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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1994.
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________.
Commission file number 1-4278
Capital Cities/ABC, Inc.
(Exact name of registrant as specified in its charter)
New York 14-1284013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
77 West 66th Street, New York, N.Y. 10023-6298
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 456-7777
Securities registered pursuant to Section 12(b) of the Act:
(Name of each exchange
(Title of each class) on which registered)
Common Stock, $0.10 par value New York Stock Exchange
Pacific Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant is $11,706,000,000 as of February 28, 1995.
The number of shares outstanding of the issuer's common stock as of
February 28, 1995: 154,061,655 shares, excluding 29,873,305 treasury shares.
Portions of Part I are incorporated herein by reference to the 1994
Annual Report to Shareholders and the definitive Proxy Statement for the annual
meeting of shareholders to be held on May 18, 1995.
Part II and Part IV, with the exception of certain schedules and
exhibits, are incorporated herein by reference to the 1994 Annual Report to
Shareholders.
Part III is incorporated herein by reference to the definitive Proxy
Statement for the annual meeting of shareholders to be held on May 18, 1995.
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K-1
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PART I
Item 1. Business.
Capital Cities/ABC Inc., directly or through its subsidiaries (the
"Company"), operates the ABC Television Network, eight television stations, the
ABC Radio Networks and 21 radio stations, and provides programming for cable
television. The Company, through joint ventures, is engaged in international
broadcast/cable services and television production and distribution. The Company
also publishes daily and weekly newspapers shopping guides, various specialized
and business periodicals and books, provides research services and also
distributes information from databases.
Employees
At December 31, 1994, the Company had approximately 20,200 full-time
equivalent employees: 10,500 in broadcasting operations, 9,450 in publishing
operations and 250 in corporate activities.
Industry Segments
Information relating to the industry segments of the Company's
operations is included on page 35 of the Company's Annual Report to Shareholders
and is hereby incorporated by reference. In 1994, the Company derived
approximately 85% and 70% of its broadcasting and publishing revenues,
respectively, from the sale of advertising. The remainder of the broadcasting
revenues are principally derived from subscriber-related fees and programming
distribution activities. The balance of publishing revenues are derived
primarily from subscription and other circulation receipts and the sale of
books.
Broadcasting
Television and Radio Networks
The Company operates the ABC Television Network which as of December 31,
1994 had 225 primary affiliated stations reaching 99.9% of all U.S. television
households. A number of secondary affiliated stations add to the primary
coverage. The ABC Television Network broadcasts programs in "dayparts" and types
as follows: Monday through Friday Early Morning, Daytime and Late Night, Monday
through Sunday Prime Time and News, Children's and Sports. The Company also
operates the ABC Radio Networks which served a total of approximately 3,400
affiliates as of December 31, 1994 through eight different program services,
each with its own group of affiliated stations. The ABC Radio Networks also
produces and distributes a number of radio program series for radio stations
nationwide.
Generally, the Company pays the cost of producing its own programs or
acquiring broadcast rights from other producers for its network programming and
pays varying amounts of compensation to its affiliated stations for broadcasting
the programs and commercial announcements included therein. Substantially all
revenues from network operations are derived from the sale to advertisers of
time in network programs for commercial announcements. The ability to sell time
for commercial announcements and the rates received are dependent on the
quantitative and qualitative audience that the network can deliver to the
advertiser, as well as overall advertiser demand for time in the network
marketplace.
The Company also produces prime-time television programs for the ABC
Television Network and for other exhibitors of television programs. For
television programs it produces, the Company pays the costs of production and
typically receives a license fee from the exhibitor for initial exhibition.
Generally, the license fees received for prime-time programs are less than the
costs of production. The Company then licenses the programs it owns for foreign
exhibition and, ultimately, for repeat exhibition in the United States.
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Television and Radio Stations
The Company owns seven very high frequency (VHF) television stations,
one ultra high frequency (UHF) television station, eleven standard (AM) radio
stations and ten frequency modulation (FM) radio stations. All television
stations are affiliated with the ABC Television Network and all radio stations,
except as noted, are affiliated with the ABC Radio Networks. Markets,
frequencies and other station details are set forth in the following tables:
Television stations
<TABLE>
<CAPTION>
Expiration Television
Station date of FCC market
and market Channel authorization ranking(1)
---------- ------- ------------- ----------
<S> <C> <C> <C>
WABC-TV (New York, NY)................ 7 (2) 1
KABC-TV (Los Angeles, CA)............. 7 (2) 2
WLS-TV (Chicago, IL).................. 7 Dec. 1, 1997 3
WPVI-TV (Philadelphia, PA)............ 6 (2) 4
KGO-TV (San Francisco, CA)............ 7 (2) 5
KTRK-TV (Houston, TX)................. 13 (2) 11
WTVD (Durham-Raleigh, NC)............. 11 Dec. 1, 1996 32
KFSN-TV (Fresno, CA) ................. 30 (2) 57
</TABLE>
Radio stations
<TABLE>
<CAPTION>
Frequency Expiration Radio
Station AM-Kilohertz date of FCC market
and market FM-Megahertz authorization ranking(4)
---------- ------------ ------------- ----------
<S> <C> <C> <C>
WABC (New York, NY)................... 770 K June 1, 1998 1
KABC (Los Angeles, CA)................ 790 K (2) 2
KMPC (Los Angeles, CA)................ 710 K Dec. 1, 1997 2
WLS (Chicago, IL)..................... 890 K Dec. 1, 1996 3
KGO (San Francisco, CA)............... 810 K Dec. 1, 1997 4
KSFO (San Francisco, CA).............. 560 K Dec. 1, 1997 4
WJR (Detroit, MI)..................... 760 K Oct. 1, 1996 6
WBAP (Fort Worth-Dallas, TX).......... 820 K Aug. 1, 1997 7
WMAL (Washington, DC)................. 630 K Oct. 1, 1995 8
WKHX (Atlanta, GA) (3)................ 590 K Apr. 1, 1996 12
KQRS (Minneapolis-St.Paul, MN)........ 1440 K Apr. 1, 1997 17
WPLJ(FM) (New York, NY)............... 95.5 M June 1, 1998 1
KLOS(FM) (Los Angeles, CA)............ 95.5 M (2) 2
WLS-FM (Chicago, IL).................. 94.7 M Dec. 1, 1996 3
WHYT(FM) (Detroit, MI)................ 96.3 M Oct. 1, 1996 6
KSCS(FM) (Fort Worth-Dallas, TX) (3).. 96.3 M Aug. 1, 1997 7
WRQX(FM) (Washington, DC)............. 107.3 M Oct. 1, 1995 8
WKHX-FM (Atlanta, GA) (3)............. 101.5 M Apr. 1, 1996 12
WYAY(FM) (Atlanta, GA) (3)............ 106.7 M Apr. 1, 1996 12
KQRS-FM (Minneapolis-St. Paul, MN).... 92.5 M Apr. 1, 1997 17
KEGE-FM (Minneapolis-St. Paul, MN).... 93.7 M Apr. 1, 1997 17
</TABLE>
----------
(1) Based on Nielsen U.S. Television Household Estimates, 1994-1995 season.
(2) See "Licenses - Federal Regulation of Broadcasting-Renewal Matters" below
for description of pending license renewal applications and other matters.
(3) No ABC network affiliation.
(4) Based on Arbitron Radio Market Survey Schedule and Population Rankings
(Metro Survey area) as of Fall 1994.
K-3
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Cable and International Broadcast
The Company's Cable and International Broadcast operations are
principally involved in the production and distribution of cable television
programming, in the licensing of programming to domestic and international
markets and in joint ventures in foreign-based television operations and
television production and distribution entities. Its primary services are:
ESPN Inc., an 80%-owned subsidiary which operates ESPN, a cable sports
programming service reaching 63,500,000 households domestically and
69,850,000 households in 130 countries internationally; ESPN2 reaches
17,100,000 households; ESPN also owns 33% of Eurosport a pan-European
satellite-delivered cable and direct-to-home sports programming service
reaching 58,900,000 households; and 20% of Japan Sports Network;
A&E Television Network, a 37 1/2%-owned cable programming service
devoted to cultural and entertainment programming and reaching
55,800,000 households;
Lifetime Television, a 50%-owned cable programming service devoted to
women's lifestyle programming and reaching 58,400,000 households;
Tele-Munchen Fernseh GmbH & Co., a 50%-owned Munich, Germany based
television and theatrical production/distribution company which also
has interests in cinemas;
RTL 2 Fernsehen GmbH & Co., a 23%-owned Munich, Germany based general
entertainment commercial broadcasting company reaching 23,500,000
households;
Scandinavian Broadcasting System SA, a 23%-owned Luxembourg based
company with interests in television and radio stations, satellite-
delivered cable and direct-to-home programming services, and television
production, serving the various Scandinavian countries;
Hamster Productions, S.A., 33 1/3%-owned, and Tesauro, S.A., 25%-owned
television and theatrical production/distribution companies based in
Paris, France and Madrid, Spain, respectively.
Multimedia
The Company's newly established Multimedia Group is exploring ways to
expand the Company's participation as a content provider with respect to the
emerging technologies. The division's major initiatives involve the development,
publication and distribution of content for narrow-band on-line services, the
interactive software market, interactive television platforms, and a number of
out-of-home video ventures. The division includes the Capital Cities/ABC Video
Publishing unit, which acquires rights to and produces programming for the home
video market.
Competition
The ABC Television Network competes for viewers with the other
television networks, independent television stations, other video media such as
cable television, multipoint distribution services ("MDS," which employ non-
broadcast frequencies to transmit subscription television services to individual
homes and businesses), direct broadcast services, satellite television program
services and video cassettes. In the sale of advertising time, it competes with
other television networks, independent television stations, suppliers of cable
television programs and other advertising media such as newspapers, magazines
and billboards. Substantial competition also exists for exclusive broadcasting
rights for television programs. The ABC Radio Networks likewise compete with
other radio networks and radio programming services, independent radio stations,
and other advertising media.
The Company's television and radio stations are in competition with
other television and radio stations, cable television systems, MDS, direct
broadcast services, satellite television program services, video cassettes and
other advertising media such as newspapers, magazines and billboards. Such
competition occurs primarily in individual market areas. Generally, a television
station in one market does not compete directly with other stations in other
market areas. Nor does a group of stations, such as those owned by the Company,
compete with any other group of stations as such. While the pattern of
competition in the radio station industry is basically the same, it is not
uncommon for radio stations outside of a market area to place a signal of
sufficient strength within that area (particularly during nighttime hours) to
gain a share of the audience. However, they generally do not realize
significantly increased advertising revenues as a result.
K-4
<PAGE>
The Company's Cable and International Broadcast operations compete with
a number of companies involved in developing and supplying program services for
cable, television syndication and theatrical distribution, and with conventional
television broadcasters. The Multimedia operations face competition from
numerous broadcast, cable, computer software, production and distribution
companies which are also pursuing opportunities in the new technologies. The
development of these businesses could adversely affect the future of
conventional television broadcasting.
The Company also faces potential competition to its broadcast and cable
program services and to its newspaper operations from telephone companies.
Telephone companies are seeking to create broadband networks to provide both
data transmission services ("electronic publishing") and video services to the
home. See "Licenses -- Federal Regulation of Broadcasting -Broadcast/Cable/Other
Competing Services Regulations" below.
In addition the Company's broadcast operations face potential
competition from numerous new satellite and cable technologies and distribution
systems, and from signal-enhancing technologies such as high definition
television or in radio, "digital audio" radio. Although most of these
technologies are in experimental phases all have the potential to further
increase the entertainment and information alternatives available to consumers.
In some instances the Company may itself participate in these new technologies.
Regulatory, technical and economic issues make it impossible to predict whether
or when such technologies will become viable or competitive.
Licenses -- Federal Regulation of Broadcasting
Television and radio broadcasting are subject to the jurisdiction of the
FCC under the Communications Act of 1934, as amended (the "Communications Act").
The Communications Act empowers the FCC, among other things, to issue, revoke or
modify broadcasting licenses, determine the location of stations, regulate the
equipment used by stations, adopt such regulations as may be necessary to carry
out the provisions of the Communications Act and impose certain penalties for
violation of its regulations.
Renewal Matters
Broadcasting licenses are granted for a maximum period of seven years,
in the case of radio stations, and five years, in the case of television
stations, and are renewable upon application therefor. During certain periods
when a renewal application is pending, new applicants may file for the frequency
and may be entitled to compete with the renewal applicant in a comparative
hearing, and others may file petitions to deny the application for renewal of
license. Renewal applications are now pending for KABC(AM), KLOS-FM, KTRK-TV,
KABC-TV, KGO-TV, KFSN-TV, WABC-TV and WPVI-TV. In the case of KABC(AM), KLOS-FM,
KABC-TV, KGO-TV, KFSN-TV, WABC-TV and WPVI-TV, the time to file competing
applications and petitions to deny has passed, and no such filings have been
made against these stations. In the case of KTRK-TV, two petitions to deny have
been filed. The Company believes both petitions are without merit and is
vigorously opposing them. All of the Company's other owned stations have been
granted license renewals by the FCC for regular terms.
In 1992 the U.S. District Court for the District of Columbia issued a
Memorandum Opinion and Order in Shepherd et al. v. American Broadcasting
Companies, Inc. et al., Civil Action No. 88-0954 (RCL), which entered a default
judgment against American Broadcasting Companies, Inc. and the Company on a
complaint alleging discrimination in employment practices at the ABC News Bureau
in Washington, DC, in violation of District of Columbia law. The default was
based on a conclusion that "the defendants impeded and obstructed the litigation
process by . . . destruction and alteration of a crucial document and through
the harassment of witnesses and filing false and misleading affidavits." In
1993, the District Court issued a Memorandum Opinion on reconsideration that
withdrew many of the findings of misconduct previously made but reaffirmed other
such findings (as well as the default judgment). On June 13, 1994, the Court
entered an Order and Final Judgment awarding plaintiffs money damages against
ABC. ABC filed a Notice of Appeal on July 7, 1994. The appeal is pending.
The Company believes that the District Court's decision is factually and
legally incorrect, and has appealed the default judgment (and the supporting
findings of misconduct that remain) to the U.S. Court of Appeals for the
District of Columbia Circuit. However, the policies of the FCC call for the
agency to evaluate whether an adjudication of misconduct of the kind found in
Shepherd should bear on the qualifications of the licensee, even though the
adjudication is pending on appeal. The FCC
K-5
<PAGE>
had approved the Company's acquisition of radio station WYAY(FM), Gainesville,
GA in 1993, KEGE-FM, Minneapolis-St. Paul, MN in 1994 and KSFO(AM), San
Francisco, CA and KMPC-AM, Los Angeles, CA in 1995 without prejudice to any
action the agency may take in light of the ultimate outcome of the Shepherd
decision. On January 14, 1994, the Company submitted to the FCC amendments to
its pending license renewal applications urging that it and its subsidiaries
should be found fully qualified, to hold broadcast licenses, even if the
misconduct findings of the District Court were ultimately upheld. Pending FCC
action on that issue the Company will urge the FCC to apply the WYAY(FM), KEGE-
FM, KSFO(AM) and KMPC-AM precedents to permit the acquisition of new stations,
the sale of existing stations or the renewal of existing licenses.
Ownership Matters
The Communications Act prohibits the assignment of a license or the
transfer of control of a licensee without prior approval of the FCC, and
prohibits the Company from having any officer or director who is an alien and
from having more than one-fifth of its shares owned of record or voted by
aliens, representatives of aliens, foreign governments, representatives of
foreign governments or corporations organized under the laws of foreign
countries.
The FCC's "multiple ownership" rules impose a variety of restrictions on
the ownership or control of broadcast stations by a single party. The television
"duopoly" rule bars control or ownership of significant interests in two
television stations that serve the same area. Less severe restraints are imposed
on the control or ownership of AM and FM radio stations that serve the same
area; in a number of situations, a single party may control or own an AM and/or
an FM "duopoly" -- two AM and/or two FM stations -- in the same market area. The
rules also preclude the grant of applications for station acquisitions that
would result in the creation of new radio-television combinations in the same
market under common ownership, or the sale of such a combination to a single
party, subject to the availability of waiver. Under FCC policy, waiver
applications that involve radio-television station combinations in the top 25 TV
markets where there would be at least 30 separately owned, operated and
controlled broadcast licensees after the proposed combination will generally be
favorably received. Under present FCC rules, a single entity may directly or
indirectly own, operate or have a significant interest in up to 20 AM and 20 FM
radio stations, and up to twelve television stations (VHF or UHF), provided that
those television stations operate in markets containing cumulatively no more
than 25% of the television households in the country. For this purpose,
ownership of a UHF station will result in the attribution of only 50% of the
television households in the relevant market. The Company owns eight television
stations, of which seven are VHF, resulting in a total penetration of the
nation's television households, for purposes of the multiple ownership rules, of
23.33%. The Company also owns 11 AM and 10 FM radio stations. The Company has
pending applications at the FCC to acquire television stations WJRT-TV, Flint MI
and WTVG, Toledo, OH. Company ownership of these stations is permissible under
the multiple ownership rules contingent on the grant of waivers for which the
Company has applied.
By statute, radio and/or television licensees may not acquire new
ownership interests in daily newspapers published in the same markets served by
their broadcast stations. The Company currently owns daily newspapers in two
markets in which it also holds radio licenses. For purposes of these rules, The
Oakland Press and WJR(AM) and WHYT(FM), licensed to Detroit, are treated as in
the same market, as are the Fort Worth Star-Telegram and WBAP(AM) and KSCS(FM),
licensed to Fort Worth. Absent an FCC waiver, the Company could not under the
rules acquire additional broadcast stations in these markets nor could the
current broadcast/newspaper combinations be transferred together. In 1993, the
Congress relaxed a restriction previously imposed on the FCC so as to allow the
FCC to grant waivers of the rules with respect to newspaper/radio station cross-
ownership in the top 25 markets where at least 30 independent broadcast voices
would remain following a transfer if the FCC determines that a waiver would
serve the public interest. This new policy creates potential new acquisition
opportunities for the Company.
The FCC's rules also provide that television licensees may not own cable
television systems in communities within the service contours of their
television stations. In 1992 the FCC relaxed the rule that previously prohibited
common ownership of television networks and cable television systems to permit
such combinations subject to a national limit of 10% of, "homes passed" (i.e.,
homes within the service areas of cable systems) by cable as well as a local
limit of 50% of homes passed within any ADI (Area of Dominant Influence, i.e.,
local television market area as defined by Arbitron Television Ratings).
K-6
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The FCC's rules generally provide that an entity will have the
licensee's broadcast stations or newspapers attributed to it for purposes of the
multiple ownership rules only if it holds the power to vote or control the vote
of 5% or more of the stock of a licensee. Qualifying mutual funds, insurance
companies, or bank trust departments may vote or control the vote of up to 10%
of the stock of a broadcast licensee before the licensee's stations would be
attributed to that entity.
Network Regulations
In 1993, the FCC eliminated rules that previously restricted the ability
of the Company as well as CBS Inc. ("CBS") and National Broadcasting Company,
Inc. ("NBC") to acquire financial interests in network television programs. In
the same proceeding, the FCC retained (subject to a complex two-year sunset
provision) rules that prevent the networks from engaging in active first-run or
"off-network" syndication of programs to television stations in the United
States, constrain the networks' discretion to determine when programs owned by
them will be made available for syndication, and prevent the networks from
acquiring from independent producers interests in first-run syndicated programs.
In September 1993, the FCC substantially denied petitions for reconsideration of
its May 1993 decision. The lawfulness of the regulations the agency has
retained, and of the 1993 modifications, was upheld by the United States Court
of Appeals for the Seventh Circuit on July 12, 1994. The FCC will conduct a
review of the remaining rules beginning by May 1995. They will sunset in
November 1995 unless the proponents of retention of the rules (to whom the FCC
has assigned the burden of proof) persuade the FCC to issue an order to the
contrary. In addition, other FCC rules effectively restrict the regular prime-
time programming schedules of ABC, CBS and NBC to three hours per night during
the period 7:00 P.M. to 11:00 P.M. on Monday through Saturday (the "Prime Time
Access Rule"). The FCC has recently begun a proceeding to reevaluate whether to
retain, eliminate or modify the Prime Time Access Rule. The Company is not able
to predict the outcome of these proceedings.
The Company's television network operations are subject to a consent
judgment (United States v. American Broadcasting Companies, Inc., 74-3600-RJK),
in the United States District Court for the Central District of California,
entered into and effective on November 14, 1980. Similar judgments have been
entered against CBS and NBC with respect to their television networks. In
November 1993 the United States District Court, upon a joint motion by the
United States Department of Justice, the Company, CBS and NBC, modified the
consent judgment to eliminate those provisions which prohibited the acquisition
of subsidiary rights and interests in television programs produced by
independent suppliers and restricted the ability of the Company (as well as CBS
and NBC) to engage in the business of distributing programs directly to
television stations in the United States or overseas. The consent judgment
continues to contain provisions regulating for a period expiring on November 14,
1995 certain aspects of the Company's contractual relationships with suppliers
of entertainment programming and with talent performers and other creative
contributors to ABC Television Network entertainment programming.
Broadcast/Cable/Other Competing Services Regulations
In 1992, Congress enacted the Cable Television Consumer Protection and
Competition Act. The Act gives television stations the right to elect "must
carry" protection (including protection on channel position) on local cable
systems. (The FCC's "must carry" rules require cable television systems
generally to carry the signals of television stations in whose service areas
they operate.) In the alternative, the Act permits local stations to negotiate
with cable systems the terms and conditions of "retransmission consent" to carry
their signals and to withhold their signals in the event that no consent on
terms and conditions is reached. The Act also reimposes cable system rate
regulation and introduces new regulations designed to ensure that MDS and other
multi-channel video programmers have access to programming to facilitate
competition with cable systems. The Act requires the FCC to conduct rulemaking
proceedings to establish national cable system ownership limits and limits on
cable channels devoted to video programmers in which the cable system has an
interest, and to prohibit coercive or discriminatory practices by cable
operators in dealings with video programmers (such as ESPN, ESPN2, A&E
Television Network and Lifetime Television). The Act also requires the FCC to
conduct rulemaking proceedings concerning increases which cable operators may
demand of subscribers with respect to various tiers of program services,
including cable programming services. The FCC has adopted regulations
implementing all of these statutory
K-7
<PAGE>
provisions. These regulations could affect cable programming services' ability
to launch new services and could affect per subscriber rates charged to cable
operators as well as affect the total subscriber base for which advertising is
sold. Cable operators have filed lawsuits challenging many of the new Act's
provisions as well as regulations adopted under those provisions. The must
carry, retransmission consent, rate regulation and program access provisions
have been upheld as constitutional in federal court decisions. The decision
relating to must carry was appealed to the Supreme Court of the United States.
The Court issued a ruling on June 27, 1994 which did not decide the
constitutional question but vacated the lower court decision and remanded the
case for further proceedings to develop a fuller factual record. The decision
relating to the Act's other provisions has been appealed to the United States
Court of Appeals for the District of Columbia Circuit. The Company cannot
predict the outcome of this litigation.
The FCC also authorizes broadcast subscription television services and
MDS, and has expanded the number of frequencies available for MDS by allocating
two groups of four channels each for the so-called multichannel MDS, to be
awarded by lottery. The FCC has authorized licensees in the Instructional
Television Fixed Service to lease their excess capacity for commercial use,
including subscription television service, and has adopted rules facilitating
direct broadcast satellite operations. It has also created a new service of low
power television facilities to supplement existing conventional television
broadcast service.
The Company also faces potential competition to its broadcast and cable
program services and to its newspaper operations from telephone companies.
Telephone companies are seeking to expand their broadband networks to provide
both data transmission services ("electronic publishing") and video services to
the home. A number of recent developments may affect potential telephone company
competition. First the FCC decided in 1991 and 1992 to permit telephone
companies to offer "video dialtone" distribution services to programmers on a
common carrier basis without having to obtain a municipal cable franchise.
Appeals challenging this decision are pending in the United States Court of
Appeals for the District of Columbia Circuit. Second, six U.S. District Courts
as well as the Fourth and Ninth U.S. Courts of Appeals have ruled
unconstitutional the provision in the Cable Act of 1984 that prohibits telephone
companies from providing video programming directly to their telephone
subscribers ("the telco/cable cross ownership ban"). Finally, there are a number
of legislative proposals that would either eliminate or modify the telco/cable
cross ownership ban. The Company cannot predict the outcome of these
developments or the competitive effect of these services or potential services.
From time to time legislation may be introduced in Congress which, if
enacted, might affect the Company's operations or its advertising revenues.
Proceedings, investigations, hearings and studies are periodically conducted by
Congressional committees and by the FCC and other government agencies with
respect to problems and practices of, and conditions in, the broadcasting
industry. The Company cannot generally predict whether new legislation or
regulations may result from any such studies or hearings or the adverse impact,
if any, upon the Company's operations which might result therefrom.
The information contained under this heading does not purport to be a
complete summary of all the provisions of the Communications Act and the rules
and regulations of the FCC thereunder, or of pending proposals for other
regulation of broadcasting and related activities. For a complete statement of
such provisions, reference is made to the Communications Act, and to such rules,
regulations and pending proposals thereunder.
* * * * *
K-8
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Publishing
The Company publishes newspapers and shopping guides, various
specialized and business periodicals and books; provides research services and
also distributes information from databases. Following is a summary of the
Company's historical operating performance, by type of publication, for the last
five years (000's omitted):
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Inches of advertising
Newspapers (a).......... 20,013 18,953 18,396 17,550 18,421
Specialized publications 3,307 3,055 3,004 2,921 3,399
Advertising revenue
Newspapers - ROP........ $337,703 $310,429 $301,182 $291,592 $307,634
Newspapers - inserts.... 63,314 58,732 55,278 51,695 49,800
Shopping guides......... 80,268 71,853 71,137 66,370 65,834
Specialized publications 301,467 277,077 270,885 267,974 307,686
Circulation revenue
Newspapers.............. $103,680 $101,112 $ 96,226 $ 93,697 $ 85,933
Specialized publications 63,843 51,182 47,253 53,024 59,471
Other operating revenue
Newspapers.............. $ 25,072 $ 21,700 $ 18,200 $ 14,323 $ 10,813
Shopping guides......... 5,273 4,851 4,220 3,589 4,171
Specialized publications
Books/Music........... 33,631 28,638 118,967 116,708 111,643
Research services,
data base and other.. 87,860 84,864 95,218 93,274 98,984
Total revenue
Newspapers.............. $529,769 $491,973 $470,886 $451,307 $454,180
Shopping guides......... 85,541 76,704 75,357 69,959 70,005
Specialized publications 486,801 441,761 532,323 530,980 577,784
Paid circulation at
year-end
Newspapers (Daily)...... 754 751 754 741 769
Newspapers (Sun.)....... 1,000 1,008 992 966 958
Specialized publications 1,355 1,324 1,356 1,768 2,164
</TABLE>
----------
(a) Does not include inserts.
