Item 1. Business........................................... 1
Item 2.
ITEM 2: PROPERTIES
The principal offices of the Company are located at 1999 South Bundy Drive, Los Angeles, California 90025, telephone (310) 584-2000. The other principal facilities are as follows:
Management believes that its properties are currently adequate and suitable to conduct its business and will remain so in the foreseeable future.
ITEM 3:
ITEM 3: LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to a number of pending legal proceedings. The Company does not expect that the outcome of such proceedings, either individually or in the aggregate, will have a material effect on the Company's operations or financial results.
ITEM 4:
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter ended December 31, 1996.
ITEM 5:
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for any of the Company's equity securities.
As of March 14, 1997, there were 100 outstanding shares of Common Stock, par value $0.01 per share, outstanding.
The Company has not paid any dividends during the two most recent fiscal periods. The Company is currently prohibited by its debt instruments from paying dividends.
ITEM 6.
ITEM 6. SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables set forth, in thousands, for the periods and for the dates indicated, summary historical consolidated financial data derived from the consolidated financial statements of the Company and should be read in connection with the consolidated financial statements and related notes included elsewhere herein. As a consequence of the purchase by Andrews of approximately 54% of the Company's Common Stock and the application of "Fresh Start" reporting upon emergence from bankruptcy, the Company revalued its assets and liabilities at estimated reorganization value (which approximates fair value) as of the Plan Effective Date. Fresh Start reporting, pursuant to Statement of Position 90-7 issued by The American Institute of Certified Public Accountants ("SOP 90-7"), is prescribed for entities in and emerging from bankruptcy reorganization with a change in control. Accordingly, the pre-Plan Effective Date financial statements are reported on a different basis of accounting than the post-Plan Effective Date financial statements. As a result of the above and the addition of the Tampa Station results beginning May 25, 1993, the post-Plan Effective Date financial statements of the Company are not comparable to pre-Plan Effective Date financial statements.
(a) Represents the loss on restructuring transactions related to the Company's emergence from bankruptcy. (b) Represents the extraordinary gain from debt forgiveness related to the Company's emergence from bankruptcy. (c) No dividends were declared on common stock for any periods presented.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and related notes of the Company which provide additional information on financial activities and condition.
RESULTS OF OPERATIONS
Year ended December 31, 1996 Compared to December 31, 1995. Net revenue increased $16.7 million or 7.3% in 1996 over 1995. The increase reflects an increase of $19.8 million for the five stations owned for both periods (the "Current Stations") and an increase of $2.6 million reflecting the revenue increase at the San Diego Station which was sold in November 1996, offset by a decrease of $5.7 million reflecting the sale of the Boston Station in March 1995. The increase in revenue for the Current Stations reflects significant political revenues in the 1996 presidential election year and an increase in local revenue of $10.6 million or 10.8% due to both improved ratings and increased advertiser spending in the local markets. The Company had expected the conversion of the Current Stations' affiliation to the FOX network in late 1994 to result in an initial decline in revenues.
Operating expenses decreased $5.3 million due primarily to a decrease of $8.1 million reflecting the sale of both the Boston Station in March of 1995 and the San Diego Station in November 1996, offset by an increase of $2.8 million for the Current Stations due primarily to higher employee benefit costs.
Depreciation and amortization of intangible assets increased $.8 million in 1996 due to capital additions offset by a decrease resulting from the sale of both the Boston Station and the San Diego Station. The increase in corporate expenses of $9.0 million reflects the allocation of additional expenses from NWCG related primarily to Fox Merger and compensation costs.
The decrease in interest expense of $2.7 million reflects the reduced principal balance of debt due to debt payments. The increase in interest income of $1.3 million results from higher cash and restricted cash balances in 1996.
The gain on the sale of stations reflects the November 1996 sale of the assets constituting the San Diego Station for gross proceeds of $231.7 million.
The income tax expense recorded in 1996 resulted primarily from the recognition of income taxes on the sale of the San Diego Station. The liability associated with these taxes will be offset by utilization of pre-Plan Effective Date operating losses. The utilization has been reflected as a reduction of excess reorganization value.
Year ended December 31, 1995 Compared to December 31, 1994. Net revenue decreased $55.1 million or 19.3% in 1995 over 1994. The decrease reflects a decrease of $16.9 million for the six stations owned for both periods (the "Six Stations") and a decrease of $38.2 million reflecting the sale of the Boston Station in March 1995. The Company had expected the conversion of five of the six stations' affiliation to the FOX network in late 1994 to result in an initial decline in revenues. The decrease in revenue for the Six Stations reflects a temporary reduction of revenue due to the conversion, a softening of national and local revenues late in the third quarter and in the fourth quarter of 1995, and higher revenues in 1994, a year with significant political revenue and in which the majority of the stations broadcast the 1994 Winter Olympics.
Operating expenses decreased $30.2 million due to a decrease of $35.9 million reflecting the sale of the Boston Station in March 1995 offset by an increase of $5.7 million for the Six Stations due to higher staffing levels to support the increase in locally produced programming, increased promotional and advertising activities and non-recurring costs associated with the conversion of certain broadcast stations to the FOX network.
Depreciation and amortization of intangible assets decreased $2.4 million in 1995 due primarily to the sale of the Boston Station.
The decrease in interest expense of $6.0 million reflects the reduced principal balance of debt due to debt payments.
The gain on the sale of stations reflects the March 1995 sale of the Company's investment in the Boston Station for gross proceeds of $107.5 million.
The income tax expense recorded in 1995 resulted primarily from the recognition of income taxes on the sale of the Boston Station. The liability associated with these taxes will be offset by utilization of pre-Plan Effective Date net operating losses. The utilization has been reflected as a reduction of excess reorganization value.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had total debt outstanding of approximately $481.6 million of which approximately $4.7 million is due in 1997. On January 6, 1997, in conjunction with the sale of the San Diego Station, the Company repaid $41 thousand of the 11% Notes. Further, the balance of the excess net proceeds from the station sale of $193.2 million, which is reflected as restricted cash at December 31, 1996, reverted to the Company free of any liens for use as permitted under the terms of the Step-up Notes and the 11% Notes.
On March 6, 1997, the Company used a portion of the excess net proceeds from the San Diego Station sale to redeem the Step-up Notes for a purchase price equal to 100% of the outstanding principal balance of the notes of $107.9 million. As a result of the Fox Merger, on February 13, 1997 the Company made an offer to purchase the outstanding balance of the 11% Notes at a repurchase price in cash equal to 100% of the principal amount outstanding. Currently the 11% Notes are the only debt outstanding.
To service the 11% Notes, the Company plans to utilize broadcasting operating cash flow. The Company believes that operating cash flow will be sufficient to satisfy current requirements for operating, investing and financing activities of the Company, including debt service prior to final maturity. The Company expects that the funds required to meet principal payments upon the final maturity of the 11% Notes in 2004 and 2005 will be provided by a combination of broadcasting operating cash flow, excess net proceeds from the San Diego Station sale and cash to be made available by NWCG and Fox. Provisions of the Company's 11% Notes limit the amount of additional debt the Company may incur.
The Company's capital budget for 1997 of approximately $8 million will be used primarily to support the news gathering and reporting operations.
In connection with the overall business strategy to participate in an integrated entertainment company capable of developing, producing and distributing television programming, the Company may invest in ventures which produce and distribute television programming, operate a national advertising and/or sales representation firm or syndicate programming (a "Program Co"). Certain of the Company's agreements, including the debt agreements, place limitations on the Company's financial and business relationships with Program Co. As permitted under the Company's debt agreements, the Company made an aggregate investment of $30.0 million in preferred stock and debt of NW Entertainment, which for purposes of the Company's debt agreements is a Program Co.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page ----
New World Television Incorporated
Report of Independent Auditors.................................... 15
Consolidated Balance Sheet as of December 31, 1996 and 1995....... 16
Consolidated Statement of Operations for the years ended December 31, 1996, 1995 and 1994.................................. 17
Consolidated Statement of Stockholder's Equity for the years ended December 31, 1996, 1995 and 1994.................................. 18
Consolidated Statement of Cash Flows for the years ended December 31, 1996, 1995 and 1994.................................. 19
Notes to Consolidated Financial Statements........................ 20
Supplemental Financial Information................................ 32
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder New World Television Incorporated
We have audited the accompanying consolidated balance sheet of New World Television Incorporated as of December 31, 1996 and 1995 and the related consolidated statements of operations, stockholder's equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of New World Television Incorporated at December 31, 1996 and 1995 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Atlanta, Georgia March 7, 1997
NEW WORLD TELEVISION INCORPORATED
CONSOLIDATED BALANCE SHEET (IN THOUSANDS EXCEPT SHARE AMOUNTS)
See accompanying notes to consolidated financial statements.
NEW WORLD TELEVISION INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS)
See accompanying notes to consolidated financial statements
NEW WORLD TELEVISION INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (IN THOUSANDS)
See accompanying notes to consolidated financial statements
NEW WORLD TELEVISION INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
See accompanying notes to consolidated financial statements
NEW WORLD TELEVISION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996
New World Television Incorporated (the "Company" or "NW Television"), a Delaware corporation and wholly-owned subsidiary of New World Communications Group Incorporated ("NWCG"), was formed in 1987.
On January 22, 1997 (the "Fox Merger Date"), a special meeting (the "Special Meeting") of stockholders of NWCG was held. At the Special Meeting, the Agreement and Plan of Merger dated as of September 24, 1996 (the "Fox Merger Agreement"), by and among NWCG, The News Corporation Limited, a South Australian corporation ("News Corp."), Fox Television Stations, Inc., a Delaware corporation in which News Corp. has an indirect interest ("Fox"), and Fox Acquisition Co., Inc., a Delaware corporation and a wholly-owned subsidiary of Fox ("Merger Sub"), was approved. Immediately following the Special Meeting, the transactions contemplated by the Fox Merger Agreement were consummated, including the merger of Merger Sub with and into NWCG and a stock purchase pursuant to the Stock Purchase Agreement dated as of September 24, 1996 (the "Stock Purchase Agreement"), by and among News Corp., Fox and NWCG (Parent) Holdings Corporation, a Delaware Corporation ("Parent") (the transactions contemplated by the Fox Merger Agreement and the Stock Purchase Agreement, collectively, the "Fox Merger").
Pursuant to the Merger Agreement, (a) each issued and outstanding share of NWCG's Class A Common Stock, par value $.01 per share (the "Class A Common Stock") (other than any shares owned, directly or indirectly, by News Corp. or any News Corp. Subsidiary (as such term is defined in the Fox Merger Agreement)), was converted into the right to receive 1.45 American Depositary Shares of News Corp. ("ADSs"), each of which represents four fully paid and non- assessable Preferred Limited Voting Ordinary Shares of A$.50 of News Corp., and (b) each issued and outstanding share of NWCG's Class B Common Stock, par value $.01 per share (other than any shares owned, directly or indirectly, by News Corp. or any News Corp. Subsidiary), was converted into the right to receive 1.45 ADSs. Pursuant to the Stock Purchase Agreement, Fox purchased from Parent 2,682,236 shares of Class A Common Stock of NWCG owned by Parent and all of the outstanding shares of capital stock of NWCG Holdings Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent ("Holdings").
