-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NZZQX4Kq8x9vfppqM1nZYt6oWtbI49NOfYv9y7HgsTAwcZzfnmYjTfcj7EekmmBV ae6q0EptySvhcOPRnJ5OJA== 0000898430-96-000382.txt : 19960410 0000898430-96-000382.hdr.sgml : 19960410 ACCESSION NUMBER: 0000898430-96-000382 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960209 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960209 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DISNEY ENTERPRISES INC CENTRAL INDEX KEY: 0000029082 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 950684440 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04083 FILM NUMBER: 96514224 BUSINESS ADDRESS: STREET 1: 500 S BUENA VISTA ST CITY: BURBANK STATE: CA ZIP: 91521-6205 BUSINESS PHONE: 8185697903 MAIL ADDRESS: STREET 1: 500 SOUTH BUENA VISTA STREET CITY: BURBANK STATE: CA ZIP: 91521- FORMER COMPANY: FORMER CONFORMED NAME: DISNEY WALT CO DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DISNEY WALT PRODUCTIONS DATE OF NAME CHANGE: 19860221 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WALT DISNEY CO/ CENTRAL INDEX KEY: 0001001039 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954545390 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11605 FILM NUMBER: 96514225 BUSINESS ADDRESS: STREET 1: 500 SOUTH BUENA VISTA ST CITY: BURBANK STATE: CA ZIP: 91521 BUSINESS PHONE: 8185601000 MAIL ADDRESS: STREET 1: 500 SOUTH BUENA VISTA ST CITY: BURBANK STATE: CA ZIP: 91521 FORMER COMPANY: FORMER CONFORMED NAME: DC HOLDCO INC DATE OF NAME CHANGE: 19950918 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------ FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): February 9, 1996 The Walt Disney Company Disney Enterprises, Inc. (Exact name of registrant as specified in its charter) Delaware Delaware (State or jurisdiction of incorporation) 1-11605 95-4545390 1-4083 95-0684440 (Commission File Number) (IRS Employer Identification No.) 500 South Buena Vista Street, Burbank, California 91521 (Address of principal executive offices) (Zip Code) (818) 560-1000 (Registrant's Telephone Number) Item 2. Acquisition or Disposition of Assets ------------------------------------ On February 9, 1996, The Walt Disney Company (the "Company") completed its acquisition of Capital Cities/ABC, Inc. ("CC/ABC") pursuant to an Amended and Restated Agreement and Plan of Reorganization, dated as of July 31, 1995 (the "Reorganization Agreement"), between the Company and CC/ABC. The acquisition was consummated through the mergers of two wholly owned subsidiaries of a newly formed holding company ("New Disney") with and into the Company and CC/ABC, with the result that the Company and CC/ABC became wholly owned subsidiaries of New Disney (the "Mergers"). Following the Mergers, the Company was renamed Disney Enterprises, Inc. and New Disney was renamed The Walt Disney Company. Upon consummation of the Mergers, each outstanding share of common stock, par value $0.025 per share, of the Company ("Company Common Stock") was converted into one share of common stock, par value $0.01 per share, of New Disney ("New Disney Common Stock"). Each certificate representing shares of Company Common Stock, without any action on the part of the holder thereof, is now deemed to represent an equal number of shares of New Disney Common Stock. Each outstanding share of common stock, par value $0.10 per share, of CC/ABC (the "CC/ABC Common Stock") was converted into the right to receive, at the holder's election (the "Election"), (i) one share of New Disney Common Stock plus $65 in cash, (ii) subject to proration, 2.048 shares of New Disney Common Stock or (iii) subject to proration, $127 in cash. The Company anticipates that the cash to be paid to the CC/ABC shareholders pursuant to the acquisition will be funded through the use of available cash or cash equivalents and short-term investments of the Company and CC/ABC, and through new borrowings in the commercial paper market, bank borrowings, borrowings from private or public lenders or a combination of the foregoing. The Company has retained Harris Trust Company of New York to serve as the Exchange Agent in connection with the Election. A supplement to the Joint Proxy Statement/Prospectus dated November 13, 1995 distributed in connection with the special stockholder meetings held in connection with the Mergers, together with letters of transmittal, election forms and instructions thereto, will be provided to the shareholders of CC/ABC with respect to the Election. The Supplement to the Joint Proxy Statement/Prospectus is filed herewith as Exhibit 99(a) and is incorporated herein by reference. At the effective time of the Mergers, there were 154,589,545 shares of CC/ABC Common Stock outstanding. Item 7. Financial Statements and Exhibits --------------------------------- (a) Financial Statements of Business Acquired. ----------------------------------------- The financial statements of CC/ABC required by this Item 7(a) are incorporated herein by reference to the financial statements of CC/ABC set forth in the Annual Report on Form 10-K of CC/ABC for the year ended December 31, 1994 and Quarterly Report on Form 10-Q as amended by Amendment No. 1 on Form 10-Q/A of CC/ABC for the quarter ended October 1, 1995, which financial statements are included herewith as Exhibit 99(b). (b) Pro Forma Financial Information. ------------------------------- The pro forma financial information required by this Item 7(b) is incorporated herein by reference to the pro forma financial information set forth under the heading "Unaudited Pro Forma Combined Condensed Financial Statements" in the Supplement to the Joint Proxy Statement/Prospectus dated February 9, 1996 included herewith as Exhibit 99(a). (c) Exhibits. -------- 23 Consent of Ernst & Young LLP 99(a) Supplement to the Joint Proxy Statement/Prospectus dated February 9, 1996. 99(b) Financial statements of CC/ABC set forth in the Annual Report on Form 10-K of CC/ABC for the year ended December 31, 1994 and Quarterly Report on Form 10-Q as amended by Amendment No. 1 on Form 10-Q/A of CC/ABC for the quarter ended October 1, 1995. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each of the registrants has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. THE WALT DISNEY COMPANY By: /s/ David K. Thompson --------------------------- David K. Thompson Senior Vice President -- Assistant General Counsel DISNEY ENTERPRISES, INC. By: /s/ David K. Thompson --------------------------- David K. Thompson Senior Vice President -- Assistant General Counsel Date: February 9, 1996 EXHIBIT INDEX ------------- Number Subject Matter - ------ -------------- 23 Consent of Ernst & Young LLP 99(a) Supplement to the Joint Proxy Statement/Prospectus dated February 9, 1996. 99(b) Financial statements of CC/ABC set forth in the Annual Report on Form 10-K of CC/ABC for the year ended December 31, 1994 and Quarterly Report on Form 10-Q as amended by Amendment No. 1 on Form 10-Q/A of CC/ABC for the quarter ended October 1, 1995. EX-23 2 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the inclusion in Form 8-K (Current Report) of The Walt Disney Company and Disney Enterprises, Inc. dated February 9, 1996 of our report dated February 28, 1995 with respect to the consolidated financial statements of Capital Cities/ABC, Inc. included in its Annual Report and Form 10-K for the year ended December 31, 1994, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP New York, New York February 9, 1996 EX-99.(A) 3 SUPPLEMENT TO JOINT PROXY STATEMENT/PROSPECTUS EXHIBIT 99.(a) SUPPLEMENT TO THE JOINT PROXY STATEMENT DATED NOVEMBER 13, 1995 OF THE WALT DISNEY COMPANY AND CAPITAL CITIES/ABC, INC. AND TO THE PROSPECTUS DATED NOVEMBER 13, 1995 OF DC HOLDCO, INC. February 9, 1996 The following information (the "Supplement") supplements the Joint Proxy Statement/Prospectus, dated November 13, 1995, of The Walt Disney Company, a Delaware corporation ("Disney"), Capital Cities/ABC, Inc., a New York corporation ("Capital Cities") and DC Holdco, Inc., a Delaware corporation ("New Disney"). This Supplement is accompanied by a copy of the Joint Proxy Statement/Prospectus and should be read in conjunction therewith and with all documents filed by New Disney with the Commission prior to the Election Deadline. Capitalized terms used but not defined herein have the meanings set forth in the Joint Proxy Statement/Prospectus. RESULTS OF SPECIAL MEETINGS; CONSUMMATION OF THE MERGERS At the Disney Meeting, held on January 4, 1996, the stockholders of Disney approved and adopted the Disney Proposal and the Disney Option Proposal. At the Capital Cities Meeting, also held on January 4, 1996, the shareholders of Capital Cities approved and adopted the Capital Cities Proposal. On February 9, 1996, the Mergers were consummated upon the fulfillment of all conditions thereto. REGULATORY APPROVALS Antitrust. All applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, have expired. On January 3, 1996, Disney advised the Antitrust Division of the United States Department of Justice (the "Antitrust Division") of its commitment to divest (or spin off to its stockholders) television station KCAL-TV, Los Angeles, California ("KCAL- TV"), and to separately manage the operations of KCAL-TV and television station KABC-TV, Los Angeles, California ("KABC-TV") pending completion of the KCAL-TV divestiture. FCC. The FCC granted its consent to the FCC Applications on February 8, 1996 (the "FCC Approval"). In so doing, the FCC dismissed the petitions to deny filed by the SCBA and the OC Petitioners and granted most of Disney's requests for waivers of the Multiple Ownership Rules. However, the FCC denied Disney's requests for permanent waivers of the newspaper/broadcast cross-ownership rule that would have allowed New Disney to retain common ownership of radio stations WBAP(AM) (Fort Worth, Texas) and KSCS(FM) (Fort Worth, Texas) and the Fort Worth Star-Telegram in the Dallas-Fort Worth market, and radio stations WJR(AM) (Detroit, Michigan) and WHYT(FM) (Detroit, Michigan) and The Oakland Press & Reminder (Pontiac, Michigan) in the Detroit market. Instead, the FCC granted New Disney temporary 12-month waivers of the newspaper/broadcast cross-ownership rule. Accordingly, the FCC's action effectively requires that within 12 months after the consummation of the Acquisition, New Disney must divest either the newspaper or the two radio stations in each of the Dallas- Fort Worth and Detroit markets. Additionally, although Disney requested a temporary 18-month waiver of the television duopoly rule so that New Disney temporarily could own both KCAL-TV and KABC-TV in the Los Angeles market, the FCC granted a temporary six-month waiver. The FCC Rules also allow persons who have standing to petition the FCC for reconsideration of the FCC Approval. Additionally, such persons may appeal the FCC Approval to the U.S. Court of Appeals for the District of Columbia Circuit. New Disney is not aware that any such challenges have been filed or are contemplated by any persons seeking to reverse the FCC Approval, nor does it believe that any such challenges would be successful. If