UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(x) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended:
SEPTEMBER 30, 1996
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 1-3872
STORER COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 59-2638096
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Market Street, Philadelphia, PA 19102-2148
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
--------------------------
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 twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes [X] No [ ]
--------------------------
As of September 30, 1996, there were 239.99 shares of Common Stock outstanding.
The Registrant meets the conditions set forth in General Instructions H (1)(a)
and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
<PAGE>
STORER COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of
September 30, 1996 and December 31, 1995
(Unaudited) 2
Condensed Consolidated Statement of Operations and
Accumulated Deficit for the Nine and Three Months
Ended September 30, 1996 and 1995 (Unaudited) 3
Condensed Consolidated Statement of Cash Flows for
the Nine Months Ended September 30, 1996 and 1995
(Unaudited) 4
Notes to Condensed Consolidated Financial
Statements (Unaudited) 5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
-----------------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Quarterly
Report is forward-looking, such as information relating to future capital
commitments and the effects of future regulation. Such forward-looking
information involves important risks and uncertainties that could significantly
affect expected results in the future from those expressed in any
forward-looking statements made by, or on behalf of, the Company. These risks
and uncertainties include, but are not limited to, uncertainties relating to
economic conditions, acquisitions and divestitures, government and regulatory
policies, the pricing and availability of equipment, materials, inventories and
programming, technological developments and changes in the competitive
environment in which the Company operates.
<PAGE>
STORER COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
September 30, December 31,
1996 1995
<S> <C> <C>
ASSETS
Cash and cash equivalents ................................................ $ 1,282 $ 1,386
----------- -----------
Accounts receivable, less allowance for doubtful
accounts of $2,935 and $2,605 ......................................... 12,923 14,737
----------- -----------
Prepaid charges and other ................................................ 5,051 3,701
----------- -----------
Property and equipment ................................................... 703,413 671,153
Accumulated depreciation .............................................. (329,182) (307,945)
----------- -----------
Property and equipment, net ........................................... 374,231 363,208
----------- -----------
Deferred charges ......................................................... 1,495,177 1,492,906
Accumulated amortization .............................................. (296,246) (267,680)
----------- -----------
Deferred charges, net ................................................. 1,198,931 1,225,226
----------- -----------
Due from affiliates ...................................................... 253,101 215,013
Investment................................................................ 19,493 17,941
Other assets.............................................................. 3,858 3,844
----------- -----------
$ 1,868,870 $ 1,845,056
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued expenses .................................... $ 49,941 $ 54,310
Accrued interest.......................................................... 5,232 1,749
Other liabilities ........................................................ 23,542 33,136
Debt ..................................................................... 126,086 124,615
Deferred income taxes .................................................... 472,794 456,658
----------- -----------
Total liabilities ................................................. 677,595 670,468
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock, $.01 par value - authorized, 10,000 shares;
issued and outstanding, 239.99 shares
Additional capital .................................................... 2,993,544 2,923,635
Accumulated deficit ................................................... (1,114,412) (1,128,642)
Unrealized gain on marketable securities .............................. 10,716 9,707
Finance Sub securities ................................................ (698,573) (630,112)
----------- -----------
Total stockholder's equity ........................................ 1,191,275 1,174,588
----------- -----------
$ 1,868,870 $ 1,845,056
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
STORER COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
Nine Months Ended Three Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
SERVICE INCOME ....................... $ 321,077 $ 295,570 $ 107,577 $ 101,263
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Operating ......................... 138,333 127,945 46,259 43,767
Selling, general and administrative 63,569 59,857 21,626 20,216
Depreciation and amortization ..... 77,187 73,086 24,210 26,496
----------- ----------- ----------- -----------
279,089 260,888 92,095 90,479
----------- ----------- ----------- -----------
OPERATING INCOME ..................... 41,988 34,682 15,482 10,784
INVESTMENT (INCOME) EXPENSE
Interest expense .................. 12,474 11,927 4,143 4,092
Investment income and other ....... (224) (69) (57) (16)
----------- ----------- ----------- -----------
12,250 11,858 4,086 4,076
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE ..... 29,738 22,824 11,396 6,708
INCOME TAX EXPENSE ................... 15,508 10,990 5,688 3,349