As a result of the Fox Merger, Fox has acquired all of the shares of common stock of NWCG (other than any shares previously owned, directly or indirectly, by News Corp. or any News Corp. Subsidiary) and NWCG has become a subsidiary of Fox. The Fox Merger has resulted in a change of control of the Company. The accompanying consolidated financial statements are derived from the historical books and records of the Company and do not give effect to any purchase accounting adjustments which Fox may record as a result of such acquisition.
Prior to the consummation of the Fox Merger, the Company was an affiliate of Mafco Holdings, Inc. ("Mafco"), a Delaware corporation which is wholly-owned by Mr. Ronald O. Perelman, the former Chairman of the Board of NWCG. On May 25, 1993, as one of a series of transactions comprising the Company's Chapter 11 bankruptcy reorganization on that date, Andrews Group Incorporated ("Andrews), an indirect subsidiary of Mafco, contributed $100 million to the Company in exchange for 54.15% of the Company's common stock. On March 7, 1994, in accordance with an Agreement and Plan of Reorganization and Merger with Andrews, NWCG and SCI Merger Sub Incorporated, all outstanding shares of the Company were converted to a like number of shares of NWCG common stock (the "NWCG Merger"). Further, the holders of the Class A Warrants and Class B Warrants obtained the right to acquire and receive a like number of shares of NWCG common stock. As a result of the NWCG Merger, the Company became a wholly-owned subsidiary of NWCG.
NEW WORLD TELEVISION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996
The five broadcast stations owned by the Company on December 31, 1996 became part of the group of stations owned and operated by Fox on the Fox Merger Date. All of the stations, which are located throughout the United States, are affiliated with the FOX network. See Note 2 for a discussion of station dispositions.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation. The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. Certain prior period amounts have been reclassified to conform to current presentation.
Use of estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and cash equivalents. Cash equivalents are highly-liquid investments with original maturities of three months or less.
Restricted cash. Restricted cash represents highly-liquid investments with original maturities of three months or less, the use of which is restricted under the terms of the Company's long-term debt agreements. See Notes 2 and 4 for a further discussion of restricted cash.
Television program contract rights. The rights to broadcast non-network programs are stated at the lower of cost, less accumulated amortization, or net realizable value. Costs are amortized based upon the usage of programs under methods which generally result in straight-line amortization. The cost of program rights expected to be used within one year is classified as a current asset. Sports broadcast rights are generally expensed when the events are televised.
Property, plant and equipment. The property, plant and equipment of the Company are carried at cost net of accumulated depreciation. Depreciation is computed on the straight-line method for financial accounting purposes using lives of 26 to 30 years for buildings, 11 to 19 years for land improvements, 14 to 17 years for towers, 4 to 8 years for broadcast equipment, 8 to 12 years for office furniture and fixtures, 4 to 8 years for automobiles and other assets and 5 to 7 years for leasehold improvements.
Deferred financing costs. Costs incurred with the issuance of debt are included in note receivable from related party and other assets, net of accumulated amortization. Amortization is charged to income over the respective lives of the applicable issues; unamortized costs will be written off when the related debt is retired.
Intangible assets. Intangible assets include network affiliation agreements, broadcast licenses, goodwill and excess reorganization value. The components of intangible assets are amortized on a straight-line basis over the following lives:
Network affiliation agreements.................. 40 years Broadcast licenses, goodwill and excess reorganization value.......................... 20-40 years
The carrying values of intangible assets as well as other long-lived assets are reviewed if the facts and circumstances suggest that they may be impaired. If this review indicates that the assets will not be recoverable,
NEW WORLD TELEVISION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996
as determined based on undiscounted estimated cash flows of the Company over the remaining amortization period, the Company's carrying value of the assets would be reduced to their estimated fair value.
Fair market value of financial instruments. The carrying values of all financial instruments, excluding long-term debt, approximate fair value. The fair value of the Company's long-term debt is estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements, or quoted market rates (Note 4).
Income taxes. The Company accounts for income taxes using Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109, a current or deferred income tax liability or asset is recognized, subject to certain limitations, for the current or deferred tax consequences of all basis differences and events which have been recognized in the financial statements. The deferred income tax asset or liability is measured by the provisions of enacted tax laws. The Company has provided a valuation allowance for net operating loss carryovers ("NOL") restricted in use as a result of the Company's bankruptcy reorganization on May 25, 1993. Any benefit recognized in future periods related to the NOL generated prior to this date will be accounted for as a reduction in excess reorganization value when recognized. The Company has recorded a valuation allowance of $17.4 million for the NOL generated prior to May 25, 1993.
Stock options. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for employee stock options issued by NWCG to certain of the Company's employees because the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock- Based Compensation", requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of NWCG's stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized.
2. STATION DISPOSITIONS AND PRO FORMA FINANCIAL INFORMATION
In March 1995, the Company sold its investment in WSBK-TV (the "Boston Station") for gross proceeds of $107.5 million. The Company recorded a gain on the sale of $41.7 million. The Company repaid $19.5 million of the Bank Credit Agreement Loans in March 1995 and $77.3 million of the Step-up Notes in April 1995 from the net proceeds of the Boston Station sale.
In November 1996, the Company sold the assets constituting KNSD-TV (the "San Diego Station") for gross proceeds of $231.7 million. The Company recorded a gain on the sale of $127.1 million. The Company repaid the outstanding balance of $27.6 million of the Bank Credit Agreement Loans in November 1996 and $1.7 million of the Step-up Notes in December 1996 from the net proceeds of the San Diego Station sale. The use of the remaining net proceeds of $193.2 from the San Diego Station sale was restricted at December 31, 1996 under the terms of the Company's debt agreements pending the outcome of the Company's offer to purchase a portion of the 11% Notes (Note 4).
The following condensed pro forma consolidated statement of operations information gives effect, as of January 1, 1995 and 1996, to the sale of the Boston Station, the sale of the San Diego Station and repayment of debt with the net proceeds from the sales. The pro forma financial results do not necessarily reflect either future
NEW WORLD TELEVISION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996
results or the results that would have occurred had the transactions discussed above actually occurred on the dates indicated.
In thousands:
FOR THE YEAR ENDED DECEMBER 31, ---------------------- 1996 1995 --------- --------- (UNAUDITED) Statement of Operations Data - --------------------------------------------- Net revenues.............................. $ 207,757 $ 187,931 Net loss.................................. $ (13,798) $ (19,791)
3. SUPPLEMENTAL BALANCE SHEET INFORMATION
The composition of receivables at December 31, 1996 and 1995 was as follows (in thousands):
1996 1995 -------- -------- Trade receivables............................. $ 57,446 $ 63,331 Other receivables............................. 2,932 1,520 -------- -------- 60,378 64,851 Less: Allowance for doubtful accounts......... (2,538) (2,789) -------- -------- $ 57,840 $ 62,062 ======== ========
The broadcast television stations sell advertising time to a variety of customers in diversified industries. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Receivables are generally due within 30 days. Credit losses have consistently been within management's expectations and industry standards.
The composition of property, plant and equipment at December 31, 1996 and 1995 was as follows (in thousands):
NEW WORLD TELEVISION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996
The composition of note receivable from related party and other assets at December 31, 1996 and 1995 was as follows (in thousands):
The composition of intangible assets at December 31, 1996 and 1995 was as follows (in thousands):
The composition of accounts payable and accrued expenses at December 31, 1996 and 1995 was as follows (in thousands):
4 LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 was as follows (in thousands):
NEW WORLD TELEVISION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996
Bank Credit Agreement Loans -- The Bank Credit Agreement Loans were paid in full in connection with the sale of the San Diego Station (Note 2). The Bank Credit Agreement Loans were secured by a lien on common stock and intercompany notes of the broadcast stations held by the Company (the "Pledged Collateral").
Step-up Notes -- Senior secured notes maturing on June 30, 1998; interest at 7 1/2% to May 25, 1996, 8 1/2% to May 25, 1997 and 9 1/2% thereafter, payable quarterly; minimum annual principal payments of $4.7 million in 1997 and $103.2 million in 1998 (as adjusted for mandatory payments made in 1995 and 1996), plus mandatory annual prepayments based upon the excess cash flow of the Company, as defined, redeemable at the Company's option at any time prior to maturity at 100% of outstanding principal plus accrued interest; secured by the Pledged Collateral. Interest expense on the Step-up Notes was accrued at 7.82%, which represents the effective interest rate over the term of the notes. The excess of interest accrued at the effective rate over interest at the stated rate of the notes is included in other noncurrent liabilities. Prior to the repayment of the Bank Credit Agreement Loans, the minimum annual principal payments and all mandatory payments were required to be shared with the Bank Credit Agreement Loans on a pro rata basis, and the security interest in the Pledged Collateral was held on a pari passu basis with the Bank Credit Agreement Loans.
On March 6, 1997, the Company used a portion of the excess net proceeds from the San Diego Station sale to redeem the Step-up Notes for a purchase price equal to 100% of the outstanding principal balance of the notes.
11% Notes -- Secured senior notes maturing June 30, 2005; interest at 11% to maturity, payable semi-annually; redeemable at the Company's option at any time on or after June 30, 1998 at 101% of outstanding principal amount prior to June 30, 1999 and 100% thereafter, plus accrued interest; mandatory redemption of 50% of original principal amount on June 30, 2004 at 100% of outstanding principal amount plus accrued interest; remaining balance due at maturity; secured by lien on Pledged Collateral, third in priority behind permitted letters of credit and Step-up Notes.
On January 6, 1997, in conjunction with the sale of the San Diego Station, the Company repaid $41 thousand of the 11% Notes. Further, the balance of the excess net proceeds from the sale of the San Diego Station, which is reflected as restricted cash at December 31, 1996, reverted to the Company for use as permitted under the terms of the Step-up Notes and the 11% Notes.
As a result of the Fox Merger, on February 13, 1997 the Company made an offer to purchase the outstanding balance of the 11% Notes at a repurchase price in cash equal to 100% of the principal amount outstanding.
As of December 31, 1996, the Company's debt matures in the following years (in thousands): $4,691 in 1997, $103,200 in 1998, $186,868 in 2004 and $186,867 in 2005.
The Company's debt agreements include various ratios and covenants, including restrictions on additional indebtedness, investments, capital expenditures, transactions with affiliated companies and payment of dividends.
The fair value of the Company's long-term debt at December 31, 1996 is approximately $501.0 million.
