1993 on the
consolidated financial statements was not significant.
Deferred income taxes and benefits are provided for income and expense
items recognized in different years for tax return and
43
46
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Income taxes (continued)
financial reporting purposes. For fiscal years prior to 1994, such deferred
income taxes arose primarily due to differences in the revenue recognition
methods employed by the Company with respect to license fee income. As of
August 31, 1993, the tax effect of this temporary difference, which gives rise
to a deferred tax liability, amounted to approximately $7.3 million. No other
temporary differences give rise to significant deferred tax assets or
liabilities.
As discussed in Note 1, in the fourth quarter of fiscal 1994 the
Company prospectively adopted a change in accounting for revenue recognition. As
a result of such change, license fees are now recognized in the same year for
tax return and financial reporting purposes. Accordingly, as of August 31, 1994,
no temporary difference existed with respect to this item.
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 6.
As part of the Revenue Reconciliation Act of 1993, the Federal tax
rate on large corporations was increased from 34% to 35% effective
retroactively as of January 1, 1993. For fiscal 1993, this resulted in a
blended rate for the Company of 34.67%. 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,
---------------------------
1994 1993 1992
------- ------- -------
(Dollars in thousands)
Tax at U.S. statutory
rate . . . . . . . . . . . . . $49,293 $56,371 $56,006
State tax provision, net
of Federal benefit . . . . . . 6,000 7,341 7,632
Tax-exempt interest and
dividend income . . . . . . . . (3,367) (2,723) (1,774)
Other, net . . . . . . . . . . . 613 (333) 314
------- ------- -------
$52,539 $60,656 $62,178
======= ======= =======
As discussed in Note 2, Buffalo completed a financial restructuring on
August 4, 1992. As a result, Buffalo was deconsolidated from the Company's
financial statements and is no longer included in the Company's consolidated
Federal income tax return.
Income taxes paid approximated $49.8 million, $62.1 million and $56.1
million in fiscal 1994, 1993 and 1992, respectively.
44
47
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Commitments and contingencies
License fees
The Company has entered into agreements with television stations for
the future distribution of program material in television seasons commencing
with the 1994-1995 season and extending as far into the future as the 1999-2000
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 October 31, 1994, the gross amount of license
fees under such agreements approximated $2.1 billion, of which approximately
$1.2 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, 1994 is
subject to the satisfaction of several conditions, including, with respect to
amounts attributable to The Oprah Winfrey Show, the agreement of the producer
and Ms. Winfrey to continue to produce and host the show after the 1995-1996
television season (which they are not contractually obligated to do). Such
amounts do not include sales of advertising time retained during the broadcast
of such program material or foreign license fees and do not reflect the
production costs to be incurred for programming produced by King World.
Operating leases
Rent expense under operating leases covering office facilities,
production studios and equipment amounted to $2,599,000, $2,908,000 and
$2,883,000 for fiscal 1994, 1993 and 1992, respectively. Office and studio
leases are subject to price escalations for certain costs. Aggregate future
minimum rental commitments for these leases as of August 31, 1994 were as
follows:
Year Ending August 31,
----------------------
(Dollars in thousands)
1995 . . . . . . . . . $2,175
1996 . . . . . . . . . 1,397
1997 . . . . . . . . . 982
1998 . . . . . . . . . 691
1999 . . . . . . . . . --
Employment and production agreements
As of August 31, 1994, the Company had entered into employment
agreements and agreements with independent contractors relating to programming
being or to be produced by King World
45
48
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Commitments and contingencies (continued)
which provide for aggregate minimum annual compensation as follows:
Year Ending August 31,
----------------------
(Dollars in thousands)
1995 . . . . . . . . . $18,051
1996 . . . . . . . . . 2,863
1997 . . . . . . . . . 175
1998 . . . . . . . . . --
1999 . . . . . . . . . --
In December 1993, the Company entered into new employment agreements
with four executive officers. The agreements provide, among other things, for
new bonuses that are intended to qualify as "performance based compensation"
(within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended), including bonuses payable upon the introduction of new shows and
bonuses contingent upon the Company's Common Stock achieving specified target
prices during preestablished measurement periods. As a result, the Company's
compensation expense will increase if the Common Stock price exceeds the
specified target prices during the applicable measurement periods.