any challenge is filed with the FCC or the U.S. Court of Appeals, New Disney intends vigorously to oppose it. LEGISLATIVE REFORMS On February 1, 1996, the U.S. Senate and House of Representatives voted to approve the Telecommunications Act of 1996 (the "Act"). The President signed the Act on February 8, 1996. The following highlights a few of the provisions of the Act that are expected to affect most directly the operations of New Disney and its subsidiaries. Such highlights do not purport to be a complete summary of the provisions of the Act that are relevant to New Disney and its subsidiaries. License Renewals. The Act lengthens the terms of television and radio broadcast licenses from five and seven years, respectively, to eight years. It also streamlines the license renewal process by prohibiting the FCC, upon expiration of an incumbent's license, from considering competing applications for such license unless the FCC first decides that the incumbent licensee does not meet statutory requirements for renewal. Ownership. The Act eliminates the FCC's national ownership limits in the form of caps on the number of television and radio broadcast stations that may be commonly owned. Additionally, it raises the national audience coverage restriction on television station ownership from 25 percent to 35 percent of the national audience. Although the Act liberalizes certain other Multiple Ownership Rules, including restrictions on the number of radio broadcast stations that may be commonly owned in a local market (i.e., the radio duopoly rule), it does not repeal the FCC's newspaper/broadcast cross-ownership rule. Moreover, it does not repeal the FCC's television duopoly rule (generally proscribing the common ownership of television stations with overlapping signal contours). RECENT DEVELOPMENTS Richard D. Nanula became the Senior Executive Vice President and Chief Financial Officer of Disney effective February 6, 1996. Mr. Nanula replaced Stephen F. Bollenbach, who has accepted the position of President and Chief Executive Officer of Hilton Corporation. Mr. Nanula served as Chief Financial Officer of Disney from August 1991 until November 1994, when he was named President of The Disney Store Worldwide. UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS DISNEY/CAPITAL CITIES COMBINED COMPANY The following unaudited pro forma combined condensed financial statements are based upon the consolidated financial statements of Disney and Capital Cities, combined and adjusted to give effect to the Acquisition. As a result of the Capital Cities Merger, each outstanding share of Capital Cities Common Stock has been converted into the right to receive cash, shares of New Disney Common Stock or a combination of both cash and New Disney Common Stock. The exact amount of cash and/or shares of New Disney Common Stock to be received by each shareholder of Capital Cities pursuant to the Capital Cities Merger is dependent upon, among other things, (i) the stated preferences of the Capital Cities shareholders on the Election Form, (ii) the proration procedures to be applied if the Requested Stock Amount exceeds the Stock Component or the Requested Cash Amount exceeds the Cash Component, and (iii) the level of the Maximum Cash Amount, including any increase of the Maximum Cash Amount by Disney, in its sole discretion. Accordingly, two alternative scenarios of unaudited pro forma combined condensed financial statements are presented, which give 2 effect to the range of possible amounts of New Disney Common Stock and/or cash to be received by Capital Cities shareholders as a result of the Capital Cities Merger. Scenario 1 assumes that all Capital Cities shareholders receive one share of New Disney Common Stock and $65 in cash (Standard Consideration) for each outstanding share of Capital Cities Common Stock, reflecting the maximum number of shares of New Disney Common Stock which could be issued in connection with the Acquisition. Scenario 2 assumes that all Capital Cities shareholders receive solely cash (Cash Consideration) for each outstanding share of Capital Cities Common Stock, without regard to the Cash Component. See "THE REORGANIZATION AGREEMENT--Capital Cities Merger Consideration" in the Joint Proxy Statement/Prospectus and the other materials enclosed herewith. The following unaudited pro forma combined condensed statements of income for the year ended September 30, 1995 give effect to the Acquisition as if it had occurred on October 1, 1994. The unaudited pro forma combined condensed statements of income for the year ended September 30, 1995 were prepared based upon the audited consolidated statement of income of Disney for the year ended September 30, 1995 and the unaudited consolidated statements of income of Capital Cities for the nine months ended October 1, 1995 and the three months ended December 31, 1994. The following unaudited pro forma combined condensed balance sheets as of September 30, 1995 give effect to the Acquisition as if it had occurred on such date and were prepared based upon the audited consolidated balance sheet of Disney as of September 30, 1995 and the unaudited consolidated balance sheet of Capital Cities as of October 1, 1995. These unaudited pro forma combined condensed financial statements and the notes thereto should be read in conjunction with the Disney and Capital Cities audited consolidated financial statements and unaudited interim consolidated financial statements, including the notes thereto, which are incorporated by reference in the Joint Proxy Statement/Prospectus. The unaudited pro forma combined condensed financial statements are not necessarily indicative of the results of operations or financial position of the combined company that would have occurred had the Acquisition occurred at the beginning of the period presented or on the date indicated, nor are they necessarily indicative of future operating results or financial position. The unaudited pro forma adjustments are based upon information set forth in the Joint Proxy Statement/Prospectus, and certain assumptions included in the notes to the unaudited pro forma combined condensed financial statements. New Disney believes the pro forma assumptions are reasonable under the circumstances. In addition, as of the date of this Supplement, New Disney believes that the unaudited pro forma combined condensed financial statements reflect the impact on the operations and liquidity of New Disney of all material events or changes expected to result from the Acquisition. The Acquisition will be accounted for by the purchase method of accounting. Accordingly, New Disney's cost to acquire Capital Cities (the "Purchase Consideration") of $19.03 billion will be allocated to the assets acquired and liabilities assumed according to their respective fair values, with the excess Purchase Consideration being allocated to goodwill. The Purchase Consideration is based on the approximate market price of Disney's common stock ($57) when the transaction was announced. The cash and stock consideration that will be issued to Capital Cities shareholders and that is reflected in these unaudited pro forma combined condensed financial statements, is based on the actual Disney Common Stock Price of $62, representing the average of the closing sales prices of the Disney Common Stock on the New York Stock Exchange Composite Tape on each of the ten consecutive trading days immediately preceding the second trading day prior to February 9, 1996 (the "Closing Date"). The final allocation of the Purchase Consideration is dependent upon certain valuations and other studies that have not progressed to a stage where there is sufficient information to make such an allocation in the accompanying unaudited pro forma combined condensed financial statements. Accordingly, the purchase allocation adjustments made in connection with the development of the unaudited pro forma combined condensed financial statements are preliminary and have been made solely for the purpose of developing such unaudited pro forma combined condensed financial statements. 3 The $16.42 billion pro forma excess of Purchase Consideration over net tangible assets acquired as of September 30, 1995 is being amortized over 40 years at a rate of $410.5 million per year, in accordance with generally accepted accounting principles, which require that acquired intangible assets be amortized over lives not to exceed 40 years. New Disney believes that the intangible assets acquired, representing principally the franchises and trademarks of Capital Cities, represent scarce assets with indefinite lives, which have historically appreciated in value over time. In addition, the Acquisition will permit the continued expansion of current lines of business, as well as the development of new businesses, via the cross promotion of the well known franchises, trademarks and products of Disney and Capital Cities. New Disney believes it will benefit from the Acquisition for an indeterminable period of time of at least 40 years and, therefore, a 40-year amortization period is appropriate. After consummation of the Acquisition, New Disney will complete the valuations and other studies of the significant assets, liabilities and business operations of Capital Cities. Using this information, New Disney will make a final allocation of the Purchase Consideration, including allocation to tangible assets and liabilities, identifiable intangible assets and goodwill. New Disney believes that any significant allocation of excess Purchase Consideration to intangible assets other than goodwill will be amortized over periods approximating 40 years. New Disney will perform periodic reviews of the goodwill and other intangible assets arising from the Acquisition, to ensure that they are carried at recoverable amounts in light of current business conditions. The future results of operations of New Disney will reflect increased amortization of intangible assets, increased interest expense and a higher effective income tax rate, since a significant portion of the consideration to be received by Capital Cities shareholders as a result of the consummation of the Capital Cities Merger will be non-deductible for tax purposes. The future financial position of New Disney will reflect increased intangible assets as described above, increased borrowings, and under Scenario 1, increased stockholders' equity resulting from the issuance of New Disney Common Stock to shareholders of Capital Cities. See "Notes to Unaudited Pro Forma Combined Condensed Financial Statements." INDEX TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS Scenario 1: Capital Cities shareholders receive the Standard Consideration (maximum stock) .Unaudited pro forma combined condensed statement of income for the year ended September 30, 1995 .Unaudited pro forma combined condensed balance sheet as of September 30, 1995 Scenario 2: Capital Cities shareholders receive the Cash Consideration, without regard to the Cash Component (maximum cash) .Unaudited pro forma combined condensed statement of income for the year ended September 30, 1995 .Unaudited pro forma combined condensed balance sheet as of September 30, 1995 Notes to unaudited pro forma combined condensed financial statements 4 UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME YEAR ENDED SEPTEMBER 30, 1995 (SCENARIO 1: CAPITAL CITIES SHAREHOLDERS RECEIVE THE STANDARD CONSIDERATION (MAXIMUM STOCK))
