THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE 901(d)
OF REGULATION S-T.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 1994
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ________
Commission file number 1-4278
CAPITAL CITIES/ABC, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 14-1284013
(State of incorporation) (I.R.S. Employer
Identification No.)
77 WEST 66th STREET, NEW YORK, NEW YORK 10023
(Address of principle executive offices) (Zip Code)
Registrant's telephone number, including
area code (212) 456-7777
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ____
-----
The number of shares outstanding of the issuer's common stock as of
April 29, 1994: 15,403,166 shares, excluding 2,990,330 treasury shares.
PART I FINANCIAL INFORMATION
----------------------------
CAPITAL CITIES/ABC, INC.
------------------------
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
--------------------------------------------
(Thousands of Dollars)
Three Months Ended
------------------------
April 3, March 28,
----------- -----------
1994 1993
----------- -----------
Net revenues $1,404,949 $1,178,337
---------- ----------
Costs and expenses
Direct operating expenses 864,449 737,008
Selling, general and administrative 284,989 261,293
Depreciation 25,935 23,652
Amortization of intangible assets 15,814 15,448
---------- ----------
1,191,187 1,037,401
---------- ----------
Operating income 213,762 140,936
Other income (expense)
Interest expense (13,031) (21,020)
Interest income 3,959 10,795
Miscellaneous, net 791 (7,017)
---------- ----------
(8,281) (17,242)
---------- ----------
Income before income taxes 205,481 123,694
Income taxes 89,400 53,200
---------- ----------
Income before extraordinary charge 116,081 70,494
Extraordinary charge - (12,122)
---------- ----------
Net income $ 116,081 $ 58,372
========== ==========
Income per share
Before extraordinary charge $ 7.56 $ 4.29
Extraordinary charge - (.74)
---------- ----------
Net income $ 7.56 $ 3.55
========== ==========
Dividends per common share $ .05 $ .05
========== ==========
Average shares outstanding 15,345 16,435
2
CAPITAL CITIES/ABC, INC.
------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
(Thousands of Dollars)
April 3, December 31,
1994 1993
----------- ------------
(Unaudited) (Audited)
Assets
- - - - ------
Current assets
Cash and short-term cash investments $ 330,001 $ 264,283
Short-term investments 198,813 173,823
Accounts and notes receivable, net 819,590 881,955
Program licenses and rights 495,017 495,125
Other current assets 184,621 176,966
---------- ----------
Total current assets 2,028,042 1,992,152
---------- ----------
Property, plant and equipment, at cost 2,062,161 2,070,013
Less accumulated depreciation (775,355) (751,286)
---------- ----------
Property, plant and equipment, net 1,286,806 1,318,727
---------- ----------
Intangible assets, net 2,028,254 2,034,680
Program licenses and rights, noncurrent 199,175 190,925
Other assets 375,768 256,134
---------- ----------
$5,918,045 $5,792,618
========== ==========
Liabilities and Stockholders' Equity
- - - - ------------------------------------
Current liabilities
Accounts payable $ 150,016 $ 144,249
Accrued compensation 72,050 102,992
Accrued expenses and other current
liabilities 242,406 210,626
Program licenses and rights 165,845 264,935
Taxes on income 203,294 142,640
Long-term debt due within one year 3,333 5,299
---------- ----------
Total current liabilities 836,944 870,741
Deferred compensation 112,454 109,649
Deferred income taxes 264,218 240,935
Program licenses and rights, noncurrent 52,938 42,233
Other liabilities 243,338 243,859
Long-term debt due after one year 614,742 616,661
---------- ----------
Total liabilities 2,124,634 2,124,078
---------- ----------
Minority interest 90,195 96,424
---------- ----------
Stockholders' equity
Preferred stock, no par value - -
Common stock, $1 par value
(80,000,000 shares authorized) 18,394 18,394
Additional paid-in capital 1,030,554 1,030,634
Unrealized gains/(losses) on investments 43,088 -
Retained earnings 4,207,997 4,092,683
---------- ----------
5,300,033 5,141,711
Less common stock in treasury, at cost (1,596,817) (1,569,595)
---------- ----------
Total stockholders' equity 3,703,216 3,572,116
---------- ----------
$5,918,045 $5,792,618
========== ==========
3
CAPITAL CITIES/ABC, INC.
