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 2, 1995
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 chapter)
NEW YORK 14-1284013
(State of incorporation) (I.R.S. Employer
Identification No.)
77 WEST 66TH STREET, NEW YORK, NEW YORK 10023
(Address of principal 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 28, 1995: 153,926,413 shares, excluding 30,008,547
treasury shares.
PART I FINANCIAL INFORMATION
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CAPITAL CITIES/ABC, INC.
------------------------
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
--------------------------------------------
(Thousands of Dollars)
Three Months Ended
------------------------
April 2, April 3,
----------- -----------
1995 1994
----------- -----------
Net revenues $1,606,815 $1,404,949
---------- ----------
Costs and expenses
Direct operating expenses 951,592 864,449
Selling, general and administrative 326,248 284,989
Depreciation 28,022 25,935
Amortization of intangible assets 16,059 15,814
---------- ----------
1,321,921 1,191,187
---------- ----------
Operating income 284,894 213,762
Other income (expense)
Interest expense (14,493) (13,031)
Interest income 14,689 3,959
Miscellaneous, net (5,931) 791
---------- ----------
(5,735) (8,281)
---------- ----------
Income before income taxes 279,159 205,481
Income taxes 121,400 89,400
---------- ----------
Net income $ 157,759 $ 116,081
---------- ----------
Net income per share $1.02 $0.76
---------- ----------
Dividends per common share $0.05 $.005
---------- ----------
Average shares outstanding 154,060 153,450
---------- ----------
(000's)
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CAPITAL CITIES/ABC, INC.
------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
(Thousands of Dollars)
April 2, December 31,
------------ -------------
1995 1994
------------ -------------
(Unaudited) (Audited)
Assets
- ------
Current assets
Cash and short-term cash investments $ 896,059 $ 781,371
Short-term investments 374,458 238,029
Accounts and notes receivable, net 920,753 1,056,280
Program licenses and rights 515,491 440,443
Other current assets 214,651 200,064
----------- -----------
Total current assets 2,921,412 2,716,187
----------- -----------
Property, plant and equipment, at cost 2,144,523 2,122,494
Less accumulated depreciation (853,704) (831,838)
----------- -----------
Property, plant and equipment, net 1,290,819 1,290,656
----------- -----------
Intangible assets, net 2,029,070 1,999,305
Program licenses and rights, 159,947 195,563
noncurrent
Investment in unconsolidated equity
affiliates 336,581 334,460
Other assets 226,686 232,041
----------- -----------
$ 6,964,515 $ 6,768,212
----------- -----------
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities
Accounts payable $ 151,884 $ 163,566
Accrued compensation 71,718 131,370
Accrued expenses and other current
liabilities 313,352 273,254
Program licenses and rights 271,221 281,923
Taxes on income 243,830 189,267
Long-term debt due within one year 3,413 4,176
----------- -----------
Total current liabilities 1,055,418 1,043,556
Deferred compensation 207,115 188,492
Deferred income taxes 245,368 247,532
Program licenses and rights, 40,745 39,259
noncurrent
Other liabilities 238,100 233,987
Long-term debt due after one year 610,631 610,666
----------- -----------
Total liabilities 2,397,377 2,363,492
----------- -----------
Minority interest 129,402 116,163
----------- -----------
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 1,036,059 1,036,068
Unrealized net gains on investments 55,983 57,008
Retained earnings 4,898,680 4,748,624
----------- -----------
6,009,116 5,860,094
Less common stock in treasury, at (1,571,380) (1,571,537)
cost
Total stockholders' equity 4,437,736 4,288,557
----------- -----------
$ 6,964,515 $ 6,768,212
----------- -----------
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CAPITAL CITIES/ABC, INC.