NEW WORLD TELEVISION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996
5. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
The Company is a party to a number of pending legal proceedings. The Company does not expect that the outcome of such proceedings, either individually or in the aggregate, will have a material effect on the Company's operations or financial results.
PROGRAMMING COMMITMENTS
As of December 31, 1996, the Company has commitments aggregating approximately $7.1 million for various broadcast programming rights through 1999. Certain agreements require the Company to purchase programming that has not yet been produced; the dollar amount of such contracts are not estimable.
6. INCOME TAXES
As a result of the NWCG Merger, effective January 1, 1994 the Company is included in the consolidated federal and certain state income tax returns of NWCG and its subsidiaries. The Company will make tax sharing payments in amounts equivalent to the tax liability the Company would have reflected on its separate consolidated federal income tax return if such return had been filed. Income taxes have been provided as if the Company were a separate taxpayer.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows (in thousands):
NEW WORLD TELEVISION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996
At December 31, 1995, the Company's NOL for federal income tax purposes was $332.1 million, which expires in 2002 through 2009. The NOL at December 31, 1996 was approximately $112 million of which approximately $10.6 million is not subject to the limitations under Section 382 described below. Limitations imposed by Section 382 of the Internal Revenue Code (the "Code") after a change of control, which occurred on May 25, 1993, will limit the amount of NOL which will be available to offset future taxable income. At December 31, 1996, the Company has a valuation allowance against such restricted NOL for the excess of the NOL over the amount of taxable temporary differences which will reverse during the permitted carryover period. Remaining NOL at December 31, 1996 in excess of the Section 382 limitation may be used to the extent of built- in gains realized through May 24, 1998. As a result of the Fox Merger, another change of control under Section 382 of the Internal Revenue Code occurred. Management believes that the ownership change will not have a material effect on the use of NOL's.
Significant components of the provision for income taxes are as follows (in thousands):
NEW WORLD TELEVISION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996
A reconciliation of the income tax provisions is as follows (in thousands):
Income tax expense in 1996 and 1995 resulted primarily from the recognition of income taxes on the sale of the San Diego Station and the Boston Station due to the lower historical tax bases of the Stations' assets. The liability associated with these taxes will be offset by utilization of pre-May 25, 1993 net operating losses. The utilization has been reflected as a reduction of excess reorganization value of approximately $76.2 million in 1996 and $21.6 million in 1995.
7. EMPLOYEE BENEFITS
NW Television Defined Benefit Plan
Substantially all full time employees of NW Television not participating in union sponsored plans who meet eligibility requirements ("Plan Participants") are included in a defined benefit pension plan (the "Pension Plan").
Under the provisions of the Pension Plan, benefits are earned based on years of service and the employees' average earnings during the employees' highest paid three consecutive calendar years of employment.
Data relating to the Pension Plan is as follows (in thousands):
NEW WORLD TELEVISION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996
The weighted average discount rates used in determining the actuarial present value of the projected benefit obligation and net pension cost are 7.5%, 7.25% and 8.5% at December 31, 1996, 1995, and 1994, respectively. The rate of increase in future compensation levels and the expected long-term rate of return on assets are 5% and 9%, respectively, in all periods presented. The Company funds minimum amounts required by ERISA.
The Pension Plan experienced a curtailment as a result of the sale of the San Diego Station. The related curtailment gain of $.5 million has been included in the calculation of the gain on the sale of the station.
In conjunction with the Fox Merger, the Company has announced that it will cease the accrual of benefits under the Pension Plan on March 31, 1997. Immediately thereafter, substantially all of the participants in the Pension Plan will become participants in the Fox Inc. Pension Plan, which offers benefits that are substantially similar to the benefits offered by the Pension Plan. In addition, Fox plans to merge the Pension Plan into the Fox Inc. Pension Plan. No curtailment is expected to occur as a result of the foregoing.
Other Plans
The Company provides certain additional benefits to retired or involuntarily terminated employees of certain subsidiaries based on years of service. As of December 31, 1996 and 1995 the Company had a liability of approximately $4.8 million and $5.4 million, respectively, related to these benefits.
8. EQUITY TRANSACTIONS
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for employee stock options issued by NWCG to certain of the Company's employees because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"), requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of NWCG's stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized.
NWCG's 1994 Stock Option Plan had authorized the grant of options to management personnel for up to 6.0 million shares of NWCG's common stock. All options granted have maximum 10 year terms and vested over
NEW WORLD TELEVISION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996
a three year period becoming fully vested at the end of 3 years of continued employment. Options granted expire within 90 days of an employee's termination.
As a result of the Fox Merger, all unvested stock options on the Fox Merger Date became fully vested and exercisable and all outstanding options were assumed by Fox and became exercisable to purchase ADSs in a ratio of 1.45 ADSs for each share of NWCG common stock. In addition, if an option holder's employment with the Company is terminated within six months of the Fox Merger Date, the option expiration date will be extended from 90 days to one year after the employee's termination date.
Pro forma information regarding net income and earnings per share is required by Statement 123, which also requires that the information be determined as if the Company has accounted for employee stock options granted subsequent to December 31, 1994 under the fair value method of Statement 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1996 and 1995, respectively: risk-free interest rates of 5.6% and 6.3%, a dividend yield of 0%; volatility factors of the expected market price of NWCG's common stock of 51.6% and 53.1%; and a weighted-average expected life of the option of 5 years.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because NWCG's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of NWCG's employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma net income (loss) for the years ended December 31, 1996 and 1995, assuming statement 123 was adopted on January 1, 1995, was $ 55.8 million and $ (13.9) million respectively.
9. RELATED PARTY TRANSACTIONS
The Company is a wholly-owned subsidiary of NWCG. NWCG also owns 100% of NWC Acquisition Corporation ("NW Acquisition") and New World Entertainment, Ltd. ("NW Entertainment").
The Company, NWCG and NW Acquisition share compensation costs for certain employees and certain other corporate costs, including costs associated with the employment of certain officers of Andrews who also serve as officers of the Company. These costs totaled $40.5 million, $20.4 million and $23.2 million in 1996, 1995 and 1994, respectively. The Company's portion of these total costs was $16.0 million, $7.0 million and $6.9 million in 1996, 1995 and 1994, respectively. Amounts payable or receivable from related parties associated with these costs are settled periodically.
Prior to the Fox Merger, the Company and certain affiliates of Mafco were afforded coverage under selected common insurance policies obtained by a subsidiary of Mafco. The Company paid Mafco its allocable portion of the cost of this insurance coverage.
NEW WORLD TELEVISION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996
In connection with the overall business strategy to participate in an integrated entertainment company capable of developing, producing and distributing television programming, the Company may invest in ventures which produce and distribute television programming, operate a national advertising and/or sales representation firm or syndicate programming (each a "Program Co"). Certain of the Company's agreements, including the debt agreements, place limitations on the Company's financial and business relationships with a Program Co and with Andrews. As permitted under the Company's debt agreements, the Company made an aggregate investment of $30.0 million in preferred stock and debt of NW Entertainment, which for purposes of the Company's debt agreements is a Program Co. The Company received interest income of $2.4 million, $1.6 million and $.7 million from NW Entertainment related to this investment in 1996, 1995 and 1994, respectively.
The Company licenses programming from NW Entertainment. Film assets and film liabilities related to the programming licensed from NW Entertainment were $2.3 million and $2.2 million, respectively, at December 31, 1996 and, $1.8 million and $2.0 million, respectively, at December 31, 1995. The Company made film payments to NW Entertainment of $2.9 million, $2.8 million and $.8 million during the years ended 1996, 1995 and 1994, respectively.
In May, 1994, the Company replaced its outside advertising representation firms with New World Sales and Marketing, a wholly-owned subsidiary of NW Entertainment. The Company paid or accrued commissions to New World Sales and Marketing of $7.7 million, $7.5 million and $4.2 million, for the years ended 1996, 1995 and 1994, respectively.
Andrews and certain subsidiaries of NWE Entertainment lease certain office space in the Company's Atlanta office. These companies pay the Company its allocable portion of lease costs.
NEW WORLD TELEVISION INCORPORATED
SUPPLEMENTAL FINANCIAL INFORMATION QUARTERLY FINANCIAL INFORMATION
Summarized unaudited quarterly financial information for the years ended December 31, 1996 and 1995:
ITEM 9:
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 10:
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the directors and executive officers of NW Television as of March 15, 1997.
Name Age Position - ---- --- --------
K. Rupert Murdoch.. 66 Director Chase Carey........ 43 Director and Chairman David F. DeVoe..... 50 Director Lawrence Jacobson.. 38 Executive Vice President and Assistant Treasurer Mitchell Stern..... 42 President and Chief Operating Officer
K. Rupert Murdoch, Director. Director of the Company since January 22, 1997. Chairman of the Board of Directors of News Corp. since August 1991. Executive Director and Chief Executive of News Corp. since 1979. Director of News Limited, News Corp.'s principal subsidiary in Australia, since 1953. Director of News International plc ("News International"), News Corp.'s principal subsidiary in the United Kingdom, since 1969. Director of News America Holdings Incorporated ("NAHI"), News Corp.'s principal subsidiary in the United States, since January 1985. Chairman, Chief Executive Officer and President of NAHI from January 1985 until October 1996. Chairman and a Director of Satellite Television Asian Region Limited ("STAR TV") since July 1993. Member of the Board of British Sky Broadcasting Group plc ("BSkyB") since November 1990. Member of Share Option and Nominating Committees of News Corp.
Chase Carey, Director and Chairman. Director and Chairman of the Company since January 22, 1997. Executive Director and Co-Chief Operating Officer of News Corp. since October 1996. Director and Executive Vice President of NAHI since December 1996. Chairman and Chief Executive Officer of Fox Television since July 1994. Chief Operating Officer of Fox, Inc. since May 1992 and Executive Vice President since June 1988.
David F. DeVoe, Director. Director of the Company since January 22, 1997. Executive Director of News Corp. since October 1990. Senior Executive Vice President of News Corp. since January 1996 and Chief Financial Officer and Finance Director since October 1990. Executive Vice President of News Corp. from October 1990 until January 1996. Director and Executive Vice President of NAHI since July 1991. Director of STAR TV since July 1993. Director of BSkyB since December 1994.
Lawrence Jacobson, Executive Vice President and Assistant Treasurer. Executive Vice President and Assistant Treasurer of the Company since January 22, 1997. Executive Vice President of Fox Television since May 1996. Executive Vice President and Chief Financial Officer of Fox Broadcasting Company since July 1994. Senior Vice President, Finance of Fox, Inc. since July 1992 and Vice President, Finance of Fox, Inc. from December 1990 to July 1992.
Mitchell Stern, President and Chief Operating Officer. President and Chief Operating Officer of the Company since January 22, 1997. President and Chief Operating Officer of Fox since January 1993. Executive Vice President and Chief Operating Officer of Fox from May 1992 to January 1993. Senior Vice President, Fox and Station Manager of KTTV/Fox 11 from May 1990 to May 1992. Vice President and Chief Financial Officer of Fox from July 1986 to May 1990.
