<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
February 9, 1996
The Walt Disney Company
Disney Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Delaware
Delaware
(State or jurisdiction of incorporation)
1-11605 95-4545390
1-4083 95-0684440
(Commission File Number) (IRS Employer Identification No.)
500 South Buena Vista Street, Burbank, California 91521
(Address of principal executive offices) (Zip Code)
(818) 560-1000
(Registrant's Telephone Number)
<PAGE>
Item 2. Acquisition or Disposition of Assets
------------------------------------
On February 9, 1996, The Walt Disney Company (the "Company") completed
its acquisition of Capital Cities/ABC, Inc. ("CC/ABC") pursuant to an Amended
and Restated Agreement and Plan of Reorganization, dated as of July 31, 1995
(the "Reorganization Agreement"), between the Company and CC/ABC. The
acquisition was consummated through the mergers of two wholly owned subsidiaries
of a newly formed holding company ("New Disney") with and into the Company and
CC/ABC, with the result that the Company and CC/ABC became wholly owned
subsidiaries of New Disney (the "Mergers"). Following the Mergers, the Company
was renamed Disney Enterprises, Inc. and New Disney was renamed The Walt Disney
Company. Upon consummation of the Mergers, each outstanding share of common
stock, par value $0.025 per share, of the Company ("Company Common Stock") was
converted into one share of common stock, par value $0.01 per share, of New
Disney ("New Disney Common Stock"). Each certificate representing shares of
Company Common Stock, without any action on the part of the holder thereof, is
now deemed to represent an equal number of shares of New Disney Common Stock.
Each outstanding share of common stock, par value $0.10 per share, of CC/ABC
(the "CC/ABC Common Stock") was converted into the right to receive, at the
holder's election (the "Election"), (i) one share of New Disney Common Stock
plus $65 in cash, (ii) subject to proration, 2.048 shares of New Disney Common
Stock or (iii) subject to proration, $127 in cash.
The Company anticipates that the cash to be paid to the CC/ABC
shareholders pursuant to the acquisition will be funded through the use of
available cash or cash equivalents and short-term investments of the Company and
CC/ABC, and through new borrowings in the commercial paper market, bank
borrowings, borrowings from private or public lenders or a combination of the
foregoing.
The Company has retained Harris Trust Company of New York to serve as
the Exchange Agent in connection with the Election. A supplement to the Joint
Proxy Statement/Prospectus dated November 13, 1995 distributed in connection
with the special stockholder meetings held in connection with the Mergers,
together with letters of transmittal, election forms and instructions thereto,
will be provided to the shareholders of CC/ABC with respect to the Election.
The Supplement to the Joint Proxy Statement/Prospectus is filed herewith as
Exhibit 99(a) and is incorporated herein by reference.
At the effective time of the Mergers, there were 154,589,545 shares of
CC/ABC Common Stock outstanding.
Item 7. Financial Statements and Exhibits
---------------------------------
<PAGE>
(a) Financial Statements of Business Acquired.
-----------------------------------------
The financial statements of CC/ABC required by this Item 7(a) are
incorporated herein by reference to the financial statements of CC/ABC set forth
in the Annual Report on Form 10-K of CC/ABC for the year ended December 31, 1994
and Quarterly Report on Form 10-Q as amended by Amendment No. 1 on Form 10-Q/A
of CC/ABC for the quarter ended October 1, 1995, which financial statements are
included herewith as Exhibit 99(b).
(b) Pro Forma Financial Information.
-------------------------------
The pro forma financial information required by this Item 7(b) is
incorporated herein by reference to the pro forma financial information set
forth under the heading "Unaudited Pro Forma Combined Condensed Financial
Statements" in the Supplement to the Joint Proxy Statement/Prospectus dated
February 9, 1996 included herewith as Exhibit 99(a).
(c) Exhibits.
--------
23 Consent of Ernst & Young LLP
99(a) Supplement to the Joint Proxy Statement/Prospectus dated
February 9, 1996.
99(b) Financial statements of CC/ABC set forth in the Annual
Report on Form 10-K of CC/ABC for the year ended December
31, 1994 and Quarterly Report on Form 10-Q as amended by
Amendment No. 1 on Form 10-Q/A of CC/ABC for the quarter
ended October 1, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
each of the registrants has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
THE WALT DISNEY COMPANY
By: /s/ David K. Thompson
---------------------------
David K. Thompson
Senior Vice President --
Assistant General Counsel
DISNEY ENTERPRISES, INC.
By: /s/ David K. Thompson
---------------------------
David K. Thompson
Senior Vice President --
Assistant General Counsel
Date: February 9, 1996
<PAGE>
EXHIBIT INDEX
-------------
Number Subject Matter
- ------ --------------
23 Consent of Ernst & Young LLP
99(a) Supplement to the Joint Proxy Statement/Prospectus dated February 9,
1996.