------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
------------------------------------------------
(Thousands of Dollars)
Three Months Ended
----------------------
April 3, March 28,
---------- ----------
1994 1993
---------- ----------
Cash flows from operating activities
Net income $116,081 $ 58,372
Adjustments to reconcile net income to net cash
Noncash and nonoperating items
Depreciation 25,935 23,652
Amortization of intangible assets 15,814 15,448
(Decrease) increase in deferred liabilities (3,731) 1,000
Extraordinary charge, early debt redemption - 12,122
Other noncash and nonoperating items, net 247 6,281
Changes in operating assets and liabilities,
net of effects of acquisitions and dispositions
(Increase) in program assets and liabilities, net (96,527) (110,840)
Decrease in accounts receivable 65,660 81,359
Increase in accounts payable, accrued
expenses and other current liabilities 67,831 24,308
(Increase) in other operating assets, net (7,402) (4,177)
-------- ---------
Net cash provided by operating activities 183,908 107,525
-------- ---------
Cash flows from investing activities
Capital expenditures (30,384) (19,938)
(Increase) decrease in short-term investments (26,247) 24,590
Acquisition of operating companies and
equity investments (27,460) (608)
Proceeds from dispositions of real estate 22,000 -
Other investing activities, net (24,120) 9,552
-------- ---------
Net cash (used in) provided by investing activities (86,211) 13,596
-------- ---------
Cash flows from financing activities
Reduction of long-term debt (3,910) (201,621)
Common stock purchased for treasury (27,345) (15,372)
Dividends (767) (821)
Other financing activities, net 43 177
-------- ---------
Net cash (used in) financing activities (31,979) (217,637)
-------- ---------
Net increase (decrease) in cash and short-term
cash investments 65,718 (96,516)
Cash and short-term cash investments
Beginning of period 264,283 686,928
-------- ---------
End of period $330,001 $ 590,412
======== =========
* * * * * *
Cash and short-term cash investments at April 3, 1994 and March 28, 1993
excludes $198,813,000 and $486,255,000, 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)
----------------------------------------------------------
Three Months Ended April 3, 1994
(Thousands of Dollars)
Unrealized
Additional gains/
Common paid-in (losses) on Retained Treasury
stock capital investments earnings stock Total
------- ---------- ----------- --------- -------- -----
Balance at December
31, 1993 $18,394 $1,030,634 $ - $4,092,683 $(1,569,595) $3,572,116
Adjustment to
beginning balance
for change in
accounting method,
net of income
taxes of $32,174 - - 46,491 - - 46,491
Change in unrealized
gains/(losses),
net of income
taxes of $2,355 - - (3,403) - - (3,403)
Net income for
three months - - - 116,081 - 116,081
325 shares issued
from exercise of
employee stock
options - (80) - - 123 43
44,600 shares
purchased for
treasury - - - - (27,345) (27,345)
Dividends - - - (767) - (767)
------- ---------- ------- ----------- ----------- ----------
Balance at
April 3, 1994 $18,394 $1,030,554 $43,088 $4,207,997 $(1,596,817) $3,703,216
======= ========== ======= ========== =========== ==========
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) 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 as of January 1, 1994 of
adopting Statement 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 lower of cost or
market.
Short-term investments which consist of highly liquid U.S. Government
instruments with original maturities in excess of three months are
classified as available-for-sale and as of April 3, 1994, have a cost of
$200,070,000 and a fair value of $198,813,000. Also classified as
available-for-sale are marketable equity securities which are included in
"Other assets" on the balance sheet with a cost of $5,570,000 and a market
value of $79,734,000.
Cash and short-term cash investments include $305,794,000 of securities
which are classified as held-to-maturity. They consist primarily of highly
liquid U.S. Government obligations with maturities of three months or less
and are carried at amortized cost, which approximates market.
(3) The cumulative effect of adopting Financial Accounting Standard No. 112,
"Employers' Accounting for Postemployment Benefits" is immaterial, and
therefore, no adjustment was deemed necessary.
6
CAPITAL CITIES/ABC, INC.
------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
A summary of the Company's operations by business segment for the first
quarter is as follows (in thousands of dollars):
Three Months Ended
------------------------
April 3, March 28,
----------- -----------
1994 1993
----------- -----------
Broadcasting
------------
Net revenues $1,144,949 $ 946,946
---------- ----------
Direct operating costs 935,946 807,375
Amortization of intangible assets 11,748 11,887
---------- ----------
Costs and expenses 947,694 819,262
---------- ----------
Income from operations $ 197,255 $ 127,684
========== ==========
Publishing
----------
Net revenues $ 260,000 $ 231,391
---------- ----------
Direct operating costs 228,266 204,962
Amortization of intangible assets 4,066 3,561
---------- ----------
Costs and expenses 232,332 208,523
---------- ----------
Income from operations $ 27,668 $ 22,868
========== ==========
Consolidated
------------
Net revenues $1,404,949 $1,178,337
========== ==========
Income from operations 224,923 150,552
General corporate expense (11,161) (9,616)
---------- ----------
Operating income $ 213,762 $ 140,936
========== ==========
Results of Operations
---------------------
As a result of the Company's fiscal calendar, the first quarter of 1994
had six more days than the first quarter of 1993 (the fourth quarter of 1994
will have six fewer days). In addition, the broadcast of the Academy Awards
occurred in the first quarter of 1994 versus the second quarter of 1993.