ITEM 11:
ITEM 11: EXECUTIVE COMPENSATION
The current executive officers of the Company were appointed as of the Fox Merger Date. The information discussed below concerns the compensation of the Company's Chief Executive Officer and each of the other four most highly compensated executive officers of the Company serving as of December 31, 1996 and one former executive who resigned during 1996 (these six individuals, collectively, the "named executive officers") for services rendered in all capacities to the Company and its subsidiaries during the fiscal years ended December 31, 1996, 1995 and 1994. The employment of the named executive officers was either terminated or they have been removed as officers of the Company in January 1997 as a result of the Fox Merger. Any payments which were required to be made to such executives as a result of their termination are not reflected in the 1996 financial results of the Company.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the annual compensation information for the highest paid executive officers under the terms of their respective employment agreements:
Summary Compensation Table --------------------------
Notes to the Summary Compensation Table:
(1) All officers of the company as of December 31, 1996 were either terminated or removed as officers in January 1997 as a result of the Fox Merger.
(2) Beginning January 1, 1995, NW Acquisition reimbursed the Company for a portion of all executive compensation paid by the Company.
(3) Mr. Reynolds became Chairman and Chief Executive Officer of NW Television in January 1996 upon the resignation of Mr. Selwyn; since he was not previously employed by NW Television, no compensation information is presented.
(4) Pursuant to a reimbursement agreement between a wholly-owned subsidiary of GHI ("GHI Sub"), a former affiliate of the Company, and NW Television, GHI Sub reimbursed NW Television $175,000 for a portion of Mr. Selwyn's and another employee's salaries. As of December 31, 1994, the reimbursement agreement was terminated.
(5) Pursuant to employment agreements between GHI, a former affiliate of the Company, and certain of its affiliates (the "GHI Employment Agreements") and Mr. Ramon, Mr. Ramon was paid an annual salary of $300,000 through December 31, 1994 from GHI.
(6) During 1996, NW Sales and Marketing continued to pay Mr. Reynolds on behalf of the Company and he participated in the NW Sales and Marketing benefit plans. His salary costs, net of an allocation of his salary to NW Sales and Marketing, were reimbursed to NW Sales and Marketing.
(7) Stock option awards received represent options to purchase NWCG Class A Common Stock.
(8) Other annual compensation paid to Ms. Forrest in 1994 represents reimbursement for moving expenses.
(9) Other compensation paid to Mr. Selwyn represents amounts paid in conjunction with his resignation as Chief Executive Officer of the Company.
(10) Ms. Forrest began her employment with the Company in November 1994. Ms. Wisler began her employment with the Company in February 1994.
STOCK OPTIONS GRANTS
There were no stock option grants of NWCG Class A Common Stock to the named executive officers during the year ended December 31, 1996.
AGGREGATED STOCK OPTION EXERCISES IN 1996 AND YEAR-END OPTION VALUES
The following table sets forth information concerning options to purchase NWCG Class A Common Stock exercised during the year ended December 31, 1996 by the named executive officers and the value of exercised and unexercised options to purchase NWCG Class A Common Stock held by the named executive officers as of December 31, 1996. No options to purchase NWCG Class A Common Stock held by the named executives have been repriced during the year.
(1) This column represents the excess of the fair market value of NWCG's Class A Common Stock of $25.25 per share as of December 31, 1996 above the exercise price of the options. One column reports the "value" of the options that are vested and therefore could be exercised; the other the "value" of options that are not vested and therefore could not be exercised as of December 31, 1996.
DEFINED BENEFIT RETIREMENT PLAN
The table below illustrates the estimated annual standard pension benefit payable upon retirement in 1996 at specified compensation levels and years of service classifications.
The compensation covered by the Company's defined benefit plan for which the above table is provided includes the salary and bonus information set forth in the Summary Compensation Table for all named executives except Mr. Reynolds, who was not eligible to participate in the plan in 1996. However, in 1996, covered compensation was limited by the Tax Reform Act of 1986 to $150,000. As of January 1, 1997, the credited years of service for Selwyn, Forrest, Haugen, Ramon and Wisler were approximately 9, 2, 9, 9 and 3, respectively. Benefits set forth in the table are straight life annuity amounts and are subject to deductions for the satisfaction of Social Security obligations.
COMPENSATION OF DIRECTORS
All of the directors as of December 31, 1996 were officers or employees of the Company or its affiliates and did not receive incremental compensation in their capacity as directors.
EMPLOYMENT AGREEMENTS
The Company had an agreement with Farrell Reynolds providing for his employment as Chairman and Chief Executive Officer for the period January 1, 1996 through December 31, 1998. The employment agreement provided for an initial annual base salary of $900,000, increased to $975,000 in 1997 and to $1,050,000 in 1998, with potential annual bonus amounts of up to $750,000 per year based on the achievement of certain financial goals The employment agreement also provided for the grant of options to purchase NWCG Class A Common Stock as well as for certain retirement, insurance and other benefits. Further, his employment agreement provided that in the event Mr. Reynolds was terminated without Cause (as defined in his employment agreement) or if the Company breached his contract, the Company shall (i) retain Mr. Reynolds' services as an independent consultant through March 1, 1997 for a monthly retainer plus reasonable out-of-pocket expenses and (ii) pay Mr. Reynolds an amount equal to (a) all unearned and unpaid amounts of base salary and bonus to the date of termination, (b) a portion of his then current year bonus (as defined in Mr. Reynolds' employment agreement), and (c) the difference between (x) the lesser of one year's base salary or the remaining base salary to be paid for the balance of the term of the employment agreement and (y) the present value of the aggregate consulting fees payable to Mr. Reynolds under (i) above. Under the employment agreement, Mr. Reynolds is prohibited from competing with NWCG during the term of the employment agreement and for a period of one year after termination thereof. Mr. Reynolds' employment was terminated on January 31, 1997, and he was paid $975,000 pursuant to the terms of his employment agreement.
Until January 1996, the Company had an agreement with Robert Selwyn providing for his employment as Chairman and Chief Executive Officer of the Company; Mr. Selwyn currently serves as a consultant for the Company in return for annual compensation of $464,090 (adjusted annually on the basis of the consumer price index, with such adjustment capped at 5%) through January 29, 1998, a discretionary bonus, and certain benefits. The original employment agreement, entered into in 1993, provided for an initial annual base salary to be adjusted annually on the basis of the consumer price index with such adjustment capped at 5% per year, and annual performance bonuses based on operating cash flow. The employment agreement also provided for the grant of options to purchase shares of NWCG Class A Common Stock as well as for certain retirement, insurance and other benefits. Mr. Selwyn's stock options are fully vested.
NW Television had separate employment agreements (the "Employment Agreements") with Larry D. Haugen and David A. Ramon, having entered into such Employment Agreements on May 25, 1993 (the "Effective Date"). Pursuant to each of the Employment Agreements, the term of employment of each was three years from the Effective Date, with such term automatically extending in successive one-month increments each month after the second anniversary of the Effective Date, unless either NW Television or the employee gave notice to the other of its intention not to renew the employment term. The Employment Agreements provided for, among other things, a signing bonus, a base salary (adjusted on the basis of the consumer price index, with such adjustment capped at 5% per year), annual performance-based bonuses, certain perquisites, life insurance during the term of employment in specified amounts and a grant of options to purchase shares of NWCG Class A Common Stock. Each of the Employment Agreements provided that in the event that Mr. Haugen or Mr. Ramon was terminated without Cause (as defined in the Employment Agreements) or either one resigned with Good Reason (as defined in the Employment Agreements) (i) each would be paid his bonus for the year of termination, (ii) their respective base salary and benefits would continue for the lesser of two years or the remaining term of their respective Employment Agreement and (iii) each would have the right to put his options to NWCG. On January 23, 1997, both Mr. Ramon's and Mr. Haugen's employment was terminated. Under the terms of the Employment Agreements, each will be paid his base salary plus certain benefits through January 22, 1998, all subject to mitigation.
The Company has an agreement with Carolyn Forrest providing for her employment as Vice President and General Counsel for the period November 1, 1995 to October 31, 1998, with such term automatically extending on a daily basis for each day after 180 days before the end of the term that written notice is not given that the term will not be renewed. The employment agreement provides for a base salary (adjusted annually by the greater of $10,000 or the percentage increase in the consumer price index), a discretionary bonus, and certain perquisites. The employment agreement provides that in the event of Ms. Forrest's death or disability for more than six months, she is entitled to receive 60% of her base salary until the end of the term of the employment agreement. In the event that the Company breaches the employment agreement and the breach is unremedied within 30 days, Ms. Forrest is entitled to terminate the term with an additional 30 days written notice and receive the balance of the Company's obligation under the terms of the employment agreement in either one lump payment or over the balance of the term of the employment agreement. The employment agreement also provides that in the event that Ms. Forrest is terminated without Cause (as defined in the employment agreement), the Company shall continue to pay Ms. Forrest through the end of the term of the employment agreement. Effective as of the Fox Merger Date, Ms. Forrest was removed as an officer of the Company; her employment was not terminated as a result of such action.
Gwen C. Wisler was employed as an executive officer of the Company pursuant to an employment agreement with NWCG. The Company paid Ms. Wisler directly in lieu of reimbursing NWCG for 100% of all compensation costs. Pursuant to the employment agreement, the initial term of employment was from February 1, 1994 through March 31, 1997. The employment agreement provided for a base salary (adjusted on the basis of the consumer price index with a minimum annual adjustment of 10%), a discretionary bonus, certain perquisites, life insurance during the term of employment in specified amounts and a grant of options to purchase NWCG Class A Common Stock. The employment agreement provided that in the event Ms. Wisler was terminated without Cause (as defined in the employment agreement), NWCG shall (i) pay the amount of any accrued but unpaid base salary, (ii) continue to pay the base salary and provide certain benefits through the earlier of the end of the term of the employment agreement or the second anniversary of the date of termination. The Company did not incur any severance obligation as a result of the termination of Ms. Wisler's employment on January 24, 1997.
COMPENSATION DECISIONS
The Company does not have a compensation committee. Prior to the Fox Merger, decisions regarding executive compensation were generally made by William C. Bevins, the Chief Executive Officer of NWCG, Farrell Reynolds and David A. Ramon, with decisions relating to Mr. Reynolds' and Mr. Ramon's compensation made by NWCG's compensation committee. Prior the Fox Merger, the members of NWCG's compensation committee were David N. Dinkins, James D. Robinson III and Howard Gittis, all of whom were non-employee directors of NWCG and the Company. Mr. Gittis, a director of the Company prior to the Fox Merger, serves as a director of Mafco and various of its affiliates.
EXECUTIVE COMPENSATION POLICIES
The basic elements of the Company's executive compensation packages, which were reflected in the various employment agreements among the Company or its affiliates and the executive officers, were annual base salary, annual incentive bonuses and long-term incentive bonuses.