HISTORICAL PRO FORMA ------------------------ ------------------------ DISNEY CAPITAL CITIES ADJUSTMENTS COMBINED --------- -------------- ----------- --------- (IN MILLIONS, EXCEPT PER SHARE DATA) Revenues................... $12,112.1 $6,796.3 $18,908.4 Costs and Expenses......... 9,233.0 5,272.8 $ (34.0)(a) 14,471.8 Depreciation............... 433.4 110.7 544.1 Amortization of Intangible Assets.................... 64.5 346.0 (b) 410.5 --------- -------- -------- --------- Operating Income........... 2,445.7 1,348.3 (312.0) 3,482.0 General and Administrative Expenses.................. 183.6 43.6 227.2 Interest Expense (Income), Net....................... 110.3 (4.2) 689.7 (c) 795.8 Other...................... 35.1 2.4 37.5 --------- -------- -------- --------- Income Before Income Taxes. 2,116.7 1,306.5 (1,001.7) 2,421.5 Income Taxes............... 736.6 572.1 (255.7)(d) 1,053.0 --------- -------- -------- --------- Net Income................. $ 1,380.1 $ 734.4 $ (746.0) $ 1,368.5 ========= ======== ======== ========= Earnings Per Share......... $ 2.60 $ 4.77 $ 2.00(e) ========= ======== ========= Average Number of Common and Common Equivalent Shares Outstanding........ 530.4 154.0 685.3(e) ========= ======== =========
See accompanying notes to unaudited pro forma combined condensed financial statements 5 UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1995 (SCENARIO 1: CAPITAL CITIES SHAREHOLDERS RECEIVE THE STANDARD CONSIDERATION (MAXIMUM STOCK))
HISTORICAL PRO FORMA ------------------------ ------------------------ DISNEY CAPITAL CITIES ADJUSTMENTS COMBINED --------- -------------- ----------- --------- (IN MILLIONS) ASSETS Cash and Cash Equivalents........... $ 1,076.5 $1,038.8 $(1,615.3)(a) $ 500.0 Investments......................... 866.3 272.4 (1,000.0)(b) 138.7 Receivables......................... 1,792.8 961.9 2,754.7 Inventories......................... 824.0 824.0 Film and Television Costs........... 2,099.4 642.8 2,742.2 Theme Parks, Resorts and Other Prop- erty, Net.......................... 6,190.3 1,297.7 7,488.0 Intangible Assets, Net.............. 2,121.4 14,298.6 (c) 16,420.0 Other Assets........................ 1,756.5 914.5 2,671.0 --------- -------- --------- --------- $14,605.8 $7,249.5 $11,683.3 $33,538.6 ========= ======== ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Accounts and Taxes Payable and Other Accrued Liabilities................ $ 3,042.7 $1,316.7 $ (405.2)(d) $ 3,954.2 Borrowings.......................... 2,984.3 607.9 7,996.2 (e) 11,588.4 Other Liabilities................... 1,928.0 589.9 2,517.9 Stockholders' Equity................ 6,650.8 4,735.0 4,092.3 (f) 15,478.1 --------- -------- --------- --------- $14,605.8 $7,249.5 $11,683.3 $33,538.6 ========= ======== ========= =========
See accompanying notes to unaudited pro forma combined condensed financial statements 6 UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME YEAR ENDED SEPTEMBER 30, 1995 (SCENARIO 2: CAPITAL CITIES SHAREHOLDERS RECEIVE THE CASH CONSIDERATION, WITHOUT REGARD TO THE CASH COMPONENT (MAXIMUM CASH))
HISTORICAL PRO FORMA ------------------------ ------------------------ DISNEY CAPITAL CITIES ADJUSTMENTS COMBINED --------- -------------- ----------- --------- (IN MILLIONS, EXCEPT PER SHARE DATA) Revenues.................. $12,112.1 $6,796.3 $18,908.4 Costs and Expenses........ 9,233.0 5,272.8 $ (34.0)(a) 14,471.8 Depreciation.............. 433.4 110.7 544.1 Amortization of Intangible Assets................... 64.5 346.0 (b) 410.5 --------- -------- --------- --------- Operating Income.......... 2,445.7 1,348.3 (312.0) 3,482.0 General and Administrative Expenses................. 183.6 43.6 227.2 Interest Expense (Income), Net...................... 110.3 (4.2) 1,314.0 (c) 1,420.1 Other..................... 35.1 2.4 37.5 --------- -------- --------- --------- Income Before Income Tax- es....................... 2,116.7 1,306.5 (1,626.0) 1,797.2 Income Taxes.............. 736.6 572.1 (499.2)(d) 809.5 --------- -------- --------- --------- Net Income................ $ 1,380.1 $ 734.4 $(1,126.8) $ 987.7 ========= ======== ========= ========= Earnings Per Share........ $ 2.60 $ 4.77 $ 1.86(e) ========= ======== ========= Average Number of Common and Common Equivalent Shares Outstanding....... 530.4 154.0 530.4(e) ========= ======== =========
See accompanying notes to unaudited pro forma combined condensed financial statements 7 UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1995 (SCENARIO 2: CAPITAL CITIES SHAREHOLDERS RECEIVE THE CASH CONSIDERATION, WITHOUT REGARD TO THE CASH COMPONENT (MAXIMUM CASH))
HISTORICAL PRO FORMA ------------------------ --------------------------- DISNEY CAPITAL CITIES ADJUSTMENTS COMBINED --------- -------------- ----------- --------- (IN MILLIONS) ASSETS Cash and Cash Equivalents........... $ 1,076.5 $1,038.8 $(1,615.3)(a) $ 500.0 Investments......................... 866.3 272.4 (1,000.0)(b) 138.7 Receivables......................... 1,792.8 961.9 2,754.7 Inventories......................... 824.0 824.0 Film and Television Costs........... 2,099.4 642.8 2,742.2 Theme Parks, Resorts and Other Prop- erty, Net.......................... 6,190.3 1,297.7 7,488.0 Intangible Assets, Net.............. 2,121.4 14,298.6 (c) 16,420.0 Other Assets........................ 1,756.5 914.5 2,671.0 --------- -------- --------- --------- $14,605.8 $7,249.5 $11,683.3 $33,538.6 ========= ======== ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Accounts and Taxes Payable and Other Accrued Liabilities................ $ 3,042.7 $1,316.7 $ (405.2)(d) $ 3,954.2 Borrowings.......................... 2,984.3 607.9 17,599.9 (e) 21,192.1 Other Liabilities................... 1,928.0 589.9 2,517.9 Stockholders' Equity................ 6,650.8 4,735.0 (5,511.4)(f)(g) 5,874.4 --------- -------- --------- --------- $14,605.8 $7,249.5 $11,683.3 $33,538.6 ========= ======== ========= =========
See accompanying notes to unaudited pro forma combined condensed financial statements 8 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) The unaudited pro forma combined condensed financial statements reflect the conversion of each outstanding share of Capital Cities Stock (154.9 million shares, representing 153.9 million shares outstanding as of October 1, 1995 plus an estimated 1.0 million shares expected to be issued through the Effective Time in connection with the Capital Cities Employee Stock Purchase Plan), based on the actual Disney Common Stock Price of $62, into cash and/or shares of New Disney Common Stock as follows:
SCENARIO 1 SCENARIO 2 MAXIMUM STOCK MAXIMUM CASH ------------- ------------ The Purchase Consideration is detailed as follows: Cash.............................................. $10,068.6 $19,672.3 New Disney Common Stock........................... 8,827.3 -- Settlement of certain benefit plans (1)........... 137.7 137.7 Stock Price Adjustment (2)........................ -- (776.4) --------- --------- Total Purchase Consideration........................ 19,033.6 19,033.6 Less: Capital Cities tangible net assets as of Octo- ber 1, 1995........................................ 2,613.6 2,613.6 --------- --------- Excess of Purchase Consideration over net tangible assets acquired.................................... $16,420.0 $16,420.0 ========= =========
- -------- (1) As a result of the Acquisition, certain Capital Cities benefit plans will become fully vested and the related benefits will become immediately payable in a single lump-sum distribution. In addition, the Acquisition results in accelerated vesting of Capital Cities Options, which for purposes of these pro forma combined condensed financial statements are assumed to be settled in cash. The amount included in the Purchase Consideration reflects total estimated payments of $542.9 million, less related amounts accrued at October 1, 1995 of $298.0 million, and less estimated income tax benefits of $107.2 million. (2) Represents the difference between the Cash Consideration and the cash that would have been paid as consideration based on the approximate value of Disney Common Stock when the transaction was announced (the "Stock Price Adjustment") under Scenario 2. Acquisition expenses, including debt issuance costs, are not expected to be material and, accordingly, have not been included in the unaudited pro forma combined condensed financial statements. Transactions between Disney and Capital Cities have not been eliminated from the unaudited pro forma combined condensed financial statements, as the amounts are immaterial in the periods presented. The impact on New Disney's financial position from the disposition of Disney's investment in KCAL-TV and from the disposition of either Capital Cities' newspaper or radio station operations in Detroit and Dallas/Fort Worth is not expected to be material and, accordingly, has not been reflected in the unaudited pro forma combined condensed financial statements. Certain reclassifications have been made to the Disney and Capital Cities historical consolidated financial statements to set forth the unaudited pro forma combined condensed financial statements of New Disney after giving effect to the Acquisition. Pro forma adjustments giving effect to the Acquisition in the unaudited pro forma combined condensed statements of income reflect the following: (a)Elimination of merger costs which are assumed to have been incurred prior to the Acquisition. (b) Amortization of the excess of Purchase Consideration over tangible net assets acquired on a straight-line basis over 40 years, net of elimination of Capital Cities' historical amortization of excess acquisition costs over the values assigned to tangible net assets acquired in prior acquisitions. 