-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, gV5P9tvDflS+6f9TSL04y/b5ahxGyVo+H6IQq6n2xrElU3BCAnbxczOF0F6AwQOA jEGqwEMvvO6szOksu3H3pQ== 0000950130-94-000530.txt : 19940331 0000950130-94-000530.hdr.sgml : 19940331 ACCESSION NUMBER: 0000950130-94-000530 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPITAL CITIES ABC INC /NY/ CENTRAL INDEX KEY: 0000017109 STANDARD INDUSTRIAL CLASSIFICATION: 4833 IRS NUMBER: 141284013 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-04278 FILM NUMBER: 94518912 BUSINESS ADDRESS: STREET 1: 77 W 66TH ST CITY: NEW YORK STATE: NY ZIP: 10023 BUSINESS PHONE: 2124567777 FORMER COMPANY: FORMER CONFORMED NAME: CAPITAL CITIES COMMUNICATIONS INC DATE OF NAME CHANGE: 19860113 FORMER COMPANY: FORMER CONFORMED NAME: CAPITAL CITIES BROADCASTING CORP DATE OF NAME CHANGE: 19730531 10-K 1 FORM 10-K =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993. or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________. Commission file number 1-4278 Capital Cities/ABC, Inc. (Exact name of registrant as specified in its charter) New York 14-1284013 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 77 West 66th Street, New York, N.Y. 10023-6298 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 456-7777 Securities registered pursuant to Section 12(b) of the Act: (Name of each exchange (Title of each class) on which registered) Common Stock, $1.00 par value New York Stock Exchange Pacific Stock Exchange Preferred Share Purchase Rights New York Stock Exchange Pacific Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant is $8,752,000,000 as of February 28, 1994. The number of shares outstanding of the issuer's common stock as of February 28, 1994: 15,338,311 shares, excluding 3,055,185 treasury shares. Portions of Part I are incorporated herein by reference to the 1993 Annual Report to Shareholders and the definitive Proxy Statement for the annual meeting of shareholders to be held on May 19, 1994. Part II and Part IV, with the exception of certain schedules and exhibits, are incorporated herein by reference to the 1993 Annual Report to Shareholders. Part III is incorporated herein by reference to the definitive Proxy Statement for the annual meeting of shareholders to be held on May 19, 1994. =============================================================================== K-1 PART I Item 1. Business. Capital Cities/ABC, Inc., directly or through its subsidiaries (the "Company"), operates the ABC Television Network, eight television stations, the ABC Radio Networks and 18 radio stations, and provides programming for cable television. The Company, through joint ventures, is engaged in international broadcast/cable services and television production and distribution. The Company also publishes daily and weekly newspapers, shopping guides, various specialized and business periodicals, books, provides research services and also distributes information from data bases. Employees At December 31, 1993, the Company had approximately 19,250 full-time equivalent employees: 10,000 in broadcasting operations, 9,000 in publishing operations and 250 in corporate activities. Industry Segments Information relating to the industry segments of the Company's operations is included on page 37 of the Company's Annual Report to Shareholders and is hereby incorporated by reference. In 1993, the Company derived approximately 85% and 70% of its broadcasting and publishing revenues, respectively, from the sale of advertising. The remainder of the broadcasting revenues are principally derived from subscriber-related fees and programming distribution activities. The balance of publishing revenues are derived primarily from subscription and other circulation receipts and the sale of books. Broadcasting Television and Radio Networks The Company operates the ABC Television Network which as of December 31, 1993 had 228 primary affiliated stations reaching 99.9% of all U.S. television households. A number of secondary affiliated stations add to the primary coverage. The ABC Television Network broadcasts programs in "dayparts" and types as follows: Monday through Friday early morning, daytime and late night, Monday through Sunday Prime Time and News, Children's and Sports. The Company also operates the ABC Radio Networks which served a total of approximately 3,400 affiliates as of December 31, 1993 through eight different program services, each with its own group of affiliated stations. The ABC Radio Networks also produces and distributes a number of radio program series for radio stations nationwide. Generally, the Company pays the cost of producing or purchasing the broadcast rights for its network programming and pays varying amounts of compensation to its affiliated stations for broadcasting the programs and commercial announcements included therein. Substantially all revenues from network operations are derived from the sale to advertisers of time in network programs for commercial announcements. The ability to sell time for commercial announcements and the rates received are dependent on the quantitative and qualitative audience that the network can deliver to the advertiser. The Company also produces television programs for the ABC Television Network and for other exhibitors of television programs. For television programs it produces, the Company pays the costs of production and typically receives a license fee from the exhibitor for initial exhibition. Generally, the license fees received are less than the costs of production. The Company then licenses the programs it owns for foreign exhibition and, ultimately, for repeat exhibition in the United States. K-2 Television and Radio Stations The Company owns seven very high frequency (VHF) television stations, one ultra high frequency (UHF) television station, nine standard (AM) radio stations and nine frequency modulation (FM) radio stations. All television stations are affiliated with the ABC Television Network and all radio stations, except as noted, are affiliated with the ABC Radio Networks. Markets, frequencies and other station details are set forth in the following tables:
Television stations Expiration Television Station date of FCC market and market Channel authorization ranking(1) - ---------------------------- ---------- ------------- ------------------- WABC-TV (New York, NY) ..... 7 June 1, 1994 1 KABC-TV (Los Angeles, CA) .. 7 (2) 2 WLS-TV (Chicago, IL) ....... 7 Dec. 1, 1997 3 WPVI-TV (Philadelphia, PA) . 6 Aug. 1, 1994 4 KGO-TV (San Francisco, CA) . 7 (2) 5 KTRK-TV (Houston, TX) ...... 13 (2) 10 WTVD (Durham-Raleigh, NC) .. 11 Dec. 1, 1996 32 KFSN-TV (Fresno, CA) ....... 30 (2) 57
Radio stations Frequency Expiration Radio Station AM-Kilohertz date of FCC market and market FM-Megahertz authorization ranking(4) - ---------------------------- ------------ -------------- ------------------- WABC (New York, NY) ........ 770 K June 1, 1998 1 KABC (Los Angeles, CA) ..... 790 K (2) 2 WLS (Chicago, IL) .......... 890 K Dec. 1, 1996 3 KGO (San Francisco, CA) .... 810 K Dec. 1, 1997 4 WJR (Detroit, MI) .......... 760 K Oct. 1, 1996 6 WMAL (Washington, DC) ...... 630 K Oct. 1, 1995 7 WBAP (Fort Worth-Dallas, TX) 820 K Aug. 1, 1997 8 WKHX (Atlanta, GA) (3) ..... 590 K Apr. 1, 1996 12 KQRS (Minneapolis-St.Paul, MN) ....................... 1440 K Apr. 1, 1997 17 WPLJ(FM) (New York, NY) .... 95.5 M June 1, 1998 1 KLOS(FM) (Los Angeles, CA) . 95.5 M (2) 2 WLS-FM (Chicago, IL) ....... 94.7 M Dec. 1, 1996 3 WHYT(FM) (Detroit, MI) ..... 96.3 M Oct. 1, 1996 6 WRQX(FM) (Washington, DC) .. 107.3 M Oct. 1, 1995 7 KSCS(FM) (Fort Worth-Dallas, TX) (3) ................... 96.3 M Aug. 1, 1997 8 WKHX-FM (Atlanta, GA) (3) .. 101.5 M Apr. 1, 1996 12 WYAY(FM) (Atlanta, GA) (3) . 106.7 M Apr. 1, 1996 12 KQRS-FM (Minneapolis-St. Paul, MN) ................. 92.5 M Apr. 1, 1997 17
- ---------- (1) Based on Nielsen U.S. Television Household Estimates, 1993-1994 season. (2) See "Licenses -- Federal Regulation of Broadcasting/Renewal Matters" below for description of pending license renewal applications and other matters. (3) No ABC network affiliation. (4) Based on Arbitron Radio Market Survey Schedule and Population Rankings (metro survey area) as of Fall 1993. K-3 Cable and International Broadcast The Company's Cable and International Broadcast operations are principally involved in the production and distribution of cable television programming, in the licensing of programming to domestic and international markets and in joint ventures in foreign-based television operations and television production and distribution entities. Its primary services are: ESPN, an 80%-owned cable sports programming service reaching 62,700,000 households domestically and 49,000,000 households in 90 countries internationally; ESPN2 reaching 13,000,000 households. ESPN also owns 33% of Eurosport, a pan-European satellite-delivered cable and direct-to-home sports programming service reaching 48,700,000 households; and 20% of Japan Sports Network reaching 910,000 households; Arts & Entertainment Network, a 37 1/2%-owned cable programming service devoted to cultural and entertainment programming and reaching 52,900,000 households; Lifetime, a 33 1/3%-owned cable programming service devoted to women's lifestyle programming and reaching 58,800,000 households; Tele-Munchen Fernseh GmbH & Co., a 50%-owned Munich, Germany based television and theatrical production/distribution company with interests in cinemas and a minority interest in a Munich radio station; RTL 2 Fernsehen GmbH & Co., a 20%-owned Cologne, Germany based general entertainment commercial broadcasting company reaching 19,600,000 households; Scandinavian Broadcasting System SA, a 24%-owned Luxembourg based company operating television stations in Denmark reaching 1,300,000 households, and satellite-delivered cable and direct-to-home general entertainment television programming services in Sweden and Norway reaching 1,700,000 and 900,000 households, respectively; Hamster Productions, S.A., 33 1/3%-owned, and Tesauro, S.A., 25%-owned, television and theatrical production/distribution companies based in Paris, France and Madrid, Spain, respectively; and DIC Productions, L.P., a 95%-owned production/distribution venture of animated and live action programming for the children's television and video markets, and DIC Entertainment, L.P., a 100%-owned film library of similar type programming. Multimedia In late 1993, the Company created a Multimedia Group with the mandate to explore using video and print material to create new programming and software and to explore investment opportunities in emerging multimedia and interactive technologies. The division includes the Capital Cities/ABC Video Publishing unit, which acquires rights to and produces programming for the home video market. Competition The ABC Television Network competes for viewers with the other television networks, independent television stations and other video media such as cable television, multipoint distribution services ("MDS," which employ non-broadcast frequencies to transmit subscription television services to individual homes and businesses), satellite television program services and video cassettes; in the sale of advertising time, it competes with the other television networks, independent television stations, suppliers of cable television programs, and other advertising media such as newspapers, magazines and billboards. Substantial competition also exists for exclusive broadcasting rights for television programming. The ABC Radio Networks likewise compete with other radio networks and radio programming services, independent radio stations, and other advertising media. The Company's television and radio stations are in competition with other television and radio stations, cable television systems, MDS, satellite television program services, video cassettes and other advertising media such as newspapers, magazines and billboards. Such competition occurs primarily in individual market areas. Generally, a television station in one market does not compete directly with K-4 other stations in other market areas. Nor does a group of stations, such as those owned by the Company, compete with any other group of stations as such. While the pattern of competition in the radio station industry is basically the same, it is not uncommon for radio stations outside of a market area to place a signal of sufficient strength within that area (particularly during nighttime hours) to gain a share of the audience. However, they generally do not realize significantly increased advertising revenues as a result. The Company's Cable and International Broadcast operations compete with a number of companies involved in developing and supplying program services for cable, television syndication and theatrical distribution, and with conventional television broadcasters. The Multimedia operations face competition from numerous broadcast, cable, computer software, production and distribution companies which are also pursuing opportunities in the new technologies. The development of these businesses could adversely affect the future of conventional television broadcasting. In addition, the Company's broadcast operations face potential competition from numerous new satellite, cable and telephone technologies and distribution systems, and from signal-enhancing technologies such as high definition television or, in radio, "digital audio" radio. Although most of these technologies are in experimental phases, all have the potential to further increase the entertainment and information alternatives available to consumers. In some instances, the Company may itself participate in these new technologies. Regulatory, technical and economic issues make it impossible to predict whether or when, such technologies will become viable or competitive. Licenses--Federal Regulation of Broadcasting Television and radio broadcasting are subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the "Communications Act"). The Communications Act empowers the FCC, among other things, to issue, revoke or modify broadcasting licenses, determine the location of stations, regulate the equipment used by stations, adopt such regulations as may be necessary to carry out the provisions of the Communications Act and impose certain penalties for violation of its regulations. Renewal Matters Broadcasting licenses are granted for a maximum period of seven years, in the case of radio stations, and five years, in the case of television stations, and are renewable upon application therefor. During certain periods when a renewal application is pending, new applicants may file for the frequency and may be entitled to compete with the renewal applicant in a comparative hearing, and others may file petitions to deny the application for renewal of license. Renewal applications are now pending for KABC(AM), KLOS-FM, KTRK-TV, KABC-TV, KGO-TV and KFSN-TV. In the case of KABC(AM), KLOS-FM, KABC-TV, KGO-TV and KFSN- TV, the time to file competing applications and petitions to deny has passed, and no such filings have been made against these stations. In the case of KTRK- TV, two petitions to deny have been filed. The Company believes both petitions are without merit and is vigorously opposing them. All of the Company's other owned stations have been granted license renewals by the FCC for regular terms. On April 15, 1992, the U.S. District Court for the District of Columbia issued a Memorandum Opinion and Order in Shepherd et al. v. American Broadcasting Companies, Inc. et al., Civil Action No. 88-0954 (RCL), which entered a default judgment against American Broadcasting Companies, Inc. and the Company on a complaint alleging discrimination in employment practices at the ABC News Bureau in Washington, DC, in violation of District of Columbia law. The default was based on a conclusion that "the defendants impeded and obstructed the litigation process by . . . destruction and alteration of a crucial document and through the harassment of witnesses and filing false and misleading affidavits." On September 3, 1993, the District Court issued a Memorandum Opinion on reconsideration that withdrew many of the findings of misconduct previously made but reaffirmed other such findings (as well as the default judgment) and called for further proceedings with respect to damages. The Company believes that the District Court's decision is factually and legally incorrect, and it is seeking to obtain a review of the default judgment (and the supporting findings of misconduct that remain) by the U.S. Court of Appeals for the District of Columbia Circuit. However, the policies of the FCC call for the agency to evaluate whether an adjudication of misconduct of the kind found in Shepherd should bear on the qualifications of the licensee, even though the adjudication is pending K-5 on appeal. The FCC has recently approved the Company's acquisition of radio station WYAY(FM), Gainesville, GA without prejudice to any action the agency may take in light of the ultimate outcome of the Shepherd decision. On January 14, 1994, the Company submitted to the FCC amendments to its pending license renewal applications urging that it and its subsidiaries should be found fully qualified to hold broadcast licenses, even if the misconduct findings of the District Court were ultimately upheld. Pending FCC action on that issue the Company will urge thc FCC to apply the Gainesville, GA precedent to permit the acquisition of new stations, the sale of existing stations or the renewal of existing licenses. Ownership Matters The Communications Act prohibits the assignment of a license or the transfer of control of a licensee without prior approval of the FCC, and prohibits the Company from having any officer or director who is an alien, and from having more than one-fifth of its shares owned of record or voted by aliens, representatives of aliens, foreign governments, representatives of foreign governments or corporations organized under the laws of foreign countries. The FCC's "multiple ownership" rules impose a variety of restrictions on the ownership or control of broadcast stations by a single party. The television "duopoly" rule bars control or ownership of significant interests in two television stations that serve the same area. Less severe restraints are imposed on the control or ownership of AM and FM radio stations that serve the same area; in a number of situations, a single party may control or own an AM and/or an FM "duopoly" -- two AM and/or two FM stations -- in the same market area. The rules also preclude the grant of applications for station acquisitions that would result in the creation of new radio-television combinations in the same market under common ownership, or the sale of such a combination to a single party, subject to the availability of waiver. Under FCC policy, waiver applications that involve radio-television station combinations in the top 25 TV markets where there would be at least 30 separately owned, operated and controlled broadcast licensees after the proposed combination will generally be favorably received. Under present FCC rules, a single entity may directly or indirectly own, operate or have a significant interest in up to eighteen AM and eighteen FM radio stations, and up to twelve television stations (VHF or UHF), provided that those television stations operate in markets containing cumulatively no more than 25% of the television households in the country. For this purpose, ownership of a UHF station will result in the attribution of only 50% of the television households in the relevant market. The Company owns eight television stations, of which seven are VHF, resulting in a total penetration of the nation's television households, for purposes of the multiple ownership rules, of 23.63%. The Company also owns nine AM and nine FM radio stations. Furthermore, under the FCC's rules, radio and/or television licensees may not acquire new ownership interests in daily newspapers published in the same markets served by their broadcast stations. The Company currently owns daily newspapers in two markets in which it also holds radio licenses. For purposes of these rules, The Oakland Press and WJR(AM) and WHYT(FM), licensed to Detroit, are treated as in the same market, as are the Fort Worth Star-Telegram and WBAP(AM) and KSCS(FM), licensed to Fort Worth. Absent an FCC waiver, the Company could not under the rules acquire additional broadcast stations in these markets nor could the current broadcast/newspaper combinations be transferred together. In 1993, the Congress relaxed a restriction previously imposed on the FCC so as to allow the FCC to grant waivers of the rules with respect to newspaper/radio station cross-ownership in the top 25 markets where at least 30 independent broadcast voices would remain following a transfer if the FCC determines that a waiver would serve the public interest. This new policy creates potential new acquisition opportunities for the Company. The FCC's rules also provide that television licensees may not own cable television systems in communities within the service contours of their television stations. In 1992, the FCC relaxed the rule that previously prohibited common ownership of television networks and cable television systems to permit such combinations subject to a national limit of 10% of "homes passed" (i.e., homes within the service areas of cable systems) by cable as well as a local limit of 50% of homes passed within any ADI (Area of Dominant Influence, i.e., local television market area as defined by Arbitron Television Ratings). The FCC's rules generally provide that an entity will have the licensee's broadcast stations or newspapers attributed to it for purposes of the multiple ownership rules only if it holds the power to vote or control the vote of 5% or more of the stock of a licensee. Qualifying mutual funds, insurance K-6 companies, or bank trust departments may vote or control the vote of up to 10% of the stock of a broadcast licensee before the licensee's stations would be attributed to that entity. Network Regulations In May 1993, the FCC eliminated rules that previously restricted the ability of the Company as well as CBS Inc. ("CBS") and National Broadcasting Company, Inc. ("NBC") to acquire financial interests in network television programs. In the same proceeding, the FCC retained (subject to a complex two-year sunset provision) rules that prevent the networks from engaging in active first-run or "off-network" syndication of programs to television stations in the United States, constrain the networks' discretion to determine when programs owned by them will be made available for syndication, and prevent the networks from acquiring from independent producers interests in first-run syndicated programs. In September 1993, the FCC substantially denied petitions for reconsideration of its May 1993 decision. The lawfulness of the regulations the agency has retained, and of the 1993 modications, has been challenged in proceedings currently pending in the United States Court of Appeals for the Seventh Circuit. The Company is not able to predict the outcome of these proceedings. In addition, other FCC rules effectively restrict the regular prime-time programming schedules of ABC, CBS and NBC to three hours per night during the period 7:00 P.M. to 11:00 P.M. on Monday through Saturday. The Company's television network operations are subject to a consent judgment (United States v. American Broadcasting Companies, Inc., 74-3600-RJK), in the United States District Court for the Central District of California, entered into and effective on November 14, 1980. Similar judgments have been entered against CBS and NBC with respect to their television networks. In November 1993 the United States District Court, upon a joint motion by the United States Department of Justice, the Company, CBS and NBC, modified the consent judgment to eliminate those provisions which prohibited the acquisition of subsidiary rights and interests in television programs produced by independent suppliers and restricted the ability of the Company (as well as CBS and NBC) to engage in the business of distributing programs directly to television stations in the United States or overseas. The consent judgment continues to contain provisions regulating for a period expiring in 1995 certain aspects of the Company's contractual relationships with suppliers of entertainment programming and with talent performers and other creative contributors to ABC Television Network entertainment programming. Cable Television and Other Competing Services Cable television can provide more competition to a television station by making additional signals available to the audience. In 1992, Congress enacted the Cable Television Consumer Protection and Competition Act. The Act gives television stations the right to elect "must carry" protection (including protection on channel position) on local cable systems. (The FCC's "must carry" rules require cable television systems generally to carry the signals of television stations in whose service areas they operate.) In the alternative, the Act permits local stations to negotiate with cable systems the terms and conditions of "retransmission consent" to carry their signals and to withhold their signals in the event that no consent on terms and conditions is reached. The Act also reimposes cable system rate regulation and introduces new regulations designed to ensure that MDS and other multi-channel video programmers have access to programming to facilitate competition with cable systems. The Act requires the FCC to conduct rulemaking proceedings to establish national cable system ownership limits and limits on cable channels devoted to video programmers in which the cable system has an interest, and to prohibit coercive or discriminatory practices by cable operators in dealings with video programmers (such as ESPN, ESPN2, Arts & Entertainment and Lifetime). The FCC has adopted regulations implementing all of these statutory provisions. Cable operators have filed lawsuits challenging many of the new Act's provisions. The must carry, retransmission consent, rate regulation and program access provisions have been upheld as constitutional in federal court decisions. The decision relating to must carry is pending on appeal in the Supreme Court of the United States. The decision relating to the Act's other provisions has been appealed to the United States Court of Appeals for the District of Columbia Circuit. The Company cannot predict the outcome of this litigation. Most cable television systems supply additional programming to subscribers that is not originated on, or transmitted from, conventional television broadcasting stations. Many of these services K-7 (including ESPN, ESPN2, Arts & Entertainment and Lifetime) are also being distributed directly to viewers by means of satellite transmissions to home satellite reception dishes. The FCC also authorizes broadcast subscription television services and MDS, and has expanded the number of frequencies available for MDS by allocating two groups of four channels each for the so-called multichannel MDS, to be awarded by lottery. The FCC has authorized licensees in the Instructional Television Fixed Service to lease their excess capacity for commercial use, including subscription television service, and has adopted rules facilitating direct broadcast satellite operations. It has also created a new service of low power television facilities to supplement existing conventional television broadcast service. The Company also faces potential competition to its broadcast and cable program services and to its newspaper operations from telephone companies. Telephone companies are seeking to expand their broadband networks to provide both data transmission services ("electronic publishing") and video services to the home. Until 1991, the regional Bell operating companies were prohibited from providing information services by the Modified Final Judgment that governed the break-up of American Telephone and Telegraph Company. While that prohibition has been lifted, there is a provision in the Cable Act of 1984 that prohibits telephone companies from providing video programming directly to their telephone subscribers ("the telco/cable cross ownership ban"). A number of recent developments may affect potential telephone company competition. First, the FCC decided in 1991 and 1992 to permit telephone companies to offer "video dialtone" distribution services to programmers on a common carrier basis without having to obtain a municipal cable franchise. Appeals challenging this decision are pending in the United States Court of Appeals for the District of Columbia Circuit. Second, in a suit filed by Bell Atlantic Corporation, a U.S. District Court ruled in August 1993 that the telco/cable cross ownership ban is unconstitutional. The decision has been appealed to the United States Court of Appeals for the Fourth Circuit. Finally, there are a number of legislative proposals that would either eliminate or modify the telco/cable cross ownership ban. The Company cannot predict the outcome of these developments or the competitive effect of these services or potential services. From time to time legislation may be introduced in Congress which, if enacted, might affect the Company's operations or its advertising revenues. Proceedings, investigations, hearings and studies are periodically conducted by Congressional committees and by the FCC and other government agencies with respect to problems and practices of, and conditions in, the broadcasting industry. The Company cannot generally predict whether new legislation or regulations may result from any such studies or hearings or the adverse impact, if any, upon the Company's operations which might result therefrom. The information contained under this heading does not purport to be a complete summary of all the provisions of the Communications Act and the rules and regulations of the FCC thereunder, or of pending proposals for other regulation of broadcasting and related activities. For a complete statement of such provisions, reference is made to the Communications Act, and to such rules, regulations and pending proposals thereunder. * * * * * K-8 Publishing The Company publishes newspapers and shopping guides, various specialized and business periodicals and books; provides research services and also distributes information from data bases. Following is a summary of the Company's historical operating performance, by type of publication, for the last five years (000's omitted):
Pro Forma (b) --------------- 1993 1992 1991 1990 1989 1993 1992 ---- ---- ---- ---- ---- ---- ---- Inches of advertising Newspapers (a).............. 18,953 18,396 17,550 18,421 15,844 18,953 18,396 Specialized publications.... 3,055 3,004 2,921 3,399 3,603 2,878 2,920 Advertising revenue Newspapers--ROP............. $310,429 $301,182 $291,592 $307,634 $290,545 $310,429 $301,182 Newspapers--inserts......... 58,732 55,278 51,695 49,800 44,694 58,732 55,252 Shopping guides............. 71,853 71,137 66,370 65,834 62,111 70,633 70,232 Specialized publications.... 277,077 270,885 267,974 307,686 310,169 265,243 259,209 Circulation revenue Newspapers.................. $101,112 $ 96,226 $ 93,697 $ 85,933 $ 82,582 $101,112 $ 96,226 Specialized publications.... 51,182 47,253 53,024 59,471 65,882 45,800 45,016 Other operating revenue Newspapers.................. $21,700 $ 18,200 $ 14,323 $ 10,813 $ 6,635 $ 18,540 $ 16,667 Shopping guides............. 4,851 4,220 3,589 4,171 4,337 4,663 4,220 Specialized publications Books/Music............... 28,638 118,967 116,708 111,643 108,012 28,638 30,817 Research services, data base and other...... 84,864 95,218 93,274 98,984 82,438 83,331 77,476 Total revenue Newspapers.................. $491,973 $470,886 $451,307 $454,180 $424,456 $488,813 $469,327 Shopping guides............. 76,704 75,357 69,959 70,005 66,448 75,296 74,452 Specialized publications.... 441,761 532,323 530,980 577,784 566,501 423,012 412,518 Paid circulation at year-end Newspapers (Daily).......... 751 754 741 769 891 751 754 Newspapers (Sun.)........... 1,008 992 966 958 930 1,008 992 Specialized publications.... 1,324 1,356 1,768 2,164 3,256 1,212 1,347
- ---------- (a) Does not include inserts. (b) Excludes 1993 and 1992 acquisitions, start-ups and disposals. K-9 Daily Newspapers The Company publishes eight daily newspapers in eight communities (six of which have Sunday editions). The daily newspapers and their paid circulation are as follows:
Daily Sunday ----- ------ The Kansas City Star....................... Morning 297,000 431,000 Fort Worth Star-Telegram................... All Day 252,000 347,000 The Oakland Press (Pontiac, MI)............ Morning 70,000 81,000 Belleville News-Democrat (Belleville, IL).. Morning 51,000 61,000 The Times Leader (Wilkes-Barre, PA)........ Morning 47,000 79,000 Albany Democrat-Herald (Albany, OR)........ Evening 21,000 Milford Citizen (Milford, CT).............. Evening 7,000 9,000 The Daily Tidings (Ashland, OR)............ Evening 6,000
Weekly Newspapers The Company publishes weekly community newspapers in seven states. The location by state, number of publications and aggregate circulation is set forth below:
Number of Aggregate State Publications Circulation - ----- ------------ ----------- Connecticut................................ 26 147,000 Illinois................................... 13 55,000 Massachusetts.............................. 16 53,000 Michigan................................... 12 187,000 Oregon..................................... 6 39,000 Pennsylvania............................... 1 11,000 Rhode Island............................... 4 22,000
Shopping Guides and Real Estate Magazines The Company distributes shopping guides and real estate magazines in thirteen states. The location by state, number of publications and aggregate circulation is set forth below:
Number of Aggregate State Publications Circulation - ----- ------------ ----------- California................................. 6 1,956,000 Connecticut................................ 9 208,000 Illinois................................... 1 14,000 Kansas..................................... 1 144,000 Massachusetts.............................. 19 232,000 Michigan................................... 7 94,000 Missouri................................... 1 135,000 Nevada..................................... 4 114,000 Oregon..................................... 5 207,000 Pennsylvania............................... 3 89,000 Rhode Island............................... 1 23,000 Texas...................................... 2 57,000 Washington................................. 4 387,000
K-10 Specialized Publications The Specialized Publications consists of three groups: the Diversified Publishing Group, the Fairchild Publications Group, and the Financial Services and Medical Group. Through these groups it is engaged in gathering and publishing business news and ideas for industries covered by its various publications; in the publishing of consumer, special interest, trade and agricultural publications; and in research and data base services. All of the publications are printed by outside printing contractors. Following are the significant publications and services:
Title Frequency Circulation ----- --------- ----------- Diversified Publishing Group Agricultural Publishing Group Farm Futures....................................... 10 times per year 225,000* Feedstuffs......................................... Weekly 17,000 Tack 'n Togs Merchandising......................... 13 times per year 23,000* In addition, the Agricultural Publishing Group publishes nineteen state and regional farm magazines with an aggregate circulation of 947,000, serving 35 states. Chilton Publications American Metal Market.............................. Daily 10,000 Assembly........................................... 9 times per year 60,000* Automotive Body Repair News........................ Monthly 60,000* Automotive Industries.............................. Monthly 100,000* Automotive Marketing............................... Monthly 40,000* Cablevision........................................ Semimonthly 14,000* CED (Communications Engineering and Design)........ Monthly 15,000* Commercial Carrier Journal......................... Monthly 85,000* Distribution....................................... Monthly 70,000* Electronic Component News.......................... Monthly 121,000* Energy User News................................... Monthly 40,000* Food Engineering................................... Monthly 60,000* Food Engineering International..................... 6 times per year 15,000* Hardware Age....................................... Monthly 69,000* I&CS (Instrument & Control Systems)................ Monthly 93,000* IAN (Instrumentation & Automation News)............ Monthly 117,000* IMPO (Industrial Maintenance & Plant Operations)... Monthly 127,000* Industrial Paint & Powder.......................... Monthly 37,000* Industrial Safety & Hygiene News................... Monthly 60,000* Jewelers' Circular-Keystone........................ Monthly 29,000 Manufacturing Systems.............................. Monthly 115,000* Metal Center News.................................. Monthly 15,000* Motor Age.......................................... Monthly 134,000* Multichannel News.................................. Weekly 15,000 New Steel.......................................... Monthly 18,000* Outdoor Power Equipment............................ Monthly 22,000* Owner Operator..................................... 9 times per year 93,000* PIQ (Process Industries Quality)................... 6 times per year 42,000* Product Design and Development..................... Monthly 161,000*
K-11
Title Frequency Circulation ----- --------- ----------- Product Design and Development Europe.............. 4 times per year 50,000* Quality............................................ Monthly 97,000* Review of Optometry................................ Monthly 32,000* Video Business..................................... Weekly 45,000* Video Software Magazine............................ Monthly 22,000* Warehousing........................................ 6 times per year 40,000* Los Angeles.......................................... Monthly 156,000 The Diversified Publishing Group also includes: Chilton Enterprises which publishes automotive repair, craft and hobby books, provides custom market research and conducts trade shows; NILS Publishing Company, a data base publisher of information on insurance laws and regulations; and Grupo Editorial Expansion, S.A., acquired in 1993, which publishes Expansion, a biweekly business magazine with a circulation of 29,000; Obras, a monthly construction magazine with a circulation of 11,000; and various bulletins and newsletters concerning Mexican business and legal issues. Fairchild Publications Group Children's Business................................ Monthly 13,000* Daily News Record.................................. Daily 20,000 Footwear News...................................... Weekly 19,000 Golf Pro Merchandiser.............................. 8 times per year 12,000* HFD--The Weekly Home Furnishings Newspaper......... Weekly 28,000 Home Fashions Magazine............................. 11 times per year 10,000* Salon News......................................... Monthly 80,000* SportStyle......................................... 18 times per year 25,000* Supermarket News................................... Weekly 51,000 W.................................................. Monthly 258,000 W Fashion Europe................................... 10 times per year 20,000 Women's Wear Daily................................. Daily 55,000 Financial Services and Medical Group Institutional Investor Domestic Edition................................... Monthly 105,000* International Edition.............................. Monthly 39,000* Infrastructure Finance............................. Quarterly 17,000* Selling............................................ 10 times per year 70,000 International Medical News Group Clinical Psychiatry News........................... Monthly 33,000* Family Practice News............................... Semimonthly 72,000* Internal Medicine News............................. Semimonthly 101,000* Ob. Gyn. News...................................... Semimonthly 32,000* Pediatric News..................................... Monthly 36,000* Skin & Allergy News................................ Monthly 18,000*
- ---------- *All, or substantially all, controlled circulation. Certain operations within the Publishing Group also publish philatelic magazines, cable guides, books, visuals, journals and newsletters, and conduct meetings and seminars. K-12 Competition The Company's newspapers, specialized publications and shopping guides operate in a highly competitive environment. In the Company's various news publishing activities it competes with almost all other information media, including broadcast media, and this competition may become more intense as new technologies are developed. Magazines and many newspapers publish substantial amounts of similar business news and information, and deal with the same or related special interests or industries, as those covered by the Company's specialized publications. The Company's newspapers, specialized publications and shopping guides compete for advertising with all other advertising forms of media. Raw Materials The primary raw materials used by the Company's Publishing Group are newsprint and other paper stock, which are purchased from paper merchants, paper mills and contract printers and are readily available from numerous suppliers. Item 2. Properties. The Company's headquarters building at 77 West 66th Street in New York City houses the corporate offices and the television network administrative staff, and is owned by the Company. The Company owns the ABC Television Center adjacent to the Company's headquarters building on West 66th Street and the ABC Radio Networks' studios at 125 West End Avenue in New York City. In Los Angeles, the Company owns the ABC Television Center. The Company leases the ABC Television Network offices in Los Angeles, the ABC News Bureau facility in Washington, DC and the computer facility in Hackensack, NJ under leases expiring on various dates through 2034. The Company's broadcast operations and engineering facility and local television studios and offices in New York City are leased, but the Company has the right to acquire such properties for a nominal sum in 1997. The Company's 80%-owned subsidiary ESPN owns ESPN Plaza in Bristol, CT from which it conducts its technical operations. The Company owns the majority of its other broadcast studios and offices and broadcast transmitter sites elsewhere, and those which it does not own are occupied under leases expiring on various dates through 2039. The Company owns and leases publishing subsidiaries' executive, editorial and other offices and facilities in various cities. For leased properties, the leases expire on various dates through 2006. All of the significant premises occupied by the newspapers are owned by the Company. Item 3. Legal Proceedings. All litigation pending during 1993 was routine and incidental to the business of the Company. For a discussion of the relevance of one item of litigation in the regulatory context, see "Licenses - Federal Regulation of Broadcasting" under Item 1. Business. Item 4. Submission of Matters to a Vote of Security Holders. The information called for by this item is not applicable. K-13 Executive Officers of the Company
Director Officer Title and positions during Name Age since since the past five years ---- --- -------- ------ -------------------------- Thomas S. Murphy 68 1957 1958 Chairman of the Board of Directors and Chief Executive Officer. From June 1990 to February 1994 he was Chairman of the Board of Directors. Prior to June 1990 he was Chairman of the Board of Directors and Chief Executive Officer. John B. Fairchild 67 1968 1968 Executive Vice President, Chairman of Fairchild Publications Group and Director. Robert A. Iger 43 1993 Executive Vice President (Senior Vice President from March 1993 to August 1993), and President of ABC Television Network Group. Prior to January 1993 he was President of ABC Entertainment since 1989. In 1988 and 1989 he was Executive Vice President of ABC Television Network Group. Prior thereto he was Vice President, Program Planning and Acquisition for ABC Sports. Ronald J. Doerfler 52 1977 Senior Vice President and Chief Financial Officer. Herbert A. Granath 65 1988 Senior Vice President, and President Cable and International Broadcast Group. Prior to October 1993 he was Vice President, and President of Video Enterprises. Michael P. Mallardi 60 1986 Senior Vice President, and President of Broadcast Group. Phillip J. Meek 56 1975 Senior Vice President, and President of Publishing Group. Stephen A. Weiswasser 53 1986 Senior Vice President and General Counsel, and President of Multimedia Group. From January 1993 to August 1993 he was Senior Vice President. Prior to January 1993 he was Senior Vice President, and Executive Vice President of ABC News. In 1991 he was Senior Vice President, and Executive Vice President of ABC Television Network Group. Prior thereto he was Senior Vice President and General Counsel. David Westin 41 1991 Senior Vice President, and President of Production, ABC Television Network Group. From March 1993 to August 1993 he was Senior Vice President and General Counsel. From 1991 to March 1993 he was Vice President and General Counsel. Prior to 1991 he was engaged in the practice of law as a partner in the law firm of Wilmer,Cutler & Pickering. Alan N. Braverman 46 1993 Vice President and Deputy General Counsel. Prior to November 1993 he was engaged in the practice of law as a partner in the law firm of Wilmer, Cutler & Pickering. Allan J. Edelson 51 1981 Vice President and Controller. David J. Vondrak 48 1986 Vice President and Treasurer.
There is no relationship by blood, marriage or adoption among the officers. All officers hold office at the pleasure of the Board of Directors. K-14 PART II Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters. The information called for by this item is included on page 41 of the 1993 Annual Report to Shareholders and is incorporated herein by reference. Item 6. Selected Financial Data. The information called for by this item is included on pages 26 and 27 of the 1993 Annual Report to Shareholders and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information called for by this item is included on pages 21 through 25 of the 1993 Annual Report to Shareholders and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data. The information called for by this item is included on pages 28 through 41 of the 1993 Annual Report to Shareholders and is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. The information called for by this item is not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. Incorporated herein by reference to the Company's definitive Proxy Statement for the annual meeting of shareholders to be held on May 19, 1994. Information concerning the executive officers is included in Part 1, on page K-14. Item 11. Executive Compensation. Incorporated herein by reference to the Company's definitive Proxy Statement for the annual meeting of shareholders to be held on May 19, 1994. Item 12. Security Ownership of Certain Beneficial Owners and Management. Incorporated herein by reference to the Company's definitive Proxy Statement for the annual meeting of shareholders to be held on May 19, 1994. Item 13. Certain Relationships and Related Transactions. The information called for by this item is not applicable. K-15 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) 1. & 2. Financial statements and financial statement schedules. The financial statements and schedules listed in the accompanying index to the consolidated financial statements are filed as part of this annual report. 3. Exhibits. The exhibits listed on the accompanying index to exhibits are filed as part of this annual report. (b) Reports on Form 8-K. None filed during Fourth Quarter 1993. K-16 CAPITAL CITIES/ABC,INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES COVERED BY REPORT OF CERTIFIED PUBLIC ACCOUNTANTS (Item 14(a) 1. & 2.)
Reference ------------------------ Annual Report to Shareholders Form 10-K ------------ --------- Consolidated balance sheet at December 31, 1993 and December 31, 1992................................... 30 For the years ended December 31, 1993, 1992 and 1991 Consolidated statement of income.................... 28 Consolidated statement of cash flows................ 29 Consolidated statement of stockholders' equity...... 32 Notes to consolidated financial statements............ 33 Financial statement schedules for the years ended December 31, 1993, 1992 and 1991 V --Property, plant and equipment................ K-20 VI --Accumulated depreciation and amortization of property, plant and equipment............... K-21 VIII --Valuation and qualifying accounts............ K-20 X --Supplementary income statement information... K-21
All other schedules have been omitted since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements, including the notes thereto. * * * * * The consolidated financial statements of Capital Cities/ABC, Inc., listed in the above index which are included in the Annual Report to Shareholders for the year ended December 31, 1993, are hereby incorporated by reference. With the exception of the Items referred to in Items 1, 5, 6, 7 and 8, the 1993 Annual Report to Shareholders is not to be deemed filed as part of this report. - -------------------------------------------------------------------------------- CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report on Form 10-K of Capital Cities/ABC, Inc. for the year ended December 31, 1993 of our report dated February 28, 1994, included in the 1993 Annual Report to Shareholders of Capital Cities/ABC, Inc. Our audits also included the financial statement schedules of Capital Cities/ABC, Inc. listed in item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements Form S-8 No. 2-59014 for the registration of 287,195 shares of the Company's common stock, Form S-8 No. 2-86863 for the registration of 300,000 shares, Form S-8 No. 33-2196 relating to the issuance of an indeterminate number of shares, Form S-8 No. 33-11806 for the registration of 200,000 shares, Form S-8 No. 33-16206 for the registration of 300,000 shares, Form S-8 No. 33-25918 for the registration of 200,000 shares, Form S-8 No. 33-33761 for the registration of 200,000 shares, Form S-3 No. 33-38117 for the registration of Debt Securities and Warrants to purchase Debt Securities, Form S-3 No. 33-39652 for the registration of Debt Securities and Warrants to purchase Debt Securities, and Form S-8 No. 33-52563 for the registration of 60,000 shares, and in the related Prospectuses and documents constituting Prospectuses, of our above report. ERNST & YOUNG New York, New York March 14, 1994 K-17 CAPITAL CITIES/ABC, INC. INDEX TO EXHIBITS (Item 14 (a) 3.) (3)(a) Restated Certificate of Incorporation of the Company, with amendments. Incorporated by reference to Exhibit (3)(a) to the Company's Annual Report on Form 10-K for 1989. (3)(b) Current By-laws of the Company. Incorporated by reference to Exhibit (3) to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1990. (4)(a) Capital Cities/ABC, Inc. Standard Multiple-Series Indenture Provisions dated December 7, 1990. Incorporated by reference to Exhibit (4)(a) to Registration Statement No. 33-38117. (4)(b) Indenture, dated as of December 15, 1990, between the Company and Manufacturers Hanover Trust Company (now Chemical Bank), as Trustee, with respect to Senior Debt Securities. Incorporated by reference to Exhibit (4)(b) to Registration Statement No. 33-38117. (4)(c) Indenture, dated as of April 1, 1991 between the Company and Manufacturers Hanover Trust Company (now Chemical Bank), as Trustee, with respect to Subordinated Debt Securities. Incorporated by reference to Exhibit (4)(c) to Registration Statement No. 33-39652. (4)(d) Revolving Credit Agreement, dated as of January 3, 1986, as amended and restated as of June 30, 1987, among the Company, Chemical Bank and certain other banks. Incorporated by reference to Exhibit (4)(d) to the Company's Annual Report on Form 10-K for 1987. (4)(e) Second Amendment, dated as of June 30, 1989, to the Revolving Credit Agreement set forth in Exhibit (4)(d) above. Incorporated by reference to Exhibit 4(e) to the Company's Annual Report on Form 10-K for 1989. (4)(f) Third Amendment, dated as of April 30, 1992, to the Revolving Credit Agreement set forth in Exhibits (4)(d) and (4)(e) above. Incorporated by reference to Exhibit 4(f) to the Company's Annual Report on Form 10-K for 1992. (4)(g) Other instruments defining the rights of holders of long-term debt of the Company and its consolidated subsidiaries are not being filed since the total amount of securities authorized under any of such instruments does not exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request. (4)(h) Rights Agreement, dated December 14, 1989, between the Company and Harris Trust Company of New York with respect to the Preferred Share Purchase Rights. Incorporated by reference to Exhibit 1 to the Company's Form 8-K dated December 15,1989. (10)(a) Stock Purchase Agreement between the Company and Berkshire Hathaway Inc., dated March 18, 1985. Incorporated by reference to Appendix B to the Company's and American Broadcasting Companies, Inc.'s Joint Proxy Statement- Prospectus dated May 10, 1985. (10)(b) Stock Purchase Agreement among the Company, Berkshire Hathaway Inc., National Indemnity Company, National Fire and Marine Insurance Company, Columbia Insurance Company, Nebraska Furniture Mart, Inc. and Cornhusker Casualty Company, dated January 2, 1986. Incorporated by reference to Exhibit A to the Schedule 13D dated January 8, 1986 filed by Berkshire Hathaway Inc. and others in regard to the Company's common stock. (10)(c) Amendment dated October 29, 1993 to the Stock Purchase Agreement set forth in Exhibit (10)(b) above. Incorporated by reference to Exhibit 99(c) to the Company's Schedule 13E-4 dated November 2, 1993. *(10)(d) Supplemental Profit Sharing Plan of the Company, as amended through April 9, 1992. Incorporated by reference to Exhibit (10)(c) to the Company's Annual Report on Form 10-K for 1992. *(10)(e) Benefit Equalization Plan of the Company, as amended through January 1, 1994. *(10)(f) Incentive Compensation Plan of the Company, as amended through December 9, 1993. *(10)(g) Employee Stock Option Plan of the Company, as amended through December 15, 1987. Incorporated by reference to Exhibit (10)(f) to the Company's Annual Report on Form 10-K for 1992. *(10)(h) 1991 Stock Option Plan of the Company, as amended through March 19, 1991. Incorporated by reference to Exhibit (10)(g) to the Company's Annual Report on Form 10-K for 1992. *(10)(i) Contract dated January 2, 1968 between John B. Fairchild and Fairchild Publications, Inc., as amended by contract of June 1977 between Mr. Fairchild and Capital Cities Media, Inc. (a subsidiary of the Company) as successor to Fairchild Publications, Inc. (Mr. Fairchild is an executive K-18 officer and a director of the Company.) Incorporated by reference to Exhibit (10)(h) to the Company's Annual Report on Form 10-K for 1992. *(10)(j) The Company's Retirement Plan for Nonemployee Directors, as adopted by Board of Directors resolution dated March 20, 1990. Incorporated by reference to Exhibit (10)(i) to the Company's Annual Report on Form 10-K for 1992. (13) The Company's 1993 Annual Report to Shareholders. (This report, except for the portions thereof which are incorporated by reference in this Form 10-K, is furnished for the information of the Securities and Exchange Commission and is not to be deemed "filed" as part of this Form 10-K.) (21) Subsidiaries of the Company. (99)(a) Form 11-K for the Company's Savings & Investment Plan for the year ended December 31, 1993. (99)(b) Undertakings. - ---------- * Executive officers' and directors' compensation plans and arrangements. K-19 CAPITAL CITIES/ABC, INC. PROPERTY, PLANT AND EQUIPMENT -- SCHEDULE V (Thousands of Dollars)
Balance at Operating Additions Retire- Other Balance beginning companies at ments changes at close of period acquired cost or sales (a) of period ---------- --------- --------- --------- ------- --------- Year ended December 31, 1993: Land and improvements..................... $ 333,816 $ 834 $ 1,561 $ (1,492) $ 334,719 Buildings and improvements................ 692,772 3,285 16,266 (4,421) 707,902 Broadcasting equipment.................... 576,431 550 51,093 (27,831) 600,243 Printing machinery and equipment.......... 178,877 1,319 13,324 (5,235) 188,285 Other, including construction-in-progress. 226,338 847 15,544 (3,865) 238,864 ---------- ------ -------- --------- ---------- $2,008,234 $6,835 $ 97,788 $ (42,844) $2,070,013 ========== ====== ======== ========= ========== Year ended December 31, 1992: Land and improvements..................... $ 403,482 $ 133 $ (69,799) $ 333,816 Buildings and improvements................ 633,859 38,816 (18,683) $38,780 692,772 Broadcasting equipment.................... 514,799 $ 296 69,657 (8,321) 576,431 Printing machinery and equipment.......... 174,718 50 12,382 (8,273) 178,877 Other, including construction-in-progress. 234,654 46 (6,252) (2,110) 226,338 ---------- ------ -------- --------- ------- ---------- $1,961,512 $ 392 $114,736 $(107,186) $38,780 $2,008,234 ========== ====== ======== ========= ======= ========== Year ended December 31, 1991: Land and improvements..................... $ 403,338 $ 221 $ (77) $ 403,482 Buildings and improvements................ 621,470 20,736 (8,347) 633,859 Broadcasting equipment.................... 450,807 68,911 (4,919) 514,799 Printing machinery and equipment.......... 171,714 $ 249 7,517 (4,762) 174,718 Other, including construction-in-progress. 213,731 51 23,613 (2,741) 234,654 ---------- ------ -------- --------- ---------- $1,861,060 $ 300 $120,998 $ (20,846) $1,961,512 ========== ====== ======== ========= ==========
- ---------- (a) Represents adjustments related to the adoption of Financial Accounting Standard No. 109 "Accounting for Income Taxes." VALUATION AND QUALIFYING ACCOUNTS -- SCHEDULE VIII (Thousands of Dollars)
Additions Deductions ------------------ ----------------------- Balance at Operating Charged Operating Accounts Balance beginning companies to companies written-off, at close of period acquired expense disposed net of period ---------- --------- ------- --------- ------------ --------- Deducted from accounts and notes receivable: Year ended December 31, 1993................. $35,114 $490 $31,876 $(22,830) $44,650 Year ended December 31, 1992................. 38,302 24 48,458 $(8,680) (42,990) 35,114 Year ended December 31, 1991................. 37,840 51,941 (30) (51,449) 38,302
K-20 CAPITAL CITIES/ABC, INC. ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT--SCHEDULE VI (Thousands of Dollars)
Balance at Retire- Balance beginning Charged ments at close of period to expense or sales of period --------- ---------- --------- --------- Year ended December 31, 1993: Land improvements................ $ 3,301 $ 448 $ (91) $ 3,658 Buildings and improvements....... 159,049 23,195 (2,006) 180,238 Broadcasting equipment........... 368,255 49,125 (25,871) 391,509 Printing machinery and equipment. 104,256 12,756 (5,074) 111,938 Other............................ 57,389 9,508 (2,954) 63,943 -------- ------- -------- -------- $692,250 $95,032 $(35,996) $751,286 ======== ======= ======== ======== Year ended December 31, 1992: Land improvements................ $ 2,790 $ 578 $ (67) $ 3,301 Buildings and improvements....... 141,876 23,691 (6,518) 159,049 Broadcasting equipment........... 326,314 49,852 (7,911) 368,255 Printing machinery and equipment. 97,262 12,294 (5,300) 104,256 Other............................ 49,995 9,249 (1,855) 57,389 -------- ------- -------- -------- $618,237 $95,664 $(21,651) $692,250 ======== ======= ======== ======== Year ended December 31, 1991: Land improvements................ $ 2,404 $ 386 $ 2,790 Buildings and improvements....... 124,663 22,964 $ (5,751) 141,876 Broadcasting equipment........... 275,749 51,253 (688) 326,314 Printing machinery and equipment. 89,093 12,140 (3,971) 97,262 Other............................ 47,560 9,294 (6,859) 49,995 -------- ------- -------- -------- $539,469 $96,037 $(17,269) $618,237 ======== ======= ======== ========
- ---------- Depreciation is computed on the straight-line method over the following estimated useful lives: buildings and improvements--10 to 55 years; broadcasting equipment--4 to 20 years; printing machinery and equipment--5 to 20 years. SUPPLEMENTARY INCOME STATEMENT INFORMATION--SCHEDULE X (Thousands of Dollars)
Advertising Royalties costs --------- ----------- Year ended December 31, 1993............ $30,847 $136,817 Year ended December 31, 1992............ 70,203 135,157 Year ended December 31, 1991............ 66,191 133,018
K-21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. CAPITAL CITIES/ABC, INC. (Registrant) /s/ THOMAS S. MURPHY ------------------------ (Thomas S. Murphy) Chairman of the Board and Chief Executive Officer March 14, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated:
Principal Executive Officer: /s/ THOMAS S. MURPHY - --------------------------- (Thomas S. Murphy) March 14, 1994 Principal Financial Officer: /s/ RONALD J. DOERFLER - --------------------------- (Ronald J. Doerfler) March 14, 1994 Controller: /s/ ALLAN J. EDELSON - --------------------------- (Allan J. Edelson) March 14, 1994 Directors: /s/ ROBERT P. BAUMAN - --------------------------- (Robert P. Bauman) March 14, 1994 /s/ NICHOLAS F. BRADY - --------------------------- (Nicholas F. Brady) March 14, 1994 /s/ WARREN E. BUFFETT - --------------------------- (Warren E. Buffett) March 14, 1994 /s/ DANIEL B. BURKE - --------------------------- (Daniel B. Burke) March 14, 1994 /s/ FRANK T. CARY - --------------------------- (Frank T. Cary) March 14, 1994 /s/ JOHN B. FAIRCHILD - --------------------------- (John B. Fairchild) March 14, 1994 /s/ LEONARD H. GOLDENSON - --------------------------- (Leonard H. Goldenson) March 14, 1994 /s/ FRANK S. JONES - --------------------------- (Frank S. Jones) March 14, 1994 /s/ ANN DIBBLE JORDAN - --------------------------- (Ann Dibble Jordan) March 14, 1994 /s/ JOHN H. MULLER, JR. - --------------------------- (John H. Muller, Jr.) March 14, 1994 /s/ THOMAS S. MURPHY - --------------------------- (Thomas S. Murphy) March 14, 1994 /s/ WYNDHAM ROBERTSON - --------------------------- (Wyndham Robertson) March 14, 1994 /s/ M. CABELL WOODWARD, JR. - --------------------------- (M. Cabell Woodward, Jr.) March 14, 1994
K-22 EX-10.(E) 2 BENEFIT EQUALIZATION PLAN Exhibit (10)(e) Restated to reflect amendments adopted through January 1, 1994 BENEFIT EQUALIZATION PLAN OF CAPITAL CITIES/ABC, INC. I. Purpose of Plan The purpose of this Plan is to provide a means of equalizing the benefits of those employees participating in the Capital Cities/ABC, Inc. Retirement Plan (the "Retirement Plan"), the Capital Cities/ABC, Inc. Savings & Investment Plan (the "Savings Plan") and, after December 31, 1988, the Capital Cities/ABC, Inc. Supplemental Pension Plan (the "Supplemental Plan") whose funded benefits under the Retirement Plan, the Savings Plan, the Supplemental Plan or any of them are or will be limited by application of Sections 415 and 401(a)(17) of the Internal Revenue Code of 1986 (the "Code"). The "Employing Corporation" means Capital Cities/ABC, Inc. (the "Corporation") or any corporation participating in the Retirement Plan, the Savings Plan or the Supplemental Plan which employs any member in the Plan. II. Administration of the Plan The Pension Committee of the Retirement Plan shall administer the Plan. The Committee shall have the authority, in its sole discretion, to construe the Plan; to decide all questions relating to the eligibility of any individual to participate in the Plan or to his or her entitlement to benefits under the Plan; to prescribe, amend and rescind rules and regulations relating to the Plan, and to make, amend or revoke all determinations and decisions necessary or advisable for administering the Plan. The Committee may employ and rely on such legal counsel, such actuaries, such accountants and such agents as it may deem advisable to assist in the administration of the Plan. Decisions of the Committee shall be conclusive and binding on all persons. III. Participation in the Plan Only employees who are members of the Retirement Plan and/or members of the Savings Plan and/or members of the Supplemental Plan and (i) who are officers of the Corporation or an Employing Corporation elected by the Board of Directors of such corporations or (ii) who have the title of vice president or higher or (iii) who are management employees designated to participate by the Committee (and whose designation has not been revoked by the Committee) shall be eligible to participate in this Plan whenever their benefits under the Retirement Plan or the Savings Plan or the Supplemental Plan as from time to time in effect would exceed the limitations on benefits and contributions imposed by Section 415 2 of the Code calculated from and after September 2, 1974 or would be limited by the application of Section 401(a)(17) of the Code from and after January 1, 1989. Under clause (iii) above, the Committee may in its discretion designate any management employee to participate in one or more of the Retirement Plan, the Savings Plan and the Supplemental Plan and not in the remaining plan or plans. For purposes of this Plan, the benefits under the Retirement Plan, the Savings Plan and/or the Supplemental Plan of a participant in this Plan shall be determined without regard for any provision contained in such Plans incorporating limitations imposed by Sections 415 and 401(a)(17) of the Code and without regard to the effect of any qualified domestic relations order, as described in Section 206(d) of the Employee Retirement Income Security Act of 1974, as amended, awarding any portion of such benefit to a former spouse or qualified dependent. IV. Equalized Benefits Related to the Retirement Plan The Employing Corporation shall pay to each of its eligible members of the Retirement Plan or their beneficiaries a supplemental pension benefit equal to the benefit which would have been payable to them under the Retirement Plan, without regard for any provision of the Retirement Plan incorporating limitations imposed by Sections 415 and 401(a)(17) of the Code and without regard for the provision of the Retirement Plan under which a member's benefit is determined as the sum of a pre-1994 portion and a post-1993 portion in order to mitigate the 3 effect of the 1993 amendment to Code Section 401(a)(17), to the extent that such benefit otherwise payable under the Retirement Plan exceeds the limitations imposed by Sections 415 and 401(a)(17) of the Code. Such supplemental pension benefits shall be payable in accordance with all the terms and conditions applicable to the member's benefits under the Retirement Plan, including whatever optional benefits he may have elected. If a member's benefits under the Retirement Plan are to continue after his death for the benefit of his spouse or a designated beneficiary, then any participant in this Plan shall have the right at any time to change the recipient of the survivorship benefit payable under this Plan; provided, however, any such change, if made after the applicable deadline set forth in the Retirement Plan, shall not affect the amount of the benefit payable under this Plan as originally calculated or the term for which such benefit is payable, also as originally calculated. V. Equalized Benefits Related to the Savings Plan When the contributions for a member in the Savings Plan have met the limitations imposed by Sections 415 and 401(a)(17) of the Code for any year, the member shall no longer be permitted to make Tax Deferred Contributions or Taxed Contributions to the Savings Plan or to participate in Company contributions under the Savings Plan during that year. The Corporation shall maintain a book account for each such member in this Plan to which the Employing Corporation shall credit an amount 4 equal to the amount which would have been credited, but was not credited, to the member's account under the Savings Plan had he been permitted to make additional matched Tax Deferred Contributions or matched Taxed Contributions to the Trust Fund under the terms of the Savings Plan. Except as provided in the next sentence, a member whose Tax Deferred Contributions or Taxed Contributions are ended in any plan year after 1986 by reason of the limitations imposed by Sections 415 and 401(a)(17) of the Code shall have amounts credited to his account under this Article only if he shall have elected, at the time and in the manner determined by the Committee, to have his salary otherwise payable to him reduced on an after-tax basis, in the same manner as if he had made Taxed Contributions into the Savings Plan. A member of the Savings Plan who has received any credit under this Article for any period prior to 1987 shall have amounts credited to his account under this Article after 1986 only if he shall have elected, at the time and in the manner determined by the Committee, to have his salary otherwise payable to him deferred under this Plan. The aggregate amount of any salary reductions or deferrals shall be added to the member's book account under this Plan, and the member's rights in such salary reductions or deferrals shall be fully vested. The Corporation shall distribute to each member in this Plan or his beneficiary an amount in cash equal to the value of his book account attributable to his deemed Tax Deferred Contributions or Taxed Contributions and the deemed contributions by the Employing Corporation for each year at the same times and under the same terms and conditions as set forth in the Savings Plan. If 5 a member's benefits under the Savings Plan are to continue after his death for the benefit of his spouse or a designated beneficiary, then the member shall have the right at any time to change the recipient of the survivorship benefit payable under this Plan; provided, however, any such change, if made after the applicable deadline set forth in the Savings Plan, shall not affect the amount of the benefit payable under this Plan as originally calculated or the term for which such benefit is payable, also as originally calculated. VI. Equalized Benefits Related to the Supplemental Plan The Employing Corporation shall pay to each of its eligible members of the Supplemental Plan or their beneficiaries a supplemental pension benefit equal to the benefit which would have been payable to them under the Supplemental Plan, without regard for any provision therein incorporating limitations imposed by Sections 415 and 401(a)(17) of the Code, to the extent that such benefit otherwise payable under the Supplemental Plan exceeds the limitations imposed by Sections 415 and 401(a)(17) of the Code. Such supplemental pension benefits shall be payable in accordance with all the terms and conditions applicable to the member's benefits under the Supplemental Plan, including whatever optional benefits he may have elected. If a member's benefits under the Supplemental Plan are to continue after his death for the benefit of his spouse or a designated beneficiary, then any participant in this Plan shall have the right at any time to change the recipient of the survivorship benefit payable under this Plan; 6 provided, however, any such change, if made after the applicable deadline set forth in the Supplemental Plan, shall not affect the amount of the benefit payable under this Plan as originally calculated or the term for which such benefit is payable, also as originally calculated. VII. Trigger Events (a) For the purpose of this Plan, a "Trigger Event" shall mean (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of l934, as amended (the "Exchange Act")) (a "Person"), other than Berkshire Hathaway, Inc., a Delaware corporation ("Berkshire"), or any Affiliate or Associate (as hereinafter defined) of Berkshire (Berkshire and such Affiliate and Associate being hereinafter referred to collectively as the "Berkshire Group"), in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of an aggregate of 20% or more of either (x) the then outstanding shares of common stock of the