K-9
<PAGE>
Daily Newspapers
The Company publishes seven daily newspapers in seven communities (five of
which have Sunday editions). The daily newspapers and their paid circulation are
as follows:
<TABLE>
<CAPTION>
Daily Sunday
----- ------
<S> <C> <C> <C>
The Kansas City Star....................... Morning 297,000 425,000
Fort Worth Star-Telegram................... All Day 249,000 343,000
The Oakland Press (Pontiac, MI)............ Morning 72,000 80,000
Belleville News-Democrat (Belleville, IL).. Morning 51,000 62,000
The Times Leader (Wilkes-Barre, PA)........ Morning 47,000 77,000
Albany Democrat-Herald (Albany, OR)........ Evening 22,000
The Daily Tidings (Ashland, OR)............ Evening 6,000
</TABLE>
Weekly Newspapers
The Company publishes weekly community newspapers in four states. The
location by state, number of publications and aggregate circulation is set forth
below:
<TABLE>
<CAPTION>
Number of Aggregate
State Publications Circulation
----- ------------ -----------
<S> <C> <C>
Illinois................................... 13 56,000
Michigan................................... 13 168,000
Oregon..................................... 6 39,000
Pennsylvania............................... 2 29,000
</TABLE>
Shopping Guides and Real Estate Magazines
The Company distributes shopping guides and real estate magazines in eleven
states. The location by state, number of publications and aggregate circulation
is set forth below:
<TABLE>
<CAPTION>
Number of Aggregate
State Publications Circulation
----- ------------ -----------
<S> <C> <C>
California................................. 8 2,078,000
Illinois................................... 1 13,000
Kansas..................................... 1 144,000
Michigan................................... 8 108,000
Missouri................................... 1 142,000
Nevada..................................... 4 113,000
Oregon..................................... 5 221,000
Pennsylvania............................... 2 73,000
Texas...................................... 1 22,000
Utah....................................... 1 24,000
Washington................................. 5 409,000
</TABLE>
K-10
<PAGE>
Specialized Publications
The Specialized Publications consists of three groups: the Diversified
Publishing Group, the Fairchild Publications Group, and the Financial Services
and Medical Group. Through these groups it is engaged in gathering and
publishing business news and ideas for industries covered by its various
publications; in the publishing of consumer, special interest, trade and
agricultural publications; and in research and database services. All of the
publications are printed by outside printing contractors. Following are the
significant publications and services:
<TABLE>
<CAPTION>
Title Frequency Circulation
----- --------- -----------
<S> <C> <C>
Diversified Publishing Group
Agricultural Publishing Group
Feedstuffs............................ Weekly 18,000
Tack 'n Togs Merchandising............ 13 times per year 21,000*
<CAPTION>
In addition, the Agricultural Publishing Group publishes nineteen state and
regional farm magazines with an aggregate circulation of 876,000, serving 38
states. The group also produces six farm shows and provides database and custom
publishing services to agricultural businesses.
<S> <C> <C>
Chilton Publications
American Metal Market...................... Daily 10,000
Assembly................................... 9 times per year 60,000*
Automotive Body Repair News................ Monthly 60,000*
Automotive Industries...................... Monthly 102,000*
Automotive Marketing....................... Monthly 40,000*
Cablevision................................ Semimonthly 15,000*
CED (Communications Engineering and Design) Monthly 18,000*
Commercial Carrier Journal................. Monthly 86,000*
Convergence................................ 10 times per year 20,000*
Distribution............................... Monthly 70,000*
Electronic Component News.................. Monthly 126,000*
Energy User News........................... Monthly 37,000*
Food Engineering........................... Monthly 60,000*
Food Engineering International............. 6 times per year 15,000*
Hardware Age............................... Monthly 68,000*
I&CS (Instrument & Control Systems)........ Monthly 93,000*
IAN (Instrumentation & Automation News).... Monthly 117,000*
IMPO (Industrial Maintenance & Plant
Operations)............................... Monthly 127,000*
Industrial Paint & Powder.................. Monthly 39,000*
Industrial Safety & Hygiene News........... Monthly 61,000*
Jewelers' Circular-Keystone................ Monthly 28,000
Manufacturing Systems...................... Monthly 115,000*
Metal Center News.......................... Monthly 15,000*
Motor Age.................................. Monthly 146,000*
Multichannel News.......................... Weekly 17,000
New Steel.................................. Monthly 18,000*
Outdoor Power Equipment.................... Monthly 18,000*
Owner Operator............................. 9 times per year 93,000*
Product Design and Development............. Monthly 162,000*
</TABLE>
K-11
<PAGE>
<TABLE>
<CAPTION>
Title Frequency Circulation
----- --------- -----------
<S> <C> <C>
Quality................................... Monthly 90,000*
Review of Opthalmology.................... Monthly 17,000*
Review of Optometry....................... Monthly 34,000*
Video Business............................ Weekly 45,000*
Video Software Magazine................... Monthly 22,000*
Warehousing............................... 6 times per year 40,000*
Grupo Editorial Expansion, S.A.
Expansion................................. Biweekly 26,000
Obras..................................... Monthly 11,000
Manufactura............................... 6 times per year 35,000*
Los Angeles................................... Monthly 155,000
<CAPTION>
The Diversified Publishing Group also includes: Chilton Enterprises which
publishes automotive repair, craft and hobby books, provides custom market
research and conducts trade shows; and NILS Publishing Company, a database
publisher of information on insurance laws and regulations.
<S> <C> <C>
Fairchild Publications Group
Children's Business....................... Monthly 13,000*
Daily News Record......................... Daily 20,000
Footwear News............................. Weekly 18,000
Golf Pro Merchandiser..................... Monthly 13,000*
HFN....................................... Weekly 25,000
Home Fashions Magazine.................... 10 times per year 10,000*
Salon News................................ Monthly 79,000*
SportStyle................................ Monthly 26,000*
Supermarket News.......................... Weekly 52,000
W......................................... Monthly 334,000
Women's Wear Daily........................ Daily 56,000
Financial Services and Medical Group
Institutional Investor
Americas Edition.......................... Monthly 105,000*
International Edition..................... Monthly 39,000*
Infrastructure Finance.................... 6 times per year 19,000*
SELL!NG................................... 10 times per year 110,000
International Medical News Group
Clinical Psychiatry News.................. Monthly 33,000*
Family Practice News...................... Semimonthly 73,000*
Internal Medicine News.................... Semimonthly 101,000*
Ob. Gyn. News............................. Semimonthly 33,000*
Pediatric News............................ Monthly 37,000*
Skin & Allergy News....................... Monthly 19,000*
</TABLE>
----------
*All, or substantially all, controlled circulation.
Certain operations within the Publishing Group also publish philatelic
magazines, cable guides, books, visuals, journals and newsletters, and conduct
meetings and seminars.
K-12
<PAGE>
Competition
The Company's newspapers specialized publications and shopping guides
operate in a highly competitive environment. In the Company's various news
publishing activities it competes with almost all other information media,
including broadcast media, and this competition may become more intense as new
technologies are developed. Magazines and many newspapers publish substantial
amounts of similar business news and information, and deal with the same or
related special interests or industries, as those covered by the Company's
specialized publications. The Company's newspapers, specialized publications and
shopping guides compete for advertising with all other advertising forms of
media.
Raw Materials
The primary raw materials used by the Company's Publishing Group are
newsprint and other paper stock, which are purchased from paper merchants, paper
mills and contract printers and are readily available from numerous suppliers.
Item 2. Properties.
The Company's headquarters building at 77 West 66th Street in New York City
houses the corporate offices and the television network administrative staff,
and is owned by the Company.
The Company owns the ABC Television Center adjacent to the Company's
headquarters building on West 66th Street and ABC Radio Networks' studios at 125
West End Avenue in New York City. In Los Angeles, the Company owns the ABC
Television Center. The Company leases the ABC Television Network offices in Los
Angeles the ABC News Bureau facility in Washington, DC and the computer facility
in Hackensack, NJ under leases expiring on various dates through 2034. The
Company's broadcast operations and engineering facility and local television
studios and offices in New York City are leased, but the Company has the right
to acquire such properties for a nominal sum in 1997. The Company's 80%-owned
subsidiary ESPN owns ESPN Plaza in Bristol, CT from which it conducts its
technical operations. The Company owns the majority of its other broadcast
studios and offices and broadcast transmitter sites elsewhere, and those which
it does not own are occupied under leases expiring on various dates through
2039.
The Company owns and leases publishing subsidiaries'executive editorial and
other offices and facilities in various cities. For leased properties, the
leases expire on various dates through 2006. All of the significant premises
occupied by the newspapers are owned by the Company.
Item 3. Legal Proceedings.
American Broadcasting Companies, Inc. and two reporters have been named as
defendants in two defamation lawsuits arising out of certain ABC broadcasts
including the February 28, 1994 and March 7, 1994 editions of the ABC news
magazine Day One. On March 24, 1994, Philip Morris Companies, Inc. and Philip
Morris Incorporated filed a lawsuit in the Circuit Court of Richmond, Virginia
seeking $5,000,000,000 in compensatory damages and $5,000,000,000 in punitive
damages. On February 22, 1995, RJR Nabisco Holdings Corporation and R.J.
Reynolds Tobacco Company filed a lawsuit in Superior Court in Winston-Salem,
North Carolina seeking unspecified compensatory and punitive damages. Both
matters are in a pretrial stage.
All other litigation pending during 1994 was routine and incidental to the
business of the Company. For a discussion of the relevance of one item of
litigation in the regulatory context, see "Licenses -- Federal Regulation of
Broadcasting" under Item 1. Business.
Item 4. Submission of Matters to a Vote of Security Holders.
The information called for by this item is not applicable.
K-13
<PAGE>
Executive Officers of the Company
<TABLE>
<CAPTION>
Director Officer Title and positions during
Name Age since since the past five years
---- --- -------- ------- --------------------------
<S> <C> <C> <C> <C>
Thomas S. Murphy 69 1957 1958 Chairman of the Board of Directors and Chief Executive
Officer. From 1990 to February 1994 he was Chairman of
the Board of Directors. Prior to 1990 he was Chairman of
the Board of Directors and Chief Executive Officer.
Robert A. Iger 44 1994 1993 President and Chief Operating Officer and Director. From
1993 to September 1994 he was Executive Vice President
and President of ABC Television Network Group. Prior to
1993 he was President of ABC Entertainment.
John B. Fairchild 68 1968 1968 Executive Vice President, Chairman of Fairchild
Publications and Director.
Ronald J. Doerfler 53 1977 Senior Vice President and Chief Financial Officer.
Herbert A. Granath 66 1988 Senior Vice President, and President of Cable and
International Broadcast Group. Prior to 1993 he was Vice
President, and President of Video Enterprises.
Michael P. Mallardi 61 1986 Senior Vice President, and President of Broadcast Group.
Phillip J. Meek 57 1975 Senior Vice President, and President of Publishing Group.
Stephen A. Weiswasser 54 1986 Senior Vice President, and President of Multimedia Group.
From 1993 to October 1994 he was also Senior Vice
President and General Counsel. From 1991 to 1993 he was
Senior Vice President and Executive Vice President of ABC
News. In 1991 he was Senior Vice President and Executive
Vice President of ABC Television Network Group. Prior
thereto he was Senior Vice President and General Counsel.
David Westin 42 1991 Senior Vice President, and President of ABC Television
Network Group. From 1993 to September 1994 he was Senior
Vice President, and President of Production, ABC
Television Network Group. From 1991 to 1993 he was Senior
Vice President and General Counsel. Prior to 1991 he was
engaged in the practice of law as a partner in the law
firm of Wilmer, Cutler & Pickering.
Alan N. Braverman 47 1993 Vice President and General Counsel. From 1993 to October
1994 he was Vice President and Deputy General Counsel.
Prior to 1993 he was engaged in the practice of law as a
partner in the law firm of Wilmer, Cutler & Pickering.
Allan J. Edelson 52 1981 Vice President and Controller.
David J. Vondrak 49 1986 Vice President and Treasurer.
</TABLE>
There is no relationship by blood, marriage or adoption among the officers.
All officers hold office at the pleasure of the Board of Directors.
K-14
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters.
The information called for by this item is included on page 39 of the 1994
Annual Report to Shareholders and is incorporated herein by reference.
Item 6. Selected Financial Data.
The information called for by this item is included on pages 24 and 25 of
the 1994 Annual Report to Shareholders and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The information called for by this item is included on pages 19 through 23
of the 1994 Annual Report to Shareholders and is incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data.
The information called for by this item is included on pages 26 through 39
of the 1994 Annual Report to Shareholders and is incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The information called for by this item is not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Incorporated herein by reference to the Company's definitive Proxy
Statement for the annual meeting of shareholders to be held on May 18, 1995.
Information concerning the executive officers is included in Part 1 on page
K-14.
Item 11. Executive Compensation.
Incorporated herein by reference to the Company's definitive Proxy
Statement for the annual meeting of shareholders to be held on May 18, 1995.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated herein by reference to the Company's definitive Proxy Statement
for the annual meeting of shareholders to be held on May 18, 1995.
Item 13. Certain Relationships and Related Transactions.
The information called for by this item is not applicable.
K-15
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. & 2. Financial statements and financial statement schedules.
The financial statements and schedules listed in the
accompanying index to the consolidated financial statements are
filed as part of this annual report.
3. Exhibits.
The exhibits listed on the accompanying index to exhibits are
filed as part of this annual report.
(b) Reports on Form 8-K.
None filed during Fourth Quarter 1994.
K-16
<PAGE>
CAPITAL CITIES/ABC, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
COVERED BY REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
(Item 14(a) 1. & 2.)
<TABLE>
<CAPTION>
Reference
------------------------
Annual Report
to
Shareholders Form 10-K
------------- ---------
<S> <C> <C>
Consolidated balance sheet at December 31, 1994 and
December 31, 1993........................................... 28
For the years ended December 31, 1994, 1993 and 1992
Consolidated statement of income........................... 26
Consolidated statement of cash flows....................... 27
Consolidated statement of stockholders' equity............. 30
Notes to consolidated financial statements................... 31
Financial statement schedule for the years ended December 31,
1994, 1993 and 1992
II -- Valuation and qualifying accounts.................... K-19
</TABLE>
All other schedules have been omitted since the required information is not
applicable or is not present in amounts sufficient to require submission of the
schedule or because the information required is included in the consolidated
financial statements including the notes thereto.
* * * * *
The consolidated financial statements of Capital Cities/ABC Inc. listed in
the above index which are included in the Annual Report to Shareholders for the
year ended December 31, 1994 are hereby incorporated by reference. With the
exception of the Items referred to in Items 1, 5, 6, 7, and 8, the 1994 Annual
Report to Shareholders is not to be deemed filed as part of this report.
--------------------------------------------------------------------------------
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on Form
10-K of Capital Cities/ABC Inc. for the year ended December 31, 1994 of our
report dated February 28, 1995 included in the 1994 Annual Report to
Shareholders of Capital Cities/ABC, Inc.
Our audits also included the financial statement schedule of Capital
Cities/ABC, Inc. listed in item 14(a). 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.
We also consent to the incorporation by reference in the Registration
Statements Form S-8 No. 33-25918 for the registration of 200,000 shares, Form S-
8 No. 33-33761 for the registration of 2,000,000 shares, Form S-3 No. 33-38117
for the registration of Debt Securities and Warrants to purchase Debt
Securities, Form S-3 No. 33-39652 for the registration of Debt Securities and
Warrants to purchase Debt Securities, Form S-8 No. 33-52563 for the registration
of 600,000 shares and Form S-8 No. 33-52947 for the registration of 2,000,000
shares and an indeterminate number of plan interests and in the related
Prospectuses and documents constituting Prospectuses, of our above report.
ERNST & YOUNG LLP
New York, New York
March 20, 1995
K-17
<PAGE>
CAPITAL CITIES/ABC, INC.
INDEX TO EXHIBITS (Item 14 (a) 3.)
(3)(a) Restated Certificate of Incorporation of the Company.
Incorporated by reference to Exhibit (3)(a) to the Company's Quarterly Report on
Form 10-Q for the period ended July 3, 1994.
(3)(b) Current By-laws of the Company. Incorporated by reference to
Exhibit (3) to the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1990.
(4)(a) Capital Cities/ABC, Inc. Standard Multiple-Series Indenture
Provisions dated December 7, 1990. Incorporated by reference to Exhibit (4)(a)
to Registration Statement No. 33-38117.
(4)(b) Indenture, dated as of December 15, 1990 between the Company and
Manufacturers Hanover Trust Company (now Chemical Bank), as Trustee, with
respect to Senior Debt Securities. Incorporated by reference to Exhibit (4)(b)
to Registration Statement No. 33-38117.
(4)(c) Indenture, dated as of April 1, 1991 between the Company and
Manufacturers Hanover Trust Company (now Chemical Bank), as Trustee, with
respect to Subordinated Debt Securities. Incorporated by reference to Exhibit
(4)(c) to Registration Statement No. 33-39652.
(4)(d) Revolving Credit Agreement, dated as of January 3, 1986, as
amended and restated as of June 30 1987, among the Company, Chemical Bank and
certain other banks. Incorporated by reference to Exhibit (4)(d) to the
Company's Annual Report on Form 10-K for 1987.
(4)(e) Second Amendment, dated as of June 30, 1989, to the Revolving
Credit Agreement set forth in Exhibit (4)(d) above. Incorporated by reference to
Exhibit 4(e) to the Company's Annual Report on Form 10-K for 1989.
(4)(f) Third Amendment, dated as of April 30, 1992, to the Revolving
Credit Agreement set forth in Exhibits (4)(d) and (4)(e) above. Incorporated by
reference to Exhibit 4(f) to the Company's Annual Report on Form 10-K for 1992.
(4)(g) Fourth amendment, dated as of July 29, 1994 to the Revolving
Credit Agreement set forth in Exhibits (4)(d), (4)(e) and, (4)(f) above.
Incorporated by reference to Exhibit (4) to the Company's Quarterly Report on
Form 10-Q for the period ended October 2, 1994.
(4)(h) Other instruments defining the rights of holders of long-term
debt of the Company and its consolidated subsidiaries are not being filed since
the total amount of securities authorized under any of such instruments does not
exceed 10 percent of the total assets of the Company and its subsidiaries on a
consolidated basis. The Company agrees to furnish a copy of any such instrument
to the Securities and Exchange Commission upon request.
(4)(i) Rights Agreement, dated December 14, 1989, between the Company
and Harris Trust Company of New York with respect to the Preferred Share
Purchase Rights. Incorporated by reference to Exhibit 1 to the Company's Form
8-K dated December 15 1989.
(10)(a) Stock Purchase Agreement between the Company and Berkshire
Hathaway Inc., dated March 18, 1985. Incorporated by reference to Appendix B to
the Company's and American Broadcasting Companies, Inc.'s Joint Proxy
Statement--Prospectus dated May 10 1985.
(10)(b) Stock Purchase Agreement among the Company, Berkshire Hathaway
Inc. National Indemnity Company, National Fire and Marine Insurance Company,
Columbia Insurance Company, Nebraska Furniture Mart, Inc. and Cornhusker
Casualty Company, dated January 2, 1986. Incorporated by reference to Exhibit A
to the Schedule 13D dated January 8, 1986 filed by Berkshire Hathaway Inc. and
others in regard to the Company's common stock.
(10)(c) Amendment dated October 29, 1993 to the Stock Purchase Agreement
set forth in Exhibit (10)(b) above. Incorporated by reference to Exhibit 99(c)
to the Company's Schedule 13E-4 dated November 2, 1993.
*(10)(d) Supplemental Profit Sharing Plan of the Company, as amended
through April 9, 1992. Incorporated by reference to Exhibit (10)(c) to the
Company's Annual Report on Form 10-K for 1992.
*(10)(e) Benefit Equalization Plan of the Company, as amended through
January 1, 1994. Incorporated by reference to Exhibit (10)(e) to the Company's
Annual Report on Form 10-K for 1993.
*(10)(f) Incentive Compensation Plan of the Company, as amended through
December 9, 1993. Incorporated by reference to Exhibit (10)(f) to the Company's
Annual Report on Form 10-K for 1993.
*(10)(g) Employee Stock Option Plan of the Company, as amended through
December 15, 1987. Incorporated by reference to Exhibit (10)(f) to the Company's
Annual Report on Form 10-K for 1992.
K-18
<PAGE>
*(10)(h) 1991 Stock Option Plan of the Company, as amended through March
19, 1991. Incorporated by reference to Exhibit (10)(g) to the Company's Annual
Report on Form 10-K for 1992.
*(10)(i) Contract dated January 2, 1968 between John B. Fairchild and
Fairchild Publications Inc. as amended by contract of June 1977 between Mr.
Fairchild and Capital Cities Media Inc. (a subsidiary of the Company) as
successor to Fairchild Publications, Inc. (Mr. Fairchild is an executive officer
and a director of the Company.) Incorporated by reference to Exhibit (10)(h) to
the Company's Annual Report on Form 10-K for 1992.
*(10)(j) The Company's Retirement Plan for Nonemployee Directors, as
adopted by Board of Directors resolution dated March 20, 1990. Incorporated by
reference to Exhibit (10)(i) to the Company's Annual Report on Form 10-K for
1992.
(13) The Company's 1994 Annual Report to Shareholders. (This report,
except for the portions thereof which are incorporated by reference in this Form
10-K, is furnished for the information of the Securities and Exchange Commission
and is not to be deemed "filed" as part of this Form 10-K.)
(21) Subsidiaries of the Company.
(99)(a) Form 11-K for the Company's Savings & Investment Plan for the
year ended December 31, 1994.
(99)(b) Undertakings.
* Executive officers' and directors' compensation plans and arrangements.
* * * * * * * * * *
<TABLE>
<CAPTION>
VALUATION AND QUALIFYING ACCOUNTS--SCHEDULE II
(Thousands of Dollars)
Additions Deductions
------------------- -----------------------
Balance at Operating Charged Operating Accounts Balance
beginning companies to companies written-off, at close
of period acquired expense disposed net of period
--------- --------- ------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Deducted from accounts and
notes receivable:
Year ended December 31, 1994.. $44,650 $22,596 $ (206) $(20,621) $46,419
Year ended December 31, 1993.. 35,114 $490 31,876 (22,830) 44,650
Year ended December 31, 1992.. 38,302 24 48,458 (8,680) (42,990) 35,114
</TABLE>
K-19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CAPITAL CITIES/ABC, INC.
(Registrant)
/s/ THOMAS S. MURPHY
--------------------
(Thomas S. Murphy) March 20, 1995
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Principal Executive Officer:
/s/ THOMAS S. MURPHY
---------------------------
(Thomas S. Murphy) March 20, 1995
Principal Financial Officer:
/s/ RONALD J. DOERFLER
---------------------------
(Ronald J. Doerfler) March 20, 1995
Controller:
/s/ ALLAN J. EDELSON
---------------------------
(Allan J. Edelson) March 20, 1995
Directors:
/s/ ROBERT P. BAUMAN
---------------------------
(Robert P. Bauman) March 20, 1995
/s/ NICHOLAS F. BRADY
---------------------------
(Nicholas F. Brady) March 20, 1995
/s/ WARREN E. BUFFETT
---------------------------
(Warren E. Buffett) March 20, 1995
/s/ DANIEL B. BURKE
---------------------------
(Daniel B. Burke) March 20, 1995
/s/ FRANK T. CARY
---------------------------
(Frank T. Cary) March 20, 1995
/s/ JOHN B. FAIRCHILD
---------------------------
(John B. Fairchild) March 20, 1995
/s/ LEONARD H. GOLDENSON
---------------------------
(Leonard H. Goldenson) March 20, 1995
/s/ ROBERT A. IGER
---------------------------
(Robert A. Iger) March 20, 1995
/s/ FRANK S. JONES
---------------------------
(Frank S. Jones) March 20, 1995
/s/ ANN DIBBLE JORDAN
---------------------------
(Ann Dibble Jordan) March 20, 1995
/s/ JOHN H. MULLER, JR.
---------------------------
(John H. Muller, Jr.) March 20, 1995
/s/ THOMAS S. MURPHY
---------------------------
(Thomas S. Murphy) March 20, 1995
/s/ WYNDHAM ROBERTSON
---------------------------
(Wyndham Robertson) March 20, 1995
/s/ M. CABELL WOODWARD, JR.
---------------------------
(M. Cabell Woodward, Jr.) March 20, 1995
K-20
<PAGE>
EXHIBIT 13
Capital Cities/ABC, Inc.
------------------------
40th
1994 Annual Report
<PAGE>
--------------------------------------------------------------------------------
Decentralization is the cornerstone of our management philosophy. Our goal is to
hire the best people we can find and give them the responsibility and authority
they need to perform their jobs. Decisions are made at the local level,
consistent with the basic responsibilities of corporate management. Budgets,
which are set yearly and reviewed quarterly, originate with the operating units
that are responsible for them. We expect a great deal from our managers. We
expect them to be forever cost-conscious and to recognize and exploit sales
potential. But above all, we expect them to manage their operations as good
citizens and use their facilities to further the community welfare.
<PAGE>
--------------------------------------------------------------------------------
OPERATING HIGHLIGHTS
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
Net revenues $6,379,237,000 $5,673,653,000
-------------- --------------
Operating income $1,238,811,000 $ 862,149,000
-------------- --------------
Income before extraordinary charge $ 679,814,000 $ 467,379,000
-------------- --------------
Income per share before extraordinary
charge $4.42 $2.85*
-------------- --------------
Average shares outstanding 153,890,000 163,800,000*
-------------- --------------
</TABLE>
--------------------------------------------------------------------------------
Income Before Extraordinary Items and Cumulative Effect of Accounting Changes
<TABLE>
<CAPTION>
$ Millions
1986 1987 1988 1989 1990 1991 1992 1993 1994
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
181.9 279.1 387.1 485.7 477.8 374.7 389.3 467.4 679.8
</TABLE>
--------------------------------------------------------------------------------
Income Per Share Before Extraordinary Items and Cumulative Effect of Accounting
Changes*
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1.12 $1.65 $2.23 $2.72 $2.77 $2.23 $2.34 $2.85 $4.42
</TABLE>
*Restated to reflect June 1994 ten-for-one stock split
<PAGE>
Capital Cities/ABC
--------------------------------------------------------------------------------
TO OUR SHAREHOLDERS
The year 1994 was an exceptional one for Capital Cities/ABC. While marking our
40th anniversary, the Company's operations achieved record results. Strong
performances by all of our major businesses, healthy marketplace conditions and
continued focus on cost control produced our most successful year ever.
Earnings per share were a record $4.42, an increase of 55 percent from the $2.85
reported in 1993. Per share results in both years reflect the Company's ten-
for-one common stock split in June 1994. Revenues increased 12 percent to
$6,379,000,000, also a record, and substantially higher than our 1994
expectations. Costs increased 7 percent, and operating income grew 44 percent
to a record $1,239,000,000. Our operations were able to capitalize on the record
revenues by converting $377,000,000, or 53 percent of the year's revenue gain,
into operating income. This compares to a 42 percent conversion in 1993.
A summary of the Company's results for 1994 compared with 1993 follows:
<TABLE>
<CAPTION>
Percent
(Dollars in millions) 1994 1993 change
-------- -------- --------
<S> <C> <C> <C>
Net revenues $ 6,379 $ 5,674 12%
-------- --------
Operating costs 4,968 4,656 7%
Depreciation 109 95 15%
Amortization 63 61 3%
-------- --------
Total costs 5,140 4,812 7%
-------- --------
Operating income 1,239 862 44%
Interest/other, net (34) (34) -
-------- --------
Income before taxes 1,205 828 46%
Income taxes (525) (361) 45%
-------- --------
Net income $ 680 $ 467 * 46%
======== ========
Income per share $ 4.42 $ 2.85 * 55%
Average shares (000) 153,890 163,800 (6)%
</TABLE>
---------
*Before 1993 extraordinary charge
For several years we have emphasized how important new business investment and
funding are to the Company's future. As technology evolves, the need to create
additional business opportunities increases.
