Document/Exhibit Description Pages Size
1: 10-K Annual Report 20 117K
2: EX-13 Annual Report 48 239K
3: EX-21 Subsidiaries of Company 5 21K
4: EX-27 Art. 5 Financial Data Schedule for 1994 10-K 2 9K
5: EX-99.A Form 11-K for the Company 23 69K
6: EX-99.B Undertakings 2± 8K
EXHIBIT 13
Capital Cities/ABC, Inc.
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40th
1994 Annual Report
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Decentralization is the cornerstone of our management philosophy. Our goal is to
hire the best people we can find and give them the responsibility and authority
they need to perform their jobs. Decisions are made at the local level,
consistent with the basic responsibilities of corporate management. Budgets,
which are set yearly and reviewed quarterly, originate with the operating units
that are responsible for them. We expect a great deal from our managers. We
expect them to be forever cost-conscious and to recognize and exploit sales
potential. But above all, we expect them to manage their operations as good
citizens and use their facilities to further the community welfare.
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OPERATING HIGHLIGHTS
[Download Table]
1994 1993
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Net revenues $6,379,237,000 $5,673,653,000
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Operating income $1,238,811,000 $ 862,149,000
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Income before extraordinary charge $ 679,814,000 $ 467,379,000
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Income per share before extraordinary
charge $4.42 $2.85*
-------------- --------------
Average shares outstanding 153,890,000 163,800,000*
-------------- --------------
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Income Before Extraordinary Items and Cumulative Effect of Accounting Changes
[Download Table]
$ Millions
1986 1987 1988 1989 1990 1991 1992 1993 1994
----- ----- ----- ----- ----- ----- ----- ----- -----
181.9 279.1 387.1 485.7 477.8 374.7 389.3 467.4 679.8
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Income Per Share Before Extraordinary Items and Cumulative Effect of Accounting
Changes*
[Download Table]
1986 1987 1988 1989 1990 1991 1992 1993 1994
----- ----- ----- ----- ----- ----- ----- ----- -----
$1.12 $1.65 $2.23 $2.72 $2.77 $2.23 $2.34 $2.85 $4.42
*Restated to reflect June 1994 ten-for-one stock split
Capital Cities/ABC
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TO OUR SHAREHOLDERS
The year 1994 was an exceptional one for Capital Cities/ABC. While marking our
40th anniversary, the Company's operations achieved record results. Strong
performances by all of our major businesses, healthy marketplace conditions and
continued focus on cost control produced our most successful year ever.
Earnings per share were a record $4.42, an increase of 55 percent from the $2.85
reported in 1993. Per share results in both years reflect the Company's ten-
for-one common stock split in June 1994. Revenues increased 12 percent to
$6,379,000,000, also a record, and substantially higher than our 1994
expectations. Costs increased 7 percent, and operating income grew 44 percent
to a record $1,239,000,000. Our operations were able to capitalize on the record
revenues by converting $377,000,000, or 53 percent of the year's revenue gain,
into operating income. This compares to a 42 percent conversion in 1993.
A summary of the Company's results for 1994 compared with 1993 follows:
[Download Table]
Percent
(Dollars in millions) 1994 1993 change
-------- -------- --------
Net revenues $ 6,379 $ 5,674 12%
-------- --------
Operating costs 4,968 4,656 7%
Depreciation 109 95 15%
Amortization 63 61 3%
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Total costs 5,140 4,812 7%
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Operating income 1,239 862 44%
Interest/other, net (34) (34) -
-------- --------
Income before taxes 1,205 828 46%
Income taxes (525) (361) 45%
-------- --------
Net income $ 680 $ 467 * 46%
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Income per share $ 4.42 $ 2.85 * 55%
Average shares (000) 153,890 163,800 (6)%
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*Before 1993 extraordinary charge
For several years we have emphasized how important new business investment and
funding are to the Company's future. As technology evolves, the need to create
additional business opportunities increases.
As a group, our new businesses -- those initiated within the past five years --
achieved better than anticipated results. We also aggressively invested in the
following new initiatives during the past year:
. In November, Capital Cities/ABC and DreamWorks SKG, an entertainment company
formed by Steven Spielberg, Jeffrey Katzenberg and David Geffen, created a new
television studio to produce programming for all aspects of the television
business, including network, cable and first-run syndication, and for all
broadcast dayparts. Our new partners are among the most creative and most
successful executives in the entertainment business and will greatly enhance
our ability to own and control more content -- one of our top priorities.
. The Company has also signed an agreement to purchase two VHF television
stations in Flint, Michigan, and Toledo, Ohio for $155,000,000. The purchase
is expected to be completed in 1995 and will increase the national coverage of
our owned television stations division to 24.5 percent of the country.
Separately, the Company acquired a 14 percent interest in Young Broadcasting
Company through the purchase of non-voting common stock and warrants for
$25,000,000. Young now owns five ABC affiliates; these stations, however, do
not count against the Federal Communication Commission's ownership
limitations. These limitations, which restrict any company from owning more
than 12 television stations or reaching more than 25 percent of the nation's
television homes, are currently under review by the FCC.
. ESPN, which currently reaches 63,500,000 U.S. households, greatly expanded its
international distribution and programming during the year and now reaches
almost 70,000,000 homes in 130 foreign countries. In 1994, ESPN's principal
international expansion was in Asia. ESPN2's subscribers increased to more
than 17,000,000 homes at year-end 1994,
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compared with the 10,000,000 homes with which it debuted in October 1993. In
January 1995, ESPN purchased an 80 percent interest in SportsTicker, a 24-
hour, real-time sports news and information service.
. During the year, the Company acquired an additional equity interest in
Lifetime Television for $159,000,000, bringing its ownership up to 50 percent
from its previous 33 1/3 percent level. The basic cable network industry has
grown faster than most segments of the media, and Lifetime has fully
participated in this growth. The service now reaches 58,400,000 households
with its special interest programming for women.
. The Cable and International Broadcast Group's foreign media joint ventures,
particularly RTL 2, a German television network, and Eurosport, a pan-European
sports service, made substantial progress in 1994 and are now expected to
become profitable sooner than originally predicted. In addition, the Group,
together with recently acquired DIC Entertainment, became the first American
supplier to regularly broadcast a children's television programming service in
China. It is estimated that 45 percent of China's available television
households will have access to the new service.
. The Publishing Group continued to expand its revenue sources, developing new
niche products, trade shows, newsletters and CD-ROM applications.
. The radio division purchased two stations, KMPC-AM in Los Angeles and KSFO-AM
in San Francisco, in the beginning of 1995. This gives the division duopoly
AMs in both markets. Our radio stations reach just over 24 percent of U.S.
households.
. The Multimedia Group had a particularly active year. Its initiatives included:
ABC Online, a new interactive service for American Online subscribers; a joint
venture with Electronic Arts, Inc. to publish entertainment and educational
software for personal computers and video game players; as well as several
joint ventures in the interactive television and destination-based
entertainment fields. Venture partners include IMAX Corp., NTN Communications,
Inc. and several telephone companies.
Total pre-tax investment and funding of losses for domestic start-ups and
international media joint ventures was $100,000,000 in 1994, compared with
$80,000,000 of such losses in 1993. The after-tax loss from our share of these
activities was approximately $0.40 and $0.30 per share, in 1994 and 1993,
respectively. The Company's total investment spending and funding of such
losses over the past five years now approximates $325,000,000. This spending is
critical to our future growth. It also demonstrates how important the Company's
predictable cash flow and healthy balance sheet are in funding such investments
and in evaluating additional opportunities.
Over the past five years, the Company has earned approximately $4,500,000,000 of
operating income. In 1994, the amount was a record $1,239,000,000. Net
financial expense (interest expense less interest income) was $31,000,000, down
dramatically from the $81,000,000 as recently as 1991. Debt outstanding at
year-end 1994 was relatively unchanged from 1993 at $615,000,000 and represents
only 12 percent of total capital. Dividend payments increased subsequent to the
ten-for-one stock split in June, as the Company declared that its annual
dividend would remain at $0.20 per share. This is the equivalent of a $2.00 per
share annual dividend rate on pre-split common stock.
Capital Cities/ABC's return on average stockholders' equity improved to 17.3% in
1994 from 12.1% in 1993. This came as a result of the significant increase in
1994 net income combined with the full year impact of 1993 share repurchases.
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The Company's 1994 free cash flow (net income plus depreciation, amortization
and other noncash items, less capital expenditures and net programming
investment) exceeded $800,000,000, which is significantly larger than most
companies of our size. Free cash flow is a principal standard we use to measure
the health of the Company. In most years, free cash flow has been greater than
net income, and this was also the case in 1994. Unlike most industrial
companies, Capital Cities/ABC's reported net income translates into cash, even
after all of its reinvestment needs are met. The ability to generate cash,
combined with manageable debt service requirements and approximately
$1,000,000,000 in cash and short-term investments, resulted in an upgrade in our
debt rating in 1994 by the three primary credit ratings agencies. The financial
strength which this underscores will facilitate our pursuit of additional
acquisitions and internal growth opportunities. In the near-term, we continue
to target several areas for future growth: television program ownership,
international media joint ventures, additional television and radio stations and
multimedia services.
Business conditions for our operations were the best they have been for many
years, and our properties took full advantage.
The ABC Television Network achieved record revenues and profits. National
advertiser demand was strong throughout the year across virtually all dayparts.
The network's competitive audience delivery, especially with adults 18-49,
further enhanced revenue growth. Network television industry revenues grew by 9
percent while ABC Television Network revenues increased 11 percent.
The 1994-95 prime-time upfront selling season was as robust as it has ever been,
exceeding $4,400,000,000 for the four television networks. Although the
automotive, telecommunications and movie industries increased their spending
most noticeably over last year, the marketplace improvement was broad-based.
Network scatter pricing commanded healthy premiums over upfront levels
throughout 1994, especially in the second half of the year. It was particularly
strong in prime time and daytime -- two dayparts which together accounted for
over half the network's total sales. ABC's share of the young adult audiences,
sought by advertisers in each daypart, was most competitive.
One significant development during the year will affect the network's 1995
performance. Affiliate compensation fees paid to the network's 225 primary
affiliates to maintain national distribution for advertisers will rise
approximately 50 percent in 1995. There were several major market affiliate
switches which affected all of the networks. This ignited an intense
competition to sign major market affiliates and group broadcasters to long-term
contracts at higher rates of compensation. Most of these affiliate switches
will take place during 1995. Approximately 10 percent of the network's 99.9
percent national coverage will be affected by affiliate changes. The impact on
audience delivery during the first half of the 1994-95 season has been minimal.
The Broadcast Group's three operating divisions all reported record revenues and
profits in 1994. The eight owned television stations benefited from vastly
improved national and local advertising demand and strong ratings performance.
In addition, political advertising was much stronger than anticipated,
particularly in New York and California. Station profit margins, probably the
best in the industry, improved again in 1994. The television stations division
is the Company's largest profit contributor.
At the radio operations, both the ABC Radio Networks and the owned radio
stations experienced record years. The ABC Radio Networks expanded domestic and
international programming in 1994 and now provide over 30 distinct news and
entertainment programs to more than 100,000,000 listeners per week. The owned
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radio stations also had a very successful 1994. They are now stronger
competitively than they have been for many years, particularly with duopoly FMs
in both Atlanta and Minneapolis. Improved advertiser demand combined with
better ratings in most markets produced revenue and profit gains well above
anticipated levels. The FCC has been gradually relaxing its station ownership
restrictions. By late 1994, the number of stations an individual operator could
own was 40 -- 20 AMs and 20 FMs. As mentioned previously, the Company has added
two additional AMs in 1995 and is evaluating other markets as well. The Company
now owns 11 AM and 10 FM radio stations.
The Cable and International Broadcast Group, which manages the Company's
interests in domestic cable television networks and international media joint
ventures, had another year of extraordinary growth. ESPN's revenues and profits
were at their best levels ever, up dramatically over last year. ESPN's results
included substantial start-up losses for ESPN2's first full year of operation
and losses for further international expansion, particularly in Asia. The A&E
Television Network also showed marked growth and now reaches 55,800,000 homes.