Corporation (the "Outstanding Company Common Stock") or (y) the combined voting power of the then outstanding voting securities of the Corporation 7 entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Trigger Event: (A) any acquisition directly from the Corporation (excluding an acquisition by virtue of the exercise of a conversion privilege), provided that the Person acquiring such Outstanding Company Common Stock or Outstanding Company Voting Securities beneficially owns less than 5% of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such acquisition, (B) any acquisition by the Corporation, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any Affiliate of the Corporation or (D) any acquisition by any corporation pursuant to a transaction described in clauses (A), (B) and (C) of paragraph (iv) below; or (ii) The acquisition by any one or more of the Berkshire Group, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 30% (the "Prohibited Percentage") of either the Outstanding Company Common Stock or the Outstanding Company Voting Securities, 8 provided, however, that any such acquisition shall not constitute a Trigger Event if the Berkshire Group shall have attained the Prohibited Percentage (A) as the result of an acquisition of Outstanding Company Common Stock or Outstanding Company Voting Securities by the Corporation which, by reducing the number of shares outstanding, increases the proportionate number of shares owned by the Berkshire Group to the Prohibited Percentage or (B) with the consent of the Corporation's Board of Directors in accordance with an Agreement dated January 2, l986 between the Corporation and Berkshire, provided however, that if the Berkshire Group shall become the beneficial owner of more than 30% of such securities pursuant to clauses (A) or (B) of this paragraph (ii), and shall thereafter acquire any additional Outstanding Company Common Stock or Outstanding Company Voting Securities other than pursuant to clause (B) of this paragraph (ii), then such acquisition shall constitute a Trigger Event; or (iii) Individuals who constitute the Incumbent Board (as hereinafter defined) cease for any reason to constitute at least a majority of the Board of Directors of the Corporation (the "Board"). "Incumbent Board" shall mean individuals who as of December 14, l989, constitute the Board and any 9 individual who becomes a director subsequent to December 14, l989, whose election, or nomination for election by the Corporation's shareholders, is approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iv) Approval by the shareholders of the Corporation of a reorganization, merger or consolidation, in each case unless, following such reorganization, merger or consolidation, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting 10 power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Corporation, any employee benefit plan (or related trust) of the Corporation and the Berkshire Group) beneficially owns, directly or indirectly, 20% or more, and the Berkshire Group does not beneficially own, directly or indirectly, more than 30%, of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation and (C) at least a majority of the members of the Board of Directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or 11 (v) Approval by the shareholders of the Corporation of (x) a complete liquidation or dissolution of the Corporation or (y) the sale or other disposition of all or substantially all of the assets of the Corporation, other than to a corporation with respect to which, following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Corporation, any employee benefit plan (or related trust) of the Corporation and the Berkshire Group) beneficially owns, directly or indirectly, 20% or more, and the Berkshire Group does not beneficially own, directly or 12 indirectly, more than 30% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation and (C) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Corporation. For the purpose of this Section, the terms "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on December 14, l989. (b) Upon the occurrence of a Trigger Event, as defined in this Section VII, the following provisions of this Section VII shall apply. (c) All benefits under the Plan shall be completely nonforfeitable. (d) The amount of benefits to which a participant shall be entitled under this Plan shall be the aggregate amount determined under the foregoing Sections of this Plan as of the date of the occurrence of the Trigger Event upon the assumption that such 13 participant's benefits under the Retirement Plan, the Savings Plan and/or the Supplemental Plan were then fully vested and nonforfeitable. (e) All benefits to which a participant is entitled under this Plan shall be paid to him or his designated beneficiary(ies), as the case may be, in a single lump-sum distribution immediately after the occurrence of the Trigger Event. VIII. Claims If any claim for benefits under the Plan is denied for any reason, written notice of such denial shall be given within 30 days thereafter to the participant or beneficiary on whose behalf the claim is made. Upon the written request of such participant or beneficiary delivered to the Committee within 60 days after such notice has been given, the Committee will fully review the denial of such benefits and will cause due notice of the results of its review to be given to the affected participant or beneficiary. IX. Miscellaneous This Plan may be terminated at any time by the Board of Directors of the Corporation, in which event the rights of participants to their accrued supplemental pension benefits and in their book accounts established under this Plan (to the extent not otherwise vested under the provisions of Article V) shall 14 vest. This Plan may also be amended at any time by the Board of Directors of the Corporation, except that no such amendment shall deprive any participant of his supplemental pension benefit accrued at the time of such amendment or reduce the amount then credited to his book account established under this Plan. Benefits payable under this Plan shall not be funded and shall be paid out of the general funds of the Employing Corporation. This Plan shall be construed, administered and enforced according to the laws of the State of New York. 15 EX-10.(F) 3 INCENTIVE COMPENSATION PLAN Exhibit (10)(f) INCENTIVE COMPENSATION PLAN OF CAPITAL CITIES/ABC, INC. (As amended through December 9, 1993) I. PURPOSE OF PLAN --------------- This Incentive Compensation Plan of Capital Cities/ABC, Inc. (the "Corporation") is designed to provide an incentive for the key employees of the Corporation and its present and future subsidiaries who are expected to make substantial contributions to the growth and success of the Affiliated Group (as hereinafter defined), by providing those employees with additional amounts of compensation measured by the value of the shares of the Corporation's Common Stock. II. DEFINITIONS ----------- (a) "Affiliated Group" means the Corporation and its subsidiaries. A "subsidiary" is any corporation, more than 50% of the stock of which is owned by the Corporation, its subsidiary or subsidiaries, or any combination of them. (b) "Committee" means the Committee provided for in Section IV to administer this Plan. (c) "Common Stock" means the Common Stock, $1 par value, of the Corporation. -1- (d) "Designated Beneficiary" means the beneficiary(ies) designated by the Participant for this Plan. If the Participant has not designated any beneficiary or if no beneficiary designated by the Participant survives the Participant, the Designated Beneficiary(ies) shall be deemed to be: (i) the Participant's surviving spouse; or, if none (ii) the Participant's surviving children, as equal beneficiaries; or, if none (iii) the Participant's surviving parents, as equal beneficiaries; or, if none (iv) the Participant's surviving brothers and sisters, as equal beneficiaries; or, if none (v) the Participant's estate. The Committee shall be entitled to rely on a written statement by the deceased Participant's personal representative(s) in determining the identity of his Designated Beneficiary(ies). If a Participant's Designated Beneficiary survives the Participant but dies before receiving all payments to which such Designated Beneficiary is entitled, the remaining payments shall be made to the Designated Beneficiary's estate. (e) "Determination Date" means, with respect to a given Unit Account (and the related Interest Account), the earlier of (i) the date of the termination of the Participant's employment within the Affiliated Group; and -2- (ii) the date the Participant completes five (5) years of continuous employment with one or more members of the Affiliated Group from and after the date of grant of the Units in the Unit Account. (f) "Disability" means the total inability of a Participant to perform his assigned duties due to mental or physical disability established to the satisfaction of his employer on the basis of competent medical evidence, without regard to the degree of incapacity of such Participant. (g) (i) "Fair Market Value" of one share of Common Stock means (A) for the purpose of determining the amount of benefits to which a Participant is entitled with respect to the Units in a particular Unit Account, in accordance with the provisions of Section IX(b)(i), where the Participant has completed at least five (5) years of continuous employment with one or more members of the Affiliated Group from and after the date of grant of such Units, the average of the closing prices of the Common Stock on the principal securities exchange on which the Common Stock is traded (1) on the date as of which Fair Market Value is to be determined (the "Valuation Date") and -3- (2) on the first trading day of each of the six (6) calendar months commencing in the half-year preceding the Valuation Date on which there was at least one sale of Common Stock. (B) for all other purposes of the Plan, the average of the closing prices of the Common Stock on the principal securities exchange on which the Common Stock is traded on the Valuation Date and on the five (5) trading days next preceding and the five (5) trading days next following the Valuation Date on which there was at least one sale of Common Stock. (ii) If there are no sales of Common Stock on a Valuation Date, the next previous trading day on which there was at least one such sale shall be the Valuation Date. (iii) If the Common Stock is not listed on any securities exchange on a date described in this paragraph (g), the mean between the highest closing bid and the lowest closing asked prices in the over-the-counter market on such date shall be substituted for the securities exchange closing price of the Common Stock for such date. (h) "Participant" means any individual who is selected by the Committee to participate in the Plan. -4- (i) "Plan" means this Incentive Compensation Plan of Capital Cities/ABC, Inc. (j) "Units" means the units granted to a Participant by the Committee which are the basis for determining his benefits under the Plan. Each Unit shall correspond and be equal to one share of Common Stock. (k) The masculine gender shall include the feminine, and the singular shall include the plural, unless the context otherwise requires. III. MAXIMUM NUMBER OF UNITS SUBJECT TO GRANT ---------------------------------------- The number of Units which may be granted under the Plan shall not exceed 1,100,000. Any expired Units as to which no benefits have been paid shall again be available to be granted under the Plan. IV. ADMINISTRATION OF THE PLAN -------------------------- The Plan shall be administered by the Corporation's Compensation Committee; provided, however, that the Board of Directors of the Corporation, in its discretion, may appoint another and different committee to administer the Plan; and provided, further, that (i) any committee which administers the Plan (including the Compensation Committee) shall at all times comprise at least three individuals and -5- (ii) all members of any such committee shall be ineligible to participate in the Plan or any other plan of any member of the Affiliated Group which entitles participants to acquire stock, stock options or stock appreciation rights of any member of the Affiliated Group (and shall have been ineligible for such participation for at least one year prior to becoming members of the committee). Subject to the express provisions of the Plan, the Committee shall have the authority, in its sole discretion, to construe the Plan; to decide all questions relating to the eligibility of any individual to participate in the Plan or his entitlement to benefits under the Plan; to prescribe, amend and rescind rules and regulations relating to the Plan; and to make, amend or revoke all determinations and decisions necessary or advisable for administering the Plan. The Committee shall also have the authority, in its sole discretion, to cause any part or all of the benefits due to any Participant under the Plan to be paid to such Participant or his Designated Beneficiary(ies), as the case may be, at such time and in such form as the Committee shall consider to be in the best interests of the Corporation, notwithstanding any provision of the Plan (other than Section XVI) or any election by the Participant which would require such benefits to be paid at a different time or in a different form. The Committee shall not have the authority to cause any benefits payable following the occurrence of a Trigger Event -6- (as defined in Section XVI) to be paid at any time or in any form other than as prescribed in Section XVI. All determinations and decisions of the Committee shall be made by a majority of the Committee and shall be binding on all persons. No member of the Committee shall incur any liability for anything done or omitted to be done by him, excepting only for his own wilful misconduct. The Corporation shall indemnify the members of the Committee and hold each of them harmless for and against any liability which may be asserted against them or any of them on account of their actions or omissions to act as Committee members. In exercising the powers granted to it under the Plan, the Committee may, but need not, consult with the Corporation's management. The Committee may engage and consult with counsel of its choice and shall be fully protected in relying or acting upon the opinion of such counsel. V. SELECTION OF PARTICIPANTS ------------------------- The Committee, in its sole discretion, shall determine the individuals who are to be Participants in the Plan. VI. INCENTIVE COMPENSATION LEDGER ----------------------------- The Committee shall establish an appropriate record to be called the "Incentive Compensation Ledger". Upon any grant of Units to a Participant by the Committee, the Committee shall open a Unit Account and an Interest Account in -7- the Incentive Compensation Ledger for such Participant with respect to such grant. A separate Unit Account and Interest Account shall be opened for each grant of Units. Each set of accounts shall indicate the name of the Participant; the number of Units granted and their Fair Market Value from time to time and their dollar floor (if any); the date such Units were granted; the amount accumulated from time to time in the Interest Account; the number of Units as to which benefits have been paid; the amount of such benefits; whether such benefits were paid in cash, in Common Stock, or both; and such other information as the Committee shall determine. If a Participant has more than one set of accounts in the Incentive Compensation Ledger, each set shall be treated and considered separately as if no other set of accounts existed for such Participant. VII. GRANTS AND CREDITS UNDER THE PLAN --------------------------------- (a) Upon the selection of any individual to be a Participant, the Committee, acting in its sole discretion, shall grant to him such number of Units as it shall determine and shall also determine the amount of the dollar floor, if any, to be applicable to such Units. Such number of Units and/or dollar floor amount may, in the sole discretion of the Committee, be the same as or different than those with respect to the grant of Units to any other individual. Such Units shall be recorded in the Unit Account opened in accordance with the provisions of Section VI. -8- (b) As at the December 31 immediately following the grant of Units to a Participant and their recordation in a Unit Account, the Corporation shall make a credit to the related Interest Account. Such credit shall be in an amount equal to six (6%) percent of the excess (if any) of the then Fair Market Value of the Units over their dollar floor (if any), multiplied by a fraction the numerator of which is the number of days from the date of grant of the Units to the December 31 immediately following it, and the denominator of which is 365. (c) As at December 31 in each subsequent calendar year ending prior to the Determination Date, the Corporation shall make a credit to the related Interest Account in an amount equal to six (6%) percent of the excess (if any) of the then Fair Market Value of the Units in the Unit Account (as to which benefits have not been paid) over their dollar floor (if any). (d) The last credit to an Interest Account under this Section shall be made as at the end of the calendar month coinciding with or immediately following the Determination Date with respect to the Units in the related Unit Account. Such credit shall be in an amount equal to six (6%) percent of the excess (if any) of the Fair Market Value of such Units as at the Determination Date over their dollar floor (if any) multiplied by a fraction, the numerator of which is the number of months from the January 1 coinciding with or immediately preceding the Determination Date with respect to such Units to the date as of which the credit under this paragraph is made, and the denominator of which is 12. This paragraph shall not -9- apply if the Determination Date with respect to any Units occurs in the calendar year in which such Units were granted. (e) The percentage rate to be credited to Interest Accounts under this Section may be changed at any time and from time to time by the Committee, in its sole discretion. (f) At any time after an original grant of Units to a Participant, the Committee may grant to him such additional number of Units as it, in its sole discretion, may determine. VIII. NONFORFEITABILITY OF BENEFITS ----------------------------- (a) A Participant shall have a nonforfeitable right in a percentage of the benefits represented by the Units in a Unit Account based upon his number of full years of continuous employment with one or more members of the Affiliated Group from and after the date of grant of the Units, as follows: Number of years of Nonforfeitable employment percentage -------------------- ----------------- less than one year zero 1 year 15% 2 years 30% 3 years 50% 4 years 75% 5 years 100% -10- (b) A Participant shall not have a nonforfeitable right to any part of the amount in an Interest Account until he has completed five (5) full years of continuous employment with one or more members of the Affiliated Group from and after the date of grant of the Units in the related Unit Account. Thereafter, the Participant's right to the entire amount in the Interest Account shall be entirely nonforfeitable. (c) In the event that a Participant's employment within the Affiliated Group is terminated for any reason other than voluntarily on his own part then, notwithstanding the provisions of paragraphs (a) and (b) of this Section, the Committee, in its sole discretion, may increase the percentage of the Participant's nonforfeitable rights in the Units in any of his Unit Accounts and/or the amount actually credited to any of his Interest Accounts as of the end of the calendar month coinciding with or immediately following the date of the Participant's termination of employment. (d) In the event that a Participant's employment within the Affiliated Group is terminated on account of his malfeasance then, notwithstanding the provisions of paragraphs (a) and (b) of this Section, the Committee, in its sole discretion, may declare forfeit the Participant's rights in the Units in any or all of his Unit Accounts and/or in any or all of his Interest Accounts. (e) No Participant shall have any rights to benefits under this Plan except under the conditions set forth in this Section. -11- IX. PAYMENT OF BENEFITS ------------------- (a) Except as otherwise provided in Section X, the amounts to which a Participant is entitled under paragraphs (b) and (c) with respect to a particular Unit Account (and the related Interest Account) shall be paid to him or his Designated Beneficiary(ies), as the case may be, in a single lump-sum distribution within the sixty (60) day period following the end of the calendar year in which the Determination Date occurs with respect to such accounts (the "Determination Year"); provided, however, that the Committee may determine, in its sole discretion, to cause such distribution to be made prior to the end of the Determination Year. (b) The amount of benefits to which a Participant shall be entitled with respect to a particular Unit Account (and the related Interest Account) shall be the sum of (i) (A) the number of Units in the Unit Account, multiplied by (B) the excess (if any) of the Fair Market Value of one share of Common Stock on the Determination Date over the dollar floor (if any) applicable to one Unit in the particular Unit Account, multiplied by (C) the Participant's nonforfeitable percentage with respect to the Unit Account, as determined under Section VIII(a), (c) and (d), plus -12- (ii) (A) the amount credited to the related Interest Account immediately after the most recent credit was made to it, pursuant to Section VII (b) through (d), multiplied by (B) the Participant's nonforfeitable percentage with respect to the Interest Account, as determined under Section VIII(b), (c) and (d). (c) As at the end of each calendar month which begins after the Determination Date with respect to a particular Unit Account (and the related Interest Account), the Corporation shall make a credit to the Interest Account in an amount equal to the product of: (i) (A) the amount of benefits to which the Participant is entitled with respect to such accounts, as determined under Paragraph (b), minus (B) any amount of benefits previously paid with respect to such accounts, plus (C) any amount(s) credited to the Interest Account under this Paragraph (c) through the previous December 31, and (ii) one-twelfth (1/12) of seventy-five (75%) percent of the prime rate of interest at Citibank in New York City as of the first business day of such month. The last credit to an Interest Account under this paragraph shall be made as at the end of the calendar month coinciding with or immediately preceding -13- the first date when the Participant has no further rights in any Units in the Unit Account (whether because benefits have been paid with respect to such Units or otherwise). (d) In the discretion of the Committee, the benefits to which a Participant is entitled with respect to a particular Unit Account (and the related Interest Account) shall be paid either (i) entirely in cash (ii) entirely in Common Stock or (iii) partly in cash and partly in Common Stock, the proportions to be determined by the Committee in its discretion. If any part of a Participant's benefits are to be paid in Common Stock, the number of shares to be distributed in any calendar year shall be determined based on the Fair Market Value of the Common Stock as at December 31 of the previous year. The amount of cash to be distributed in any calendar year in payment of a Participant's benefits shall equal the excess of (i) the total amount of benefits to be distributed to the Participant in such year over (ii) the product of (A) the number of shares of Common Stock to be distributed to him in such calendar year, and (B) the closing price of the Common Stock on the principal securities exchange on which the Common Stock is traded on the business day next preceding the date of distribution. -14- (e) Notwithstanding the provisions of paragraph (d), no fractional shares of Common Stock shall be delivered in payment of any benefit under the Plan. The dollar value of any such fractional shares shall be paid in cash. (f) Notwithstanding the provisions of paragraph (d), a Participant's benefits which are payable on account of his death or the termination of his employment because of Disability shall be paid entirely in cash. X. OPTIONAL FORMS OF PAYMENT OF BENEFITS ------------------------------------- (a) At any time up to the fifteenth (15th) day prior to the Determination Date with respect to a particular Unit Account (and the related Interest Account), a Participant may elect that the benefits to which he is entitled with respect to the accounts: (i) shall be paid in five (5) annual installments commencing within sixty (60) days after the end of the Determination Year, (ii) shall be paid in a single lump-sum distribution within the sixty (60) day period following the end of the calendar year in which his termination of employment within the Affiliated Group occurs (the "Employment Termination Year"); provided, however, that the Committee may determine, in its sole discretion, to cause such distribution -15- to be made in December of the Employment Termination Year, (iii) shall be paid in five (5) annual installments commencing within sixty (60) days after the end of the Employment Termination Year, (iv) shall be paid (or commence to be paid) at such other time and/or in such other form as the Committee, in its sole discretion, may approve. (b) The elections provided by this Section shall be subject to the following rules: (i) All elections shall be made (or revoked) in writing; (ii) A Participant shall have the right to make any of the elections provided by this Section separately for each set of Unit and Interest Accounts in his name in the Incentive Compensation Ledger; (iii) Any election made under paragraph (a) may be revoked and/or made again within the time provided by paragraph (a); (iv) Where a Participant has elected to receive his benefits in installments, the amount of any installment shall be the remaining balance due the Participant with respect to the particular Unit Account (and the related Interest Account) -16- multiplied by a fraction the numerator of which is one (1) and the denominator of which is the number of installments remaining to be paid (inclusive of the installment then to be paid); (v) Any election made under paragraph (a) shall not be given effect if, in the judgment of the Committee, the Participant would be taxable on any part of his benefits in a year earlier than the one in which he would receive such benefits pursuant to his election; (vi) No election with respect to a particular Unit Account (and the related Interest Account) shall be given effect unless the Participant completes five (5) years of continuous employment with one or more members of the Affiliated Group from and after the date of grant of the Units in the Unit Account. XI. NONALIENATION OF BENEFITS ------------------------- No right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance, charge, levy, attachment or execution of judgments of any kind. No right or benefit under this Plan shall in any manner be liable for or subject to the debts, contract liabilities or torts of the person entitled to such rights or benefits. -17- XII. INVESTMENT UNDERTAKING ---------------------- In connection with the grant of a Unit or the issuance of Common Stock with respect to it, each Participant may be required to represent and agree, as a condition precedent to such grant or issuance, that (a) in the event any payment under the Plan is made in the form of shares of Common Stock, such shares will be acquired for investment and not with a view to their distribution, unless such shares shall be registered under an effective registration statement under the Securities Act of 1933, as amended; and (b) at the time of issuance of such shares he will, if so requested, reconfirm in writing to the Corporation such investment undertaking. The Corporation, if it deems it advisable, may place on the certificates representing such shares an appropriate legend with respect to the registration of the shares. XIII. AMENDMENT AND TERMINATION OF PLAN --------------------------------- The Board of Directors of the Corporation, in its discretion and at any time, may terminate the Plan or adopt such amendments or modifications of the Plan as it may deem advisable. No such amendment or modification shall deprive any Participant of any right to which he has previously become entitled under the Plan. -18- XIV. APPROVAL OF SHAREHOLDERS ------------------------ No shares of Common Stock shall be issued under the Plan until and unless the Plan has been approved by the shareholders of the Corporation. In the event that, subsequent to the approval of the Plan by the shareholders, the Plan shall be amended or modified by the Board of Directors of the Corporation to increase the number of Units that may be granted under the Plan, no shares of Common Stock shall be issued under the Plan with respect to such additional Units until and unless the amendment or modification of the Plan with respect to such additional Units has been approved by the shareholders of the Corporation. XV. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION ------------------------------------------ If the outstanding shares of Common Stock are increased, decreased, changed into, or exchanged for a different number or kind of shares or other securities of the Corporation or any other corporation through reorganization, merger, consolidation, recapitalization, reclassification, combination, exchange of shares, stock split-up, payment of a stock dividend or other capital adjustment, an appropriate and proportionate adjustment shall be made in each account in the Incentive Compensation Ledger with respect to the number of Units granted to a Participant. Unless the context indicates to the contrary, all references to the number of Units in this Plan shall mean such number as may be adjusted pursuant to the provisions of this Section XV. -19- Adjustments under this Section shall be made by the Committee, whose determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. XVI. TRIGGER EVENTS -------------- (a) For the purpose of this Plan, a "Trigger Event" shall mean (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person"), other than Berkshire Hathaway, Inc., a Delaware corporation ("Berkshire"), or any Affiliate or Associate (as hereinafter defined) of Berkshire (Berkshire and such Affiliate and Associate being hereinafter referred to collectively as the "Berkshire Group"), in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of an aggregate of 20% or more of either (x) the then outstanding shares of common stock of the Corporation (the "Outstanding Company Common Stock") or (y) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Company -20- Voting Securities"); provided, however, that the following acquisitions shall not constitute a Trigger Event: (A) any acquisition directly from the Corporation (excluding an acquisition by virtue of the exercise of a conversion privilege), provided that the Person acquiring such Outstanding Company Common Stock or Outstanding Company Voting Securities beneficially owns less than 5% of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such acquisition, (B) any acquisition by the Corporation, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any Affiliate of the Corporation or (D) any acquisition by any corporation pursuant to a transaction described in clauses (A), (B) and (C) of paragraph (iv) below; or (ii) The acquisition by any one or more of the Berkshire Group, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 30% (the "Prohibited Percentage") of either the Outstanding Company Common Stock or the Outstanding Company -21- Voting Securities, provided, however, that any such acquisition shall not constitute a Trigger Event if the Berkshire Group shall have attained the Prohibited Percentage (A) as the result of an acquisition of Outstanding Company Common Stock or Outstanding Company Voting Securities by the Corporation which, by reducing the number of shares outstanding, increases the proportionate number of shares owned by the Berkshire Group to the Prohibited Percentage or (B) with the consent of the Corporation's Board of Directors in accordance with an Agreement dated January 2, 1986 between the Corporation and Berkshire, provided however, that if the Berkshire Group shall become the beneficial owner of more than 30% of such securities pursuant to clauses (A) or (B) of this paragraph (ii), and shall thereafter acquire any additional Outstanding Company Common Stock or Outstanding Company Voting Securities other than pursuant to clause (B) of this paragraph (ii), then such acquisition shall constitute a Trigger Event; or (iii) Individuals who constitute the Incumbent Board (as hereinafter defined) cease for any reason to constitute at least a majority of the Board of Directors of the -22- Corporation (the "Board"). "Incumbent Board" shall mean individuals who as of December 14, 1989, constitute the Board and any individual who becomes a director subsequent to December 14, 1989, whose election, or nomination for election by the Corporation's shareholders, is approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iv) Approval by the shareholders of the Corporation of a reorganization, merger or consolidation, in each case unless, following such reorganization, merger or consolidation, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock -23- and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Corporation, any employee benefit plan (or related trust) of the Corporation and the Berkshire Group) beneficially owns, directly or indirectly, 20% or more, and the Berkshire Group does not beneficially own, directly or indirectly, more than 30%, of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of -24- such corporation and (C) at least a majority of the members of the Board of Directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (v) Approval by the shareholders of the Corporation of (x) a complete liquidation or dissolution of the Corporation or (y) the sale or other disposition of all or substantially all of the assets of the Corporation, other than to a corporation with respect to which, following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other -25- disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Corporation, any employee benefit plan (or related trust) of the Corporation and the Berkshire Group) beneficially owns, directly or indirectly, 20% or more, and the Berkshire Group does not beneficially own, directly or indirectly, more than 30% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation and (C) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Corporation. For the purpose of this Section, the terms "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the -26- General Rules and Regulations under the Exchange Act, as in effect on December 14, 1989. (b) For the purpose of this Plan, the "Trigger Event Fair Market Value" shall be the higher of (x) the highest reported sales price, regular way, of a share of Common Stock on the principal securities exchange on which the Common Stock is listed during the sixty (60) day period prior to the date of the occurrence of a Trigger Event and (y) if a Trigger Event occurs as the result of a transaction or series of transactions described in paragraphs (i), (ii), (iv) or (v) of the definition of "Trigger Event" set forth in this Section XVI, the highest price per share of Common Stock paid in such transaction or series of transactions (in the case of a Trigger Event described in paragraphs (i) or (ii) of such definition), as reflected in a Schedule 13D filed by the person having made the acquisition. (c) Upon the occurrence of a Trigger Event, as defined in this Section XVI, the following provisions of this Section XVI shall apply and Sections VIII through X of this Plan shall not apply. (d) All benefits represented by the Units in all Unit Accounts and the amounts credited to all Interest Accounts shall be completely nonforfeitable. (e) The amount of benefits to which a Participant shall be entitled with respect to the Units in a particular Unit Account (and the related Interest Account) as to which the Determination Date occurred prior to the occurrence of the Trigger Event shall be the sum of -27- (i) (A) the number of Units in the Unit Account, multiplied by (B) the excess (if any) of the Fair Market Value of one share of Common Stock on the Determination Date over the dollar floor (if any) applicable to one Unit in the particular Unit Account, plus (ii) the amount credited to the related Interest Account as of the date of the occurrence of the Trigger Event. (f) The amount of benefits to which a Participant shall be entitled with respect to the Units in a particular Unit Account (and the related Interest Account) as to which the Determination Date has not occurred prior to the occurrence of the Trigger Event shall be the sum of (i) (A) the number of Units in the Unit Account, multiplied by (B) the excess (if any) of the Trigger Event Fair Market Value over the dollar floor (if any) applicable to one Unit in the particular Unit Account, plus (ii) the amount credited to the related Interest Account as of the date of the occurrence of the Trigger Event. (g) All benefits to which a Participant is entitled with respect to the Units in a particular Unit Account (and the related Interest Account) shall be paid to -28- him or his Designated Beneficiary(ies), as the case may be, in a single lump-sum distribution immediately after the occurrence of the Trigger Event. (h) All benefits shall be paid in cash. XVII. MISCELLANEOUS ------------- (a) The adoption and maintenance of the Plan shall not be deemed to constitute a contract between a Participant and any member of the Affiliated Group. Nothing herein contained shall be deemed to give to any Participant the right to be retained in the employ of any member of the Affiliated Group or to interfere with its right to discharge any Participant at any time. (b) No Participant shall have any of the rights or privileges of a shareholder of the Corporation with respect to any shares of Common Stock except with respect to shares of such Common Stock actually issued to him under this Plan. (c) No trust shall be deemed created in favor of any Participant by the establishment of a Unit Account or an Interest Account and the Corporation shall have no obligation whatsoever to fund any of such Accounts. Participants' rights under this Agreement shall be solely those of unsecured contractual creditors. (d) All questions pertaining to the Plan shall be determined under the laws of the State of New York. -29- EX-13 4 ANNUAL REPORT EXHIBIT 13 Capital Cities/ABC, Inc. - -------------------------------------------------------------------------------- 1993 Annual Report & Form 10-K - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- Operating Highlights