99(b) Financial statements of CC/ABC set forth in the Annual Report on Form
10-K of CC/ABC for the year ended December 31, 1994 and Quarterly
Report on Form 10-Q as amended by Amendment No. 1 on Form 10-Q/A of
CC/ABC for the quarter ended October 1, 1995.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in Form 8-K (Current Report) of The Walt Disney
Company and Disney Enterprises, Inc. dated February 9, 1996 of our report dated
February 28, 1995 with respect to the consolidated financial statements of
Capital Cities/ABC, Inc. included in its Annual Report and Form 10-K for the
year ended December 31, 1994, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
New York, New York
February 9, 1996
<PAGE>
EXHIBIT 99.(a)
SUPPLEMENT
TO THE JOINT PROXY STATEMENT
DATED NOVEMBER 13, 1995 OF
THE WALT DISNEY COMPANY
AND
CAPITAL CITIES/ABC, INC.
AND TO THE
PROSPECTUS DATED NOVEMBER 13, 1995 OF
DC HOLDCO, INC.
February 9, 1996
The following information (the "Supplement") supplements the Joint Proxy
Statement/Prospectus, dated November 13, 1995, of The Walt Disney Company, a
Delaware corporation ("Disney"), Capital Cities/ABC, Inc., a New York
corporation ("Capital Cities") and DC Holdco, Inc., a Delaware corporation
("New Disney"). This Supplement is accompanied by a copy of the Joint Proxy
Statement/Prospectus and should be read in conjunction therewith and with all
documents filed by New Disney with the Commission prior to the Election
Deadline. Capitalized terms used but not defined herein have the meanings set
forth in the Joint Proxy Statement/Prospectus.
RESULTS OF SPECIAL MEETINGS; CONSUMMATION OF THE MERGERS
At the Disney Meeting, held on January 4, 1996, the stockholders of Disney
approved and adopted the Disney Proposal and the Disney Option Proposal. At
the Capital Cities Meeting, also held on January 4, 1996, the shareholders of
Capital Cities approved and adopted the Capital Cities Proposal. On February
9, 1996, the Mergers were consummated upon the fulfillment of all conditions
thereto.
REGULATORY APPROVALS
Antitrust. All applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, have expired. On January 3,
1996, Disney advised the Antitrust Division of the United States Department of
Justice (the "Antitrust Division") of its commitment to divest (or spin off to
its stockholders) television station KCAL-TV, Los Angeles, California ("KCAL-
TV"), and to separately manage the operations of KCAL-TV and television
station KABC-TV, Los Angeles, California ("KABC-TV") pending completion of the
KCAL-TV divestiture.
FCC. The FCC granted its consent to the FCC Applications on February 8, 1996
(the "FCC Approval"). In so doing, the FCC dismissed the petitions to deny
filed by the SCBA and the OC Petitioners and granted most of Disney's requests
for waivers of the Multiple Ownership Rules. However, the FCC denied Disney's
requests for permanent waivers of the newspaper/broadcast cross-ownership rule
that would have allowed New Disney to retain common ownership of radio
stations WBAP(AM) (Fort Worth, Texas) and KSCS(FM) (Fort Worth, Texas) and the
Fort Worth Star-Telegram in the Dallas-Fort Worth market, and radio stations
WJR(AM) (Detroit, Michigan) and WHYT(FM) (Detroit, Michigan) and The Oakland
Press & Reminder (Pontiac, Michigan) in the Detroit market. Instead, the FCC
granted New Disney temporary 12-month waivers of the newspaper/broadcast
cross-ownership rule. Accordingly, the FCC's action effectively requires that
within 12 months after the consummation of the Acquisition, New Disney must
divest either the newspaper or the two radio stations in each of the Dallas-
Fort Worth and Detroit markets.
Additionally, although Disney requested a temporary 18-month waiver of the
television duopoly rule so that New Disney temporarily could own both KCAL-TV
and KABC-TV in the Los Angeles market, the FCC granted a temporary six-month
waiver.
<PAGE>
The FCC Rules also allow persons who have standing to petition the FCC for
reconsideration of the FCC Approval. Additionally, such persons may appeal the
FCC Approval to the U.S. Court of Appeals for the District of Columbia
Circuit. New Disney is not aware that any such challenges have been filed or
are contemplated by any persons seeking to reverse the FCC Approval, nor does
it believe that any such challenges would be successful. If any challenge is
filed with the FCC or the U.S. Court of Appeals, New Disney intends vigorously
to oppose it.
LEGISLATIVE REFORMS
On February 1, 1996, the U.S. Senate and House of Representatives voted to
approve the Telecommunications Act of 1996 (the "Act"). The President signed
the Act on February 8, 1996. The following highlights a few of the provisions
of the Act that are expected to affect most directly the operations of New
Disney and its subsidiaries. Such highlights do not purport to be a complete
summary of the provisions of the Act that are relevant to New Disney and its
subsidiaries.
License Renewals. The Act lengthens the terms of television and radio
broadcast licenses from five and seven years, respectively, to eight years. It
also streamlines the license renewal process by prohibiting the FCC, upon
expiration of an incumbent's license, from considering competing applications
for such license unless the FCC first decides that the incumbent licensee does
not meet statutory requirements for renewal.