Annual Salary and Incentive Bonuses. The base salary levels of the Company's executive officers were negotiated individually with each executive officer and were fixed by contract. Base salary of an executive officer was determined subjectively and was not subject to specific measurable criteria or performance goals. The emphasis was placed upon fixing salary at the level necessary to attract the particular executive sought and retain his or her services for a certain term. In that regard, consideration was given to the individual's then existing compensation arrangements as well as other alternative employment opportunities which were then reasonably available to that person.
With certain exceptions, bonuses for the Company's executive management was within the discretion of Mr. Bevins, Mr. Reynolds and Mr. Ramon. Except for Mr. Reynolds, all broadcast television operating executives participated along with other broadcast operating personnel in a bonus pool which approximated a percentage of operating cash flow of the station group. Mr. Reynolds' employment agreement contained bonus criteria related to financial performance levels of the business units he managed.
Long-Term Incentive Compensation. Historically, stock options granted pursuant to the NWCG 1994 Stock Option Plan was the predominant form of long- term incentive compensation and was a major portion of the executive compensation package. No stock options to purchase NWCG Class A Common Stock were granted during 1996.
Other Compensation. The Company's executive compensation agreements included a benefits component in addition to base salary, bonuses and long-term incentives. This component included, among other things, automobile allowances, enhanced insurance and medical benefits. These benefits were viewed as less important than the salary, bonus and stock-based elements of compensation and, therefore, received far less emphasis.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Mr. Reynolds' compensation as the Company's Chief Executive Officer was determined based upon the terms of his employment agreement, which provided for a base salary and a bonus determined based upon the achievement of certain financial goals (see "Employment Agreements").
ITEM 12:
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As a result of the Fox Merger on the Fox Merger Date, the Company became a wholly owned subsidiary of Fox, which is a wholly owned subsidiary of Twentieth Holdings Corporation ("THC"). K. Rupert Murdoch holds voting preferred shares of THC representing 76% of the voting power thereof. Such preferred stock is redeemable at the option of Fox, Inc. News Corp., through Fox, Inc., holds all of the common stock of THC (representing substantially all of the equity thereof and 24% of the voting power thereof).
As of March 20, 1997, Cruden Investments Pty. Limited ("Cruden") (a corporation organized under the laws of the State of Victoria, Australia), a subsidiary thereof, Mr. Murdoch, members of his family and a corporation which is controlled by the trustees of settlements and trusts set up for the benefit of the Murdoch family, certain charities and other persons owned 599,988,254 Ordinary Shares, A$.50 each, of News Corp. (approximately 30.85% of the total thereof outstanding). Cruden is a private Australian incorporated investment company owned by Mr. Murdoch, members of his family and various corporations and trusts, the beneficiaries of which include Mr. Murdoch, members of his family and charities. By virtue of shares of News Corp. owned by corporations which are controlled by the trustees of settlements and trusts set up for the benefit of the Murdoch family, certain charities and other persons, and Mr. Murdoch's positions as Chairman and Chief Executive of News Corp., Mr. Murdoch may be deemed to control the operations of News Corp. The business address of THC and Mr. Murdoch is 10201 West Pico Boulevard, Los Angeles, California 90035, and the business address of News Corp. is 2 Holt Street, Sydney, New South Wales, Australia.
ITEM 13:
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP OF THE COMPANY WITH MAFCO
Mafco is wholly-owned by Ronald O. Perelman. Andrews, an affiliate of Mafco, is subject to the reporting requirements of the Exchange Act and in accordance therewith, files periodic reports and other information with the Securities and Exchange Commission (the "Commission"). These reports can be inspected and copied at certain Commission facilities.
Terry Bridges and Joseph Page are employed by Andrews and, until the Fox Merger Date, served as Vice President and Chief Administrative Officer and Vice President and Chief Financial Officer, respectively, of the Company pursuant to an employment agreement with Andrews. The Company indirectly reimbursed Andrews for a portion of Mr. Bridges and Mr. Page's salary, through a management fee paid to NWCG.
Prior to the Fox Merger, the Company and certain affiliates of Mafco were afforded coverage under selected common insurance policies obtained by a subsidiary of Mafco. The Company paid Mafco for its allocable portion of the cost of this insurance coverage.
Andrews leases and, through the Fox Merger Date, certain subsidiaries of NWE Entertainment leased certain office space in the Company's corporate offices in Atlanta, Georgia. These companies paid the Company its allocable portion of lease costs.
CERTAIN RELATIONSHIPS WITH FOX
On the Fox Merger Date, Fox, an entity in which News Corp. has an indirect interest, acquired all of the shares of common stock of NWCG (other than shares of common stock previously owned directly or indirectly by News Corp. or any News Corp. subsidiary) in a transaction referred to as the Fox Merger (see "Business - Recent Developments").
The Stations are affiliated with the FOX network pursuant to affiliation agreements which provide for an initial term of ten years, which term may be extended for additional successive periods of five years each by agreement of the Fox Broadcasting Company, which operates the FOX network, and the Company. The affiliation agreements provide for the carriage by the Company stations of FOX network programming during certain specified time periods and otherwise contain terms customary for such agreements.
The Stations license certain programming from a unit of the Fox Television division of News Corp. Such licensing agreements currently in effect were established prior to the Fox Merger.
The Company and its subsidiaries are insured under policies maintained by News America Holdings Incorporated and Fox, Inc., both of which are indirect wholly owned subsidiaries of News Corp. During 1997, Fox will begin to provide health and retirement benefits to the employees of the Company and its subsidiaries under plans administered by Fox, Inc. The Company and its subsidiaries will reimburse Fox for the portion of such costs attributable to the Company and its subsidiaries.
CERTAIN OTHER RELATIONSHIPS
Certain executives of NW Television were also executives of, and received a salary from, GHI Sub, a former affiliate of NW Television. See "Item 11, Executive Compensation -- Employment Agreements." In addition, pursuant to a reimbursement agreement, NW Television was obligated to reimburse GHI Sub for payments made by GHI relating to certain operating expenses of NW Television and for a portion of the cost of certain employee
benefits provided by GHI Sub to certain employees. The reimbursement agreement also provided that so long as NW Television remained obligated to pay the salaries of certain employees, including those set forth in "Item 11, Executive Compensation -- Employment Agreements," GHI Sub would reimburse NW Television for $175,000 of these employees salaries. As of December 31, 1994, the reimbursement agreement was terminated.
The Company, NWCG and NW Acquisition share compensation costs for certain employees and certain other corporate costs. These costs totaled $40.5 million, $20.4 million and $23.2 million in 1996, 1995 and 1994, respectively. The Company's portion of these total costs was $16.0 million, $7.0 million and $6.9 million in 1996, 1995 and 1994, respectively. Amounts payable or receivable from related parties associated with these costs are settled periodically.
In connection with the overall business strategy to participate in an integrated entertainment company capable of developing, producing and distributing television programming, the Company may invest in ventures which produce and distribute television programming, operate a national advertising and/or sales representation firm or syndicate programming (each, a "Program Co"). Certain of the Company's agreements, including the debt agreements, place limitations on the Company's financial and business relationships with a Program Co and with Andrews. As permitted under the Company's debt agreements, the Company made an aggregate investment of $30.0 million in preferred stock and debt of NW Entertainment, which for purposes of the Company's debt agreements is a Program Co. The Company received interest income of $2.4 million, $1.6 million and $.7 million from NW Entertainment related to this investment in 1996, 1995 and 1994, respectively.
The Company licenses programming from NW Entertainment. Film assets and film liabilities related to the programming licensed from NW Entertainment were $2.3 million and $2.2 million, respectively, at December 31, 1996 and $1.8 million and $2.0 million, respectively, at December 31, 1995. The Company made film payments to NW Entertainment of $2.9 million, $2.8 million, and $.8 million during the years ended 1996, 1995 and 1994, respectively.
In May, 1994, the Company replaced its outside advertising representation firms with New World Sales and Marketing, a wholly-owned subsidiary of NW Entertainment. The Company paid or accrued commissions to New World Sales and Marketing of $7.7 million, $7.5 million, and $4.2 million for the years ended 1996, 1995 and 1994, respectively.
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE ---- (a) (1) Financial Statements commence on p. 16 (2) Supplemental Financial Statement Schedule Report of Independent Auditors............................ S-1 Schedule II -- Valuation and Qualifying Accounts.......... S-2 (3) Exhibits
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------ -----------------------
2.1 -- Debtors' Joint Plan of Reorganization, dated March 4, 1993 as filed by NW Television ("NW Television"), GCI Partners, SCI-GP Corp. and GCI-GP, Inc. (collectively, the "Debtors") (incorporated by reference to Exhibit 2.1 of the NW Television Registration Statement on Form S-1 (No. 33-64546) relating to NW Television's 11% Notes (the "NW Television Registration Statement")). 2.2 -- Debtors' Modification to the Debtors' Joint Plan of Reorganization, dated April 29, 1993 (incorporated by reference to Exhibit 2.2 of the NW Television Registration Statement). 2.3 -- Debtors' Further Modifications to the Debtors' Joint Plan of Reorganization, dated May 3, 1993 (incorporated by reference to Exhibit 2.3 of the NW Television Registration Statement). 2.4 -- Debtors' Additional Modifications to the Debtors' Joint Plan of Reorganization, dated May 6, 1993 (incorporated by reference to Exhibit 2.4 of the NW Television Registration Statement). 2.5 -- Settlement Agreement, dated May 5, 1993 (incorporated by reference to Exhibit 2.5 of the NW Television Registration Statement). 2.6 -- Stipulation Regarding Implementation of Settlement Agreement and Resolution of Investment Advisor's Claim, dated May 25, 1993 (incorporated by reference to Exhibit 2.6 of the NW Television Registration Statement). 2.7 -- Disclosure Statement, dated January 19, 1993 (incorporated by reference to Exhibit 2.7 of the NW Television Registration Statement). 2.8 -- Disclosure Statement Supplement, dated February 12, 1993 (incorporated by reference to Exhibit 2.8 of the NW Television Registration Statement). 2.9 -- Disclosure Statement Second Supplement, dated February 19, 1993 (incorporated by reference to Exhibit 2.9 of the NW Television Registration Statement). 2.10 -- Agreement and Plan of Reorganization and Merger, dated as of November 23, 1993, by and among NW Television, Andrews Group, the Registrant and Merger Sub (the "Agreement and Plan of Reorganization and Merger") (incorporated by reference to Exhibit 2.11 of the NWCG Registration Statement on Form S-1 (No. 33-72738) relating to the registration of certain securities (the "NWCG Registration Statement")). 2.11 -- Amendment to Agreement and Plan of Reorganization and Merger, dated as of February 10, 1994 (incorporated by reference to Exhibit 2.11C of the NWCG Registration Statement). 2.12 -- Memorandum of Understanding among New World Communications Group, Incorporated ("NWCG"), NWCG (Parent ) Holdings Corporation ("NWCGP"), NWCG Holdings Corporation (the "Company") and The News Corporation Limited ("News Corp."), dated as of July 17, 1996 (incorporated by reference to Exhibit 2.1 of the NWCG Form 8-K, dated July 17, 1996).