1993 1992 -------------- -------------- Net revenues $5,673,653,000 $5,344,127,000 -------------- -------------- Operating income $ 862,149,000 $ 721,805,000 Income before extraordinary charge and cumulative effect of accounting changes $ 467,379,000 $ 389,328,000 -------------- -------------- Income per share before extraordinary charge and cumulative effect of accounting changes $28.53 $23.45 -------------- -------------- Average shares outstanding 16,380,000 16,600,000 -------------- --------------
[GRAPHIC APPEARS HERE] [GRAPHIC APPEARS HERE] Capital Cities/ABC - -------------------------------------------------------------------------------- A Message From The Chairman [ART] On February 4, 1994, Dan Burke, our President and Chief Executive Officer, retired after almost 33 years with the Company. The Company's progress since he joined Capital Cities in 1961 has been remarkable by almost any measure. Its revenues have grown from $10 million annually to $5.7 billion in 1993. Earnings per share have increased from $0.12 in 1961 to $28.53 in 1993 and the Company's stock price, $3 during the month he started, closed at $670 on the day he left. Dan Burke's leadership and judgment have been integral to these achievements. He combines intelligence and a keen business sense with an unusual ability with people. He is a gifted teacher. He is creative and a man of great personal character and community dedication. He is also unpretentious and irreverent and, he makes everything around him much more fun. All of this has left an indelible mark on the Company. While Dan was resolute in his wish to retire on his 65th birthday, we are pleased he will continue to serve on our Board of Directors. The report that follows is essentially Dan's, an appraisal of the final year of his three and one-half year tenure as Chief Executive Officer. He leaves the Company in exceptionally strong condition, and we are grateful for his contributions and his continuing involvement. THOMAS S. MURPHY Chairman 2 - -------------------------------------------------------------------------------- To Our Shareholders In 1993, the Company reported record revenues and earnings per share as the economy improved and its businesses rebounded. Earnings per share, on a comparable basis, were $28.53, a 22 percent increase from 1992. During the year, we accelerated our investments in television program production, international media joint ventures, strategic acquisitions and start-up operations. The year was also marked by significant relaxation of government regulations resulting in greater opportunity and flexibility for the Company to own and invest in programming. These investment activities and regulatory developments, in conjunction with our substantial free cash flow and strong balance sheet, position the Company to move forward as the economy improves. Net revenues increased 6 percent over 1992. In 1993, our managers continued to limit cost growth as they had during the recent years of soft advertising demand. Operating expenses grew 4 percent, despite significantly higher development costs and severance expense. Operating income rose 19 percent to approximately $862,000,000. Of the $330,000,000 sales gain in 1993, $140,000,000, or 42 percent, was converted to operating income. A summary of the Company's results for 1993 compared with 1992 follows:
Percent (Dollars in millions) 1993 1992 change ---- ---- ------- Net Revenues $5,673.7 $5,344.1 6% -------- -------- Operating costs 4,655.2 4,464.6 4% Depreciation 95.0 95.7 -- Amortization 61.3 62.0 -- -------- -------- Total Costs 4,811.5 4,622.3 4% -------- -------- Operating income 862.2 721.8 19% Interest/other, net (33.8) (35.9) (6)% -------- -------- Income before taxes 828.4 685.9 21% Income taxes (361.0) (296.6) 22% -------- -------- Net Income* $ 467.4 $ 389.3 20% ======== ======== Income per share* $ 28.53 $ 23.45 22% Average shares (000) 16,380 16,600 (1)%
- ---------- *Before 1993 extraordinary charge and 1992 cumulative effect of accounting changes. Several factors which affected the 1993 to 1992 comparison are worth noting: . On December 1, 1993, the Company completed a Dutch Auction tender offer for 1,100,000 common shares at $630 per share for a total cash outlay of approximately $700,000,000. Earnings per share in 1993 benefited slightly from the reduction in shares outstanding from 16,444,000 to 15,383,000; the full year benefit would have been approximately $1.00 per share. Berkshire Hathaway, our largest shareholder, tendered 1,000,000 shares and now owns 2,000,000 shares, or 13 percent of the Company. . The Company's earnings per share were adversely affected by the increase in corporate income tax rates required by the Omnibus Budget Reconciliation Act of 1993. Without this tax rate increase, earnings per share would have been $0.73 higher in 1993, or $29.26 per share. . Net interest expense declined by approximately $29,000,000, primarily because the Company redeemed an additional $500,000,000 of debt in early 1993. The Company recorded an after-tax, extraordinary charge of $12,122,000, or $0.74 per share, as a result of the prepayment. Outstanding debt is now $622,000,000, or 14 percent of total capital, down from $2,100,000,000, or 51 percent, at the time of the acquisition of ABC in 1986. . The Company's earnings for 1992 included a significant net gain ($0.68 per share) on the sale of its interest in a German television network. This was partially offset by losses on the disposal of real estate. . The Company's 1993 operating results included the funding of $80,000,000 of pre-tax losses for domestic start-ups and international media joint ventures, 3 Capital Cities/ABC - -------------------------------------------------------------------------------- compared with $57,000,000 of such losses in 1992. The after-tax loss from our share of these activities in 1993 and 1992 was approximately $3.00 and $2.00 per share, respectively. In recognition of the future direction of Capital Cities/ABC, the Company reorganized in 1993 into five operating groups, including two new ones. The Cable and International Broadcast Group, formerly called Video Enterprises, was created to recognize the dramatic growth of our cable programming ventures and the potential of our international broadcasting and production investments. The Multimedia Group was established to exploit opportunities in emerging technologies, particularly those created by the development of digital television and related businesses. These two groups join the existing ABC Television Network Group, Broadcast Group and Publishing Group. Pursuing new business opportunities is a vital part of the Company's strategy. 1993 through early 1994 was an active period for all operating divisions: . ESPN2 premiered on October 1, with much assistance from the Company's television stations. The Cable Television Consumer Protection and Competition Act of 1992 ("Cable Act") offered television stations the opportunity to negotiate compensation from cable system operators in exchange for permitting them to carry their signals. As an alternative to cash payments, and in return for guaranteed station channel position, the Company's television stations offered to accept cable carriage of ESPN2 in exchange for the carriage rights. Commitments were received from 19 of the top 20 cable system owners for an accelerated rollout of ESPN2 over the next six years. By the end of 1993, ESPN2 was carried in 13,000,000 homes. This represents one of the most successful launches ever for a new cable network. . Early in 1994, the ABC Television Network entered into an agreement in principle with Brillstein-Grey Entertainment for a joint venture that would develop programming for network television, as well as videocassettes, radio, pay-per-view and interactive television. . The network's ABC Productions unit doubled its prime-time programming development during the year, producing 89 hours, primarily for the ABC Television Network. . Under the FCC's recently revised rules relaxing radio station ownership, the Company purchased a second FM station in Atlanta, signed a purchase agreement for a second FM station in Minneapolis and reached an agreement in principle for another AM station in Los Angeles. . The Cable and International Broadcast Group acquired a 20 percent interest in a new German television network, RTL 2, which debuted in March 1993. Also, in early 1993, the group merged its sports programming service, The European Sports Network, into Eurosport, its primary competitor. It now owns 33 percent of Eurosport. The combined sports network reaches almost 50,000,000 households throughout Europe. . During late 1993 and early 1994, the Company purchased a 24 percent interest in Scandinavian Broadcasting System SA, a well-positioned broadcaster with television networks in Norway, Sweden and Denmark. . The Publishing Group acquired Grupo Editorial Expansion, S.A., Mexico's leading business publisher, whose operations include magazines, newsletters and regulatory bulletins. There were several favorable regulatory developments in 1993. During the year, 4 - -------------------------------------------------------------------------------- the FCC relaxed the financial interest and syndication rules that had been in place since 1970. Also, a U.S. District Court lifted certain of the consent decree restrictions which paralleled these rules. Both developments afford the Company greater flexibility in developing, owning and investing in entertainment programming. That opportunity was identified years ago as a top priority. These changes were long overdue, and now that they are in place the Company plans to take full advantage of them. ABC Television Network earnings rose dramatically in 1993 due in part to a steady improvement in advertiser demand during the year. Reports that industry revenue grew in 1993 by only 1 percent, in fact, understated the improvement. Excluding more than $800,000,000 in 1992 Winter and Summer Olympic advertising on other networks, the television network marketplace grew by 8 percent in 1993. ABC's competitive ratings throughout the broadcast day are as strong as they have been for several seasons, and this performance has allowed the network to capitalize on the improved advertising marketplace. In prime time, ABC finished the 1992-93 season as the most popular network among adults 18-49. In the fourth quarter of 1993, ABC won 7 of 14 weeks in household ratings and ranked first among the 18-34, 18-49 and 25-54 adult demographic groups, the network's best competitive performance since the 1979-80 season. ABC consistently won four nights of the week and placed six programs among the ten most popular adult 18- 49 programs. Most other dayparts were as competitive and added to the improved near-term sales outlook. Good Morning America was the top-rated early morning program for the fourth consecutive year. ABC Daytime, rated first among women 18-49 and 25- 54, had three of its serial dramas ranked among the top four shows in the daypart for those demographic groups. ABC Sports' NFL Monday Night Football was the eighth most popular prime-time program in the fall, and first among men 18- 49. College football was also among the most highly rated programming for young male viewers. ABC Sports operated at a profit in 1993 for the first time in several years. ABC News had another outstanding year in 1993. During the average week, ABC News programming reaches 68 percent of all U.S. television households, or approximately 115,000,000 people, more than any other news source. World News Tonight with Peter Jennings was the number one-rated evening news broadcast for the fifth consecutive year. PrimeTime Live and 20/20 achieved higher ratings and consistently won their respective time periods. Nightline distinguished itself in the intensely competitive late night time period, finishing first in household ratings 11:30 pm to midnight on an annual basis for the first time since its March 1978 premier. Early in 1994, ABC News will add a fourth news magazine program, Turning Point, to prime time. The Broadcast Group had a good year in 1993 with revenue and profit gains better than anticipated. The owned television stations generally maintained their excellent ratings position, especially in early and late evening news. The stronger than expected revenue growth was especially gratifying because 1992 results included significant political advertising from national and local elections. Radio industry revenue growth rebounded after a weak 1992, and both the radio stations and radio networks benefited. The ABC Radio Networks achieved record profits in 1993, and the stations achieved significantly higher profits. The Cable and International Broadcast Group is one of the Company's fastest growing operations, and all elements performed well in 1993, especially the basic cable networks. ESPN had an 5 Capital Cities/ABC - -------------------------------------------------------------------------------- exceptional 1993, with significant earnings growth, even after a sizable loss in the last year of a four-year Major League Baseball contract and substantial start-up losses for ESPN2. ESPN also continued to grow internationally during the year, expanding its coverage in Asia, Latin America, and in early 1994, the Middle East and Africa. ESPN is now seen in approximately 90 countries, making it the most widely distributed program service in the world. Arts & Entertainment Network (A&E) and Lifetime reported record revenues and profits. A&E is scheduled to launch the History Channel in the fall of 1994. The group's international joint ventures performed better in 1993 and are positioned for further growth as the European economy improves. The newly established Multimedia Group is currently evaluating opportunities in the emerging technologies. The group has entered into a number of joint ventures designed to evaluate consumer demand for certain interactive services and other video-on-demand programming. It expects to expand those activities and has begun to explore opportunities emerging in disc, on-line, cartridge and out-of-the- home markets, as well. For the Publishing Group, business conditions showed modest improvement in 1993. Newspaper and shopping guide operations posted their seventh consecutive year of increased profits on a small revenue increase. Although improved results were achieved by the majority of its publications, weak business conditions in the fashion and medical publications resulted in an overall Specialized Publications Group profit decline. Developmental expenses increased significantly, largely because of the launch of a yellow pages directory in Wichita, the start-up of Selling magazine and a conversion to CD-ROM technology for Chilton's professional automobile books. The Company continued its long-standing commitment to both Project Learning U.S. (PLUS) and the Partnership For a Drug Free America. PLUS's campaign, Never Stop Learning, has strong national awareness and drew attention this past year to innovative learning and educational techniques under the theme, Common Miracles. The Partnership For a Drug Free America is responding to an alarming resurgence of drug use among children and young adults for the first time in a decade by strengthening its prevention message. Capital Cities/ABC is the Partnership's strongest corporate supporter, contributing over $30,000,000 of media time and space in 1993 and $225,000,000 over the last seven years. There were several important senior management changes in 1993. Robert A. Iger, President, ABC Television Network Group, was promoted to Executive Vice President of Capital Cities/ABC, Inc. Herbert A. Granath was promoted to President, Cable and International Broadcast Group and to Senior Vice President of the Corporation. Stephen A. Weiswasser was promoted to President, Multimedia Group and reassumed General Counsel responsibilities. David Westin was promoted to President of Production, ABC Television Network Group. We are pleased to report that Nicholas F. Brady, former Secretary of the United States Department of the Treasury, was elected to our Board of Directors in 1993. Capital Cities/ABC's near-term strategy will vary little. A talented group of managers is in place and will provide the Company's next generation of leadership. Our stable free cash flow and strong balance sheet give us confidence that the Company is stronger and healthier than it has ever been. The core broadcasting, cable and publishing businesses, combined with the initiatives outlined above, have us well-positioned for future growth. We are confident that the Company has the resources and determination to compete profitably in a changing media industry. 6 - -------------------------------------------------------------------------------- We would like to thank our directors and employees, as well as our shareholders, for their contributions and support during the years. We look forward to the opportunities the future will bring. THOMAS S. MURPHY Chairman of the Board and Chief Executive Officer DANIEL B. BURKE Retired President and Chief Executive Officer 7 Capital Cities/ABC - -------------------------------------------------------------------------------- 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 1993 net revenues of $4,663,200,000, an increase of 9 percent, or $397,600,000 from 1992. Operating earnings of $778,100,000 in 1993 increased $158,800,000, or 26 percent, from the prior year. Broadcasting's 1993 and 1992 results are summarized as follows:
(Dollars in millions) 1993 1992 -------- -------- Net revenues $4,663.2 $4,265.6 -------- -------- Operating costs 3,763.0 3,523.2 Depreciation 75.4 76.4 Amortization 46.7 46.7 -------- -------- Total costs 3,885.1 3,646.3 -------- -------- Operating income $ 778.1 $ 619.3 ======== ========
ABC Television Network Group In virtually all phases of its operation, the television network experienced a strong year in 1993. Its sharp rise in revenues and profits was due to an improvement in national advertising, competitive ratings strength across all program dayparts and effective cost control. Revenues increased approximately 9 percent to $2,730,000,000, and operating income doubled to over $180,000,000. [GRAPHIC APPEARS HERE] Network television industry revenue growth of 1 percent in 1993 was better than anticipated because 1992 revenues included over $800,000,000 in Olympic advertising, and post-Olympic years have historically resulted in a revenue decline for the industry. The ABC Television Network's 1993 business outlook had anticipated another year of soft national advertising as well. As the year progressed, however, the economy stabilized and scatter pricing strengthened. In the second half of 1993, ABC Television Network revenues rose in excess of 10 percent, which is better growth than has been experienced in over three years. ABC was able to profit from this cyclical improvement on every level. Audience gains in prime time, combined with consistently top-rated audience delivery throughout most of the remaining broadcast day, attracted an increased share of network television advertising expenditures. Over 180,000,000 people watched ABC on a regular weekly basis during 1993, more than any other network. Even more important to national advertisers, the ABC Television Network was rated first among adults 18-49 in virtually every daypart. Profits would not have grown in 1993 without management focus on cost control. The network avoided overpaying for expensive [GRAPHIC APPEARS HERE] 8 - -------------------------------------------------------------------------------- sports rights, carefully monitored program inventory, and in the process streamlined its operations. While operating costs increased 5 percent in 1993, they were largely the result of a higher level of internally-produced programming which should yield important revenue benefits in the future, and increased provisions for reductions in staffing. The ABC Television Network believes that ownership and control of software is critical to its future success, and in 1993, steps were taken to increase the amount of ABC-owned product in all dayparts. Here are some examples of this effort: . The network produced or shared a financial interest in 194 hours of prime- time entertainment programming in 1993, up from 154 hours in 1992. ABC Productions produced approximately half of those hours in both years. . ABC News added a third weekly magazine program, Day One, to the prime-time schedule in 1993, and a fourth, Turning Point, will be added early in 1994. During 1993, the News division provided 142 hours of news magazine programming as well as 30 hours of special broadcasts and expanded its international newsgathering capabilities. . ABC Daytime, which owns its four serial dramas, produced several videocassettes of highlights from past productions. More than 400,000 copies were distributed through Capital Cities/ABC Video Publishing, a new unit of the Company. . The network entered into an agreement in principle with Brillstein-Grey Entertainment early in 1994 for a joint venture to develop programming for network television and other distribution outlets. . ABC Entertainment's first series co-production with Matt Williams, creator of Roseanne and Home Improvement, is scheduled for broadcast in the first quarter of 1994. ABC was the only network to improve its prime-time ratings during the 1992-93 season, and it made further gains in the fourth quarter of 1993. During both periods, ABC was the most popular network among adults 18-34, 18-49 and 25-54. ABC's NFL Monday Night Football was the leading program for male viewers 18-49 in the fourth quarter, averaging a 14.5 rating and 38 share for that group. Appearing on Tuesday, Roseanne and Coach are the second and fifth ranked programs in prime-time household delivery. NYPD Blue, the season's highest- rated new drama, premiered on Tuesday night in the fall and contributed to the network's first-place finish for the night. ABC consistently won Wednesday night as well, primarily because of Home Improvement, the season's number one- rated show, and Grace Under Fire, the highest-rated new situation comedy of the season, which ranked sixth in household ratings. ABC's Thursday night ratings improved 9 percent over last season. That growth was led by PrimeTime Live, which ranked 14th among all prime-time programs, with ratings up 9 percent over last season. Friday has been ABC's most successful night for several seasons, and the network continued to win every half hour in households and adults 18-49 ratings. The 8-10 pm comedy block improved its household ratings by 12 percent. Saturday continued to be difficult for ABC to schedule between 8:00 pm and 10:00 pm, although The Commish delivered 4 percent more adults 18-49 in the 10-11 pm period than it did last season. ABC Daytime maintained its leadership in the key demographic categories of women 18-49 and 25-54, viewers with strong advertiser appeal. During 1993, ABC Daytime posted a 14 percent gain in its delivery of households. Its delivery of women 18-49 increased 11 percent; delivery of women 25-54 was up 13 percent. ABC also had three of the four top-rated programs among women 18-49. All My Children ranked number one, General Hospital number three and One Life To Live number four. Good Morning 9 Capital Cities/ABC - -------------------------------------------------------------------------------- America won the early morning time period for the fourth consecutive year. The show's lively, well-paced news and information features were top-rated among women 18-49 and 25-54. ABC News contributed substantially to the network's improved results in 1993 and is an important part of future growth. World News Tonight with Peter Jennings was the nation's most-watched evening news program for the fifth consecutive year. Nightline, hosted by Ted Koppel, had its best household ratings since 1988, finishing first in household ratings on an annual basis. The importance of these two news broadcasts to the network cannot be overestimated, especially during late-breaking domestic and international news stories, because more Americans turn to ABC than to any other network during these times. PrimeTime Live and 20/20 are the two highest-rated hour-length programs on ABC's prime- time schedule. Day One's ratings improved slightly as the 1993-94 season progressed. The Barbara Walters Specials and This Week with David Brinkley also contributed to ABC News' comprehensive, award-winning coverage of the major events, issues and personalities of 1993. Through the division's ownership of Worldwide Television News and its recent arrangement with the BBC, ABC News' international newsgathering potential has grown dramatically. ABC Sports' future is brighter now than it has been for some time. The division was profitable in 1993 for the first time since 1987, as sports advertising improved steadily during the year, especially in the fourth quarter. Professional and college football coverage and the U.S. Open and British Open golf tournaments highlighted ABC's year. In 1994, ABC Sports will broadcast Major League Baseball, including the World Series. The division's revenue sharing agreement with Major League Baseball avoids upfront rights fees and is, we believe, an innovative and prudent approach to acquiring sports rights for network television. ABC will also broadcast World Cup Soccer, held in America for the first time, in the summer of 1994. The ABC Television Network's 1993 operating performance was gratifying. To sustain this growth, the network plans to continue to keep its programming popular and relevant to audiences and advertisers and to ensure that costs do not rise as rapidly as revenues in a healthier advertising marketplace. It also plans to channel every available resource to program ownership and other new business opportunities. Two executive changes were announced at the network in 1993. Patricia K. Fili- Krushel was named President of Daytime Entertainment, responsible for all Monday to Friday daytime product, including our very successful daytime serials. Jeanette B. Trias was promoted to President of Children's Programming, and will supervise the Saturday morning schedule, as well as the ABC Afterschool Specials. In 1993, the network received over 150 awards, including 31 Emmys. 20/20 won an Alfred I. duPont-Columbia University Journalism Award for The Gift of Life, a profile of a Vietnam veteran and the doctor who saved his life during the war, and PrimeTime Live won the George Polk Award for its investigative report on the rise of neo-Nazism in Germany. Roseanne won the George Foster Peabody Award for significant and meritorious achievement in television programming. Broadcast Group The newly reorganized Broadcast Group, which previously included the Company's cable and international broadcast activities, continues as Capital Cities/ABC's major profit center. Now consisting of television station, radio station and radio network operations, the group generated revenues of $1,170,000,000, exceeding 1992's performance by approximately 6 percent and slightly outperforming the record level reached by these businesses in 1990. At the same time, the group's profits grew in 1993 by approximately 12 percent after two 10 - -------------------------------------------------------------------------------- consecutive down years. While still falling short of 1990's record performance, these results were the best recorded in three years and the first double-digit profit increase since 1988. The rebound in profits also saw profit margins expand by two percentage points. The year's foremost challenge came from the federal government's legislative effort to re-regulate the cable industry and ensure the economic viability of free local television broadcasting. Ratified in the closing days of 1992, the Cable Television Consumer Protection and Competition Act of 1992 ("Cable Act") afforded broadcasters the ability either to guarantee cable carriage for themselves or to develop a secondary revenue source. The pre-eminent market positions of our television stations and our ownership of ESPN, the cable industry's foremost sports network, enabled us to obtain cable carriage for ESPN2 in exchange for giving cable system operators the right to carry our stations' signals. Cable companies found this alternative an acceptable way to provide value for carriage rights. The Company was thus able to receive significant economic value for its stations' signals and avoided the kind of confrontation with cable operations that others encountered when they sought only cash for carriage. The successful conclusion of this process in part validated the Company's diversification into cable programming. Television Stations Although 1993 will be remembered by television station operators because of the challenge and distractions of a new regulatory relationship with their cable counterparts, it was also a year that saw most broadcasters emerge from the effects of a recessionary economy. Revenues at our eight television stations increased approximately 5 percent, slightly exceeding the previous record high of 1990, and station profits rebounded nicely. A benefit which materialized in the last quarter of the year also contributed to the profit increase. It involved the resolution of the long-standing dispute between ASCAP, the music performance rights society, and the All-Industry Committee, which represented the interests of our stations as well as most of the industry. A Federal District Court established an alternate and more flexible fee structure that will now put the licensing of music performance rights for television stations on a more equitable basis. In addition, the court fixed the liability for past years' claims at levels lower than had been previously anticipated. While there is no guarantee that this 12-year industry- wide effort will lead to the resolution of a similar dispute with BMI, the other major music licensing organization, the potential for a comparable settlement does exist and could produce a similar future benefit. Another event had long-term implications about service quality and price integrity for the industry. The Arbitron Company announced its intention to abandon its local television market rating service and leave the field to a sole service provider, Nielsen Media Research. The immediate consequence of Arbitron's decision will be a reduction of research expenses; however, the absence of competition in an area vital to the television industry raises questions for the future. Moreover, two of our stations that previously employed Arbitron as their primary audience measurement and selling tool may well sustain revenue losses in excess of any cost benefits. The Company's television stations continue as the nation's most profitable station group and maintain their pre-eminent audience ratings in most of their markets. The average sign-on to sign-off ratings achieved during the four 1993 Nielsen sweep surveys show six of our stations maintaining their number one positions. The other two share the top spot with competitors. KTRK-TV, a long- time ratings powerhouse and perennial number one in Houston, has recently lost ground in the ratings and faces a real struggle to regain its leadership position. At the station group, all dayparts, including those committed to carrying network programs, are vigorously 11 Capital Cities/ABC - -------------------------------------------------------------------------------- contested, so we take nothing for granted. The challenges that face us are real and the competition intense. As noted above, the inherent market strength of our television stations permitted us to utilize the retransmission consent provisions of the new Cable Act to create significant penetration for ESPN2. That penetration went well beyond the service areas of our owned stations. While the results of the negotiation primarily benefited ESPN2, other significant objectives were achieved in the negotiation process. Six-year agreements were entered into with cable operators that ensured the carriage of virtually all our station signals on our designated over-the-air channel positions-thereby ensuring uniform promotability in the preferred VHF band. In addition, we gained some preferential opportunities for additional channel space to accommodate the eventual broadcast of high definition television. All in all, we generated value for our signals by the creation of a new basic cable service with significant market penetration, and we assured cable carriage in 99.4 percent of the homes attributed to our markets. Radio 1993 was a record year for the Radio Division, with both revenues and profits reaching new highs. Our radio stations improved considerably on several fronts and appear to be well-positioned for the future. Underperforming facilities in New York and Chicago made real turnarounds, and the benefits of a reshaped and more focused portfolio of stations became more evident. Combined with an improving economy, the effect was significant: revenue increased by approximately 9 percent, and operating profits increased dramatically. At year-end, the group consisted of 18 stations, three less than the 21 stations operated by the Company at the end of 1992. In keeping with a strategy designed to take advantage of liberalized radio ownership rules and to focus our efforts on acquiring additional properties in the larger markets where we already own stations, the group divested its AM/FM station combinations in Denver and Providence and acquired a third station in Atlanta. The Company's current 18 station portfolio (nine AM and nine FM) reaches 24.1 percent of the United States as indicated in the following chart:
#of stations Station Market in % of and Market rank market U.S. - ---------- ------ -------- ---- WABC-AM/WPLJ-FM 1 48 6.6% (New York) KABC-AM/KLOS-FM 2 48 4.6% (Los Angeles) WLS-AM/FM 3 37 3.2% (Chicago) KGO-AM 4 48 2.5% (San Francisco) WJR-AM/WHYT-FM 6 30 1.7% (Detroit) WMAL-AM/WRQX-FM 7 30 1.6% (Washington, DC) WBAP-AM/KSCS-FM 8 32 1.6% (Fort Worth-Dallas) WKHX-AM/FM WYAY-FM 12 19 1.3% (Atlanta) KQRS-AM/FM 17 20 1.0% (Minneapolis-St. Paul) ---- Total 24.1% ----
Source: Arbitron, Fall 1993 Radio Market Survey Schedule & Population Rankings Metro persons 12+ The acquisition of WYAY-FM represents our first experience with a duopoly operation, a circumstance which offers radio operators the opportunity to consolidate costs and enhance sales. While it is too early to be certain that this plan will succeed in Atlanta, the combined operations of WKHX-AM/FM and WYAY-FM have exceeded our expectations and seem to offer real promise. Clearly, the right combination of variables is a prerequisite for duopoly operations to work, and acquisition cost is key. Based upon what we have seen so far, and under the right circumstances, we will pursue duopolies as a strategy for growth in our larger markets. In 12 - -------------------------------------------------------------------------------- this connection, we have recently signed an agreement to purchase KRXX-FM, Minneapolis and have reached an agreement in principle to acquire KMPC-AM in Los Angeles. We hope to conclude these acquisitions during 1994. Duopoly combinations also offer a number of strategic programming benefits; for example, the ability to protect successful formats by programming to a compatible audience in the same genre. What can work for us, however, can also work for our competition, so it is more important than ever that we protect successful franchises and use our current facilities to their best advantage. It is gratifying to see our efforts begin to succeed at WABC-AM and WPLJ-FM in New York and WLS-AM/FM in Chicago, where patience and commitment to a format and to talented people have contributed to the reversal of fortunes. Equally noteworthy, WMAL-AM in Washington, DC weaned itself away from a long-standing relationship with a major sports franchise, the Washington Redskins. It repositioned itself competitively, saw its audience expand and enjoyed an outstanding year. The ABC Radio Networks had an exceptional year in 1993. Profits rebounded from a down year and increased significantly to reach a new high. Revenues increased by approximately 6 percent, as a number of traditional advertisers returned to network radio, and the networks maintained their share of the market. Effective cost management also contributed significantly to the year's results, with operating expenses declining for the third consecutive year as the network relocated and consolidated more of its operations in Dallas, Texas. The ABC Radio Networks remain the country's largest radio network operation and serve approximately 3,400 affiliates nationwide. Providing stations and listeners with a wide range of programming and featuring the services of ABC News, the networks reach almost 100,000,000 listeners each week. They broadcast 17 of the top 20 and 42 of the top 50 programs in network radio. Moreover, Paul Harvey, America's most prominent and popular commentator and ABC Radio's foremost personality, continues his hold on the radio audience. His daily program reaches 24,000,000 people each week, and his programs consistently rank at the top of news personality surveys. The radio networks recently signed Tom Joyner, a popular Chicago radio personality, to produce a morning and weekend "countdown" show aimed at African- American music listeners. The networks also launched into syndication "Moby in the Morning," a feature of our owned station in Atlanta, WKHX-FM, where Moby is the number one country music host. The ABC Radio Networks also expanded their horizons internationally. They acquired a minority interest in Satellite Media Services, Ltd., a U.K. company, to develop radio formats for distribution in Europe, and established a Hong Kong-based partnership, called ABC Radio Partners. This Hong Kong venture will launch a Chinese radio network to serve that huge and increasingly dynamic market. Cable and International Broadcast Group As a result of the growing importance of the Company's involvement in cable programming, international broadcasting and cable services, and program distribution, the Cable and International Broadcast Group was established in 1993. The group is more readily identified with its successful domestic cable activities--80%-owned ESPN, 37 1/2%-owned Arts & Entertainment (A&E) and 33 1/3%-owned Lifetime. It is also involved in program distribution through its ABC Distribution operation, and has an increasing presence in the international marketplace. In 1993, operating income increased significantly on a 15 percent increase in revenues. 13 Capital Cities/ABC - -------------------------------------------------------------------------------- ESPN, the premier cable sports network in the country, represents the group's most significant business activity. It ended the year as America's largest cable network and is currently available in 62,700,000 homes which represent 67 percent of U.S. television households. ESPN International broadened its programming distribution to 90 countries broadcast in 11 languages with 24-hour customized satellite networks for Asia, Latin America, and in early 1994, the Middle East and Africa. Once again, ESPN achieved record revenues and earnings in 1993, despite a significant loss in the last year of its initial contract with Major League Baseball. Major League Baseball coverage was renewed for six more years at substantially lower rights fees and a reduction in coverage from six to three games per week. ESPN also renewed its Sunday night NFL contract for four more years at slightly higher rights fees. ESPN launched ESPN2 in October with coverage by year-end reaching 13,000,000 cable homes. By the end of 1996, ESPN2 expects to be in 30,000,000 homes. Programming will focus on the entertainment appeal of sports and will be targeted to men and women 18-34. ESPN also acquired Ohlmeyer Communications Corporation, a sports programming and production company. The group's interests in A&E and Lifetime cable networks continue as very successful investments. Both A&E and Lifetime, which reach 56 percent and 62 percent of U.S. television homes, respectively, again had excellent years and continue to show growth in revenue, earnings and subscribers. The group also acquired assets of DIC Animation City, Inc., a successful producer and distributor of animated and live action children's programming. Currently, DIC produces series for the ABC Television Network, CBS, Fox, various cable channels and syndication. ABC Distribution sells the ABC Television Network's owned programming internationally and, because of changes in the financial interest rules, domestically to all purchasers except television stations. It had a particularly good year in 1993 syndicating ABC News product in Europe. The Company continued to invest in international broadcasting joint ventures in 1993, acquiring equity interests in several new ventures: . RTL 2 - a new German television general entertainment network. The Company directly, and through its German joint venture, Tele-Munchen, owns 20 percent of RTL 2, which has now achieved over 50 percent penetration of its market in its first year of operation. . Scandinavian Broadcasting System SA - a broadcasting company with television networks in Norway, Sweden and Denmark. Capital Cities/ABC now owns approximately 24 percent. . Eurosport - the pan-European sports network. In 1993, The European Sports Network, which had been 50 percent-owned by ESPN, was merged with its competitor, Eurosport. ESPN owns 33 percent of the combined service, which reaches almost 50,000,000 households. The group's other international interests performed better on an aggregate basis in 1993, narrowing their operating losses. The near-term operating outlook for all of our joint ventures should benefit from further privatization of the broadcasting industry throughout Europe, improvement in cable and satellite distribution, and a healthier business climate. Results for ESPN, DIC and ABC Distribution are consolidated in the broadcasting business segment. Results of A&E, Lifetime and the group's international joint ventures are accounted for on the equity 14 - -------------------------------------------------------------------------------- basis (the proportionate share of income or loss is recorded as other income or expense). As a consequence, the results of these activities are not reflected in the operating results of the broadcasting segment. Multimedia Group The Multimedia Group was established in 1993 with the broad mandate of properly positioning the Company with respect to emerging new media and technologies. The group's financial results for 1993 -- and perhaps for the next few years-- reflect the uncertain and emergent nature of the various markets in which it will operate. With the exception of Capital Cities/ABC Video Publishing's home video activities, the group's businesses may not be profitable in the near future. In the longer term, the group's primary mission is to ensure that the core businesses of the ABC Television Network and the Company's television stations are protected in the new environment that may be created by the development of mega-channel cable systems and video-on-demand fiber optic services offered by both cable and telephone companies. The Company believes that, in many respects, the near-term potential of compressed digital television (which is the basis among other things for national video-on-demand information and entertainment "superhighways") may prove to be overstated. Changes in the television system in the United States are likely to be evolutionary, not revolutionary, and will reflect the tastes and needs of the audience rather than the hopes of regulators or the investments of service providers. Nonetheless, the emerging video-by-wire services and other technologies can be expected significantly to increase viewing choices and are thus both a threat to and an opportunity for the Company's core businesses. In the shorter term, therefore, the Company believes that it can both protect itself and create new, significant business opportunities by playing a meaningful role as a content provider for the full range of developing technologies. To that end, the Company expects to utilize its archives, libraries, production expertise and knowledge of the video marketplace to create new video and data-based products. Of the distribution possibilities available, the market which is most fully developed is home video. Since its inception in early 1993, Capital Cities/ABC Video Publishing has distributed through retail or special markets approximately 850,000 units, including titles that were based on successful ABC Television Network programs (such as Daytime's Greatest Weddings series) and titles that were acquired or originally produced which did not grow out of ABC resources. 1994 should see a significant increase in the number of units distributed. Titles will include several direct-to-video motion pictures, exercise and special interest cassettes (such as Bad Golf Made Easier, an original title starring actor Leslie Nielsen that was released at the end of 1993 and has made several best-seller lists). Titles will also be based on the programming of ABC News, ABC Sports, ABC/Kane Productions, ABC Daytime, ABC Productions and ESPN. The Multimedia Group's other activities will focus on a number of other markets where the Company's strengths in the ownership and production of informational and entertainment products (both print and video) are likely to provide it with significant opportunities. The activities will include: . Experimentation with on-line, cable and telephone company exhibition of video and text-based materials, including the time-shifting of ABC Television Network programs and the creation of news-on-demand and other interactive products designed for those distribution channels; . Creation of interactive video entertainment and information for the disc, cartridge and 15 Capital Cities/ABC - -------------------------------------------------------------------------------- "on-line" computer markets. These markets offer significant prospects for expansion, as technology improves and as equipment and software aimed at broad demographic groups can be developed; . Exploration of "location-based" entertainment facilities, located in tourist centers, shopping malls and elsewhere, that have many of the qualities of motion picture theaters, themed amusement parks and arcades. In each of these markets, the Company will seek to participate as a provider of content, and it may well create joint ventures with partners who offer significant expertise and experience in the development of the hardware, software and other technologies that are critical to these businesses. 16 - -------------------------------------------------------------------------------- Publishing Revenues for the Company's Publishing Group declined 6 percent in 1993 primarily due to the absence of Word, Inc. which was divested late in 1992. Operating income declined 8 percent principally because of a substantial increase in development expenses associated with new product launches. Publishing's 1993 and 1992 results are summarized below:
(Dollars in millions) 1993 1992 -------- -------- Net revenues $1,010.4 $1,078.6 -------- -------- Operating costs 851.8 908.8 Depreciation 18.4 18.1 Amortization 14.6 15.3 -------- -------- Total costs 884.8 942.2 -------- -------- Operating income $ 125.6 $ 136.4 ======== ========
On a more comparable basis, excluding the effect of 1992 and 1993 acquisitions, dispositions and development activities, 1993 revenues and expenses increased 3 percent and 4 percent respectively, and operating income was 1 percent lower. The newspaper and shopping guide operations posted their seventh consecutive year of increased profits. Improved results among the majority of the Company's specialized publications were unable to offset weakness in certain other areas, especially in the medical publications which are dependent on declining pharmaceutical advertising. The increase in development expenses was largely [GRAPHIC APPEARS HERE] attributable to the launching of Selling magazine, an accelerated conversion to CD-ROM technology for Chilton's professional automotive books, and the introduction in Wichita, Kansas, of the Company's first yellow pages directory. Newspapers and Shopping Guides Newspaper and shopping guide revenues were up 4 percent in 1993, and expenses increased 5 percent, resulting in a small increase in operating income. Excluding the start-up expenses of the yellow pages directory in Wichita, operating income increased 2 percent over 1992 levels. Newsprint prices rose an average of 5 percent for the full year. This was a smaller than anticipated increase and reflected heavy discounting in the second half of 1993. Many of the Company's newspapers are involved in a variety of new initiatives, including audiotext, videotext, alternate delivery, cable guides, real estate publications and total market coverage supplements. The Kansas City Star posted record revenues and substantial circulation gains in 1993. The Star ranked 11th among major U.S. newspapers in average daily circulation growth for the six months ending September 30, 1993, according to the Audit Bureau of Circulation. Operating income decreased slightly from record levels in 1992. [GRAPHIC APPEARS HERE] 17 Capital Cities/ABC - -------------------------------------------------------------------------------- The Star launched community newspapers in two suburban areas. The news and advertising content of both newspapers, which are home-delivered with The Star, is completely community-based. Largely as a result of the intense local focus, The Star enjoyed substantial circulation increases in both areas and attracted a wide range of new advertisers. The newspaper initiated a data base marketing program targeting advertisers who utilize direct mail. The program offers a turn-key direct marketing service to advertisers that coordinates newspaper and direct mail advertising. Revenues from the program, which has generated additional run of press and insert business for the newspaper, covered development costs. The Star's interactive telephone information system, Startouch, experienced explosive growth in 1993, receiving approximately 15,000 calls a day. Call count for the year increased by approximately 70 percent. The newspaper's alternate delivery program also expanded dramatically and now serves 265,000 households. Revenues and expenses at the Fort Worth Star-Telegram increased slightly over 1992. Operating income was down slightly because of the cost effect of a second daily edition targeted at northeastern Tarrant County and a reduction in the weekday single copy price from $0.50 to $0.25 in the newspaper's home market for competitive reasons. The newspaper now publishes three geographic editions daily: one in northeast Tarrant County, one in Arlington and the third covering Fort Worth and the balance of the circulation area. Front page and local news decisions are made by three separate editorial staffs, and the number of pages in the local news sections varies among the editions depending on relative demand for zoned local advertising. Over 100 additional employees are required to execute this massive targeting effort. Reaction from readers and advertisers has been very positive. Once again the Star-Telegram was honored with awards for excellence. The newspaper won nine first-place awards in the prestigious Dallas Press Club statewide competition. The Michigan publishing group, centered around the daily Oakland Press, had record revenues and operating profit in 1993. Operating income was slightly affected by the start up of an audiotext system and a substantially expanded alternate delivery system at the daily. The semi-weekly Lapeer County Press was named "Michigan's Best" newspaper in its circulation group by judges of the Michigan Press Association. Revenues and operating income at the Belleville News-Democrat Group were at record levels in 1993. The daily newspaper, which achieved record results in 1993, was also recognized widely for continuing journalistic excellence. The weekly group, which had a satisfactory year, was augmented by the purchase of the Waterloo, Illinois, Republic-Times. Legal Communications Corporation, publishers of legal newspapers in St. Louis and its environs, experienced a downturn in legal advertising. In Wilkes-Barre, the last city in Pennsylvania with separately-owned competing daily newspapers, operating income grew 35 percent at The Times Leader on a revenue gain of 16 percent. In the second half of 1993, the newspaper ran 62 percent of all in-paper advertising in the market and 90 percent of all pre- printed advertising inserts. Circulation of the Sunday edition grew 27 percent to 79,000 copies after the closure in May of a competing Sunday newspaper. Substantial additions to staff and capital equipment during 1993 have positioned the newspaper for continued profit growth in 1994 and beyond. The New England Newspaper Group, which distributes almost 700,000 copies weekly in Connecticut, Massachusetts and Rhode Island, had essentially flat results with the previous year. Savings from several title closures and expense reductions were 18 - -------------------------------------------------------------------------------- partially offset by increases in the number of advertising sales personnel. A slight profit decline at the Oregon newspapers was more than offset by another record year for the Nickel Publications. These advertising-only tabloids posted an overall increase in 1993 operating income of 12 percent, following a 22 percent increase in 1992. Over 650,000 "Nickels" are distributed weekly through racks in supermarkets, convenience stores and other locations in Seattle-Tacoma, Spokane, Portland and Las Vegas. Glenn Cushman, who headed the Company's Northwest Publishing operations since the 1980 purchase of the Oregon Newspaper Group, retired in March. He was succeeded by Richard Anderson, formerly the group's General Manager. The PennySavers, headquartered in Vista, California, had record operating income and profit margin in 1993. The soft California economy kept advertising revenues basically flat. However, sales increases in northern California, combined with production efficiencies in southern California resulting from the first full year in a new 90,000 square foot facility, helped generate the record earnings. The PennySavers distributes 2,000,000 copies of its publications in California each week. Profits improved for the second consecutive year at Pennypower, which distributes 280,000 shoppers weekly in Wichita, Kansas, and Springfield, Missouri. A new yellow pages telephone directory was launched in Wichita and distributed in October to over 220,000 households. Specialized Publications The Company's specialized publishing operations consist of three units: the Diversified Publishing Group, Fairchild Publications and the Financial Services and Medical Group. Despite favorable results at many publications and excluding increased development expenses and dispositions, operating income declined 6 percent. The Diversified Publishing Group reported increased revenues and operating income for 1993. The group essentially completed a repositioning and marked the year with the strategic acquisition of Grupo Editorial Expansion, S.A., the leading business publisher in Mexico. Chilton Publications reorganized its magazines into five publishing groups to better serve its readers and advertisers. The new groups are Communications, Materials, Manufacturing, Retail, and Automotive/Transport. Four of the five groups reported increased revenues and operating income. Expansion, acquired in 1993, publishes the biweekly business magazine Expansion, a monthly construction magazine and various bulletins and newsletters dealing with Mexican business and legal issues. This acquisition also gives Chilton Publications a platform to expand other publications in Latin America. Product Design and Development Europe, Warehousing and Commperspectives were new ventures begun in 1993, with four new publications planned for 1994. Chilton Enterprises' research arm reorganized into four industry specialty groups: Healthcare, Consumer Products, Business and Industrial Services, and TEC (Telecommunications/ Entertainment/Computers). The automotive book division is completing the development of a CD-ROM version of its popular Chilton repair manuals and is currently demonstrating a promotional version in the marketplace. The Agricultural Publishing Group showed increased revenues and operating income in many of its publications as well as in its insurance and farm shows. The year featured a successful launch of the annual outdoor Farmer Stockman show near Lubbock, Texas. An increase in agriculture data base clients and an investment in classified telemarketing also contributed to revenue growth. 19 Capital Cities/ABC - -------------------------------------------------------------------------------- Despite a continuing soft local economy, Los Angeles magazine moved forward aggressively by introducing a cover-to-cover graphic makeover in September. Enthusiastic response to the new look contributed to a year-to-year increase of 16 percent in national advertising during the fourth quarter. The magazine also launched its first annual Environmental Pride Awards, a charitable event honoring outstanding achievements by local businesses and individuals. National Insurance Law Service (NILS) surpassed all revenue and operating income expectations and delivered another record year. In 1993, NILS introduced a network version of its popular CD-ROM INSource service and formed a partnership to publish English translations of foreign laws. Operating income at Fairchild Publications declined in 1993 due to continuing revenue softness in several key markets and expenses associated with the successful conversion of W to a sophisticated tabloid format. In addition to the format change, W reduced its frequency from 26 issues a year to 12. The reaction to the new W has been extremely positive, and newsstand sales have significantly increased. A modification of the new W product will be introduced in Europe this year, supplanting W Fashion Europe, which will result in substantial savings. Salon News, with a controlled circulation of 80,000, is expected to become profitable in its first full year of publication. Operating income at the Financial Services and Medical Group declined by more than one-third. Significant gains at Institutional Investor, Inc. were more than offset by a substantial decline in operating income at the International Medical News Group. Institutional Investor magazine received more awards for journalistic excellence than ever before. It launched two newsletters focusing upon defined contribution retirement plans and emerging markets. The Journal of Derivatives was created, and The Journal of Real Estate Finance was acquired. In late 1993, Bankstat, a unit of Bankers Trust Company, was purchased. Bankstat provides credit information on banks to financial institutions worldwide on CD-ROM. The first issue of Selling, a new magazine for professional salespeople, was published in July. Early indications from readers and advertisers have been positive. As a consequence of the increasing pressure on the pharmaceutical industry to reduce prices to HMOs and other wholesale purchasers, pharmaceutical companies substantially reduced spending on advertising and marketing. While the International Medical News Group publications gained share in a declining market, revenues fell by more than 20 percent. Capital Cities Capital Early in 1993, Capital Cities Capital was established, and George M. Cain was named President. This unit, which reports to the President of the Publishing Group, seeks to exchange advertising time and space in any Company media property for equity interests in emerging growth companies. The acquisition of equity interests is made at market rates for the advertising provided. The goals of Capital Cities Capital are to help companies to grow and prosper through the intelligent use of advertising, to cultivate new customers for the Company's media properties and to earn a "venture capital" type of return. Two transactions have been completed so far involving interests in Yes! Entertainment, a toy company, and Alpha Software, a software company. Several more investments are in the "letter of intent" stage. A number of additional transactions are under review, and the overall market response to the Capital Cities Capital concept has been quite favorable. 20 Capital Cities/ABC - -------------------------------------------------------------------------------- Financial Overview Management's Discussion and Analysis of Results of Operations and Financial Condition 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 at the Company's television stations for programming and news 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. Miscellaneous income decreased $26,822,000 [GRAPHIC APPEARS HERE] 21 Capital Cities/ABC - -------------------------------------------------------------------------------- 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 ($0.73 per share) to reflect the requirements of the Omnibus Budget Reconciliation Act of 1993 ("Tax Act"). 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 $28.53 in 1993, an increase of 22% from the $23.45 reported in 1992. Excluding the additional tax provision of $0.73 per share, 1993 earnings per share would have been $29.26, an increase of 25% from 1992. Average shares outstanding in 1993 were 16,380,000 compared with 16,600,000 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 $0.74 per share, was recorded relating to early debt redemptions. Results for 1992 included an after-tax noncash charge of $143,235,000, or $8.63 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." Results of Operations-- 1992 Compared to 1991 Consolidated net revenues for 1992 were $5,344,127,000, down slightly from the $5,381,989,000 reported in 1991. Many of the Company's advertiser-supported businesses continued to be affected adversely by the weak economic environment. Broadcasting net revenues for 1992 were $4,265,561,000 compared with $4,329,743,000 in 1991, a 1% decrease. Net revenues for the ABC Television Network were down slightly from 1991 principally because of the absence of revenues from the 1991 telecasts of Super Bowl XXV and four NFL postseason playoff games, as well as the continued weak marketplace, particularly in prime time. Television station revenues were up slightly, while those for the radio operations decreased moderately. Video operations reported revenue increases, primarily due to continued growth at ESPN. Publishing Group net revenues increased 3%, from $1,052,246,000 in 1991 to $1,078,566,000 in 1992, primarily because of increases at the newspaper operations. Total costs and expenses of $4,622,322,000 for 1992 were flat with the $4,620,756,000 reported in 1991. Broadcasting costs in 1992 decreased slightly from 1991. Expenses for the ABC Television Network decreased 4%, primarily as a result of the absence of rights and production costs associated with the 1991 telecasts of the Super Bowl and NFL postseason playoff games. Excluding these items, television network costs were flat with 1991. Costs at ESPN increased modestly as a result of increased programming expenses. Costs for the television stations were also up modestly because of increases for syndicated programming and news coverage. Radio operating costs were down slightly in 1992. Costs and expenses in 1992 for the Company's publishing operations increased 1% from 1991. Continued declines in newsprint pricing and overall cost containment were responsible for the slight increase. Operating income for 1992 was $721,805,000 compared with $761,233,000 in 1991, a 5% decline. Broadcasting operating income decreased 8% from 1991, with the ABC Television Network reporting a substantial decline in operating earnings. The television station and radio operations also reported small earnings declines in 1992, while ESPN showed a modest increase in 22 Capital Cities/ABC - -------------------------------------------------------------------------------- earnings. Publishing earnings increased 11% in 1992 with increases reported at both the newspaper and specialized publishing operations. Net financial expense (interest expense less interest income) for 1992 decreased $28,512,000 from 1991. Interest expense decreased $75,338,000, primarily because of a net reduction of approximately $735,000,000 of outstanding long-term debt. Interest income was $46,826,000 lower in 1992, due to substantially lower interest rates on invested cash and the use of cash for long-term debt reductions. Interest of $12,511,000 and $13,557,000 was capitalized in 1992 and 1991, respectively. Miscellaneous income increased $34,648,000 in 1992 mainly as a result of a gain on the sale of the Company's interest in a German television network. This gain was partially offset by losses provided for or incurred on the disposal of nonoperating real estate in New York City, together with the write-down of certain other nonoperating assets. The Company's effective tax rate was 43.2% in 1992 and 43.4% in 1991. Consolidated income before the cumulative effect of accounting changes in 1992 and an extraordinary charge in 1991 was $389,328,000 for 1992, compared with $374,696,000 earned in 1991. Income per share before the cumulative effect of accounting changes and the extraordinary charge was $23.45 in 1992, an increase of 5% from the $22.33 reported in 1991. Average shares outstanding in 1992 were 16,600,000 compared with 16,780,000 in 1991. The decline reflected repurchases of the Company's common stock during 1991 and 1992. During the fourth quarter and retroactive to January 1, 1992, the Company adopted two statements of Financial Accounting Standards which are required to be implemented by 1993. Financial Accounting Standard No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" requires that the Company provide for postretirement benefits, other than pensions, over the service lives of employees rather than on a cash basis as the benefits are paid. The Company recorded an after-tax, noncash charge of $54,817,000, or $3.30 per share, to recognize the accumulated obligation for eligible active and retired employees as of January 1, 1992. The adoption of Financial Accounting Standard No. 109, "Accounting for Income Taxes" which requires a change to the liability method of accounting for deferred income taxes, required the provision of a noncash charge of $88,418,000, or $5.33 per share, to account for its deferred tax liability at January 1, 1992. Except for the cumulative effect of adopting the Standards as of January 1, 1992, these accounting changes did not have a material effect on previously reported quarters of 1992. The fourth quarter of 1991 included an extraordinary charge of $31,203,000 (net of income taxes), or $1.86 per share, relating to the cost of redeeming long-term debt prior to maturity. Cash and Cash Flows Net cash provided by operating activities was $641,257,000, an increase of $233,513,000 from the $407,744,000 reported in 1992. The increase was primarily attributable to higher 1993 income before the effect of an extraordinary charge and the cumulative effect of accounting changes and a decrease in net program licenses and rights, partially offset by changes in other working capital accounts. Net cash provided by investing activities was $145,769,000, an increase of $11,119,000 from the $134,650,000 provided in 1992. The increase in cash provided by investing activities was a result of a substantial decrease in short-term investments in 1993, favorable net changes in noncurrent assets and liabilities, and lower capital spending. This was offset by increased acquisition activity in 1993 as well as the absence of sales of real estate and equity investments in the current year. 23 Capital Cities/ABC - -------------------------------------------------------------------------------- Net cash used in financing activities was $1,209,671,000, an increase of $628,160,000 from the $581,511,000 used in 1992. The increase was primarily attributable to greater repurchases of the Company's common stock in 1993. At December 31, 1993, cash and short-term cash investments were $264,283,000, a decrease of $422,645,000 from the prior year. However, after the inclusion of short-term investments, the balance at December 31, 1993 aggregated $438,106,000, a decrease of $759,667,000 from $1,197,773,000 at December 31, 1992. The Company's policy is very conservative with respect to investment of its cash. At December 31, 1993, all of the Company's cash was invested in highly liquid United States Government instruments with a weighted average life to maturity of 135 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, 1993, $173,823,000 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. Capital Expenditures and Program Commitments In 1993, capital expenditures amounted to $97,788,000, down from the $114,736,000 spent in 1992. The largest portion of the 1993 spending was in the Company's broadcasting operations where $78,500,000 was spent. Broadcasting capital expenditures included $13,400,000 for facilities improvements and $65,100,000 for broadcast equipment to support current operations. In 1993, the Publishing Group spent $3,400,000 for facilities improvements and $15,300,000 for equipment for ongoing operations. The Company anticipates that 1994 capital expenditures will approach $145,000,000, approximately $50,000,000 of which was deferred spending from 1993. Total anticipated capital spending includes $30,000,000 for facilities improvements and $115,000,000 for broadcast and publishing equipment to support ongoing operations. As the operator of the ABC Television Network, ESPN and eight television 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 $3,702,000,000 at the end of 1993. This amount is substantially payable over the next four 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 $3,572,116,000 at December 31, 1993, a [GRAPHIC APPEARS HERE] 24 - -------------------------------------------------------------------------------- decrease of $233,626,000 from the 1992 year-end total of $3,805,742,000. The decrease was attributable to repurchases of $715,010,000 of common stock, partially offset by $455,257,000 of net income and $29,365,000 from common stock issued under employee stock plans. At December 31, 1993, total interest-bearing debt was $621,960,000, a net decrease of $494,023,000 from 1992. As more fully described in Note 2 to the Consolidated Financial Statements, total interest-bearing debt at December 31, 1993 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 17 years and $21,960,000 of other long-term debt. At December 31, 1993, the weighted average interest rates of the commercial paper and of the other public instruments was 3.4% 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. The Company's debt to total capital ratio at the end of each of the last five years was as follows:
Total (Dollars in millions) Debt capital Ratio -------- ------- ----- 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% 1989................. 1,695.1 5,221.9 32%
The Company's return on average stockholders' equity improved to 12.1% in 1993 from 10.4% in 1992. Since 1988, the Board of Directors of the Company has authorized the repurchase of up to 3,000,000 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, 1994, the Company has repurchased 2,032,100 of its common stock under these authorizations for a total cost of $930,300,000, at an average cost of $458 per share. In addition to open market repurchases, on December 1, 1993, through a tender offer, the Company repurchased 1,095,000 shares of common stock at $630 per share. Intangible Assets At December 31, 1993, the Company's intangible assets, before accumulated amortization, totaled approximately $2,564,000,000, which accounted for approximately 41% 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 1993 net income by approximately $57,800,000, or $3.53 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. 25 Capital Cities/ABC - -------------------------------------------------------------------------------- Financial Summary 1983-1993
(Dollars in thousands except per share data) 1993 1992 1991 - -------------------------------------------- ---------- ---------- ---------- RESULTS FOR THE YEAR Net revenues Broadcasting............................ $4,663,215 $4,265,561 $4,329,743 Publishing.............................. 1,010,438 1,078,566 1,052,246 ---------- ---------- ---------- Total................................. 5,673,653 5,344,127 5,381,989 ---------- ---------- ---------- Operating income Broadcasting............................ $ 778,077 $ 619,317 $ 669,708 Publishing.............................. 125,647 136,389 122,905 ---------- ---------- ---------- Income from operations................ 903,724 755,706 792,613 General corporate expense............... (41,575) (33,901) (31,380) ---------- ---------- ---------- Total................................. 862,149 721,805 761,233 ---------- ---------- ---------- Income before extraordinary items and cumulative effect of accounting changes (a).............................. $ 467,379 $ 389,328 $ 374,696 Income per share before extraordinary items and cumulative effect of accounting changes (a)................... $28.53 $23.45 $22.33 Cash dividends per common share........... $ 0.20 $ 0.20 $ 0.20 Average shares (000's omitted)............ 16,380 16,600 16,780 Return on average stockholders' equity (b)............................... 12.1% 10.4% 10.7% ========== ========== ========== SELECTED CASH FLOW DATA Cash provided Operations, before changes in operating assets and liabilities................. $ 643,499 $ 502,882 $ 512,882 Proceeds from issuance of long-term debt -- -- 253,922 Proceeds from dispositions of operating companies and equity investments....... 12,500 150,168 1,228 ---------- ---------- ---------- Cash applied Acquisition of operating companies and equity investments..................... $ 133,294 $ 2,432 $ 48,733 Common stock purchased for treasury..... 715,010 118,410 83,714 Capital expenditures.................... 97,788 114,736 120,998 Payments of long-term debt.............. 504,873 486,327 599,302 Dividends............................... 3,238 3,321 3,346 ========== ========== ========== AT YEAR-END Working capital........................... $1,121,411 $1,637,763 $1,656,781 Total assets.............................. 5,792,618 6,522,159 6,695,712 Long-term debt............................ 621,960 1,115,983 1,602,259 Stockholders' equity...................... 3,572,116 3,805,742 3,654,833 Number of shares outstanding (000's omitted)................................. 15,383 16,444 16,639 Price range of common stock Closing market price.................... $619 1/2 $507 3/4 $433 1/2 High for the year....................... 643 3/4 521 503 1/2 Low for the year........................ 476 410 1/8 357 1/2 ========== ========== ==========
(a) Extraordinary items amounted to charges of $12,122,000 ($0.74 per share) in 1993 and $31,203,000 ($1.86 per share) in 1991, and gains of $265,746,000 ($16.35 per share) in 1986 and $7,585,000 ($0.58 per share) in 1984. Cumulative effect of accounting changes amounted to a charge of $143,235,000 ($8.63 per share) in 1992. (b) Income before extraordinary items and cumulative effect of accounting changes, divided by average stockholders' equity. 26 - --------------------------------------------------------------------------------
1990 1989 1988 1987 1986 1985 1984 1983 - ---------- ---------- ----------- ---------- ---------- ---------- ---------- ---------- $4,283,633 $3,899,989 $3,749,557 $3,433,749 $3,153,619 $ 378,297 $ 348,106 $ 302,785 1,101,969 1,057,405 1,023,896 1,006,597 970,755 642,583 591,616 459,510 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 5,385,602 4,957,394 4,773,453 4,440,346 4,124,374 1,020,880 939,722 762,295 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- $ 830,457 $ 836,149 $ 722,171 $ 632,910 $ 474,535 $ 150,970 $ 144,182 $ 124,696 132,371 130,444 129,720 146,717 158,999 138,512 133,179 104,034 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 962,828 966,593 851,891 779,627 633,534 289,482 277,361 228,730 (39,613) (44,081) (35,862) (33,637) (30,856) (11,981) (9,849) (8,366) - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 923,215 922,512 816,029 745,990 602,678 277,501 267,512 220,364 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- $ 477,780 $ 485,727 $ 387,076 $ 279,078 $ 181,943 $ 142,222 $ 135,193 $ 114,704 $27.71 $27.25 $22.31 $16.46 $11.20 $10.87 $10.40 $8.53 $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20 $0.20 17,240 17,825 17,350 16,950 16,250 13,080 13,000 13,455 14.3% 15.4% 14.7% 13.4% 9.7% 17.5% 19.9% 19.6% ========== ========== ========== ========== ========== ========== ========== ========== $ 672,705 $ 701,269 $ 558,633 $ 468,380 $ 268,162 $ 223,296 $ 196,600 $ 169,363 250,500 2,200 500 -- 1,350,507 493,329 18,065 202,527 5,018 7,490 19,072 -- 703,378 7,222 5,000 3,200 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- $ 61,983 $ 81,465 $ 18,143 $ 13,248 $3,162,661 $ 51,109 $ 146,843 $ 22,016 446,724 232,849 3,644 576 1,075 484 46,135 43,619 120,812 193,542 153,413 116,309 153,082 75,384 53,866 47,595 2,475 1,556 3,458 124,904 367,528 7,872 16,030 32,766 3,417 3,538 3,427 3,231 3,219 2,595 2,570 2,656 ========== ========== ========== ========== ========== ========== ========== ========== $1,919,944 $1,735,617 $1,504,954 $ 640,574 $ 416,230 $ 830,986 $ 240,985 $ 265,847 6,696,187 6,359,507 6,088,871 5,378,372 5,191,416 1,884,931 1,208,172 1,052,912 1,947,390 1,695,071 1,693,543 1,696,901 1,821,805 714,298 222,995 220,960 3,367,897 3,291,860 3,025,505 2,224,921 1,948,627 889,260 734,455 625,255 16,759 17,534 17,999 16,193 16,126 12,998 12,867 13,103 $459 1/8 $564 1/8 $362 1/4 $345 $267 1/2 $224 1/2 $164 5/8 $144 633 568 369 3/4 450 279 3/4 229 174 1/2 157 1/2 380 353 297 267 1/4 208 1/4 152 1/4 123 1/2 114 3/4 ========== ========== ========== ========== ========== ========== ========== ==========
27 Capital Cities/ABC - -------------------------------------------------------------------------------- Consolidated Statement of Income
Years ended December 31, 1993, 1992 and 1991 (Dollars in thousands except per share amounts) 1993 1992 1991 - ---------------------------------------- ---------- ---------- ---------- Net revenues............................ $5,673,653 $5,344,127 $5,381,989 ---------- ---------- ---------- Costs and expenses Direct operating expenses............. 3,557,301 3,421,054 3,463,628 Selling, general and administrative... 1,097,826 1,043,595 998,760 Depreciation.......................... 95,032 95,664 96,037 Amortization of intangible assets..... 61,345 62,009 62,331 ---------- ---------- ---------- 4,811,504 4,622,322 4,620,756 ---------- ---------- ---------- Operating income........................ 862,149 721,805 761,233 ---------- ---------- ---------- Other income (expense) Interest expense...................... (59,772) (104,009) (179,347) Interest income....................... 36,650 51,958 98,784 Miscellaneous, net.................... (10,648) 16,174 (18,474) ---------- ---------- ---------- (33,770) (35,877) (99,037) ---------- ---------- ---------- Income before income taxes.............. 828,379 685,928 662,196 ---------- ---------- ---------- Income taxes Federal............................... 300,100 245,500 233,600 State and local....................... 60,900 51,100 53,900 ---------- ---------- ---------- 361,000 296,600 287,500 ---------- ---------- ---------- Income before extraordinary charge and cumulative effect of accounting changes 467,379 389,328 374,696 Extraordinary charge, net of income taxes.................................. (12,122) -- (31,203) Cumulative effect of accounting changes, net of income taxes.................... -- (143,235) -- ---------- ---------- ---------- Net income.............................. $ 455,257 $ 246,093 $ 343,493 ========== ========== ========== Income per share before extraordinary charge and cumulative effect of accounting changes..................... $28.53 $23.45 $22.33 Extraordinary charge per share.......... (.74) -- (1.86) Cumulative effect of accounting changes per share.............................. -- (8.63) -- ---------- ---------- ---------- Net income per share.................... $27.79 $14.82 $20.47 ========== ========== ========== Average shares outstanding (000's omitted)............................... 16,380 16,600 16,780 ========== ========== ==========
See accompanying notes 28 - -------------------------------------------------------------------------------- Consolidated Statement of Cash Flows
Years ended December 31, 1993, 1992 and 1991 (Dollars in thousands) 1993 1992 1991 - ---------------------------------------- ----------- --------- --------- Cash flows from operating activities Net income............................ $ 455,257 $ 246,093 $ 343,493 Adjustments to reconcile net income to net cash Noncash and nonoperating items Depreciation...................... 95,032 95,664 96,037 Amortization of intangible assets. 61,345 62,009 62,331 Extraordinary charge, early debt redemption....................... 12,122 -- 31,203 Cumulative effect of accounting changes.......................... -- 143,235 -- Increase (decrease) in deferred liabilities ..................... 7,995 (26,458) (39,897) Other noncash and nonoperating items............................ 11,748 (17,661) 19,715 ----------- --------- --------- Cash from operations before changes in operating assets and liabilities 643,499 502,882 512,882 Decrease (increase) in program assets and liabilities, net........ 29,722 (129,064) 171,371 (Increase) in accounts receivable... (57,895) (2,842) (13,151) Increase (decrease) in accounts payable, accrued expenses and other current liabilities.......... 5,741 47,125 (83,156) Decrease (increase) in other operating assets, net.............. 20,190 (10,357) (398) ----------- --------- --------- Net cash provided by operating activities............................. 641,257 407,744 587,548 ----------- --------- --------- Cash flows from investing activities Capital expenditures.................. (97,788) (114,736) (120,998) Acquisition of operating companies and equity investments............... (133,294) (2,432) (48,733) Decrease in short-term investments.... 337,022 99,413 187,143 Proceeds from dispositions of operating companies and equity investments.......................... 12,500 150,168 1,228 Proceeds from disposition of real estate............................... -- 53,149 -- Other investing activities, net....... 27,329 (50,912) (4,171) ----------- --------- --------- Net cash provided by investing activities............................. 145,769 134,650 14,469 ----------- --------- --------- Cash flows from financing activities Common stock purchased for treasury... (715,010) (118,410) (83,714) Common stock issued under employee stock plans.......................... 29,365 26,547 30,503 Dividends............................. (3,238) (3,321) (3,346) Payments of long-term debt............ (504,873) (486,327) (599,302) Premium on early redemption of debt... (15,915) -- (37,074) Proceeds from issuance of long-term debt................................. -- -- 253,922 ----------- --------- --------- Net cash (used in) financing activities. (1,209,671) (581,511) (439,011) ----------- --------- --------- Net (decrease) increase in cash and short-term cash investments............ (422,645) (39,117) 163,006 Cash and short-term cash investments Beginning of period................... 686,928 726,045 563,039 ----------- --------- --------- End of period......................... $ 264,283 $ 686,928 $ 726,045 =========== ========= =========
See accompanying notes 29 Capital Cities/ABC - -------------------------------------------------------------------------------- Consolidated Balance Sheet
December 31, 1993 and 1992 (Dollars in thousands) - --------------------------------------------- Assets 1993 1992 - ------ ---------- ---------- Current assets Cash and short-term cash investments....... $ 264,283 $ 686,928 Short-term investments..................... 173,823 510,845 Accounts and notes receivable (net of allowance for doubtful accounts of $44,650 in 1993 and $35,114 in 1992).............. 881,955 820,115 Program licenses and rights................ 495,125 524,453 Other current assets....................... 176,966 190,294 ---------- ---------- Total current assets..................... 1,992,152 2,732,635 ---------- ---------- Property, plant and equipment, at cost Land....................................... 334,719 333,816 Buildings and improvements................. 707,902 692,772 Broadcasting and publishing equipment...... 788,528 755,308 Other, including construction-in-progress.. 238,864 226,338 ---------- ---------- 2,070,013 2,008,234 Less accumulated depreciation.............. 751,286 692,250 ---------- ---------- Property, plant and equipment, net....... 1,318,727 1,315,984 ---------- ---------- Intangible assets (net of accumulated amortization of $529,338 in 1993 and $469,602 in 1992)........................... 2,034,680 2,047,191 Program licenses and rights, noncurrent...... 190,925 187,889 Other assets................................. 256,134 238,460 ---------- ---------- $5,792,618 $6,522,159 ========== ==========
See accompanying notes 30 - --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity 1993 1992 - -------------------------------------------- ---------- ---------- Current liabilities Accounts payable.......................... $ 144,249 $ 141,045 Accrued compensation...................... 102,992 77,077 Accrued interest.......................... 9,574 22,521 Accrued expenses and other current liabilities.............................. 201,052 218,452 Program licenses and rights............... 264,935 296,506 Taxes on income........................... 142,640 135,398 Long-term debt due within one year........ 5,299 203,873 ---------- ---------- Total current liabilities............... 870,741 1,094,872 Deferred compensation....................... 109,649 93,435 Deferred income taxes....................... 240,935 249,154 Program licenses and rights, noncurrent..... 42,233 40,953 Other liabilities........................... 243,859 241,274 Long-term debt due after one year........... 616,661 912,110 ---------- ---------- Total liabilities....................... 2,124,078 2,631,798 ---------- ---------- Minority interest........................... 96,424 84,619 ---------- ---------- Stockholders' equity Preferred stock, no par value (4,000,000 shares authorized)....................... -- -- Common stock, $1 par value (80,000,000 shares authorized)....................... 18,394 18,394 Additional paid-in capital................ 1,030,634 1,031,607 Retained earnings......................... 4,092,683 3,640,664 ---------- ---------- 5,141,711 4,690,665 Less common stock in treasury, at cost (3,010,910 shares in 1993 and 1,949,733 shares in 1992)............................ 1,569,595 884,923 ---------- ---------- Total stockholders' equity............... 3,572,116 3,805,742 ---------- ---------- $5,792,618 $6,522,159 ========== ==========
31 Capital Cities/ABC - -------------------------------------------------------------------------------- Consolidated Statement of Stockholders' Equity
Years ended December 31, 1993, 1992 Additional and 1991 Common paid-in Retained Treasury (Dollars in thousands) stock capital earnings stock Total - ---------------------------------------- ------- ---------- ---------- ---------- ---------- Balance January 1, 1991................. $18,394 $ 998,570 $3,057,745 $ (706,812) $3,367,897 Net income for 1991................... -- -- 343,493 -- 343,493 67,298 shares issued under Employee Stock Purchase Plan.................. -- 17,475 -- 8,970 26,445 21,683 shares issued on exercise of employee stock options............... -- 1,150 -- 2,908 4,058 209,445 shares purchased for treasury. -- -- -- (83,714) (83,714) Cash dividends........................ -- -- (3,346) -- (3,346) ------- ---------- ---------- ---------- ---------- Balance December 31, 1991............... 18,394 1,017,195 3,397,892 (778,648) 3,654,833 Net income for 1992................... -- -- 246,093 -- 246,093 64,937 shares issued under Employee Stock Purchase Plan.................. -- 14,870 -- 9,064 23,934 13,078 shares issued on exercise of employee stock options............... -- (458) -- 3,071 2,613 272,923 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 72,585 shares issued under Employee Stock Purchase Plan.................. -- 1,023 -- 26,437 27,460 10,455 shares issued on exercise of employee stock options............... -- (1,996) -- 3,901 1,905 1,144,217 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 ======= ========== ========== ========== ==========
See accompanying notes 32 - ------------------------------------------------------------------------------- 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. 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. Short-Term Investments--Short-term investments consist of highly liquid U.S. Government instruments with original maturities in excess of three months and are carried at cost, which approximates market. Short-term investments which have a maturity of three months or less at the time of purchase are considered cash equivalents. The carrying amount of the short-term investments and cash equivalents approximates market value due to their short maturity. Other--In November 1992, the Financial Accounting Standards Board issued Statement No. 112, "Employers' Accounting for Postemployment Benefits" and in May 1993 issued Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Company will adopt both standards in 1994. The impact on the financial statements of such adoption is estimated not to be material. 33 Capital Cities/ABC - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements--(Continued) 2. Long-term Debt Long-term debt at December 31, 1993 and 1992 is as follows (000's omitted):
1993 1992 -------- ---------- 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 8 3/4% sinking fund debentures due 2016...................... -- 300,000 8 1/4% notes due 1996.......... -- 200,000 Other long-term debt........... 21,960 15,983 -------- ---------- $621,960 $1,115,983 ======== ==========
The aggregate payments of long-term debt outstanding at December 31, 1993, for the next five years, excluding commercial paper, are summarized as follows: 1994 - - $5,299,000; 1995 - $3,602,000; 1996 - $3,638,000; 1997 - $2,891,000; 1998 - $6,153,000. Interest paid on long-term debt during 1993, 1992 and 1991 amounted to $83,002,000, $139,674,000 and $203,170,000, respectively. A subsidiary of the Company has issued commercial paper, $100,000,000 of which was outstanding at December 31, 1993, at a weighted average interest rate of 3.4%. The commercial paper is supported by a $1,000,000,000 bank revolving credit agreement terminating on June 30, 1995, 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 $2,581,211,000 at December 31, 1993, increasing annually by 33 percent of the consolidated net income of the previous year. The commercial paper outstanding at December 31, 1993, 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 1994 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 $200,000,000 of 8 1/4% notes due 1996 and $300,000,000 of 8 3/4% sinking fund debentures due 2016. An extraordinary charge of $12,122,000 (net of income taxes of $7,706,000), or $0.74 per share, was recorded related to these redemptions. In 1991, the Company recorded an extraordinary charge of $31,203,000 (net of income taxes of $19,015,000), or $1.86 per share, upon the early redemption of certain other long-term debt, then outstanding. 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 $702,000,000 and $1,175,000,000 at December 31, 1993 and 1992, respectively. 34 - ------------------------------------------------------------------------------- 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% at December 31, 1993 and 9% at December 31, 1992. The rate of increase in future compensation levels and the expected long-term rate of return on assets were 5% and 8%, respectively, in 1993 and 1992. The components of net pension cost for 1993, 1992 and 1991 are as follows (000's omitted):
1993 1992 1991 -------- -------- -------- Service cost of current period $ 15,494 $ 15,077 $ 14,419 Interest cost on projected benefit obligation........... 42,499 39,548 36,512 Actual return on plan assets.. (39,731) (42,650) (72,147) Net amortization and deferral. 2,561 5,864 36,664 -------- -------- -------- Net pension cost.............. $ 20,823 $ 17,839 $ 15,448 ======== ======== ========
The following table sets forth the pension plans' funded status and amounts recognized in the balance sheet at December 31, 1993 and 1992 (000's omitted):
1993 1992 --------- --------- Actuarial present value of accumulated plan benefits (including vested benefits of $479,332 in 1993 and $377,548 in 1992).................................. $ 495,304 $ 393,132 ========= ========= Plan assets at fair value, primarily publicly traded securities and short-term cash investments......... $ 522,096 $ 510,207 Projected benefit obligation for service rendered to date............................................... (585,710) (468,641) --------- --------- Plan assets (less than) in excess of projected benefit obligation................................. (63,614) 41,566 Prior service cost not yet recognized in net periodic pension cost.............................. 39,493 29,918 Unrecognized net loss (gain) from past experience different from that assumed........................ 6,095 (66,664) Unrecognized net asset (transition amount) being recognized principally over 15 years............... (14,547) (17,428) --------- --------- (Accrued) pension cost included in balance sheet.... $ (32,573) $ (12,608) ========= =========
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 $6,045,000, $6,192,000 and $6,432,000 were charged to expense in 1993, 1992 and 1991, 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, a diversified equity fund and a fixed interest fund. The Company matches 50% of the employee's contribution, up to 5% of salary. In 1993, 1992 and 1991, the cost of this plan (net of forfeitures) was $11,204,000, $10,982,000 and $10,138,000, 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. 35 Capital Cities/ABC - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements--(Continued) 3. Employee Benefit Plans--(Continued) In 1992, the Company adopted Financial Accounting Standard No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions." In applying this statement, the Company recognized the full amount of the accumulated postretirement benefit obligation as of January 1, 1992 as a cumulative effect of an accounting change. The noncash charge to 1992 earnings was $54,817,000 (net of income taxes of $36,544,000), or $3.30 per share. The accumulated postretirement benefit obligation was determined using an assumed discount rate of 8% at December 31, 1993 and 9% at December 31, 1992. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 13%; the rate was assumed to decrease gradually to 5 1/2% by the year 2001 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, 1993 by approximately $10,370,000 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by approximately $1,120,000. The following table sets forth the plans' amounts recognized in the consolidated balance sheet at December 31, 1993 and 1992 for the Company's defined postretirement benefit plans (other than pensions) (000's omitted):
1993 1992 -------- -------- Accumulated postretirement benefit obligation: Retirees............................ $ 58,165 $ 53,854 Fully eligible active participants.. 21,430 21,644 Other active participants........... 22,126 18,710 -------- -------- Total accumulated postretirement benefit obligation................... 101,721 94,208 Unrecognized net loss................. (4,415) -- -------- -------- Accrued postretirement benefit cost... $ 97,306 $ 94,208 ======== ========
Net periodic postretirement benefit cost (other than pensions) for 1993 and 1992 consisted of the following components (000's omitted):
1993 1992 ------ ------ Service cost-benefits attributed to service during the period................ $1,232 $1,031 Interest cost on accumulated post- retirement benefit obligation............ 8,141 7,961 ------ ------ Net periodic postretirement benefit cost.. $9,373 $8,992 ====== ======
4. Commitments At December 31, 1993, the Company is committed to the purchase of broadcast rights for various feature films, sports and other programming aggregating approximately $3,702,000,000. The aggregate payments related to these commitments during the next five years are summarized as follows: 1994 -- $ 1,303,369,000; 1995 -- $ 751,210,000; 1996 -- $ 624,585,000; 1997 -- $ 549,276,000; 1998 -- $ 260,287,000. The Company anticipates 1994 capital expenditures for property, plant and equipment will approximate $145,000,000. Rental expense under operating leases amounted to $86,312,000, $92,820,000 and $93,089,000 for 1993, 1992 and 1991, respectively. Future minimum annual rental payments under non-cancelable leases are as follows (000's omitted):
Capital Operating leases leases --------- --------- 1994.................................. $ 7,684 $ 57,770 1995.................................. 7,401 45,617 1996.................................. 7,017 40,490 1997.................................. 6,107 37,203 1998.................................. 5,652 34,335 1999 and thereafter................... 126,273 120,362 --------- -------- Minimum lease payments................ 160,134 $335,777 ======== Imputed interest...................... (114,684) --------- Present value of minimum lease payments............................. $ 45,450 =========
Total minimum payments for operating leases have not been reduced for future minimum sublease rentals aggregating $8,566,000. 36 - -------------------------------------------------------------------------------- 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 data base 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):
1993 1992 1991 1990 1989 ---------- ---------- ---------- ---------- ---------- Broadcasting Net revenues............................ $4,663,215 $4,265,561 $4,329,743 $4,283,633 $3,899,989 ---------- ---------- ---------- ---------- ---------- Direct operating costs................ 3,762,988 3,523,143 3,537,676 3,331,316 2,943,321 Depreciation.......................... 75,424 76,406 75,883 75,088 74,333 Amortization of intangible assets..... 46,726 46,695 46,476 46,772 46,186 ---------- ---------- ---------- ---------- ---------- Total operating costs................... 3,885,138 3,646,244 3,660,035 3,453,176 3,063,840 ---------- ---------- ---------- ---------- ---------- Income from operations.................. $ 778,077 $ 619,317 $ 669,708 $ 830,457 $ 836,149 ========== ========== ========== ========== ========== Assets at year-end...................... $4,389,700 $4,357,152 $4,249,089 $4,250,540 $4,177,132 Capital expenditures.................... 78,526 94,255 106,254 105,475 173,078 Publishing Net revenues............................ $1,010,438 $1,078,566 $1,052,246 $1,101,969 $1,057,405 ---------- ---------- ---------- ---------- ---------- Direct operating costs................ 851,787 908,791 895,402 934,022 891,542 Depreciation.......................... 18,385 18,072 18,084 18,363 17,971 Amortization of intangible assets..... 14,619 15,314 15,855 17,213 17,448 ---------- ---------- ---------- ---------- ---------- Total operating costs................... 884,791 942,177 929,341 969,598 926,961 ---------- ---------- ---------- ---------- ---------- Income from operations.................. $ 125,647 $ 136,389 $ 122,905 $ 132,371 $ 130,444 ========== ========== ========== ========== ========== Assets at year-end...................... $ 824,369 $ 777,512 $ 886,482 $ 916,346 $ 899,499 Capital expenditures.................... 18,657 20,276 13,878 14,450 13,015 Consolidated Net revenues............................ $5,673,653 $5,344,127 $5,381,989 $5,385,602 $4,957,394 ========== ========== ========== ========== ========== Income from operations.................. $ 903,724 $ 755,706 $ 792,613 $ 962,828 $ 966,593 General corporate expense............. (41,575) (33,901) (31,380) (39,613) (44,081) ---------- ---------- ---------- ---------- ---------- Operating income........................ 862,149 721,805 761,233 923,215 922,512 Interest expense...................... (59,772) (104,009) (179,347) (168,859) (174,417) Interest and miscellaneous, net....... 26,002 68,132 80,310 83,424 103,032 ---------- ---------- ---------- ---------- ---------- Income before income taxes.............. $ 828,379 $ 685,928 $ 662,196 $ 837,780 $ 851,127 ========== ========== ========== ========== ========== Assets employed by segments............. $5,214,069 $5,134,664 $5,135,571 $5,166,886 $5,076,631 Cash investments and other corporate assets................................. 578,549 1,387,495 1,560,141 1,529,301 1,282,876 ---------- ---------- ---------- ---------- ---------- Total assets at year-end................ $5,792,618 $6,522,159 $6,695,712 $6,696,187 $6,359,507 ========== ========== ========== ========== ==========
37 Capital Cities/ABC - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements--(Continued) 6. Income Taxes The Company adopted Financial Accounting Standard No. 109 (FAS 109) effective January 1, 1992. As a result of adopting FAS 109, net deferred taxes increased by $127,198,000 of which $88,418,000 was recorded as the cumulative effect of adopting the Statement. The provision for taxes on income before the extraordinary charges for 1993 and 1991, 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):
1993 1992 1991 -------------- -------------- -------------- Amount % Amount % Amount % -------- ---- -------- ---- -------- ---- Income before income taxes........... $828,379 $685,928 $662,196 ======== ======== ======== Income tax expense at statutory federal rate........................ $289,933 35.0 $233,216 34.0 $225,147 34.0 State and local income taxes, net of federal benefit.................. 40,321 4.9 34,547 5.0 33,432 5.0 Amortization of intangibles.......... 17,950 2.2 17,541 2.6 21,020 3.2 Other, net........................... 12,796 1.5 11,296 1.6 7,901 1.2 -------- ---- -------- ---- -------- ---- Total................................ $361,000 43.6 $296,600 43.2 $287,500 43.4 ======== ==== ======== ==== ======== ====
Income tax expense is comprised of the following (000's omitted):
1993 1992 1991 -------- -------- -------- Federal Current...... $312,800 $274,900 $216,400 Deferred..... (12,700) (29,400) 17,200 -------- -------- -------- 300,100 245,500 233,600 -------- -------- -------- State and local Current...... 65,500 57,400 50,500 Deferred..... (4,600) (6,300) 3,400 -------- -------- -------- 60,900 51,100 53,900 -------- -------- -------- Total.......... $361,000 $296,600 $287,500 ======== ======== ========
Income taxes paid, net of refunds received, during 1993, 1992 and 1991 amounted to $341,587,000, $292,329,000 and $310,737,000, 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, 1993 and 1992, are as follows (000's omitted):
1993 1992 --------- --------- Current Programming........................ $ 33,140 $ 41,475 Other, net......................... 70,023 52,570 --------- --------- Net current deferred tax asset....... $ 103,163 $ 94,045 ========= ========= Noncurrent Deferred compensation.............. $ 40,665 $ 35,262 Postretirement benefits other than pensions.......................... 40,431 37,744 Basis differences on prior business combinations............. (258,511) (257,190) Accelerated depreciation........... (120,303) (111,922) Other, net......................... 56,783 46,952 --------- --------- Net noncurrent deferred tax liability $(240,935) $(249,154) ========= =========
38 - -------------------------------------------------------------------------------- 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. During 1991, the stockholders approved a plan authorizing the issuance of 500,000 shares, and at the same time canceled all previously authorized but unissued options. The following information pertains to the Company's stock option plans:
1993 1992 1991 ------------------ ------------------ ------------------ Outstanding options, beginning of year 35,746 39,124 61,107 Granted............................... 19,100 10,000 -- Canceled or expired................... (125) (300) (300) Exercised............................. (10,455) (13,078) (21,683) ------- ------- ------- Outstanding options, end of year...... 44,266 35,746 39,124 ======= ======= ======= Average price of options exercised during the year...................... $159.19 $175.71 $125.81 Exercise price of outstanding......... options, end of year................. $131.13 to $634.75 $131.13 to $492.00 $131.13 to $383.38 Options exercisable, end of year...... 17,666 24,396 36,274 Options available for future grant.... 470,900 490,000 500,000
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 72,585, 64,937 and 67,298 shares under the Plan in 1993, 1992 and 1991, respectively. As of December 31, 1993, 264,127 shares remain available to be purchased through the period ending April 1995. 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. 39 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 1993 and 1992 (000's omitted, except per share amounts). The net income per share computation for each quarter and the year are separate calculations. Accordingly, the sum of the quarterly net income per share amounts may not equal the net income per share for the year.