As of August 31, 1994, the first measurement date for such bonuses,
the applicable target prices of the Company's Common Stock for certain of such
bonuses had not been met. However, as of such date, the Company provided for
the probability that such target prices will be met in future measurement
periods and such bonuses will be paid pursuant to 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 these actions will not have a
material adverse effect on the financial position of the Company.
(6) Stock plans
In fiscal 1994, the Company adopted the Amended and Restated Stock Option
and Restricted Stock Purchase Plan (the "Option/Stock Plan"), which amended and
restated the Company's 1989 Stock Option and Restricted Stock Purchase Plan and
reserved 1,500,000 additional shares for grants and awards thereunder. The
Option/Stock Plan provides for grants of incentive stock
46
49
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Stock plans (continued)
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 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 not have a term in excess of
ten years and one day. Employees, directors and officers of, and consultants or
suppliers to, the Company and its subsidiaries may be granted non-qualified
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 provi-
sions, transfer restrictions and other conditions or restrictions with respect
to each award, including a condition that under certain circumstances the
Company may, but is not required to, purchase any shares that have not become
vested. To date, no awards of restricted stock have been granted under the
Option/Stock Plan or its predecessor plans.
In fiscal 1989, the Company adopted the Incentive Equity Plan for Senior
Executives, pursuant to which an aggregate 2,550,000 shares of Common Stock were
reserved for issuance to the Company's Chairman of the Board, President and
Chief Executive Officer, and Executive Vice President and Chief Operating
Officer, upon the exercise of options granted thereunder. Each of the Chairman
and the President was granted non-qualified stock
47
50
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Stock plans (continued)
options to purchase 1,200,000 shares of Common Stock, 975,000 at an exercise
price of $15.75 (the approximate fair market value on the date of grant) and
225,000 at an exercise price of $.01; the Executive Vice President was granted
non-qualified stock options to purchase 150,000 shares of Common Stock, 120,000
at an exercise price of $15.75 and 30,000 at an exercise price of $.01. No
additional options may be granted under the Executive Plan.
The following tables set forth options outstanding as well as options
exercisable and available for grant at August 31, 1993 and 1994, and options
forfeited and exercised during fiscal 1993 and 1994, together with the option
prices:
Option/Stock
Plan
---------------------------
Non-Qualified Executive
Fiscal 1993 ISOs Options Plan
----------- --------------------------- ----------
Granted . . . . . . . . -- 276,750 --
Prices ranging:
From . . . . . . . -- $ 24.25 --
To . . . . . . . . -- $ 34.75 --
Forfeited . . . . . . . -- 47,600 --
Exercised . . . . . . . 34,814 299,857 1,797,000
Prices ranging:
From . . . . . . . $ 1.45 $ .01 $ .01
To . . . . . . . . $ 26.59 $ 28.50 $ 15.75
Outstanding at
August 31, 1993 . . . 110,550 1,219,734 510,000
Exercisable at
August 31, 1993 . . . 58,800 482,284 510,000
Prices ranging:
From . . . . . . . $ 7.05 $ .01 $ .01
To . . . . . . . . $ 33.63 $ 31.63 $ 15.75
Available for
grant at
August 31, 1993 . . . 320,198 --
--------------------------- ----------
Option/Stock
Plan
---------------------------
Non-Qualified Executive
Fiscal 1994 ISOs Options Plan
----------- --------------------------- ----------
Granted . . . . . . . . 2,500 1,111,250 --
Prices ranging:
From . . . . . . . $ 37.25 $ 25.38 --
To . . . . . . . . $ 37.25 $ 41.38 --
Forfeited . . . . . . . 2,250 259,400 --
Exercised . . . . . . . 9,000 207,855 --
Prices ranging:
From . . . . . . . $ 15.75 $ 10.17 --