The History Channel, a new cable service from A&E, premiered in January 1995.
Lifetime Television, which is 50 percent owned, also experienced a year of good
growth.
The Publishing Group had an outstanding year with revenues and profits up 9
percent and 23 percent, respectively. Revenue growth was the strongest it has
been in many years. The Group has managed its costs well, especially during
soft advertising years. In 1994, costs rose only 7 percent, despite higher
development investment in new ventures. Record profits at The Kansas City Star
and the Fort Worth Star-Telegram enabled the daily newspaper group to again
report its best results ever. The shopping guides also achieved strong profit
growth, and the specialized publications had a successful 1994, with all groups
recording significant profit gains. Publishing profits, especially at the daily
newspapers, will be significantly affected in 1995 by a sharp rise in the cost
of newsprint.
The newly established Multimedia Group has aggressively begun to explore ways to
expand the Company's role as a content provider for emerging technologies.
During 1994, the Group launched a number of major initiatives. These include
the development, publication and distribution of content for narrow-band on-line
services; the interactive software market; interactive television platforms; and
a number of out-of-home video ventures. In each case, the Group is exploring
the nature and extent of audience demand for these new products and delivery
systems. It is also studying the potential of the Company's existing content
and production capacity and the role of advertising and advertisers.
Capital Cities/ABC has always emphasized its public service responsibilities,
and in 1994 its principal commitments were to Children First, The Partnership
For a Drug-Free America and the Volunteer Initiatives Program. The national
literacy programs that Capital Cities/ABC began several years ago have now
evolved into Children First, an awareness campaign to stimulate involvement with
children who need help. The Company's contribution in media time and space to
the Partnership For A Drug-Free America in 1994 totaled $38,000,000 across all
operating divisions. Drug use among America's youth is rising again, and our
goal in these broadcast, cable and print campaigns is to help reverse this
trend. The Volunteer Initiatives Program best illustrates the Company's
emphasis on community involvement. Many dedicated employees in numerous
locations have volunteered their services to improve the lives of others.
Specific projects in 1994 included building low-cost housing in conjunction with
Habitat for Humanity, constructing a shelter for battered women and
participating in several other educational and conservational programs.
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Capital Cities/ABC
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There were two important promotions in 1994. Daniel B. Burke retired as
President and Chief Executive Officer in February. He was succeeded by Robert
A. Iger who was promoted to President and Chief Operating Officer and elected to
the Board of Directors in September. Bob was previously Executive Vice
President of the Corporation and President, ABC Television Network Group. David
Westin was promoted to President, ABC Television Network Group. David had been
President, ABC Productions and prior to that was the Company's General Counsel.
We are confident that our broadcasting and publishing operations will continue
to grow, although we do not believe that revenue growth will be as strong in the
near-term as it was in 1994. The Company's 1994 business plan did not forecast
a 12 percent revenue gain. Neither does our 1995 plan. Revenue growth for the
past five years has averaged closer to 5 percent, although that period did
include a recession. We are mindful that many of our basic businesses are
mature ones and that in a stable economy, industry revenues have historically
tended to increase in line with overall economic growth. That is why to sustain
earnings momentum we must be aggressive in developing new revenue sources.
Controlling costs is equally important, especially as we face extraordinary
charges such as the significant increase in affiliate compensation at the ABC
Television Network and increases in newsprint pricing. Many of the new
businesses described earlier offer the promise of above average growth, and our
five operating groups are identifying and pursuing those opportunities
resourcefully. We now face a future when contributions from our new businesses
will become increasingly meaningful.
Capital Cities/ABC continues its strong commitment to a policy of equal
employment and advancement opportunities for all individuals. While progress is
being made, we recognize the importance of continuing to diversify our work
force by increasing the representation of both minorities and females throughout
the Company, especially at management levels. In 1994, 22 percent of the
Company's overall work force were minorities and 45 percent were female.
To our employees, our directors and our shareholders, we extend our thanks for
all that you did to make this past year so successful. We look forward to the
opportunities of the years ahead.
/s/ Thomas S. Murphy
THOMAS S. MURPHY
Chairman of the Board and
Chief Executive Officer
/s/ Robert A. Iger
ROBERT A. IGER
President and
Chief Operating Officer
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BROADCASTING
The Company's broadcasting operations, which consist of the ABC Television
Network Group, the Broadcast Group, the Cable and International Broadcast Group
and the Multimedia Group, had 1994 net revenues of $5,277,000,000, an increase
of 13 percent, or $614,000,000 over 1993. Operating earnings of $1,127,000,000
in 1994 increased $349,000,000, or 45 percent, from the prior year.
Broadcasting's 1994 and 1993 results are summarized as follows:
[Download Table]
(Dollars in millions) 1994 1993
------ ------
Net revenues $5,277 $4,663
------ ------
Operating costs 4,016 3,763
Depreciation 87 75
Amortization 47 47
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Total costs 4,150 3,885
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Operating income $1,127 $ 778
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ABC Television Network Group
The ABC Television Network had a record year in 1994. Revenues rose
approximately 11 percent over 1993 to just over $3,000,000,000. Operating
income improved by more than 80 percent to $340,000,000, an all-time high for
the network. This strong network performance in 1994 resulted from the
combination of a cyclical upturn in national advertising, the network's
competitive audience delivery, and its strict attention to costs. Ratings
performance and cost control will continue to be important in 1995, as overall
industry revenue is not expected to grow as dramatically as it did in 1994, and
compensation paid to ABC affiliates will rise by nearly 50 percent. Over the
longer term, network growth will depend on its ability to produce and own
successful prime-time series. The network's investment in new series rose in
1994 and is expected to increase again in 1995.
The national economy and overall corporate profits were considerably healthier
in 1994 than they had been for some time, and national advertising benefited.
Network television industry revenues for 1994, including approximately
$385,000,000 in Olympic advertising on CBS, totaled $10,500,000,000, a gain of 9
percent. ABC outpaced industry growth, with an 11 percent increase in its
advertising sales. The 1994-95 prime-time upfront marketplace alone exceeded
$4,400,000,000 for the four established networks, an increase of 20 percent from
a year earlier. Spending was up noticeably across most major advertising
categories. For the first time in several years, advertisers paid higher rates
for commercial time bought in the scatter marketplace than they had in the
upfront market, and as 1994 progressed, this premium increased.
In prime time, which attracts both the largest audiences and share of revenues,
ABC
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Broadcasting
Net Revenues
[Download Table]
$ Millions
1986 1987 1988 1989 1990 1991 1992 1993 1994
------- ------- ------- ------- ------- ------- ------- ------- -------
3,153.6 3,433.7 3,749.6 3,900.0 4,283.6 4,329.7 4,265.6 4,663.2 5,277.1
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Broadcasting
Operating Income
[Download Table]
$ Millions
1986 1987 1988 1989 1990 1991 1992 1993 1994
----- ----- ----- ----- ----- ----- ----- ----- -------
474.5 632.9 722.2 836.1 830.5 669.7 619.3 778.1 1,127.2
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finished first among young adults 18-49. Midway through the 1994-95 season,
the network was first among young adults 18-34, adults 18-49 and adults 25-54.
ABC has consistently won four nights of the week and approximately 50 percent of
the prime-time half hours among younger demographic groups. Six programs -- Home
Improvement, Grace Under Fire, Roseanne, NYPD Blue, Ellen, and NFL Monday Night
Football -- ranked among the ten most popular programs for young adult viewers.
NFL Monday Night Football improved its ratings during the fall of 1994 and was
the highest-rated prime-time program for male viewers. Home Improvement draws
the largest number of viewers of any series on television, averaging just under
33,000,000 viewers each week. Grace Under Fire attracts an average audience of
more than 30,000,000 viewers. By moving these two comedies to Tuesday night this
season, ABC improved its ratings from 9 to 10 pm in a most competitive time
period. From 10 to 11 pm on Tuesday, NYPD Blue is up 17 percent in adults 18-49
and 23 percent in adults 25-54 over a year ago. On Wednesday, Roseanne and Ellen
dominate the 9 to 10 pm hour. Roseanne, in its seventh season, still ranks fifth
among young adults, and Ellen ranks seventh. ABC has also won every Friday night
of the current season among adults 18-49 with its "TGIF" comedy block from 8 to
10 pm combined with a steady performance from 20/20 at 10 pm. Driven by an
outstanding ratings performance, prime time contributed substantially to ABC's
operating income.
Monday-to-Friday Daytime is also a major contributor to network operations. In
1994, ABC won 48 of 52 weeks in the key demographic category of women 18-49,
enabling it to capitalize on a strong marketplace. All My Children was the
number-one rated program among women 18-49 and 25-54, while General Hospital
ranked third and One Life to Live ranked fourth. At the same time, 1994 saw a
significant decline in overall female viewership for daytime network
programming, and ABC was no exception. This fall-off was the result, in part,
of extraordinary preemptions for daytime news stories. Despite this viewer
fall-off, careful cost control and a stronger market enabled ABC to earn
substantially increased operating income from its daytime programming.
Outstanding ratings performances by NFL Monday Night Football and NCAA college
football enabled ABC Sports to generate substantially improved operating income.
The network sports advertising marketplace grew faster than anticipated,
partially because of the impact of the Major League Baseball strike which
canceled seven weeks of regular season play and all post-season games. ABC had
been scheduled to broadcast the World Series in October 1994. A large portion
of advertising scheduled for baseball, particularly post-season play, was
shifted to other sports events. In a business where bidding for certain sports
rights escalated well beyond any possibility of profitability, ABC Sports
successfully negotiated two major contracts in 1994. NFL Monday Night Football
was renewed for four more years at a moderate increase over the prior contract.
Also, the division's revenue sharing agreement with Major League Baseball did
not require any upfront rights payments and represented an innovative, risk-
sharing approach to network television sports. The division distinguished
itself with its highly-rated coverage of college and professional football,
World Cup Soccer, and in January 1995, the telecast of Super Bowl XXIX.
ABC News continued to serve as the industry's premier news organization in 1994.
World News Tonight was the top-rated evening newscast for the sixth consecutive
year. Nightline performed well in the highly competitive late night time period
and benefited as live clearances by ABC affiliates increased from 63 percent of
the country to 77 percent. During the course of 1994, four ABC news magazines --
20/20, Primetime Live, Day One, and Turning Point -- made solid contributions to
ABC News' award-winning analysis of major issues and to the network's
8
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prime-time schedule. ABC News programs did see some audience erosion in 1994,
however, especially in some of the news magazine shows. Nevertheless, the
generally strong advertising marketplace supported a record level of operating
income at ABC News. During the year, the ABC Television Network won
approximately 160 awards for journalistic excellence.
Good Morning America was the most popular early morning network program during
1994, narrowly winning the time period among women 18-49 and 25-54. Competition
from other network programs and from locally-produced programs, however, hurt
Good Morning America's performance in other demographic categories.
Nevertheless, Good Morning America revenues and profits increased over 1993
levels.
The only daypart to decline in profitability in 1994 was children's programming.
ABC ranks a solid second in the key demographic category of children 2-11, but
suffered from competition with the Fox network and other program suppliers who
benefit from having their children's lineup (and related promotional efforts)
shown on weekdays, as well as on Saturday. As a result, ratings, revenues and
profitability for ABC in the children's arena all declined in 1994.
The continued strong performance of the ABC Television Network in 1995 will
depend greatly on improved program performance and prudent cost control.
Average annual growth for the four-network marketplace approximated 4 percent
over the past five years (including the recession from late 1990 through 1992).
Future long-term revenue growth is not likely to exceed the overall performance
of the economy. Therefore, growth in revenue will require that ABC continue to
outperform its competitors in reaching viewers, especially in key demographic
categories. Realistically, the network does not expect that it can increase its
overall revenue in 1995 at the same rate as the upsurge made possible by the
advertising marketplace in 1994.
The ABC Television Network has worked hard to contain its costs over the past
several years. When national advertising was soft, network operating costs were
flat. In 1994, costs rose at roughly half the rate of revenues, and these cost
increases included new program expenditures directly resulting in higher
revenues and profits.