Ownership. The Act eliminates the FCC's national ownership limits in the
form of caps on the number of television and radio broadcast stations that may
be commonly owned. Additionally, it raises the national audience coverage
restriction on television station ownership from 25 percent to 35 percent of
the national audience. Although the Act liberalizes certain other Multiple
Ownership Rules, including restrictions on the number of radio broadcast
stations that may be commonly owned in a local market (i.e., the radio duopoly
rule), it does not repeal the FCC's newspaper/broadcast cross-ownership rule.
Moreover, it does not repeal the FCC's television duopoly rule (generally
proscribing the common ownership of television stations with overlapping
signal contours).
RECENT DEVELOPMENTS
Richard D. Nanula became the Senior Executive Vice President and Chief
Financial Officer of Disney effective February 6, 1996. Mr. Nanula replaced
Stephen F. Bollenbach, who has accepted the position of President and Chief
Executive Officer of Hilton Corporation. Mr. Nanula served as Chief Financial
Officer of Disney from August 1991 until November 1994, when he was named
President of The Disney Store Worldwide.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
DISNEY/CAPITAL CITIES COMBINED COMPANY
The following unaudited pro forma combined condensed financial statements
are based upon the consolidated financial statements of Disney and Capital
Cities, combined and adjusted to give effect to the Acquisition. As a result
of the Capital Cities Merger, each outstanding share of Capital Cities Common
Stock has been converted into the right to receive cash, shares of New Disney
Common Stock or a combination of both cash and New Disney Common Stock. The
exact amount of cash and/or shares of New Disney Common Stock to be received
by each shareholder of Capital Cities pursuant to the Capital Cities Merger is
dependent upon, among other things, (i) the stated preferences of the Capital
Cities shareholders on the Election Form, (ii) the proration procedures to be
applied if the Requested Stock Amount exceeds the Stock Component or the
Requested Cash Amount exceeds the Cash Component, and (iii) the level of the
Maximum Cash Amount, including any increase of the Maximum Cash Amount by
Disney, in its sole discretion. Accordingly, two alternative scenarios of
unaudited pro forma combined condensed financial statements are presented,
which give
2
<PAGE>
effect to the range of possible amounts of New Disney Common Stock and/or cash
to be received by Capital Cities shareholders as a result of the Capital
Cities Merger. Scenario 1 assumes that all Capital Cities shareholders receive
one share of New Disney Common Stock and $65 in cash (Standard Consideration)
for each outstanding share of Capital Cities Common Stock, reflecting the
maximum number of shares of New Disney Common Stock which could be issued in
connection with the Acquisition. Scenario 2 assumes that all Capital Cities
shareholders receive solely cash (Cash Consideration) for each outstanding
share of Capital Cities Common Stock, without regard to the Cash Component.
See "THE REORGANIZATION AGREEMENT--Capital Cities Merger Consideration" in the
Joint Proxy Statement/Prospectus and the other materials enclosed herewith.
The following unaudited pro forma combined condensed statements of income
for the year ended September 30, 1995 give effect to the Acquisition as if it
had occurred on October 1, 1994. The unaudited pro forma combined condensed
statements of income for the year ended September 30, 1995 were prepared based
upon the audited consolidated statement of income of Disney for the year ended
September 30, 1995 and the unaudited consolidated statements of income of
Capital Cities for the nine months ended October 1, 1995 and the three months
ended December 31, 1994.
The following unaudited pro forma combined condensed balance sheets as of
September 30, 1995 give effect to the Acquisition as if it had occurred on
such date and were prepared based upon the audited consolidated balance sheet
of Disney as of September 30, 1995 and the unaudited consolidated balance
sheet of Capital Cities as of October 1, 1995.
These unaudited pro forma combined condensed financial statements and the
notes thereto should be read in conjunction with the Disney and Capital Cities
audited consolidated financial statements and unaudited interim consolidated
financial statements, including the notes thereto, which are incorporated by
reference in the Joint Proxy Statement/Prospectus.
The unaudited pro forma combined condensed financial statements are not
necessarily indicative of the results of operations or financial position of
the combined company that would have occurred had the Acquisition occurred at
the beginning of the period presented or on the date indicated, nor are they
necessarily indicative of future operating results or financial position.
The unaudited pro forma adjustments are based upon information set forth in
the Joint Proxy Statement/Prospectus, and certain assumptions included in the
notes to the unaudited pro forma combined condensed financial statements. New
Disney believes the pro forma assumptions are reasonable under the
circumstances. In addition, as of the date of this Supplement, New Disney
believes that the unaudited pro forma combined condensed financial statements
reflect the impact on the operations and liquidity of New Disney of all
material events or changes expected to result from the Acquisition.
The Acquisition will be accounted for by the purchase method of accounting.