As a group, our new businesses -- those initiated within the past five years --
achieved better than anticipated results. We also aggressively invested in the
following new initiatives during the past year:
. In November, Capital Cities/ABC and DreamWorks SKG, an entertainment company
formed by Steven Spielberg, Jeffrey Katzenberg and David Geffen, created a new
television studio to produce programming for all aspects of the television
business, including network, cable and first-run syndication, and for all
broadcast dayparts. Our new partners are among the most creative and most
successful executives in the entertainment business and will greatly enhance
our ability to own and control more content -- one of our top priorities.
. The Company has also signed an agreement to purchase two VHF television
stations in Flint, Michigan, and Toledo, Ohio for $155,000,000. The purchase
is expected to be completed in 1995 and will increase the national coverage of
our owned television stations division to 24.5 percent of the country.
Separately, the Company acquired a 14 percent interest in Young Broadcasting
Company through the purchase of non-voting common stock and warrants for
$25,000,000. Young now owns five ABC affiliates; these stations, however, do
not count against the Federal Communication Commission's ownership
limitations. These limitations, which restrict any company from owning more
than 12 television stations or reaching more than 25 percent of the nation's
television homes, are currently under review by the FCC.
. ESPN, which currently reaches 63,500,000 U.S. households, greatly expanded its
international distribution and programming during the year and now reaches
almost 70,000,000 homes in 130 foreign countries. In 1994, ESPN's principal
international expansion was in Asia. ESPN2's subscribers increased to more
than 17,000,000 homes at year-end 1994,
2
<PAGE>
--------------------------------------------------------------------------------
compared with the 10,000,000 homes with which it debuted in October 1993. In
January 1995, ESPN purchased an 80 percent interest in SportsTicker, a 24-
hour, real-time sports news and information service.
. During the year, the Company acquired an additional equity interest in
Lifetime Television for $159,000,000, bringing its ownership up to 50 percent
from its previous 33 1/3 percent level. The basic cable network industry has
grown faster than most segments of the media, and Lifetime has fully
participated in this growth. The service now reaches 58,400,000 households
with its special interest programming for women.
. The Cable and International Broadcast Group's foreign media joint ventures,
particularly RTL 2, a German television network, and Eurosport, a pan-European
sports service, made substantial progress in 1994 and are now expected to
become profitable sooner than originally predicted. In addition, the Group,
together with recently acquired DIC Entertainment, became the first American
supplier to regularly broadcast a children's television programming service in
China. It is estimated that 45 percent of China's available television
households will have access to the new service.
. The Publishing Group continued to expand its revenue sources, developing new
niche products, trade shows, newsletters and CD-ROM applications.
. The radio division purchased two stations, KMPC-AM in Los Angeles and KSFO-AM
in San Francisco, in the beginning of 1995. This gives the division duopoly
AMs in both markets. Our radio stations reach just over 24 percent of U.S.
households.
. The Multimedia Group had a particularly active year. Its initiatives included:
ABC Online, a new interactive service for American Online subscribers; a joint
venture with Electronic Arts, Inc. to publish entertainment and educational
software for personal computers and video game players; as well as several
joint ventures in the interactive television and destination-based
entertainment fields. Venture partners include IMAX Corp., NTN Communications,
Inc. and several telephone companies.
Total pre-tax investment and funding of losses for domestic start-ups and
international media joint ventures was $100,000,000 in 1994, compared with
$80,000,000 of such losses in 1993. The after-tax loss from our share of these
activities was approximately $0.40 and $0.30 per share, in 1994 and 1993,
respectively. The Company's total investment spending and funding of such
losses over the past five years now approximates $325,000,000. This spending is
critical to our future growth. It also demonstrates how important the Company's
predictable cash flow and healthy balance sheet are in funding such investments
and in evaluating additional opportunities.
Over the past five years, the Company has earned approximately $4,500,000,000 of
operating income. In 1994, the amount was a record $1,239,000,000. Net
financial expense (interest expense less interest income) was $31,000,000, down
dramatically from the $81,000,000 as recently as 1991. Debt outstanding at
year-end 1994 was relatively unchanged from 1993 at $615,000,000 and represents
only 12 percent of total capital. Dividend payments increased subsequent to the
ten-for-one stock split in June, as the Company declared that its annual
dividend would remain at $0.20 per share. This is the equivalent of a $2.00 per
share annual dividend rate on pre-split common stock.
Capital Cities/ABC's return on average stockholders' equity improved to 17.3% in
1994 from 12.1% in 1993. This came as a result of the significant increase in
1994 net income combined with the full year impact of 1993 share repurchases.
3
<PAGE>
Capital Cities/ABC
--------------------------------------------------------------------------------
The Company's 1994 free cash flow (net income plus depreciation, amortization
and other noncash items, less capital expenditures and net programming
investment) exceeded $800,000,000, which is significantly larger than most
companies of our size. Free cash flow is a principal standard we use to measure
the health of the Company. In most years, free cash flow has been greater than
net income, and this was also the case in 1994. Unlike most industrial
companies, Capital Cities/ABC's reported net income translates into cash, even
after all of its reinvestment needs are met. The ability to generate cash,
combined with manageable debt service requirements and approximately
$1,000,000,000 in cash and short-term investments, resulted in an upgrade in our
debt rating in 1994 by the three primary credit ratings agencies. The financial
strength which this underscores will facilitate our pursuit of additional
acquisitions and internal growth opportunities. In the near-term, we continue
to target several areas for future growth: television program ownership,
international media joint ventures, additional television and radio stations and
multimedia services.
Business conditions for our operations were the best they have been for many
years, and our properties took full advantage.
The ABC Television Network achieved record revenues and profits. National
advertiser demand was strong throughout the year across virtually all dayparts.
The network's competitive audience delivery, especially with adults 18-49,
further enhanced revenue growth. Network television industry revenues grew by 9
percent while ABC Television Network revenues increased 11 percent.
The 1994-95 prime-time upfront selling season was as robust as it has ever been,
exceeding $4,400,000,000 for the four television networks. Although the
automotive, telecommunications and movie industries increased their spending
most noticeably over last year, the marketplace improvement was broad-based.
Network scatter pricing commanded healthy premiums over upfront levels
throughout 1994, especially in the second half of the year. It was particularly
strong in prime time and daytime -- two dayparts which together accounted for
over half the network's total sales. ABC's share of the young adult audiences,
sought by advertisers in each daypart, was most competitive.
One significant development during the year will affect the network's 1995
performance. Affiliate compensation fees paid to the network's 225 primary
affiliates to maintain national distribution for advertisers will rise
approximately 50 percent in 1995. There were several major market affiliate
switches which affected all of the networks. This ignited an intense
competition to sign major market affiliates and group broadcasters to long-term
contracts at higher rates of compensation. Most of these affiliate switches
will take place during 1995. Approximately 10 percent of the network's 99.9
percent national coverage will be affected by affiliate changes. The impact on
audience delivery during the first half of the 1994-95 season has been minimal.
The Broadcast Group's three operating divisions all reported record revenues and
profits in 1994. The eight owned television stations benefited from vastly
improved national and local advertising demand and strong ratings performance.
In addition, political advertising was much stronger than anticipated,
particularly in New York and California. Station profit margins, probably the
best in the industry, improved again in 1994. The television stations division
is the Company's largest profit contributor.
At the radio operations, both the ABC Radio Networks and the owned radio
stations experienced record years. The ABC Radio Networks expanded domestic and
international programming in 1994 and now provide over 30 distinct news and
entertainment programs to more than 100,000,000 listeners per week. The owned
4
<PAGE>
--------------------------------------------------------------------------------
radio stations also had a very successful 1994. They are now stronger
competitively than they have been for many years, particularly with duopoly FMs
in both Atlanta and Minneapolis. Improved advertiser demand combined with
better ratings in most markets produced revenue and profit gains well above
anticipated levels. The FCC has been gradually relaxing its station ownership
restrictions. By late 1994, the number of stations an individual operator could
own was 40 -- 20 AMs and 20 FMs. As mentioned previously, the Company has added
two additional AMs in 1995 and is evaluating other markets as well. The Company
now owns 11 AM and 10 FM radio stations.
The Cable and International Broadcast Group, which manages the Company's
interests in domestic cable television networks and international media joint
ventures, had another year of extraordinary growth. ESPN's revenues and profits
were at their best levels ever, up dramatically over last year. ESPN's results
included substantial start-up losses for ESPN2's first full year of operation
and losses for further international expansion, particularly in Asia. The A&E
Television Network also showed marked growth and now reaches 55,800,000 homes.
The History Channel, a new cable service from A&E, premiered in January 1995.
Lifetime Television, which is 50 percent owned, also experienced a year of good
growth.
The Publishing Group had an outstanding year with revenues and profits up 9
percent and 23 percent, respectively. Revenue growth was the strongest it has
been in many years. The Group has managed its costs well, especially during
soft advertising years. In 1994, costs rose only 7 percent, despite higher
development investment in new ventures. Record profits at The Kansas City Star
and the Fort Worth Star-Telegram enabled the daily newspaper group to again
report its best results ever. The shopping guides also achieved strong profit
growth, and the specialized publications had a successful 1994, with all groups
recording significant profit gains. Publishing profits, especially at the daily
newspapers, will be significantly affected in 1995 by a sharp rise in the cost
of newsprint.
The newly established Multimedia Group has aggressively begun to explore ways to
expand the Company's role as a content provider for emerging technologies.
During 1994, the Group launched a number of major initiatives. These include
the development, publication and distribution of content for narrow-band on-line
services; the interactive software market; interactive television platforms; and
a number of out-of-home video ventures. In each case, the Group is exploring
the nature and extent of audience demand for these new products and delivery
systems. It is also studying the potential of the Company's existing content
and production capacity and the role of advertising and advertisers.
Capital Cities/ABC has always emphasized its public service responsibilities,
and in 1994 its principal commitments were to Children First, The Partnership
For a Drug-Free America and the Volunteer Initiatives Program. The national
literacy programs that Capital Cities/ABC began several years ago have now
evolved into Children First, an awareness campaign to stimulate involvement with
children who need help. The Company's contribution in media time and space to
the Partnership For A Drug-Free America in 1994 totaled $38,000,000 across all
operating divisions. Drug use among America's youth is rising again, and our
goal in these broadcast, cable and print campaigns is to help reverse this
trend. The Volunteer Initiatives Program best illustrates the Company's
emphasis on community involvement. Many dedicated employees in numerous
locations have volunteered their services to improve the lives of others.
Specific projects in 1994 included building low-cost housing in conjunction with
Habitat for Humanity, constructing a shelter for battered women and
participating in several other educational and conservational programs.
5
<PAGE>
Capital Cities/ABC
--------------------------------------------------------------------------------
There were two important promotions in 1994. Daniel B. Burke retired as
President and Chief Executive Officer in February. He was succeeded by Robert
A. Iger who was promoted to President and Chief Operating Officer and elected to
the Board of Directors in September. Bob was previously Executive Vice
President of the Corporation and President, ABC Television Network Group. David
Westin was promoted to President, ABC Television Network Group. David had been
President, ABC Productions and prior to that was the Company's General Counsel.
We are confident that our broadcasting and publishing operations will continue
to grow, although we do not believe that revenue growth will be as strong in the
near-term as it was in 1994. The Company's 1994 business plan did not forecast
a 12 percent revenue gain. Neither does our 1995 plan. Revenue growth for the
past five years has averaged closer to 5 percent, although that period did
include a recession. We are mindful that many of our basic businesses are
mature ones and that in a stable economy, industry revenues have historically
tended to increase in line with overall economic growth. That is why to sustain
earnings momentum we must be aggressive in developing new revenue sources.
Controlling costs is equally important, especially as we face extraordinary
charges such as the significant increase in affiliate compensation at the ABC
Television Network and increases in newsprint pricing. Many of the new
businesses described earlier offer the promise of above average growth, and our
five operating groups are identifying and pursuing those opportunities
resourcefully. We now face a future when contributions from our new businesses
will become increasingly meaningful.
Capital Cities/ABC continues its strong commitment to a policy of equal
employment and advancement opportunities for all individuals. While progress is
being made, we recognize the importance of continuing to diversify our work
force by increasing the representation of both minorities and females throughout
the Company, especially at management levels. In 1994, 22 percent of the
Company's overall work force were minorities and 45 percent were female.
To our employees, our directors and our shareholders, we extend our thanks for
all that you did to make this past year so successful. We look forward to the
opportunities of the years ahead.
/s/ Thomas S. Murphy
THOMAS S. MURPHY
Chairman of the Board and
Chief Executive Officer
/s/ Robert A. Iger
ROBERT A. IGER
President and
Chief Operating Officer
6
<PAGE>
--------------------------------------------------------------------------------
BROADCASTING
The Company's broadcasting operations, which consist of the ABC Television
Network Group, the Broadcast Group, the Cable and International Broadcast Group
and the Multimedia Group, had 1994 net revenues of $5,277,000,000, an increase
of 13 percent, or $614,000,000 over 1993. Operating earnings of $1,127,000,000
in 1994 increased $349,000,000, or 45 percent, from the prior year.
Broadcasting's 1994 and 1993 results are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1994 1993
------ ------
<S> <C> <C>
Net revenues $5,277 $4,663
------ ------
Operating costs 4,016 3,763
Depreciation 87 75
Amortization 47 47
------ ------
Total costs 4,150 3,885
------ ------
Operating income $1,127 $ 778
====== ======
</TABLE>
ABC Television Network Group
The ABC Television Network had a record year in 1994. Revenues rose
approximately 11 percent over 1993 to just over $3,000,000,000. Operating
income improved by more than 80 percent to $340,000,000, an all-time high for
the network. This strong network performance in 1994 resulted from the
combination of a cyclical upturn in national advertising, the network's
competitive audience delivery, and its strict attention to costs. Ratings
performance and cost control will continue to be important in 1995, as overall
industry revenue is not expected to grow as dramatically as it did in 1994, and
compensation paid to ABC affiliates will rise by nearly 50 percent. Over the
longer term, network growth will depend on its ability to produce and own
successful prime-time series. The network's investment in new series rose in
1994 and is expected to increase again in 1995.
The national economy and overall corporate profits were considerably healthier
in 1994 than they had been for some time, and national advertising benefited.
Network television industry revenues for 1994, including approximately
$385,000,000 in Olympic advertising on CBS, totaled $10,500,000,000, a gain of 9
percent. ABC outpaced industry growth, with an 11 percent increase in its
advertising sales. The 1994-95 prime-time upfront marketplace alone exceeded
$4,400,000,000 for the four established networks, an increase of 20 percent from
a year earlier. Spending was up noticeably across most major advertising
categories. For the first time in several years, advertisers paid higher rates
for commercial time bought in the scatter marketplace than they had in the
upfront market, and as 1994 progressed, this premium increased.
In prime time, which attracts both the largest audiences and share of revenues,
ABC
--------------------------------------------------------------------------------
Broadcasting
Net Revenues
<TABLE>
<CAPTION>
$ Millions
1986 1987 1988 1989 1990 1991 1992 1993 1994
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3,153.6 3,433.7 3,749.6 3,900.0 4,283.6 4,329.7 4,265.6 4,663.2 5,277.1
</TABLE>
--------------------------------------------------------------------------------
Broadcasting
Operating Income
<TABLE>
<CAPTION>
$ Millions
1986 1987 1988 1989 1990 1991 1992 1993 1994
----- ----- ----- ----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
474.5 632.9 722.2 836.1 830.5 669.7 619.3 778.1 1,127.2
</TABLE>
7
<PAGE>
Capital Cities/ABC
--------------------------------------------------------------------------------
finished first among young adults 18-49. Midway through the 1994-95 season,
the network was first among young adults 18-34, adults 18-49 and adults 25-54.
ABC has consistently won four nights of the week and approximately 50 percent of
the prime-time half hours among younger demographic groups. Six programs -- Home
Improvement, Grace Under Fire, Roseanne, NYPD Blue, Ellen, and NFL Monday Night
Football -- ranked among the ten most popular programs for young adult viewers.
NFL Monday Night Football improved its ratings during the fall of 1994 and was
the highest-rated prime-time program for male viewers. Home Improvement draws
the largest number of viewers of any series on television, averaging just under
33,000,000 viewers each week. Grace Under Fire attracts an average audience of
more than 30,000,000 viewers. By moving these two comedies to Tuesday night this
season, ABC improved its ratings from 9 to 10 pm in a most competitive time
period. From 10 to 11 pm on Tuesday, NYPD Blue is up 17 percent in adults 18-49
and 23 percent in adults 25-54 over a year ago. On Wednesday, Roseanne and Ellen
dominate the 9 to 10 pm hour. Roseanne, in its seventh season, still ranks fifth
among young adults, and Ellen ranks seventh. ABC has also won every Friday night
of the current season among adults 18-49 with its "TGIF" comedy block from 8 to
10 pm combined with a steady performance from 20/20 at 10 pm. Driven by an
outstanding ratings performance, prime time contributed substantially to ABC's
operating income.
Monday-to-Friday Daytime is also a major contributor to network operations. In
1994, ABC won 48 of 52 weeks in the key demographic category of women 18-49,
enabling it to capitalize on a strong marketplace. All My Children was the
number-one rated program among women 18-49 and 25-54, while General Hospital
ranked third and One Life to Live ranked fourth. At the same time, 1994 saw a
significant decline in overall female viewership for daytime network
programming, and ABC was no exception. This fall-off was the result, in part,
of extraordinary preemptions for daytime news stories. Despite this viewer
fall-off, careful cost control and a stronger market enabled ABC to earn
substantially increased operating income from its daytime programming.
Outstanding ratings performances by NFL Monday Night Football and NCAA college
football enabled ABC Sports to generate substantially improved operating income.
The network sports advertising marketplace grew faster than anticipated,
partially because of the impact of the Major League Baseball strike which
canceled seven weeks of regular season play and all post-season games. ABC had
been scheduled to broadcast the World Series in October 1994. A large portion
of advertising scheduled for baseball, particularly post-season play, was
shifted to other sports events. In a business where bidding for certain sports
rights escalated well beyond any possibility of profitability, ABC Sports
successfully negotiated two major contracts in 1994. NFL Monday Night Football
was renewed for four more years at a moderate increase over the prior contract.
Also, the division's revenue sharing agreement with Major League Baseball did
not require any upfront rights payments and represented an innovative, risk-
sharing approach to network television sports. The division distinguished
itself with its highly-rated coverage of college and professional football,
World Cup Soccer, and in January 1995, the telecast of Super Bowl XXIX.
ABC News continued to serve as the industry's premier news organization in 1994.
World News Tonight was the top-rated evening newscast for the sixth consecutive
year. Nightline performed well in the highly competitive late night time period
and benefited as live clearances by ABC affiliates increased from 63 percent of
the country to 77 percent. During the course of 1994, four ABC news magazines --
20/20, Primetime Live, Day One, and Turning Point -- made solid contributions to
ABC News' award-winning analysis of major issues and to the network's
8
<PAGE>
--------------------------------------------------------------------------------
prime-time schedule. ABC News programs did see some audience erosion in 1994,
however, especially in some of the news magazine shows. Nevertheless, the
generally strong advertising marketplace supported a record level of operating
income at ABC News. During the year, the ABC Television Network won
approximately 160 awards for journalistic excellence.
Good Morning America was the most popular early morning network program during
1994, narrowly winning the time period among women 18-49 and 25-54. Competition
from other network programs and from locally-produced programs, however, hurt
Good Morning America's performance in other demographic categories.
Nevertheless, Good Morning America revenues and profits increased over 1993
levels.
The only daypart to decline in profitability in 1994 was children's programming.
ABC ranks a solid second in the key demographic category of children 2-11, but
suffered from competition with the Fox network and other program suppliers who
benefit from having their children's lineup (and related promotional efforts)
shown on weekdays, as well as on Saturday. As a result, ratings, revenues and
profitability for ABC in the children's arena all declined in 1994.
The continued strong performance of the ABC Television Network in 1995 will
depend greatly on improved program performance and prudent cost control.
Average annual growth for the four-network marketplace approximated 4 percent
over the past five years (including the recession from late 1990 through 1992).
Future long-term revenue growth is not likely to exceed the overall performance
of the economy. Therefore, growth in revenue will require that ABC continue to
outperform its competitors in reaching viewers, especially in key demographic
categories. Realistically, the network does not expect that it can increase its
overall revenue in 1995 at the same rate as the upsurge made possible by the
advertising marketplace in 1994.
The ABC Television Network has worked hard to contain its costs over the past
several years. When national advertising was soft, network operating costs were
flat. In 1994, costs rose at roughly half the rate of revenues, and these cost
increases included new program expenditures directly resulting in higher
revenues and profits.
The network must vigilantly guard against cost increases in 1995, as the network
will spend more than $50,000,000 in increased compensation to affiliates over
what it paid in 1994. This substantial cost increase came as the direct result
of heightened competition initiated by the fourth network in 1994 (and to some
extent the fifth and sixth network in early 1995) for new affiliates to enhance
their distribution system by investing in television stations around the
country. A number of television stations changed hands, or switched
affiliations. ABC responded promptly by entering into long-term affiliation
agreements with major market affiliates at higher compensation rates. At
present, ABC has long-term affiliation agreements or commitments with (or owns
and operates) television stations reaching some two-thirds of the United States.
ABC is currently negotiating agreements with most of the remaining stations.
Although expensive, these long-term agreements will bring stability to the
network's 99.9 percent national coverage distribution system, thereby protecting
the network's future.
In 1995, ABC will also continue its long-term strategy of developing and owning
television programming. This is important, in part, because of the potentially
lucrative market for syndicated television programs after their network run.
But program ownership also offers important potential benefits in controlling
costs, particularly for "hit" programs. ABC's success to-date with prime-time
program production has been modest, but the network holds great hope for its
current internal programming units, its previously announced association with
Brillstein-Grey, and the Company's recently announced partnership with
DreamWorks SKG.
9
<PAGE>
Capital Cities/ABC
--------------------------------------------------------------------------------
Broadcast Group
The Broadcast Group enjoyed a very successful year in 1994, with each of its
operating components attaining new highs in revenues and operating profits.
Revenues for the group increased 10 percent to approximately $1,300,000,000.
Operating profits grew over 15 percent, producing double-digit growth for the
second successive year. Operating margins also expanded by two percentage
points for the second year in a row. These improved results were a combination
of a more robust national economy, heavy political advertising expenditures, the
competitive advantage of our operating franchises and continued attention to
cost control. This occurred despite the fact that the competitive spectrum
continues to broaden and intensify.
Television Stations
Revenue at our eight television stations reached an all-time high, increasing by
9 percent. The increase was the largest annual percentage gain since 1986, the
first year after the merger. Operating profits also rose to a record high,
exceeding the previous record level attained in 1990.
The Major League Baseball strike and the consequent absence of playoff games and
the World Series on the ABC Television Network precluded a premium marketing
opportunity for the stations. Political advertising, however, more than offset
the loss. The increase in political advertising for the year approximated 30
percent of the incremental sales increase the stations recorded in 1994. In
addition, the demand for preferred time periods created by the intensity of some
of the political campaigns clearly had a beneficial impact on overall pricing
and helped performance. Increased spending by more traditional advertisers,
especially automobile manufacturers, also contributed to the improved economic
climate and enabled our television stations to generate double-digit revenue
increases for three of the four fiscal quarters of the year.
While operating costs appeared to rise moderately during the year, the
competition for popular syndicated programming has continued to exert upward
pressure on costs. Contract extensions were negotiated during the year to
protect several valuable program franchises, such as The Oprah Winfrey Show.
The stability derived from protecting these relationships, however, came at a
significant increase in cost and a loss of some flexibility. Clearly the risk-
reward relationship underlying all these decisions rests on the continued long-
term popularity of the programs in question. We believe the risk is worthwhile.
However, the escalation of costs in syndicated programming and other talent and
production activities makes it increasingly important for us to enhance
productivity in nonprogramming-related areas.
In 1994, the challenge to contain costs was made somewhat easier by the
settlement of music performance rights claims with BMI. The accommodation
reached by the TV Music License Committee, representing most of the broadcast
industry, was similar in nature and scope to the settlement reached in 1993 with
ASCAP, the other major music performance society. The agreement put the
licensing of BMI-represented music performance rights on a more equitable basis
and established the liability for past years' claims at levels lower than had
been previously provided.
The Company's television stations remain the nation's most profitable group and
continue to outperform their competition by most standards. The ratings results
of the November sweeps period again put our stations at or near the top of their
respective markets, from sign-on to sign-off, and five of our eight stations
were able to translate their audience leadership into double-digit profit
increases. Five of our stations also achieved record profit levels -- WABC-TV
New York, KABC-TV Los Angeles, WLS-TV Chicago, WPVI-TV Philadelphia and KFSN-TV
Fresno. KTRK-TV Houston rebounded in audience appeal and capitalized on the
Houston market's renewed economic vigor to produce its best profit performance
since 1986.
10
<PAGE>
--------------------------------------------------------------------------------
Most traditional over-the-air broadcasters had a good year in 1994; thus, in the
euphoria of record profits and record prices on station purchases, it is easy to
lose sight of the fact that competition for the attention of viewers and
advertisers continues to increase. The growth of new cable program channels
will undoubtedly find new impetus as the FCC has liberalized its cost pass-
through rules. The prospect of new distribution channels made possible by
digital transmission and computer technology also presages a more competitive
environment.
Nevertheless, and despite the heightened competition, we believe that the
traditional broadcaster will continue to play a primary role in the media world
of the future. Our confidence is best underscored by our acquisition of two
more stations, currently awaiting approval by the FCC: WJRT-TV Flint, Michigan
and WTVG Toledo, Ohio. These two VHF television stations are in markets which
only have two VHF licenses, resulting in strong competitive positions in terms
of both local operations and network distribution. The addition of these two
stations will bring our coverage of U.S. homes to 24.5 percent.
Radio
The year 1994 was also an excellent one for the radio group, with both revenues
and profits reaching new highs. Our radio stations enjoyed an especially good
year with revenues growing approximately 14 percent, and operating profits
increasing significantly. What was particularly satisfying was the fact that
the growth in profits was broad-based, with many of our stations experiencing
substantial improvement and validating earlier program strategies. Both of our
New York market stations continued their respective turnarounds and now contend
for market leadership. WPLJ-FM's ratings resurgence was recently acknowledged
by the Billboard/Airplay Monitor Radio Awards. It became the only station in
1994 to sweep all four award categories for which it was nominated, and WABC-AM
has become one of the most popular AM stations in the country. We also have
enjoyed outstanding success thus far with our duopoly FM operations in Atlanta
and Minneapolis. We expect both multiple facility combinations to be a
significant part of the division's future growth. The acquisitions in early
1995 of two additional AM stations (KMPC-AM Los Angeles and KSFO-AM San
Francisco) will enable us to determine whether the duopoly approach can also
produce dramatic results with the talk format on the AM band. While still
premature, early results are encouraging. The Company's current 21 station
portfolio (eleven AM and ten FM) reaches 24.1 percent of the country as
indicated in the following chart:
<TABLE>
<CAPTION>
# of
stations
Station Market in % of
and Market rank market U.S.