The network must vigilantly guard against cost increases in 1995, as the network
will spend more than $50,000,000 in increased compensation to affiliates over
what it paid in 1994. This substantial cost increase came as the direct result
of heightened competition initiated by the fourth network in 1994 (and to some
extent the fifth and sixth network in early 1995) for new affiliates to enhance
their distribution system by investing in television stations around the
country. A number of television stations changed hands, or switched
affiliations. ABC responded promptly by entering into long-term affiliation
agreements with major market affiliates at higher compensation rates. At
present, ABC has long-term affiliation agreements or commitments with (or owns
and operates) television stations reaching some two-thirds of the United States.
ABC is currently negotiating agreements with most of the remaining stations.
Although expensive, these long-term agreements will bring stability to the
network's 99.9 percent national coverage distribution system, thereby protecting
the network's future.
In 1995, ABC will also continue its long-term strategy of developing and owning
television programming. This is important, in part, because of the potentially
lucrative market for syndicated television programs after their network run.
But program ownership also offers important potential benefits in controlling
costs, particularly for "hit" programs. ABC's success to-date with prime-time
program production has been modest, but the network holds great hope for its
current internal programming units, its previously announced association with
Brillstein-Grey, and the Company's recently announced partnership with
DreamWorks SKG.
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Broadcast Group
The Broadcast Group enjoyed a very successful year in 1994, with each of its
operating components attaining new highs in revenues and operating profits.
Revenues for the group increased 10 percent to approximately $1,300,000,000.
Operating profits grew over 15 percent, producing double-digit growth for the
second successive year. Operating margins also expanded by two percentage
points for the second year in a row. These improved results were a combination
of a more robust national economy, heavy political advertising expenditures, the
competitive advantage of our operating franchises and continued attention to
cost control. This occurred despite the fact that the competitive spectrum
continues to broaden and intensify.
Television Stations
Revenue at our eight television stations reached an all-time high, increasing by
9 percent. The increase was the largest annual percentage gain since 1986, the
first year after the merger. Operating profits also rose to a record high,
exceeding the previous record level attained in 1990.
The Major League Baseball strike and the consequent absence of playoff games and
the World Series on the ABC Television Network precluded a premium marketing
opportunity for the stations. Political advertising, however, more than offset
the loss. The increase in political advertising for the year approximated 30
percent of the incremental sales increase the stations recorded in 1994. In
addition, the demand for preferred time periods created by the intensity of some
of the political campaigns clearly had a beneficial impact on overall pricing
and helped performance. Increased spending by more traditional advertisers,
especially automobile manufacturers, also contributed to the improved economic
climate and enabled our television stations to generate double-digit revenue
increases for three of the four fiscal quarters of the year.
While operating costs appeared to rise moderately during the year, the
competition for popular syndicated programming has continued to exert upward
pressure on costs. Contract extensions were negotiated during the year to
protect several valuable program franchises, such as The Oprah Winfrey Show.
The stability derived from protecting these relationships, however, came at a
significant increase in cost and a loss of some flexibility. Clearly the risk-
reward relationship underlying all these decisions rests on the continued long-
term popularity of the programs in question. We believe the risk is worthwhile.
However, the escalation of costs in syndicated programming and other talent and
production activities makes it increasingly important for us to enhance
productivity in nonprogramming-related areas.
In 1994, the challenge to contain costs was made somewhat easier by the
settlement of music performance rights claims with BMI. The accommodation
reached by the TV Music License Committee, representing most of the broadcast
industry, was similar in nature and scope to the settlement reached in 1993 with
ASCAP, the other major music performance society. The agreement put the
licensing of BMI-represented music performance rights on a more equitable basis
and established the liability for past years' claims at levels lower than had
been previously provided.
The Company's television stations remain the nation's most profitable group and
continue to outperform their competition by most standards. The ratings results
of the November sweeps period again put our stations at or near the top of their
respective markets, from sign-on to sign-off, and five of our eight stations
were able to translate their audience leadership into double-digit profit
increases. Five of our stations also achieved record profit levels -- WABC-TV
New York, KABC-TV Los Angeles, WLS-TV Chicago, WPVI-TV Philadelphia and KFSN-TV
Fresno. KTRK-TV Houston rebounded in audience appeal and capitalized on the
Houston market's renewed economic vigor to produce its best profit performance
since 1986.
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Most traditional over-the-air broadcasters had a good year in 1994; thus, in the
euphoria of record profits and record prices on station purchases, it is easy to
lose sight of the fact that competition for the attention of viewers and
advertisers continues to increase. The growth of new cable program channels
will undoubtedly find new impetus as the FCC has liberalized its cost pass-
through rules. The prospect of new distribution channels made possible by
digital transmission and computer technology also presages a more competitive
environment.
Nevertheless, and despite the heightened competition, we believe that the
traditional broadcaster will continue to play a primary role in the media world
of the future. Our confidence is best underscored by our acquisition of two
more stations, currently awaiting approval by the FCC: WJRT-TV Flint, Michigan
and WTVG Toledo, Ohio. These two VHF television stations are in markets which
only have two VHF licenses, resulting in strong competitive positions in terms
of both local operations and network distribution. The addition of these two
stations will bring our coverage of U.S. homes to 24.5 percent.
Radio
The year 1994 was also an excellent one for the radio group, with both revenues
and profits reaching new highs. Our radio stations enjoyed an especially good
year with revenues growing approximately 14 percent, and operating profits
increasing significantly. What was particularly satisfying was the fact that
the growth in profits was broad-based, with many of our stations experiencing
substantial improvement and validating earlier program strategies. Both of our
New York market stations continued their respective turnarounds and now contend
for market leadership. WPLJ-FM's ratings resurgence was recently acknowledged
by the Billboard/Airplay Monitor Radio Awards. It became the only station in
1994 to sweep all four award categories for which it was nominated, and WABC-AM
has become one of the most popular AM stations in the country. We also have
enjoyed outstanding success thus far with our duopoly FM operations in Atlanta
and Minneapolis. We expect both multiple facility combinations to be a
significant part of the division's future growth. The acquisitions in early
1995 of two additional AM stations (KMPC-AM Los Angeles and KSFO-AM San
Francisco) will enable us to determine whether the duopoly approach can also
produce dramatic results with the talk format on the AM band. While still
premature, early results are encouraging. The Company's current 21 station
portfolio (eleven AM and ten FM) reaches 24.1 percent of the country as
indicated in the following chart:
[Download Table]
# of
stations
Station Market in % of
and Market rank market U.S.
------ -------- -----
WABC-AM/WPLJ-FM 1 49 6.6%
(New York)
KABC-AM/KLOS-FM
KMPC-AM 2 48 4.6%
(Los Angeles)
WLS-AM/FM 3 38 3.2%
(Chicago)
KGO-AM
KSFO-AM 4 50 2.5%
(San Francisco)
WJR-AM/WHYT-FM 6 31 1.7%
(Detroit)
WBAP-AM/KSCS-FM 7 34 1.6%
(Fort Worth-Dallas)
WMAL-AM/WRQX-FM 8 31 1.6%
(Washington, DC)
WKHX-AM/FM
WYAY-FM 12 20 1.3%
(Atlanta)
KQRS-AM/FM
KEGE-FM 17 26 1.0%
(Minneapolis-St. Paul)
-----
Total 24.1%
---------
Source: Arbitron, Fall 1994 Radio Market Survey
Schedule & Population Rankings
Metro persons 12+
The talk radio format has become increasingly popular in recent years, and its
role as an interactive forum for community debate has helped to revitalize the
AM band. As a consequence, our AM stations became the beneficiaries of the
year's political campaigns and increased political advertising. Less positive
was the year's
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other extraordinary occurrence, the unsettled labor climate in professional
sports. Disruptions in the playing seasons of Major League Baseball and the
National Hockey League had a modest effect on overall radio division earnings in
1994. Several of our AM stations continue to have ongoing commitments to
baseball teams and could be adversely affected in 1995 if the ultimate
resolution of the dispute does not permit sufficient time to market the games.
The ABC Radio Networks had a record year in 1994, with revenues increasing
approximately 4 percent. While the rate of revenue and profit growth did not
approach that of our other broadcasting operations, the networks performed
admirably during the year, increasing market share in the face of more
determined competition. Through 1993, operating expenses have decreased three
years in succession; still, effective cost management continues as a primary
objective. During 1994, the network embarked on the third phase of the
consolidation of its production and administrative activities in Dallas, Texas.
This stage of the consolidation will see the networks in a new facility in early
1995 and is expected to benefit the cost structure of the networks long-term.
The ABC Radio Networks, with over 3,400 affiliates, continues as the country's
largest radio network operation and provide stations and listeners with a wide
array of information, news and entertainment programming. Featuring the
services of ABC News and the commentary of Paul Harvey, the networks reach over
100,000,000 listeners weekly. They produce 9 of the top 10 and 42 of the top 50
programs in network radio. Paul Harvey, ABC Radio Network's foremost
personality, continues as the nation's most respected and popular radio
commentator.
The networks continue to expand their program offerings domestically and
internationally. "The Fabulous Sports Babe" became a successful addition to the
ESPN Radio Network. Upon the discontinuation of American Top 40, the networks
obtained Rick Dees Weekly Top 40, which has now become the number one countdown
show in the contemporary arena. In addition, a series of business-oriented
programs are now being offered both domestically, in conjunction with Business
Week, and internationally, with the Financial Times of London.
Cable and International Broadcast Group
The Cable and International Broadcast Group's revenue and profit growth far
exceeded expectations in 1994 in virtually all of its operating divisions. Its
cable television interests, ESPN, A&E Television Network and Lifetime
Television, all reported record results. The Group's international media joint
ventures performed better than anticipated and are now expected, as a group, to
achieve profitability sooner than originally planned.
ESPN, America's largest cable network, had an extraordinary year. Its flagship
service, which reaches 63,500,000 U.S. homes, recorded substantial profit growth
due to increases in advertising sales and subscriber fees as well as
substantially reduced Major League Baseball rights costs. ESPN2 saw its
subscribers grow from 10,000,000 at its inception in October 1993 to more than
17,000,000 at year-end 1994. The new network, programmed for young adults 18-
34, could begin to operate profitably by the end of 1995. The ESPN
International Networks now reach almost 70,000,000 homes in 130 countries and
are currently translated into 11 languages. A significant investment is being
made in Singapore as a base of operations to bring local-origination foreign
language services into the Asian markets. During 1994, ESPN acquired Creative
Sports Marketing, a producer and syndicator of sports programming. In January
1995, it acquired an 80 percent interest in SportsTicker, a real-time sports
news and information service. In addition, ESPN continued to explore new
revenue sources from electronic publishing,
12
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interactivity, pay-per-view and other new media.
The A&E Television Network and Lifetime Television also enjoyed their best years
ever. A&E (37 1/2 percent-owned) enjoyed ratings success with its original
series, Biography, while subscribers grew to 55,800,000 in 1994. Since A&E
debuted in 1984, it has received more Cable ACE Awards than any other basic
cable network. A&E launched a new cable service -- The History Channel -- in
January 1995. This service, featuring historical documentaries, movies and
mini-series, is a logical extension of A&E. In April 1994, Capital Cities/ABC
increased its ownership of Lifetime from 33 1/3 percent to 50 percent. Lifetime
Television now reaches 58,400,000 cable homes.
The Group's foreign media joint ventures also achieved better results in 1994.
Tele-Munchen (50 percent-owned), a German production and distribution company,
had strong earnings growth. RTL 2 (23 percent-owned), a German general
entertainment television network, significantly improved its coverage and
audience delivery. Should these trends continue, the network could reach
breakeven by the end of 1995, within three years of its debut. Similarly,
Eurosport (33 percent-owned by ESPN), a pan-European sports service reaching
almost 59,000,000 households, could also begin to operate profitably late in
1995. Scandinavian Broadcasting System SA (23 percent-owned) showed cash flow
growth in its ongoing television services in Denmark, Norway and Sweden. It has
recently acquired radio stations in Denmark, Finland and Sweden and started a
new television service in Belgium.