Accordingly, New Disney's cost to acquire Capital Cities (the "Purchase
Consideration") of $19.03 billion will be allocated to the assets acquired and
liabilities assumed according to their respective fair values, with the excess
Purchase Consideration being allocated to goodwill. The Purchase Consideration
is based on the approximate market price of Disney's common stock ($57) when
the transaction was announced. The cash and stock consideration that will be
issued to Capital Cities shareholders and that is reflected in these unaudited
pro forma combined condensed financial statements, is based on the actual
Disney Common Stock Price of $62, representing the average of the closing
sales prices of the Disney Common Stock on the New York Stock Exchange
Composite Tape on each of the ten consecutive trading days immediately
preceding the second trading day prior to February 9, 1996 (the "Closing
Date"). The final allocation of the Purchase Consideration is dependent upon
certain valuations and other studies that have not progressed to a stage where
there is sufficient information to make such an allocation in the accompanying
unaudited pro forma combined condensed financial statements. Accordingly, the
purchase allocation adjustments made in connection with the development of the
unaudited pro forma combined condensed financial statements are preliminary
and have been made solely for the purpose of developing such unaudited pro
forma combined condensed financial statements.
3
<PAGE>
The $16.42 billion pro forma excess of Purchase Consideration over net
tangible assets acquired as of September 30, 1995 is being amortized over 40
years at a rate of $410.5 million per year, in accordance with generally
accepted accounting principles, which require that acquired intangible assets
be amortized over lives not to exceed 40 years. New Disney believes that the
intangible assets acquired, representing principally the franchises and
trademarks of Capital Cities, represent scarce assets with indefinite lives,
which have historically appreciated in value over time. In addition, the
Acquisition will permit the continued expansion of current lines of business,
as well as the development of new businesses, via the cross promotion of the
well known franchises, trademarks and products of Disney and Capital Cities.
New Disney believes it will benefit from the Acquisition for an indeterminable
period of time of at least 40 years and, therefore, a 40-year amortization
period is appropriate. After consummation of the Acquisition, New Disney will
complete the valuations and other studies of the significant assets,
liabilities and business operations of Capital Cities. Using this information,
New Disney will make a final allocation of the Purchase Consideration,
including allocation to tangible assets and liabilities, identifiable
intangible assets and goodwill. New Disney believes that any significant
allocation of excess Purchase Consideration to intangible assets other than
goodwill will be amortized over periods approximating 40 years.
New Disney will perform periodic reviews of the goodwill and other
intangible assets arising from the Acquisition, to ensure that they are
carried at recoverable amounts in light of current business conditions.
The future results of operations of New Disney will reflect increased
amortization of intangible assets, increased interest expense and a higher
effective income tax rate, since a significant portion of the consideration to
be received by Capital Cities shareholders as a result of the consummation of
the Capital Cities Merger will be non-deductible for tax purposes. The future
financial position of New Disney will reflect increased intangible assets as
described above, increased borrowings, and under Scenario 1, increased
stockholders' equity resulting from the issuance of New Disney Common Stock to
shareholders of Capital Cities. See "Notes to Unaudited Pro Forma Combined
Condensed Financial Statements."
INDEX TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Scenario 1: Capital Cities shareholders receive the Standard Consideration
(maximum stock)
.Unaudited pro forma combined condensed statement of income for the year
ended September 30, 1995
.Unaudited pro forma combined condensed balance sheet as of September 30,
1995
Scenario 2: Capital Cities shareholders receive the Cash Consideration,
without regard to the Cash Component (maximum cash)
.Unaudited pro forma combined condensed statement of income for the year
ended September 30, 1995
.Unaudited pro forma combined condensed balance sheet as of September 30,
1995
Notes to unaudited pro forma combined condensed financial statements
4
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1995
(SCENARIO 1: CAPITAL CITIES SHAREHOLDERS RECEIVE
THE STANDARD CONSIDERATION (MAXIMUM STOCK))
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ ------------------------
DISNEY CAPITAL CITIES ADJUSTMENTS COMBINED
--------- -------------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues................... $12,112.1 $6,796.3 $18,908.4
Costs and Expenses......... 9,233.0 5,272.8 $ (34.0)(a) 14,471.8
Depreciation............... 433.4 110.7 544.1
Amortization of Intangible
Assets.................... 64.5 346.0 (b) 410.5
--------- -------- -------- ---------
Operating Income........... 2,445.7 1,348.3 (312.0) 3,482.0
General and Administrative
Expenses.................. 183.6 43.6 227.2
Interest Expense (Income),
Net....................... 110.3 (4.2) 689.7 (c) 795.8