9 (c) Increase in interest expense resulting from the use of new borrowings to finance a portion of the Purchase Consideration and reduction in investment and interest income, resulting from the use of certain short-term investments and cash to fund partial payment of the Purchase Consideration. The interest rate on new borrowings of $8.00 billion under Scenario 1 and $17.60 billion under Scenario 2 is assumed to be 6.5%. (d) Income tax effect of pro forma adjustments, excluding amortization of the excess of Purchase Consideration over tangible net assets acquired, which is non-deductible for tax purposes. (e) Earnings per share based upon the weighted average number of shares of Disney Common Stock and common equivalent shares outstanding for the period presented, including under Scenario 1, the shares of New Disney Common Stock assumed to be issued in connection with the Acquisition, as if they had been issued at the beginning of the period presented. Pro forma adjustments giving effect to the Acquisition in the unaudited pro forma combined condensed balance sheets reflect the following: (a) Liquidation of certain cash balances to fund partial payment of the Purchase Consideration. (b) Liquidation of certain short-term investments to fund partial payment of the Purchase Consideration. (c) Excess of Purchase Consideration over tangible net assets acquired, net of Capital Cities' historical excess of purchase consideration over the values assigned to tangible net assets acquired in prior acquisitions. (d) Liquidation of accrued liabilities related to the cash settlement of certain Capital Cities benefit plans and recording of income tax benefits related to the distribution of accelerated benefits. (e) New borrowings to finance the cash portion of the Purchase Consideration and the cash settlement of certain Capital Cities benefit plans. (f) Cancellation of Disney Treasury Stock, elimination of Capital Cities shareholders' equity, and, under Scenario 1, issuance of 154.9 million shares of New Disney Common Stock. (g) The Stock Price Adjustment, which is described above. The two scenarios of unaudited pro forma combined condensed financial statements presented above give effect to the range of possible amounts of New Disney Common Stock and/or cash to be received by Capital Cities shareholders as a result of the consummation of the Capital Cities Merger. However, under a scenario whereby the aggregate amount of cash payable to Capital Cities shareholders is set at a point approximately halfway between its level under Scenario 1 and Scenario 2, as defined above, unaudited pro forma combined earnings per share would be $1.94 for the year ended September 30, 1995, and the final consideration would consist of $14.87 billion in cash and $4.80 billion in Disney Common Stock (77.4 million shares). 10 [LOGO OF WALT DISNEY COMPANY] EX-99.(B) 4 FINANCIAL STATEMENTS OF CC/ABC EXHIBIT 99.(b) PART I FINANCIAL INFORMATION ---------------------------- CAPITAL CITIES/ABC, INC. ------------------------ CONSOLIDATED STATEMENT OF INCOME (Unaudited) -------------------------------------------- (Thousands of Dollars)
Three Months Ended Nine Months Ended ------------------------ ------------------------ Oct 1, Oct 2, Oct 1, Oct 2, ---------- ---------- ---------- ---------- 1995 1994 1995 1994 ---------- ---------- ---------- ---------- Net revenues $1,566,528 $1,461,932 $4,822,032 $4,404,973 ---------- ---------- ---------- ---------- Costs and expenses Direct operating expenses 943,583 858,370 2,825,733 2,580,180 Selling, general and administrative 302,186 316,837 949,917 896,873 Depreciation 29,135 27,792 85,576 81,285 Amortization of intangible assets 16,391 15,830 48,506 47,444 Merger costs and litigation settlement 47,347 - 47,347 - ---------- ---------- ---------- ---------- 1,338,642 1,218,829 3,957,079 3,605,782 ---------- ---------- ---------- ---------- Operating income 227,886 243,103 864,953 799,191 Other income (expense) Interest expense (14,983) (14,129) (44,031) (40,566) Interest income 21,252 8,346 53,911 15,711 Other, net (6,118) (1,345) 2,947 2,408 ---------- ---------- ---------- ---------- 151 (7,128) 12,827 (22,447) ---------- ---------- ---------- ---------- Income before income taxes 228,037 235,975 877,780 776,744 ---------- ---------- ---------- Income taxes 101,000 102,300 384,100 337,500 ---------- ---------- ---------- ---------- Net income $ 127,037 $ 133,675 $ 493,680 $ 439,244 ========== ========== ========== ========== Net income per share $0.83 $0.87 $3.21 $2.86 ========== ========== ========== ========== Dividends per common share $0.05 $0.05 $0.15 $0.105 ========== ========== ========== ========== Average shares outstanding 153,860 154,035 153,985 153,840 ========== ========== ========== ========== (000's)
-2- CAPITAL CITIES/ABC, INC. ------------------------ CONSOLIDATED BALANCE SHEET -------------------------- (Thousands of Dollars)
October 1, December 31, ----------- ----------- 1995 1994 ----------- ----------- (Unaudited) (Audited) Assets - ------ Current assets Cash and short-term cash investments $ 1,038,800 $ 781,371 Short-term investments 272,421 238,029 Accounts and notes receivable, net 961,859 1,056,280 Program licenses and rights 444,769 440,443 Other current assets 244,584 200,064 ----------- ----------- Total current assets 2,962,433 2,716,187 ----------- ----------- Property, plant and equipment, at cost 2,191,205 2,122,494 Less accumulated depreciation (893,461) (831,838) ----------- ----------- Property, plant and equipment, net 1,297,744 1,290,656 ----------- ----------- Intangible assets, net 2,121,395 1,999,305 Program licenses and rights, noncurrent 197,978 195,563 Investment in unconsolidated equity affiliates 357,078 334,460 Other assets 312,829 232,041 ----------- ----------- $ 7,249,457 $ 6,768,212 =========== =========== Liabilities and Stockholders' Equity - ------------------------------------ Current liabilities Accounts payable $ 140,738 $ 163,566 Accrued compensation 301,501 131,370 Accrued expenses and other current liabilities 328,095 273,254 Program licenses and rights 340,619 281,923 Taxes on income 84,936 189,267 Long-term debt due within one year 93,786 4,176 ----------- ----------- Total current liabilities 1,289,675 1,043,556 Deferred compensation 71,571 188,492 Deferred income taxes 228,624 247,532 Program licenses and rights, noncurrent 49,160 39,259 Other liabilities 241,902 233,987 Long-term debt due after one year 514,098 610,666 ----------- ----------- Total liabilities 2,395,030 2,363,492 ----------- ----------- Minority interest 119,403 116,163 ----------- ----------- Stockholders' equity Preferred stock, no par value - - Common stock, $0.10 par value (300,000,000 shares authorized) 18,394 18,394 Additional paid-in capital 1,046,838 1,036,068 Unrealized net gains on investments 70,060 57,008 Retained earnings 5,219,215 4,748,624 ----------- ----------- 6,354,507 5,860,094 Less common stock in treasury, at cost (1,619,483) (1,571,537) Total stockholders' equity 4,735,024 4,288,557 ----------- ----------- $ 7,249,457 $ 6,768,212 =========== ===========
-3- CAPITAL CITIES/ABC, INC. ------------------------ CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) ------------------------------------------------ (Thousands of Dollars)
Nine Months Ended ----------------------- Oct. 1, Oct. 2, 1995 1994 ---------- --------- Cash flows from operating activities Net income $ 493,680 $ 439,244 Adjustments to reconcile net income to net cash Noncash and nonoperating items Depreciation 85,576 81,285 Amortization of intangible assets 48,506 47,444 (Decrease) increase in deferred liabilities (144,861) 49,959 Other noncash and nonoperating items, net 43,942 30,201 Changes in operating assets and liabilities, net of effects of acquisitions and dispositions Decrease in program assets and liabilities, net 61,899 34,125 Decrease (increase) in accounts receivable 99,559 (2,765) Increase (decrease) in accounts payable, accrued expenses and other current liabilities 102,050 (14,351) (Increase) in other operating assets, net (38,486) (31,260) ---------- --------- Net cash provided by operating activities 751,865 633,882 ---------- --------- Cash flows from investing activities Capital expenditures (91,130) (87,630) Acquisitions of operating companies and equity investments (194,229) (213,486) Purchases of short-term investments (845,003) (356,501) Sales and maturities of short-term investments 810,670 326,802 Proceeds from dispositions of operating companies 39,323 - Proceeds from dispositions of real estate - 22,000 Other investing activities, net (136,844) (30,738) ---------- --------- Net cash used in investing activities (417,213) (339,553) ---------- --------- Cash flows from financing activities Reduction of long-term debt (16,958) (5,661) Common stock purchased for treasury (78,124) (27,444) Common stock issued under Employee Stock Plans 40,948 29,899 Dividends (23,089) (16,170) ---------- --------- Net cash used in financing activities (77,223) (19,376) ---------- --------- Net increase in cash and short-term cash investments 257,429 274,953 Cash and short-term cash investments Beginning of period 781,371 264,283 ---------- --------- End of period $1,038,800 $ 539,236 ========== =========
* * * * * * * Cash and short-term cash investments at October 1, 1995 and October 2, 1994 excludes $272,421,000 and $202,368,000, respectively, of highly liquid U.S. Government instruments with original maturities in excess of three months, to conform to the definition of a cash investment prescribed by the Financial Accounting Standards Board. -4- CAPITAL CITIES/ABC, INC. ------------------------ CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited) ---------------------------------------------------------- Nine Months Ended October 1, 1995 (Thousands of Dollars)
Unreal- Additional ized net Common paid-in gains on Retained Treasury stock capital investments earnings stock Total ------- ---------- ----------- ---------- ----------- ---------- Balance at December 31, 1994 $18,394 $1,036,068 $57,008 $4,748,624 $(1,571,537) $4,288,557 Net income for nine months - - - 493,680 - 493,680 704,489 shares issued under Employee Stock Purchase Plan - 11,166 - - 29,328 40,494 20,258 shares issued from exercise of employee stock options - (396) - - 850 454 910,270 shares purchased for treasury - - - - (78,124) (78,124) Dividends - - - (23,089) - (23,089) Change in unrealized net gains, net of income taxes of $9,032 - - 13,052 - - 13,052 ------- ---------- ----------- ---------- ----------- ---------- Balance at October 1, 1995 $18,394 $1,046,838 $70,060 $5,219,215 $(1,619,483) $4,735,024 ======= ========== =========== ========== =========== ==========
-5- CAPITAL CITIES/ABC, INC. ------------------------ NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- (1) The results presented in the financial statements are unaudited, but in the opinion of management contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of operations. (2) On July 31, 1995, Capital Cities/ABC announced that it was merging with The Walt Disney Company. The merger, which is subject to regulatory review and approval of the shareholders of each company, is expected to be completed during early 1996. -6- Capital Cities/ABC - -------------------------------------------------------------------------------- Consolidated Statement of Income Years ended December 31, 1994, 1993 and 1992 (Dollars in thousands except per share amounts)