In the fall, the Group, together with DIC Entertainment, became the first
American service regularly to broadcast children's programming in China. Two
new services, distributed by four regional broadcasters and a consortium of
Chinese cable operators, are available to 45 percent of China's television
homes. DIC will produce original programming and use animated and live-action
features from its existing library. Finally, ABC Distribution produced record
results distributing programming internationally for the Company's production
entities.
Results for ESPN, DIC and ABC Distribution are consolidated in the broadcasting
business segment. Results for A&E, Lifetime and the Group's international joint
ventures are accounted for on the equity basis (the proportionate share of
income or loss is recorded as other income or expense). As a consequence, the
revenues and profits of these activities are not reflected in the operating
results of the Broadcasting segment.
Multimedia Group
The year 1994 constituted the first full year of operation for the Multimedia
Group, which is responsible for positioning the Company with respect to emerging
media and technologies. The Company believes that changes in television in the
United States will be evolutionary rather than revolutionary, and that the
technological changes on the horizon are not threats to its core businesses, but
rather opportunities to expand them. The important unresolved questions about
the so-called new media are not merely technological but audience and
advertiser-based. It remains to be determined if there will be audience
interest and demand for interactive services and program content that is
sufficient to justify the significant investment that will be required. During
the past year, the Multimedia Group took a number of content-based initiatives,
and entered into several business relationships, that were designed to explore
the technological opportunities and to create new content forms that will
ultimately help to resolve these issues.
One initiative was the creation in September of ABC Online, a group of narrow-
band program services carried exclusively on
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America Online and designed for the interactive audience. America Online is the
fastest growing narrow-band interactive service, with currently more than
2,000,000 customers. Such on-line services as America Online, Prodigy and
CompuServe currently provide the only truly interactive audience available to
programmers, and the Multimedia Group is developing content designed to test
that audience's interests. Over the next few years, it is expected that there
will be a significant increase in the number of on-line homes as well as on-line
services, and the Group expects to expand significantly the kind of programming
material it offers in this environment. Much of that content will come from
Capital Cities/ABC's television and publishing resources. However, a significant
share of new content will come from outside sources having no relationship to
the Company's other programming and publishing activities.
The Company also created a joint venture with Electronic Arts, Inc. that will
develop, publish and distribute interactive entertainment and educational
packaged software for the children's and information markets. The venture will
place primary emphasis on disc technology, such as CD-ROM. However, hardware
and audience demands are changing rapidly, and the venture expects to remain
flexible and to publish products for more than one platform. The market for
interactive software is growing rapidly as consumers purchase the necessary
equipment for home use, and the number of available titles, particularly in the
children's markets, is also expanding dramatically. ABC-branded titles, along
with the strength of the Electronic Arts' distribution system, may well create a
competitive advantage in the marketplace. The Multimedia Group expects to enter
into relationships with other interactive publishers that will focus on other
areas in which the Company's content base and brand name recognition is
particularly strong.
The Multimedia Group continued experimentation with cable operators, telephone
companies and others who are developing platforms for the distribution of
broadband interactive video services. These experiments involve, among other
things, time-shifting ABC Television Network programs to determine both audience
interest and the impact on regular viewing patterns and schedules. The
experiments also involve development of new forms of interactive programming and
program services -- particularly news, sports, children's and game services. The
development of interactive broadband on-line services of this kind will require
significant investment and will take a number of years to roll out, but if there
is audience interest, they may well offer significant prospects for expanding
the Company's core businesses.
The Multimedia Group established relationships with a number of companies
developing out-of-home entertainment services -- on a traveling basis, in
shopping malls and entertainment centers, and in museums and other institutions.
These investments are intended to make use of the Company's existing production
strengths and to determine the potential of what could become a major new form
of video entertainment.
During 1994, the Company continued the expansion of the home video distribution
activities of Capital Cities/ABC Video Publishing, which was created in 1993.
This year saw the distribution of more than 1,000,000 units of video under the
ABC Video and ESPN Home Video brands, in large part based on the programming of
ABC News, ABC Daytime, ESPN and other divisions.
The Multimedia Group expects to expand these relationships and lines of business
throughout 1995 on the basis of prudent evaluations of the changing tastes and
needs of the American audience. It also expects to begin working with our
traditional advertisers to find ways to integrate them into the new delivery
platforms of the future.
14
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PUBLISHING
Net revenues for the Publishing Group increased 9 percent in 1994 to
$1,102,000,000. Operating income was up 23 percent from 1993. Publishing's
1994 and 1993 results are summarized below:
[Download Table]
(Dollars in millions) 1994 1993
------ ------
Net revenues $1,102 $1,010
------ ------
Operating costs 911 851
Depreciation 20 18
Amortization 16 15
------ ------
Total costs 947 884
------ ------
Operating income $ 155 $ 126
====== ======
The Group's publications reach over 10,000,000 households or business users once
or more each month and are read by more than 25,000,000 adults. In addition,
the Publishing Group produces specialized books and trade shows, and provides
electronic information products. Favorable increases in revenue and operating
income occurred virtually across the board among the Group's varied publishing
properties. Nearly all the profit centers posted gains, and most enjoyed record
years. Profits of the newspaper and shopping guide segment increased 18 percent
and specialized publications' operating income was up 42 percent.
Key factors in the 1994 performance included an improving economy; the most
able, focused cadre of publishing managers in the Company's history; and the
returns on sometimes painful investment spending in prior years. The building
process continued in 1994, as new products and initiatives were launched. The
rigorous, ongoing examination of relative franchise strength and importance led
to the closure of several small trade publications and the announcement that the
New England Newspaper Group would be offered for sale.
Newspapers and Shopping Guides
Revenues in 1994 increased 8 percent to more than $600,000,000, fueled
importantly by strong increases in classified advertising. Total advertising
lineage and paid circulation levels, however, were relatively flat for the
dailies. Expenses were up 6 percent. Newsprint costs per ton for the year
averaged 2 percent below 1993, with lower costs earlier in the year more than
offsetting rapidly escalating prices in the fourth quarter. A large part of the
overall cost increase was in advertising sales expense, where our publishers
devoted additional resources to gain local market share and maximize advertising
revenues.
Operating income increased 18 percent in 1994, the eighth straight year of
profit growth for the combined newspaper and shopper operations. Profit margins
also reached record levels.
--------------------------------------------------------------------------------
Publishing
Net Revenues
[Download Table]
$ Millions
1986 1987 1988 1989 1990 1991 1992 1993 1994
------- ------- ------- ------- ------- ------- ------- ------- -------
970.8 1,006.6 1,023.9 1,057.4 1,102.0 1,052.2 1,078.6 1,010.4 1,102.1
--------------------------------------------------------------------------------
Publishing
Operating Income
[Download Table]
$ Millions
1986 1987 1988 1989 1990 1991 1992 1993 1994
----- ----- ----- ----- ----- ----- ----- ----- -----
159.0 146.7 129.7 130.4 132.4 122.9 136.4 125.6 155.0
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However, these results were not achieved at the expense of our readers, as the
proportion of total space devoted to news in our dailies was at an all-time
high, slightly more than 50 percent, and editorial staffing increased.
Any review of newspaper financial results, and certainly the future outlook,
cannot emphasize enough the dynamics of newsprint prices. Since 1989, each of
the Company's Annual Reports to Shareholders has highlighted the favorable
effect of depressed newsprint prices. In the 1992 report, after noting prices
were 18 percent lower than 1991, we indicated that "the unusually long period of
benefits from lower newsprint prices appears to be over." That somber
prediction was correct; it was just two years early. The current escalation of
newsprint prices began in mid-1994 and has developed a rapid momentum. The
newspapers' plans for 1995 provided for an average increase in newsprint costs
of 33 percent. It is now clear the actual increase will be higher.
The Kansas City Star posted record revenues in 1994, experiencing particularly
sharp growth in classified help wanted and in the automotive category. Revenues
increased 8 percent while operating income rose 16 percent. Circulation was
unchanged. The newspaper began a transition from traditional production to full
electronic pagination. The project is scheduled for completion in 1995. The
Star also created a Niche Publications and Event Marketing department. Combined
with existing database and audiotext advertising capabilities, these services
offer Star advertisers new ways to market their services and products.
Editorially, The Star was recognized by the Missouri Press Association as the
state's overall winner in the major dailies category.
The newspaper initiated the TeenStar program, which identifies promising
minority journalists in their high school years and assists them financially
through college. TeenStar staff members also contribute to a weekly TeenStar
section, which is published in the newspaper's new FYI feature section.
The Fort Worth Star-Telegram achieved record revenues and operating income in
1994, up 6 percent and 15 percent, respectively, from 1993. The Star-Telegram
continued expansion of daily zoning in its three primary markets, stressing
local, community-oriented news. The two newest editions in Arlington and
northeast Tarrant County recorded profits for the first time. Additionally,
several new products were launched including La Estrella, a weekly, bilingual
section; specialty magazines covering topics such as golf and home furnishings;
and an in-flight magazine. Of particular note was the publication and
distribution of 750,000 copies of a magazine-quality catalog for the heralded
Barnes Exhibit at Fort Worth's Kimbell Art Museum. It was also a banner year
for the newsroom which won numerous awards for editorial excellence.
Publishing operations in Michigan recorded their most profitable year, led by
strong advertising gains at its daily, The Oakland Press in Pontiac. The
eastern Michigan economy was marked by high auto production, low unemployment
and healthy retail sales. A major investment in inserting equipment increased
preprint capabilities and improved delivery times. The County Press, in Lapeer,
showed continued growth and was named "Newspaper of the Year" in its class for
the second year in a row by the Michigan Press Association.
In February 1995, Bruce McIntyre retired as President and Publisher of The
Oakland Press and relinquished his responsibilities as a Group Executive
overseeing the Belleville and Wilkes-Barre operations. Bruce provided
distinguished leadership in Pontiac for 17 years, where he had previously served
as Vice President and Editor. Dale Duncan, formerly President and Publisher of
The Times Leader in Wilkes-Barre, replaced him in both capacities.
The Belleville News-Democrat and its weekly group both posted record revenues
and operating income in 1994. The daily received 26 journalism awards,
including three national and eight first place awards in state and regional
competition. In Wilkes-
16
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Barre, Pennsylvania, The Times Leader operating income grew 70 percent on a 17
percent revenue improvement. The newspaper, having outgrown its production
capacity, began a $14,000,000 capital expansion program which includes a new
offset printing press to be installed early in 1996. The Oregon Newspaper Group
also enjoyed a record profit year, led by the two dailies in Albany and Ashland.
Renovation and expansion of the Albany Democrat-Herald facilities were completed
during 1994.
After battling the effects of a weak regional economy in the early 1990's, the
New England Newspaper Group had a successful turnaround year in 1994. The
Company, however, decided to offer these properties for sale in view of their
relative small size.
Sutton Industries, headquartered in Vista, California, had record revenue,
operating income and operating margin in 1994. Sutton publishes PennySaver,
Magic Ads and Bargain Bulletin shopping guides. The combined circulation
approximates 2,100,000 each week and covers the Sacramento, Stockton and San
Diego metropolitan areas and parts of Orange and Riverside counties. Sutton
initiated several new projects in 1994, including a Spanish language publication
called Frontera San Diego, a telephone information system, "Infobank," and
expansion of the Bargain Bulletin.
Profits improved for the third consecutive year at Pennypower which distributes
almost 300,000 shoppers weekly in Wichita, Kansas, and Springfield, Missouri.
The Wichita Regional Telephone Directory, a new business launched last year, and
the Company's first endeavor in the Yellow Page industry, has completed and
distributed a second successful telephone directory to over 230,000 households
and businesses in Wichita, Kansas.
The Northwest Nickels Group operations, which distribute over 750,000
publications each week, enjoyed record operating income, up 18 percent from
1993. The Spokane, Washington and Las Vegas, Nevada units extended their
geographic presence with the acquisitions of the Nickel Saver in Moses Lake,
Washington, and the Pioneer Shopper in St. George, Utah.
Specialized Publications
The Company's specialized publishing operations had an excellent year in 1994.
Excluding the effect of acquisitions, dispositions and start-ups, revenue was up
7 percent and operating income 32 percent, with most publications recording
gains.