Other...................... 35.1 2.4 37.5
--------- -------- -------- ---------
Income Before Income Taxes. 2,116.7 1,306.5 (1,001.7) 2,421.5
Income Taxes............... 736.6 572.1 (255.7)(d) 1,053.0
--------- -------- -------- ---------
Net Income................. $ 1,380.1 $ 734.4 $ (746.0) $ 1,368.5
========= ======== ======== =========
Earnings Per Share......... $ 2.60 $ 4.77 $ 2.00(e)
========= ======== =========
Average Number of Common
and Common Equivalent
Shares Outstanding........ 530.4 154.0 685.3(e)
========= ======== =========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements
5
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1995
(SCENARIO 1: CAPITAL CITIES SHAREHOLDERS RECEIVE
THE STANDARD CONSIDERATION (MAXIMUM STOCK))
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ ------------------------
DISNEY CAPITAL CITIES ADJUSTMENTS COMBINED
--------- -------------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Cash and Cash Equivalents........... $ 1,076.5 $1,038.8 $(1,615.3)(a) $ 500.0
Investments......................... 866.3 272.4 (1,000.0)(b) 138.7
Receivables......................... 1,792.8 961.9 2,754.7
Inventories......................... 824.0 824.0
Film and Television Costs........... 2,099.4 642.8 2,742.2
Theme Parks, Resorts and Other Prop-
erty, Net.......................... 6,190.3 1,297.7 7,488.0
Intangible Assets, Net.............. 2,121.4 14,298.6 (c) 16,420.0
Other Assets........................ 1,756.5 914.5 2,671.0
--------- -------- --------- ---------
$14,605.8 $7,249.5 $11,683.3 $33,538.6
========= ======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts and Taxes Payable and Other
Accrued Liabilities................ $ 3,042.7 $1,316.7 $ (405.2)(d) $ 3,954.2
Borrowings.......................... 2,984.3 607.9 7,996.2 (e) 11,588.4
Other Liabilities................... 1,928.0 589.9 2,517.9
Stockholders' Equity................ 6,650.8 4,735.0 4,092.3 (f) 15,478.1
--------- -------- --------- ---------
$14,605.8 $7,249.5 $11,683.3 $33,538.6
========= ======== ========= =========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements
6
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1995
(SCENARIO 2: CAPITAL CITIES SHAREHOLDERS RECEIVE THE CASH CONSIDERATION,
WITHOUT REGARD TO THE CASH COMPONENT (MAXIMUM CASH))
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ ------------------------
DISNEY CAPITAL CITIES ADJUSTMENTS COMBINED
--------- -------------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues.................. $12,112.1 $6,796.3 $18,908.4
Costs and Expenses........ 9,233.0 5,272.8 $ (34.0)(a) 14,471.8
Depreciation.............. 433.4 110.7 544.1
Amortization of Intangible
Assets................... 64.5 346.0 (b) 410.5
--------- -------- --------- ---------
Operating Income.......... 2,445.7 1,348.3 (312.0) 3,482.0
General and Administrative
Expenses................. 183.6 43.6 227.2
Interest Expense (Income),
Net...................... 110.3 (4.2) 1,314.0 (c) 1,420.1
Other..................... 35.1 2.4 37.5
--------- -------- --------- ---------
Income Before Income Tax-
es....................... 2,116.7 1,306.5 (1,626.0) 1,797.2
Income Taxes.............. 736.6 572.1 (499.2)(d) 809.5
--------- -------- --------- ---------
Net Income................ $ 1,380.1 $ 734.4 $(1,126.8) $ 987.7
========= ======== ========= =========
Earnings Per Share........ $ 2.60 $ 4.77 $ 1.86(e)
========= ======== =========
Average Number of Common
and Common Equivalent
Shares Outstanding....... 530.4 154.0 530.4(e)
========= ======== =========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements
7
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1995
(SCENARIO 2: CAPITAL CITIES SHAREHOLDERS RECEIVE THE CASH CONSIDERATION,
WITHOUT REGARD TO THE CASH COMPONENT (MAXIMUM CASH))
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ ---------------------------
DISNEY CAPITAL CITIES ADJUSTMENTS COMBINED
--------- -------------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Cash and Cash Equivalents........... $ 1,076.5 $1,038.8 $(1,615.3)(a) $ 500.0
Investments......................... 866.3 272.4 (1,000.0)(b) 138.7
Receivables......................... 1,792.8 961.9 2,754.7
Inventories......................... 824.0 824.0
Film and Television Costs........... 2,099.4 642.8 2,742.2
Theme Parks, Resorts and Other Prop-
erty, Net.......................... 6,190.3 1,297.7 7,488.0
Intangible Assets, Net.............. 2,121.4 14,298.6 (c) 16,420.0
Other Assets........................ 1,756.5 914.5 2,671.0
--------- -------- --------- ---------
$14,605.8 $7,249.5 $11,683.3 $33,538.6
========= ======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts and Taxes Payable and Other
Accrued Liabilities................ $ 3,042.7 $1,316.7 $ (405.2)(d) $ 3,954.2
Borrowings.......................... 2,984.3 607.9 17,599.9 (e) 21,192.1
Other Liabilities................... 1,928.0 589.9 2,517.9
Stockholders' Equity................ 6,650.8 4,735.0 (5,511.4)(f)(g) 5,874.4
--------- -------- --------- ---------
$14,605.8 $7,249.5 $11,683.3 $33,538.6
========= ======== ========= =========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements
8
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The unaudited pro forma combined condensed financial statements reflect the
conversion of each outstanding share of Capital Cities Stock (154.9 million
shares, representing 153.9 million shares outstanding as of October 1, 1995
plus an estimated 1.0 million shares expected to be issued through the