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------ -----------------------
2.13 -- Agreement and Plan of Merger, dated as of September 24, 1996, by and among NWCG, News Corp., Fox Television Stations, Inc. ("Fox") and Fox Acquisition Co., Inc. ("Fox Merger Sub") (incorporated by reference to Exhibit 2.2 of the NWCG Form 8-K, dated September 24, 1996). 2.14 -- Stock Purchase Agreement, dated as of September 24, 1996, by and among NWCGP, News Corp. and Fox (incorporated by reference to Exhibit 2.3 of the NWCG Form 8-K, dated September 24, 1996). 3.1 -- Amended and Restated Certificate of Incorporation of NW Television (incorporated by reference to Exhibit 3.1 of the NW Television 1994 Form 10-K). 3.2 -- Amended and Restated Bylaws of (incorporated by reference to Exhibit 3.2 of the NW Television 1994 Form 10-K). 4.1 -- Indenture, dated as of May 25, 1993, by and between NW Television, as Issuer, and Continental Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 of the NW Television Registration Statement). 4.2 -- Indenture, dated as of May 25, 1993, by and between NW Television, as Issuer, and NationsBank of Georgia, National Association, as Trustee (incorporated by reference to Exhibit 4.2 of the NW Television Registration Statement). 4.3 -- Collateral Trust and Intercreditor Agreement, dated as of May 25, 1993, among NW Television, the Secured Party Representatives named therein, and Chemical Bank, as Collateral Trustee (incorporated by reference to Exhibit 4.3 of the NW Television Registration Statement). 4.4 -- SCI Pledge and Security Agreement, dated as of May 25, 1993, by and between NW Television, as Pledgor, and Chemical Bank, as Collateral Trustee (incorporated by reference to Exhibit 4.4 of the NW Television Registration Statement). 4.5 -- Subsidiary Pledge and Security Agreement by New World Communications of Atlanta, Inc. in favor of and for the benefit of NW Television, dated May 25, 1993 (incorporated by reference to Exhibit 4.5A of the NW Television Registration Statement). 4.7 -- Subsidiary Pledge and Security Agreement by New World Communications of Milwaukee, Inc. in favor of and for the benefit of NW Television, dated as of May 24, 1993 (incorporated by reference to Exhibit 4.5C of the NW Television Registration Statement). 4.8 -- Subsidiary Pledge and Security Agreement by New World Communications of Detroit, Inc. in favor of and for the benefit of NW Television, dated May 25, 1993 (incorporated by reference to Exhibit 4.5D of the NW Television Registration Statement). 4.9 -- Subsidiary Pledge and Security Agreement by New World Communications of Ohio, Inc. in favor of and for the benefit of NW Television, dated May 24, 1993 (incorporated by reference to Exhibit 4.5E of the NW Television Registration Statement). 4.10 -- Subsidiary Pledge and Security Agreement by NW Communications of San Diego, Inc. in favor of and for the benefit of NW Television, dated as of May 25, 1993 (incorporated by reference to Exhibit 4.5F of the NW Television Registration Statement). 4.11 -- Subsidiary Pledge and Security Agreement by New World Communications of Tampa, Inc. in favor of and for the benefit of NW Television, dated as of May 25, 1993 (incorporated by reference to Exhibit 4.5G of the NW Television Registration Statement). 4.12 -- Deed to Secure Debt, Security Agreement, Financing Statement and Assignment of Rents made May 25, 1993 by New World Communications of Atlanta, Inc. in favor of NW Television (incorporated by reference to Exhibit 4.5H of the NW Television Registration Statement). 4.14 -- Mortgage, Security Agreement, Financing Statement and Assignment of Rents made May 25, 1993 by New World Communications of Milwaukee, Inc. in favor of NW Television (incorporated by reference to Exhibit 4.5J of the NW Television Registration Statement).
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------ -----------------------
4.15 -- Mortgage, Security Agreement, Financing Statement and Assignment of Rents made May 25, 1993 by New World Communications of Detroit, Inc. in favor of NW Television (incorporated by reference to Exhibit 4.5K of the NW Television Registration Statement). 4.16 -- Mortgage, Security Agreement, Financing Statement and Assignment of Rents made May 25, 1993 by New World Communications of Ohio, Inc. in favor of NW Television (incorporated by reference to Exhibit 4.5L of the NW Television Registration Statement). 4.17 -- Deed of Trust, Security Agreement, Financing Statement and Assignment of Rents made May 25, 1993 by NW Communications of San Diego, Inc. in favor of NW Television (incorporated by reference to Exhibit 4.5M of the NW Television Registration Statement). 4.18 -- Mortgage, Security Agreement, Financing Statement and Assignment of Rents made May 25, 1993 by New World Communications of Tampa, Inc. in favor of NW Television (incorporated by reference to Exhibit 4.5N of the NW Television Registration Statement). 4.19 -- New Intercompany Note made by New World Communications of Atlanta, Inc. in favor of NW Television in the principal amount of $16,700,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5O of the NW Television Registration Statement). 4.20 -- Amended and Restated Intercompany Note made by New World Communications of Atlanta, Inc. in favor of NW Television in the principal amount of $161,500,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5P of the NW Television Registration Statement). 4.23 -- New Intercompany Note made by New World Communications of Milwaukee, Inc. in favor of NW Television in the principal amount of $14,300,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5S of the NW Television Registration Statement). 4.24 -- Amended and Restated Intercompany Note made by New World Communications of Milwaukee, Inc. in favor of NW Television in the principal amount of $11,600,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5T of the NW Television Registration Statement). 4.25 -- New Intercompany Note made by New World Communications of Detroit, Inc. in favor of NW Television in the principal amount of $18,400,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5U of the NW Television Registration Statement). 4.26 -- Amended and Restated Intercompany Note made by New World Communications of Detroit, Inc. in favor of NW Television in the principal amount of $39,100,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5V of the NW Television Registration Statement). 4.27 -- New Intercompany Note made by New World Communications of Ohio, Inc. in favor of NW Television in the Principal amount of $14,500,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5W of the NW Television Registration Statement). 4.28 -- Amended and Restated Intercompany Note made by New World Communications of Ohio, Inc. in favor of NW Television in the principal amount of $75,000,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5X of the NW Television Registration Statement). 4.29 -- New Intercompany Note made by NW Communications of San Diego, Inc. in favor of NW Television in the principal amount of $13,300,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5Y of the NW Television Registration Statement). 4.30 -- Amended and Restated Intercompany Note made by NW Communications of San Diego, Inc. in favor of NW Television in the principal amount of $75,000,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5Z of the NW Television Registration Statement). 4.31 -- Intercompany Note made by New World Communications of Tampa, Inc. in favor of NW Television in the principal amount of $65,000,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5AA of the NW Television Registration Statement). 4.32 -- Junior Subordinated Intercompany Note made by New World Communications of Tampa, Inc. in favor of NW Television in the principal amount of $64,800,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5BB of the NW Television Registration Statement).
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------ -----------------------
4.33 -- Stockholders Agreement, dated as of May 25, 1993, among NW Television, Andrews Group Incorporated, and the Initial Executing Stockholders listed therein and assumed by the Registrant in accordance with the provisions of the Agreement and Plan of Reorganization and Merger filed as Exhibit 2.10 hereto (incorporated by reference to Exhibit 4.6 of the NW Television Registration Statement). 4.34 -- Registration Rights Agreement, dated as of May 25, 1993, among NW Television, and the Stockholders, Warrantholders, and Debtholders listed on the Signature Pages thereto and assumed by the Registrant in accordance with the provisions of the Agreement and Plan of Reorganization and Merger filed as Exhibit 2.10 hereto (incorporated by reference to Exhibit 4.7 of the NW Television Registration Statement). 4.35 -- New Equity Stock Subscription Agreement, dated as of January 26, 1993, by and between NW Television and Andrews Group Incorporated, as amended January 29, 1993 and February 11, 1993 (incorporated by reference to Exhibit 4.8 of the NW Television Registration Statement). 4.36 -- Purchase Agreement, dated May 20, 1993, among NW Television, Andrews Group Incorporated for the limited purpose of acknowledging the agreement set forth in Section 2 thereto and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.9 of the NW Television Registration Statement). 4.37 -- Registration Agreement, dated May 20, 1993, by and between NW Television and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.10 of the NW Television Registration Statement). 4.38 -- Form of Class A Warrant of NW Television assumed by the Registrant in accordance with the provisions of the Agreement and Plan of Reorganization and Merger (incorporated by reference to Exhibit 4.11 of the NW Television Registration Statement). 4.39 -- Form of Class B Warrant of NW Television assumed by the Registrant in accordance with the provisions of the Agreement and Plan of Reorganization and Merger (incorporated by reference to Exhibit 4.12 of the NW Television Registration Statement). 4.40 -- Form of Class A, Series 2 Warrants of the Registrant (incorporated by reference to Exhibit 4.38A of the NWCG Registration Statement). 10.1 -- Credit Agreement, dated as of May 25, 1993, among NW Television, the Lenders listed therein and Canadian Imperial Bank of Commerce New York Agency, as Agent (incorporated by reference to Exhibit 10.1 of the NW Television Registration Statement). 10.2 -- First Amendment, dated as of December 22, 1993, by and among NW Television, the Institutions listed on the Signature Pages thereof and Canadian Imperial Bank of Commerce New York Agency (incorporated by reference to Exhibit 10.1A of the NW Television Registration Statement). 10.3 -- Affiliation Agreement dated as of June 26, 1995 by and between National Broadcasting Company, Inc. and NW Communications of San Diego, Inc. 10.4 -- Affiliation Agreement by and between Fox Broadcasting Company and WJBK License, Inc. (incorporated by reference to Exhibit 10.0 of NWCG Holdings Corporation Registration Statement on Form S-1 (No.33- 82274) relating to NWCG Holdings Corporation Senior Discount Notes (the "Holdings Registration Statement")). 10.5 -- Affiliation Agreement by and between Fox Broadcasting Company and WAGA License, Inc. (incorporated by reference to Exhibit 10.10 of the Holdings Registration Statement). 10.6 -- Affiliation Agreement by and between Fox Broadcasting Company and WJW License, Inc. (incorporated by reference to Exhibit 10.11 of the Holdings Registration Statement). 10.7 -- Affiliation Agreement by and between Fox Broadcasting Company and TVT License, Inc. (incorporated by reference to Exhibit 10.12 of the Holdings Registration Statement). 10.8 -- Affiliation Agreement by and between Fox Broadcasting Company and WITI License, Inc. (incorporated by reference to Exhibit 10.13 of the Holdings Registration Statement). 10.9 -- Affiliation Agreement by and between Fox Broadcasting Company and KSAZ License, Inc. (incorporated by reference to Exhibit 10.14 of the Holdings Registration Statement).