The Diversified Publishing Group continued to make significant long-term
investments while posting increased revenues and operating income. The group is
positioned for long-term growth based on the strength of its franchises, recent
reinvestment and commitment to excellence.
This was an excellent year for Chilton Publications as it reaped the benefits of
investment in publications that are market leaders with strong franchises.
Chilton Publications is organized into five publishing groups: Communications,
Materials, Manufacturing, Retail and Automotive/Transport. Each of the five
groups gained market share in 1994. Ongoing operations, net of acquisitions,
dispositions and startups, showed a 26 percent increase in operating income and
improvement in operating margin. Warehousing and Convergence, both trade
magazines in their second year of development, showed strong improvement. New
magazine launches in 1994 included Gem and Review of Ophthalmology. Both were
well received in their marketplaces and show signs of strong growth.
Grupo Editorial Expansiun, S.A., the leading business publisher in Mexico,
completed its first year as part of Chilton Publications. Revenues and
operating income were lower than anticipated due to deterioration in the value
of the peso and a business environment adversely affected by political
uncertainty. The launch of Manufactura represented the combined efforts of
Chilton Publications
17
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personnel in the United States and Mexico. Manufactura represents a strategic
tie-in with Chilton's U.S.-based manufacturing magazines and is pacing well.
Chilton Enterprises is comprised of Professional Exposition Management Company,
Chilton Research, as well as trade book, and both consumer and professional
automotive book operations. Chilton Enterprises invested significantly in new
initiatives in trade shows as well as in product repositioning and development.
The professional automotive division of Chilton Enterprises released the first
version of its CD-ROM product that had been in development for the past three
years.
National Insurance Law Service (NILS) again posted a record year in operating
profits, beating all performance benchmarks. NILS publishes an indexed version
of the insurance laws in all 50 states and U.S. territories. Print version
sales have declined as the CD-ROM version (INSource), introduced in 1991, has
found solid acceptance in the marketplace. The operating results for NILS
should continue to set new records as the mix of electronic to print changes.
The Agricultural Publishing Group which publishes trade magazines serving the
farming community experienced good revenue and earnings growth. Los Angeles
magazine continued to make significant investments in its editorial product to
better compete in its marketplace.
Fairchild Publications' revenues increased 5 percent and operating income was up
more than 75 percent in 1994. W was changed in late 1993 from a newspaper
broadsheet to a magazine, with its frequency reduced from 26 issues a year to
12. The reinvented W was a significant success in a very difficult fashion
magazine advertising environment. Advertising increased by 131 pages and
operating profit more than doubled. Newsstand circulation quadrupled, with
overall circulation increasing more than 75,000 to over 330,000. The Council of
Fashion Designers of America honored W's executive editor with its most
prestigious award. During the year, the European edition of W was closed. A
"united Europe" was not ready for a pan-European product and the fashion
magazine business in Europe -- never robust -- was in the grip of a serious
recession. The U.S. W is now being marketed in Europe with some success.
Operating income at the Financial Services and Medical Group nearly doubled.
Notwithstanding significant losses sustained by its clients in the fixed-income
markets, operating income at Institutional Investor, Inc. increased very
dramatically. This gain was partly offset by a 45 percent decline in operating
income at the International Medical News Group.
Once again, Institutional Investor magazine received a number of important
awards for journalistic excellence. The most prestigious was the Overseas Press
Club Award for best business or financial reporting from abroad for magazines.
New newsletters were launched dealing with foreign exchange, private asset
management and compliance. New journals were started dealing with derivatives
and project finance. Launched in 1993, SELL!NG magazine continued to grow and
was nominated for a National Magazine Award in its first year of publication.
Capital Cities Capital
Capital Cities Capital invests in emerging growth companies by providing
advertising time and space in Capital Cities/ABC media properties in exchange
for an equity interest in these companies. The goal is to help companies grow
and prosper through the intelligent use of advertising, to cultivate new
advertisers for our media properties and to earn a "venture capital" type of
return on investment. The equity interests exchanged for the advertising
provided are at market rates. Three transactions have been completed so far and
a number of additional transactions are under review.
18
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FINANCIAL OVERVIEW
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results of Operations -- 1994 Compared to 1993
Consolidated net revenues for 1994 were $6,379,237,000 an increase of 12% from
the $5,673,653,000 reported in 1993, reflecting strong advertiser demand
throughout the Company's operations. Broadcasting net revenues for 1994 were
$5,277,126,000 compared with $4,663,215,000 in 1993 a 13% increase. Net revenues
for the ABC Television Network increased significantly, principally due to
greater advertising demand from an improved marketplace and to the network's
competitive audience delivery of key demographic groups. ESPN reported very
significant revenue increases, primarily due to increased growth in both
advertising sales and subscription fees, while television station and radio
revenues increased moderately. Publishing Group revenues increased 9%, with
comparable gains at both the newspaper operations and the specialized
publications.
Total costs and expenses for 1994 were $5,140,426,000, compared with
$4,811,504,000 in 1993, a 7% increase with broadcasting costs also increasing
7%. Costs for the ABC Television Network increased moderately in 1994, primarily
as a result of higher programming and production, news coverage and
administrative expenses. Costs at ESPN also increased moderately due to higher
selling general and administrative costs, the start-up of ESPN2 and the effect
of two recent acquisitions. Total costs at ESPN in 1994 were favorably affected
by substantially reduced rights costs for the telecast of Major League Baseball.
Increased costs at the Company's television stations for programming and news
were partially offset by a favorable industry-wide music license fee settlement
with BMI. This settlement was similar in size and nature to the agreement
reached with ASCAP in 1993. Radio expenses were up moderately in 1994 primarily
due to higher promotion, sales and administrative expenses, as well as the
effect of two recent FM station acquisitions. Publishing Group expenses
increased 7% from 1993. Newspaper operations reported moderate cost increases as
a result of higher newsprint and general and administrative expenses, while the
specialized publications excluding the effect of acquisitions, dispositions and
start-ups, also reported moderate increases.
Operating income for 1994 was $1,238,811,000, compared with $862,149,000 in
1993, an increase of 44%, with broadcasting operations increasing 45%. Operating
income for the ABC Television Network ESPN and the radio operations each
increased very significantly over 1993. Television station operating earnings
were up substantially. Publishing Group operating income increased 23%, with the
newspapers and specialized publications both reporting substantial increases.
Net financial expense (interest expense less interest income) for 1994 increased
$7,395,000 from 1993. Interest expense decreased $4,702,000 primarily as a
result of a reduction of outstanding long-term, debt somewhat offset by lower
capitalized interest. Interest income was $12,097,000 lower in 1994, mainly due
to the use of cash for long-
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Operating Income
[Download Table]
$ Millions
1986 1987 1988 1989 1990 1991 1992 1993 1994
----- ----- ----- ----- ----- ----- ----- ----- -------
602.7 746.0 816.0 922.5 923.2 761.2 721.8 862.1 1,238.8
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term debt redemptions and repurchases of common stock, partially offset by
higher interest rates. Interest of $4,284,000 and $10,283,000 was capitalized in
1994 and 1993, respectively. The Company's effective tax rate was 43.6% in both
1994 and 1993.
Consolidated net income for 1994 was $679,814,000, compared with $467,379,000
reported in 1993 (before an extraordinary charge). Earnings per share for 1994
were $4.42, an increase of 55% from the $2.85 reported in 1993 (before the
extraordinary charge). Average shares outstanding in 1994 were 153,890,000
compared with 163,800,000 in 1993, the decline resulting from repurchases of the
Company's common stock during 1993 and 1994. The 1993 earnings per share and
average shares outstanding have been restated to reflect the June 1994 ten-for-
one stock split. During 1993, an extraordinary charge (after-tax) of
$12,122,000, or $0.07 per share, was recorded relating to early debt
redemptions.
Results of Operations -- 1993 Compared to 1992
Consolidated net revenues for 1993 were $5,673,653,000, an increase of 6% from
the $5,344,127,000 reported in 1992. Most of the Company's advertiser-supported
businesses were positively affected by increased demand and an improvement in
the economic environment. Broadcasting net revenues for 1993 were
$4,663,215,000, compared with $4,265,561,000 in 1992, a 9% increase. Net
revenues for the ABC Television Network increased moderately, principally due to
an improved advertising marketplace, the absence of the telecast of the Winter
and Summer Olympics on other networks and higher sales of internally-produced
product. ESPN reported significant revenue increases, primarily due to increased
growth in both advertising sales and subscription fees, while television station
and radio revenues increased moderately. Publishing revenues, excluding the
effect of 1992 and 1993 acquisitions, dispositions and start-ups, increased 3%
with gains at the newspaper operations and most of the specialized publications.
Total costs and expenses for 1993 were $4,811,504,000, compared with
$4,622,322,000 in 1992, a 4% increase. Broadcasting costs in 1993 increased 7%
from 1992. Costs and expenses for the ABC Television Network increased
moderately in 1993, primarily as a result of increased provisions for reductions
in staffing, a higher level of internally-produced programming and higher rights
costs. Costs at ESPN increased significantly due to higher programming expenses
and the start-up of ESPN2. Increased costs for programming and news at the
Company's television stations were partially offset by the reversal of excess
provisions for music license fees upon the resolution of a long-standing dispute
with ASCAP. Radio expenses were up slightly in 1993. Excluding the effect of
1992 and 1993 acquisitions, dispositions and start-ups, Publishing Group
expenses increased 4% from 1992. Higher newsprint and circulation expenses at
the newspaper operations, and slight increases at the specialized publications
contributed to the increase.
Operating income for 1993 was $862,149,000 compared with $721,805,000 in 1992, a
19% increase. The ABC Television Network reported a significant increase in
operating earnings as did the radio operations and ESPN. The television stations
reported a moderate increase in earnings. Excluding acquisitions, dispositions
and start-ups, publishing operating earnings decreased 1% from the prior year.
Net financial expense (interest expense less interest income) for 1993 decreased
$28,929,000 from 1992. Interest expense decreased $44,237,000 primarily as a
result of a reduction of outstanding long-term debt. Interest income was
$15,308,000 lower in 1993 due primarily to the use of cash for long-term debt
redemptions and substantially lower rates of return on invested cash. Interest
of $10,283,000 and $12,511,000 was capitalized in 1993 and 1992 respectively.
20
--------------------------------------------------------------------------------
Miscellaneous income decreased $26,822,000 in 1993, mainly as a result of the
absence of the nonrecurring net gain recorded in 1992 on the sale of the
Company's interest in a German television network, partially offset by losses
provided for or incurred on the disposal of certain nonoperating assets. The
Company's effective tax rate was 43.6% in 1993 and 43.2% in 1992. The 1993
results include an increase in the federal tax provision of $12,000,000 ($0.07
per share) to reflect the requirements of the Omnibus Budget Reconciliation Act
of 1993 ("Tax Act of 1993").
Consolidated net income before an extraordinary charge in 1993 and the
cumulative effect of accounting changes in 1992 was $467,379,000 for the full
year of 1993, compared with $389,328,000 earned in 1992. Earnings per share
before these items were $2.85 in 1993 an increase of 22% from the $2.34 reported
in 1992. Excluding the additional tax provision of $0.07 per share 1993 earnings
per share would have been $2.92, an increase of 25% from 1992. Average shares
outstanding in 1993 were 163,800,000 compared with 166,000,000 in 1992. The
decline reflected repurchases of the Company's common stock during 1992 and
1993.
During 1993, an extraordinary charge (after-tax) of $12,122,000 or $0.07 per
share, was recorded relating to early debt redemptions. Results for 1992
included an after-tax, noncash charge of $143,235,000 or $0.86 per share, to
reflect the adoption of Financial Accounting Standard No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and Financial
Accounting Standard No. 109, "Accounting for Income Taxes."
Cash and Cash Flows
Net cash provided by operating activities was $976,224,000, an increase of
$315,706,000 from the $660,518,000 reported in 1993. The increase was primarily
attributable to higher 1994 net income, a larger decrease in net program
licenses and rights, and greater increases in deferred liabilities and noncash
items.