Effective Time in connection with the Capital Cities Employee Stock Purchase
Plan), based on the actual Disney Common Stock Price of $62, into cash and/or
shares of New Disney Common Stock as follows:
<TABLE>
<CAPTION>
SCENARIO 1 SCENARIO 2
MAXIMUM STOCK MAXIMUM CASH
------------- ------------
<S> <C> <C>
The Purchase Consideration is detailed as follows:
Cash.............................................. $10,068.6 $19,672.3
New Disney Common Stock........................... 8,827.3 --
Settlement of certain benefit plans (1)........... 137.7 137.7
Stock Price Adjustment (2)........................ -- (776.4)
--------- ---------
Total Purchase Consideration........................ 19,033.6 19,033.6
Less: Capital Cities tangible net assets as of Octo-
ber 1, 1995........................................ 2,613.6 2,613.6
--------- ---------
Excess of Purchase Consideration over net tangible
assets acquired.................................... $16,420.0 $16,420.0
========= =========
</TABLE>
- --------
(1) As a result of the Acquisition, certain Capital Cities benefit plans will
become fully vested and the related benefits will become immediately
payable in a single lump-sum distribution. In addition, the Acquisition
results in accelerated vesting of Capital Cities Options, which for
purposes of these pro forma combined condensed financial statements are
assumed to be settled in cash. The amount included in the Purchase
Consideration reflects total estimated payments of $542.9 million, less
related amounts accrued at October 1, 1995 of $298.0 million, and less
estimated income tax benefits of $107.2 million.
(2) Represents the difference between the Cash Consideration and the cash that
would have been paid as consideration based on the approximate value of
Disney Common Stock when the transaction was announced (the "Stock Price
Adjustment") under Scenario 2.
Acquisition expenses, including debt issuance costs, are not expected to be
material and, accordingly, have not been included in the unaudited pro forma
combined condensed financial statements.
Transactions between Disney and Capital Cities have not been eliminated from
the unaudited pro forma combined condensed financial statements, as the
amounts are immaterial in the periods presented.
The impact on New Disney's financial position from the disposition of
Disney's investment in KCAL-TV and from the disposition of either Capital
Cities' newspaper or radio station operations in Detroit and Dallas/Fort Worth
is not expected to be material and, accordingly, has not been reflected in the
unaudited pro forma combined condensed financial statements.
Certain reclassifications have been made to the Disney and Capital Cities
historical consolidated financial statements to set forth the unaudited pro
forma combined condensed financial statements of New Disney after giving
effect to the Acquisition.
Pro forma adjustments giving effect to the Acquisition in the unaudited pro
forma combined condensed statements of income reflect the following:
(a)Elimination of merger costs which are assumed to have been incurred
prior to the Acquisition.
(b) Amortization of the excess of Purchase Consideration over tangible net
assets acquired on a straight-line basis over 40 years, net of
elimination of Capital Cities' historical amortization of excess
acquisition costs over the values assigned to tangible net assets
acquired in prior acquisitions.
9
<PAGE>
(c) Increase in interest expense resulting from the use of new borrowings
to finance a portion of the Purchase Consideration and reduction in
investment and interest income, resulting from the use of certain
short-term investments and cash to fund partial payment of the Purchase
Consideration. The interest rate on new borrowings of $8.00 billion
under Scenario 1 and $17.60 billion under Scenario 2 is assumed to be
6.5%.
(d) Income tax effect of pro forma adjustments, excluding amortization of
the excess of Purchase Consideration over tangible net assets acquired,
which is non-deductible for tax purposes.
(e) Earnings per share based upon the weighted average number of shares of
Disney Common Stock and common equivalent shares outstanding for the
period presented, including under Scenario 1, the shares of New Disney
Common Stock assumed to be issued in connection with the Acquisition,
as if they had been issued at the beginning of the period presented.
Pro forma adjustments giving effect to the Acquisition in the unaudited pro
forma combined condensed balance sheets reflect the following:
(a) Liquidation of certain cash balances to fund partial payment of the
Purchase Consideration.
(b) Liquidation of certain short-term investments to fund partial payment
of the Purchase Consideration.
(c) Excess of Purchase Consideration over tangible net assets acquired, net
of Capital Cities' historical excess of purchase consideration over the
values assigned to tangible net assets acquired in prior acquisitions.
(d) Liquidation of accrued liabilities related to the cash settlement of
certain Capital Cities benefit plans and recording of income tax
benefits related to the distribution of accelerated benefits.
(e) New borrowings to finance the cash portion of the Purchase
Consideration and the cash settlement of certain Capital Cities benefit
plans.
(f) Cancellation of Disney Treasury Stock, elimination of Capital Cities
shareholders' equity, and, under Scenario 1, issuance of 154.9 million
shares of New Disney Common Stock.