- ----------------------------------------------------------------------------------------------------- 1994 1993 1992 - ----------------------------------------------------------------------------------------------------- Net revenues................................................ $6,379,237 $5,673,653 $5,344,127 ---------- ---------- ---------- Costs and expenses Direct operating expenses................................. 3,745,689 3,557,301 3,421,054 Selling, general and administrative....................... 1,222,202 1,097,826 1,043,595 Depreciation.............................................. 109,128 95,032 95,664 Amortization of intangible assets......................... 63,407 61,345 62,009 ---------- ---------- ---------- 5,140,426 4,811,504 4,622,322 ---------- ---------- ---------- Operating income............................................ 1,238,811 862,149 721,805 ---------- ---------- ---------- Other income (expense) Interest expense.......................................... (55,070) (59,772) (104,009) Interest income........................................... 24,553 36,650 51,958 Miscellaneous, net........................................ (2,980) (10,648) 16,174 ---------- ---------- ---------- (33,497) (33,770) (35,877) ---------- ---------- ---------- Income before income taxes.................................. 1,205,314 828,379 685,928 ---------- ---------- ---------- Income taxes Federal................................................... 425,700 300,100 245,500 State and local........................................... 99,800 60,900 51,100 ---------- ---------- ---------- 525,500 361,000 296,600 ---------- ---------- ---------- Income before extraordinary charge and cumulative effect of accounting changes..................................... 679,814 467,379 389,328 Extraordinary charge, net of income taxes................... -- (12,122) -- Cumulative effect of accounting changes, net of income taxes -- -- (143,235) ---------- ---------- ---------- Net income.................................................. $ 679,814 $ 455,257 $ 246,093 ========== ========== ========== Income per share before extraordinary charge and cumulative effect of accounting changes.............................. $4.42 $2.85 $2.34 Extraordinary charge per share.............................. -- (.07) -- Cumulative effect of accounting changes per share........... -- -- (.86) ---------- ---------- ---------- Net income per share........................................ $4.42 $2.78 $1.48 ========== ========== ========== Average shares outstanding (000's omitted).................. 153,890 163,800 166,000 ========== ========== ==========
See accompanying notes 26 - -------------------------------------------------------------------------------- Consolidated Statement of Cash Flows Years ended December 31, 1994, 1993 and 1992 (Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------ 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities Net income.............................................................. $ 679,814 $ 455,257 $ 246,093 Adjustments to reconcile net income to net cash Noncash and nonoperating items Depreciation........................................................ 109,128 95,032 95,664 Amortization of intangible assets................................... 63,407 61,345 62,009 Increase (decrease) in deferred liabilities......................... 45,988 7,995 (26,458) Extraordinary charge, early debt redemption......................... -- 12,122 -- Cumulative effect of accounting changes............................. -- -- 143,235 Other noncash and nonoperating items................................ 50,315 31,009 (1,129) --------- ----------- --------- Cash from operations before changes in operating assets and liabilities, net of effects of acquisitions and dispositions........ 948,652 662,760 519,414 Decrease (increase) in program assets and liabilities, net.......... 63,779 29,722 (129,064) (Increase) in accounts receivable................................... (169,572) (57,895) (2,842) Increase in accounts payable, accrued expenses and other current liabilities......................................... 156,225 5,741 47,125 (Increase) decrease in other operating assets, net.................. (22,860) 20,190 (10,357) --------- ----------- --------- Net cash provided by operating activities................................. 976,224 660,518 424,276 --------- ----------- --------- Cash flows from investing activities Capital expenditures.................................................... (121,460) (97,788) (114,736) Acquisition of operating companies and equity investments............... (214,536) (133,294) (2,432) (Increase) decrease in short-term investments........................... (64,246) 337,022 99,413 Proceeds from disposition of real estate................................ 22,000 -- 53,149 Proceeds from dispositions of operating companies and equity investments.................................................... -- 12,500 150,168 Other investing activities, net......................................... (52,708) 8,068 (67,444) --------- ----------- --------- Net cash (used in) provided by investing activities....................... (430,950) 126,508 118,118 --------- ----------- --------- Cash flows from financing activities Common stock purchased for treasury..................................... (27,607) (715,010) (118,410) Common stock issued under employee stock plans.......................... 31,099 29,365 26,547 Dividends............................................................... (23,873) (3,238) (3,321) Payments of long-term debt.............................................. (7,805) (504,873) (486,327) Premium on early redemption of debt..................................... -- (15,915) -- --------- ----------- --------- Net cash (used in) financing activities................................... (28,186) (1,209,671) (581,511) --------- ----------- --------- Net increase (decrease) in cash and short-term cash investments........... 517,088 (422,645) (39,117) Cash and short-term cash investments Beginning of period..................................................... 264,283 686,928 726,045 --------- ----------- --------- End of period........................................................... $ 781,371 $ 264,283 $ 686,928 ========= =========== =========
See accompanying notes 27 Capital Cities/ABC - -------------------------------------------------------------------------------- Consolidated Balance Sheet December 31, 1994 and 1993 (Dollars in thousands)
- ------------------------------------------------------------------------------------------------------- ASSETS 1994 1993 - ------------------------------------------------------------------------------------------------------- Current assets Cash and short-term cash investments....................................... $ 781,371 $ 264,283 Short-term investments..................................................... 238,029 173,823 Accounts and notes receivable (net of allowance for doubtful accounts of $46,419 in 1994 and $44,650 in 1993)..................................... 1,056,280 881,955 Program licenses and rights................................................ 440,443 495,125 Other current assets....................................................... 200,064 176,966 ---------- ---------- Total current assets................................................. 2,716,187 1,992,152 ---------- ---------- Property, plant and equipment, at cost Land....................................................................... 297,525 334,719 Buildings and improvements................................................. 718,806 707,902 Broadcasting and publishing equipment...................................... 944,031 788,528 Other, including construction-in-progress.................................. 162,132 238,864 ---------- ---------- 2,122,494 2,070,013 Less accumulated depreciation.............................................. 831,838 751,286 ---------- ---------- Property, plant and equipment, net................................... 1,290,656 1,318,727 ---------- ---------- Intangible assets (net of accumulated amortization of $592,637 in 1994 and $529,338 in 1993)...................................................... 1,999,305 2,034,680 Program licenses and rights, noncurrent...................................... 195,563 190,925 Investment in unconsolidated equity affiliates............................... 334,460 153,904 Other assets................................................................. 232,041 102,230 ---------- ---------- $6,768,212 $5,792,618 ========== ==========
See accompanying notes 28 - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993 - ------------------------------------------------------------------------------------------------ Current liabilities Accounts payable.................................................... $ 163,566 $ 144,249 Accrued compensation................................................ 131,370 102,992 Accrued interest.................................................... 9,636 9,574 Accrued expenses and other current liabilities...................... 263,618 201,052 Program licenses and rights......................................... 281,923 264,935 Taxes on income..................................................... 189,267 142,640 Long-term debt due within one year.................................. 4,176 5,299 ---------- ---------- Total current liabilities..................................... 1,043,556 870,741 Deferred compensation................................................. 188,492 109,649 Deferred income taxes................................................. 247,532 240,935 Program licenses and rights, noncurrent............................... 39,259 42,233 Other liabilities..................................................... 233,987 243,859 Long-term debt due after one year..................................... 610,666 616,661 ---------- ---------- Total liabilities............................................. 2,363,492 2,124,078 ---------- ---------- Minority interest..................................................... 116,163 96,424 ---------- ---------- Stockholders' equity Preferred stock, no par value (4,000,000 shares authorized)......... -- -- Common stock, $0.10 par value (300,000,000 shares authorized)....... 18,394 18,394 Additional paid-in capital.......................................... 1,036,068 1,030,634 Unrealized net gains on investments................................. 57,008 -- Retained earnings................................................... 4,748,624 4,092,683 ---------- ---------- 5,860,094 5,141,711 Less common stock in treasury, at cost (29,877,163 shares in 1994 and 30,109,100 shares in 1993).................................... 1,571,537 1,569,595 ---------- ---------- Total stockholders' equity.................................... 4,288,557 3,572,116 ---------- ---------- $6,768,212 $5,792,618 ========== ==========