To . . . . . . . . $ 33.63 $ 34.50 --
Outstanding at
August 31, 1994 . . . 101,800 1,863,729 510,000
Exercisable at
August 31, 1994 . . . 42,237 527,892 510,000
Prices ranging:
From . . . . . . . $ 7.05 $ .01 $ .01
To . . . . . . . . $ 24.17 $ 36.38 $ 15.75
Available for
grant at
August 31, 1994 . . . 968,098 --
--------------------------- ----------
48
51
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Stock plans (continued)
In addition, in connection with the two most recent extensions of the
Company's rights to distribute The Oprah Winfrey Show, the Company granted
options to the principals of Harpo to purchase an aggregate 1.5 million shares
of Common Stock, all of which were fully vested as of August 31, 1994. Options
to purchase one million such shares bear exercise prices of $25.50 per share and
the remainder bear exercise prices of $33.375 per share. The Company has also
agreed to grant the principals of Harpo additional options to purchase an
aggregate 250,000 shares of Common Stock with respect to each broadcast season
from the 1996-1997 season through the 1999-2000 season for which The Oprah
Winfrey Show is produced for distribution by the Company, at a per share
exercise price equal to the closing price of the Common Stock on the date Harpo
elects to produce such series for such additional season.
For non-qualified options, the difference between the market price of
the Common Stock at the date of grant and the exercise price is treated as
deferred compensation and amortized to expense generally over a five year
vesting period. Deferred compensation is classified as a component of paid-in
capital and is recorded at the date of the grant of the option(s). The amount
of deferred compensation arising from such grants and included in paid-in
capital at August 31, 1994 and 1993 was not significant. Compensation expense
relating to stock option grants of $152,000, $2,898,000 and $3,390,000 was
recorded in fiscal 1994, 1993 and 1992, respectively.
The Company realizes a tax benefit in respect of non-qualified stock
options based on the difference between the market price of the Common Stock and
the exercise price on the date of exercise. Tax reductions 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 reductions added to paid-in capital approximated $1,162,000,
$12,765,000 and $2,172,000 in fiscal 1994, 1993 and 1992, respectively.
(7) Stock repurchases
On December 18, 1992, the Company purchased an aggregate 2,252,000
shares of Common Stock from certain executive officers of the Company at a price
per share of $32.50, the closing price of the Common Stock on the New York Stock
Exchange on December 17, 1992. The aggregate consideration paid by the Company
to such officers (net of the proceeds from option exercises) was approximately
$47.1 million. Such purchases were
49
52
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) Stock repurchases (continued)
financed out of the Company's available cash and liquid investments.
Also on December 18, 1992, the Company announced that the Board of
Directors had approved a program to repurchase up to 2,000,000 shares of its
Common Stock from time to time in the open market and in privately negotiated
transactions. In the fiscal years ended August 31, 1994 and 1993, 753,100 and
765,200 shares, respectively, of Common Stock were repurchased in open market
transactions, for aggregate consideration of approximately $28.9 million (or
approximately $38.40 per share) and $24.8 million (or approximately $32.40 per
share), respectively. As of October 31, 1994, the Company had repurchased an
aggregate 40,000 shares in fiscal 1995 for aggregate consideration of
approximately $1.44 million (or approximately $36.00 per share), and as a
result, as of such date, there were 441,700 shares available for repurchase
under such program. The Company intends to continue to repurchase shares of
Common Stock in the open market and in privately negotiated transactions if and
when it deems it advantageous to do so.