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------ -----------------------
10.10 -- Affiliation Agreement by and between Fox Broadcasting Company and WDAF License, Inc. (incorporated by reference to Exhibit 10.15 of the Holdings Registration Statement). 10.11 -- Employment Agreement, dated as of May 25, 1993, by and between NW Television and Robert E. Selwyn, Jr. (incorporated by reference to Exhibit 10.9 of the NW Television Registration Statement). 10.13 -- Employment Agreement, dated as of May 25, 1993, by and between NW Television and Larry D. Haugen (incorporated by reference to Exhibit 10.11 of the NW Television Registration Statement). 10.14 -- Employment Agreement, dated as of May 25, 1993, by and between NW Television and James G. Gorman (incorporated by reference to Exhibit 10.12 of the NW Television Registration Statement). 10.15 -- Employment Agreement, dated as of May 24, 1993, by and between NW Television and David A. Ramon (incorporated by reference to Exhibit 10.13 of the NW Television Registration Statement). 10.16 -- Employment Agreement, dated as of May 25, 1993, by and between NW Television and George N. Gillett, Jr. (incorporated by reference to Exhibit 10.14 of the NW Television Registration Statement). 10.17 -- Amended Employment Agreement, dated December 31, 1994, between the Registrant and David A. Ramon (incorporated by reference to exhibit 10.17 of the NW Television 1994 Form 10-K). 10.18 -- Merger Agreement, by and between the Company and Viacom International Inc., dated as of November 28, 1994 (with respect to the sale of WSBK-TV) (incorporated by reference to Exhibit 1 of the NW Television Form 8-K dated March 7, 1995). 10.19 -- Employment Agreement, dated as of January 1, 1996, by and between the Company and Farrell Reynolds (incorporated by reference to exhibit 10.1 of the New World Communications Group Incorporated form 10-Q for the quarter ended March 31, 1996). 10.20 -- NWCG Parent Voting Agreement, dated as of September 24, 1996, among Fox, NWCGP and NWCG Holdings (incorporated by reference to Exhibit 10.1 of the NWCG Form 8-K dated September 24, 1996). 10.21 -- Apollo Voting Agreement, dated as of September 24, 1996, among Fox, News Corp. and Apollo Advisors L.P. ("Apollo") (incorporated by reference to Exhibit 10.2 of the NWCG Form 8-K dated September 24, 1996). 10.22 -- Guaranty, dated as of September 24, 1996, entered into by News Corp. in favor of NWCG Holdings, NWCGP, Mafco Holdings Inc. ("Mafco"), 1440 Sepulveda Limited Partnership ("1440") and Andrews Group Inc. ("Andrews") (incorporated by reference to Exhibit 10.3 of the NWCG Form 8-k dated September 24, 1996). 10.23 -- Guaranty, dated as of September 24, 1996, entered into by Mafco in favor of News Corp. and Fox (incorporated by reference to Exhibit 10.4 of the NWCG Form 8-K dated September 24, 1996). 21.1 -- Subsidiaries of the Registrant. 24.1 -- Powers of Attorney. 27.1 -- Financial Data Schedule (for SEC use only).
(b) Reports filed on Form 8-K:
September 24, 1996 (Items 1 and 7) November 20, 1996 (Items 2 and 7) January 22, 1997 (Items 1, 5 and 7)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NEW WORLD TELEVISION INCORPORATED (Registrant)
By: /s/ Mitchell Stern ----------------------------------------------- Mitchell Stern President and Chief Operating Officer
By: /s/ Lawrence Jacobson ----------------------------------------------- Lawrence Jacobson Executive Vice President and Assistant Treasurer
Dated: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on March 28, 1997 in the capacities indicated.
By: K. Rupert Murdoch* ---------------------------------------
K. Rupert Murdoch Director
By: Chase Carey* ---------------------------------------
Chase Carey Director
By: David F. DeVoe* ------------------------------------
David F. DeVoe Director
* The undersigned by signing his name does hereby execute this Annual Report pursuant to powers of attorney filed as exhibits to the Annual Report.
By: /s/ Mitchell Stern ------------------------------------- Mitchell Stern Attorney-in-fact
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholder: New World Television Incorporated
We have audited the consolidated financial statements of New World Television Incorporated as of December 31, 1996 and 1995 and for the three years in the period ended December 31, 1996, and have issued our report thereon dated March 7, 1997 (included elsewhere in this Form 10-K). Our audits also included the financial statement schedule listed in Item 14a(2). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia March 7, 1997
S-1
SCHEDULE II
NEW WORLD TELEVISION INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
- ---------- (1) Deductions made for purposes for which account was established.
S-2
INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF DOCUMENT PAGE - ------ ----------------------- ----
2.1 -- Debtors' Joint Plan of Reorganization, dated March 4, 1993 as filed by NW Television ("NW Television"), GCI Partners, SCI-GP Corp. and GCI-GP, Inc. (collectively, the "Debtors") (incorporated by reference to Exhibit 2.1 of the NW Television Registration Statement on Form S- 1 (No. 33-64546) relating to NW Television's 11% Notes (the "NW Television Registration Statement")). 2.2 -- Debtors' Modification to the Debtors' Joint Plan of Reorganization, dated April 29, 1993 (incorporated by reference to Exhibit 2.2 of the NW Television Registration Statement). 2.3 -- Debtors' Further Modifications to the Debtors' Joint Plan of Reorganization, dated May 3, 1993 (incorporated by reference to Exhibit 2.3 of the NW Television Registration Statement). 2.4 -- Debtors' Additional Modifications to the Debtors' Joint Plan of Reorganization, dated May 6, 1993 (incorporated by reference to Exhibit 2.4 of the NW Television Registration Statement). 2.5 -- Settlement Agreement, dated May 5, 1993 (incorporated by reference to Exhibit 2.5 of the NW Television Registration Statement). 2.6 -- Stipulation Regarding Implementation of Settlement Agreement and Resolution of Investment Advisor's Claim, dated May 25, 1993 (incorporated by reference to Exhibit 2.6 of the NW Television Registration Statement). 2.7 -- Disclosure Statement, dated January 19, 1993 (incorporated by reference to Exhibit 2.7 of the NW Television Registration Statement). 2.8 -- Disclosure Statement Supplement, dated February 12, 1993 (incorporated by reference to Exhibit 2.8 of the NW Television Registration Statement). 2.9 -- Disclosure Statement Second Supplement, dated February 19, 1993 (incorporated by reference to Exhibit 2.9 of the NW Television Registration Statement). 2.10 -- Agreement and Plan of Reorganization and Merger, dated as of November 23, 1993, by and among NW Television, Andrews Group, the Registrant and Merger Sub (the "Agreement and Plan of Reorganization and Merger") (incorporated by reference to Exhibit 2.11 of the NWCG Registration Statement on Form S-1 (No. 33-72738) relating to the registration of certain securities (the "NWCG Registration Statement")). 2.11 -- Amendment to Agreement and Plan of Reorganization and Merger, dated as of February 10, 1994 (incorporated by reference to Exhibit 2.11C of the NWCG Registration Statement). 2.12 -- Memorandum of Understanding among New World Communications Group Incorporated ("NWCG"), NWCG (Parent ) Holdings Corporation ("NWCGP"), NWCG Holdings Corporation (the "Company") and The News Corporation Limited ("News Corp."), dated as of July 17, 1996 (incorporated by reference to Exhibit 2.1 of the NWCG Form 8-K, dated July 17, 1996). 2.13 -- Agreement and Plan of Merger, dated as of September 24, 1996, by and among NWCG, News Corp., Fox Television Stations, Inc. ("Fox") and Fox Acquisition Co., Inc. ("Fox Merger Sub") (incorporated by reference to Exhibit 2.2 of the NWCG Form 8-K, dated September 24, 1996). 2.14 -- Stock Purchase Agreement, dated as of September 24, 1996, by and among NWCGP, News Corp. and Fox (incorporated by reference to Exhibit 2.3 of the NWCG Form 8-K, dated September 24, 1996). 3.1 -- Amended and Restated Certificate of Incorporation of NW Television (incorporated by reference to Exhibit 3.1 of the NW Television 1994 Form 10-K).
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF DOCUMENT PAGE - ------ ----------------------- ----
3.2 -- Amended and Restated Bylaws of (incorporated by reference to Exhibit 3.2 of the NW Television 1994 Form 10-K). 4.1 -- Indenture, dated as of May 25, 1993, by and between NW Television, as Issuer, and Continental Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 of the NW Television Registration Statement). 4.2 -- Indenture, dated as of May 25, 1993, by and between NW Television, as Issuer, and NationsBank of Georgia, National Association, as Trustee (incorporated by reference to Exhibit 4.2 of the NW Television Registration Statement). 4.3 -- Collateral Trust and Intercreditor Agreement, dated as of May 25, 1993, among NW Television, the Secured Party Representatives named therein, and Chemical Bank, as Collateral Trustee (incorporated by reference to Exhibit 4.3 of the NW Television Registration Statement). 4.4 -- SCI Pledge and Security Agreement, dated as of May 25, 1993, by and between NW Television, as Pledgor, and Chemical Bank, as Collateral Trustee (incorporated by reference to Exhibit 4.4 of the NW Television Registration Statement). 4.5 -- Subsidiary Pledge and Security Agreement by New World Communications of Atlanta, Inc. in favor of and for the benefit of NW Television, dated May 25, 1993 (incorporated by reference to Exhibit 4.5A of the NW Television Registration Statement). 4.7 -- Subsidiary Pledge and Security Agreement by New World Communications of Milwaukee, Inc. in favor of and for the benefit of NW Television, dated as of May 24, 1993 (incorporated by reference to Exhibit 4.5C of the NW Television Registration Statement). 4.8 -- Subsidiary Pledge and Security Agreement by New World Communications of Detroit, Inc. in favor of and for the benefit of NW Television, dated May 25, 1993 (incorporated by reference to Exhibit 4.5D of the NW Television Registration Statement). 4.9 -- Subsidiary Pledge and Security Agreement by New World Communications of Ohio, Inc. in favor of and for the benefit of NW Television, dated May 24, 1993 (incorporated by reference to Exhibit 4.5E of the NW Television Registration Statement). 4.10 -- Subsidiary Pledge and Security Agreement by NW Communications of San Diego, Inc. in favor of and for the benefit of NW Television, dated as of May 25, 1993 (incorporated by reference to Exhibit 4.5F of the NW Television Registration Statement). 4.11 -- Subsidiary Pledge and Security Agreement by New World Communications of Tampa, Inc. in favor of and for the benefit of NW Television, dated as of May 25, 1993 (incorporated by reference to Exhibit 4.5G of the NW Television Registration Statement). 4.12 -- Deed to Secure Debt, Security Agreement, Financing Statement and Assignment of Rents made May 25, 1993 by New World Communications of Atlanta, Inc. in favor of NW Television (incorporated by reference to Exhibit 4.5H of the NW Television Registration Statement). 4.14 -- Mortgage, Security Agreement, Financing Statement and Assignment of Rents made May 25, 1993 by New World Communications of Milwaukee, Inc. in favor of NW Television (incorporated by reference to Exhibit 4.5J of the NW Television Registration Statement). 4.15 -- Mortgage, Security Agreement, Financing Statement and Assignment of Rents made May 25, 1993 by New World Communications of Detroit, Inc. in favor of NW Television (incorporated by reference to Exhibit 4.5K of the NW Television Registration Statement). 4.16 -- Mortgage, Security Agreement, Financing Statement and Assignment of Rents made May 25, 1993 by New World Communications of Ohio, Inc. in favor of NW Television (incorporated by reference to Exhibit 4.5L of the NW Television Registration Statement).