------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
------------------------------------------------
(Thousands of Dollars)
Three Months Ended
------------------
April 2, April 3,
-------- --------
1995 1994
---- ----
Cash flows from operating activities
Net income $ 157,759 $116,081
Adjustments to reconcile net income
to net cash
Noncash and nonoperating items
Depreciation 28,022 25,935
Amortization of intangible assets 16,059 15,814
Increase (decrease) in deferred
liabilities 17,169 (3,731)
Other noncash and nonoperating
items, net 20,988 5,450
Changes in operating assets and
liabilities, net of effects of acquisitions
and dispositions
(Increase) in program assets and
liabilities, net (48,648) (96,527)
Decrease in accounts receivable 135,996 65,660
Increase in accounts payable,
accrued expenses and other current
liabilities 22,826 67,831
(Increase) in other operating
assets, net (14,576) (7,402)
Net cash provided by operating --------- --------
activities 335,595 189,111
--------- --------
Cash flows from investing activities
Capital expenditures (27,563) (30,384)
(Increase) in short-term investments (136,363) (26,247)
Acquisitions of operating companies
and equity investments (47,012) (27,460)
Proceeds from dispositions of real
estate - 22,000
Other investing activities, net (1,616) (29,323)
--------- --------
Net cash (used in) investing activities (212,554) (91,414)
--------- --------
Cash flows from financing activities
Reduction of long-term debt (798) (3,910)
Common stock purchased for treasury - (27,345)
Dividends (7,703) (767)
Other financing activities, net 148 43
--------- --------
Net cash (used in) financing activities (8,353) (31,979)
--------- --------
Net increase in cash and short-term
cash investments 114,688 65,718
Cash and short-term cash investments
Beginning of period 781,371 264,283
--------- --------
End of period $ 896,059 $330,001
--------- --------
* * * * * * *
Cash and short-term cash investments at April 2, 1995 and April 3, 1994 excludes
$374,458,000 and $198,813,000, 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 2, 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
three months - - - 157,759 - 157,759
3,858 shares issued
from exercise of
employee stock
options - (9) - - 157 148
Dividends - - - (7,703) - (7,703)
Change in
unrealized net
gains, net of
income taxes of
$710 - - (1,025) - - (1,025)
Balance at April 2, ------- ---------- ----------- ---------- ----------- -----------
1995 $18,394 $1,036,059 $55,983 $4,898,680 $(1,571,380) $(4,437,736)
------- ---------- ----------- ---------- ----------- -----------
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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) Earnings per share, average shares outstanding and
dividends per share for 1994 have been restated to
reflect the Company's ten-for-one stock split which
became effective June 3, 1994.
-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 2, April 3,
----------- -----------
1995 1994
----------- -----------
Broadcasting
- ------------
Net revenues $1,329,804 $1,144,949
---------- ----------
Direct operating costs 1,050,850 935,946
Amortization of intangible assets 12,092 11,748
---------- ----------
Costs and expenses 1,062,942 947,694
---------- ----------
Income from operations $ 266,862 $ 197,255
---------- ----------
Publishing
- ----------
Net revenues $ 277,011 $ 260,000
---------- ----------
Direct operating costs 242,439 228,266
Amortization of intangible assets 3,967 4,066
---------- ----------
Costs and expenses 246,406 232,332
---------- ----------
Income from operations $ 30,605 $ 27,668
---------- ----------
Consolidated
- ------------
Net revenues $1,606,815 $1,404,949
---------- ----------
Income from operations 297,467 224,923
General corporate expense (12,573) (11,161)
---------- ----------
Operating income $ 284,894 $ 213,762
---------- ----------
Results of Operations
- ---------------------
Consolidated net revenues for the first quarter of 1995 were
$1,606,815,000, up 14% from the $1,404,949,000 reported in 1994. Broadcasting
net revenues for the first quarter of 1995 were $1,329,804,000, compared with
$1,144,949,000 in 1994, a 16% increase. The ABC Television Network and the
television stations reported a significant increase in net revenues for the
first quarter of 1995. These gains were due to greater advertiser demand and
the broadcast of Super Bowl XXIX in 1995, and in part to the absence of the
Winter Olympics, which were broadcast on another network in 1994. ESPN
continued to report significant revenue increases, while radio revenues
increased moderately as a result of greater advertiser demand and recent radio
station acquisitions. Publishing Group revenues increased 7%, with the
newspaper operations reporting somewhat stronger gains than the specialized
publications.
-7-
Total costs and expenses for the first quarter of 1995 were
$1,321,921,000 compared with $1,191,187,000 reported in 1994, an 11% increase.
Broadcasting costs in the first quarter of 1995 increased 12% from 1994. Costs
and expenses for the ABC Television Network increased significantly, primarily
due to higher programming, affiliate compensation, production and general and
administrative expenses. Programming at the Network included higher expenses
due to the telecast of the 1995 Super Bowl and Pro Bowl in 1995 versus the final
1993 NFL regular season game and Wildcard playoff games in 1994. Television
station expenses rose moderately due to higher news, general and administrative
costs and syndicated programming expense. ESPN expenses increased slightly in
the first quarter of 1995. Increased programming, sales and general and
administrative costs were substantially offset by the absence of the telecast of
National Football League games in the first quarter of 1995. Costs at the
Company's radio operations increased moderately, mainly due to higher selling,
general and administrative expenses, affiliate compensation expense and the
inclusion of recently acquired stations. Publishing Group costs increased 6%
from 1994, due to higher newsprint, advertising and general and administrative
expenses.
Operating income for the first quarter of 1995 was $284,894,000 compared
with $213,762,000 reported in 1994, an increase of 33%. Broadcasting operating
income rose 35% from 1994. The ABC Television Network and the television
stations operating income increased significantly, primarily because of improved
advertiser demand. ESPN and the radio operations also reported significant
earnings gains. Publishing earnings increased 11%, with improvements reported
at both the newspaper operations and the specialized publications.