29 Capital Cities/ABC - -------------------------------------------------------------------------------- Consolidated Statement of Stockholders' Equity Years ended December 31, 1994, 1993 and 1992 (Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------- UNREALIZED ADDITIONAL NET GAINS COMMON PAID-IN ON RETAINED TREASURY STOCK CAPITAL INVESTMENTS EARNINGS STOCK TOTAL - ------------------------------------------------------------------------------------------------------------------------- Balance January 1, 1992............... $18,394 $1,017,195 $ -- $3,397,892 $ (778,648) $3,654,833 Net income for 1992................. -- -- -- 246,093 -- 246,093 649,370 shares issued under Employee Stock Purchase Plan...... -- 14,870 -- -- 9,064 23,934 130,780 shares issued on exercise of employee stock options......... -- (458) -- -- 3,071 2,613 2,729,230 shares purchased for treasury...................... -- -- -- -- (118,410) (118,410) Cash dividends...................... -- -- -- (3,321) -- (3,321) ------- ---------- ------- ---------- ----------- ---------- Balance December 31, 1992............. 18,394 1,031,607 -- 3,640,664 (884,923) 3,805,742 Net income for 1993................. -- -- -- 455,257 -- 455,257 725,850 shares issued under Employee Stock Purchase Plan...... -- 1,023 -- -- 26,437 27,460 104,550 shares issued on exercise of employee stock options......... -- (1,996) -- -- 3,901 1,905 11,442,170 shares purchased for treasury...................... -- -- -- -- (715,010) (715,010) Cash dividends...................... -- -- -- (3,238) -- (3,238) ------- ---------- ------- ---------- ----------- ---------- Balance December 31, 1993............. 18,394 1,030,634 -- 4,092,683 (1,569,595) 3,572,116 Net income for 1994................. -- -- -- 679,814 -- 679,814 648,480 shares issued under Employee Stock Purchase Plan...... -- 5,993 -- -- 24,480 30,473 31,402 shares issued on exercise of employee stock options......... -- (559) -- -- 1,185 626 447,945 shares purchased for treasury...................... -- -- -- -- (27,607) (27,607) Cash dividends...................... -- -- -- (23,873) -- (23,873) Adjustment to beginning balance for change in accounting method, net of income taxes of $32,174.... -- -- 46,491 -- -- 46,491 Change in unrealized net gains, net of income taxes of $7,278..... -- -- 10,517 -- -- 10,517 ------- ---------- ------- ---------- ----------- ---------- Balance December 31, 1994............. $18,394 $1,036,068 $57,008 $4,748,624 $(1,571,537) $4,288,557 ======= ========== ======= ========== =========== ==========
See accompanying notes 30 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements 1. ACCOUNTING POLICIES Principles of Consolidation -- The consolidated financial statements include the accounts of all significant subsidiaries. Investments in other companies which are at least 20% owned are reported on the equity method. The Company's share of income or loss is included in "Miscellaneous, net" on the income statement. All significant intercompany accounts and transactions have been eliminated. Property, Plant and Equipment -- Depreciation -- Depreciation is computed on the straight-line method for financial accounting purposes and on accelerated methods for tax purposes. Estimated useful lives for major asset categories are 10-55 years for buildings and improvements, 4-20 years for broadcasting equipment and 5-20 years for publishing machinery and equipment. Leasehold improvements are amortized over the terms of the leases. Intangible Assets -- Intangible assets consist of amounts by which the cost of acquisitions exceeded the values assigned to net tangible assets. The broadcasting and publishing intangible assets, all of which may be characterized as scarce assets with very long and productive lives, have historically increased in value with the passage of time. In accordance with Accounting Principles Board Opinion No. 17, substantially all of these intangible assets are being amortized over periods of up to 40 years, even though in the opinion of management there has been no diminution of value of the underlying assets. Program Licenses and Rights -- Program licenses and rights and related liabilities are recorded when the license period begins and the program is available for use. Television network and station rights for theatrical movies and other long-form programming are charged to expense primarily on accelerated bases related to the usage of the program. Television network series costs and multi-year sports rights are charged to expense based on the flow of anticipated revenue. Investments -- As of January 1, 1994, the Company adopted Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The cumulative effect of adopting Standard No. 115 increased the opening balance of stockholders' equity by $46,491,000 (net of $32,174,000 of deferred income taxes) to reflect the net unrealized holding gains on securities classified as available-for-sale previously carried at amortized cost or the lower of cost or market. Cash and short-term cash investments consist primarily of highly liquid U.S. Government obligations with maturities of three months or less at the time of purchase. They include $547,111,000 of securities which are classified as held- to-maturity and are carried at amortized cost, which approximates market. Also included are securities which are classified as available-for-sale which, as of December 31, 1994, have a fair value of $200,471,000, which approximates cost. Short-term investments, which consist of highly liquid U.S. Government instruments with original maturities in excess of three months, include $232,070,000 of securities which are classified as held-to-maturity. They are carried at amortized cost, which approximates market. The remainder of the short-term investments are considered available-for-sale and have a fair value of $5,959,000, which approximates cost. Also classified as available-for-sale are marketable equity securities which are included in "Other assets" on the balance sheet with a cost of $37,084,000 and a market value of $133,584,000. Other -- In June 1994, the Company effected a ten-for-one stock split on common shares then outstanding. All share, per share and average share information in the Consolidated Financial Statements and the Notes thereto have been restated to reflect the stock split. 31 Capital Cities/ABC - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements--(Continued) 2. LONG-TERM DEBT Long-term debt at December 31, 1994 and 1993 is as follows (000's omitted):
- ------------------------------------------------------ 1994 1993 - ------------------------------------------------------ Commercial paper supported by bank revolving credit agreement..................... $100,000 $100,000 8 3/4% debentures due 2021...... 250,000 250,000 8 7/8% notes due 2000........... 250,000 250,000 Other long-term debt............ 14,842 21,960 -------- -------- $614,842 $621,960 ======== ======== - ------------------------------------------------------
The aggregate payments of long-term debt outstanding at December 31, 1994, for the next five years, excluding commercial paper, are summarized as follows: 1995 - - $4,176,000; 1996 - $2,244,000; 1997 - $2,413,000; 1998 - $6,009,000; 1999 - none. Interest paid on long-term debt during 1994, 1993 and 1992 amounted to $59,292,000, $83,002,000 and $139,674,000, respectively. A subsidiary of the Company has issued commercial paper, $100,000,000 of which was outstanding at December 31, 1994, at a weighted average interest rate of 5.5%. The commercial paper is supported by a $1,000,000,000 bank revolving credit agreement terminating on June 30, 1999, unless otherwise extended. Under terms of the bank revolving credit agreement, the Company and its consolidated subsidiaries are required to maintain a consolidated net worth of $2,700,000,000 at December 31, 1994, increasing annually by 33 percent of the consolidated net income of the previous year. The commercial paper outstanding at December 31, 1994 is classified as long-term since the Company intends to renew or replace with long-term borrowings all, or substantially all, of the commercial paper. However, the amount of commercial paper outstanding in 1995 is expected to fluctuate and may be reduced from time to time. The Company has unconditionally guaranteed the commercial paper, and any borrowings which may be made by a subsidiary under the bank revolving credit agreement. The 8 7/8% notes and the 8 3/4% debentures are not redeemable prior to maturity and are not subject to any sinking fund. During 1991, the Securities and Exchange Commission declared effective a shelf registration statement of the Company which allows for the issuance of up to $500,000,000 in additional debt securities. During 1993, the Company redeemed $500,000,000 of notes and debentures. An extraordinary charge of $12,122,000 (net of income taxes of $7,706,000), or $0.07 per share, was recorded related to these redemptions. The fair value of the Company's long-term debt, estimated based on the quoted market prices for similar issues or on the current rates offered to the Company for debt of similar remaining maturities, was approximately $628,000,000 and $702,000,000 at December 31, 1994 and 1993, respectively. 32 - -------------------------------------------------------------------------------- 3. EMPLOYEE BENEFIT PLANS The Company has defined benefit pension plans covering substantially all of its employees not covered by union plans. The Company's policy is to fund amounts as are necessary on an actuarial basis to provide for pension benefits in accordance with the requirements of ERISA. Benefits are generally based on years of service and compensation. The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was 8.5% at December 31, 1994 and 8% at December 31, 1993. The rate of increase in future compensation levels and the expected long-term rate of return on assets were 5% and 8%, respectively, in 1994 and 1993. The components of net pension cost for 1994, 1993 and 1992 are as follows (000's omitted):
- ------------------------------------------------------------------------------- 1994 1993 1992 - ------------------------------------------------------------------------------- Service cost of current period.............. $ 18,624 $ 15,494 $ 15,077 Interest cost on projected benefit obligation................................ 48,049 42,499 39,548 Actual return on plan assets................ (18,294) (39,731) (42,650) Net amortization and deferral............... (18,799) 2,561 5,864 -------- -------- -------- Net pension cost............................ $ 29,580 $ 20,823 $ 17,839 ======== ======== ======== - -------------------------------------------------------------------------------
The following table sets forth the pension plans' funded status and amounts recognized in the balance sheet at December 31, 1994 and 1993 (000's omitted):
- ----------------------------------------------------------------------------------------------------------- 1994 1993 - ----------------------------------------------------------------------------------------------------------- Actuarial present value of accumulated plan benefits (including vested benefits of $477,029 in 1994 and $479,332 in 1993)....................................... $ 491,692 $ 495,304 ========= ========= Plan assets at fair value, primarily publicly traded securities and short-term cash investments................................................................ $ 523,774 $ 522,096 Projected benefit obligation for service rendered to date......................... (599,884) (585,710) --------- --------- Plan assets less than projected benefit obligation................................ (76,110) (63,614) Prior service cost not yet recognized in net periodic pension cost................ 25,867 39,493 Unrecognized net loss from past experience different from that assumed............ 14,101 6,095 Unrecognized net transition amount being recognized principally over 15 years..... (12,470) (14,547) --------- --------- Accrued pension cost included in balance sheet.................................... $ (48,612) $ (32,573) ========= ========= - -----------------------------------------------------------------------------------------------------------