Net cash used in investing activities was $430,950,000, an increased use of
$557,458,000 from the $126,508,000 provided in 1993. The increase in cash used
in investing activities was primarily a result of increased capital spending and
acquisition activity in 1994, as well as an increase in short-term investments
compared with a substantial reduction in such investments in 1993.
Net cash used in financing activities was $28,186,000, a decrease of
$1,181,485,000 from the $1,209,671,000 used in 1993. The decrease was primarily
attributable to substantially less repurchases of the Company's common stock and
a significant reduction in long-term debt payments in 1994, slightly offset by
an increase in dividends paid in the current year.
At December 31, 1994, cash and short-term cash investments were $781,371,000 an
increase of $517,088,000 from the prior year. However, after the inclusion of
short-term investments, the balance at December 31, 1994 aggregated
$1,019,400,000, an increase of $581,294,000 from $438,106,000 at December 31,
1993. The Company's policy is very conservative with respect to investment of
its cash. At December 31, 1994, all of the Company's cash was invested in highly
liquid United States Government instruments with a weighted average life to
maturity of 45 days. The Financial Accounting Standards Board requirements
arbitrarily define cash equivalents as those investments with maturities at the
date of purchase of three months or less. At December 31, 1994 $238,029,000 of
the Company's investments did not meet the definition of a cash equivalent and
are therefore classified in the consolidated financial statements as short-term
investments. The Company believes that this distinction is not meaningful with
respect to the statement of its cash and cash equivalents position. The
Company's policy is not to invest in derivative instruments.
21
Capital Cities/ABC
--------------------------------------------------------------------------------
Capital Expenditures and Program Commitments
In 1994, capital expenditures amounted to $121,460,000, up from the $97,788,000
spent in 1993. The largest portion of the 1994 spending was in the Company's
broadcasting operations where $102,900,000 was spent. Broadcasting capital
expenditures included $29,000,000 for facilities improvements and $73,900,000
for broadcast equipment to support current operations.
In 1994, the Publishing Group spent $16,500,000 for equipment for ongoing
operations and $1,700,000 for facilities improvements.
The Company anticipates that 1995 capital expenditures will approach
$150,000,000, approximately $80,000,000 of which was carryover spending from
1994. Total anticipated capital spending includes $40,000,000 for facilities and
$110,000,000 for broadcast and publishing equipment to support ongoing
operations.
As the operator of the ABC Television Network, ESPN and television and radio
stations, the Company expects to continue to enter into programming commitments
to purchase the broadcast rights for various feature films, sports and other
programming. Total commitments to purchase broadcast programming were
approximately $4,066,000,000 at the end of 1994. This amount is substantially
payable over the next five years. The Company plans to fund its operations and
commitments from internally generated funds and, if needed, from various
external sources of funds which are available.
Capital Structure
The Company's capital structure is made up of four components: stockholders'
equity, interest-bearing debt, minority interest and deferred income tax
liabilities.
Stockholders' equity amounted to $4,288,557,000 at December 31, 1994, an
increase of $716,441,000 from the 1993 year-end total of $3,572,116,000. The
increase was attributable to the addition of $679,814,000 of net income and
$31,099,000 from common stock issued under employee stock plans, partially
offset by $51,480,000 of treasury stock purchases and cash dividends.
At December 31, 1994, total interest-bearing debt was $614,842,000, a net
decrease of $7,118,000 from 1993. As more fully described in Note 2 to the
Consolidated Financial Statements, total interest-bearing debt at December 31,
1994 includes $100,000,000 of commercial paper supported by a $1,000,000,000
bank revolving credit agreement, $500,000,000 of public notes and debentures
with an aggregate average maturity of just under 16 years and $14,842,000 of
other miscellaneous long-term debt. At December 31, 1994 the weighted average
interest rates of the commercial paper and of the other public instruments were
5.5% and 8.8%, respectively. The Company plans to fund the repayment of its debt
from internally generated funds and if needed from various external sources of
funds which are available.
--------------------------------------------------------------------------------
Capital Expenditures
[Download Table]
$ Millions
1986 1987 1988 1989 1990 1991 1992 1993 1994
----- ----- ----- ----- ----- ----- ----- ----- -----
153.1 116.3 153.4 193.5 120.8 121.0 114.7 97.8 121.5
22
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The Company's debt to total capital ratio at the end of each of the last five
years was as follows:
[Download Table]
Total
(Dollars in millions) Debt capital Ratio
-------- -------- -----
1994.................. $ 614.8 $5,267.1 12%
1993.................. 622.0 4,531.4 14%
1992.................. 1,116.0 5,255.5 21%
1991.................. 1,602.3 5,521.2 29%
1990.................. 1,947.4 5,542.5 35%
The Company's return on average stockholders' equity improved to 17.3% in 1994
from 12.1% in 1993, as a result of the significant increase in 1994 net income
combined with the full year impact of 1993 share repurchases.
Since 1988, the Board of Directors of the Company has authorized the repurchase
of up to 30,000,000 shares of the Company's common stock. The repurchases are
made from time to time in the open market at prices then prevailing. As of
February 28, 1995, the Company has repurchased 20,320,600 of its shares under
these authorizations for a total cost of $930,300,000, at an average cost of
approximately $46.00 per share. In addition to open market repurchases, on
December 1, 1993, through a tender offer, the Company repurchased 10,950,000
shares of common stock at $63.00 per share.
Intangible Assets
At December 31, 1994, the Company's intangible assets, before accumulated
amortization, totaled approximately $2,592,000,000, which accounted for
approximately 35% of the Company's total assets.
Intangible assets represent the excess of the purchase price over the underlying
fair market value of tangible assets acquired. In accordance with Accounting
Principles Board Opinion No. 17, the Company amortizes substantially all
intangible assets over periods of up to 40 years. This practice is arbitrarily
mandated by Opinion No. 17 without regard to whether these assets have declined
in value.
All of the Company's intangible assets have resulted from the acquisition of
broadcasting and publishing properties. Historically, such intangible assets
have substantially increased in value and have long and productive lives. We
believe that the Company's intangible assets have appreciated in value, and that
the requirements of Opinion No. 17, when applied to such broadcasting and
publishing assets, understate net income and stockholders' equity. The
amortization of intangible assets had the effect of reducing 1994 net income by
approximately $59,200,000 or $0.38 per share. Historically, the amortization of
substantially all intangible assets recorded prior to August 1993 was not
deductible in computing income taxes to be paid. Subsequent to this date, under
the Tax Act of 1993, directly acquired intangible assets will be deductible for
income tax purposes over 15 years.
23
Capital Cities/ABC
--------------------------------------------------------------------------------
FINANCIAL SUMMARY 1984-1994
[Enlarge/Download Table]
(Dollars in thousands except per share data)
1994 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ----------
RESULTS FOR THE YEAR
Net revenues
Broadcasting........................................ $5,277,126 $4,663,215 $4,265,561 $4,329,743 $4,283,633 $3,899,989
Publishing.......................................... 1,102,111 1,010,438 1,078,566 1,052,246 1,101,969 1,057,405
---------- ---------- ---------- ---------- ---------- ----------
Total............................................. 6,379,237 5,673,653 5,344,127 5,381,989 5,385,602 4,957,394
---------- ---------- ---------- ---------- ---------- ----------
Operating income
Broadcasting........................................ $1,127,198 $ 778,077 $ 619,317 $ 669,708 $ 830,457 $ 836,149
Publishing.......................................... 155,018 125,647 136,389 122,905 132,371 130,444
---------- ---------- ---------- ---------- ---------- ----------
Income from operations............................ 1,282,216 903,724 755,706 792,613 962,828 966,593
General corporate expense........................... (43,405) (41,575) (33,901) (31,380) (39,613) (44,081)
---------- ---------- ---------- ---------- ---------- ----------
Total............................................. 1,238,811 862,149 721,805 761,233 923,215 922,512
---------- ---------- ---------- ---------- ---------- ----------
Income before extraordinary items and cumulative
effect of accounting changes (a)................... $ 679,814 $ 467,379 $ 389,328 $ 374,696 $ 477,780 $ 485,727
Income per share before extraordinary items and
cumulative effect of accounting changes (a) (c).... $4.42 $2.85 $ 2.34 $2.23 $2.77 $2.72
Cash dividends per common share (c)................. $0.155 $0.02 $0.02 $0.02 $0.02 $0.02
Average shares (000's omitted) (c).................. 153,890 163,800 166,000 167,800 172,400 178,250
Return on average stockholders' equity (b).......... 17.3% 12.1% 10.4% 10.7% 14.3% 15.4%
========== ========== ========== ========== ========== ==========
SELECTED CASH FLOW DATA
Cash provided
Operations, before changes in operating assets
and liabilities.................................... $ 948,652 $ 662,760 $ 519,414 $ 512,882 $ 672,705 $ 701,269
Proceeds from issuance of long-term debt............ - - - 253,922 250,500 2,200
Proceeds from dispositions of operating companies
and equity investments............................. - 12,500 150,168 1,228 5,018 7,490
---------- ---------- ---------- ---------- ---------- ----------
Cash applied
Acquisition of operating companies and equity
investments........................................ $ 214,536 $ 133,294 $ 2,432 $ 48,733 $ 61,983 $ 81,465
Common stock purchased for treasury................. 27,607 715,010 118,410 83,714 446,724 232,849
Capital expenditures................................ 121,460 97,788 114,736 120,998 120,812 193,542
Payments of long-term debt.......................... 7,805 504,873 486,327 599,302 2,475 1,556
Dividends........................................... 23,873 3,238 3,321 3,346 3,417 3,538
========== ========== ========== ========== ========== ==========
AT YEAR-END
Working capital....................................... $1,672,631 $1,121,411 $1,637,763 $1,656,781 $1,919,944 $1,735,617
Total assets.......................................... 6,768,212 5,792,618 6,522,159 6,695,712 6,696,187 6,359,507
Long-term debt........................................ 614,842 621,960 1,115,983 1,602,259 1,947,390 1,695,071
Stockholders' equity.................................. 4,288,557 3,572,116 3,805,742 3,654,833 3,367,897 3,291,860
Number of shares outstanding (000's omitted) (c)...... 154,058 153,830 164,440 166,390 167,590 175,340
Price range of common stock
Closing market price (c)............................ $85 1/4 $62 $50 3/4 $ 43 3/8 $ 45 7/8 $ 56 3/8
High for the year (c)............................... 86 1/2 64 3/8 52 1/8 50 3/8 63 1/4 56 3/4
Low for the year (c)................................ 60 1/4 47 5/8 41 35 3/4 38 35 1/4
========== ========== ========== ========== ========== ==========
(a) Extraordinary items amounted to charges of $12,122,000 ($0.07 per share)
in 1993 and $31,203,000 ($0.19 per share) in 1991, and gains of
$265,746,000 ($1.64 per share) in 1986 and $7,585,000 ($0.06 per share) in
1984. Cumulative effect of accounting changes amounted to a charge of
$143,235,000 ($0.86 per share) in 1992.
(b) Income before extraordinary items and cumulative effect of accounting
changes, divided by average stockholders' equity.
(c) Restated to reflect June 1994 ten-for-one stock split.