----------- ----------- ----------- -----------
NET INCOME ........................... 14,230 11,834 5,708 3,359
ACCUMULATED DEFICIT
Beginning of period ............... (1,128,642) (1,144,253) (1,120,120) (1,135,778)
----------- ----------- ----------- -----------
End of period ..................... ($1,114,412) ($1,132,419) ($1,114,412) ($1,132,419)
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
STORER COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
Nine Months Ended September 30,
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net income .................................................... $ 14,230 $ 11,834
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ............................... 77,187 73,086
Non-cash interest expense ................................... 1,847 1,790
Deferred income tax expense (benefit) ....................... 14,008 (3,199)
--------- ---------
107,272 83,511
Decrease (increase) in accounts receivable, prepaid charges
and other and other assets ................................ 450 (3,942)
(Decrease) increase in accounts payable and accrued expenses,
accrued interest and other liabilities .................... (10,856) 2,329
--------- ---------
Net cash provided by operating activities ............... 96,866 81,898
--------- ---------
FINANCING ACTIVITIES
Net transactions with affiliates .............................. (38,088) (26,744)
--------- ---------
Net cash used in financing activities ................... (38,088) (26,744)
--------- ---------
INVESTING ACTIVITIES
Additions to property and equipment and other ................. (61,915) (60,119)
Receipts on Finance Sub securities ............................ 3,033 4,598
--------- ---------
Net cash used in investing activities ................... (58,882) (55,521)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS ............................ (104) (367)
CASH AND CASH EQUIVALENTS, beginning of period ................... 1,386 1,329
--------- ---------
CASH AND CASH EQUIVALENTS, end of period ......................... $ 1,282 $ 962
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
STORER COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The condensed consolidated balance sheet as of December 31, 1995 has been
condensed from the audited balance sheet as of that date. The condensed
consolidated balance sheet as of September 30, 1996, the condensed
consolidated statement of operations and accumulated deficit for the nine
and three months ended September 30, 1996 and 1995 and the condensed
consolidated statement of cash flows for the nine months ended September
30, 1996 and 1995 have been prepared by Storer Communications, Inc. (the
"Company") and have not been audited by the Company's independent auditors.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows as of September 30, 1996 and for all
periods presented have been made.
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's December
31, 1995 Annual Report on Form 10-K filed with the Securities and Exchange
Commission. The results of operations for the periods ended September 30,
1996 are not necessarily indicative of operating results for the full year.
2. INVESTMENT
As of September 30, 1996 and December 31, 1995, the Company holds an
unrestricted equity investment in Turner Broadcasting System, Inc. ("TBS").
This investment, which was classified as available for sale, was recorded
at its estimated fair value of $19.5 million and $17.9 million,
respectively, based on the quoted market prices as of such dates. The
unrealized gain on this investment of $16.5 million and $14.9 million as of
September 30, 1996 and December 31, 1995, respectively, has been reported
in the Company's condensed consolidated balance sheet as an increase in
stockholder's equity, net of deferred income taxes of $5.8 million and $5.2
million, respectively.
As a result of the merger of Time Warner, Inc. ("Time Warner") and TBS,
which was consummated on October 10, 1996 (the "Merger Date"), the Company
received approximately 552,000 shares of Time Warner common stock (the
"Time Warner Stock") in exchange for all of the shares of TBS stock held by
the Company as of the Merger Date. The closing market price of the Time
Warner Stock on the Merger Date was $41.375 per share. The Company's
investment in TBS had an historical cost of approximately $3.0 million.
3. RELATED PARTY TRANSACTIONS
The Company's programming costs, management fees (based on 6% of gross
revenues) and certain administrative costs are charged to the Company by
Comcast Corporation ("Comcast"), the Company's indirect parent, and its
subsidiaries. These costs totaled $126.2 million, $114.1 million, $42.5
million and $38.6 million for the nine and three months ended September 30,
1996 and 1995, respectively, and are included in operating, selling,
general and administrative expenses.
Due from affiliates in the Company's condensed consolidated balance sheet
primarily consists of cash transfers to the Company's parent under a cash
management program, net of expenses charged to the Company by Comcast and
its subsidiaries.
5
<PAGE>
STORER COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
4. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company recognized non-cash dividends on the preferred stock of Comcast
Storer Finance Sub, Inc., an indirect wholly owned subsidiary of Comcast,
of approximately $67.0 million and $57.2 million during the nine months
ended September 30, 1996 and 1995, respectively. The preferred stock
dividends recognized were credited to additional capital in the Company's
condensed consolidated balance sheet.
5. CONTINGENCIES
The Company is subject to claims which arise in the ordinary course of its
business and other legal proceedings. In the opinion of management, the
amount of ultimate liability with respect to these actions will not
materially affect the financial position, results of operations or
liquidity of the Company.