50
53
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) Quarterly financial summaries (unaudited)
1st 2nd 3rd 4th Fiscal 4th Quarter Fiscal Year
Quarter Quarter Quarter Quarter(1) Year(1) Pro forma(1) Pro forma(1)
-------- -------- -------- ---------- -------- ------------ ------------
(Dollars in thousands except per share data)
Fiscal 1994:
Revenues . . . . . . . . . . $193,045 $137,138 $111,861 $38,615 $480,659 $99,346 $541,390
Revenues less
direct costs . . . . . . . 81,202 55,841 46,197 17,954 201,194 39,230 222,470
Income before
provision
for income
taxes . . . . . . . . . . . 61,463 39,237 31,331 8,808 140,839 29,381 161,412
Net income . . . . . . . . . 38,722 24,287 19,511 5,780 88,300 18,676 101,196
Primary earnings
per share . . . . . . . . . $ 1.02 $ .64 $ .52 $ .15 $ 2.33 $ .50 $ 2.67
======== ======== ======== ======= ======== ======= ========
1st 2nd 3rd 4th Fiscal
Quarter Quarter Quarter Quarter Year
-------- -------- -------- ------- ------
(Dollars in thousands except per share data)
Revenues . . . . . . . . . . $169,714 $113,079 $ 87,939 $103,580 $474,312
Revenues less
direct costs . . . . . . . 75,891 50,999 40,958 41,107 208,955
Income before
provision
for income
taxes . . . . . . . . . . . 61,114 38,997 29,820 32,661 162,592
Net income . . . . . . . . . 38,502 24,053 18,649 20,732 101,936
Primary earnings
per share . . . . . . . . . $ .98 $ .62 $ .49 $ .55 $ 2.65
======== ======== ======== ======== ========
______________________
(1) Reflects 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 fourth quarter fiscal 1994 revenues, net
income and earnings per share to be approximately $60.7 million, $12.9
million and $.34 lower, respectively, than they would have been under the
prior practice. The unaudited 1994 pro forma data are presented for
comparison purposes only and represent the results of operations assuming
the Company's prior revenue recognition practice had been in effect in the
fourth fiscal quarter of 1994. See Note 1.
The results of operations for the first three quarters of fiscal 1994,
and all four quarters of fiscal 1993, employ the practice of recognizing
license fees from the distribution of first-run syndicated television
properties at the commencement of the license period and as each show was
produced (even though the particular show may not have been broadcast by a
television station for several months). This practice had the effect of
creating variations in the Company's reported revenues and earnings from
quarter to quarter, corresponding to the greater or smaller number of shows
that were produced in a particular quarter, which were not necessarily
indicative of longer term trends in the Company's business. Commencing
with the fourth quarter of fiscal 1994, the results of operations employ a
modified revenue recognition practice pursuant to which 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
51
54
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) Quarterly financial summaries (unaudited) (continued)
the licensee via satellite transmission, rather than at the time the show
is produced.
52
55
SCHEDULE I
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
LONG-TERM INVESTMENTS
August 31, 1994 and 1993
(In thousands)
Name of Issuer Aggregate
and Number of Aggregate Market Balance Sheet
Title of Issue Shares or Units Cost Value Carrying Value
- ----------------------------------------------------------------------------------
August 31, 1993
State and Municipal
Obligations (1) 77.441 $79,270 $79,537 $79,270
U.S. Government Agency
Obligations 5.000 5,000 5,028 5,000
------ ------- ------- -------
82.441 $84,270 $84,565 $84,270
====== ======= ======= =======
August 31, 1994
State and Municipal
Obligations (1) 79.69 $82,833 $82,387 $82,833
U.S. Government Agency
Obligations 4.40 4,358 4,370 4,358
Certificates of Deposit 1.00 1,000 1,000 1,000
------ ------- ------- -------
85.09 $88,191 $87,757 $88,191
====== ======= ======= =======
____________________
(1) Represents obligations of various states and municipalities, none of which
individually exceeds 2% of the Company's total assets.
53
56
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 1995 annual
meeting of stockholders, which is to be filed pursuant to Regulation 14A not
later than December 29, 1994.
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 and Schedule which appears on page 30 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. Registrant's By-laws, as amended April 28, 1988 (incorporated by
reference to Exhibit 3.3 to the Registrant's Annual Report on Form
10-K for the fiscal year ended August 31, 1993).