For certain employees not covered by pension plans, the Company contributes to profit sharing plans. The profit sharing plans provide for contributions by the Company in such amount as the Board of Directors may annually determine. Contributions to the profit sharing plans of $6,228,000, $6,045,000 and $6,192,000 were charged to expense in 1994, 1993 and 1992, respectively. The Company also has a Savings & Investment Plan which allows eligible employees to allocate up to 10% of salary, through payroll deduction, among a Company stock fund, several diversified equity funds, a bond fund and a money market fund. The Company matches 50% of the employee's contribution, up to 5% of salary. In 1994, 1993 and 1992, the cost of this plan (net of forfeitures) was $12,055,000, $11,204,000 and $10,982,000, respectively. In addition to the Company's defined benefit pension plans and qualified profit sharing plans, the Company provides certain postretirement medical and life insurance benefits to eligible retirees and dependents. Covered individuals include retired and active employees who have met certain age and service requirements at various dates during 1989. No other employees become eligible for postretirement benefits after these dates. The benefits are subject to deductibles, co-payment provisions and other limitations. The Company reserves the right to amend, modify or discontinue these plans in the future. 33 Capital Cities/ABC - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements--(Continued) 3. EMPLOYEE BENEFIT PLANS--(CONTINUED) In 1992, the Company adopted Financial Accounting Standard No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." In applying this statement, the Company recognized the full amount of the accumulated postretirement benefit obligation as of January 1, 1992 as a cumulative effect of an accounting change. The noncash charge to 1992 earnings was $54,817,000 (net of income taxes of $36,544,000), or $0.33 per share. The accumulated postretirement benefit obligation was determined using an assumed discount rate of 8.5% at December 31, 1994 and 8% at December 31, 1993. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 11.2%; the rate was assumed to decrease gradually to 5.5% by the year 2004 and remain at that level thereafter. An increase in the assumed health care cost trend rate by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1994 by approximately $11,580,000 and the aggregate of the service and interest cost components of net postretirement benefit cost for the year then ended by approximately $1,010,000. The following table sets forth the plans' amounts recognized in the consolidated balance sheet at December 31, 1994 and 1993 for the Company's defined postretirement benefit plans (other than pensions) (000's omitted):
- ------------------------------------------------------------------------------- 1994 1993 - ------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees.............................................. $ 63,978 $ 58,165 Fully eligible active participants.................... 23,022 21,430 Other active participants............................. 22,352 22,126 -------- -------- Total accumulated postretirement benefit obligation..... 109,352 101,721 Unrecognized net loss................................... (8,812) (4,415) -------- -------- Accrued postretirement benefit cost..................... $100,540 $ 97,306 ======== ======== - -------------------------------------------------------------------------------
Net postretirement benefit cost (other than pensions) for 1994, 1993 and 1992 consisted of the following components (000's omitted):
- ------------------------------------------------------------------------------- 1994 1993 1992 - ------------------------------------------------------------------------------- Service cost-current period......................... $1,171 $1,232 $1,031 Interest cost on accumulated post-retirement benefit obligation................................ 8,181 8,141 7,961 Amortization of net loss............................ 68 -- -- ------ ------ ------ Net postretirement benefit cost..................... $9,420 $9,373 $8,992 ====== ====== ====== - -------------------------------------------------------------------------------
4. COMMITMENTS At December 31, 1994, the Company is committed to the purchase of broadcast rights for various feature films, sports and other programming aggregating approximately $4,066,000,000. The aggregate payments related to these commitments during the next five years are summarized as follows: 1995 -- $1,427,191,000; 1996 -- $826,009,000; 1997 -- $ 777,518,000; 1998 -- $478,659,000; 1999 -- $ 313,936,000. The Company anticipates 1995 capital expenditures for property, plant and equipment will approximate $150,000,000. Rental expense under operating leases amounted to $97,965,000, $86,312,000 and $92,820,000 for 1994, 1993 and 1992, respectively. Future minimum annual rental payments under non-cancelable leases are as follows (000's omitted):
- ------------------------------------------------------------------ CAPITAL OPERATING LEASES LEASES - ------------------------------------------------------------------ 1995...................................... $ 7,530 $ 59,918 1996...................................... 6,996 53,162 1997...................................... 6,112 51,048 1998...................................... 5,627 47,626 1999...................................... 5,502 43,676 2000 and thereafter....................... 120,833 118,805 --------- -------- Minimum lease payments.................... 152,600 $374,235 ======== Imputed interest.......................... (110,063) --------- Present value of minimum lease payments... $ 42,537 ========= - ------------------------------------------------------------------
Total minimum payments for operating leases have not been reduced for future minimum sublease rentals aggregating $2,859,000. 34 - -------------------------------------------------------------------------------- 5. SEGMENT DATA The Company's business operations are classified into two segments: Broadcasting and Publishing. Broadcasting operations include the ABC Television Network and eight television stations, the ABC Radio Networks, radio stations, cable television programming and multimedia business activities. The Publishing segment includes newspapers, shopping guides, various specialized business periodicals and books, research services and database publishing. There are no material product transfers between segments of the Company, and virtually all of the Company's business is conducted within the United States. The segment data is as follows (000's omitted):
- --------------------------------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 - --------------------------------------------------------------------------------------------------------- BROADCASTING Net revenues........................ $5,277,126 $4,663,215 $4,265,561 $4,329,743 $4,283,633 ---------- ---------- ---------- ---------- ---------- Direct operating costs............ 4,015,864 3,762,988 3,523,143 3,537,676 3,331,316 Depreciation...................... 86,727 75,424 76,406 75,883 75,088 Amortization of intangible assets. 47,337 46,726 46,695 46,476 46,772 ---------- ---------- ---------- ---------- ---------- Total operating costs............... 4,149,928 3,885,138 3,646,244 3,660,035 3,453,176 ---------- ---------- ---------- ---------- ---------- Income from operations.............. $1,127,198 $ 778,077 $ 619,317 $ 669,708 $ 830,457 ========== ========== ========== ========== ========== Assets at year-end.................. $4,650,611 $4,389,700 $4,357,152 $4,249,089 $4,250,540 Capital expenditures................ 102,850 78,526 94,255 106,254 105,475 PUBLISHING Net revenues........................ $1,102,111 $1,010,438 $1,078,566 $1,052,246 $1,101,969 ---------- ---------- ---------- ---------- ---------- Direct operating costs............ 911,384 851,787 908,791 895,402 934,022 Depreciation...................... 19,639 18,385 18,072 18,084 18,363 Amortization of intangible assets. 16,070 14,619 15,314 15,855 17,213 ---------- ---------- ---------- ---------- ---------- Total operating costs............... 947,093 884,791 942,177 929,341 969,598 ---------- ---------- ---------- ---------- ---------- Income from operations.............. $ 155,018 $ 125,647 $ 136,389 $ 122,905 $ 132,371 ========== ========== ========== ========== ========== Assets at year-end.................. $ 814,907 $ 824,369 $ 777,512 $ 886,482 $ 916,346 Capital expenditures................ 18,183 18,657 20,276 13,878 14,450 CONSOLIDATED Net revenues........................ $6,379,237 $5,673,653 $5,344,127 $5,381,989 $5,385,602 ========== ========== ========== ========== ========== Income from operations.............. $1,282,216 $ 903,724 $ 755,706 $ 792,613 $ 962,828 General corporate expense......... (43,405) (41,575) (33,901) (31,380) (39,613) ---------- ---------- ---------- ---------- ---------- Operating income.................... 1,238,811 862,149 721,805 761,233 923,215 Interest expense.................. (55,070) (59,772) (104,009) (179,347) (168,859) Interest and miscellaneous, net... 21,573 26,002 68,132 80,310 83,424 ---------- ---------- ---------- ---------- ---------- Income before income taxes.......... $1,205,314 $ 828,379 $ 685,928 $ 662,196 $ 837,780 ========== ========== ========== ========== ========== Assets employed by segments......... $5,465,518 $5,214,069 $5,134,664 $5,135,571 $5,166,886 Cash investments and other corporate assets.................... 1,302,694 578,549 1,387,495 1,560,141 1,529,301 ---------- ---------- ---------- ---------- ---------- Total assets at year-end............ $6,768,212 $5,792,618 $6,522,159 $6,695,712 $6,696,187 ========== ========== ========== ========== ==========
35 Capital Cities/ABC - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements--(Continued) 6. INCOME TAXES The Company adopted Financial Accounting Standard No. 109 (FAS 109) effective January 1, 1992. As a result of adopting FAS 109, net deferred taxes increased by $127,198,000 of which $88,418,000 was recorded as the cumulative effect of adopting FAS 109. The provision for taxes on income (before the extraordinary charge for 1993 and the cumulative effect of accounting changes for 1992) differs from the amount of tax determined by applying the federal statutory rate for the following reasons (000's omitted):