24
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[Enlarge/Download Table]
1988 1987 1986 1985 1984
----------- ---------- ---------- ---------- ----------
RESULTS FOR THE YEAR
Net revenues
Broadcasting............................................ $ 3,749,557 $3,433,749 $3,153,619 $ 378,297 $ 348,106
Publishing.............................................. 1,023,896 1,006,597 970,755 642,583 591,616
----------- ---------- ---------- ---------- ----------
Total................................................. 4,773,453 4,440,346 4,124,374 1,020,880 939,722
----------- ---------- ---------- ---------- ----------
Operating income
Broadcasting............................................ $ 722,171 $ 632,910 $ 474,535 $ 150,970 $ 144,182
Publishing.............................................. 129,720 146,717 158,999 138,512 133,179
----------- ---------- ---------- ---------- ----------
Income from operations................................ 851,891 779,627 633,534 289,482 277,361
General corporate expense............................... (35,862) (33,637) (30,856) (11,981) (9,849)
----------- ---------- ---------- ---------- ----------
Total................................................. 816,029 745,990 602,678 277,501 267,512
----------- ---------- ---------- ---------- ----------
Income before extraordinary items and cumulative
effect of accounting changes (a)....................... $ 387,076 $ 279,078 $ 181,943 $ 142,222 $ 135,193
Income per share before extraordinary items and
cumulative effect of accounting changes (a) (c)........ $2.23 $1.65 $1.12 $1.09 $ 1.04
Cash dividends per common share (c)..................... $0.02 $0.02 $0.02 $0.02 $ 0.02
Average shares (000's omitted) (c)...................... 173,500 169,500 162,500 130,800 130,000
Return on average stockholders' equity (b).............. 14.7% 13.4% 9.7% 17.5% 19.9%
=========== ========== ========== ========== ==========
SELECTED CASH FLOW DATA
Cash provided
Operations, before changes in operating assets
and liabilities........................................ $ 558,633 $ 468,380 $ 268,162 $ 223,296 $ 196,600
Proceeds from issuance of long-term debt................ 500 - 1,350,507 493,329 18,065
Proceeds from dispositions of operating companies
and equity investments................................. 19,072 - 703,378 7,222 5,000
----------- ---------- ---------- ---------- ----------
Cash applied
Acquisition of operating companies and equity
investments............................................ $ 18,143 $ 13,248 $3,162,661 $ 51,109 $ 146,843
Common stock purchased for treasury..................... 3,644 576 1,075 484 46,135
Capital expenditures.................................... 153,413 116,309 153,082 75,384 53,866
Payments of long-term debt.............................. 3,458 124,904 367,528 7,872 16,030
Dividends............................................... 3,427 3,231 3,219 2,595 2,570
=========== ========== ========== ========== ==========
AT YEAR-END
Working capital........................................... $ 1,504,954 $ 640,574 $ 416,230 $ 830,986 $ 240,985
Total assets.............................................. 6,088,871 5,378,372 5,191,416 1,884,931 1,208,172
Long-term debt............................................ 1,693,543 1,696,901 1,821,805 714,298 222,995
Stockholders' equity...................................... 3,025,505 2,224,921 1,948,627 889,260 734,455
Number of shares outstanding (000's omitted) (c).......... 179,990 161,930 161,260 129,980 128,670
Price range of common stock
Closing market price (c)................................ $ 36 1/4 $ 34 1/2 $ 26 3/4 $ 22 1/2 $ 16 1/2
High for the year (c)................................... 37 45 28 22 7/8 17 1/2
Low for the year (c).................................... 29 3/4 26 3/4 20 7/8 15 1/4 12 3/8
=========== ========== ========== ========== ==========
(a) Extraordinary items amounted to charges of $12,122,000 ($0.07 per share)
in 1993 and $31,203,000 ($0.19 per share) in 1991, and gains of
$265,746,000 ($1.64 per share) in 1986 and $7,585,000 ($0.06 per share) in
1984. Cumulative effect of accounting changes amounted to a charge of
$143,235,000 ($0.86 per share) in 1992.
(b) Income before extraordinary items and cumulative effect of accounting
changes, divided by average stockholders' equity.
(c) Restated to reflect June 1994 ten-for-one stock split.
25
Capital Cities/ABC
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
[Enlarge/Download Table]
Years ended December 31, 1994, 1993 and 1992
(Dollars in thousands except per share amounts)
1994 1993 1992
---------- ---------- ----------
Net revenues.................................. $6,379,237 $5,673,653 $5,344,127
---------- ---------- ----------
Costs and expenses
Direct operating expenses................... 3,745,689 3,557,301 3,421,054
Selling, general and administrative......... 1,222,202 1,097,826 1,043,595
Depreciation................................ 109,128 95,032 95,664
Amortization of intangible assets........... 63,407 61,345 62,009
---------- ---------- ----------
5,140,426 4,811,504 4,622,322
---------- ---------- ----------
Operating income.............................. 1,238,811 862,149 721,805
---------- ---------- ----------
Other income (expense)
Interest expense............................ (55,070) (59,772) (104,009)
Interest income............................. 24,553 36,650 51,958
Miscellaneous, net.......................... (2,980) (10,648) 16,174
---------- ---------- ----------
(33,497) (33,770) (35,877)
---------- ---------- ----------
Income before income taxes.................... 1,205,314 828,379 685,928
---------- ---------- ----------
Income taxes
Federal..................................... 425,700 300,100 245,500
State and local............................. 99,800 60,900 51,100
---------- ---------- ----------
525,500 361,000 296,600
---------- ---------- ----------
Income before extraordinary change
and cumulative effect of accounting
changes...................................... 679,814 467,379 389,328
Extraordinary charge, net of income taxes..... - (12,122) -
Cumulative effect of accounting changes,
net of income taxes.......................... - - (143,235)
---------- ---------- ----------
Net income.................................... $ 679,814 $ 455,257 $ 246,093
========== ========== ==========
Income per share before extraordinary
charge and cumulative effect of
accounting changes........................... $4.42 $2.85 $2.34
Extraordinary charge per share................ - (.07) -
Cumulative effect of accounting
changes per share............................ - - (.86)
---------- ---------- ----------
Net income per share.......................... $4.42 $2.78 $1.48
========== ========== ==========
Average shares outstanding
(000's omitted).............................. 153,890 163,800 166,000
========== ========== ==========
See accompanying notes
26
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CONSOLIDATED STATEMENT OF CASH FLOWS
[Enlarge/Download Table]
Years ended December 31, 1994, 1993 and 1992
(Dollars in thousands)
1994 1993 1992
--------- ---------- ---------
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
========= ========== =========
See accompanying notes
27
Capital Cities/ABC
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
[Download Table]
December 31, 1994 and 1993
(Dollars in thousands)
ASSETS 1994 1993
------ ---------- ----------
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
========== ==========
See accompanying notes
28
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[Download Table]
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
------------------------------------ ---------- ----------
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
========== ==========
29
Capital Cities/ABC
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CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
[Enlarge/Download Table]
UNREALIZED
ADDITIONAL NET GAINS
Years Ended December 31, 1994, COMMON PAID-IN ON RETAINED TREASURY
1993, and 1992 STOCK CAPITAL INVESTMENTS EARNINGS STOCK TOTAL
(Dollars in thousands) ------- ---------- ----------- ---------- ----------- ----------
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
======= ========== ======= ========== =========== ==========
See accompanying notes
30
--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------
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):
[Download Table]
1994 1993
---------- ----------
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
========== ==========
The aggregate payments of long-term debt outstanding at December 31, 1994, for
the next five years, excluding commercial paper, are summarized as follows: 1995
- $4,176,000; 1996 - $2,244,000; 1997 - $2,413,000; 1988 - $6,009,000; 1999 -
none.
Interest paid on long-term debt during 1994, 1993 and 1992 amounted to
$59,292,000, $83,002,000 and $139,674,000, respectively.
A subsidiary of the Company has issued commercial paper, $100,000,000 of which
was outstanding at December 31, 1994, at a weighted average interest rate of
5.5%. The commercial paper is supported by a $1,000,000,000 bank revolving
credit agreement terminating on June 30, 1999, unless otherwise extended.
Under terms of the bank revolving credit agreement, the Company and its
consolidated subsidiaries are required to maintain a consolidated net worth of
$2,700,000,000 at December 31, 1994, increasing annually by 33 percent of the
consolidated net income of the previous year. The commercial paper outstanding
at December 31, 1994 is classified as long-term since the Company intends to
renew or replace with long-term borrowings all, or substantially all, of the
commercial paper. However, the amount of commercial paper outstanding in 1995 is
expected to fluctuate and may be reduced from time to time. The Company has
unconditionally guaranteed the commercial paper, and any borrowings which may be
made by a subsidiary under the bank revolving credit agreement.
The 8 7/8% notes and the 8 3/4% debentures are not redeemable prior to
maturity and are not subject to any sinking fund. During 1991, the Securities
and Exchange Commission declared effective a shelf registration statement of the
Company which allows for the issuance of up to $500,000,000 in additional debt
securities.
During 1993, the Company redeemed $500,000,000 of notes and debentures. An
extraordinary charge of $12,122,000 (net of income taxes of $7,706,000), or
$0.07 per share, was recorded related to these redemptions.
The fair value of the Company's long-term debt, estimated based on the quoted
market prices for similar issues or on the current rates offered to the Company
for debt of similar remaining maturities, was approximately $628,000,000 and
$702,000,000 at December 31, 1994 and 1993, respectively.
32
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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):
[Download Table]
1994 1993 1992
-------- -------- --------
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
======= ======== =======
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):
[Enlarge/Download Table]
1994 1993
-------- --------
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)
======== ========
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
--------------------------------------------------------------------------------
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):
[Download Table]
1994 1993
-------- --------
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
======== ========
Net postretirement benefit cost (other than pensions) for 1994, 1993 and 1992
consisted of the following components (000's omitted):
[Download Table]
1994 1993 1992
------- ------ ------
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
====== ====== ======
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):
[Download Table]
Capital Operating
leases leases
-------- ---------
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
========
Total minimum payments for operating leases have not been reduced for future
minimum sublease rentals aggregating $2,859,000.
34
--------------------------------------------------------------------------------
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):
[Enlarge/Download Table]
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
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
========== ========== ========== ========== ==========
35
--------------------------------------------------------------------------------
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):
[Enlarge/Download Table]
1994 1993 1992
------------------- ----------------- ----------------
Amount % Amount % Amount $
---------- ---- -------- ---- -------- ---
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
========== ==== ======== ==== ======== ====
Income tax expense is comprised of the following (000's omitted):
[Download Table]
1994 1993 1992
-------- -------- --------
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
======== ======== ========
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):
[Download Table]
1994 1993
---------- ----------
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)
========== ==========
36
--------------------------------------------------------------------------------
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:
[Enlarge/Download Table]
1994 1993 1992
------- -------- --------
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
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
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.
[Enlarge/Download Table]
First Second Third Fourth
quarter quarter quarter quarter Year
---------- ---------- ---------- ---------- ----------
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
========== ========== ========== ========== ==========
38
--------------------------------------------------------------------------------
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:
[Download Table]
1994 1993
---------------------------- --------------------------
High Low Close High Low Close
------- ------- ------- ------- ------- -------
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
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
Capital Cities/ABC
--------------------------------------------------------------------------------
REPORT OF MANAGEMENT
The management of Capital Cities/ABC, Inc. is responsible for the preparation of
and the information included in the consolidated financial statements. These
statements, including the accompanying notes, have been prepared in accordance
with generally accepted accounting principles and include amounts which are
based upon management's best estimates and judgments.
In recognition of its responsibility for the integrity and reliability of the
data contained in the financial statements, as well as for the safeguarding of
assets against unauthorized acquisition, use or disposition, management
maintains a system of internal controls. Internal controls are designed to
provide reasonable, but not absolute, assurance at an appropriate cost, that
assets are safeguarded from loss or unauthorized use, and that the financial
records are reliable for the preparation of financial statements.
The Audit Committee of the Board of Directors, which is composed of six outside
directors, meets periodically with management, the independent auditors and the
Company's internal auditors to ensure that each is carrying out its
responsibilities. The Audit Committee reports its conclusions and
recommendations to the Board of Directors. Both the independent and internal
auditors have free and direct access to the Audit Committee.
The financial statements have been audited by the Company's independent auditors
in accordance with generally accepted auditing standards. In that connection,
the independent auditors develop and maintain an understanding of the Company's
accounting controls and conduct such tests and related procedures as they deem
necessary to render their opinion as to the fairness of the presentation in all
material respects of the financial statements in conformity with generally
accepted accounting principles.