------ -------- -----
<S> <C> <C> <C>
WABC-AM/WPLJ-FM 1 49 6.6%
(New York)
KABC-AM/KLOS-FM
KMPC-AM 2 48 4.6%
(Los Angeles)
WLS-AM/FM 3 38 3.2%
(Chicago)
KGO-AM
KSFO-AM 4 50 2.5%
(San Francisco)
WJR-AM/WHYT-FM 6 31 1.7%
(Detroit)
WBAP-AM/KSCS-FM 7 34 1.6%
(Fort Worth-Dallas)
WMAL-AM/WRQX-FM 8 31 1.6%
(Washington, DC)
WKHX-AM/FM
WYAY-FM 12 20 1.3%
(Atlanta)
KQRS-AM/FM
KEGE-FM 17 26 1.0%
(Minneapolis-St. Paul)
-----
Total 24.1%
</TABLE>
---------
Source: Arbitron, Fall 1994 Radio Market Survey
Schedule & Population Rankings
Metro persons 12+
The talk radio format has become increasingly popular in recent years, and its
role as an interactive forum for community debate has helped to revitalize the
AM band. As a consequence, our AM stations became the beneficiaries of the
year's political campaigns and increased political advertising. Less positive
was the year's
11
<PAGE>
Capital Cities/ABC
--------------------------------------------------------------------------------
other extraordinary occurrence, the unsettled labor climate in professional
sports. Disruptions in the playing seasons of Major League Baseball and the
National Hockey League had a modest effect on overall radio division earnings in
1994. Several of our AM stations continue to have ongoing commitments to
baseball teams and could be adversely affected in 1995 if the ultimate
resolution of the dispute does not permit sufficient time to market the games.
The ABC Radio Networks had a record year in 1994, with revenues increasing
approximately 4 percent. While the rate of revenue and profit growth did not
approach that of our other broadcasting operations, the networks performed
admirably during the year, increasing market share in the face of more
determined competition. Through 1993, operating expenses have decreased three
years in succession; still, effective cost management continues as a primary
objective. During 1994, the network embarked on the third phase of the
consolidation of its production and administrative activities in Dallas, Texas.
This stage of the consolidation will see the networks in a new facility in early
1995 and is expected to benefit the cost structure of the networks long-term.
The ABC Radio Networks, with over 3,400 affiliates, continues as the country's
largest radio network operation and provide stations and listeners with a wide
array of information, news and entertainment programming. Featuring the
services of ABC News and the commentary of Paul Harvey, the networks reach over
100,000,000 listeners weekly. They produce 9 of the top 10 and 42 of the top 50
programs in network radio. Paul Harvey, ABC Radio Network's foremost
personality, continues as the nation's most respected and popular radio
commentator.
The networks continue to expand their program offerings domestically and
internationally. "The Fabulous Sports Babe" became a successful addition to the
ESPN Radio Network. Upon the discontinuation of American Top 40, the networks
obtained Rick Dees Weekly Top 40, which has now become the number one countdown
show in the contemporary arena. In addition, a series of business-oriented
programs are now being offered both domestically, in conjunction with Business
Week, and internationally, with the Financial Times of London.
Cable and International Broadcast Group
The Cable and International Broadcast Group's revenue and profit growth far
exceeded expectations in 1994 in virtually all of its operating divisions. Its
cable television interests, ESPN, A&E Television Network and Lifetime
Television, all reported record results. The Group's international media joint
ventures performed better than anticipated and are now expected, as a group, to
achieve profitability sooner than originally planned.
ESPN, America's largest cable network, had an extraordinary year. Its flagship
service, which reaches 63,500,000 U.S. homes, recorded substantial profit growth
due to increases in advertising sales and subscriber fees as well as
substantially reduced Major League Baseball rights costs. ESPN2 saw its
subscribers grow from 10,000,000 at its inception in October 1993 to more than
17,000,000 at year-end 1994. The new network, programmed for young adults 18-
34, could begin to operate profitably by the end of 1995. The ESPN
International Networks now reach almost 70,000,000 homes in 130 countries and
are currently translated into 11 languages. A significant investment is being
made in Singapore as a base of operations to bring local-origination foreign
language services into the Asian markets. During 1994, ESPN acquired Creative
Sports Marketing, a producer and syndicator of sports programming. In January
1995, it acquired an 80 percent interest in SportsTicker, a real-time sports
news and information service. In addition, ESPN continued to explore new
revenue sources from electronic publishing,
12
<PAGE>
--------------------------------------------------------------------------------
interactivity, pay-per-view and other new media.
The A&E Television Network and Lifetime Television also enjoyed their best years
ever. A&E (37 1/2 percent-owned) enjoyed ratings success with its original
series, Biography, while subscribers grew to 55,800,000 in 1994. Since A&E
debuted in 1984, it has received more Cable ACE Awards than any other basic
cable network. A&E launched a new cable service -- The History Channel -- in
January 1995. This service, featuring historical documentaries, movies and
mini-series, is a logical extension of A&E. In April 1994, Capital Cities/ABC
increased its ownership of Lifetime from 33 1/3 percent to 50 percent. Lifetime
Television now reaches 58,400,000 cable homes.
The Group's foreign media joint ventures also achieved better results in 1994.
Tele-Munchen (50 percent-owned), a German production and distribution company,
had strong earnings growth. RTL 2 (23 percent-owned), a German general
entertainment television network, significantly improved its coverage and
audience delivery. Should these trends continue, the network could reach
breakeven by the end of 1995, within three years of its debut. Similarly,
Eurosport (33 percent-owned by ESPN), a pan-European sports service reaching
almost 59,000,000 households, could also begin to operate profitably late in
1995. Scandinavian Broadcasting System SA (23 percent-owned) showed cash flow
growth in its ongoing television services in Denmark, Norway and Sweden. It has
recently acquired radio stations in Denmark, Finland and Sweden and started a
new television service in Belgium.
In the fall, the Group, together with DIC Entertainment, became the first
American service regularly to broadcast children's programming in China. Two
new services, distributed by four regional broadcasters and a consortium of
Chinese cable operators, are available to 45 percent of China's television
homes. DIC will produce original programming and use animated and live-action
features from its existing library. Finally, ABC Distribution produced record
results distributing programming internationally for the Company's production
entities.
Results for ESPN, DIC and ABC Distribution are consolidated in the broadcasting
business segment. Results for A&E, Lifetime and the Group's international joint
ventures are accounted for on the equity basis (the proportionate share of
income or loss is recorded as other income or expense). As a consequence, the
revenues and profits of these activities are not reflected in the operating
results of the Broadcasting segment.
Multimedia Group
The year 1994 constituted the first full year of operation for the Multimedia
Group, which is responsible for positioning the Company with respect to emerging
media and technologies. The Company believes that changes in television in the
United States will be evolutionary rather than revolutionary, and that the
technological changes on the horizon are not threats to its core businesses, but
rather opportunities to expand them. The important unresolved questions about
the so-called new media are not merely technological but audience and
advertiser-based. It remains to be determined if there will be audience
interest and demand for interactive services and program content that is
sufficient to justify the significant investment that will be required. During
the past year, the Multimedia Group took a number of content-based initiatives,
and entered into several business relationships, that were designed to explore
the technological opportunities and to create new content forms that will
ultimately help to resolve these issues.
One initiative was the creation in September of ABC Online, a group of narrow-
band program services carried exclusively on
13
<PAGE>
Capital Cities/ABC
--------------------------------------------------------------------------------
America Online and designed for the interactive audience. America Online is the
fastest growing narrow-band interactive service, with currently more than
2,000,000 customers. Such on-line services as America Online, Prodigy and
CompuServe currently provide the only truly interactive audience available to
programmers, and the Multimedia Group is developing content designed to test
that audience's interests. Over the next few years, it is expected that there
will be a significant increase in the number of on-line homes as well as on-line
services, and the Group expects to expand significantly the kind of programming
material it offers in this environment. Much of that content will come from
Capital Cities/ABC's television and publishing resources. However, a significant
share of new content will come from outside sources having no relationship to
the Company's other programming and publishing activities.
The Company also created a joint venture with Electronic Arts, Inc. that will
develop, publish and distribute interactive entertainment and educational
packaged software for the children's and information markets. The venture will
place primary emphasis on disc technology, such as CD-ROM. However, hardware
and audience demands are changing rapidly, and the venture expects to remain
flexible and to publish products for more than one platform. The market for
interactive software is growing rapidly as consumers purchase the necessary
equipment for home use, and the number of available titles, particularly in the
children's markets, is also expanding dramatically. ABC-branded titles, along
with the strength of the Electronic Arts' distribution system, may well create a
competitive advantage in the marketplace. The Multimedia Group expects to enter
into relationships with other interactive publishers that will focus on other
areas in which the Company's content base and brand name recognition is
particularly strong.
The Multimedia Group continued experimentation with cable operators, telephone
companies and others who are developing platforms for the distribution of
broadband interactive video services. These experiments involve, among other
things, time-shifting ABC Television Network programs to determine both audience
interest and the impact on regular viewing patterns and schedules. The
experiments also involve development of new forms of interactive programming and
program services -- particularly news, sports, children's and game services. The
development of interactive broadband on-line services of this kind will require
significant investment and will take a number of years to roll out, but if there
is audience interest, they may well offer significant prospects for expanding
the Company's core businesses.
The Multimedia Group established relationships with a number of companies
developing out-of-home entertainment services -- on a traveling basis, in
shopping malls and entertainment centers, and in museums and other institutions.
These investments are intended to make use of the Company's existing production
strengths and to determine the potential of what could become a major new form
of video entertainment.
During 1994, the Company continued the expansion of the home video distribution
activities of Capital Cities/ABC Video Publishing, which was created in 1993.
This year saw the distribution of more than 1,000,000 units of video under the
ABC Video and ESPN Home Video brands, in large part based on the programming of
ABC News, ABC Daytime, ESPN and other divisions.
The Multimedia Group expects to expand these relationships and lines of business
throughout 1995 on the basis of prudent evaluations of the changing tastes and
needs of the American audience. It also expects to begin working with our
traditional advertisers to find ways to integrate them into the new delivery
platforms of the future.
14
<PAGE>
--------------------------------------------------------------------------------
PUBLISHING
Net revenues for the Publishing Group increased 9 percent in 1994 to
$1,102,000,000. Operating income was up 23 percent from 1993. Publishing's
1994 and 1993 results are summarized below:
<TABLE>
<CAPTION>
(Dollars in millions) 1994 1993
------ ------
<S> <C> <C>
Net revenues $1,102 $1,010
------ ------
Operating costs 911 851
Depreciation 20 18
Amortization 16 15
------ ------
Total costs 947 884
------ ------
Operating income $ 155 $ 126
====== ======
</TABLE>
The Group's publications reach over 10,000,000 households or business users once
or more each month and are read by more than 25,000,000 adults. In addition,
the Publishing Group produces specialized books and trade shows, and provides
electronic information products. Favorable increases in revenue and operating
income occurred virtually across the board among the Group's varied publishing
properties. Nearly all the profit centers posted gains, and most enjoyed record
years. Profits of the newspaper and shopping guide segment increased 18 percent
and specialized publications' operating income was up 42 percent.
Key factors in the 1994 performance included an improving economy; the most
able, focused cadre of publishing managers in the Company's history; and the
returns on sometimes painful investment spending in prior years. The building
process continued in 1994, as new products and initiatives were launched. The
rigorous, ongoing examination of relative franchise strength and importance led
to the closure of several small trade publications and the announcement that the
New England Newspaper Group would be offered for sale.
Newspapers and Shopping Guides
Revenues in 1994 increased 8 percent to more than $600,000,000, fueled
importantly by strong increases in classified advertising. Total advertising
lineage and paid circulation levels, however, were relatively flat for the
dailies. Expenses were up 6 percent. Newsprint costs per ton for the year
averaged 2 percent below 1993, with lower costs earlier in the year more than
offsetting rapidly escalating prices in the fourth quarter. A large part of the
overall cost increase was in advertising sales expense, where our publishers
devoted additional resources to gain local market share and maximize advertising
revenues.
Operating income increased 18 percent in 1994, the eighth straight year of
profit growth for the combined newspaper and shopper operations. Profit margins
also reached record levels.
--------------------------------------------------------------------------------
Publishing
Net Revenues
<TABLE>
<CAPTION>
$ Millions
1986 1987 1988 1989 1990 1991 1992 1993 1994
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
970.8 1,006.6 1,023.9 1,057.4 1,102.0 1,052.2 1,078.6 1,010.4 1,102.1
</TABLE>
--------------------------------------------------------------------------------
Publishing
Operating Income
<TABLE>
<CAPTION>
$ Millions
1986 1987 1988 1989 1990 1991 1992 1993 1994
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
159.0 146.7 129.7 130.4 132.4 122.9 136.4 125.6 155.0
</TABLE>
15
<PAGE>
Capital Cities/ABC
--------------------------------------------------------------------------------
However, these results were not achieved at the expense of our readers, as the
proportion of total space devoted to news in our dailies was at an all-time
high, slightly more than 50 percent, and editorial staffing increased.
Any review of newspaper financial results, and certainly the future outlook,
cannot emphasize enough the dynamics of newsprint prices. Since 1989, each of
the Company's Annual Reports to Shareholders has highlighted the favorable
effect of depressed newsprint prices. In the 1992 report, after noting prices
were 18 percent lower than 1991, we indicated that "the unusually long period of
benefits from lower newsprint prices appears to be over." That somber
prediction was correct; it was just two years early. The current escalation of
newsprint prices began in mid-1994 and has developed a rapid momentum. The
newspapers' plans for 1995 provided for an average increase in newsprint costs
of 33 percent. It is now clear the actual increase will be higher.
The Kansas City Star posted record revenues in 1994, experiencing particularly
sharp growth in classified help wanted and in the automotive category. Revenues
increased 8 percent while operating income rose 16 percent. Circulation was
unchanged. The newspaper began a transition from traditional production to full
electronic pagination. The project is scheduled for completion in 1995. The
Star also created a Niche Publications and Event Marketing department. Combined
with existing database and audiotext advertising capabilities, these services
offer Star advertisers new ways to market their services and products.
Editorially, The Star was recognized by the Missouri Press Association as the
state's overall winner in the major dailies category.
The newspaper initiated the TeenStar program, which identifies promising
minority journalists in their high school years and assists them financially
through college. TeenStar staff members also contribute to a weekly TeenStar
section, which is published in the newspaper's new FYI feature section.
The Fort Worth Star-Telegram achieved record revenues and operating income in
1994, up 6 percent and 15 percent, respectively, from 1993. The Star-Telegram
continued expansion of daily zoning in its three primary markets, stressing
local, community-oriented news. The two newest editions in Arlington and
northeast Tarrant County recorded profits for the first time. Additionally,
several new products were launched including La Estrella, a weekly, bilingual
section; specialty magazines covering topics such as golf and home furnishings;
and an in-flight magazine. Of particular note was the publication and
distribution of 750,000 copies of a magazine-quality catalog for the heralded
Barnes Exhibit at Fort Worth's Kimbell Art Museum. It was also a banner year
for the newsroom which won numerous awards for editorial excellence.
Publishing operations in Michigan recorded their most profitable year, led by
strong advertising gains at its daily, The Oakland Press in Pontiac. The
eastern Michigan economy was marked by high auto production, low unemployment
and healthy retail sales. A major investment in inserting equipment increased
preprint capabilities and improved delivery times. The County Press, in Lapeer,
showed continued growth and was named "Newspaper of the Year" in its class for
the second year in a row by the Michigan Press Association.
In February 1995, Bruce McIntyre retired as President and Publisher of The
Oakland Press and relinquished his responsibilities as a Group Executive
overseeing the Belleville and Wilkes-Barre operations. Bruce provided
distinguished leadership in Pontiac for 17 years, where he had previously served
as Vice President and Editor. Dale Duncan, formerly President and Publisher of
The Times Leader in Wilkes-Barre, replaced him in both capacities.
The Belleville News-Democrat and its weekly group both posted record revenues
and operating income in 1994. The daily received 26 journalism awards,
including three national and eight first place awards in state and regional
competition. In Wilkes-
16
<PAGE>
--------------------------------------------------------------------------------
Barre, Pennsylvania, The Times Leader operating income grew 70 percent on a 17
percent revenue improvement. The newspaper, having outgrown its production
capacity, began a $14,000,000 capital expansion program which includes a new
offset printing press to be installed early in 1996. The Oregon Newspaper Group
also enjoyed a record profit year, led by the two dailies in Albany and Ashland.
Renovation and expansion of the Albany Democrat-Herald facilities were completed
during 1994.
After battling the effects of a weak regional economy in the early 1990's, the
New England Newspaper Group had a successful turnaround year in 1994. The
Company, however, decided to offer these properties for sale in view of their
relative small size.
Sutton Industries, headquartered in Vista, California, had record revenue,
operating income and operating margin in 1994. Sutton publishes PennySaver,
Magic Ads and Bargain Bulletin shopping guides. The combined circulation
approximates 2,100,000 each week and covers the Sacramento, Stockton and San
Diego metropolitan areas and parts of Orange and Riverside counties. Sutton
initiated several new projects in 1994, including a Spanish language publication
called Frontera San Diego, a telephone information system, "Infobank," and
expansion of the Bargain Bulletin.
Profits improved for the third consecutive year at Pennypower which distributes
almost 300,000 shoppers weekly in Wichita, Kansas, and Springfield, Missouri.
The Wichita Regional Telephone Directory, a new business launched last year, and
the Company's first endeavor in the Yellow Page industry, has completed and
distributed a second successful telephone directory to over 230,000 households
and businesses in Wichita, Kansas.
The Northwest Nickels Group operations, which distribute over 750,000
publications each week, enjoyed record operating income, up 18 percent from
1993. The Spokane, Washington and Las Vegas, Nevada units extended their
geographic presence with the acquisitions of the Nickel Saver in Moses Lake,
Washington, and the Pioneer Shopper in St. George, Utah.
Specialized Publications
The Company's specialized publishing operations had an excellent year in 1994.
Excluding the effect of acquisitions, dispositions and start-ups, revenue was up
7 percent and operating income 32 percent, with most publications recording
gains.
The Diversified Publishing Group continued to make significant long-term
investments while posting increased revenues and operating income. The group is
positioned for long-term growth based on the strength of its franchises, recent
reinvestment and commitment to excellence.
This was an excellent year for Chilton Publications as it reaped the benefits of
investment in publications that are market leaders with strong franchises.
Chilton Publications is organized into five publishing groups: Communications,
Materials, Manufacturing, Retail and Automotive/Transport. Each of the five
groups gained market share in 1994. Ongoing operations, net of acquisitions,
dispositions and startups, showed a 26 percent increase in operating income and
improvement in operating margin. Warehousing and Convergence, both trade
magazines in their second year of development, showed strong improvement. New
magazine launches in 1994 included Gem and Review of Ophthalmology. Both were
well received in their marketplaces and show signs of strong growth.
Grupo Editorial Expansiun, S.A., the leading business publisher in Mexico,
completed its first year as part of Chilton Publications. Revenues and
operating income were lower than anticipated due to deterioration in the value
of the peso and a business environment adversely affected by political
uncertainty. The launch of Manufactura represented the combined efforts of
Chilton Publications
17
<PAGE>
Capital Cities/ABC
--------------------------------------------------------------------------------
personnel in the United States and Mexico. Manufactura represents a strategic
tie-in with Chilton's U.S.-based manufacturing magazines and is pacing well.
Chilton Enterprises is comprised of Professional Exposition Management Company,
Chilton Research, as well as trade book, and both consumer and professional
automotive book operations. Chilton Enterprises invested significantly in new
initiatives in trade shows as well as in product repositioning and development.
The professional automotive division of Chilton Enterprises released the first
version of its CD-ROM product that had been in development for the past three
years.
National Insurance Law Service (NILS) again posted a record year in operating
profits, beating all performance benchmarks. NILS publishes an indexed version
of the insurance laws in all 50 states and U.S. territories. Print version
sales have declined as the CD-ROM version (INSource), introduced in 1991, has
found solid acceptance in the marketplace. The operating results for NILS
should continue to set new records as the mix of electronic to print changes.
The Agricultural Publishing Group which publishes trade magazines serving the
farming community experienced good revenue and earnings growth. Los Angeles
magazine continued to make significant investments in its editorial product to
better compete in its marketplace.
Fairchild Publications' revenues increased 5 percent and operating income was up
more than 75 percent in 1994. W was changed in late 1993 from a newspaper
broadsheet to a magazine, with its frequency reduced from 26 issues a year to
12. The reinvented W was a significant success in a very difficult fashion
magazine advertising environment. Advertising increased by 131 pages and
operating profit more than doubled. Newsstand circulation quadrupled, with
overall circulation increasing more than 75,000 to over 330,000. The Council of
Fashion Designers of America honored W's executive editor with its most
prestigious award. During the year, the European edition of W was closed. A
"united Europe" was not ready for a pan-European product and the fashion
magazine business in Europe -- never robust -- was in the grip of a serious
recession. The U.S. W is now being marketed in Europe with some success.
Operating income at the Financial Services and Medical Group nearly doubled.
Notwithstanding significant losses sustained by its clients in the fixed-income
markets, operating income at Institutional Investor, Inc. increased very
dramatically. This gain was partly offset by a 45 percent decline in operating
income at the International Medical News Group.
Once again, Institutional Investor magazine received a number of important
awards for journalistic excellence. The most prestigious was the Overseas Press
Club Award for best business or financial reporting from abroad for magazines.
New newsletters were launched dealing with foreign exchange, private asset
management and compliance. New journals were started dealing with derivatives
and project finance. Launched in 1993, SELL!NG magazine continued to grow and
was nominated for a National Magazine Award in its first year of publication.
Capital Cities Capital
Capital Cities Capital invests in emerging growth companies by providing
advertising time and space in Capital Cities/ABC media properties in exchange
for an equity interest in these companies. The goal is to help companies grow
and prosper through the intelligent use of advertising, to cultivate new
advertisers for our media properties and to earn a "venture capital" type of
return on investment. The equity interests exchanged for the advertising
provided are at market rates. Three transactions have been completed so far and
a number of additional transactions are under review.
18
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL OVERVIEW
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results of Operations -- 1994 Compared to 1993
Consolidated net revenues for 1994 were $6,379,237,000 an increase of 12% from
the $5,673,653,000 reported in 1993, reflecting strong advertiser demand
throughout the Company's operations. Broadcasting net revenues for 1994 were
$5,277,126,000 compared with $4,663,215,000 in 1993 a 13% increase. Net revenues
for the ABC Television Network increased significantly, principally due to
greater advertising demand from an improved marketplace and to the network's
competitive audience delivery of key demographic groups. ESPN reported very
significant revenue increases, primarily due to increased growth in both
advertising sales and subscription fees, while television station and radio
revenues increased moderately. Publishing Group revenues increased 9%, with
comparable gains at both the newspaper operations and the specialized
publications.
Total costs and expenses for 1994 were $5,140,426,000, compared with
$4,811,504,000 in 1993, a 7% increase with broadcasting costs also increasing
7%. Costs for the ABC Television Network increased moderately in 1994, primarily
as a result of higher programming and production, news coverage and
administrative expenses. Costs at ESPN also increased moderately due to higher
selling general and administrative costs, the start-up of ESPN2 and the effect
of two recent acquisitions. Total costs at ESPN in 1994 were favorably affected
by substantially reduced rights costs for the telecast of Major League Baseball.
Increased costs at the Company's television stations for programming and news
were partially offset by a favorable industry-wide music license fee settlement
with BMI. This settlement was similar in size and nature to the agreement
reached with ASCAP in 1993. Radio expenses were up moderately in 1994 primarily
due to higher promotion, sales and administrative expenses, as well as the
effect of two recent FM station acquisitions. Publishing Group expenses
increased 7% from 1993. Newspaper operations reported moderate cost increases as
a result of higher newsprint and general and administrative expenses, while the
specialized publications excluding the effect of acquisitions, dispositions and
start-ups, also reported moderate increases.
Operating income for 1994 was $1,238,811,000, compared with $862,149,000 in
1993, an increase of 44%, with broadcasting operations increasing 45%. Operating
income for the ABC Television Network ESPN and the radio operations each
increased very significantly over 1993. Television station operating earnings
were up substantially. Publishing Group operating income increased 23%, with the
newspapers and specialized publications both reporting substantial increases.
Net financial expense (interest expense less interest income) for 1994 increased
$7,395,000 from 1993. Interest expense decreased $4,702,000 primarily as a
result of a reduction of outstanding long-term, debt somewhat offset by lower
capitalized interest. Interest income was $12,097,000 lower in 1994, mainly due
to the use of cash for long-
--------------------------------------------------------------------------------
Operating Income
<TABLE>
<CAPTION>
$ Millions
1986 1987 1988 1989 1990 1991 1992 1993 1994
----- ----- ----- ----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
602.7 746.0 816.0 922.5 923.2 761.2 721.8 862.1 1,238.8
</TABLE>
19
<PAGE>
Capital Cities/ABC
--------------------------------------------------------------------------------
term debt redemptions and repurchases of common stock, partially offset by
higher interest rates. Interest of $4,284,000 and $10,283,000 was capitalized in
1994 and 1993, respectively. The Company's effective tax rate was 43.6% in both
1994 and 1993.
Consolidated net income for 1994 was $679,814,000, compared with $467,379,000
reported in 1993 (before an extraordinary charge). Earnings per share for 1994
were $4.42, an increase of 55% from the $2.85 reported in 1993 (before the
extraordinary charge). Average shares outstanding in 1994 were 153,890,000
compared with 163,800,000 in 1993, the decline resulting from repurchases of the
Company's common stock during 1993 and 1994. The 1993 earnings per share and
average shares outstanding have been restated to reflect the June 1994 ten-for-
one stock split. During 1993, an extraordinary charge (after-tax) of
$12,122,000, or $0.07 per share, was recorded relating to early debt
redemptions.
Results of Operations -- 1993 Compared to 1992
Consolidated net revenues for 1993 were $5,673,653,000, an increase of 6% from
the $5,344,127,000 reported in 1992. Most of the Company's advertiser-supported
businesses were positively affected by increased demand and an improvement in
the economic environment. Broadcasting net revenues for 1993 were
$4,663,215,000, compared with $4,265,561,000 in 1992, a 9% increase. Net
revenues for the ABC Television Network increased moderately, principally due to
an improved advertising marketplace, the absence of the telecast of the Winter
and Summer Olympics on other networks and higher sales of internally-produced
product. ESPN reported significant revenue increases, primarily due to increased
growth in both advertising sales and subscription fees, while television station
and radio revenues increased moderately. Publishing revenues, excluding the
effect of 1992 and 1993 acquisitions, dispositions and start-ups, increased 3%
with gains at the newspaper operations and most of the specialized publications.