(g) The Stock Price Adjustment, which is described above.
The two scenarios of unaudited pro forma combined condensed financial
statements presented above give effect to the range of possible amounts of New
Disney Common Stock and/or cash to be received by Capital Cities shareholders
as a result of the consummation of the Capital Cities Merger. However, under a
scenario whereby the aggregate amount of cash payable to Capital Cities
shareholders is set at a point approximately halfway between its level under
Scenario 1 and Scenario 2, as defined above, unaudited pro forma combined
earnings per share would be $1.94 for the year ended September 30, 1995, and
the final consideration would consist of $14.87 billion in cash and $4.80
billion in Disney Common Stock (77.4 million shares).
10
<PAGE>
[LOGO OF WALT DISNEY COMPANY]
<PAGE>
EXHIBIT 99.(b)
PART I FINANCIAL INFORMATION
----------------------------
CAPITAL CITIES/ABC, INC.
------------------------
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
--------------------------------------------
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------ ------------------------
Oct 1, Oct 2, Oct 1, Oct 2,
---------- ---------- ---------- ----------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenues $1,566,528 $1,461,932 $4,822,032 $4,404,973
---------- ---------- ---------- ----------
Costs and expenses
Direct operating expenses 943,583 858,370 2,825,733 2,580,180
Selling, general and
administrative 302,186 316,837 949,917 896,873
Depreciation 29,135 27,792 85,576 81,285
Amortization of intangible
assets 16,391 15,830 48,506 47,444
Merger costs and litigation
settlement 47,347 - 47,347 -
---------- ---------- ---------- ----------
1,338,642 1,218,829 3,957,079 3,605,782
---------- ---------- ---------- ----------
Operating income 227,886 243,103 864,953 799,191
Other income (expense)
Interest expense (14,983) (14,129) (44,031) (40,566)
Interest income 21,252 8,346 53,911 15,711
Other, net (6,118) (1,345) 2,947 2,408
---------- ---------- ---------- ----------
151 (7,128) 12,827 (22,447)
---------- ---------- ---------- ----------
Income before income taxes 228,037 235,975 877,780 776,744
---------- ---------- ----------
Income taxes 101,000 102,300 384,100 337,500
---------- ---------- ---------- ----------
Net income $ 127,037 $ 133,675 $ 493,680 $ 439,244
========== ========== ========== ==========
Net income per share $0.83 $0.87 $3.21 $2.86
========== ========== ========== ==========
Dividends per common share $0.05 $0.05 $0.15 $0.105
========== ========== ========== ==========
Average shares outstanding 153,860 154,035 153,985 153,840
========== ========== ========== ==========
(000's)
</TABLE>
-2-
<PAGE>
CAPITAL CITIES/ABC, INC.
------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
(Thousands of Dollars)
<TABLE>
<CAPTION>
October 1, December 31,
----------- -----------
1995 1994
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
Assets
- ------
Current assets
Cash and short-term cash investments $ 1,038,800 $ 781,371
Short-term investments 272,421 238,029
Accounts and notes receivable, net 961,859 1,056,280
Program licenses and rights 444,769 440,443
Other current assets 244,584 200,064
----------- -----------
Total current assets 2,962,433 2,716,187
----------- -----------
Property, plant and equipment, at cost 2,191,205 2,122,494
Less accumulated depreciation (893,461) (831,838)
----------- -----------
Property, plant and equipment,
net 1,297,744 1,290,656
----------- -----------
Intangible assets, net 2,121,395 1,999,305
Program licenses and rights,
noncurrent 197,978 195,563
Investment in unconsolidated equity
affiliates 357,078 334,460
Other assets 312,829 232,041
----------- -----------
$ 7,249,457 $ 6,768,212
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities
Accounts payable $ 140,738 $ 163,566
Accrued compensation 301,501 131,370
Accrued expenses and other current
liabilities 328,095 273,254
Program licenses and rights 340,619 281,923
Taxes on income 84,936 189,267
Long-term debt due within one year 93,786 4,176
----------- -----------
Total current liabilities 1,289,675 1,043,556
Deferred compensation 71,571 188,492
Deferred income taxes 228,624 247,532
Program licenses and rights,
noncurrent 49,160 39,259
Other liabilities 241,902 233,987
Long-term debt due after one year 514,098 610,666
----------- -----------
Total liabilities 2,395,030 2,363,492
----------- -----------
Minority interest 119,403 116,163
----------- -----------
Stockholders' equity
Preferred stock, no par value - -
Common stock, $0.10 par value
(300,000,000 shares authorized) 18,394 18,394
Additional paid-in capital 1,046,838 1,036,068
Unrealized net gains on investments 70,060 57,008
Retained earnings 5,219,215 4,748,624
----------- -----------
6,354,507 5,860,094
Less common stock in treasury, at
cost (1,619,483) (1,571,537)
Total stockholders' equity 4,735,024 4,288,557
----------- -----------
$ 7,249,457 $ 6,768,212
=========== ===========
</TABLE>
-3-
<PAGE>
CAPITAL CITIES/ABC, INC.