The Company has settled the majority of outstanding proceedings challenging
its rates charged for regulated cable services. In December 1995, the
Federal Communications Commission ("FCC") adopted an order approving a
negotiated settlement of rate complaints pending against the Company for
cable programming service tiers ("CPSTs") which provided approximately $3.9
million in refunds, plus interest, being given in the form of bill credits,
to approximately 490,000 of the Company's cable subscribers. Approximately
$3.7 million and $1.2 million of bill credits for such refunds, including
interest, were given during the nine and three months ended September 30,
1996, respectively. This FCC order resolved the Company's benchmark rate
cases covering the period September 1993 through July 1994 and the
Company's cost-of-service cases for CPSTs covering the period September
1993 through December 1995. As part of the negotiated settlement, the
Company agreed to forego certain inflation and external cost adjustments
for systems covered by its cost-of-service filings for CPSTs. The Company
currently is seeking to justify rates for basic cable services and
equipment in certain of its cable systems in the State of Connecticut on
the basis of a cost-of-service showing. The State of Connecticut has
ordered the Company to reduce such rates and to make refunds to
subscribers. The Company has appealed the Connecticut decision to the FCC.
The Company's management believes that the ultimate resolution of these
pending regulatory matters will not have a material adverse impact on the
Company's financial position, results of operations or liquidity.
6
<PAGE>
STORER COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General Developments of Business
As a result of the merger of Time Warner, Inc. ("Time Warner") and Turner
Broadcasting System, Inc. ("TBS"), which was consummated on October 10, 1996
(the "Merger Date"), the Company received approximately 552,000 shares of Time
Warner common stock (the "Time Warner Stock") in exchange for all of the shares
of TBS stock held by the Company as of the Merger Date. The closing market price
of the Time Warner Stock on the Merger Date was $41.375 per share. The Company's
investment in TBS, which was classified as a long-term investment available for
sale, had an historical cost of approximately $3.0 million.
Liquidity and Capital Resources
The Company's business is capital intensive and continually requires cash for
development and expansion. The Company has historically met its cash needs
through its cash and cash equivalents, cash flows from operating activities as
well as interest and principal received on certain securities issued by Comcast
Storer Finance Sub, Inc., an indirect wholly owned subsidiary of Comcast
Corporation, to the Company (the "Finance Sub Securities").
The Company believes that it will be able to meet its current and long-term
liquidity needs and capital requirements, including fixed charges, through its
cash flows from operating activities, existing cash and cash equivalents,
interest and principal received on the Finance Sub Securities, amounts due from
affiliates and other external financing.
Results of Operations
Summarized consolidated financial information for the Company for the nine and
three months ended September 30, 1996 and 1995 is as follows (dollars in
millions, "NM" denotes percentage is not meaningful):
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Increase
1996 1995 $ %
<S> <C> <C> <C> <C>
Service income ............................... $ 321.1 $ 295.6 $ 25.5 8.6%
Operating, selling, general and administrative
expenses .................................. 201.9 187.8 14.1 7.5
-------- --------
Operating income before depreciation and
amortization (a) .......................... 119.2 107.8 11.4 10.6
Depreciation and amortization ................ 77.2 73.1 4.1 5.6
-------- --------
Operating income ............................. 42.0 34.7 7.3 21.0
-------- --------
Interest expense ............................. 12.5 11.9 0.6 5.0
Investment income and other .................. (0.2) 0.2 NM
Income tax expense ........................... 15.5 11.0 4.5 40.9
-------- --------
Net income ................................... $ 14.2 $ 11.8 $ 2.4 20.3%
======== ========
<FN>
- ------
(a) See footnote (1) on page 8.
</FN>
</TABLE>
7
<PAGE>
STORER COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Three Months Ended
September 30, Increase / (Decrease)
1996 1995 $ %
<S> <C> <C> <C> <C>
Service income ............................... $ 107.6 $ 101.3 $ 6.3 6.2%
Operating, selling, general and administrative
expenses .................................. 67.9 64.0 3.9 6.1
-------- --------
Operating income before depreciation and
amortization (1) .......................... 39.7 37.3 2.4 6.4
Depreciation and amortization ................ 24.2 26.5 (2.3) (8.7)
-------- --------
Operating income ............................. 15.5 10.8 4.7 43.5
-------- --------
Interest expense ............................. 4.1 4.1
Income tax expense ........................... 5.7 3.3 2.4 72.7
-------- --------
Net income ................................... $ 5.7 $ 3.4 $ 2.3 67.6%
======== ========
<FN>
- ------------
(1) Operating income before depreciation and amortization is commonly referred
to in the Company's business as "operating cash flow." Operating cash flow
is a measure of a company's ability to generate cash to service its
obligations, including debt service obligations, and to finance capital and
other expenditures. In part due to the capital intensive nature of the
Company's business and the resulting significant level of non-cash
depreciation and amortization expense, operating cash flow is frequently
used as one of the bases for evaluating the Company's business. Operating
cash flow does not purport to represent net income or net cash provided by
operating activities, as those terms are defined under generally accepted
accounting principles, and should not be considered as an alternative to
such measurements as an indicator of the Company's performance.