Total costs and expenses for 1993 were $4,811,504,000, compared with
$4,622,322,000 in 1992, a 4% increase. Broadcasting costs in 1993 increased 7%
from 1992. Costs and expenses for the ABC Television Network increased
moderately in 1993, primarily as a result of increased provisions for reductions
in staffing, a higher level of internally-produced programming and higher rights
costs. Costs at ESPN increased significantly due to higher programming expenses
and the start-up of ESPN2. Increased costs for programming and news at the
Company's television stations were partially offset by the reversal of excess
provisions for music license fees upon the resolution of a long-standing dispute
with ASCAP. Radio expenses were up slightly in 1993. Excluding the effect of
1992 and 1993 acquisitions, dispositions and start-ups, Publishing Group
expenses increased 4% from 1992. Higher newsprint and circulation expenses at
the newspaper operations, and slight increases at the specialized publications
contributed to the increase.
Operating income for 1993 was $862,149,000 compared with $721,805,000 in 1992, a
19% increase. The ABC Television Network reported a significant increase in
operating earnings as did the radio operations and ESPN. The television stations
reported a moderate increase in earnings. Excluding acquisitions, dispositions
and start-ups, publishing operating earnings decreased 1% from the prior year.
Net financial expense (interest expense less interest income) for 1993 decreased
$28,929,000 from 1992. Interest expense decreased $44,237,000 primarily as a
result of a reduction of outstanding long-term debt. Interest income was
$15,308,000 lower in 1993 due primarily to the use of cash for long-term debt
redemptions and substantially lower rates of return on invested cash. Interest
of $10,283,000 and $12,511,000 was capitalized in 1993 and 1992 respectively.
20
<PAGE>
--------------------------------------------------------------------------------
Miscellaneous income decreased $26,822,000 in 1993, mainly as a result of the
absence of the nonrecurring net gain recorded in 1992 on the sale of the
Company's interest in a German television network, partially offset by losses
provided for or incurred on the disposal of certain nonoperating assets. The
Company's effective tax rate was 43.6% in 1993 and 43.2% in 1992. The 1993
results include an increase in the federal tax provision of $12,000,000 ($0.07
per share) to reflect the requirements of the Omnibus Budget Reconciliation Act
of 1993 ("Tax Act of 1993").
Consolidated net income before an extraordinary charge in 1993 and the
cumulative effect of accounting changes in 1992 was $467,379,000 for the full
year of 1993, compared with $389,328,000 earned in 1992. Earnings per share
before these items were $2.85 in 1993 an increase of 22% from the $2.34 reported
in 1992. Excluding the additional tax provision of $0.07 per share 1993 earnings
per share would have been $2.92, an increase of 25% from 1992. Average shares
outstanding in 1993 were 163,800,000 compared with 166,000,000 in 1992. The
decline reflected repurchases of the Company's common stock during 1992 and
1993.
During 1993, an extraordinary charge (after-tax) of $12,122,000 or $0.07 per
share, was recorded relating to early debt redemptions. Results for 1992
included an after-tax, noncash charge of $143,235,000 or $0.86 per share, to
reflect the adoption of Financial Accounting Standard No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and Financial
Accounting Standard No. 109, "Accounting for Income Taxes."
Cash and Cash Flows
Net cash provided by operating activities was $976,224,000, an increase of
$315,706,000 from the $660,518,000 reported in 1993. The increase was primarily
attributable to higher 1994 net income, a larger decrease in net program
licenses and rights, and greater increases in deferred liabilities and noncash
items.
Net cash used in investing activities was $430,950,000, an increased use of
$557,458,000 from the $126,508,000 provided in 1993. The increase in cash used
in investing activities was primarily a result of increased capital spending and
acquisition activity in 1994, as well as an increase in short-term investments
compared with a substantial reduction in such investments in 1993.
Net cash used in financing activities was $28,186,000, a decrease of
$1,181,485,000 from the $1,209,671,000 used in 1993. The decrease was primarily
attributable to substantially less repurchases of the Company's common stock and
a significant reduction in long-term debt payments in 1994, slightly offset by
an increase in dividends paid in the current year.
At December 31, 1994, cash and short-term cash investments were $781,371,000 an
increase of $517,088,000 from the prior year. However, after the inclusion of
short-term investments, the balance at December 31, 1994 aggregated
$1,019,400,000, an increase of $581,294,000 from $438,106,000 at December 31,
1993. The Company's policy is very conservative with respect to investment of
its cash. At December 31, 1994, all of the Company's cash was invested in highly
liquid United States Government instruments with a weighted average life to
maturity of 45 days. The Financial Accounting Standards Board requirements
arbitrarily define cash equivalents as those investments with maturities at the
date of purchase of three months or less. At December 31, 1994 $238,029,000 of
the Company's investments did not meet the definition of a cash equivalent and
are therefore classified in the consolidated financial statements as short-term
investments. The Company believes that this distinction is not meaningful with
respect to the statement of its cash and cash equivalents position. The
Company's policy is not to invest in derivative instruments.
21
<PAGE>
Capital Cities/ABC
--------------------------------------------------------------------------------
Capital Expenditures and Program Commitments
In 1994, capital expenditures amounted to $121,460,000, up from the $97,788,000
spent in 1993. The largest portion of the 1994 spending was in the Company's
broadcasting operations where $102,900,000 was spent. Broadcasting capital
expenditures included $29,000,000 for facilities improvements and $73,900,000
for broadcast equipment to support current operations.
In 1994, the Publishing Group spent $16,500,000 for equipment for ongoing
operations and $1,700,000 for facilities improvements.
The Company anticipates that 1995 capital expenditures will approach
$150,000,000, approximately $80,000,000 of which was carryover spending from
1994. Total anticipated capital spending includes $40,000,000 for facilities and
$110,000,000 for broadcast and publishing equipment to support ongoing
operations.
As the operator of the ABC Television Network, ESPN and television and radio
stations, the Company expects to continue to enter into programming commitments
to purchase the broadcast rights for various feature films, sports and other
programming. Total commitments to purchase broadcast programming were
approximately $4,066,000,000 at the end of 1994. This amount is substantially
payable over the next five years. The Company plans to fund its operations and
commitments from internally generated funds and, if needed, from various
external sources of funds which are available.
Capital Structure
The Company's capital structure is made up of four components: stockholders'
equity, interest-bearing debt, minority interest and deferred income tax
liabilities.
Stockholders' equity amounted to $4,288,557,000 at December 31, 1994, an
increase of $716,441,000 from the 1993 year-end total of $3,572,116,000. The
increase was attributable to the addition of $679,814,000 of net income and
$31,099,000 from common stock issued under employee stock plans, partially
offset by $51,480,000 of treasury stock purchases and cash dividends.
At December 31, 1994, total interest-bearing debt was $614,842,000, a net
decrease of $7,118,000 from 1993. As more fully described in Note 2 to the
Consolidated Financial Statements, total interest-bearing debt at December 31,
1994 includes $100,000,000 of commercial paper supported by a $1,000,000,000
bank revolving credit agreement, $500,000,000 of public notes and debentures
with an aggregate average maturity of just under 16 years and $14,842,000 of
other miscellaneous long-term debt. At December 31, 1994 the weighted average
interest rates of the commercial paper and of the other public instruments were
5.5% and 8.8%, respectively. The Company plans to fund the repayment of its debt
from internally generated funds and if needed from various external sources of
funds which are available.
--------------------------------------------------------------------------------
Capital Expenditures
<TABLE>
<CAPTION>
$ Millions
1986 1987 1988 1989 1990 1991 1992 1993 1994
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
153.1 116.3 153.4 193.5 120.8 121.0 114.7 97.8 121.5
</TABLE>
22
<PAGE>
--------------------------------------------------------------------------------
The Company's debt to total capital ratio at the end of each of the last five
years was as follows:
<TABLE>
<CAPTION>
Total
(Dollars in millions) Debt capital Ratio
-------- -------- -----
<S> <C> <C> <C>
1994.................. $ 614.8 $5,267.1 12%
1993.................. 622.0 4,531.4 14%
1992.................. 1,116.0 5,255.5 21%
1991.................. 1,602.3 5,521.2 29%
1990.................. 1,947.4 5,542.5 35%
</TABLE>
The Company's return on average stockholders' equity improved to 17.3% in 1994
from 12.1% in 1993, as a result of the significant increase in 1994 net income
combined with the full year impact of 1993 share repurchases.
Since 1988, the Board of Directors of the Company has authorized the repurchase
of up to 30,000,000 shares of the Company's common stock. The repurchases are
made from time to time in the open market at prices then prevailing. As of
February 28, 1995, the Company has repurchased 20,320,600 of its shares under
these authorizations for a total cost of $930,300,000, at an average cost of
approximately $46.00 per share. In addition to open market repurchases, on
December 1, 1993, through a tender offer, the Company repurchased 10,950,000
shares of common stock at $63.00 per share.
Intangible Assets
At December 31, 1994, the Company's intangible assets, before accumulated
amortization, totaled approximately $2,592,000,000, which accounted for
approximately 35% of the Company's total assets.
Intangible assets represent the excess of the purchase price over the underlying
fair market value of tangible assets acquired. In accordance with Accounting
Principles Board Opinion No. 17, the Company amortizes substantially all
intangible assets over periods of up to 40 years. This practice is arbitrarily
mandated by Opinion No. 17 without regard to whether these assets have declined
in value.
All of the Company's intangible assets have resulted from the acquisition of
broadcasting and publishing properties. Historically, such intangible assets
have substantially increased in value and have long and productive lives. We
believe that the Company's intangible assets have appreciated in value, and that
the requirements of Opinion No. 17, when applied to such broadcasting and
publishing assets, understate net income and stockholders' equity. The
amortization of intangible assets had the effect of reducing 1994 net income by
approximately $59,200,000 or $0.38 per share. Historically, the amortization of
substantially all intangible assets recorded prior to August 1993 was not
deductible in computing income taxes to be paid. Subsequent to this date, under
the Tax Act of 1993, directly acquired intangible assets will be deductible for
income tax purposes over 15 years.
23
<PAGE>
Capital Cities/ABC
--------------------------------------------------------------------------------
FINANCIAL SUMMARY 1984-1994
<TABLE>
<CAPTION>
(Dollars in thousands except per share data)
1994 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
RESULTS FOR THE YEAR
Net revenues
Broadcasting........................................ $5,277,126 $4,663,215 $4,265,561 $4,329,743 $4,283,633 $3,899,989
Publishing.......................................... 1,102,111 1,010,438 1,078,566 1,052,246 1,101,969 1,057,405
---------- ---------- ---------- ---------- ---------- ----------
Total............................................. 6,379,237 5,673,653 5,344,127 5,381,989 5,385,602 4,957,394
---------- ---------- ---------- ---------- ---------- ----------
Operating income
Broadcasting........................................ $1,127,198 $ 778,077 $ 619,317 $ 669,708 $ 830,457 $ 836,149
Publishing.......................................... 155,018 125,647 136,389 122,905 132,371 130,444
---------- ---------- ---------- ---------- ---------- ----------
Income from operations............................ 1,282,216 903,724 755,706 792,613 962,828 966,593
General corporate expense........................... (43,405) (41,575) (33,901) (31,380) (39,613) (44,081)
---------- ---------- ---------- ---------- ---------- ----------
Total............................................. 1,238,811 862,149 721,805 761,233 923,215 922,512
---------- ---------- ---------- ---------- ---------- ----------
Income before extraordinary items and cumulative
effect of accounting changes (a)................... $ 679,814 $ 467,379 $ 389,328 $ 374,696 $ 477,780 $ 485,727
Income per share before extraordinary items and
cumulative effect of accounting changes (a) (c).... $4.42 $2.85 $ 2.34 $2.23 $2.77 $2.72
Cash dividends per common share (c)................. $0.155 $0.02 $0.02 $0.02 $0.02 $0.02
Average shares (000's omitted) (c).................. 153,890 163,800 166,000 167,800 172,400 178,250
Return on average stockholders' equity (b).......... 17.3% 12.1% 10.4% 10.7% 14.3% 15.4%
========== ========== ========== ========== ========== ==========
SELECTED CASH FLOW DATA
Cash provided
Operations, before changes in operating assets
and liabilities.................................... $ 948,652 $ 662,760 $ 519,414 $ 512,882 $ 672,705 $ 701,269
Proceeds from issuance of long-term debt............ - - - 253,922 250,500 2,200
Proceeds from dispositions of operating companies
and equity investments............................. - 12,500 150,168 1,228 5,018 7,490
---------- ---------- ---------- ---------- ---------- ----------
Cash applied
Acquisition of operating companies and equity
investments........................................ $ 214,536 $ 133,294 $ 2,432 $ 48,733 $ 61,983 $ 81,465
Common stock purchased for treasury................. 27,607 715,010 118,410 83,714 446,724 232,849
Capital expenditures................................ 121,460 97,788 114,736 120,998 120,812 193,542
Payments of long-term debt.......................... 7,805 504,873 486,327 599,302 2,475 1,556
Dividends........................................... 23,873 3,238 3,321 3,346 3,417 3,538
========== ========== ========== ========== ========== ==========
AT YEAR-END
Working capital....................................... $1,672,631 $1,121,411 $1,637,763 $1,656,781 $1,919,944 $1,735,617
Total assets.......................................... 6,768,212 5,792,618 6,522,159 6,695,712 6,696,187 6,359,507
Long-term debt........................................ 614,842 621,960 1,115,983 1,602,259 1,947,390 1,695,071
Stockholders' equity.................................. 4,288,557 3,572,116 3,805,742 3,654,833 3,367,897 3,291,860
Number of shares outstanding (000's omitted) (c)...... 154,058 153,830 164,440 166,390 167,590 175,340
Price range of common stock
Closing market price (c)............................ $85 1/4 $62 $50 3/4 $ 43 3/8 $ 45 7/8 $ 56 3/8
High for the year (c)............................... 86 1/2 64 3/8 52 1/8 50 3/8 63 1/4 56 3/4
Low for the year (c)................................ 60 1/4 47 5/8 41 35 3/4 38 35 1/4
========== ========== ========== ========== ========== ==========
</TABLE>
(a) Extraordinary items amounted to charges of $12,122,000 ($0.07 per share)
in 1993 and $31,203,000 ($0.19 per share) in 1991, and gains of
$265,746,000 ($1.64 per share) in 1986 and $7,585,000 ($0.06 per share) in
1984. Cumulative effect of accounting changes amounted to a charge of
$143,235,000 ($0.86 per share) in 1992.
(b) Income before extraordinary items and cumulative effect of accounting
changes, divided by average stockholders' equity.
(c) Restated to reflect June 1994 ten-for-one stock split.
24
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1988 1987 1986 1985 1984
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
RESULTS FOR THE YEAR
Net revenues
Broadcasting............................................ $ 3,749,557 $3,433,749 $3,153,619 $ 378,297 $ 348,106
Publishing.............................................. 1,023,896 1,006,597 970,755 642,583 591,616
----------- ---------- ---------- ---------- ----------
Total................................................. 4,773,453 4,440,346 4,124,374 1,020,880 939,722
----------- ---------- ---------- ---------- ----------
Operating income
Broadcasting............................................ $ 722,171 $ 632,910 $ 474,535 $ 150,970 $ 144,182
Publishing.............................................. 129,720 146,717 158,999 138,512 133,179
----------- ---------- ---------- ---------- ----------
Income from operations................................ 851,891 779,627 633,534 289,482 277,361
General corporate expense............................... (35,862) (33,637) (30,856) (11,981) (9,849)
----------- ---------- ---------- ---------- ----------
Total................................................. 816,029 745,990 602,678 277,501 267,512
----------- ---------- ---------- ---------- ----------
Income before extraordinary items and cumulative
effect of accounting changes (a)....................... $ 387,076 $ 279,078 $ 181,943 $ 142,222 $ 135,193
Income per share before extraordinary items and
cumulative effect of accounting changes (a) (c)........ $2.23 $1.65 $1.12 $1.09 $ 1.04
Cash dividends per common share (c)..................... $0.02 $0.02 $0.02 $0.02 $ 0.02
Average shares (000's omitted) (c)...................... 173,500 169,500 162,500 130,800 130,000
Return on average stockholders' equity (b).............. 14.7% 13.4% 9.7% 17.5% 19.9%
=========== ========== ========== ========== ==========
SELECTED CASH FLOW DATA
Cash provided
Operations, before changes in operating assets
and liabilities........................................ $ 558,633 $ 468,380 $ 268,162 $ 223,296 $ 196,600
Proceeds from issuance of long-term debt................ 500 - 1,350,507 493,329 18,065
Proceeds from dispositions of operating companies
and equity investments................................. 19,072 - 703,378 7,222 5,000
----------- ---------- ---------- ---------- ----------
Cash applied
Acquisition of operating companies and equity
investments............................................ $ 18,143 $ 13,248 $3,162,661 $ 51,109 $ 146,843
Common stock purchased for treasury..................... 3,644 576 1,075 484 46,135
Capital expenditures.................................... 153,413 116,309 153,082 75,384 53,866
Payments of long-term debt.............................. 3,458 124,904 367,528 7,872 16,030
Dividends............................................... 3,427 3,231 3,219 2,595 2,570
=========== ========== ========== ========== ==========
AT YEAR-END
Working capital........................................... $ 1,504,954 $ 640,574 $ 416,230 $ 830,986 $ 240,985
Total assets.............................................. 6,088,871 5,378,372 5,191,416 1,884,931 1,208,172
Long-term debt............................................ 1,693,543 1,696,901 1,821,805 714,298 222,995
Stockholders' equity...................................... 3,025,505 2,224,921 1,948,627 889,260 734,455
Number of shares outstanding (000's omitted) (c).......... 179,990 161,930 161,260 129,980 128,670
Price range of common stock
Closing market price (c)................................ $ 36 1/4 $ 34 1/2 $ 26 3/4 $ 22 1/2 $ 16 1/2
High for the year (c)................................... 37 45 28 22 7/8 17 1/2
Low for the year (c).................................... 29 3/4 26 3/4 20 7/8 15 1/4 12 3/8
=========== ========== ========== ========== ==========
</TABLE>
(a) Extraordinary items amounted to charges of $12,122,000 ($0.07 per share)
in 1993 and $31,203,000 ($0.19 per share) in 1991, and gains of
$265,746,000 ($1.64 per share) in 1986 and $7,585,000 ($0.06 per share) in
1984. Cumulative effect of accounting changes amounted to a charge of
$143,235,000 ($0.86 per share) in 1992.
(b) Income before extraordinary items and cumulative effect of accounting
changes, divided by average stockholders' equity.
(c) Restated to reflect June 1994 ten-for-one stock split.
25
<PAGE>
Capital Cities/ABC
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Years ended December 31, 1994, 1993 and 1992
(Dollars in thousands except per share amounts)
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Net revenues.................................. $6,379,237 $5,673,653 $5,344,127
---------- ---------- ----------
Costs and expenses
Direct operating expenses................... 3,745,689 3,557,301 3,421,054
Selling, general and administrative......... 1,222,202 1,097,826 1,043,595
Depreciation................................ 109,128 95,032 95,664
Amortization of intangible assets........... 63,407 61,345 62,009
---------- ---------- ----------
5,140,426 4,811,504 4,622,322
---------- ---------- ----------
Operating income.............................. 1,238,811 862,149 721,805
---------- ---------- ----------
Other income (expense)
Interest expense............................ (55,070) (59,772) (104,009)
Interest income............................. 24,553 36,650 51,958
Miscellaneous, net.......................... (2,980) (10,648) 16,174
---------- ---------- ----------
(33,497) (33,770) (35,877)
---------- ---------- ----------
Income before income taxes.................... 1,205,314 828,379 685,928
---------- ---------- ----------
Income taxes
Federal..................................... 425,700 300,100 245,500
State and local............................. 99,800 60,900 51,100
---------- ---------- ----------
525,500 361,000 296,600
---------- ---------- ----------
Income before extraordinary change
and cumulative effect of accounting
changes...................................... 679,814 467,379 389,328
Extraordinary charge, net of income taxes..... - (12,122) -
Cumulative effect of accounting changes,
net of income taxes.......................... - - (143,235)
---------- ---------- ----------
Net income.................................... $ 679,814 $ 455,257 $ 246,093
========== ========== ==========
Income per share before extraordinary
charge and cumulative effect of
accounting changes........................... $4.42 $2.85 $2.34
Extraordinary charge per share................ - (.07) -
Cumulative effect of accounting
changes per share............................ - - (.86)
---------- ---------- ----------
Net income per share.......................... $4.42 $2.78 $1.48
========== ========== ==========
Average shares outstanding
(000's omitted).............................. 153,890 163,800 166,000
========== ========== ==========
</TABLE>
See accompanying notes
26
<PAGE>
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31, 1994, 1993 and 1992
(Dollars in thousands)
1994 1993 1992
--------- ---------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net income.......................................... $ 679,814 $ 455,257 $ 246,093
Adjustments to reconcile net income to net cash
Noncash and nonoperating items
Depreciation.................................... 109,128 95,032 95,664
Amortization of intangible assets............... 63,407 61,345 62,009
Increase (decrease) in deferred liabilities..... 45,988 7,995 (26,458)
Extraordinary charge, early debt redemption..... -- 12,122 --
Cumulative effect of accounting changes......... -- -- 143,235
Other noncash and nonoperating items............ 50,315 31,009 (1,129)
--------- ---------- ---------
Cash from operations before changes in operating
assets and liabilities, net of effects of
acquisitions and dispositions.................... 948,652 662,760 519,414
Decrease (increase) in program assets and
liabilities, net............................... 63,779 29,722 (129,064)
(Increase) in accounts receivable............... (169,572) (57,895) (2,842)
Increase in accounts payable, accrued expenses
and other current liabilities.................. 156,225 5,741 47,125
(Increase) decrease in other operating assets,
net............................................ (22,860) 20,190 (10,357)
--------- ---------- ---------
Net cash provided by operating activities............. 976,224 660,518 424,276
--------- ---------- ---------
Cash flows from investing activities
Capital expenditures................................ (121,460) (97,788) (114,736)
Acquisition of operating companies and equity
investments........................................ (214,536) (133,294) (2,432)
(Increase) decrease in short-term investments....... (64,246) 337,022 99,413
Proceeds from disposition of real estate............ 22,000 -- 53,149
Proceeds from dispositions of operating companies
and equity investments............................. -- 12,500 150,168
Other investing activities, net..................... (52,708) 8,068 (67,444)
--------- ---------- ---------
Net cash (used in) provided by investing activities... (430,950) 126,508 118,118
--------- ---------- ---------
Cash flows from financing activities
Common stock purchased for treasury................. (27,607) (715,010) (118,410)
Common stock issued under employee stock plans...... 31,099 29,365 26,547
Dividends........................................... (23,873) (3,238) (3,321)
Payments of long-term debt.......................... (7,805) (504,873) (486,327)
Premium on early redemption of debt................. -- (15,915) --
--------- ---------- ---------
Net cash (used in) financing activities............... (28,186) (1,209,671) (581,511)
--------- ---------- ---------
Net increase (decrease) in cash and short-term
cash investments..................................... 517,088 (422,645) (39,117)
Cash and short-term cash investments
Beginning of period................................. 264,283 686,928 726,045
--------- ---------- ---------
End of period....................................... $ 781,371 $ 264,283 $ 686,928
========= ========== =========
</TABLE>
See accompanying notes
27
<PAGE>
Capital Cities/ABC
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1994 and 1993
(Dollars in thousands)
ASSETS 1994 1993
------ ---------- ----------
<S> <C> <C>
Current Assets
Cash and short-term cash investments............. $ 781,371 $ 264,283
Short-term investments........................... 238,029 173,823
Accounts and notes receivable (net of allowance
for doubtful accounts of $46,419 in 1994 and
$44,650 in 1993)................................ 1,056,280 881,955
Program licenses and rights...................... 440,443 495,125
Other current assets............................. 200,064 176,966
---------- ----------
Total current assets......................... 2,716,187 1,992,152
---------- ----------
Property, plant and equipment, at cost
Land............................................. 297,525 334,719
Buildings and improvements....................... 718,806 707,902
Broadcasting and publishing equipment............ 944,031 788,528
Other, including construction-in-progress........ 162,132 238,864
---------- ----------
2,122,494 2,070,013
Less accumulated depreciation.................... 831,838 751,286
---------- ----------
Property, plant and equipment, net........... 1,290,656 1,318,727
---------- ----------
Intangible assets (net of accumulated
amortization of $592,637 in 1994 and
$529,338 in 1993)................................. 1,999,305 2,034,680
Program licenses and rights, noncurrent............ 195,563 190,925
Investment in unconsolidated equity affiliates..... 334,460 153,904
Other assets....................................... 232,041 102,230
---------- ----------
$6,768,212 $5,792,618
========== ==========
</TABLE>
See accompanying notes
28
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
------------------------------------ ---------- ----------
<S> <C> <C>
Current liabilities
Accounts payable................................. $ 163,566 $ 144,249
Accrued compensation............................. 131,370 102,992
Accrued interest................................. 9,636 9,574
Accrued expenses and other current
liabilities..................................... 263,618 201,052
Program licenses and rights...................... 281,923 264,935
Taxes on income.................................. 189,267 142,640
Long-term debt due within one year............... 4,176 5,299
---------- ----------
Total current liabilities................... 1,043,556 870,741
Deferred compensation.............................. 188,492 109,649
Deferred income taxes.............................. 247,532 240,935
Program licenses and rights, noncurrent............ 39,259 42,233
Other liabilities.................................. 233,987 243,859
Long-term debt due after one year.................. 610,666 616,661
---------- ----------
Total liabilities........................... 2,363,492 2,124,078
---------- ----------
Minority interest.................................. 116,163 96,424
---------- ----------
Stockholders' equity
Preferred stock, no par value
(4,000,000 shares authorized)................... - -
Common stock, $0.10 par value
(300,000,000 shares authorized)................. 18,394 18,394
Additional paid-in capital....................... 1,036,068 1,030,634
Unrealized net gains on investments.............. 57,008 --
Retained earnings................................ 4,748,624 4,092,683
---------- ----------
5,860,094 5,141,711
Less common stock in treasury, at
cost (29,877,163 shares in 1994
and 30,109,100 shares in 1993).................. 1,571,537 1,569,595
---------- ----------
Total stockholders' equity.................. 4,288,557 3,572,116
---------- ----------
$6,768,212 $5,792,618
========== ==========
</TABLE>
29
<PAGE>
Capital Cities/ABC
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
ADDITIONAL NET GAINS
Years Ended December 31, 1994, COMMON PAID-IN ON RETAINED TREASURY
1993, and 1992 STOCK CAPITAL INVESTMENTS EARNINGS STOCK TOTAL
(Dollars in thousands) ------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1992............ $18,394 $1,017,195 $ -- $3,397,892 $ (778,648) $3,654,833
Net income for 1992.............. -- -- -- 246,093 -- 246,093
649,370 shares issued under
Employee Stock Purchase Plan.... -- 14,870 -- -- 9,064 23,934
130,780 shares issued on
exercise of employee stock
options......................... -- (458) -- -- 3,071 2,613
2,729,230 shares purchased
for treasury.................... -- -- -- -- (118,410) (118,410)
Cash dividends................... -- -- -- (3,321) -- (3,321)
------- ---------- ------- ---------- ----------- ----------
Balance December 31, 1992.......... 18,394 1,031,607 -- 3,640,664 (884,923) 3,805,742
Net income for 1993.............. -- -- -- 455,257 -- 455,257
725,850 shares issued under
Employee Stock Purchase Plan.... -- 1,023 -- -- 26,437 27,460
104,550 shares issued on
exercise of employee stock
options......................... -- (1,996) -- -- 3,901 1,905
11,442,170 shares purchased
for treasury.................... -- -- -- -- (715,010) (715,010)
Cash dividends................... -- -- -- (3,238) -- (3,238)
------- ---------- ------- ---------- ----------- ----------
Balance December 31, 1993.......... 18,394 1,030,634 -- 4,092,683 (1,569,595) 3,572,116
Net income for 1994.............. -- -- -- 679,814 -- 679,814
648,480 shares issued under
Employee Stock Purchase Plan.... -- 5,993 -- -- 24,480 30,473
31,402 shares issued on
exercise of employee stock
options......................... -- (559) -- -- 1,185 626
447,945 shares purchased
for treasury.................... -- -- -- -- (27,607) (27,607)
Cash dividends................... -- -- -- (23,873) -- (23,873)
Adjustment to beginning balance
for change in accounting method,
net of income taxes of $32,174.. -- -- 46,491 -- -- 46,491
Change in unrealized net gains,
net of income taxes of $7,278... -- -- 10,517 -- -- 10,517
------- ---------- ------- ---------- ----------- ----------
Balance December 31, 1994.......... $18,394 $1,036,068 $57,008 $4,748,624 $(1,571,537) $4,288,557
======= ========== ======= ========== =========== ==========
</TABLE>
See accompanying notes
30
<PAGE>
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies
Principles of Consolidation -- The consolidated financial statements include the
accounts of all significant subsidiaries. Investments in other companies which
are at least 20% owned are reported on the equity method. The Company's share of
income or loss is included in "Miscellaneous, net" on the income statement. All
significant intercompany accounts and transactions have been eliminated.