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF DOCUMENT PAGE - ------ ----------------------- ----
4.17 -- Deed of Trust, Security Agreement, Financing Statement and Assignment of Rents made May 25, 1993 by NW Communications of San Diego, Inc. in favor of NW Television (incorporated by reference to Exhibit 4.5M of the NW Television Registration Statement). 4.18 -- Mortgage, Security Agreement, Financing Statement and Assignment of Rents made May 25, 1993 by New World Communications of Tampa, Inc. in favor of NW Television (incorporated by reference to Exhibit 4.5N of the NW Television Registration Statement). 4.19 -- New Intercompany Note made by New World Communications of Atlanta, Inc. in favor of NW Television in the principal amount of $16,700,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5O of the NW Television Registration Statement). 4.20 -- Amended and Restated Intercompany Note made by New World Communications of Atlanta, Inc. in favor of NW Television in the principal amount of $161,500,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5P of the NW Television Registration Statement). 4.23 -- New Intercompany Note made by New World Communications of Milwaukee, Inc. in favor of NW Television in the principal amount of $14,300,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5S of the NW Television Registration Statement). 4.24 -- Amended and Restated Intercompany Note made by New World Communications of Milwaukee, Inc. in favor of NW Television in the principal amount of $11,600,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5T of the NW Television Registration Statement). 4.25 -- New Intercompany Note made by New World Communications of Detroit, Inc. in favor of NW Television in the principal amount of $18,400,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5U of the NW Television Registration Statement). 4.26 -- Amended and Restated Intercompany Note made by New World Communications of Detroit, Inc. in favor of NW Television in the principal amount of $39,100,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5V of the NW Television Registration Statement). 4.27 -- New Intercompany Note made by New World Communications of Ohio, Inc. in favor of NW Television in the Principal amount of $14,500,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5W of the NW Television Registration Statement). 4.28 -- Amended and Restated Intercompany Note made by New World Communications of Ohio, Inc. in favor of NW Television in the principal amount of $75,000,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5X of the NW Television Registration Statement). 4.29 -- New Intercompany Note made by NW Communications of San Diego, Inc. in favor of NW Television in the principal amount of $13,300,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5Y of the NW Television Registration Statement). 4.30 -- Amended and Restated Intercompany Note made by NW Communications of San Diego, Inc. in favor of NW Television in the principal amount of $75,000,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5Z of the NW Television Registration Statement). 4.31 -- Intercompany Note made by New World Communications of Tampa, Inc. in favor of NW Television in the principal amount of $65,000,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5AA of the NW Television Registration Statement). 4.32 -- Junior Subordinated Intercompany Note made by New World Communications of Tampa, Inc. in favor of NW Television in the principal amount of $64,800,000, dated May 25, 1993 (incorporated by reference to Exhibit 4.5BB of the NW Television Registration Statement). 4.33 -- Stockholders Agreement, dated as of May 25, 1993, among NW Television, Andrews Group Incorporated, and the Initial Executing Stockholders listed therein and assumed by the Registrant in accordance with the provisions of the Agreement and Plan of Reorganization and Merger filed as Exhibit 2.10 hereto (incorporated by reference to Exhibit 4.6 of the NW Television Registration Statement).
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF DOCUMENT PAGE - ------ ----------------------- ----
4.34 -- Registration Rights Agreement, dated as of May 25, 1993, among NW Television, and the Stockholders, Warrantholders, and Debtholders listed on the Signature Pages thereto and assumed by the Registrant in accordance with the provisions of the Agreement and Plan of Reorganization and Merger filed as Exhibit 2.10 hereto (incorporated by reference to Exhibit 4.7 of the NW Television Registration Statement). 4.35 -- New Equity Stock Subscription Agreement, dated as of January 26, 1993, by and between NW Television and Andrews Group Incorporated, as amended January 29, 1993 and February 11, 1993 (incorporated by reference to Exhibit 4.8 of the NW Television Registration Statement). 4.36 -- Purchase Agreement, dated May 20, 1993, among NW Television, Andrews Group Incorporated for the limited purpose of acknowledging the agreement set forth in Section 2 thereto and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.9 of the NW Television Registration Statement). 4.37 -- Registration Agreement, dated May 20, 1993, by and between NW Television and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.10 of the NW Television Registration Statement). 4.38 -- Form of Class A Warrant of NW Television assumed by the Registrant in accordance with the provisions of the Agreement and Plan of Reorganization and Merger (incorporated by reference to Exhibit 4.11 of the NW Television Registration Statement). 4.39 -- Form of Class B Warrant of NW Television assumed by the Registrant in accordance with the provisions of the Agreement and Plan of Reorganization and Merger (incorporated by reference to Exhibit 4.12 of the NW Television Registration Statement). 4.40 -- Form of Class A, Series 2 Warrants of the Registrant (incorporated by reference to Exhibit 4.38A of the NWCG Registration Statement). 10.1 -- Credit Agreement, dated as of May 25, 1993, among NW Television, the Lenders listed therein and Canadian Imperial Bank of Commerce New York Agency, as Agent (incorporated by reference to Exhibit 10.1 of the NW Television Registration Statement). 10.2 -- First Amendment, dated as of December 22, 1993, by and among NW Television, the Institutions listed on the Signature Pages thereof and Canadian Imperial Bank of Commerce New York Agency (incorporated by reference to Exhibit 10.1A of the NW Television Registration Statement). 10.3 -- Affiliation Agreement dated as of June 26, 1995 by and between National Broadcasting Company, Inc. and NW Communications of San Diego, Inc. 10.4 -- Affiliation Agreement by and between Fox Broadcasting Company and WJBK License, Inc. (incorporated by reference to Exhibit 10.0 of NWCG Holdings Corporation Registration Statement on Form S-1 (No.33-82274) relating to NWCG Holdings Corporation Senior Discount Notes (the "Holdings Registration Statement")). 10.5 -- Affiliation Agreement by and between Fox Broadcasting Company and WAGA License, Inc. (incorporated by reference to Exhibit 10.10 of the Holdings Registration Statement). 10.6 -- Affiliation Agreement by and between Fox Broadcasting Company and WJW License, Inc. (incorporated by reference to Exhibit 10.11 of the Holdings Registration Statement). 10.7 -- Affiliation Agreement by and between Fox Broadcasting Company and TVT License, Inc. (incorporated by reference to Exhibit 10.12 of the Holdings Registration Statement). 10.8 -- Affiliation Agreement by and between Fox Broadcasting Company and WITI License, Inc. (incorporated by reference to Exhibit 10.13 of the Holdings Registration Statement).
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF DOCUMENT PAGE - ------ ----------------------- ----
10.9 -- Affiliation Agreement by and between Fox Broadcasting Company and KSAZ License, Inc. (incorporated by reference to Exhibit 10.14 of the Holdings Registration Statement). 10.10 -- Affiliation Agreement by and between Fox Broadcasting Company and WDAF License, Inc. (incorporated by reference to Exhibit 10.15 of the Holdings Registration Statement). 10.11 -- Employment Agreement, dated as of May 25, 1993, by and between NW Television and Robert E. Selwyn, Jr. (incorporated by reference to Exhibit 10.9 of the NW Television Registration Statement). 10.13 -- Employment Agreement, dated as of May 25, 1993, by and between NW Television and Larry D. Haugen (incorporated by reference to Exhibit 10.11 of the NW Television Registration Statement). 10.14 -- Employment Agreement, dated as of May 25, 1993, by and between NW Television and James G. Gorman (incorporated by reference to Exhibit 10.12 of the NW Television Registration Statement). 10.15 -- Employment Agreement, dated as of May 24, 1993, by and between NW Television and David A. Ramon (incorporated by reference to Exhibit 10.13 of the NW Television Registration Statement). 10.16 -- Employment Agreement, dated as of May 25, 1993, by and between NW Television and George N. Gillett, Jr. (incorporated by reference to Exhibit 10.14 of the NW Television Registration Statement). 10.17 -- Amended Employment Agreement, dated December 31, 1994, between the Registrant and David A. Ramon (incorporated by reference to exhibit 10.17 of the NW Television 1994 Form 10-K). 10.18 -- Merger Agreement, by and between the Company and Viacom International Inc., dated as of November 28, 1994 (with respect to the sale of WSBK-TV) (incorporated by reference to Exhibit 1 of the NW Television Form 8-K dated March 7, 1995). 10.19 -- Employment Agreement, dated as of January 1, 1996, by and between the Company and Farrell Reynolds (incorporated by reference to exhibit 10.1 of the New World Communications Group Incorporated form 10-Q for the quarter ended March 31, 1996). 10.20 -- NWCG Parent Voting Agreement, dated as of September 24, 1996, among Fox, NWCGP and NWCG Holdings (incorporated by reference to Exhibit 10.1 of the NWCG Form 8-K dated September 24, 1996). 10.21 -- Apollo Voting Agreement, dated as of September 24, 1996, among Fox, News Corp. and Apollo Advisors L.P. ("Apollo") (incorporated by reference to Exhibit 10.2 of the NWCG Form 8-K dated September 24, 1996). 10.22 -- Guaranty, dated as of September 24, 1996, entered into by News Corp. in favor of NWCG Holdings, NWCGP, Mafco Holdings Inc. ("Mafco"), 1440 Sepulveda Limited Partnership ("1440") and Andrews Group Inc. ("Andrews") (incorporated by reference to Exhibit 10.3 of the NWCG Form 8-k dated September 24, 1996). 10.23 -- Guaranty, dated as of September 24, 1996, entered into by Mafco in favor of News Corp. and Fox (incorporated by reference to Exhibit 10.4 of the NWCG Form 8-K dated September 24, 1996). 21.1 -- Subsidiaries of the Registrant. 24.1 -- Powers of Attorney. 27.1 -- Financial Data Schedule (for SEC use only)