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).
54
57
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 10.5 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1990).
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 or consulting agreements between the Registrant and the
individuals named below:
Name of Employee
or Consultant Date of Agreement
---------------- -----------------
Roger King. . . . . . . December 23, 1993
Michael King. . . . . . December 23, 1993
Stephen W. Palley . . . December 23, 1993
Steven Hirsch . . . . . December 23, 1993
Anthony E. Hull . . . . May 20, 1994
10.7. 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).
10.8. Amended and Restated Stock Option and Restricted Stock Purchase Plan
of the Registrant (incorporated by reference to the Registrant's
Registration Statement No. 33-54691).
10.9. 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).
____________________
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment.
55
58
10.10. Agreement dated as of May 1, 1991, among the Registrant and the
stockholders named therein (incorporated by reference to Exhibit 10.1
to the Registrant's Current Report on Form 8-K dated May 6, 1991).
10.11. Form of Indemnification Agreement between the Registrant and the
Registrant's directors (incorporated by reference to Exhibit 10.15 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1992).
10.12.* 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).
10.13.* 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 10.17 to the Registrant's Annual Report on Form
10-K for the fiscal year ended August 31, 1990).
10.14.* Agreement dated as of January 28, 1991 between the Registrant and
Harpo, Inc. (incorporated by reference to Exhibit 10.18 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended August 31, 1991).
10.15.* Agreement dated as of March 17, 1994 between the Registrant and Harpo,
Inc. (incorporated by reference to Exhibit 99.2 to the Registrant's
Current Report on Form 8-K/A dated May 18, 1994).
10.16. 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).
10.17. 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).
10.18. Stock Option Agreement dated as of March 17, 1994 between the
registrant and Oprah Winfrey.
____________________
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment.
56
59
10.19. Stock Option Agreement dated as of March 17, 1994 between the
registrant and Jeffrey D. Jacobs.
10.20.* 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.
10.21.* 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 10.20 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended August 31, 1992).
10.22** Amendment dated June 13, 1994 to the Agreement dated June 2, 1998,
as amended as of June 13, 1989 and September 19, 1991, between King
World F.S.C. Corporation and Unilever N.V.
10.23. Restructuring Agreement dated as of April 30, 1992 among Buffalo
Broadcasting Co. Inc., the Holders named therein and Buffalo
Management Enterprises Co., Inc., together with Exhibits thereto
(incorporated by reference to Exhibit 2 to the Registrant's Current
Report on Form 8-K dated August 18, 1992).
10.24. Letter Agreements dated December 18, 1992 between the Registrant and
each of Roger King and Michael King and Cross Receipt dated December
18, 1992 (incorporated by reference to Exhibit 10.20 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1993).
21.1. List of Subsidiaries of the Registrant.
23.1. Consent of Independent Public Accountants.
____________________
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment.
** Certain information in this exhibit is deleted pursuant to a request to
the Securities and Exchange Commission for confidential treatment.
(b) Reports on Form 8-K filed during the last quarter of the fiscal
year ended August 31, 1993:
None.
For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities
Act of 1933, as amended, the undersigned registrant hereby under-
takes as follows, which undertaking shall
57
60
be incorporated by reference into registrant's Registration
Statements on Form S-8 Nos. 33-30694 and 33-30695 (filed
August 24, 1990) and No. 33-54691 (filed on July 22, 1994):
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.
58
61
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 28, 1994 KING WORLD PRODUCTIONS, INC.