Property, Plant and Equipment-Depreciation -- Depreciation is computed on the
straight-line method for financial accounting purposes and on accelerated
methods for tax purposes. Estimated useful lives for major asset categories are
10-55 years for buildings and improvements, 4-20 years for broadcasting
equipment and 5-20 years for publishing machinery and equipment. Leasehold
improvements are amortized over the terms of the leases.
Intangible Assets -- Intangible assets consist of amounts by which the cost of
acquisitions exceeded the values assigned to net tangible assets. The
broadcasting and publishing intangible assets, all of which may be characterized
as scarce assets with very long and productive lives, have historically
increased in value with the passage of time. In accordance with Accounting
Principles Board Opinion No. 17, substantially all of these intangible assets
are being amortized over periods of up to 40 years, even though in the opinion
of management there has been no diminution of value of the underlying assets.
Program Licenses and Rights -- Program licenses and rights and related
liabilities are recorded when the license period begins and the program is
available for use. Television network and station rights for theatrical movies
and other long-form programming are charged to expense primarily on accelerated
bases related to the usage of the program. Television network series costs and
multi-year sports rights are charged to expense based on the flow of anticipated
revenue.
Investments -- As of January 1, 1994, the Company adopted Statement of Financial
Accounting Standard No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." The cumulative effect of adopting Standard No. 115
increased the opening balance of stockholders' equity by $46,491,000 (net of
$32,174,000 of deferred income taxes) to reflect the net unrealized holding
gains on securities classified as available-for-sale previously carried at
amortized cost or the lower of cost or market.
Cash and short-term cash investments consist primarily of highly liquid U.S.
Government obligations with maturities of three months or less at the time of
purchase. They include $547,111,000 of securities which are classified as
held-to-maturity and are carried at amortized cost, which approximates market.
Also included are securities which are classified as available-for-sale which,
as of December 31, 1994, have a fair value of $200,471,000, which approximates
cost.
Short-term investments, which consist of highly liquid U.S. Government
instruments with original maturities in excess of three months, include
$232,070,000 of securities which are classified as held-to-maturity. They are
carried at amortized cost, which approximates market. The remainder of the
short-term investments are considered available-for-sale and have a fair value
of $5,959,000, which approximates cost.
Also classified as available-for-sale are marketable equity securities which are
included in "Other assets" on the balance sheet with a cost of $37,084,000 and a
market value of $133,584,000.
Other -- In June 1994, the Company effected a ten-for-one stock split on common
shares then outstanding. All share, per share and average share information in
the Consolidated Financial Statements and the Notes thereto have been restated
to reflect the stock split.
31
<PAGE>
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. Long-term Debt
Long-term debt at December 31, 1994 and 1993 is as follows (000's omitted):
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Commercial paper supported by
bank revolving credit
agreement.............................. $ 100,000 $ 100,000
8 3/4% debentures due 2021.............. 250,000 250,000
8 7/8% notes due 2000................... 250,000 250,000
Other long-term debt.................... 14,842 21,960
---------- ----------
$ 614,842 $ 621,960
========== ==========
</TABLE>
The aggregate payments of long-term debt outstanding at December 31, 1994, for
the next five years, excluding commercial paper, are summarized as follows: 1995
- $4,176,000; 1996 - $2,244,000; 1997 - $2,413,000; 1988 - $6,009,000; 1999 -
none.
Interest paid on long-term debt during 1994, 1993 and 1992 amounted to
$59,292,000, $83,002,000 and $139,674,000, respectively.
A subsidiary of the Company has issued commercial paper, $100,000,000 of which
was outstanding at December 31, 1994, at a weighted average interest rate of
5.5%. The commercial paper is supported by a $1,000,000,000 bank revolving
credit agreement terminating on June 30, 1999, unless otherwise extended.
Under terms of the bank revolving credit agreement, the Company and its
consolidated subsidiaries are required to maintain a consolidated net worth of
$2,700,000,000 at December 31, 1994, increasing annually by 33 percent of the
consolidated net income of the previous year. The commercial paper outstanding
at December 31, 1994 is classified as long-term since the Company intends to
renew or replace with long-term borrowings all, or substantially all, of the
commercial paper. However, the amount of commercial paper outstanding in 1995 is
expected to fluctuate and may be reduced from time to time. The Company has
unconditionally guaranteed the commercial paper, and any borrowings which may be
made by a subsidiary under the bank revolving credit agreement.
The 8 7/8% notes and the 8 3/4% debentures are not redeemable prior to
maturity and are not subject to any sinking fund. During 1991, the Securities
and Exchange Commission declared effective a shelf registration statement of the
Company which allows for the issuance of up to $500,000,000 in additional debt
securities.
During 1993, the Company redeemed $500,000,000 of notes and debentures. An
extraordinary charge of $12,122,000 (net of income taxes of $7,706,000), or
$0.07 per share, was recorded related to these redemptions.
The fair value of the Company's long-term debt, estimated based on the quoted
market prices for similar issues or on the current rates offered to the Company
for debt of similar remaining maturities, was approximately $628,000,000 and
$702,000,000 at December 31, 1994 and 1993, respectively.
32
<PAGE>
--------------------------------------------------------------------------------
3. Employee Benefit Plans
The Company has defined benefit pension plans covering substantially all of its
employees not covered by union plans. The Company's policy is to fund amounts
as are necessary on an actuarial basis to provide for pension benefits in
accordance with the requirements of ERISA. Benefits are generally based on
years of service and compensation. The weighted average discount rate used in
determining the actuarial present value of the projected benefit obligation was
8.5% at December 31, 1994 and 8% at December 31, 1993. The rate of increase in
future compensation levels and the expected long-term rate of return on assets
were 5% and 8%, respectively, in 1994 and 1993.
The components of net pension cost for 1994, 1993 and 1992 are as follows (000's
omitted):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Service cost of current
period...................... $ 18,624 $ 15,494 $ 15,077
Interest cost on
projected benefit
obligation ................. 48,049 42,499 39,548
Actual return on plan
assets...................... (18,294) (39,731) (42,650)
Net amortization and
deferral.................... (18,799) 2,561 5,864
------- -------- -------
Net pension cost............. $ 29,580 $ 20,823 $ 17,839
======= ======== =======
</TABLE>
The following table sets forth the pension plans' funded status and amounts
recognized in the balance sheet at December 31, 1994 and 1993 (000's omitted):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Actuarial present value of accumulated plan benefits
(including vested benefits of $477,029 in 1994 and $479,332 in 1993)................... $ 491,692 $495,304
======== ========
Plan assets at fair value, primarily publicly traded securities and
short-term cash investments............................................................ $ 523,774 $522,096
Projected benefit obligation for service rendered to date................................ (599,884) (585,710)
-------- --------
Plan assets less than projected benefit obligation....................................... (76,110) (63,614)
Prior service cost not yet recognized in net periodic pension cost....................... 25,867 39,493
Unrecognized net loss from past experience different from that assumed................... 14,101 6,095
Unrecognized net transition amount being recognized principally over 15 years............ (12,470) (14,547)
-------- --------
Accrued pension cost included in balance sheet........................................... $(48,612) $(32,573)
======== ========
</TABLE>
For certain employees not covered by pension plans, the Company contributes to
profit sharing plans. The profit sharing plans provide for contributions by the
Company in such amount as the Board of Directors may annually determine.
Contributions to the profit sharing plans of $6,228,000, $6,045,000 and
$6,192,000 were charged to expense in 1994, 1993 and 1992, respectively.
The Company also has a Savings & Investment Plan which allows eligible employees
to allocate up to 10% of salary, through payroll deduction, among a Company
stock fund, several diversified equity funds, a bond fund and a money market
fund. The Company matches 50% of the employee's contribution, up to 5% of
salary. In 1994, 1993 and 1992, the cost of this plan (net of forfeitures) was
$12,055,000, $11,204,000 and $10,982,000, respectively.
In addition to the Company's defined benefit pension plans and qualified profit
sharing plans, the Company provides certain postretirement medical and life
insurance benefits to eligible retirees and dependents. Covered individuals
include retired and active employees who have met certain age and service
requirements at various dates during 1989. No other employees become eligible
for postretirement benefits after these dates. The benefits are subject to
deductibles, co-payment provisions and other limitations. The Company reserves
the right to amend, modify or discontinue these plans in the future.
33
<PAGE>
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. Employee Benefit Plans--(Continued)
In 1992, the Company adopted Financial Accounting Standard No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." In applying this
statement, the Company recognized the full amount of the accumulated
postretirement benefit obligation as of January 1, 1992 as a cumulative effect
of an accounting change. The noncash charge to 1992 earnings was $54,817,000
(net of income taxes of $36,544,000), or $0.33 per share.
The accumulated postretirement benefit obligation was determined using an
assumed discount rate of 8.5% at December 31, 1994 and 8% at December 31, 1993.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 11.2%; the rate was assumed to decrease
gradually to 5.5% by the year 2004 and remain at that level thereafter. An
increase in the assumed health care cost trend rate by one percentage point in
each year would increase the accumulated postretirement benefit obligation as of
December 31, 1994 by approximately $11,580,000 and the aggregate of the service
and interest cost components of net postretirement benefit cost for the year
then ended by approximately $1,010,000.
The following table sets forth the plans' amounts recognized in the consolidated
balance sheet at December 31, 1994 and 1993 for the Company's defined
postretirement benefit plans (other than pensions) (000's omitted):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees............................ $ 63,978 $ 58,165
Fully eligible active participants.. 23,022 21,430
Other active participants........... 22,352 22,126
-------- --------
Total accumulated postretirement
benefit obligation.................. 109,352 101,721
Unrecognized net loss................ (8,812) (4,415)
-------- --------
Accrued postretirement benefit
cost................................ $100,540 $ 97,306
======== ========
</TABLE>
Net postretirement benefit cost (other than pensions) for 1994, 1993 and 1992
consisted of the following components (000's omitted):
<TABLE>
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Service cost-current period......... $1,171 $1,232 $1,031
Interest cost on accumulated post-
retirement benefit obligation.. 8,181 8,141 7,961
Amortization of net loss............ 68 - -
------ ------ ------
Net postretirement
benefit cost................... $9,420 $9,373 $8,992
====== ====== ======
</TABLE>
4. Commitments
At December 31, 1994, the Company is committed to the purchase of broadcast
rights for various feature films, sports and other programming aggregating
approximately $4,066,000,000. The aggregate payments related to these
commitments during the next five years are summarized as follows:
1995 -- $1,427,191,000; 1996 -- $826,009,000;
1997 -- $ 777,518,000; 1998 -- $478,659,000;
1999 -- $ 313,936,000.
The Company anticipates 1995 capital expenditures for property, plant and
equipment will approximate $150,000,000.
Rental expense under operating leases amounted to $97,965,000, $86,312,000 and
$92,820,000 for 1994, 1993 and 1992, respectively. Future minimum annual rental
payments under non-cancelable leases are as follows (000's omitted):
<TABLE>
<CAPTION>
Capital Operating
leases leases
-------- ---------
<S> <C> <C>
1995........................ $ 7,530 $ 59,918
1996........................ 6,996 53,162
1997........................ 6,112 51,048
1998........................ 5,627 47,626
1999........................ 5,502 43,676
2000 and thereafter......... 120,833 118,805
-------- --------
Minimum lease
payments................... 152,600 $374,235
========
Imputed interest............ (110,063)
--------
Present value of minimum
lease payments............. $ 42,537
========
</TABLE>
Total minimum payments for operating leases have not been reduced for future
minimum sublease rentals aggregating $2,859,000.
34
<PAGE>
--------------------------------------------------------------------------------
5. Segment Data
The Company's business operations are classified into two segments:
Broadcasting and Publishing. Broadcasting operations include the ABC
Television Network and eight television stations, the ABC Radio Networks, radio
stations, cable television programming and multimedia business activities. The
Publishing segment includes newspapers, shopping guides, various specialized
business periodicals and books, research services and database publishing.
There are no material product transfers between segments of the Company, and
virtually all of the Company's business is conducted within the United States.
The segment data is as follows (000's omitted):
<TABLE>
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Broadcasting
Net revenues.................................. $5,277,126 $4,663,215 $4,265,561 $4,329,743 $4,283,633
---------- ---------- ---------- ---------- ----------
Direct operating costs...................... 4,015,864 3,762,988 3,523,143 3,537,676 3,331,316
Depreciation................................ 86,727 75,424 76,406 75,883 75,088
Amortization of intangible assets........... 47,337 46,726 46,695 46,476 46,772
---------- ---------- ---------- ---------- ----------
Total operating costs......................... 4,149,928 3,885,138 3,646,244 3,660,035 3,453,176
---------- ---------- ---------- ---------- ----------
Income from operations........................ $1,127,198 $ 778,077 $ 619,317 $ 669,708 $ 830,457
========== ========== ========== ========== ==========
Assets at year-end............................ $4,650,611 $4,389,700 $4,357,152 $4,249,089 $4,250,540
Capital expenditures.......................... 102,850 78,526 94,255 106,254 105,475
Publishing
Net revenues.................................. $1,102,111 $1,010,438 $1,078,566 $1,052,246 $1,101,969
---------- ---------- ---------- ---------- ----------
Direct operating costs...................... 911,384 851,787 908,791 895,402 934,022
Depreciation................................ 19,639 18,385 18,072 18,084 18,363
Amortization of intangible assets........... 16,070 14,619 15,314 15,855 17,213
---------- ---------- ---------- ---------- ----------
Total operating costs......................... 947,093 884,791 942,177 929,341 969,598
---------- ---------- ---------- ---------- ----------
Income from operations........................ $ 155,018 $ 125,647 $ 136,389 $ 122,905 $ 132,371
========== ========== ========== ========== ==========
Assets at year-end............................ $ 814,907 $ 824,369 $ 777,512 $ 886,482 $ 916,346
Capital expenditures.......................... 18,183 18,657 20,276 13,878 14,450
Consolidated
Net revenues.................................. $6,379,237 $5,673,653 $5,344,127 $5,381,989 $5,385,602
========== ========== ========== ========== ==========
Income from operations........................ $1,282,216 $ 903,724 $ 755,706 $ 792,613 $ 962,828
General corporate expense................... (43,405) (41,575) (33,901) (31,380) (39,613)
---------- ---------- ---------- ---------- ----------
Operating income.............................. 1,238,811 862,149 721,805 761,233 923,215
Interest expense............................ (55,070) (59,772) (104,009) (179,347) (168,859)
Interest and miscellaneous, net............. 21,573 26,002 68,132 80,310 83,424
---------- ---------- ---------- ---------- ----------
Income before income taxes.................... $1,205,314 $ 828,379 $ 685,928 $ 662,196 $ 837,780
========== ========== ========== ========== ==========
Assets employed by segments................... $5,465,518 $5,214,069 $5,134,664 $5,135,571 $5,166,886
Cash investments and other corporate assets... 1,302,694 578,549 1,387,495 1,560,141 1,529,301
---------- ---------- ---------- ---------- ----------
Total assets at year-end...................... $6,768,212 $5,792,618 $6,522,159 $6,695,712 $6,696,187
========== ========== ========== ========== ==========
</TABLE>
35
<PAGE>
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. Income Taxes
The Company adopted Financial Accounting Standard No. 109 (FAS 109) effective
January 1, 1992. As a result of adopting FAS 109, net deferred taxes increased
by $127,198,000 of which $88,418,000 was recorded as the cumulative effect of
adopting FAS 109.
The provision for taxes on income (before the extraordinary charge for 1993 and
the cumulative effect of accounting changes for 1992) differs from the amount of
tax determined by applying the federal statutory rate for the following reasons
(000's omitted):
<TABLE>
<CAPTION>
1994 1993 1992
------------------- ----------------- ----------------
Amount % Amount % Amount $
---------- ---- -------- ---- -------- ---
<S> <C> <C> <C> <C> <C> <C>
Income before income taxes.................... $1,205,314 $828,379 $685,928
========== ======== ========
Income tax expense at statutory federal rate.. $ 421,860 35.0 $289,933 35.0 $233,216 34.0
State and local income taxes, net
of federal benefit........................... 66,137 5.5 40,321 4.9 34,547 5.0
Amortization of intangibles................... 18,272 1.5 17,950 2.2 17,541 2.6
Other, net.................................... 19,231 1.6 12,796 1.5 11,296 1.6
---------- ---- -------- ---- -------- ----
Total......................................... $ 525,500 43.6 $361,000 43.6 $296,600 43.2
========== ==== ======== ==== ======== ====
</TABLE>
Income tax expense is comprised of the following (000's omitted):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Federal
Current................ $468,600 $312,800 $274,900
Deferred............... (42,900) (12,700) (29,400)
-------- -------- --------
425,700 300,100 245,500
-------- -------- --------
State and local
Current................ 111,900 65,500 57,400
Deferred............... (12,100) (4,600) (6,300)
-------- -------- --------
99,800 60,900 51,100
-------- -------- --------
Total..................... $525,500 $361,000 $296,600
======== ======== ========
</TABLE>
Income taxes paid, net of refunds received, during 1994, 1993 and 1992 amounted
to $535,198,000, $341,587,000 and $292,329,000, respectively.
Deferred income taxes represent the tax effect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
Significant components of the Company's deferred tax asset (recorded in other
current assets on the balance sheet) and liability as of December 31, 1994 and
1993, are as follows (000's omitted):
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Current
Programming................................ $ 42,708 $ 33,140
Other, net................................. 83,256 70,023
---------- ----------
Net current deferred tax asset............... $ 125,964 $ 103,163
========== ==========
Noncurrent
Deferred compensation...................... $ 67,059 $ 40,665
Postretirement benefits
other than pensions....................... 41,783 40,431
Basis differences on prior
business combinations..................... (253,251) (258,511)
Basis differences for certain
investments in debt and
equity securities......................... (39,452) -
Accelerated depreciation................... (129,047) (120,303)
Other, net................................. 65,376 56,783
---------- ----------
Net noncurrent deferred tax
liability.................................. $ (247,532) $ (240,935)
========== ==========
</TABLE>
36
<PAGE>
--------------------------------------------------------------------------------
7. Common Stock Plans
The Company has stock option plans under which certain key personnel have been
granted the right to purchase shares of common stock over a 6-, 10- or 11-year
period from the date of grant at prices equal to market value on the grant date.
Each option is cumulatively exercisable as to 25% of the total shares
represented thereby for each of the first four years after grant, provided that
the individual remains in the employ of the Company. The following information
pertains to the Company's stock option plans:
<TABLE>
<CAPTION>
1994 1993 1992
------- -------- --------
<S> <C> <C> <C>
Outstanding options, beginning of year.................. 442,660 357,460 391,240
Granted................................................. 265,000 191,000 100,000
Canceled or expired..................................... --- (1,250) (3,000)
Exercised............................................... (31,402) (104,550) (130,780)
------- -------- --------
Outstanding options, end of year........................ 676,258 442,660 357,460
======= ======= =======
Average price of options exercised during the year...... $18.07 $15.92 $17.57
Exercise price of outstanding options, end of year...... $18.64 to $83.00 $13.11 to $63.48 $13.11 to $49.20
Options exercisable, end of year........................ 218,008 176,660 243,960
Options available for future grant...................... 4,444,000 4,709,000 4,900,000
</TABLE>
The Company has an Employee Stock Purchase Plan which allows eligible employees,
through contributions of up to 15% of their compensation, to purchase shares at
85% of the lower of fair market value at the Grant Date or at the Purchase Date
(normally one year subsequent). Employees purchased 648,480, 725,850 and
649,370 shares under the Plan in 1994, 1993 and 1992, respectively. As of
December 31, 1994, 5,992,790 shares remain available to be purchased through the
period ending April 2000.
The Company has an incentive compensation plan for certain of its employees
under which amounts payable are based upon appreciation in the market price of
the Company's common stock. Payments are made in either cash, common stock or a
combination thereof, at the discretion of the Company.
8. Shareholder Rights Plan
In 1989, the Company adopted a Shareholder Rights Plan. The Plan becomes
operative upon the occurrence of certain events involving the acquisition of 20%
or more of the Company's common stock by any person or group in transactions not
approved by the Company's Board of Directors. In the case of Berkshire Hathaway
Inc., pursuant to an existing agreement, the threshold for activation of the
Rights Plan is the acquisition of more than 30% of the Company's common stock.
Upon the occurrence of such an event, each Right, unless redeemed by the Board,
entitles its holder to purchase at the Right's exercise price of $2,000 a number
of common shares of the Company, or in certain circumstances the acquiring
company's common shares, having a market value of twice that price. The Rights
expire in 1999.
37
<PAGE>
Capital Cities/ABC
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. Quarterly Financial Data (Unaudited)
The following summarizes the Company's results of operations for each quarter of
1994 and 1993 (000's omitted, except per share amounts). The net income
per share computation for each quarter and the year are separate calculations.
<TABLE>
<CAPTION>
First Second Third Fourth
quarter quarter quarter quarter Year
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1994
Net revenues.......................... $1,404,949 $1,538,092 $1,461,932 $1,974,264 $6,379,237
Costs and expenses............... 1,191,187 1,195,766 1,218,829 1,534,644 5,140,426
---------- ---------- ---------- ---------- ----------
Operating income...................... 213,762 342,326 243,103 439,620 1,238,811
Interest expense................. (13,031) (13,406) (14,129) (14,504) (55,070)
Interest and miscellaneous, net.. 4,750 6,368 7,001 3,454 21,573
---------- ---------- ---------- ---------- ----------
Income before income taxes............ 205,481 335,288 235,975 428,570 1,205,314
Income taxes..................... 89,400 145,800 102,300 188,000 525,500
---------- ---------- ---------- ---------- ----------
Net income............................ $ 116,081 $ 189,488 $ 133,675 $240,570 $ 679,814
---------- ---------- ---------- ---------- ----------
Net income per share.................. $ 0.76 $ 1.23 $ 0.87 $1.56 $4.42
========== ========== ========== ========== ==========
1993
Net revenues.......................... $1,178,337 $1,438,826 $1,301,371 $1,755,119 $5,673,653
Costs and expenses............... 1,037,401 1,168,140 1,153,339 1,452,624 4,811,504
---------- ---------- ---------- ---------- ----------
Operating income 140,936 270,686 148,032 302,495 862,149
Interest expense................. (21,020) (13,972) (11,777) (13,003) (59,772)
Interest and miscellaneous, net.. 3,778 10,463 6,316 5,445 26,002
---------- ---------- ---------- ---------- ----------
Income before income taxes............ 123,694 267,177 142,571 294,937 828,379
Income taxes..................... 53,200 115,300 64,300 128,200 361,000
---------- ---------- ---------- ---------- ----------
Income before extraordinary charge.... 70,494 151,877 78,271 166,737 467,379
Extraordinary charge............. (12,122) - - - (12,122)
---------- ---------- ---------- ---------- ----------
Net income............................ $ 58,372 $ 151,877 $ 78,271 $166,737 $ 455,257
========== ========== ========== ========== ==========
Income per share
Before extraordinary charge...... $ 0.43 $ 0.92 $0.47 $1.03 $2.85
Extraordinary charge............. (.07) - - - (.07)
---------- ---------- ---------- ---------- ----------
Net income per share.................. $ 0.36 $ 0.92 $ 0.47 $1.03 $2.78
========== ========== ========== ========== ==========
</TABLE>
38
<PAGE>
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. Common Stock and
Stockholder Information (Unaudited)
As of February 28, 1995, the approximate number of holders of common stock was
9,790. Dividends of $.05 per share have been paid for the last three quarters
of 1994 and $.005 for the first quarter of 1994 and for 1993. The common stock
is traded on the New York and Pacific Stock Exchanges. The high, low and
closing prices of the Company's common stock for each quarter of 1994 and 1993
are as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------- --------------------------
High Low Close High Low Close
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1st quarter.... $71 7/8 $60 1/4 $68 3/8 $53 1/8 $47 5/8 $53
2nd quarter.... 75 1/2 66 1/4 71 1/2 55 1/8 50 50 3/8
3rd quarter.... 85 3/8 71 1/8 82 57 3/4 49 57 1/8
4th quarter.... 86 1/2 76 1/8 85 1/4 64 3/8 56 3/4 62
</TABLE>
Report of Independent Auditors
The Board of Directors and Shareholders
Capital Cities/ABC, Inc.
We have audited the accompanying consolidated balance sheets of Capital
Cities/ABC, Inc. as of December 31, 1994 and 1993, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Capital
Cities/ABC, Inc. at December 31, 1994 and 1993, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Notes 3 and 6 to the consolidated financial statements, in 1992,
the Company changed its method of accounting for other postretirement benefits
and income taxes.
/s/ Ernst & Young LLP
New York, New York
February 28, 1995
39
<PAGE>
Capital Cities/ABC
--------------------------------------------------------------------------------
REPORT OF MANAGEMENT
The management of Capital Cities/ABC, Inc. is responsible for the preparation of
and the information included in the consolidated financial statements. These
statements, including the accompanying notes, have been prepared in accordance
with generally accepted accounting principles and include amounts which are
based upon management's best estimates and judgments.
In recognition of its responsibility for the integrity and reliability of the
data contained in the financial statements, as well as for the safeguarding of
assets against unauthorized acquisition, use or disposition, management
maintains a system of internal controls. Internal controls are designed to
provide reasonable, but not absolute, assurance at an appropriate cost, that
assets are safeguarded from loss or unauthorized use, and that the financial
records are reliable for the preparation of financial statements.