/s/ Thomas S. Murphy
Thomas S. Murphy
Chairman of the
Board and Chief
Executive Officer
/s/ Ronald J. Doerfler
Ronald J. Doerfler
Senior Vice President and
Chief Financial Officer
40
--------------------------------------------------------------------------------
Capital Cities/ABC
Corporate
Thomas S. Murphy, Chairman of the Board and Chief Executive Officer
Robert A. Iger, President and Chief Operating Officer
John B. Fairchild, Executive Vice President; Chairman, Fairchild Publications
Ronald J. Doerfler, Senior Vice President and Chief Financial Officer
Herbert A. Granath, Senior Vice President; President, Cable and International
Broadcast Group
Michael P. Mallardi, Senior Vice President; President, Broadcast Group
Phillip J. Meek, Senior Vice President; President, Publishing Group
Stephen A. Weiswasser, Senior Vice President; President, Multimedia Group
David Westin, Senior Vice President; President, ABC Television Network Group
Alan N. Braverman, Vice President and General Counsel
Allan J. Edelson, Vice President and Controller
David J. Vondrak, Vice President and Treasurer
Joseph M. Fitzgerald, Vice President, Investor Relations
James M. Goldberg, Vice President, Taxes
Christine Hikawa, Vice President, Broadcast Standards and Practices
Andrew E. Jackson, Vice President, Corporate Affairs
Patricia J. Matson, Vice President, Corporate Communications
Jeffrey Ruthizer, Vice President, Labor Relations
William J. Wilkinson, Vice President and Executive Assistant to the Chairman
Philip R. Farnsworth, Secretary
Allen S. Bomes, Assistant Treasurer
* * * * * *
ABC Television Network Group
David Westin, President
Peter Chrisanthopoulos, Executive Vice President
Richard E. Hockman, Senior Vice President
Maureen P. Lesourd, Senior Vice President
Sherrie S. Rollins, Senior Vice President
John J. Wolters, Senior Vice President
Alex Wallau, Vice President
ABC Entertainment
Edward W. Harbert, President
Stuart J. Bloomberg, Executive Vice President
Ronald B. Sunderland, Executive Vice President
John Hamlin, Senior Vice President
Judd L. Parkin, Senior Vice President
Mark A. Pedowitz, Senior Vice President
Donna L. Rosenstein, Senior Vice President
Alan B. Sternfeld, Senior Vice President
P. Thomas Van Schaick, Senior Vice President
Mark C. Zakarin, Senior Vice President
ABC Daytime
Patricia D. Fili-Krushel, President
Cody Dalton, Senior Vice President
Valerie S. Schaer, Senior Vice President
ABC Early Morning and Late Night
ABC Children's Programming
Jeanette B. Trias, President
Broadcast Operations & Engineering
Preston A. Davis, President
Michael C. Lang, Senior Vice President
ABC News
Roone Arledge, President
Paul Friedman, Executive Vice President
Robert J. Murphy, Senior Vice President
William N. Temple, Senior Vice President
Richard C. Wald, Senior Vice President
Alan H. Wurtzel, Senior Vice President
Worldwide Television News
Kenneth Coyte, Chairman
ABC Sports
Dennis D. Swanson, President
Robert H. Apter, Senior Vice President
David E. Downs, Senior Vice President
Dennis Lewin, Senior Vice President
ABC Television Network Sales and Marketing
Marvin F. Goldsmith, President
Robert J. Cagliero, Executive Vice President
Lawrence S. Fried, Executive Vice President
Production
ABC PRODUCTIONS
Brandon Stoddard, President
DIC ENTERTAINMENT
Andrew Heyward, President
GREENGRASS PRODUCTIONS
ABC/KANE PRODUCTIONS
Dennis B. Kane, President
--------------------------------------------------------------------------------
Capital Cities/ABC
Broadcast Group
Michael P. Mallardi, President
Television Stations
Lawrence J. Pollock, President
Robert O. Niles, Vice President
WABC-TV (New York, NY)
Walter C. Liss, Jr., President, General Manager
KABC-TV (Los Angeles, CA)
G. Alan Nesbitt, President, General Manager
WLS-TV (Chicago, IL)
Joseph J. Ahern, President, General Manager
WPVI-TV (Philadelphia, PA)
Thomas P. Kane, President, General Manager
KGO-TV (San Francisco, CA)
James G. Topping, President, General Manager
KTRK-TV (Houston, TX)
James E. Masucci, President, General Manager
WTVD (Durham-Raleigh, NC)
Emily L. Barr, President, General Manager
KFSN-TV (Fresno, CA)
Marc Edwards, President, General Manager
National Television Sales
John B. Watkins, President
Radio
James A. Arcara, President
ABC Radio Networks
Robert F. Callahan, Jr., President
Bart W. Catalane, Executive Vice President
David M. Kantor, Executive Vice President
Radio Stations--Group I
Don P. Bouloukos, President
WABC-AM (New York, NY)
Don P. Bouloukos, President, General Manager
WPLJ-FM (New York, NY)
J. Mitchell Dolan, President, General Manager
KABC-AM (Los Angeles, CA)
KMPC-AM (Los Angeles, CA)
George Green, President, General Manager
KLOS-FM (Los Angeles, CA)
Bill Sommers, President, General Manager
KGO-AM (San Francisco, CA)
KSFO-AM (San Francisco, CA)
Michael Luckoff, President, General Manager
WJR-AM (Detroit, MI)
Michael D. Fezzey, President, General Manager
WHYT-FM (Detroit, MI)
John E. Cravens, President, General Manager
KQRS-AM/FM (Minneapolis, MN)
KEGE-FM (Minneapolis, MN)
Mark S. Steinmetz, President, General Manager
Radio Stations--Group II
Norman S. Schrutt, President
WLS-AM/FM (Chicago, IL)
Thomas R. Tradup, President, General Manager
WMAL-AM (Washington, DC)
Thomas J. Bresnahan, President, General Manager
WRQX-FM (Washington, DC)
James M. Robinson, President, General Manager
WBAP-AM (Fort Worth-Dallas, TX)
William J. Hare, President, General Manager
KSCS-FM (Fort Worth-Dallas, TX)
Victor J. Sansone, President, General Manager
WKHX-AM/FM (Atlanta, GA)
WYAY-FM (Atlanta, GA)
Norman S. Schrutt, President, General Manager
--------------------------------------------------------------------------------
Capital Cities/ABC
Cable and International Broadcast Group
Herbert A. Granath, President
John T. Healy, Executive Vice President
ESPN (Bristol, CT)
Steven M. Bornstein, President
ABC INTERNATIONAL OPERATIONS (New York, NY)
John T. Healy, President
Richard F. Spinner, President and Managing Director, European Operations
ABC DISTRIBUTION (New York, NY)
Joseph Y. Abrams, President
A&E TELEVISION NETWORK (New York, NY)
Nicholas Davatzes, President
LIFETIME TELEVISION (New York, NY)
Douglas W. McCormick, President
* * * * * *
Capital Cities/ABC Multimedia Group
Stephen A. Weiswasser, President
Bruce Maggin, Executive Vice President
CAPITAL CITIES/ABC VIDEO PUBLISHING (Stamford, CT)
Jon R. Peisinger, President
* * * * * *
Publishing Group
Phillip J. Meek, President
Gary L. Holland, Vice President
Bruce H. McIntyre, Vice President
Newspapers
THE KANSAS CITY STAR (Kansas City, MO)
Robert C. Woodworth, President, Publisher
FORT WORTH STAR-TELEGRAM (Fort Worth, TX)
Richard L. Connor, President, Publisher
THE OAKLAND PRESS GROUP (Pontiac, MI)
Dale A. Duncan, President, Publisher
BELLEVILLE NEWS-DEMOCRAT GROUP (Belleville, IL)
Gary L. Berkley, President, Publisher
THE TIMES LEADER GROUP (Wilkes-Barre, PA)
Mark G. Contreras, President, Publisher
OREGON NEWSPAPER GROUP (Albany, OR)
Richard F. Anderson, President
Shopping Guides
Wesley R. Turner, Group Executive
PENNYSAVERS (Orange and San Diego
Counties, Sacramento and Stockton, CA)
William E. Carman, President
PENNYPOWER SHOPPING NEWS (Wichita, KS and
Springfield, MO)
Michael T. Blasi, President
NORTHWEST NICKELS (Seattle-Tacoma and
Spokane, WA; Portland, OR; Las Vegas, NV)
Richard F. Anderson, President
Specialized Publications
Diversified Publishing Group
Ann Maynard Gray, President
AGRICULTURAL PUBLISHING GROUP (Carol Stream, IL)
Allan R. Johnson, President
CHILTON ENTERPRISES (Radnor, PA)
David S. Loewith, President
CHILTON PUBLICATIONS (Radnor, PA)
Leon C. Hufnagel, President
LOS ANGELES MAGAZINE (Los Angeles, CA)
Joan McCraw, President
NILS PUBLISHING COMPANY (Chatsworth, CA)
William H. Bang, President
Fairchild Publications Group (New York, NY)
John B. Fairchild, Chairman and Editorial Director
Michael F. Coady, President
Financial Services and Medical Group
Peter A. Derow, President
INSTITUTIONAL INVESTOR (New York, NY)
Peter A. Derow, President
INTERNATIONAL MEDICAL NEWS GROUP (Short Hills, NJ)
Thomas Fowler, President
Capital Cities Capital
George M. Cain, President
--------------------------------------------------------------------------------
EXECUTIVE OFFICERS
Thomas S. Murphy
Chairman of the Board and Chief Executive Officer
Robert A. Iger
President and Chief Operating Officer
John B. Fairchild
Executive Vice President; Chairman, Fairchild Publications
Ronald J. Doerfler
Senior Vice President and Chief Financial Officer
Herbert A. Granath
Senior Vice President; President, Cable and International Broadcast Group
Michael P. Mallardi
Senior Vice President; President, Broadcast Group
Phillip J. Meek
Senior Vice President; President, Publishing Group
Stephen A. Weiswasser
Senior Vice President; President, Multimedia Group
David Westin
Senior Vice President; President, ABC Television Network Group
--------------------------------------------------------------------------------
BOARD OF DIRECTORS
Thomas S. Murphy 1, 4
Chairman of the Board and Chief Executive Officer
Robert A. Iger
President and Chief Operating Officer
Robert P. Bauman 3*
Chairman, British Aerospace PLC
Nicholas F. Brady 3
Chairman and Chief Executive Officer, Darby Overseas Investments, Ltd.; Former
Secretary of the United States Department of the Treasury
Warren E. Buffett 4*
Chairman of the Board and Chief Executive Officer, Berkshire Hathaway Inc.
Daniel B. Burke 1, 4
Retired President and Chief Executive Officer, Capital Cities/ABC, Inc.
Frank T. Cary 2
Former Chairman of the Board and Chief Executive Officer, International Business
Machines Corporation
John B. Fairchild
Executive Vice President; Chairman, Fairchild Publications
Leonard H. Goldenson 1*
Chairman of the Executive Committee; Retired Chairman of the Board and Chief
Executive Officer, American Broadcasting Companies, Inc.
Frank S. Jones 2
Ford Professor of Urban Affairs, Emeritus, Massachusetts Institute of Technology
Ann Dibble Jordan 2
Former Director of Social Service Department, University of Chicago Medical
School
John H. Muller, Jr. 1, 2*, 3
Chairman of the Executive Committee, former Chairman of the Board and Chief
Executive Officer, General Housewares Corp.
Wyndham Robertson 2
Vice President for Communications The University of North Carolina
M. Cabell Woodward, Jr. 1, 2
Retired Vice Chairman and Chief Financial Officer, ITT Corporation
Director Emeritus
Gerald Dickler
Former Senior Counsel, Hall Dickler Kent Friedman & Wood Attorneys at Law
1 Member of Executive Committee
2 Member of Audit Committee
3 Member of Compensation Committee
4 Member of Finance Committee
* Committee Chairman
The Company's Form 10-K Annual Report to the Securities and Exchange Commission
provides certain additional information. A copy of this report may be obtained
upon written request to the Company addressed to:
The Corporate Secretary
Capital Cities/ABC, Inc.
77 West 66th Street
New York, New York 10023-6298
--------------------------------------------------------------------------------
Transfer Agent and Registrar
Harris Trust Company of New York
77 Water Street
New York, New York 10005-4401
The Company's Common Stock is listed for trading on the New York and Pacific
Stock Exchanges (Symbol: CCB)
LOGO
This report is printed
entirely on recycled paper
Capital Cities/ABC, Inc.
77 West 66th Street
New York, New York 10023-6298
(212) 456-7777
Dates Referenced Herein and Documents Incorporated by Reference
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