------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
------------------------------------------------
(Thousands of Dollars)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------
Oct. 1, Oct. 2,
1995 1994
---------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income $ 493,680 $ 439,244
Adjustments to reconcile net income
to net cash
Noncash and nonoperating items
Depreciation 85,576 81,285
Amortization of intangible assets 48,506 47,444
(Decrease) increase in deferred
liabilities (144,861) 49,959
Other noncash and nonoperating
items, net 43,942 30,201
Changes in operating assets and
liabilities, net of effects of
acquisitions and dispositions
Decrease in program assets and
liabilities, net 61,899 34,125
Decrease (increase) in accounts
receivable 99,559 (2,765)
Increase (decrease) in accounts
payable, accrued expenses and
other current liabilities 102,050 (14,351)
(Increase) in other operating
assets, net (38,486) (31,260)
---------- ---------
Net cash provided by operating
activities 751,865 633,882
---------- ---------
Cash flows from investing activities
Capital expenditures (91,130) (87,630)
Acquisitions of operating companies
and equity investments (194,229) (213,486)
Purchases of short-term investments (845,003) (356,501)
Sales and maturities of short-term
investments 810,670 326,802
Proceeds from dispositions of
operating companies 39,323 -
Proceeds from dispositions of real
estate - 22,000
Other investing activities, net (136,844) (30,738)
---------- ---------
Net cash used in investing activities (417,213) (339,553)
---------- ---------
Cash flows from financing activities
Reduction of long-term debt (16,958) (5,661)
Common stock purchased for treasury (78,124) (27,444)
Common stock issued under Employee
Stock Plans 40,948 29,899
Dividends (23,089) (16,170)
---------- ---------
Net cash used in financing activities (77,223) (19,376)
---------- ---------
Net increase in cash and short-term
cash investments 257,429 274,953
Cash and short-term cash investments
Beginning of period 781,371 264,283
---------- ---------
End of period $1,038,800 $ 539,236
========== =========
</TABLE>
* * * * * * *
Cash and short-term cash investments at October 1, 1995 and October 2, 1994
excludes $272,421,000 and $202,368,000, respectively, of highly liquid U.S.
Government instruments with original maturities in excess of three months, to
conform to the definition of a cash investment prescribed by the Financial
Accounting Standards Board.
-4-
<PAGE>
CAPITAL CITIES/ABC, INC.
------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
----------------------------------------------------------
Nine Months Ended October 1, 1995
(Thousands of Dollars)
<TABLE>
<CAPTION>
Unreal-
Additional ized net
Common paid-in gains on Retained Treasury
stock capital investments earnings stock Total
------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1994 $18,394 $1,036,068 $57,008 $4,748,624 $(1,571,537) $4,288,557
Net income for
nine months - - - 493,680 - 493,680
704,489 shares issued
under Employee
Stock Purchase Plan - 11,166 - - 29,328 40,494
20,258 shares issued
from exercise of
employee stock
options - (396) - - 850 454
910,270 shares
purchased for
treasury - - - - (78,124) (78,124)
Dividends - - - (23,089) - (23,089)
Change in
unrealized net
gains, net of
income taxes of
$9,032 - - 13,052 - - 13,052
------- ---------- ----------- ---------- ----------- ----------
Balance at October 1,
1995 $18,394 $1,046,838 $70,060 $5,219,215 $(1,619,483) $4,735,024
======= ========== =========== ========== =========== ==========
</TABLE>
-5-
<PAGE>
CAPITAL CITIES/ABC, INC.
------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(1) The results presented in the financial statements are unaudited, but in the
opinion of management contain all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the results of
operations.
(2) On July 31, 1995, Capital Cities/ABC announced that it was merging with The
Walt Disney Company. The merger, which is subject to regulatory review and
approval of the shareholders of each company, is expected to be completed
during early 1996.
-6-
<PAGE>
Capital Cities/ABC
- --------------------------------------------------------------------------------
Consolidated Statement of Income
Years ended December 31, 1994, 1993 and 1992
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
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 charge 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
Years ended December 31, 1994, 1993 and 1992
(Dollars in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
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
December 31, 1994 and 1993
(Dollars in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
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
Years ended December 31, 1994, 1993 and 1992
(Dollars in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
UNREALIZED
ADDITIONAL NET GAINS
COMMON PAID-IN ON RETAINED TREASURY
STOCK CAPITAL INVESTMENTS EARNINGS STOCK TOTAL
- -------------------------------------------------------------------------------------------------------------------------
<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>
Capital Cities/ABC
- --------------------------------------------------------------------------------
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; 1998 - $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>
Capital Cities/ABC
- --------------------------------------------------------------------------------
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>
<CAPTION>
- -------------------------------------------------------------------------------
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>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
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>
Capital Cities/ABC
- --------------------------------------------------------------------------------
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