By/s/ Stephen W. Palley
-------------------------------
Stephen W. Palley
Executive Vice President and
Chief Operating 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
- --------- ----- ----
President and November 28, 1994
Director (principal
/s/ Michael King executive officer)
- -----------------------
Michael King
/s/ Roger King Director November 28, 1994
- -----------------------
Roger King
/s/ Stephen W. Palley Director November 28, 1994
- -----------------------
Stephen W. Palley
/s/ Diana King Director November 28, 1994
- -----------------------
Diana King
/s/ Richard King Director November 28, 1994
- -----------------------
Richard King
/s/ Ronald Konecky Director November 28, 1994
- -----------------------
Ronald S. Konecky
/s/ James M. Rupp Director November 28, 1994
- -----------------------
James M. Rupp
59
62
/s/ Joel Chaseman Director November 28, 1994
- ----------------------
Joel Chaseman
/s/ Anthony E. Hull Chief Financial November 28, 1994
- ---------------------- Officer (principal
Anthony E. Hull financial officer)
/s/ Steven A. LoCascio Vice President and November 28, 1994
- ---------------------- Controller
Steven A. LoCascio (principal accounting
officer)
60
63
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. Registrant's By-laws, as amended April 28, 1988
(incorporated by reference to Exhibit 3.3 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended August 31, 1993).
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 10.5 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended August 31, 1990).
____________________
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment.
64
Exhibit
No. Description Page
- ------- ----------- ----
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 or consulting agreements between the Registrant
and the individuals named below:
Name of Employee
or Consultant Date of Agreement
---------------- -----------------
Roger King. . . . . . . December 23, 1993
Michael King. . . . . . December 23, 1993
Stephen W. Palley . . . December 23, 1993
Steven Hirsch . . . . . December 23, 1993
Anthony E. Hull . . . . May 20, 1994
10.7. 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).
10.8. Amended and Restated Stock Option and Restricted Stock
Purchase Plan of the Registrant (incorporated by reference
to the Registrant's Registration Statement No. 33-54691).
10.9. 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).
10.10. Agreement dated as of May 1, 1991, among the Registrant and
the stockholders named therein (incorporated by reference to
Exhibit 10.1 to the Registrant's Current Report on Form 8-K
dated May 6, 1991).
10.11. Form of Indemnification Agreement between the Registrant and
the Registrant's directors (incorporated by reference
to Exhibit 10.15 to the
____________________
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment.
2
65
Exhibit
No. Description Page
- ------- ----------- ----
Registrant's Annual Report on Form 10-K for the fiscal year
ended August 31, 1992).
10.12.* 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)
10.13.* 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 10.17 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended August 31, 1990).
10.14.* Agreement dated as of January 28, 1991 between the
Registrant and Harpo, Inc. (incorporated by reference to
Exhibit 10.18 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended August 31, 1991).
10.15.* Agreement dated as of March 17, 1994 between the Registrant
and Harpo, Inc. (incorporated by reference to 8-K/A
dated May 18, 1994).
10.16. 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).
10.17. 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).
10.18. Stock Option Agreement dated as of March 17, 1994 between
the registrant and Oprah Winfrey.
____________________
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment.
3
66
Exhibit
No. Description Page
- ------- ----------- ----
10.19. Stock Option Agreement dated as of March 17, 1994 between
the registrant and Jeffrey D. Jacobs.
10.20.* 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.
10.21.* 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 10.20 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended August 31, 1992).
10.22** 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.
10.23. Restructuring Agreement dated as of April 30, 1992 among
Buffalo Broadcasting Co. Inc., the Holders named therein and
Buffalo Management Enterprises Co., Inc., together with
Exhibits thereto (incorporated by reference to Exhibit 2 to
the Registrant's Current Report on Form 8-K dated August 18,
1992).
10.24. Letter Agreements dated December 18, 1992 between the
Registrant and each of Roger King and Michael King and Cross
Receipt dated December 18, 1992 (incorporated by reference to
Exhibit 10.20 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended August 31, 1993).
21.1. List of Subsidiaries of the Registrant.
23.1. Consent of Independent Public Accountants.
____________________
* Certain information in this exhibit is deleted pursuant to an order of the
Securities and Exchange Commission granting confidential treatment.
** Certain information in this exhibit is deleted pursuant to a request to
the Securities and Exchange Commission for confidential treatment.
4