The Audit Committee of the Board of Directors, which is composed of six outside
directors, meets periodically with management, the independent auditors and the
Company's internal auditors to ensure that each is carrying out its
responsibilities. The Audit Committee reports its conclusions and
recommendations to the Board of Directors. Both the independent and internal
auditors have free and direct access to the Audit Committee.
The financial statements have been audited by the Company's independent auditors
in accordance with generally accepted auditing standards. In that connection,
the independent auditors develop and maintain an understanding of the Company's
accounting controls and conduct such tests and related procedures as they deem
necessary to render their opinion as to the fairness of the presentation in all
material respects of the financial statements in conformity with generally
accepted accounting principles.
/s/ Thomas S. Murphy
Thomas S. Murphy
Chairman of the
Board and Chief
Executive Officer
/s/ Ronald J. Doerfler
Ronald J. Doerfler
Senior Vice President and
Chief Financial Officer
40
<PAGE>
--------------------------------------------------------------------------------
Capital Cities/ABC
Corporate
Thomas S. Murphy, Chairman of the Board and Chief Executive Officer
Robert A. Iger, President and Chief Operating Officer
John B. Fairchild, Executive Vice President; Chairman, Fairchild Publications
Ronald J. Doerfler, Senior Vice President and Chief Financial Officer
Herbert A. Granath, Senior Vice President; President, Cable and International
Broadcast Group
Michael P. Mallardi, Senior Vice President; President, Broadcast Group
Phillip J. Meek, Senior Vice President; President, Publishing Group
Stephen A. Weiswasser, Senior Vice President; President, Multimedia Group
David Westin, Senior Vice President; President, ABC Television Network Group
Alan N. Braverman, Vice President and General Counsel
Allan J. Edelson, Vice President and Controller
David J. Vondrak, Vice President and Treasurer
Joseph M. Fitzgerald, Vice President, Investor Relations
James M. Goldberg, Vice President, Taxes
Christine Hikawa, Vice President, Broadcast Standards and Practices
Andrew E. Jackson, Vice President, Corporate Affairs
Patricia J. Matson, Vice President, Corporate Communications
Jeffrey Ruthizer, Vice President, Labor Relations
William J. Wilkinson, Vice President and Executive Assistant to the Chairman
Philip R. Farnsworth, Secretary
Allen S. Bomes, Assistant Treasurer
* * * * * *
ABC Television Network Group
David Westin, President
Peter Chrisanthopoulos, Executive Vice President
Richard E. Hockman, Senior Vice President
Maureen P. Lesourd, Senior Vice President
Sherrie S. Rollins, Senior Vice President
John J. Wolters, Senior Vice President
Alex Wallau, Vice President
ABC Entertainment
Edward W. Harbert, President
Stuart J. Bloomberg, Executive Vice President
Ronald B. Sunderland, Executive Vice President
John Hamlin, Senior Vice President
Judd L. Parkin, Senior Vice President
Mark A. Pedowitz, Senior Vice President
Donna L. Rosenstein, Senior Vice President
Alan B. Sternfeld, Senior Vice President
P. Thomas Van Schaick, Senior Vice President
Mark C. Zakarin, Senior Vice President
ABC Daytime
Patricia D. Fili-Krushel, President
Cody Dalton, Senior Vice President
Valerie S. Schaer, Senior Vice President
ABC Early Morning and Late Night
ABC Children's Programming
Jeanette B. Trias, President
Broadcast Operations & Engineering
Preston A. Davis, President
Michael C. Lang, Senior Vice President
ABC News
Roone Arledge, President
Paul Friedman, Executive Vice President
Robert J. Murphy, Senior Vice President
William N. Temple, Senior Vice President
Richard C. Wald, Senior Vice President
Alan H. Wurtzel, Senior Vice President
Worldwide Television News
Kenneth Coyte, Chairman
ABC Sports
Dennis D. Swanson, President
Robert H. Apter, Senior Vice President
David E. Downs, Senior Vice President
Dennis Lewin, Senior Vice President
ABC Television Network Sales and Marketing
Marvin F. Goldsmith, President
Robert J. Cagliero, Executive Vice President
Lawrence S. Fried, Executive Vice President
Production
ABC PRODUCTIONS
Brandon Stoddard, President
DIC ENTERTAINMENT
Andrew Heyward, President
GREENGRASS PRODUCTIONS
ABC/KANE PRODUCTIONS
Dennis B. Kane, President
<PAGE>
--------------------------------------------------------------------------------
Capital Cities/ABC
Broadcast Group
Michael P. Mallardi, President
Television Stations
Lawrence J. Pollock, President
Robert O. Niles, Vice President
WABC-TV (New York, NY)
Walter C. Liss, Jr., President, General Manager
KABC-TV (Los Angeles, CA)
G. Alan Nesbitt, President, General Manager
WLS-TV (Chicago, IL)
Joseph J. Ahern, President, General Manager
WPVI-TV (Philadelphia, PA)
Thomas P. Kane, President, General Manager
KGO-TV (San Francisco, CA)
James G. Topping, President, General Manager
KTRK-TV (Houston, TX)
James E. Masucci, President, General Manager
WTVD (Durham-Raleigh, NC)
Emily L. Barr, President, General Manager
KFSN-TV (Fresno, CA)
Marc Edwards, President, General Manager
National Television Sales
John B. Watkins, President
Radio
James A. Arcara, President
ABC Radio Networks
Robert F. Callahan, Jr., President
Bart W. Catalane, Executive Vice President
David M. Kantor, Executive Vice President
Radio Stations--Group I
Don P. Bouloukos, President
WABC-AM (New York, NY)
Don P. Bouloukos, President, General Manager
WPLJ-FM (New York, NY)
J. Mitchell Dolan, President, General Manager
KABC-AM (Los Angeles, CA)
KMPC-AM (Los Angeles, CA)
George Green, President, General Manager
KLOS-FM (Los Angeles, CA)
Bill Sommers, President, General Manager
KGO-AM (San Francisco, CA)
KSFO-AM (San Francisco, CA)
Michael Luckoff, President, General Manager
WJR-AM (Detroit, MI)
Michael D. Fezzey, President, General Manager
WHYT-FM (Detroit, MI)
John E. Cravens, President, General Manager
KQRS-AM/FM (Minneapolis, MN)
KEGE-FM (Minneapolis, MN)
Mark S. Steinmetz, President, General Manager
Radio Stations--Group II
Norman S. Schrutt, President
WLS-AM/FM (Chicago, IL)
Thomas R. Tradup, President, General Manager
WMAL-AM (Washington, DC)
Thomas J. Bresnahan, President, General Manager
WRQX-FM (Washington, DC)
James M. Robinson, President, General Manager
WBAP-AM (Fort Worth-Dallas, TX)
William J. Hare, President, General Manager
KSCS-FM (Fort Worth-Dallas, TX)
Victor J. Sansone, President, General Manager
WKHX-AM/FM (Atlanta, GA)
WYAY-FM (Atlanta, GA)
Norman S. Schrutt, President, General Manager
<PAGE>
--------------------------------------------------------------------------------
Capital Cities/ABC
Cable and International Broadcast Group
Herbert A. Granath, President
John T. Healy, Executive Vice President
ESPN (Bristol, CT)
Steven M. Bornstein, President
ABC INTERNATIONAL OPERATIONS (New York, NY)
John T. Healy, President
Richard F. Spinner, President and Managing Director, European Operations
ABC DISTRIBUTION (New York, NY)
Joseph Y. Abrams, President
A&E TELEVISION NETWORK (New York, NY)
Nicholas Davatzes, President
LIFETIME TELEVISION (New York, NY)
Douglas W. McCormick, President
* * * * * *
Capital Cities/ABC Multimedia Group
Stephen A. Weiswasser, President
Bruce Maggin, Executive Vice President
CAPITAL CITIES/ABC VIDEO PUBLISHING (Stamford, CT)
Jon R. Peisinger, President
* * * * * *
Publishing Group
Phillip J. Meek, President
Gary L. Holland, Vice President
Bruce H. McIntyre, Vice President
Newspapers
THE KANSAS CITY STAR (Kansas City, MO)
Robert C. Woodworth, President, Publisher
FORT WORTH STAR-TELEGRAM (Fort Worth, TX)
Richard L. Connor, President, Publisher
THE OAKLAND PRESS GROUP (Pontiac, MI)
Dale A. Duncan, President, Publisher
BELLEVILLE NEWS-DEMOCRAT GROUP (Belleville, IL)
Gary L. Berkley, President, Publisher
THE TIMES LEADER GROUP (Wilkes-Barre, PA)
Mark G. Contreras, President, Publisher
OREGON NEWSPAPER GROUP (Albany, OR)
Richard F. Anderson, President
Shopping Guides
Wesley R. Turner, Group Executive
PENNYSAVERS (Orange and San Diego
Counties, Sacramento and Stockton, CA)
William E. Carman, President
PENNYPOWER SHOPPING NEWS (Wichita, KS and
Springfield, MO)
Michael T. Blasi, President
NORTHWEST NICKELS (Seattle-Tacoma and
Spokane, WA; Portland, OR; Las Vegas, NV)
Richard F. Anderson, President
Specialized Publications
Diversified Publishing Group
Ann Maynard Gray, President
AGRICULTURAL PUBLISHING GROUP (Carol Stream, IL)
Allan R. Johnson, President
CHILTON ENTERPRISES (Radnor, PA)
David S. Loewith, President
CHILTON PUBLICATIONS (Radnor, PA)
Leon C. Hufnagel, President
LOS ANGELES MAGAZINE (Los Angeles, CA)
Joan McCraw, President
NILS PUBLISHING COMPANY (Chatsworth, CA)
William H. Bang, President
Fairchild Publications Group (New York, NY)
John B. Fairchild, Chairman and Editorial Director
Michael F. Coady, President
Financial Services and Medical Group
Peter A. Derow, President
INSTITUTIONAL INVESTOR (New York, NY)
Peter A. Derow, President
INTERNATIONAL MEDICAL NEWS GROUP (Short Hills, NJ)
Thomas Fowler, President
Capital Cities Capital
George M. Cain, President
<PAGE>
--------------------------------------------------------------------------------
EXECUTIVE OFFICERS
Thomas S. Murphy
Chairman of the Board and Chief Executive Officer
Robert A. Iger
President and Chief Operating Officer
John B. Fairchild
Executive Vice President; Chairman, Fairchild Publications
Ronald J. Doerfler
Senior Vice President and Chief Financial Officer
Herbert A. Granath
Senior Vice President; President, Cable and International Broadcast Group
Michael P. Mallardi
Senior Vice President; President, Broadcast Group
Phillip J. Meek
Senior Vice President; President, Publishing Group
Stephen A. Weiswasser
Senior Vice President; President, Multimedia Group
David Westin
Senior Vice President; President, ABC Television Network Group
<PAGE>
--------------------------------------------------------------------------------
BOARD OF DIRECTORS
Thomas S. Murphy 1, 4
Chairman of the Board and Chief Executive Officer
Robert A. Iger
President and Chief Operating Officer
Robert P. Bauman 3*
Chairman, British Aerospace PLC
Nicholas F. Brady 3
Chairman and Chief Executive Officer, Darby Overseas Investments, Ltd.; Former
Secretary of the United States Department of the Treasury
Warren E. Buffett 4*
Chairman of the Board and Chief Executive Officer, Berkshire Hathaway Inc.
Daniel B. Burke 1, 4
Retired President and Chief Executive Officer, Capital Cities/ABC, Inc.
Frank T. Cary 2
Former Chairman of the Board and Chief Executive Officer, International Business
Machines Corporation
John B. Fairchild
Executive Vice President; Chairman, Fairchild Publications
Leonard H. Goldenson 1*
Chairman of the Executive Committee; Retired Chairman of the Board and Chief
Executive Officer, American Broadcasting Companies, Inc.
Frank S. Jones 2
Ford Professor of Urban Affairs, Emeritus, Massachusetts Institute of Technology
Ann Dibble Jordan 2
Former Director of Social Service Department, University of Chicago Medical
School
John H. Muller, Jr. 1, 2*, 3
Chairman of the Executive Committee, former Chairman of the Board and Chief
Executive Officer, General Housewares Corp.
Wyndham Robertson 2
Vice President for Communications The University of North Carolina
M. Cabell Woodward, Jr. 1, 2
Retired Vice Chairman and Chief Financial Officer, ITT Corporation
Director Emeritus
Gerald Dickler
Former Senior Counsel, Hall Dickler Kent Friedman & Wood Attorneys at Law
1 Member of Executive Committee
2 Member of Audit Committee
3 Member of Compensation Committee
4 Member of Finance Committee
* Committee Chairman
The Company's Form 10-K Annual Report to the Securities and Exchange Commission
provides certain additional information. A copy of this report may be obtained
upon written request to the Company addressed to:
The Corporate Secretary
Capital Cities/ABC, Inc.
77 West 66th Street
New York, New York 10023-6298
--------------------------------------------------------------------------------
Transfer Agent and Registrar
Harris Trust Company of New York
77 Water Street
New York, New York 10005-4401
The Company's Common Stock is listed for trading on the New York and Pacific
Stock Exchanges (Symbol: CCB)
LOGO
This report is printed
entirely on recycled paper
<PAGE>
Capital Cities/ABC, Inc.
77 West 66th Street
New York, New York 10023-6298
(212) 456-7777
<PAGE>
EXHIBIT 21
----------
As of December 31, 1994
Subsidiaries of Capital Cities/ABC, Inc.
----------------------------------------
Jurisdiction
of
Incorporation
-------------
Capital Cities/ABC, Inc. (parent) New York
ABC Holding Company Inc. Delaware
ABC Cable and International Broadcast, Inc. Delaware
(formerly Capital Cities/ABC Video
Enterprises, Inc.)
ABC Asia Productions, Inc. Delaware
ABC Cable and International Broadcast Delaware
Worldwide Holdings, Inc.
(formerly Capital Cities/ABC Video
Enterprises Worldwide Holdings, Inc.)
Cable LT Holdings, Inc. Delaware
Capital Cities/ABC Video, Inc. Delaware
Capital Cities/ABC Video Musical Delaware
Investments, Inc.
Capital Cities/ABC Video Productions, Inc. Delaware
COBRA Productions, Inc. California
DIC Post, Inc. California
HAC MFP Productions, Inc. California
MFP Productions, Inc. California
(Stock in these 4 companies is held
by DIC Productions, L.P., a Delaware
limited partnership, in which Capital
Cities/ABC Video Productions, Inc. is
the general partner)
HEMPRO, Inc. Delaware
TPT, Inc. California
Capital Cities/ABC Video Systems, Inc. Delaware
Discriminating Distribution Delaware
Enterprises, Inc.
DSC Video, Inc. Delaware
(50% interest is held 33% by ABC Cable and
International Broadcast, Inc. and 17% by
Cable LT Holdings, Inc.)
French Productions, Inc. Delaware
910353 Ontario Inc. Canada
Spanish Productions, Inc. Delaware
Top Drawer Productions, Inc. Delaware
(formerly Mexican Investments, Inc.)
ABC Consumer Magazines Holding Company, Inc. Delaware
ABC Daytime Circle, Inc. Delaware
ABC Network Holding Company, Inc. Delaware
ABC Equipment Leasing, Inc. New York
ABC Motion Pictures, Inc. Delaware
ABC Records, Inc. New York
ABC Circle Music, Inc. New York
American Broadcasting Music, Inc. New York
<PAGE>
-2-
Capital Cities/ABC, Inc. (parent)(continued)
ABC Holding Company Inc. (continued)
ABC Network Holding Company, Inc. (continued)
ABC Theatre Holdings, Inc. Delaware
ABC Interstate Theatres, Inc. Delaware
ABC Southeastern Theatres, Inc. Delaware
Ambro Land Holdings, Inc. Delaware
Ambroco Development Corp. New York
Broadway Development Corp. New York
Columbus West Development Corp. New York
67th Street Development Corp. New York
66th Street Development Corp. New York
Circle Location Services, Inc. Delaware
Stage Five Productions, Inc. California
TNC Company, Inc. Delaware
ABC News Holding Company, Inc. Delaware
ABC News, Inc. Delaware
ABC News InterActive, Inc. Delaware
ABC News Intercontinental, Inc. Delaware
Worldwide Television News Corporation Delaware
Transcontinental Television, Inc. Delaware
Worldwide Television News France
France S.A.R.L.
Worldwide Television News GmbH Germany
Worldwide Television News United Kingdom
(U.K.) Limited
Starbird Satellite Services United Kingdom
Limited
ABC News Overseas Sales, Inc. Delaware
ABC Radio Network, Inc. Delaware
ABC Radio International, Inc. Delaware
ABC Radio (UK) Limited United Kingdom
ABC/Watermark, Inc. Delaware
ABC Sports Holding Company, Inc. Delaware
ABC Sports, Inc. New York
ABC Sports Intercontinental S.A.R.L. France
ABC Sports Marketing, Inc. Delaware
ABC Sports Video, Inc. Delaware
Baseball Ventures, Inc. Delaware
American Broadcasting Companies, Inc. Delaware
Capital Cities/ABC Multimedia, Inc. Delaware
Capital Cities/ABC Interactive Delaware
Software, Inc.
Capital Cities/ABC National Television Delaware
Sales, Inc.
Capital Cities/ABC Video Publishing, Inc. Delaware
Chilton Holding Company, Inc. Delaware
Chilton Company Delaware
Automotive Information Illinois
Properties, Inc.
Capital Cities/ABC Diversified Germany
Advertising GmbH
The Center for Curriculum Delaware
Development, Inc.
Chilton Professional Automotive, Inc. Delaware
<PAGE>
-3-
Capital Cities/ABC, Inc. (parent)(continued)
ABC Holding Company Inc. (continued)
ESPN Holding Company, Inc. Delaware
ESPN, Inc. Delaware
Creative Post and Transfer, Inc. Delaware
Creaive Sports, Inc. Delaware
English Sports, Inc. Delaware
ESPN 88 United Kingdom
Transatlantic Productions, Inc. Delaware
ESPN Asia, Ltd. Delaware
ESPN Asia (S) Private, Ltd. Singapore
ESPN Enterprises, Inc. Delaware
ESPN India, Inc. Delaware
European Investment Company, Inc. Delaware
European Media Development Delaware
Company, Inc.
European Sports Program Network, Inc. Delaware
Event Specialists, Inc. Delaware
Goal Ventures, Inc. Delaware
O.C.C. Sports, Inc. Delaware
O.P.I. Sports, Inc. Delaware
SportsTicker, Inc. Delaware
Farm Progress Holding Company, Inc. Delaware
Farm Progress Companies, Inc. Illinois
Farm Progress Insurance Services, Inc. Illinois
Indiana Prairie Farmer Insurance Indiana
Services, Inc.
New York Farm Show, Inc. New York
The Miller Publishing Company, Inc. Minnesota
Hitchcock Holding Company, Inc. Delaware
Hitchcock Publishing Company Delaware
Professional Exposition Management Delaware
Company, Inc.
KABC-AM Radio, Inc. Delaware
KGO Television, Inc. Delaware
KGO-AM Radio, Inc. Delaware
KLOS-FM Radio, Inc. Delaware
KLOS Syndications, Inc. Delaware
L.I.C. Warehouse Realty Company, Inc. Delaware
Los Angeles Magazine Holding Company, Inc. Delaware
Los Angeles Magazine, Inc. Delaware
NILS Holding Company, Inc. Delaware
NILS Publishing Company Delaware
CCB/NILS, Inc. Delaware
NILS Enterprises, Inc. Delaware
Premiere Cassettes Marketing, Inc. Delaware
36/38/40 West 66 Realty Company, Inc. Delaware
WABC-AM Radio, Inc. Delaware
WLS Television, Inc. Delaware
WLS-AM Holding Company, Inc. Delaware
WLS, Inc. Delaware
WLS-FM Radio, Inc Delaware
WMAL Holding Company, Inc. Delaware
WMAL, Inc. Delaware
WPLJ-FM Radio, Inc. Delaware
ABC/Kane Productions International, Inc. Delaware
Capital Cities/ABC Cable Holdings, Inc. Delaware
Capital Cities Capital, Inc. Delaware
<PAGE>
-4-
Capital Cities/ABC, Inc. (parent)(continued)
Capital Cities Entertainment Systems, Inc. Delaware
Capital Cities Media, Inc. New York
Capital Cities/ABC Publishing/Far East, Inc. Japan
Fairchild Media Services, Inc. Delaware
Fairchild Publications S.A.R.L. France
Foothills Trader, Inc. Connecticut
Guilford Publishing Company, Inc. Delaware
Imprint, Inc. Delaware
Mariner Newspapers, Inc. New York
Newside Publications, Inc. Delaware
Pennysaver of Cape Cod, Inc. Massachusetts
Practical Homeowner Holding Company, Inc. New York
Precision Marketing Services, Inc. Delaware
Quad County Publishing, Inc. Illinois
Capital Cities Vision, Inc. New York
CC/ABC Acquisition I Corp. Delaware
CC/ABC Acquisition II Corp. Delaware
CC/ABC Acquisition III Corp. Delaware
CC/ABC Acquisition IV Corp. Delaware
CC/ABC Acquisition V Corp. Delaware
CC/ABC Acquisition VI Corp. Delaware
CC Finance Holding Corporation Delaware
Capital Cities/ABC Finance Company, Inc. Delaware
CC Texas Holding Co., Inc. Delaware
KTRK Television, Inc. Michigan
Southfield Realty Company, Inc. Michigan
Weehawken Corporation Delaware
CCC Properties, Inc. New York
Great Lakes Media, Inc. Michigan
(formerly The Oakland Press Company)
Institutional Investor, Inc. Delaware
Institutional Investor (Europe) Limited United Kingdom
JBS Productions Holding Company, Inc. Delaware
a.k.a. Productions, Inc. Delaware
The Andrew Adelson Company California
AMBROCO Media Group, Inc. Delaware
Canaka Productions, Inc. Delaware
Class of '96 Productions, Inc. Delaware
Empty Chair Productions, Inc. Delaware
Fifth Floor Production Music Library, Inc.
(formerly Fifth Floor Music, Inc.) Delaware
Greengrass Productions, Inc. Delaware
Interglobal Productions, Inc. Delaware
Fogash Films Limited Channel Islands
Victor Television Productions, Inc. Delaware
Victor Television Productions Too, Inc. Delaware
The Kansas City Star Company (also owns the Missouri
preferred stock of Capital Cities Media, Inc.)
KQRS Holding Corporation Delaware
KQRS, Inc. Delaware
KRXY Holding Corporation Delaware
KRXY Radio, Inc. Delaware
Legal Com of Delaware, Inc. Delaware
Legal Communications Corporation Missouri
Mexican Business Publishing, Inc. Delaware
<PAGE>
-5-
Capital Cities/ABC, Inc. (parent)(continued)
Mexican Publishing Company, Inc. Delaware
Promotora Vina Sala, S.A. de C.V. Mexico
(Stock is held 99.998% by Mexican Business
Publishing, Inc. and .002% by Mexican
Publishing Company, Inc.)
Sibonei, S.A. de C.V. Mexico
(Stock is held 99.998% by Mexican Publishing
Company, Inc. and .002% by Mexican Business
Publishing, Inc.)
Expansion, S.A. Mexico
(Stock is held 51% by Promotora Vina Sala,
S.A. de C.V. and 49% by Sibonei, S.A.
de C.V.)
Nordic Investments, Inc. Delaware
Pennypower of Kansas, Inc. Delaware
Pennypower Shopping News, Inc. Kansas
Southern Utah Media, Inc. Delaware
ST Partner, Inc. Delaware
Star-Telegram Newspaper, Inc. Delaware
Media Transport, Inc. Texas
(Stock is held by Star-Telegram Operating, Ltd.,
a Texas limited partnership, in which ST Partner,
Inc. is the limited partner and Star-Telegram
Newspaper, Inc. is the managing general partner)
Sutton Industries, Inc. Delaware
J V Z Enterprises California
PSP & D, Inc. Delaware
TV Connection, Inc. Delaware
WBAP-KSCS Partner, Inc. Delaware
WBAP-KSCS Radio, Inc. Delaware
Wilson Publishing Company Rhode Island
WJRT Acquisition Corp. Delaware
(Stock is held by CC/ABC Acquisition I Corp. and
WJRT Associates, a Delaware limited partnership,
in which CC/ABC Acquisition II Corp. and CC/ABC
Acquisition III Corp. are the General Partners)
WTVG Acquisition Corp. Delaware
(Stock is held by CC/ABC Acquisition IV Corp. and
WTVG Associates, a Delaware limited partnership,
in which CC/ABC Acquisition V Corp. and CC/ABC
Acquisition VI Corp. are the General Partners)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CAPITAL
CITIES/ABC, INC. CONSOLIDATED FINANCIAL STATEMENTS INCORPORATED BY REFERENCE IN
FORM 10-K FOR THE PERIOD ENDING DECEMBER 31, 1994 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 781,371
<SECURITIES> 238,029
<RECEIVABLES> 1,102,699
<ALLOWANCES> 46,419
<INVENTORY> 23,972
<CURRENT-ASSETS> 2,716,187
<PP&E> 2,122,494
<DEPRECIATION> 831,838
<TOTAL-ASSETS> 6,786,212
<CURRENT-LIABILITIES> 1,043,556
<BONDS> 610,666
<COMMON> 18,394
0
0
<OTHER-SE> 4,270,163
<TOTAL-LIABILITY-AND-EQUITY> 6,786,212
<SALES> 6,379,237
<TOTAL-REVENUES> 6,379,237
<CGS> 3,723,093
<TOTAL-COSTS> 3,723,093
<OTHER-EXPENSES> 1,394,737
<LOSS-PROVISION> 22,596
<INTEREST-EXPENSE> 55,070
<INCOME-PRETAX> 1,205,314
<INCOME-TAX> 525,500
<INCOME-CONTINUING> 679,814
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 679,814
<EPS-PRIMARY> 4.42
<EPS-DILUTED> 0
</TABLE>
<PAGE>
Exhibit (99)(a)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-4278
A. Full title of the plan and the address of the plan, if different from that
of the issuer named below:
CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
CAPITAL CITIES/ABC, INC.
77 West 66 Street
New York, New York 10023
<PAGE>
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the Plan) have duly caused this annual
report to be signed on its behalf by the undersigned hereunto duly authorized.
Capital Cities/ABC, Inc. Savings & Investment Plan
Date: March 17, 1995 __________________________________
David J. Vondrak, a member
of the Employee Benefits Committee
<PAGE>
CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
YEARS ENDED DECEMBER 31, 1994 AND 1993
(WITH REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS THEREON)
<PAGE>
CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN
Index to Financial Statements
Report of Ernst & Young LLP, Independent Auditors
Statements of Financial Condition as of
December 31, 1994 and 1993
Statements of Income and Changes in Plan Equity
for the years ended December 31, 1994 and 1993
Notes to Financial Statements
Supplemental Schedules:
-----------------------
Item 27(a) - Assets Held for Investment
Single Transactions in Excess of 5% of the Current Value of Plan Assets
Series of Transactions in Excess of 5% of the Current Value of Plan Assets
Exhibit:
--------
Consent of Ernst & Young LLP
There were no party-in-interest transactions which are prohibited by ERISA
section 406 and for which there is no statutory or administrative exemption.
<PAGE>
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
The Board of Directors
Capital Cities/ABC, Inc.
