-----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, VXmF9Jsmm0sJP49fZaBpRs7/7LIUwuNHBzG0qOGWqReKTW//+VFUx6yqxSTWdX1l kSnLzuh3F0OYkY9DHF59Hw== 0000950159-96-000213.txt : 19961115 0000950159-96-000213.hdr.sgml : 19961115 ACCESSION NUMBER: 0000950159-96-000213 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: STORER COMMUNICATIONS INC CENTRAL INDEX KEY: 0000094679 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 592638096 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03872 FILM NUMBER: 96661191 BUSINESS ADDRESS: STREET 1: CENTER SQUARE EAST TOWER STREET 2: 1500 MARKET STREET 33RD FLOOR CITY: PHILADELPHIA STATE: PA ZIP: 19192-2148 BUSINESS PHONE: 2156651700 10-Q 1 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. 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. 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)
(Dollars in thousands) September 30, December 31, 1996 1995 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 =========== ===========
See notes to condensed consolidated financial statements. 2 STORER COMMUNICATIONS, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1996 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT (Unaudited)
(Dollars in thousands) Nine Months Ended Three Months Ended September 30, September 30, 1996 1995 1996 1995 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) =========== =========== =========== ===========
See notes to condensed consolidated financial statements. 3 STORER COMMUNICATIONS, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1996 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(Dollars in thousands) Nine Months Ended September 30, 1996 1995 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 ========= =========
See notes to condensed consolidated financial statements. 4 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 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 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):
Nine Months Ended September 30, Increase 1996 1995 $ % 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% ======== ======== - ------ (a) See footnote (1) on page 8.
7 STORER COMMUNICATIONS, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1996
Three Months Ended September 30, Increase / (Decrease) 1996 1995 $ % 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% ======== ======== - ------------ (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.
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 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 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 EX-27.1 2
5 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. 0000094679 STORER COMMUNICATIONS INC 1,000 9-MOS DEC-31-1996 SEP-30-1996 1,282 0 15,858 (2,935) 0 0 703,413 (329,182) 1,868,870 0 126,086 0 0 0 1,191,275 1,868,870 321,077 321,077 0 (279,089) 0 0 (12,474) 29,738 (15,508) 14,230 0 0 0 14,230 0 0 The company utilizes an unclassified balance sheet. As a result, a zero value is reported for both current assets and current liabilities.
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