Net interest income (interest income less interest expense) for the first
quarter of 1995 increased $9,268,000 from 1994. Interest income was $10,730,000
higher in the first quarter of 1995 due to a higher level of invested cash, as
well as higher interest rates in 1995. Interest expense increased $1,462,000,
primarily as a result of a reduction of capitalized interest. Interest of
$899,000 and $1,873,000 was capitalized in the first quarter of 1995 and 1994,
respectively.
The Company's income tax provision for the first quarter of 1995 has been
computed by applying the estimated 1995 annual effective income tax rate of
43.5% to income before taxes. For the full year 1994, the effective tax rate
was 43.6%.
Consolidated net income for the first quarter of 1995 was $157,759,000
compared with $116,081,000 reported for the same period of 1994. Earnings per
share for the first quarter of 1995 were $1.02, an increase of 34% from the
$0.76 reported in last year's comparable quarter. Average shares outstanding
for the
-8-
first quarter of 1995 were 154,060,000 compared with 153,450,000
in 1994. Earnings per share and average shares outstanding for 1994 have been
restated to reflect the Company's ten-for-one stock split effective June 3,
1994.
Given the performance for the second through fourth quarters of 1994, the
Company anticipates that comparative earnings gains for the balance of 1995 are
likely to be more moderate than those achieved in the first quarter of 1995.
Liquidity and Capital Resources
- -------------------------------
Net Cash Provided By Operating Activities
- -----------------------------------------
For the first quarter of 1995, net cash provided by operating activities
was $335,595,000, an increase of $146,484,000 from the $189,111,000 reported in
1994. The increase was attributable to higher 1995 net income, a smaller
increase in net program assets than in the prior year, increases in deferred
liabilities and positive changes in other working capital items.
Net Cash Used In Investing Activities
- -------------------------------------
For the first quarter of 1995, net cash used in investing activities was
$212,554,000, an increase of $121,140,000 from the $91,414,000 used in the prior
year. An increase in acquisition activity and an increase in short-term
investments accounted for most of the increased use of cash for investing
activities.
Net Cash Used In Financing Activities
- -------------------------------------
For the first quarter of 1995, net cash used in financing activities was
$8,353,000, a decrease of $23,626,000 from the $31,979,000 used in 1994. The
decrease was primarily attributable to the absence of common stock repurchases,
partially offset by higher cash dividends paid.
At April 2, 1995, cash and short-term cash investments were $896,059,000,
an increase of $114,688,000 from December 31, 1994. However, after the
inclusion of short-term investments, the balance at April 2, 1995 aggregated
$1,270,517,000, an increase of $251,117,000 from $1,019,400,000 at December 31,
1994. The Company's policy is very conservative with respect to investment of
its cash. At April 2, 1995, substantially all of the Company's cash was
invested in highly liquid United States Government securities with a weighted
average life to maturity of 50 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
2, 1995, $374,458,000 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.
-9-
Interest paid during the first quarter of 1995 and 1994 was $15,081,000
and $14,847,000, respectively. Income taxes paid, net of refunds received,
during the first quarter of 1995 and 1994 was $77,526,000 and $44,172,000,
respectively.
Interest-bearing debt at April 2, 1995 and December 31, 1994 was as
follows (000's omitted):
April 2, December 31,
-------- ------------
1995 1994
---- ----
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 14,044 14,842
-------- --------
$614,044 $614,842
-------- --------
A subsidiary of the Company has issued commercial paper, $100,000,000 of
which is outstanding at April 2, 1995, at a weighted average interest rate of
6.2%. The commercial paper is supported by a $1,000,000,000 bank revolving
credit agreement terminating on June 30, 1999, unless otherwise extended. The
amount of commercial paper outstanding at April 2, 1995 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.
At April 2, 1995 and at December 31, 1994, interest-bearing debt
represented 11% and 12%, respectively, of the Company's total capitalization.
Capital expenditures in the first quarter of 1995 were $27,563,000. The
Company anticipates that 1995 capital expenditures for property, plant and
equipment will be approximately $150,000,000.
As the operator of the ABC Television Network, ESPN and television and
radio stations, the Company expects to continue to enter into programming
commitments to purchase the broadcast rights for various feature film, sports
and other programming. Total commitments to purchase broadcast programming
approximated $3,842,000,000 at April 2, 1995. 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.
-10-
PART II
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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 1995.
-11-
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 8, 1995 /S/ Ronald J. Doerfler
--------------------------
Ronald J. Doerfler
Senior Vice President and
Chief Financial Officer