- ------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 ------------------ ---------------- ---------------- AMOUNT % AMOUNT % AMOUNT % - ------------------------------------------------------------------------------------------------------------------- Income before income taxes........................ $1,205,314 $828,379 $685,928 ========== ======== ======== Income tax expense at statutory federal rate...... $421,860 35.0 $289,933 35.0 $233,216 34.0 State and local income taxes, net of federal benefit.............................. 66,137 5.5 40,321 4.9 34,547 5.0 Amortization of intangibles....................... 18,272 1.5 17,950 2.2 17,541 2.6 Other, net........................................ 19,231 1.6 12,796 1.5 11,296 1.6 ---------- ---- -------- ---- -------- ---- Total............................................. $ 525,500 43.6 $361,000 43.6 $296,600 43.2 ========== ==== ======== ==== ======== ==== - -------------------------------------------------------------------------------------------------------------------
Income tax expense is comprised of the following (000's omitted):
- ------------------------------------------------------------------------------- 1994 1993 1992 - ------------------------------------------------------------------------------- Federal Current................................... $468,600 $312,800 $274,900 Deferred.................................. (42,900) (12,700) (29,400) -------- -------- -------- 425,700 300,100 245,500 -------- -------- -------- State and local Current................................... 111,900 65,500 57,400 Deferred.................................. (12,100) (4,600) (6,300) -------- -------- -------- 99,800 60,900 51,100 -------- -------- -------- Total....................................... $525,500 $361,000 $296,600 ======== ======== ======== - -------------------------------------------------------------------------------
Income taxes paid, net of refunds received, during 1994, 1993 and 1992 amounted to $535,198,000, $341,587,000 and $292,329,000, respectively. Deferred income taxes represent the tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax asset (recorded in other current assets on the balance sheet) and liability as of December 31, 1994 and 1993, are as follows (000's omitted):
- ------------------------------------------------------------------------------- 1994 1993 - ------------------------------------------------------------------------------- Current Programming......................................... $ 42,708 $ 33,140 Other, net.......................................... 83,256 70,023 --------- --------- Net current deferred tax asset........................ $ 125,964 $ 103,163 ========= ========= Noncurrent Deferred compensation............................... $ 67,059 $ 40,665 Postretirement benefits other than pensions......... 41,783 40,431 Basis differences on prior business combinations.... (253,251) (258,511) Basis differences for certain investments in debt and equity securities............................. (39,452) -- Accelerated depreciation............................ (129,047) (120,303) Other, net.......................................... 65,376 56,783 --------- --------- Net noncurrent deferred tax liability................. $(247,532) $(240,935) ========= =========
36 - -------------------------------------------------------------------------------- 7. COMMON STOCK PLANS The Company has stock option plans under which certain key personnel have been granted the right to purchase shares of common stock over a 6-, 10- or 11-year period from the date of grant at prices equal to market value on the grant date. Each option is cumulatively exercisable as to 25% of the total shares represented thereby for each of the first four years after grant, provided that the individual remains in the employ of the Company. The following information pertains to the Company's stock option plans:
- ---------------------------------------------------------------------------------------------------------------- 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------- Outstanding options, beginning of year............... 442,660 357,460 391,240 Granted.............................................. 265,000 191,000 100,000 Canceled or expired.................................. -- (1,250) (3,000) Exercised............................................ (31,402) (104,550) (130,780) ------- -------- -------- Outstanding options, end of year..................... 676,258 442,660 357,460 ======= ======== ======== Average price of options exercised during the year... $18.07 $15.92 $17.57 Exercise price of outstanding options, end of year... $18.64 to $83.00 $13.11 to $63.48 $13.11 to $49.20 Options exercisable, end of year..................... 218,008 176,660 243,960 Options available for future grant................... 4,444,000 4,709,000 4,900,000 - ----------------------------------------------------------------------------------------------------------------
The Company has an Employee Stock Purchase Plan which allows eligible employees, through contributions of up to 15% of their compensation, to purchase shares at 85% of the lower of fair market value at the Grant Date or at the Purchase Date (normally one year subsequent). Employees purchased 648,480, 725,850 and 649,370 shares under the Plan in 1994, 1993 and 1992, respectively. As of December 31, 1994, 5,992,790 shares remain available to be purchased through the period ending April 2000. The Company has an incentive compensation plan for certain of its employees under which amounts payable are based upon appreciation in the market price of the Company's common stock. Payments are made in either cash, common stock or a combination thereof, at the discretion of the Company. - -------------------------------------------------------------------------------- 8. SHAREHOLDER RIGHTS PLAN In 1989, the Company adopted a Shareholder Rights Plan. The Plan becomes operative upon the occurrence of certain events involving the acquisition of 20% or more of the Company's common stock by any person or group in transactions not approved by the Company's Board of Directors. In the case of Berkshire Hathaway Inc., pursuant to an existing agreement, the threshold for activation of the Rights Plan is the acquisition of more than 30% of the Company's common stock. Upon the occurrence of such an event, each Right, unless redeemed by the Board, entitles its holder to purchase at the Right's exercise price of $2,000 a number of common shares of the Company, or in certain circumstances the acquiring company's common shares, having a market value of twice that price. The Rights expire in 1999. 37 Capital Cities/ABC - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements--(Continued) 9. QUARTERLY FINANCIAL DATA (UNAUDITED) The following summarizes the Company's results of operations for each quarter of 1994 and 1993 (000's omitted, except per share amounts). The net income per share computation for each quarter and the year are separate calculations.
- ---------------------------------------------------------------------------------------------------------- First Second Third Fourth quarter quarter quarter quarter Year - ---------------------------------------------------------------------------------------------------------- 1994 Net revenues......................... $1,404,949 $1,538,092 $1,461,932 $1,974,264 $6,379,237 Costs and expenses................. 1,191,187 1,195,766 1,218,829 1,534,644 5,140,426 ---------- ---------- ---------- ---------- ---------- Operating income..................... 213,762 342,326 243,103 439,620 1,238,811 Interest expense................... (13,031) (13,406) (14,129) (14,504) (55,070) Interest and miscellaneous, net.... 4,750 6,368 7,001 3,454 21,573 ---------- ---------- ---------- ---------- ---------- Income before income taxes........... 205,481 335,288 235,975 428,570 1,205,314 Income taxes....................... 89,400 145,800 102,300 188,000 525,500 ---------- ---------- ---------- ---------- ---------- Net income........................... $ 116,081 $ 189,488 $ 133,675 $ 240,570 $ 679,814 ---------- ---------- ---------- ---------- ---------- Net income per share................. $0.76 $1.23 $0.87 $1.56 $4.42 ========== ========== ========== ========== ========== 1993 Net revenues......................... $1,178,337 $1,438,826 $1,301,371 $1,755,119 $5,673,653 Costs and expenses................. 1,037,401 1,168,140 1,153,339 1,452,624 4,811,504 ---------- ---------- ---------- ---------- ---------- Operating income..................... 140,936 270,686 148,032 302,495 862,149 Interest expense................... (21,020) (13,972) (11,777) (13,003) (59,772) Interest and miscellaneous, net.... 3,778 10,463 6,316 5,445 26,002 ---------- ---------- ---------- ---------- ---------- Income before income taxes........... 123,694 267,177 142,571 294,937 828,379 Income taxes....................... 53,200 115,300 64,300 128,200 361,000 ---------- ---------- ---------- ---------- ---------- Income before extraordinary charge... 70,494 151,877 78,271 166,737 467,379 Extraordinary charge............... (12,122) -- -- -- (12,122) ---------- ---------- ---------- ---------- ---------- Net income........................... $ 58,372 $ 151,877 $ 78,271 $ 166,737 $ 455,257 ========== ========== ========== ========== ========== Income per share Before extraordinary charge........ $0.43 $0.92 $0.47 $1.03 $2.85 Extraordinary charge............... (.07) -- -- -- (.07) ---------- ---------- ---------- ---------- ---------- Net income per share................. $0.36 $0.92 $0.47 $1.03 $2.78 ========== ========== ========== ========== ==========
38 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements--(Continued) 10. COMMON STOCK AND STOCKHOLDER INFORMATION (UNAUDITED) As of February 28, 1995, the approximate number of holders of common stock was 9,790. Dividends of $.05 per share have been paid for the last three quarters of 1994 and $.005 for the first quarter of 1994 and for 1993. The common stock is traded on the New York and Pacific Stock Exchanges. The high, low and closing prices of the Company's common stock for each quarter of 1994 and 1993 are as follows:
- -------------------------------------------------------------------------------- 1994 1993 --------------------------- --------------------------- High Low Close High Low Close - -------------------------------------------------------------------------------- 1st quarter......... $71 7/8 $60 1/4 $68 3/8 $53 1/8 $47 5/8 $53 2nd quarter......... 75 1/2 66 1/4 71 1/2 55 1/8 50 50 3/8 3rd quarter......... 85 3/8 71 1/8 82 57 3/4 49 57 1/8 4th quarter......... 86 1/2 76 1/8 85 1/4 64 3/8 56 3/4 62 - --------------------------------------------------------------------------------
Report of Independent Auditors The Board of Directors and Shareholders Capital Cities/ABC, Inc. We have audited the accompanying consolidated balance sheets of Capital Cities/ ABC, Inc. as of December 31, 1994 and 1993, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Capital Cities/ABC, Inc. at December 31, 1994 and 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Notes 3 and 6 to the consolidated financial statements, in 1992, the Company changed its method of accounting for other postretirement benefits and income taxes. /s/ Ernst & Young LLP New York, New York February 28, 1995 39 -----END PRIVACY-ENHANCED MESSAGE-----