Consolidated net revenues for the first quarter of 1994 were
$1,404,949,000, up 19% from the $1,178,337,000 reported in 1993.
Broadcasting net revenues for the first quarter of 1994 were $1,144,949,000
compared with $946,946,000 in 1993, a 21% increase. Excluding the six
additional days in 1994 and the first quarter broadcast of the Academy
Awards, total Company and broadcasting net
7
revenues increased approximately 10% and 11%, respectively. The ABC
Television Network and the Company's television stations reported a
significant increase in revenues in the first quarter of 1994. These
increases were due to greater advertising demand as well as the quarter-to-
quarter differences discussed above. The ABC Television Network and
television stations revenue gains were achieved despite the broadcast of the
Winter Olympics on another network. Cable and International operations
reported very significant revenue increases, with most of the gain recorded
at ESPN. Radio revenues rose significantly as a result of greater
advertising demand and the additional days in the first quarter of 1994.
Publishing revenues increased 12%. The newspaper operations reported
significant increases and the specialized publications, excluding
acquisitions, dispositions and start-ups, reported moderate gains. The
newspaper operations also benefited by the six additional days in 1994's
first quarter.
Total costs and expenses for the first quarter of 1994 were
$1,191,187,000 compared with $1,037,401,000 in 1993, a 15% increase.
Excluding the quarter-to-quarter differences discussed above, total company
expenses increased approximately 7%. Broadcasting costs in 1994 increased 16%
from 1993. Absent the quarter-to-quarter differences previously noted,
broadcasting costs increased 7%. Network and television station expenses rose
only moderately after the quarter-to-quarter differences are excluded, while
radio costs rose significantly due to higher programming and general and
administrative expense. Costs at the Cable and International Group increased
significantly, mainly due to higher programming expenses at ESPN. Publishing
expenses increased 11% in 1994 due to higher circulation, advertising and
general and administrative expenses at both the newspaper and specialized
publications operations.
Operating income for the first quarter of 1994 was $213,762,000, an
increase of 52% from 1993, with broadcasting increasing 54%. Excluding the
six additional days in the quarter and the broadcast of the Academy Awards,
operating income increased 34% in the first quarter of 1994 compared with
1993. The ABC Television Network and television station operating income
increased significantly, partially as a result of the above factors, and
partially because of improved advertiser demand. ESPN and the radio
operations also reported significant earnings gains. Publishing operating
income increased 21%, primarily due to gains reported at the newspaper
operations. Excluding the effects of acquisitions, dispositions and start-
ups, publishing earnings increased 27%.
Net financial expense (interest expense less interest income) for the
first quarter of 1994 decreased $1,153,000 from 1993. Interest expense
decreased $7,989,000, primarily as a result of a reduction of outstanding
long-term debt. Interest income was $6,836,000 lower in the first quarter of
1994 primarily due to the substantial use of cash for long-term debt
reductions and repurchases of common stock and lower
8
interest rates. Interest of $1,873,000 and $2,695,000 was capitalized in the
first quarter of 1994 and 1993, respectively.
The Company's income tax provision for the first quarter of 1994 has
been computed by applying the estimated 1994 annual effective income tax rate
of 43.5% to income before taxes. For the full year 1993, the effective tax
rate was 43.6%.
Consolidated net income for the first quarter of 1994 was $116,081,000,
compared with $70,494,000 reported in 1993 (before an extraordinary charge),
an increase of 65%. Earnings per share for the first quarter of 1994 were a
record $7.56, an increase of 76% from the $4.29 reported in 1993 (before an
extraordinary charge). The six additional days in the first quarter of 1994
and the first quarter broadcast of the Academy Awards increased earnings per
share by approximately $1.00 (after-tax). Average shares outstanding for
1994 were 15,345,000 compared with 16,435,000 in 1993, the decline reflecting
repurchases of the Company's common stock during 1993 and 1994.
During the first quarter of 1993, the Company redeemed $200,000,000 of 8
1/4% notes due 1996 and called for the redemption of $300,000,000 of 8 3/4%
sinking fund debentures due 2016. An extraordinary charge of $12,122,000
(net of income taxes), or $0.74 per share, resulted from these transactions.