We have audited the accompanying statements of financial condition of the
Capital Cities/ABC, Inc. Savings & Investment Plan (the Plan) as of December 31,
1994 and 1993, and the related statements of income and changes in plan equity
for each of the two years in the period ended December 31, 1994. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial condition of the Plan at December 31, 1994
and 1993, and the results of its operations and changes in its plan equity for
each of the two years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
held for investment as of December 31, 1994 and reportable transactions in
excess of 5% of the current value of plan assets for the year then ended, are
presented for purposes of complying with the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974, and are not a required part of the financial statements.
The supplemental schedules have been subjected to the auditing procedures
applied in our audit of the 1994 financial statements and, in our opinion, are
fairly stated in all material respects in relation to the 1994 financial
statements taken as a whole.
ERNST & YOUNG LLP
New York, New York
March 17, 1995
<PAGE>
CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
ASSETS 1994 1993
------ ------------ ------------
<S> <C> <C>
Investments, at market:
Fidelity Management Trust Company
Common Trust Funds:
Capital Cities/ABC, Inc. Common Stock Fund
(cost of $178,911,112 and $138,594,027
in 1994 and 1993, respectively) $404,971,567 $279,231,572
Fidelity Asset Manager (cost: $50,086,655) 47,562,305 -
Fidelity Retirement Money Market Portfolio
(cost: $37,572,634) 37,572,634 -
Fidelity Magellan Fund (cost: $31,687,157) 32,080,436
Fidelity Growth & Income Portfolio
(cost: $24,720,813) 24,232,136
Fidelity Institutional Short-Intermediate
Government Portfolio (cost: $10,481,785) 10,331,956
Equity Securities (cost: $37,050,924) - 42,377,131
Other investments:
Bankers Trust Pyramid Directed Account
Cash Fund - 3,797,926
Funds on deposit with insurance companies - 113,629,385
------------ ------------
Total investments 556,751,034 439,036,014
------------ ------------
Participant loans 11,620,340 9,093,543
Interest and dividends receivable - 305,971
Due from Capital Cities/ABC, Inc. 4,102,393 2,260,057
------------ ------------
TOTAL ASSETS $572,473,767 $450,695,585
============ ============
LIABILITIES AND PLAN EQUITY
---------------------------
Due to terminated and withdrawing participants $ - $ 4,983,927
Payables for purchases of investments - 458,865
Plan equity 572,473,767 445,252,793
------------ ------------
TOTAL LIABILITIES AND PLAN EQUITY $572,473,767 $450,695,585
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN
STATEMENTS OF INCOME AND
CHANGES IN PLAN EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Dividend and interest income $ 6,770,557 $ 8,682,497
Net gain on sales of investments 29,299,005 14,817,760
Net increase in unrealized appreciation
of plan assets held at year end 77,327,126 45,286,295
------------ ------------
113,396,688 68,786,552
------------ ------------
Contributions:
Participants 29,399,107 25,143,822
Employer 11,889,585 11,198,503
------------ ------------
Total contributions 41,288,692 36,342,325
------------ ------------
Interest on participant loans 568,154 565,127
------------ ------------
Total 155,253,534 105,694,004
------------ ------------
Distributions to terminated and
withdrawing participants 27,907,619 34,531,592
Administrative expenses 124,941 232,642
------------ ------------
Change in plan equity 127,220,974 70,929,770
------------ ------------
Plan equity:
Beginning of year 445,252,793 374,323,023
------------ ------------
END OF YEAR $572,473,767 $445,252,793
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
(1) Description of Plan
-------------------
Capital Cities/ABC, Inc. Savings & Investment Plan (the "Plan") is an employee
savings and investment plan for participating employees of American Broadcasting
Companies, Inc. (ABC) (an indirect wholly owned subsidiary of Capital
Cities/ABC) and those other subsidiaries and divisions of Capital Cities/ABC
which were previously a part of, or affiliates of ABC. Individuals who became
employees of the corporate and other broadcasting properties of Capital
Cities/ABC subsequent to 1988 are eligible to participate in the Plan. In
addition, approximately 5,000 employees of certain properties within Capital
Cities/ABC's Publishing Group are eligible to participate in the Plan.
Under the Plan, eligible employees may authorize payroll deductions of either 1,
2, 3, 4 or 5% of their annual compensation to be invested in one or more of six
funds. Such contributions may be in the form of regular after-tax contributions,
or tax deferred contributions. Capital Cities/ABC will contribute an amount
equal to 50% of such deductions, such amount to be invested in the fund
consisting of Capital Cities/ABC, Inc. common stock. In addition, an employee
may also authorize unmatched payroll deductions within specified limits to be
invested in one or more of the funds described herein. Under the Employee
Retirement Income Security Act of 1974 ("ERISA"), annual additions to a
participant's account (consisting of combined employee and employer-matched
contributions) cannot exceed the lesser of $30,000 or 25% of compensation, as
defined. In 1994 and 1993, the IRS-imposed limitation on tax deferred
contributions made by employees was $9,240 and $8,994, respectively.
Participants are immediately vested with respect to their own contributions.
Until December 31, 1994, participants with less than 5 years of service vest
with respect to employer contributions over a three-year period, one-third each
year. Effective January 1, 1995, matching employer contributions credited to
participants' accounts will vest as follows: (a) 50% at the end of the Plan year
for which the contributions were made; and (b) an additional 50% at the end of
the Plan year immediately following the Plan year for which contributions were
made. Upon death, permanent disability, retirement or termination of service
after age 65, a participant's account is considered fully vested.
The Plan permits the Employee Benefits Committee to postpone distributions of a
member's account in instances where a member's termination of services arises
out of a change in ownership of stock or all or part of the assets of a member's
employing unit and such member is reemployed by the acquiring entity, if such
termination is not deemed a "separation from service" within the meaning of the
applicable income tax rulings or regulations. In such instances the Employee
Benefits Committee may postpone the distribution until such distribution may be
accomplished without adverse income tax consequences to the member or to the
Plan or may allow a transfer to another qualified plan or allow a permissible
tax-free rollover.
Through May 31, 1994, Bankers Trust was the trustee of the Plan. Effective June
1, 1994, the Company entered into a new trust agreement with Fidelity Management
Trust Company and its affiliates (collectively, "Fidelity" or the "Trustee") to
serve as trustee, investment manager, and recordkeeper of the Plan and its
related trust. In connection with such change in trustee, in June 1994, all
investments held by Bankers Trust were transferred to and reinvested in the
investment funds provided by Fidelity.
-1-
<PAGE>
CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
(1) Description of Plan (Continued)
-------------------
The above description of the Plan provides only general information.
Participants should refer to the Plan agreement for a more complete description
of the Plan provisions and investment options.
(2) Summary of Significant Accounting Policies
------------------------------------------
Certain prior year amounts have been reclassified to conform with the current
period's presentation.
The accompanying financial statements present plan equity and changes therein of
the Plan on an accrual basis. Effective June 1, 1994, participants may
contribute in any one or a combination of the following six investment options:
Capital Cities/ABC, Inc. Common Stock Fund - This fund consists of Capital
Cities/ABC, Inc. common stock which is valued at current market value. The
Fund's returns are governed by the performance of the Company's common stock.
Fidelity Asset Manager - This fund consists of a neutral mix of stocks, bonds
and short-term investments of both U.S. and foreign corporations and
governments.
Fidelity Retirement Money Market Portfolio - This fund invests in short-term
money market instruments, such as bank certificates of deposit, issued by both
U.S. and foreign banks, insurance companies and government agencies.
Fidelity Magellan Fund - This fund invests in stocks of both U.S. and foreign
companies. These investments may be in large corporations as well as smaller,
less well-known companies.
Fidelity Growth & Income Portfolio - This option invests in stocks, bonds and
short-term investments of U.S. and foreign companies that offer growth potential
while paying dividends.
Fidelity Institutional Short-Intermediate Government Portfolio - This option
invests in government-issued investments maturing in a short to intermediate
length of time, usually three to five years.
All investments in Fidelity mutual funds are valued at the last reported sales
price on the last business day of the year.
Prior to June 1, 1994, participants contributed to any one or a combination of
the following three funds:
Capital Cities/ABC, Inc. Common Stock Fund - This fund held all investments made
in the common stock of the Company and was valued at current market value.
Diversified Equity Fund - This fund consisted of equity securities and
convertible debentures of companies other than Capital Cities/ABC. The market
value of the equity investments was based on year-end stock quotations from the
New York Stock Exchange.
-2-
<PAGE>
CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
(2) Summary of Significant Accounting Policies (Continued)
------------------------------------------
Fixed Interest Fund - This fund consisted of funds on deposit with insurance
companies under contracts which provided a fixed annual rate of interest. The
Fixed Interest Fund was valued at the contracts' carrying amounts.
Realized gains and losses on sales of securities are accounted for on a weighted
average cost basis. Purchases and sales are recorded on a trade date basis.
Dividend income is accrued on the ex-dividend date. Interest income is recorded
on an accrual basis as earned.
Distributions to terminated and withdrawing participants are based upon the
market value of units and/or shares credited to participants' accounts as of the
effective date of withdrawal.
Employer contributions are reported net of forfeitures of $81,050 and $254,154
for 1994 and 1993, respectively.
Participant accounts are maintained on a unit basis as determined by the Trustee
(See Administration of the Plan below). The per unit values for each investment
--------------------------
fund were as follows:
<TABLE>
<CAPTION>
December 31,
1994 1993
------ -----
<S> <C> <C>
Capital Cities/ABC, Inc. Common Stock Fund $11.79 *
Fidelity Asset Manager 14.33 $ -
Fidelity Retirement Money Market Portfolio 1.08 -
Fidelity Magellan Fund 68.16 -
Fidelity Growth & Income Portfolio 21.47 -
Fidelity Institutional Short-Intermediate
Government Portfolio 9.32 -
Diversified Equity Fund - 7.20
Fixed Interest Fund - 4.49
</TABLE>
* During 1993, the value of a participant's account was determined based upon
the share value of the Capital Cities/ABC, Inc. Common Stock Fund. At December
31, 1993, there were 450,737 shares (prior to the Company's ten-for-one stock
split in June 1994) of the Company's stock in the fund.
(3) Administrative Expenses
-----------------------
Effective June 1, 1994, brokerage commissions and stock transfer taxes in
connection with the purchase and sale of securities are absorbed within the net
asset value of each investment fund on each business day. All other costs and
expenses incurred in connection with the administration of the Plan not paid by
the Company will be charged to the participants' accounts.
Prior to June 1, 1994, costs incurred specifically by the Plan were paid
directly from funds of the Plan.
-3-
<PAGE>
CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
(4) Investments
-----------
Participants direct their individual accounts to be invested among the six
Fidelity funds offered by the Plan. Financial information relating to the
Plan's equity and changes therein for the years ended December 31, 1994 and 1993
is as follows:
Combining Statement of Financial Condition
------------------------------------------
December 31, 1994
-----------------
<TABLE>
<CAPTION>
Retirement
Capital Money
Total Cities/ABC Asset Market
ASSETS Funds Stock Fund Manager Portfolio
------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Investments $556,751,034 $404,971,567* $47,562,305* $37,572,634*
Participant loans 11,620,340 7,390,980 1,091,400 2,884,268
Due from Capital Cities/ABC, Inc. 4,102,393 2,204,982 625,943 276,075
------------ ------------ ----------- -----------
TOTAL ASSETS $572,473,767 $414,567,529 $49,279,648 $40,732,977
============ ============ =========== ===========
PLAN EQUITY
-----------
Plan equity $572,473,767 $414,567,529 $49,279,648 $40,732,977
------------ ------------ ----------- -----------
TOTAL PLAN EQUITY $572,473,767 $414,567,529 $49,279,648 $40,732,977
============ ============ =========== ===========
</TABLE>
* Individual investment representing 5% or more of the Plan's net assets.
(Continued on next page)
-4-
<PAGE>
CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
(4) Investments (continued)
-----------
Combining Statement of Financial Condition
------------------------------------------
December 31, 1994
-----------------
<TABLE>
<CAPTION>
Institutional
Short
Growth & Intermediate
Magellan Income Government
ASSETS Fund Portfolio Portfolio
------ ----------- ----------- -------------
<S> <C> <C> <C>
Investments $32,080,436* $24,232,136 $10,331,956
Participant loans 126,694 76,904 50,094
Due from Capital Cities/ABC, Inc. 528,213 361,813 105,367
----------- ----------- -------------
TOTAL ASSETS $32,735,343 $24,670,853 $10,487,417
=========== =========== =============
PLAN EQUITY
-----------
Plan equity $32,735,343 $24,670,853 $10,487,417
----------- ----------- -------------
TOTAL PLAN EQUITY $32,735,343 $24,670,853 $10,487,417
=========== =========== =============
</TABLE>
* Individual investment representing 5% or more of the Plan's net assets.
-5-
<PAGE>
CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
(4) Investments (continued)
-----------
Combining Statements of Income and Changes in Plan Equity
---------------------------------------------------------
December 31, 1994
-----------------
<TABLE>
<CAPTION>
Capital
Diversified Fixed Cities/ABC
Total Equity Interest Common Asset
Funds Fund Fund Stock Fund Manager
------------ ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Dividend and interest
income $ 6,770,557 $ 409,435 $ 1,902,585 $ 168,533 $ 1,437,907
Net gain on sales of
investments 29,299,005 4,375,662 - 25,120,252 (206,940)
Net increase(decrease)in
unrealized appreciation
of plan assets held
at year end 77,327,126 (5,326,207) - 85,422,910 (2,524,350)
------------ ------------ ------------- ------------ -----------
113,396,688 (541,110) 1,902,585 110,711,695 (1,293,383)
------------ ------------ ------------- ------------ -----------
Contributions:
Participants 29,399,107 2,769,580 4,946,044 10,679,071 3,612,930
Employer 11,889,585 - - 11,889,585 -
------------ ------------ ------------- ------------ -----------
Total contributions 41,288,692 2,769,580 4,946,044 22,568,656 3,612,930
------------ ------------ ------------- ------------ -----------
Interest on participant
loans 568,154 22,112 57,491 322,777 55,836
Participant net transfers - (582,065) (10,369,778) 18,371,930 (1,352,300)
Liquidations/transfers
to new funds - (49,137,149) (108,226,812) - 49,137,149
------------ ------------ ------------- ------------ -----------
Total 155,253,534 (47,468,632) (111,690,470) 151,975,058 50,160,232
------------ ------------ ------------- ------------ -----------
Distributions to terminated
and withdrawing
participants 27,907,619 1,227,331 4,409,943 17,784,981 863,386
Administrative expenses 124,941 64,023 64 14,878 17,198
------------ ------------ ------------- ------------ -----------
Change in plan equity 127,220,974 (48,759,986) (116,100,477) 134,175,199 49,279,648
------------ ------------ ------------- ------------ -----------
Plan equity:
Beginning of year 445,252,793 48,759,986 116,100,477 280,392,330 -
------------ ------------ ------------- ------------ -----------
End of year $572,473,767 $ - $ - $414,567,529 $49,279,648
============ ============ ============= ============ ===========
</TABLE>
(Continued on next page)
-6-
<PAGE>
CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
(4) Investments (continued)
-----------
Combining Statements of Income and Changes in Plan Equity
---------------------------------------------------------
December 31, 1994
-----------------
<TABLE>
<CAPTION>
Institutional
Retirement Short
Money Growth & Intermediate
Market Magellan Income Government
Portfolio Fund Portfolio Portfolio
------------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Dividend and interest
income $ 2,092,691 $ 19,213 $ 556,005 $ 184,188
Net gain on sales of
investments - 20,869 (1,263) (9,575)
Net increase (decrease) in
unrealized appreciation
of plan assets held at
year end - 393,279 (488,677) (149,829)
------------ ----------- ----------- -----------
2,092,691 433,361 66,065 24,784
------------ ----------- ----------- -----------
Contributions:
Participants 1,371,395 3,210,364 2,153,553 656,170
Employer - - - -
------------ ----------- ----------- -----------
Total contributions 1,371,395 3,210,364 2,153,553 656,170
------------ ----------- ----------- -----------
Interest on participant
loans 31,057 45,331 26,079 7,471
Participant net transfers (68,522,576) 29,319,384 22,683,504 10,451,901
Liquidations/transfers
to new funds 108,226,812 - - -
------------ ----------- ----------- -----------
Total 43,199,379 33,008,440 24,929,201 11,140,326
------------ ----------- ----------- -----------
Distributions to terminated
and withdrawing
participants 2,450,487 269,544 254,039 647,908
Administrative expenses 15,915 3,553 4,309 5,001
------------ ----------- ----------- -----------
Change in plan equity 40,732,977 32,735,343 24,670,853 10,487,417
------------ ----------- ----------- -----------
Plan equity:
Beginning of year - - - -
------------ ----------- ----------- -----------
End of year $ 40,732,977 $32,735,343 $24,670,853 $10,487,417
============ =========== =========== ===========
</TABLE>
-7-
<PAGE>
CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
(4) Investments (continued)
-----------
Combining Statement of Financial Condition
------------------------------------------
December 31, 1993
-----------------
<TABLE>
<CAPTION>
Capital Cities/
ABC, Inc. Diversified Fixed
Common Stock Equity Interest
ASSETS Total Funds Fund Fund Fund
------ ------------ ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Investments, at market
Equity Securities:
Capital Cities/ABC, Inc.
common stock $279,231,572 $279,231,572* $ - $ -
Other 42,377,131 - 42,377,131 -
------------ ------------ ----------- ------------
Total equity securities 321,608,703 279,231,572 42,377,131 -
------------ ------------ ----------- ------------
Other investments:
Bankers Trust Pyramid Directed
Account Cash Fund 3,797,926 53,311 3,720,113 24,502
Funds on deposit with
insurance companies 113,629,385 - - 113,629,385*
------------ ------------ ----------- ------------
Total other investments 117,427,311 53,311 3,720,113 113,653,887
------------ ------------ ----------- ------------
Total investments 439,036,014 279,284,883 46,097,244 113,653,887
------------ ------------ ----------- ------------
Participant loans 9,093,543 5,649,738 867,763 2,576,042
Interest and dividends
receivable 305,971 26,968 74,649 204,354
Due from Capital Cities/
ABC, Inc. 2,260,057 (1,777,944) 2,382,983 1,655,018
------------ ------------ ----------- ------------
TOTAL ASSETS $450,695,585 $283,183,645 $49,422,639 $118,089,301
============ ============ =========== ============
LIABILITIES AND PLAN EQUITY
---------------------------
Due to terminated and withdrawing
participants $ 4,983,927 $ 2,791,315 $ 203,788 $ 1,988,824
Payables for purchases of
investments 458,865 - 458,865 -
Plan equity 445,252,793 280,392,330 48,759,986 116,100,477
------------ ------------ ----------- ------------
TOTAL LIABILITIES
AND PLAN EQUITY $450,695,585 $283,183,645 $49,422,639 $118,089,301
============ ============ =========== ============
</TABLE>
* Individual investment representing 5% or more of the Plan's net assets.
-8-
<PAGE>
CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
(4) Investments (continued)
-----------
Combining Statement of Income and Changes in Plan Equity
--------------------------------------------------------
December 31, 1993
-----------------
<TABLE>
<CAPTION>
Capital Cities/
ABC, Inc. Diversified Fixed
Common Stock Equity Interest
Total Funds Fund Fund Fund
------------ --------------- ----------- ------------
<S> <C> <C> <C> <C>
Dividend and interest income $ 8,682,497 $ 127,550 $ 886,313 $ 7,668,634
Net gain on sales of
investments 14,817,760 5,331,485 2,988,256 6,498,019
Net increase in unrealized
appreciation of plan assets
held at year end 45,286,295 45,232,085 54,210 -
------------ ------------ ----------- ------------
68,786,552 50,691,120 3,928,779 14,166,653
------------ ------------ ----------- ------------
Contributions:
Participants 25,143,822 5,716,341 7,541,631 11,885,850
Employer 11,198,503 11,198,503 - -
------------ ------------ ----------- ------------
Total contributions 36,342,325 16,914,844 7,541,631 11,885,850
------------ ------------ ----------- ------------
Interest on participant loans 565,127 363,265 56,512 145,350
Participant transfers - (3,651,421) 1,588,091 2,063,330
------------ ------------ ----------- ------------
Total 105,694,004 64,317,808 13,115,013 28,261,183
------------ ------------ ----------- ------------
Distributions to terminated
and withdrawing participants 34,531,592 19,296,055 3,654,193 11,581,344
Administrative expenses 232,642 - 232,642 -
------------ ------------ ----------- ------------
Change in plan equity 70,929,770 45,021,753 9,228,178 16,679,839
------------ ------------ ----------- ------------
Plan equity:
Beginning of year 374,323,023 235,370,577 39,531,808 99,420,638
------------ ------------ ----------- ------------
End of year $445,252,793 $280,392,330 $48,759,986 $116,100,477
============ ============ =========== ============
</TABLE>
-9-
<PAGE>
CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
(5) Termination of the Plan
-----------------------
Although Capital Cities/ABC has not expressed any intent to terminate the Plan,
it may be terminated at any time by action of its Board of Directors, subject to
the provisions of ERISA. In the event of termination, the amounts credited to
the participants' accounts become fully vested and the Trustee is required to
distribute such amounts to participants or continue the trust fund and pay
benefits therefrom in accordance with the provisions of the Plan.
(6) Income Tax Status
-----------------
The Internal Revenue Service ("IRS") advised Capital Cities/ABC on March 24,
1989 that the Plan is qualified under Section 401(a) of the Internal Revenue
Code ("IRC"), and therefore, its related trust is exempt from Federal income
taxes under the provisions of Section 501(a) of the IRC. In 1994, the Plan was
submitted to the IRS for a new determination which would apply to the amended
Plan's continued qualified status under Section 401(a) of the IRC. The Plan has
been amended to comply with certain legislative and regulatory changes.
Participants are not subject to Federal income tax on employer contributions
made to their accounts under the Plan, or on the earnings in their accounts,
until amounts in their accounts are withdrawn or distributed.
-10-
<PAGE>
SUPPLEMENTAL SCHEDULES
<PAGE>
CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN
ITEM 27(A) - ASSETS HELD FOR INVESTMENT
DECEMBER 31, 1994
<TABLE>
<CAPTION>
NUMBER MARKET
OF UNITS COST VALUE
---------- ------------ ------------
Fidelity Management Trust Company Funds:
<S> <C> <C> <C>
Capital Cities/ABC, Inc. Common
Stock Fund 35,153,782 $178,911,112 $404,971,567
Asset Manager 3,439,068 50,086,655 47,562,305
Retirement Money Market Portfolio 37,572,634 37,572,634 37,572,634
Magellan Fund 480,246 31,687,157 32,080,436
Growth & Income Portfolio 1,148,987 24,720,813 24,232,136
Institutional Short-Intermediate
Government Portfolio 1,125,485 10,481,785 10,331,956
------------ ------------
$333,460,156 $556,751,034
============ ============
</TABLE>
<PAGE>
CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN
SINGLE TRANSACTIONS IN EXCESS OF 5% OF THE CURRENT VALUE OF PLAN ASSETS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Cost of Cost of
Investment Proceeds Investment Gain/
Shares Description of Investment Purchased from Sale Disposed (Loss)
------ ---------------------------- ----------- ----------- ----------- ------
<S> <C> <C> <C> <C> <C>
67,517,464 AETNA Life Group Annuity $ - $67,517,464 $67,517,464 $ -
Contract (2.91%)
42,498,121 Bankers Trust Pyramid 42,498,121 - - -
Directed Account Cash Fund
49,047,823 Bankers Trust Pyramid - 49,047,823 49,047,823 -
Directed Account Cash Fund
36,208,300 Metropolitan Life Group - 36,208,300 36,208,300 -
Annuity Contract (6.31%)
39,084,310 Metropolitan Life Group - 39,084,310 39,084,310 -
Annuity Contract (6.44%)
39,084,310 Metropolitan Life Group 39,084,310 - - -
Annuity Contract (6.31%)
</TABLE>
There were no category (ii) or (iv) reportable transactions during 1994.
<PAGE>
CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN
SERIES OF TRANSACTIONS IN EXCESS OF 5% OF THE CURRENT VALUE OF PLAN ASSETS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Total
Type of Number of Purchase
Description of Investments Transaction Transactions Price
-------------------------- ----------- ------------ ------------
<S> <C> <C> <C>
Bankers Trust Pyramid Directed Purchases 128 $ 81,692,040
Account Cash Fund Sales 73 -
Aetna Life Group Annuity Purchases - -
Contract (2.91%) Sales 8 -
Metropolitan Life Group Purchases - -
Annuity Contract (6.44%) Sales 1 -
Metropolitan Life Group Purchases 7 40,061,700
Annuity Contract (6.31%) Sales 7 -
Capital Cities/ABC, Inc. Purchases 74 194,207,149
Common Stock Fund Sales 67 -
Asset Manager Purchases 71 77,046,581
Sales 65 -
Retirement Money Market Portfolio Purchases 81 114,856,427
Sales 72 -
Magellan Fund Purchases 61 33,880,147
Sales 58 -
Growth & Income Portfolio Purchases 60 26,176,961
Sales 57 -
</TABLE>
There were no category (ii) or (iv) reportable transactions during 1994.
(Continued on next page)
<PAGE>
CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN
SERIES OF TRANSACTIONS IN EXCESS OF 5% OF THE CURRENT VALUE OF PLAN ASSETS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Cost
Redemption Investments Realized
Description of Investments Price Sold Gain/(Loss)
----------------------------------- ----------- ----------- ------------
<S> <C> <C> <C>
Bankers Trust Pyramid Directed $ - $ - $ -
Account Cash Fund 85,489,927 85,489,927 -
Aetna Life Group Annuity - - -
Contract (2.91%) 75,626,288 75,626,288 -
Metropolitan Life Group - - -
Annuity Contract (6.44%) 39,084,310 39,084,310 -
Metropolitan Life Group - - -
Annuity Contract (6.31%) 40,061,700 40,061,700 -
Capital Cities/ABC, Inc. - - -
Common Stock Fund 32,029,546 15,659,184 16,370,362
Asset Manager - - -
26,702,780 26,992,831 (290,051)
Retirement Money Market Portfolio - - -
77,210,423 77,210,423 -
Magellan Fund - - -
2,213,832 2,193,955 19,877
Growth & Income Portfolio - - -
1,454,858 1,458,746 (3,888)
</TABLE>
There were no category (ii) or (iv) reportable transactions during 1994.
<PAGE>
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No 33-2196) pertaining to the Capital Cities/ABC, Inc. Savings & Investment
Plan and in the related Prospectus of our report dated March 17, 1995, with
respect to the financial statements and schedules of the Capital Cities/ABC,
Inc. Savings & Investment Plan included in this Annual Report (Form 11-K) for
the year ended December 31, 1994.
ERNST & YOUNG LLP
New York, New York
March 17, 1995
<PAGE>
EXHIBIT (99)(b)
The Registrant hereby undertakes as follows which undertakings shall be
and hereby are incorporated by reference into Form S-8 Registration Statements
No. 33-25918, No. 33-33761, No. 33-52563 and No. 33-52947.
UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file during any period in which offers or sales are being
made, a post-effective amendment to this registration statement: (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933; (ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
---- ----
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
---- ----
The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered, to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