</FN>
</TABLE>
Of the $25.5 million and $6.3 million increases in service income for the nine
and three months periods from 1995 to 1996, $7.0 million and $2.2 million are
attributable to subscriber growth, $17.2 million and $4.9 million relate to
increases in rates and $1.3 million and ($800,000) relate to other product
offerings.
Of the $14.1 million and $3.9 million increases in operating, selling, general
and administrative expenses for the nine and three month periods from 1995 to
1996, $9.6 million and $3.5 million are attributable to increases in the cost of
cable programming as a result of subscriber growth, additional programming
offerings and changes in rates and $4.5 million and $400,000 result from
increases in the cost of labor and other volume related expenses. It is
anticipated that the Company's cost of cable programming will increase in the
future as cable programming rates increase and additional sources of cable
programming become available.
The $4.1 million increase in depreciation and amortization expense for the nine
month period from 1995 to 1996 is primarily due to the effects of the rebuild
and upgrade, in certain areas, of the Company's cable plant. The $2.3 million
decrease in depreciation and amortization expense for the three month period
from 1995 to 1996 is primarily attributable to the timing of the rebuild and
upgrade, in certain areas, of the Company's cable plant.
The $4.5 million and $2.4 million increases in income tax expense for the nine
and three month periods from 1995 to 1996 are primarily attributable to the
increases in income before income tax expense.
For the nine and three months ended September 30, 1996 and 1995, the Company's
earnings before income tax expense and fixed charges (interest expense) of $42.2
million, $34.8 million, $15.5 million and $10.8 million, respectively, exceeded
its fixed charges of $12.5 million, $11.9 million, $4.1 million and $4.1
million, respectively.
The Company believes that its operations are not materially affected by
inflation.
8
<PAGE>
STORER COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
Regulatory Developments
The Company has settled the majority of outstanding proceedings challenging its
rates charged for regulated cable services. In December 1995, the Federal
Communications Commission ("FCC") adopted an order approving a negotiated
settlement of rate complaints pending against the Company for cable programming
service tiers ("CPSTs") which provided approximately $3.9 million in refunds,
plus interest, being given in the form of bill credits, to approximately 490,000
of the Company's cable subscribers. Approximately $3.7 million and $1.2 million
of bill credits for such refunds, including interest, were given during the nine
and three months ended September 30, 1996, respectively. This FCC order resolved
the Company's benchmark rate cases covering the period September 1993 through
July 1994 and the Company's cost-of-service cases for CPSTs covering the period
September 1993 through December 1995. As part of the negotiated settlement, the
Company agreed to forego certain inflation and external cost adjustments for
systems covered by its cost-of-service filings for CPSTs. The Company currently
is seeking to justify rates for basic cable services and equipment in certain of
its cable systems in the State of Connecticut on the basis of a cost-of-service
showing. The State of Connecticut has ordered the Company to reduce such rates
and to make refunds to subscribers. The Company has appealed the Connecticut
decision to the FCC. The Company's management believes that the ultimate
resolution of these pending regulatory matters will not have a material adverse
impact on the Company's financial position, results of operations or liquidity.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is not party to litigation which, in the opinion of the
Company's management, will have a material adverse effect on the Company's
financial position, results of operations or liquidity.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
27.1 Financial Data Schedule.
(b) Reports on Form 8-K - None.
9
<PAGE>
STORER COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
STORER COMMUNICATIONS, INC.
/s/ JOSEPH J. EUTENEUER
-----------------------------------
Joseph J. Euteneuer
Vice President and Corporate Controller
(Acting Principal Financial
and Accounting Officer)
Date: November 13, 1996
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statement of operations and consolidated balance sheet and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000094679
<NAME> STORER COMMUNICATIONS INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,282
<SECURITIES> 0
<RECEIVABLES> 15,858
<ALLOWANCES> (2,935)
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 703,413
<DEPRECIATION> (329,182)
<TOTAL-ASSETS> 1,868,870
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 126,086
0
0
<COMMON> 0
<OTHER-SE> 1,191,275
<TOTAL-LIABILITY-AND-EQUITY> 1,868,870
<SALES> 321,077
<TOTAL-REVENUES> 321,077
<CGS> 0
<TOTAL-COSTS> (279,089)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (12,474)
<INCOME-PRETAX> 29,738
<INCOME-TAX> (15,508)
<INCOME-CONTINUING> 14,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,230
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>The company utilizes an unclassified balance sheet. As a result, a zero value
is reported for both current assets and current liabilities.
</FN>
</TABLE>