First Second Third Fourth quarter quarter quarter quarter Year ---------- ---------- ---------- ---------- ---------- 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............... $4.29 $ 9.21 $4.75 $10.35 $ 28.53 Extraordinary charge...................... (.74) -- -- -- (.74) ---------- ---------- ---------- ---------- ---------- Net income per share........................ $3.55 $9.21 $4.75 $10.35 $ 27.79 ========== ========== ========== ========== ========== 1992 Net revenues................................ $1,095,421 $1,391,321 $1,215,289 $1,642,096 $5,344,127 Costs and expenses........................ 997,501 1,122,592 1,098,806 1,403,423 4,622,322 ---------- ---------- ---------- ---------- ---------- Operating income............................ 97,920 268,729 116,483 238,673 721,805 Interest expense.......................... (27,146) (27,309) (26,241) (23,313) (104,009) Interest and miscellaneous, net........... 4,472 30,495 21,018 12,147 68,132 ---------- ---------- ---------- ---------- ---------- Income before income taxes.................. 75,246 271,915 111,260 227,507 685,928 Income taxes.............................. 33,500 124,400 49,100 89,600 296,600 ---------- ---------- ---------- ---------- ---------- Income before cumulative effect of accounting changes......................... 41,746 147,515 62,160 137,907 389,328 Cumulative effect of accounting changes... (143,235) -- -- -- (143,235) ---------- ---------- ---------- ---------- ---------- Net income.................................. $ (101,489) $ 147,515 $ 62,160 $ 137,907 $ 246,093 ========== ========== ========== ========== ========== Income per share Before cumulative effect of accounting changes.................................. $2.51 $8.84 $3.74 $8.38 $23.45 Cumulative effect of accounting changes................................. (8.63) -- -- -- (8.63) ---------- ---------- ---------- ---------- ---------- Net income per share........................ $(6.12) $8.84 $3.74 $8.38 $14.82 ========== ========== ========== ========== ==========
40 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements--(Continued) 10. Common Stock and Stockholder Information (Unaudited) As of February 28, 1994, the approximate number of holders of common stock was 8,610. Dividends of $.05 per share have been paid for each quarter of 1993 and 1992. 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 1993 and 1992 are as follows:
1993 1992 -------------------------- ---------------------------- High Low Close High Low Close ------- ------- -------- -------- -------- -------- 1st quarter........... 531 3/4 476 530 $475 $410 1/8 $425 2nd quarter........... 551 500 503 1/8 487 413 450 7/8 3rd quarter........... 577 489 3/4 571 467 7/8 428 1/4 453 1/4 4th quarter........... 643 3/4 567 619 1/2 521 418 3/4 507 3/4
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, 1993 and 1992, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1993. 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, 1993 and 1992, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, 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. New York, New York February 28, 1994 41 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, 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. Thomas S. Murphy Chairman of the Board and Chief Executive Officer Ronald J. Doerfler Senior Vice President and Chief Financial Officer 42 - -------------------------------------------------------------------------------- Capital Cities/ABC Corporate Thomas S. Murphy, Chairman of the Board and Chief Executive Officer John B. Fairchild, Executive Vice President; Chairman, Fairchild Publications Group Robert A. Iger, Executive Vice President; President, ABC Television Network Group 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 and General Counsel; President, Multimedia Group David Westin, Senior Vice President; President of Production, ABC Television Network Group Alan N. Braverman, Vice President and Deputy 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 Robert T. Goldman, Vice President, Administration Christine Hikawa, Vice President, Broadcast Standards and Practices Andrew E. Jackson, Vice President, Corporate Affairs Charles Keller, Vice President, Corporate Initiatives 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 Robert A. Iger, President Peter Chrisanthopoulos, Executive Vice President John J. Wolters, Senior Vice President ABC Entertainment Edward W. Harbert, President Stuart J. Bloomberg, Executive Vice President Ronald B. Sunderland, Executive 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 K. Fili-Krushel, President Mary Alice Dwyer-Dobbin, Senior Vice President William D. Herlihy, Senior Vice President ABC Early Morning and Late Night Philip R. Beuth, President ABC Children's Programming Jeanette B. Trias, President ABC Television Network Mark A. Mandala, President Marvin F. Goldsmith, President, Sales & Marketing Robert J. Cagliero, Executive Vice President Lawrence S. Fried, Executive Vice President George H. Newi, Executive 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 ABC Sports Dennis D. Swanson, President Dennis Lewin, Senior Vice President Robert H. Apter, Senior Vice President Broadcast Operations & Engineering Preston A. Davis, President Michael C. Lang, Senior Vice President Production David Westin, President ABC PRODUCTIONS Brandon Stoddard, 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) Timothy J. Bennett, President, General Manager KFSN-TV (Fresno, CA) Marc Edwards, President, General Manager NATIONAL TELEVISION SALES John B. Watkins, President Radio James P. 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) George Green, President, General Manager KLOS-FM (Los Angeles, CA) Bill Sommers, President, General Manager KGO-AM (San Francisco, CA) Michael Luckoff, President, General Manager WJR-AM (Detroit, MI) James E. Long, President, General Manager WHYT-FM (Detroit, MI) John E. Cravens, President, General Manager KQRS-AM/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 * * * * * * 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 DIC ENTERTAINMENT (Los Angeles, CA) Andrew Heyward, President ARTS & ENTERTAINMENT (New York, NY) LIFETIME (New York, NY) - -------------------------------------------------------------------------------- Capital Cities/ABC 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 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) Bruce H. McIntyre, President, Publisher BELLEVILLE NEWS-DEMOCRAT GROUP (Belleville, IL) Gary L. Berkley, President, Publisher THE TIMES LEADER GROUP (Wilkes-Barre, PA) Dale A. Duncan, President, Publisher OREGON NEWSPAPER GROUP (Albany, OR) Richard F. Anderson, President NEW ENGLAND NEWSPAPER GROUP (Canton, Guilford, Milford, North Haven and West Hartford, CT; Marshfield and Cape Cod, MA; and Kingston, RI) John E. Coots, Group Executive 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) 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) Geoff Miller, Publisher 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 John B. Fairchild Executive Vice President; Chairman, Fairchild Publications Group Robert A. Iger Executive Vice President; President, ABC Television Network Group 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 and General Counsel; President, Multimedia Group David Westin Senior Vice President; President of Production, ABC Television Network Group - -------------------------------------------------------------------------------- Board of Directors THOMAS S. MURPHY 1,4 Chairman of the Board and Chief Executive Offer ROBERT P. BAUMAN 3* Chief Executive, SmithKline Beecham, p.l.c. 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 Group 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, 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, Lawler, Kent & Friedman, 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 - ---------------------------------------- Transfer Agent and Registrar Harris Trust Company of New York 77 Water Street New York, New York 10005 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 Annual Report Exhibits (the title of each graph is self-explanatory): On Page 1 of the Annual Report, there is a bar chart entitled "Income before extraordinary items and cumulative effect of accounting changes." The plot points are as follows:
1986 1987 1988 1989 1990 1991 1992 1993 - ----- ----- ----- ----- ----- ----- ----- ----- 181.9 279.1 387.1 485.7 477.8 374.7 389.3 467.4
On Page 1 of the Annual Report, there is a bar chart entitled "Income per share before extraordinary itesm and cumulative effect of accounting changes." The plot points are as follows:
1986 1987 1988 1989 1990 1991 1992 1993 - ----- ----- ----- ----- ----- ----- ----- ----- 11.20 16.46 22.31 27.25 27.71 22.33 23.45 28.53
On Page 8 of the Annual Report, there is a bar chart entitled "Broadcasting - Net Revenues." The plot points are as follows:
1986 1987 1988 1989 1990 1991 1992 1993 - ------- ------- ------- ------- ------- ------- ------- ------- 3,153.6 3,433.7 3,749.6 3,900.0 4,283.6 4,329.7 4,265.6 4,663.2
On Page 8 of the Annual Report, there is a bar chart entitled "Broadcasting - Operating Income." The plot points are as follows:
1986 1987 1988 1989 1990 1991 1992 1993 - ----- ----- ----- ----- ----- ----- ----- ----- 474.5 632.9 722.2 836.1 830.5 669.7 619.3 778.1
On Page 17 of the Annual Report, there is a bar chart entitled "Publishing - Net Revenues." The plot points are as follows:
1986 1987 1988 1989 1990 1991 1992 1993 - ----- ------- ------- ------- ------- ------- ------- ------- 970.8 1,006.6 1,023.9 1,057.4 1,102.0 1,052.2 1,078.6 1,010.4
On Page 17 of the Annual Report, there is a bar chart entitled "Publishing - Operating Income." The plot points are as follows:
1986 1987 1988 1989 1990 1991 1992 1993 - ----- ----- ----- ----- ----- ----- ----- ----- 159.0 146.7 129.7 130.4 132.4 122.9 136.4 125.6
On Page 21 of the Annual Report, there is a bar chart entitled "Operating Income." The plot points are as follows:
1986 1987 1988 1989 1990 1991 1992 1993 - ----- ----- ----- ----- ----- ----- ----- ----- 602.7 746.0 816.0 922.5 923.2 761.2 721.8 862.1
On Page 24 of the Annual Report, there is a bar chart entitled "Capital Expenditures." The plot points are as follows:
1986 1987 1988 1989 1990 1991 1992 1993 - ----- ----- ----- ----- ----- ----- ----- ----- 153.1 116.3 153.4 193.5 120.8 121.0 114.7 97.8
EX-21 5 SUBSIDIARIES OF CAPITAL CITIES/ABC EXHIBIT (21) As of December 31, 1993 Subsidiaries of Capital Cities/ABC, Inc. ---------------------------------------- Jurisdiction of Incorporation ------------- Capital Cities/ABC, Inc. (parent) New York ABC Holding Company Inc. Delaware ABC Cable and International Broadcast, Inc. Delaware (formerly Capital Cities/ABC Video Enterprises, Inc.) ABC Cable and International Broadcast Delaware Worldwide Holdings, Inc. (formerly Capital Cities/ABC Video Enterprises Worldwide Holdings, Inc.) Capital Cities/ABC Video, Inc. Delaware Capital Cities/ABC Video Musical Delaware Investments, Inc. Capital Cities/ABC Video Productions, Inc. Delaware COBRA Productions, Inc. California DIC Post, Inc. California HAC MFP Productions, Inc. California MFP Productions, Inc. California (Stock in these 4 companies is held by DIC Productions, L.P., a Delaware limited partnership, in which Capital Cities/ABC Video Productions, Inc. is the general partner) HEMPRO, Inc. Delaware TPT, Inc. California Capital Cities/ABC Video Systems, Inc. Delaware Discriminating Distribution Delaware Enterprises, Inc. French Productions, Inc. Delaware Top Drawer Productions, Inc. Delaware (formerly Mexican Investments, Inc.) 910353 Ontario Inc. Canada Spanish Productions, Inc. Delaware ABC Consumer Magazines Holding Company, Inc. Delaware ABC Daytime Circle, Inc. Delaware ABC Network Holding Company, Inc. Delaware ABC Equipment Leasing, Inc. New York ABC Motion Pictures, Inc. Delaware ABC Records, Inc. New York ABC Circle Music, Inc. New York American Broadcasting Music, Inc. New York ABC Theatre Holdings, Inc. Delaware ABC Interstate Theatres, Inc. Delaware ABC Southeastern Theatres, Inc. Delaware Ambro Land Holdings, Inc. Delaware Ambroco Development Corp. New York Broadway Development Corp. New York Columbus West Development Corp. New York 67th Street Development Corp. New York 66th Street Development Corp. New York -2- Capital Cities/ABC, Inc. (parent) (continued) ABC Holding Company Inc. (continued) ABC Network Holding Company, Inc. (continued) Circle Location Services, Inc. Delaware Stage Five Productions, Inc. California TNC Company, Inc. Delaware ABC News Holding Company, Inc. Delaware ABC News, Inc. Delaware ABC News InterActive, Inc. Delaware ABC News Intercontinental, Inc. Delaware Worldwide Television News Corporation Delaware Transcontinental Television, Inc. Delaware Worldwide Television News France France S.A.R.L. Worldwide Television News GmbH Germany Worldwide Television News United Kingdom (U.K.) Limited Starbird Satellite Services United Kingdom Limited ABC News Overseas Sales, Inc. Delaware ABC Radio Network, Inc. Delaware ABC Radio International, Inc. Delaware ABC Radio (UK) Limited United Kingdom ABC/Watermark, Inc. Delaware ABC Sports Holding Company, Inc. Delaware ABC Sports, Inc. New York ABC Sports Intercontinental S.A.R.L. France ABC Sports Marketing, Inc. Delaware ABC Sports Video, Inc. Delaware American Broadcasting Companies, Inc. Delaware Capital Cities/ABC National Television Delaware Sales, Inc. Capital Cities/ABC Video Publishing, Inc. Delaware Chilton Holding Company, Inc. Delaware Chilton Company Delaware Automotive Information Illinois Properties, Inc. Capital Cities/ABC Diversified Germany Advertising GmbH The Center for Curriculum Delaware Development, Inc. Chilton Professional Automotive, Inc. Delaware ESPN Holding Company, Inc. Delaware ESPN, Inc. Delaware English Sports, Inc. Delaware ESPN 88 United Kingdom Transatlantic Productions, Inc. Delaware ESPN Asia, Ltd. Delaware ESPN Enterprises, Inc. Delaware European Investment Company, Inc. Delaware European Media Development Delaware Company, Inc. European Sports Program Network, Inc. Delaware O.C.C. Sports, Inc. Delaware O.P.I. Sports, Inc. Delaware -3- Capital Cities/ABC, Inc. (parent) (continued) ABC Holding Company Inc. (continued) Farm Progress Holding Company, Inc. Delaware Farm Progress Companies, Inc. Illinois Farm Progress Insurance Services, Inc. Illinois Indiana Prairie Farmer Insurance Indiana Services, Inc. New York Farm Show, Inc. New York The Miller Publishing Company, Inc. Minnesota Hitchcock Holding Company, Inc. Delaware Hitchcock Publishing Company Delaware Professional Exposition Management Delaware Company, Inc. KABC-AM Radio, Inc. Delaware KGO Television, Inc. Delaware KGO-AM Radio, Inc. Delaware KLOS-FM Radio, Inc. Delaware KLOS Syndications, Inc. Delaware L.I.C. Warehouse Realty Company, Inc. Delaware Los Angeles Magazine Holding Company, Inc. Delaware Los Angeles Magazine, Inc. Delaware NILS Holding Company, Inc. Delaware NILS Publishing Company Delaware CCB/NILS, Inc. Delaware NILS Enterprises, Inc. Delaware Premiere Cassettes Marketing, Inc. Delaware 36/38/40 West 66 Realty Company, Inc. Delaware WABC-AM Radio, Inc. Delaware WLS Television, Inc. Delaware WLS-AM Holding Company, Inc. Delaware WLS, Inc. Delaware WLS-FM Radio, Inc. Delaware WMAL Holding Company, Inc. Delaware WMAL, Inc. Delaware WPLJ-FM Radio, Inc. Delaware ABC/Kane Productions International, Inc. Delaware Capital Cities/ABC Cable Holdings, Inc. Delaware Capital Cities Capital, Inc. Delaware Capital Cities Entertainment Systems, Inc. Delaware Capital Cities Media, Inc. New York Capital Cities/ABC Publishing/Far East, Inc. Japan Fairchild Media Services, Inc. Delaware Fairchild Publications S.A.R.L. France Foothills Trader, Inc. Connecticut Guilford Publishing Company, Inc. Delaware Imprint, Inc. Delaware Mariner Newspapers, Inc. New York Newside Publications, Inc. Delaware Pennysaver of Cape Cod, Inc. Massachusetts Practical Homeowner Holding Company, Inc. New York Precision Marketing Services, Inc. Delaware Quad County Publishing, Inc. Illinois Capital Cities Vision, Inc. New York CC Finance Holding Corporation Delaware Capital Cities/ABC Finance Company, Inc. Delaware -4- Capital Cities/ABC, Inc. (parent)(continued) CC Texas Holding Co., Inc. Delaware KTRK Television, Inc. Michigan Southfield Realty Company, Inc. Michigan Weehawken Corporation Delaware CCC Properties, Inc. New York Institutional Investor, Inc. Delaware Institutional Investor (Europe) Limited United Kingdom JBS Productions Holding Company, Inc. Delaware a.k.a. Productions, Inc. Delaware The Andrew Adelson Company California AMBROCO Media Group, Inc. Delaware Canaka Productions, Inc. Delaware Class of '96 Productions, Inc. Delaware Empty Chair Productions, Inc. Delaware Greengrass Productions, Inc. Delaware Interglobal Productions, Inc. Delaware Fogash Films Limited Channel Islands The Kansas City Star Company (also owns the Missouri preferred stock of Capital Cities Media, Inc.) KQRS Holding Corporation Delaware KQRS, Inc. Delaware KRXY Holding Corporation Delaware KRXY Radio, Inc. Delaware Legal Com of Delaware, Inc. Delaware Legal Communications Corporation Missouri Mexican Business Publishing, Inc. Delaware Mexican Publishing Company, Inc. Delaware Promotora Vina Sala, S.A. de C.V. Mexico (Stock is held 99.998% by Mexican Business Publishing, Inc. and .002% by Mexican Publishing Company, Inc.) Sibonei, S.A. de C.V. Mexico (Stock is held 99.998% by Mexican Publishing Company, Inc. and .002% by Mexican Business Publishing, Inc.) Expansion, S.A. Mexico (Stock is held 51% by Promotora Vina Sala, S.A. de C.V. and 49% by Sibonei, S.A. de C.V.) Nordic Investments, Inc. Delaware The Oakland Press Company Michigan Pennypower of Kansas, Inc. Delaware Pennypower Shopping News, Inc. Kansas ST Partner, Inc. Delaware Star-Telegram Newspaper, Inc. Delaware Media Transport, Inc. Texas (Stock is held by Star-Telegram Operating, Ltd., a Texas limited partnership, in which ST Partner, Inc. is the limited partner and Star-Telegram Newspaper, Inc. is the managing general partner) Sutton Industries, Inc. Delaware J V Z Enterprises California PSP & D, Inc. Delaware TV Connection, Inc. Delaware WBAP-KSCS Partner, Inc. Delaware WBAP-KSCS Radio, Inc. Delaware Wilson Publishing Company Rhode Island EX-99.(A) 6 FORM 11-K EXHIBIT 99(a) SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993. or [_] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------ ------------ Commission file number 1-4278 A. Full title of the plan and the address of the plan, if different from that of the issuer named below: CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: CAPITAL CITIES/ABC, INC. 77 West 66 Street New York, New York 10023 S I G N A T U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the Plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. Capital Cities/ABC, Inc. Savings & Investment Plan Date: March 14, 1994 ____________________________________ David J. Vondrak, a member of the Employee Benefits Committee CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES DECEMBER 31, 1993 (WITH REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS THEREON) CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN Index to Financial Statements Report of Ernst & Young, Independent Auditors Statements of Financial Condition as of December 31, 1993 and 1992 Statements of Income and Changes in Plan Equity for the years ended December 31, 1993, 1992 and 1991 Notes to Financial Statements Supplemental Schedules: Schedule - ----------------------- -------- Investments at December 31, 1993 ..................................1 Combining Statements of Financial Condition as of December 31, 1993 and 1992 ........................................2 Combining Statements of Income and Changes in Plan Equity for the years ended December 31, 1993, 1992 and 1991 ..............................................................3 Single Transactions in Excess of 5% of the Current Value of Plan Assets ..............................................4 Exhibit: - -------- Consent of Ernst & Young REPORT OF ERNST & YOUNG INDEPENDENT AUDITORS The Board of Directors Capital Cities/ABC, Inc. We have audited the accompanying statements of financial condition of the Capital Cities/ABC, Inc. Savings & Investment Plan (the Plan) as of December 31, 1993 and 1992, and the related statements of income and changes in plan equity for each of the three years in the period ended December 31, 1993. Our audits also included the financial statement schedules listed in the accompanying index to financial statements. These financial statements and schedules are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial condition of the Plan at December 31, 1993 and 1992, and the results of its operations and changes in its plan equity for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. ERNST & YOUNG New York, New York March 14, 1994 CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN STATEMENTS OF FINANCIAL CONDITION DECEMBER 31, 1993 AND 1992
ASSETS 1993 1992 - ------ ------------ ------------ Investments, at market (notes 1 and 3): Equity Securities: Capital Cities/ABC, Inc. common stock (cost of $128,861,397 and $126,479,181 in 1993 and 1992, respectively) $279,231,572 $231,617,271 Other (cost of $37,050,924 and $31,250,396 in 1993 and 1992, respectively) 42,377,131 36,522,393 ------------ ------------ Total equity securities 321,608,703 268,139,664 ------------ ------------ Other investments: Bankers Trust Pyramid Directed Account Cash Fund 3,797,926 2,269,018 Funds on deposit with insurance companies 113,629,385 97,525,355 ------------ ------------ Total other investments 117,427,311 99,794,373 ------------ ------------ Total investments 439,036,014 367,934,037 ------------ ------------ Participant loans (note 2) 9,093,543 8,354,906 Receivables from sales of investments - 152,162 Interest and dividends receivable 305,971 739,207 Due from Capital Cities/ABC, Inc. 2,260,057 2,794,763 ------------ ------------ Total assets $450,695,585 $379,975,075 ============ ============ LIABILITIES AND PLAN EQUITY Due to terminated and withdrawing participants $ 4,983,927 $ 5,652,052 Payables for purchases of investments 458,865 - Plan equity 445,252,793 374,323,023 ------------ ------------ Total liabilities and plan equity $450,695,585 $379,975,075 ============ ============
See accompanying notes to financial statements. CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN STATEMENTS OF INCOME AND CHANGES IN PLAN EQUITY YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991 ------------ ------------ ------------- Investment income: Dividends $ 878,479 $ 841,884 $ 774,819 Interest 7,804,018 7,366,769 7,530,128 ------------ ------------ ------------ Total investment income 8,682,497 8,208,653 8,304,947 ------------ ------------ ------------ Appreciation of Capital Cities/ABC, Inc. common stock distributed to terminated and withdrawing participants (note l) 5,331,485 1,858,251 2,471,355 Net gain on sales of investments 9,486,275 l,470,457 2,377,834 Net increase (decrease) in unrealized appreciation of plan assets held at year end (note l) 45,286,295 33,943,579 (10,946,233) ------------ ------------ ------------ 68,786,552 45,480,940 2,207,903 ------------ ------------ ------------ Contributions: Participants (note 2) 25,143,822 27,327,695 27,781,216 Employer (notes l and 2) 11,198,503 13,220,562 9,674,343 ------------ ------------ ------------ Total contributions 36,342,325 40,548 257 37,455,559 ------------ ------------ ------------ Interest on participant loans (note 2) 565,127 550,590 482,260 Cash transferred from other plan (note 2) - 3,877,175 - ------------ ------------ ------------ Total 105,694,004 90,456,962 40,145,722 ------------ ------------ ------------ Distributions to terminated and withdrawing participants (note l): Capital Cities/ABC, Inc. common stock, at market value 11,176,531 3,220,570 6,160,715 Cash 23,355,061 22,905,738 19,039,010 ------------ ------------ ------------ Total distributions 34,531,592 26,126,308 25,199,725 ------------ ------------ ------------ Administrative expenses (note 4) 232,642 176,607 139,379 ------------ ------------ ------------ Change in plan equity 70,929,770 64,154,047 14,806,618 ------------ ------------ ------------ Plan equity: Beginning of year 374,323,023 310,168,976 295,362,358 ------------ ------------ ------------ End of year $445,252,793 $374,323,023 $310,168,976 ============ ============ ============
See accompanying notes to financial statements. CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 (1) Summary of Significant Accounting Policies ------------------------------------------ (a) The accompanying financial statements present plan equity and changes therein of the Capital Cities/ABC, Inc. Savings & Investment Plan (the Plan) on an accrual basis. The Plan consists of three funds: Fund A - Capital Cities/ABC, Inc. Common Stock Fund Fund B - Diversified Equity Fund Fund C - Fixed Interest Fund (b) The investment in common stock of Capital Cities/ABC, Inc. (Capital Cities/ABC) is stated at market value which is based on the year-end stock quotation from the New York Stock Exchange. Investments of the Diversified Equity Fund consist of equity securities and convertible debentures of companies other than Capital Cities/ABC. The market value of the equity investments is also based on year-end stock quotations from the New York Stock Exchange. Investments of the Fixed Interest Fund consist of funds on deposit with insurance companies under contracts which provide a guaranteed annual rate of interest. The Fixed Interest Fund is valued at the contracts' carrying amounts. Cash may be temporarily invested in obligations of the U.S. Government or other short-term investments. Realized gains and losses on sales of securities are accounted for on a weighted average cost basis. Purchases and sales are recorded on a trade date basis. Dividend income is accrued on the ex-dividend date. Interest income is recorded on an accrual basis as earned. Unrealized appreciation at the beginning and end of each year and the net increase (decrease) for each year included in the accompanying statements of income and changes in plan equity are as follows:
1993 1992 1991 ------------ ------------ ------------- Balance at beginning of year $110,410,087 $ 76,466,508 $ 87,412,741 Balance at end of year 155,696,382 110,410,087 76,466,508 ------------ ------------ ------------ Net increase/(decrease) $ 45,286,295 $ 33,943,579 $(10,946,233) ============ ============ ============
CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 (1) Summary of Significant Accounting Policies (Continued) ------------------------------------------ (c) Distributions to terminated and withdrawing participants are based upon the market value of units and/or shares credited to participants' accounts as of the effective date of termination or withdrawal. The difference between the market value on the effective date of distribution and the cost of shares distributed is shown separately in the accompanying combined statements of income and changes in plan equity. (d) Employer contributions are reported net of forfeitures of $254,154, $174,247 and $137,869 for 1993, 1992 and 1991, respectively. (2) Description of Plan ------------------- The Plan is an employee savings and investment plan for participating employees of American Broadcasting Companies, Inc. (ABC) (an indirect wholly owned subsidiary of Capital Cities/ABC) and those other subsidiaries and divisions of Capital Cities/ABC which were previously a part of, or affiliates of ABC. Individuals who became employees of the corporate and other broadcasting properties of Capital Cities/ABC subsequent to 1988 are eligible to participate in the Plan. In addition, approximately 5,000 employees of certain properties within Capital Cities/ABC's Publishing Group are eligible to participate in the Plan. The cash transfer of $3,877,175 in 1992 represents the merger of the International Medical News Group Profit Sharing Plan into the Plan. Under the Plan, eligible employees may authorize payroll deductions of either 2, 3, 4 or 5% of their annual compensation to be invested in one or more of three funds. Such contributions may be in the form of regular after-tax contributions (taxable), or tax deferred contributions. Capital Cities/ABC will contribute an amount equal to 50% of such deductions, to be invested in the Capital Cities/ ABC, Inc. Common Stock Fund (Fund A). Participants can also contribute an additional unmatched 2, 3, 4 or 5% of annual compensation, which may be designated as either taxable or tax deferred contributions for any year. Combined employee and employer-matched contributions are limited to $30,000 for all defined contribution plans. In 1993 and 1992, the IRS-imposed limitation on tax deferred contributions made by employees was $8,994 and $8,728, respectively. Participants are immediately vested with respect to their own contributions. Participants with less than 5 years of service vest with respect to employer contributions over a three-year period, one-third each year. Upon completion of 5 years of service, death, permanent disability, retirement or termination of service after age 65, a participant's account is considered fully vested. The Plan permits the Employee Benefits Committee to postpone distributions of a member's account in instances where a member's termination of services arises out of a change in ownership of stock or all or part of the assets of a member's employing unit and such member is reemployed by the acquiring entity if such termination is not deemed a "separation from service" within the meaning of the applicable income tax rulings or regulations. In such instances the Employee Benefits Committee may postpone the distribution until such distribution may be accomplished without adverse income tax consequences to the member or to the Plan or may allow a transfer to another qualified plan or allow a permissible tax-free rollover. (Continued) 2 CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 (2) Description of Plan (Continued) ------------------- Under the Plan, members are allowed to obtain loans equal to the lesser of the amount of such member's account attributable to taxable and tax deferred contributions or the maximum amount allowable under Federal tax regulations with $1,000 being the minimum. The loans bear interest at a rate determined by the Employee Benefits Committee. The value of a participant's account is determined based upon share value for Fund A and unit values for Funds B and C. Upon permanent disability or retirement, the amount credited to a participant's account is distributed to him or his beneficiary, either in a lump sum or in installments over a period not exceeding ten years. Upon termination of employment for reasons other than permanent disability or retirement, the amount credited to the participant's account is distributed in a lump sum. While employed, a participant may, in 10% increments or a lump sum, withdraw from the Plan the amount credited to his account which is attributable to his taxable contributions. Upon a withdrawn participant's termination, the vested amount credited to his account attributable to employer contributions is distributed to him. If a participant terminates prior to vesting with respect to employer contributions, forfeited funds are used to reduce the contribution of Capital Cities/ABC. Distributions of Fund A are paid either in shares of Capital Cities/ABC common stock or cash. Distributions for Funds B and C are paid in cash. As of December 31, 1993 there were 9,803 participants in Fund A, 4,792 participants in Fund B and 7,041 participants in Fund C. As of December 31, 1993 there were 6,772,307 total units in Fund B and 25,862,811 total units in Fund C with unit values of $7.20 and $4.49, respectively. (Continued) 3 CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 (3) Changes in Investment in Equity Securities ------------------------------------------ Changes in investment in equity securities, at cost, for the years ended December 31, 1993 and 1992 were as follows:
Shares Cost ---------- ------------- Capital Cities/ABC, Inc. common stock: Balance at December 31, 1991 445,845 $119,827,361 Purchases 22,163 9,864,823 Distributions to terminated and withdrawing participants (11,844) (3,213,003) --------- ------------ Balance at December 31, 1992 456,164 126,479,181 Purchases 16,216 8,428,702 Distributions to terminated and withdrawing participants (21,643) (6,046,486) --------- ------------ Balance at December 31, 1993 450,737 $128,861,397 ========= ============ Other equity securities: Balance at December 31, 1991 606,048 $ 23,076,592 Purchases 799,550 23,402,711 Sales (429,098) (15,228,907) --------- ------------ Balance at December 31, 1992 976,500 31,250,396 Purchases 1,153,827 32,586,076 Sales (890,702) (26,785,548) --------- ------------ Balance at December 31, 1993 1,239,625 $ 37,050,924 ========= ============
(Continued) 4 CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 (4) Administration of the Plan -------------------------- Under the terms of a trust agreement between Bankers Trust Company (the Trustee) and the Plan, the Trustee manages the Plan assets on behalf of the Plan. Substantially all of the Plan assets are held by the Trustee. Costs incurred specifically by the Plan are paid directly from funds of the Plan. (5) Termination of the Plan ----------------------- Although Capital Cities/ABC has not expressed any intent to terminate the Plan, it may be terminated at any time by action of its Board of Directors. In the event of termination, the amounts credited to the participants' accounts become fully vested and the Trustee is required to distribute such amounts to participants or continue the trust fund and pay benefits therefrom in accordance with the provisions of the Plan. (6) Income Tax Status ----------------- The Internal Revenue Service has advised Capital Cities/ABC on March 24, 1989 that the Plan is qualified under Section 401(a) of the Internal Revenue Code, and therefore, its related trust is exempt from Federal income taxes under the provisions of Section 501(a) of the Code. The Plan has been amended to comply with certain legislative and regulatory changes. Participants are not subject to Federal income tax on employer contributions made to their accounts under the Plan, or on the earnings in their accounts, until amounts in their accounts are withdrawn or distributed. 5 SUPPLEMENTAL SCHEDULES Schedule 1 CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN INVESTMENTS DECEMBER 31, 1993
NUMBER MARKET DESCRIPTION OF SHARES COST VALUE - ----------- --------- ----------- ----------- Equity Securities: - ----------------- Abbott Labs Com 26,000 $ 724,558 $ 770,250 Albertsons Inc Com 15,000 408,315 401,250 Amerada Hess Corp Com 13,600 726,919 613,700 American Intl Group Inc Com 7,500 417,209 658,125 Ann Taylor Stores Corp 12,500 291,500 309,375 Armstrong World Inds Inc Com 7,500 240,407 399,375 Attwoods Plc Adr 30,000 344,394 300,000 Baker Hughes Inc Com 10,500 248,139 210,000 Banc One Corp Com 13,725 514,561 536,991 Bard C R Inc Com 13,000 326,891 328,250 Capital Cities/ABC Inc Com 450,737 128,861,397 279,231,572 Capital Holdings Corp Del Com 25,000 631,930 928,125 Carter Wallace Inc Com 22,500 713,510 480,938 Chesapeake Corp 13,500 307,383 344,250 Chicago & North Westn Holdings Corp 15,000 297,798 375,000 Chubb Corp Com 7,500 482,333 584,063 Colgate Palmolive Co Com 11,000 560,594 686,125 Coltec Inds Inc 26,000 411,060 487,500 Columbia Healthcare Corp Com 14,000 390,880 463,750 Cooper Inds Inc Com 7,500 370,380 369,375 Donnelley RR & Sons Co Com 18,500 531,560 575,813 Eastman Kodak Co Com 7,500 307,950 421,875 Equitable Cos Inc Com 33,200 681,131 896,400 Fruit of the Loom Cl A 19,000 476,457 458,375 Fuller H B Co Com 7,000 264,000 252,000 General Electric Co Com 8,000 566,475 839,000 General Re Corp Com 7,000 620,318 749,000 Glaxo Holdings Plc Sponsored Adr 43,500 985,137 908,063 Hewlett Packard Co Com 12,000 783,761 948,000 Illinois Centl Corp Com Ser A 16,500 456,973 591,938 Intel Corp Com 12,000 621,638 744,000 Johnson & Johnson Com 9,600 415,899 430,800 Kimberly Clark Corp Com 9,000 417,870 466,875 Limited Inc Com 32,000 770,698 544,000 Longview Fibre Co (Washington) Com 25,500 444,101 576,938 LTV Corp New Com 18,700 270,196 301,538 Manor Care Inc Com 23,000 464,669 560,625 Mapco Inc Com 7,600 421,634 464,550 MBNA Corp Com 13,000 327,964 433,875 McDonalds Corp Com 13,000 434,788 741,000 MCI Communications Corp Com 12,800 333,720 361,600 Mead Corp Com 14,000 524,811 630,000 Millipore Corp Com 13,000 375,399 520,000 Minnesota Mng & Mfg Co Com 2,000 183,906 217,500 Nationsbank Corp Com 6,400 294,784 313,600
Schedule 1 (Continued) CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN INVESTMENTS DECEMBER 31, 1993
NUMBER MARKET DESCRIPTION OF SHARES COST VALUE - ----------- --------- ------------ ------------ Equity Securities: (Continued) - ------------------ Noble Affiliates Inc Com 16,000 427,554 424,000 NWNL Cos Inc 16,000 312,634 512,000 Omnicom Group Com 15,000 639,675 693,750 Oryx Energy Co Com 27,500 526,315 474,375 Owens Corning Fiberglass Corp Com New 16,000 647,343 710,000 Owens Ill Inc Com New 55,000 607,477 680,625 Pall Corp Com 17,800 315,570 327,075 Pfizer Inc Com 14,400 925,162 993,600 Price/Costco Inc Com 22,100 381,295 425,425 Primerica Corp Del 17,500 414,552 680,312 Procter & Gamble Co Com 10,100 487,433 575,700 Provident Life & Acc Ins Co Cl B 17,500 330,804 540,312 Safeco Corp Com 14,500 500,065 797,500 Schering Plough Corp Com 12,000 703,533 822,000 Schlumberger Ltd Com 8,000 530,197 473,000 Scott Paper Co Com 14,100 506,654 579,863 Scripp E W Co Cl A 21,000 567,265 577,500 Stratus Computer Inc Com 14,500 452,461 454,937 Tandy Corp Com 21,000 642,784 1,039,500 Texas Instrs Inc Com 6,800 407,818 431,800 Tidewater Inc Com 14,100 303,150 282,000 Topps Inc Com 14,000 112,500 98,000 Torchmark Corp Com 10,000 430,715 450,000 Toys R Us Inc Com 12,000 439,198 490,500 Union Tex Pete Hldgs Inc Com 22,500 416,038 458,438 Unocal Corp Com 27,900 747,918 777,713 V F Corp Com 14,500 680,823 668,812 Washington Mut Svgs Bk Seattle Com 30,000 623,620 723,750 Wells Fargo & Co Com 11,500 919,495 1,487,812 Weyerhaeuser Co Com 15,000 643,211 669,375 Whitman Corp Com 9,000 113,949 146,250 WMX Technologies Inc Com 27,200 909,116 717,400 --------- ------------ ------------ TOTAL EQUITY SECURITIES 1,690,362 165,912,321 321,608,703 Other Investments: - ----------------- Bankers Trust Pyramid Directed Account Cash Fund 3,797,926 3,797,926 Funds on Deposit with Insurance Companies: (at carrying value) Group Annuity Contracts with: AETNA Life Insurance 74,742,927 74,742,927 Metropolitan Life Insurance 38,886,458 38,886,458 ------------ ------------ TOTAL OTHER INVESTMENTS 117,427,311 117,427,311 ------------ ------------ TOTAL INVESTMENTS $283,339,632 $439,036,014 ============ ============
Schedule 2 CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN COMBINING STATEMENTS OF FINANCIAL CONDITION DECEMBER 31, 1993
Fund A - Capital Cities/ Fund B - Fund C - ABC, Inc. Diversified Fixed Common Stock Equity Interest ASSETS Total Funds Fund Fund Fund - ------ ------------ ------------ ----------- ------------ Investments, at market Equity Securities: Capital Cities/ABC, Inc. common stock $279,231,572 $279,231,572 $ - $ - Other 42,377,131 - 42,377,131 - ------------ ------------ ----------- ------------ Total equity securities 321,608,703 279,231,572 42,377,131 - ------------ ------------ ----------- ------------ Other investments: Bankers Trust Pyramid Directed Account Cash Fund 3,797,926 53,311 3,720,113 24,502 Funds on deposit with insurance companies 113,629,385 - - 113,629,385 ------------ ------------ ----------- ------------ Total other investments 117,427,311 53,311 3,720,113 113,653,887 ------------ ------------ ----------- ------------ Total investments 439,036,014 279,284,883 46,097,244 113,653,887 Participant loans 9,093,543 5,649,738 867,763 2,576,042 Interest and dividends receivable 305,971 26,968 74,649 204,354 Due from Capital Cities/ ABC, Inc. 2,260,057 (1,777,944) 2,382,983 1,655,018 ------------ ------------ ----------- ------------ TOTAL ASSETS $450,695,585 $283,183,645 $49,422,639 $118,089,301 ============ ============ =========== ============ LIABILITIES AND PLAN EQUITY Due to terminated and withdrawing participants $ 4,983,927 $ 2,791,315 $ 203,788 $ 1,988,824 Payables for purchases of investments 458,865 - 458,865 - Plan equity 445,252,793 280,392,330 48,759,986 116,100,477 ------------ ------------ ----------- ------------ TOTAL LIABILITIES AND PLAN EQUITY $450,695,585 $283,183,645 $49,422,639 $118,089,301 ============ ============ =========== ============
Schedule 2 CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN COMBINING STATEMENT OF FINANCIAL CONDITION DECEMBER 31, 1992
Fund A - Capital Cities/ Fund B - Fund C - ABC, Inc. Diversified Fixed Common Stock Equity Interest ASSETS Total Funds Fund Fund Fund - ------ ------------ ------------ ----------- ------------ Investments, at market Equity Securities: Capital Cities/ABC, Inc. common stock $231,617,271 $231,617,271 $ - $ - Other 36,522,393 - 36,522,393 - ------------ ------------ ----------- ------------ Total equity securities 268,139,664 231,617,271 36,522,393 - ------------ ------------ ----------- ------------ Other investments: Bankers Trust Pyramid Directed Account Cash Fund 2,269,018 1,024,288 1,244,730 - Funds on deposit with insurance companies 97,525,355 - - 97,525,355 ------------ ------------ ----------- ------------ Total other investments 99,794,373 1,024,288 1,244,730 97,525,355 ------------ ------------ ----------- ------------ Total investments 367,934,037 232,641,559 37,767,123 97,525,355 Participant loans 8,354,906 5,175,427 793,900 2,385,579 Receivables from sales of investments 152,162 - 152,162 - Interest and dividends receivable 739,207 24,288 75,557 639,362 Due from Capital Cities/ ABC, Inc. 2,794,763 720,646 1,262,095 812,022 ------------ ------------ ----------- ------------ TOTAL ASSETS $379,975,075 $238,561,920 $40,050,837 $101,362,318 ============ ============ =========== ============ LIABILITIES AND PLAN EQUITY Due to terminated and withdrawing participants $ 5,652,052 $ 3,191,343 $ 519,029 $ 1,941,680 Plan equity 374,323,023 235,370,577 39,531,808 99,420,638 ------------ ------------ ----------- ------------ TOTAL LIABILITIES AND PLAN EQUITY $379,975,075 $238,561,920 $40,050,837 $101,362,318 ============ ============ =========== ============
Schedule 3 CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN COMBINING STATEMENTS OF INCOME AND CHANGES IN PLAN EQUITY DECEMBER 31, 1993
Fund A - Capital Cities/ Fund B - Fund C - ABC, Inc. Diversified Fixed Common Stock Equity Interest Total Funds Fund Fund Fund ------------ ------------ ----------- ------------ Investment income: Dividends $ 878,479 $ 91,462 $ 787,017 $ - Interest 7,804,018 36,088 99,296 7,668,634 ------------ ------------ ----------- ------------ Total investment income 8,682,497 127,550 886,313 7,668,634 ------------ ------------ ----------- ------------ Appreciation of Capital Cities/ABC, Inc. common stock distributed to terminated and withdrawing participants 5,331,485 5,331,485 - - Net gain on sales of investments 9,486,275 - 2,988,256 6,498,019 Net increase in unrealized appreciation of plan assets held at year end 45,286,295 45,232,085 54,210 - ------------ ------------ ----------- ------------ 68,786,552 50,691,120 3,928,779 14,166,653 ------------ ------------ ----------- ------------ Contributions: Participants 25,143,822 5,716,341 7,541,631 11,885,850 Employer 11,198,503 11,198,503 - - ------------ ------------ ----------- ------------ Total contributions 36,342,325 16,914,844 7,541,631 11,885,850 ------------ ------------ ----------- ------------ Interest on participant loans 565,127 363,265 56,512 145,350 Participant transfers - (3,651,421) 1,588,091 2,063,330 ------------ ------------ ----------- ------------ Total 105,694,004 64,317,808 13,115,013 28,261,183 ------------ ------------ ----------- ------------ Distributions to terminated and withdrawing participants: Capital Cities/ABC, Inc. common stock, at market value 11,176,531 11,176,531 - - Cash 23,355,061 8,119,524 3,654,193 11,581,344 ------------ ------------ ----------- ------------ Total distributions 34,531,592 19,296,055 3,654,193 11,581,344 ------------ ------------ ----------- ------------ Administrative expenses 232,642 - 232,642 - ------------ ------------ ----------- ------------ Change in plan equity 70,929,770 45,021,753 9,228,178 16,679,839 ------------ ------------ ----------- ------------ Plan equity: Beginning of year 374,323,023 235,370,577 39,531,808 99,420,638 ------------ ------------ ----------- ------------ End of year $445,252,793 $280,392,330 $48,759,986 $116,100,477 ============ ============ =========== ============
Schedule 3 CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN COMBINING STATEMENTS OF INCOME AND CHANGES IN PLAN EQUITY DECEMBER 31, 1992
Fund A - Capital Cities/ Fund B - Fund C - ABC, Inc. Diversified Fixed Common Stock Equity Interest Total Funds Fund Fund Fund ------------ ------------ ----------- ----------- Investment income: Dividends $ 841,884 $ 90,366 $ 751,518 $ - Interest 7,366,769 33,760 25,797 7,307,212 ------------ ------------ ----------- ----------- Total investment income 8,208,653 124,126 777,315 7,307,212 ------------ ------------ ----------- ----------- Appreciation of Capital Cities/ABC, Inc. common stock distributed to terminated and withdrawing participants 1,858,251 1,858,251 - - Net gain on sales of investments 1,470,457 - 1,470,457 - Net increase in unrealized appreciation of plan assets held at year end 33,943,579 31,691,637 2,251,942 - ------------ ------------ ----------- ----------- 45,480,940 33,674,014 4,499,714 7,307,212 ------------ ------------ ----------- ----------- Contributions: Participants 27,327,695 8,038,693 6,931,665 12,357,337 Employer 13,220,562 13,220,562 - - ------------ ------------ ----------- ----------- Total contributions 40,548,257 21,259,255 6 931,665 12,357 337 ------------ ------------ ----------- ----------- Interest on participant loans 550,590 300,040 67,716 182,834 Participant transfers - (2,708,037) 1,740,186 967,851 Cash transfered from other plan 3,877,175 116,853 426,428 3,333,894 ------------ ------------ ----------- ----------- Total 90,456,962 52,642,125 13,665,709 24,149,128 ------------ ------------ ----------- ----------- Distributions to terminated and withdrawing participants: Capital Cities/ABC, Inc. common stock, at market value 3,220,570 3,220,570 - - Cash 22,905,738 10,505,985 3,091,097 9,308,656 ------------ ------------ ----------- ----------- Total distributions 26,126,308 13,726,555 3,091,097 9,308,656 ------------ ------------ ----------- ----------- Administrative expenses 176,607 - 176,607 - ------------ ------------ ----------- ----------- Change in plan equity 64,154,047 38,915,570 10,398,005 14,840,472 ------------ ------------ ----------- ----------- Plan equity: Beginning of year 310,168,976 196,455,007 29,133,803 84,580,166 ------------ ------------ ----------- ----------- End of year $374,323,023 $235,370,577 $39,531,808 $99,420,638 ============ ============ =========== ===========
Schedule 3 CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN COMBINING STATEMENTS OF INCOME AND CHANGES IN PLAN EQUITY DECEMBER 31, 1991
Fund A - Capital Cities/ Fund B - Fund C - ABC, Inc. Diversified Fixed Common Stock Equity Interest Total Funds Fund Fund Fund ------------ -------------- ----------- ----------- Investment income: Dividends $ 774,819 $ 88,809 $ 686,010 $ - Interest 7,530,128 62,345 102,326 7,365,457 ------------ ------------ ----------- ----------- Total investment income 8,304,947 151,154 788,336 7,365,457 ------------ ------------ ----------- ----------- Appreciation of Capital Cities/ABC, Inc. common stock distributed to terminated and withdrawing participants 2,471,355 2,471,355 - - Net gain on sales of investments 2,377,834 - 2,377,834 - Net (decrease) increase in unrealized appreciation of plan assets held at year end (10,946,233) (13,503,607) 2,557,374 - ------------ ------------ ----------- ----------- 2,207,903 (10,881,098) 5,723,544 7,365,457 ------------ ------------ ----------- ----------- Contributions: Participants 27,781,216 11,085,552 4,834,966 11,860,698 Employer 9,674,343 9,674,343 - - ------------ ------------ ----------- ----------- Total contributions 37,455,559 20,759,895 4,834,966 11,860,698 ------------ ------------ ----------- ----------- Interest on participant loans 482,260 433,850 11,775 36,635 Participant transfers - (1,220,137) (325,162) 1,545,299 ------------ ------------ ----------- ----------- Total 40,145,722 9,092,510 10,245,123 20,808,089 ------------ ------------ ----------- ----------- Distributions to terminated and withdrawing participants: Capital Cities/ABC, Inc. common stock, at market value 6,160,715 6,160,715 - - Cash 19,039,010 7,935,993 2,584,310 8,518,707 ------------ ------------ ----------- ----------- Total distributions 25,199,725 14,096,708 2,584,310 8,518,707 ------------ ------------ ----------- ----------- Administrative expenses 139,379 - 139,379 - ------------ ------------ ----------- ----------- Change in plan equity 14,806,618 (5,004,198) 7,521,434 12,289,382 ------------ ------------ ----------- ----------- Plan equity: Beginning of year 295,362,358 201,459,205 21,612,369 72,290,784 ------------ ------------ ----------- ----------- End of year $310,168,976 $196,455,007 $29,133,803 $84,580,166 ============ ============ =========== ===========
CAPITAL CITIES/ABC, INC. SAVINGS & INVESTMENT PLAN SINGLE TRANSACTIONS IN EXCESS OF 5% OF THE CURRENT VALUE OF PLAN ASSETS YEAR ENDED DECEMBER 31, 1993
Cost of Cost of Investment Proceeds Investment Gain/ Shares Description of Investment Purchased from Sale Disposed (Loss) - ------------ --------------------------- ---------- ----------- ----------- ------ 74,742,927 AETNA Life Group Annuity $ - $74,742,927 $74,742,927 $ - Contract (9.75%) 74,742,927 AETNA Life Group Annuity 74,742,927 - - - Contract (2.91%)
CONSENT OF ERNST & YOUNG We consent to the incorporation by reference in the Registration Statement (Form S-8 No 33-2196) pertaining to the Capital Cities/ABC, Inc. Savings & Investment Plan and in the related Prospectus of our report dated March 14, 1994, with respect to the financial statements and schedules of the Capital Cities/ABC, Inc. Savings & Investment Plan included in this Annual Report (Form 11-K) for the year ended December 31, 1993. ERNST & YOUNG New York, New York March 14, 1994 EX-99.(B) 7 UNDERTAKINGS EXHIBIT (99)(b) The Registrant hereby undertakes as follows, which undertakings shall be and hereby are incorporated by reference into Form S-8 Registration Statements No. 2-59014, No. 2-86863, No. 33-2196, No. 33-11806, No. 33-16206, No. 33-25918, No. 33-33761 and No. 33-52563. UNDERTAKINGS The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned Registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or cause to be delivered, to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. -----END PRIVACY-ENHANCED MESSAGE-----