Liquidity and Capital Resources
-------------------------------
Net Cash Provided By Operating Activities
-----------------------------------------
For the first quarter of 1994, net cash provided by operating activities
was $183,908,000, an increase of $76,383,000 from the $107,525,000 reported
in 1993. The increase was primarily attributable to higher 1994 net income,
a smaller increase in net program licenses and rights and favorable changes
in other working capital accounts.
Net Cash Used In Investing Activities
-------------------------------------
For the first quarter of 1994, net cash used in investing activities was
$86,211,000, an increased use of $99,807,000 from the $13,596,000 provided in
1993. A higher level of capital spending and acquisition activity as well as
an increase in short-term investments in 1994 compared with a decrease of
such investments in 1993 accounted for most of the increased use of cash in
investing activities.
Net Cash Used In Financing Activities
-------------------------------------
For the first quarter of 1994, net cash used in financing activities was
$31,979,000, a decrease of $185,658,000 from the $217,637,000 used in 1993.
The decrease was primarily attributable to a substantial reduction in long-
term debt payments partially offset by an increase of common stock
repurchases.
9
At April 3, 1994, cash and short-term cash investments were
$330,001,000, an increase of $65,718,000 from December 31, 1993. However,
after the inclusion of short-term investments, the balance at April 3, 1994
aggregated $528,814,000, an increase of $90,708,000 from $438,106,000 at
December 31, 1993. The Company's policy is very conservative with respect to
investment of its cash. At April 3, 1994, substantially all of the Company's
cash was invested in highly liquid United States Government securities with a
weighted average life to maturity of 114 days. The Financial Accounting
Standards Board requirements arbitrarily define cash equivalents as those
investments with original maturities at the date of purchase of three months
or less. At April 3, 1994, $198,813,000 of the Company's investments did not
meet the definition of a cash equivalent and are therefore classified in the
consolidated financial statements as short-term investments. The Company
believes that this distinction is not meaningful with respect to the
statement of its cash and cash equivalents position.
Interest paid during the first quarter of 1994 and 1993 was $14,847,000
and $35,739,000, respectively. Income taxes paid, net of refunds received,
during the first quarter of 1994 and 1993 was $44,172,000 and $21,326,000,
respectively.
Interest-bearing debt at April 3, 1994 and December 31, 1993 was as
follows (000's omitted):
April 3, December 31,
-------- ------------
1994 1993
-------- ------------
Commercial paper supported by
bank revolving credit agreement $100,000 $100,000
8 7/8% notes due 2000 250,000 250,000
8 3/4% debentures due 2021 250,000 250,000
Other long-term debt 18,075 21,960
-------- --------
$618,075 $621,960
======== ========
A subsidiary of the Company has issued commercial paper, $100,000,000 of
which is outstanding at April 3, 1994, at a weighted average interest rate of
3.32%. The commercial paper is supported by a $1,000,000,000 bank revolving
credit agreement terminating on June 30, 1995, unless otherwise extended.
The amount of commercial paper outstanding at April 3, 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 1994 is expected to fluctuate and
may be reduced from time to time.
10
The Company has unconditionally guaranteed the commercial paper and any
borrowings which may be made by a subsidiary under the bank revolving credit
agreement.
During 1991, the Securities and Exchange Commission declared effective a
shelf registration statement of the Company which allows for issuance of up
to $500,000,000 in additional debt securities.
At April 3, 1994 and at December 31, 1993, interest-bearing debt
represented 13% and 14%, respectively, of the Company's total capitalization.
Capital expenditures in the first quarter of 1994 were $30,384,000. The
Company anticipates total 1994 capital expenditures for property, plant and
equipment will be approximately $145,000,000.
As the operator of the ABC Television Network, ESPN and eight television
stations, the Company will continue to enter into commitments to purchase the
broadcast rights to various sports events, feature films and other
programming. Total commitments to purchase broadcast programming
approximated $3,415,000,000 at April 3, 1994. This amount is substantially
payable over the next five years. The Company plans to fund its operations
and commitments from internally generated funds and, if needed, from the
various external sources of funds which are available.
11
PART II
-------
OTHER INFORMATION
-----------------
ITEM 1. Legal Proceedings
-----------------
Not applicable.
ITEM 2. Changes in Securities
---------------------
Not applicable.
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
ITEM 5. Other Information
-----------------
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
None.
(b) Reports on Form 8-K
None filed during First Quarter 1994.
12
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPITAL CITIES/ABC, INC.
----------------------------------
(Registrant)
Date: May 6, 1994 /S/ Ronald J. Doerfler
----------------------------------
Ronald J. Doerfler
Senior Vice President and
Chief Financial Officer