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:
MARCH 31, 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 March 31, 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 MARCH 31, 1996
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance
Sheet at March 31, 1996 and December 31,
1995 (Unaudited).........................................2
Condensed Consolidated Statement of
Operations and Accumulated Deficit for
the Three Months Ended March 31, 1996
and 1995 (Unaudited).....................................3
Condensed Consolidated Statement of Cash
Flows for the Three Months Ended March 31, 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 - 8
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 MARCH 31, 1996
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Dollars in thousands)
March 31, December 31,
1996 1995
ASSETS
Cash and cash equivalents................................................. $1,221 $1,386
Accounts receivable, less allowance for doubtful
accounts of $2,344 and $2,605.......................................... 11,263 14,737
Prepaid charges and other................................................. 4,252 3,701
Property and equipment.................................................... 677,089 671,153
Accumulated depreciation............................................... (314,569) (307,945)
---------- ----------
Property and equipment, net............................................ 362,520 363,208
---------- ----------
Deferred charges.......................................................... 1,493,593 1,492,906
Accumulated amortization............................................... (277,168) (267,680)
---------- ----------
Deferred charges, net.................................................. 1,216,425 1,225,226
---------- ----------
Due from affiliates....................................................... 230,111 215,013
Investment................................................................ 18,717 17,941
Other assets.............................................................. 4,150 3,844
---------- ----------
$1,848,659 $1,845,056
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued expenses..................................... $49,085 $54,310
Accrued interest.......................................................... 5,231 1,749
Other liabilities......................................................... 31,136 33,136
Debt. ................................................................... 125,090 124,615
Deferred income taxes..................................................... 460,968 456,658
---------- ----------
Total liabilities.................................................. 671,510 670,468
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock, $.01 par value - authorized, 10,000 shares; issued and
outstanding, 239.99 shares
Additional capital..................................................... 2,946,942 2,923,635
Accumulated deficit.................................................... (1,126,056) (1,128,642)
Unrealized gain on marketable securities............................... 10,212 9,707
Finance Sub securities................................................. (653,949) (630,112)
---------- ----------
Total stockholder's equity......................................... 1,177,149 1,174,588
---------- ----------
$1,848,659 $1,845,056
========== ==========
See notes to condensed consolidated financial statements.
2
STORER COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
(Dollars in thousands)
Three Months Ended March 31,
1996 1995
SERVICE INCOME............................................................ $103,880 $95,418
----------- -----------
COSTS AND EXPENSES
Operating.............................................................. 46,164 43,320
Selling, general and administrative.................................... 20,786 19,511
Depreciation and amortization.......................................... 26,256 21,736
----------- -----------
93,206 84,567
----------- -----------
OPERATING INCOME.......................................................... 10,674 10,851
INVESTMENT (INCOME) EXPENSE
Interest expense....................................................... 4,189 4,021
Investment income...................................................... (109) (39)
----------- -----------
4,080 3,982
----------- -----------
INCOME BEFORE INCOME TAX EXPENSE.......................................... 6,594 6,869
INCOME TAX EXPENSE........................................................ 4,008 3,405
----------- -----------
NET INCOME................................................................ 2,586 3,464
ACCUMULATED DEFICIT
Beginning of period ................................................... (1,128,642) (1,144,253)
----------- -----------
End of period.......................................................... ($1,126,056) ($1,140,789)
=========== ===========
See notes to condensed consolidated financial statements.
3
STORER COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Three Months Ended March 31,
1996 1995
OPERATING ACTIVITIES
Net income............................................................. $2,586 $3,464
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization........................................ 26,256 21,736
Non-cash interest expense............................................ 707 455
Deferred income tax expense (benefit)................................ 3,508 (1,087)
------- -------
33,057 24,568
Decrease in accounts receivable, prepaid charges
and other and other assets......................................... 2,617 728
Decrease in accounts payable and accrued expenses,
accrued interest and other liabilities............................. (3,974) (768)
------- -------
Net cash provided by operating activities........................ 31,700 24,528
------- -------
FINANCING ACTIVITIES
Net transactions with affiliates....................................... (15,098) (10,188)
------- -------
Net cash used in financing activities............................ (15,098) (10,188)
------- -------
INVESTING ACTIVITIES
Additions to property and equipment and other.......................... (16,767) (14,508)
------- -------
Net cash used in investing activities............................ (16,767) (14,508)
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS..................................... (165) (168)
CASH AND CASH EQUIVALENTS, beginning of period............................ 1,386 1,329
------- -------
CASH AND CASH EQUIVALENTS, end of period.................................. $1,221 $1,161
====== ======
See notes to condensed consolidated financial statements.
4
STORER COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The condensed consolidated balance sheet at December 31, 1995 has been
condensed from the audited balance sheet at that date. The condensed
consolidated balance sheet at March 31, 1996 and the condensed consolidated
statements of operations and accumulated deficit and of cash flows for the
three months ended March 31, 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
at March 31, 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 period ended March 31, 1996
are not necessarily indicative of operating results for the full year.
2. INVESTMENT
As of March 31, 1996 and December 31, 1995, the Company's unrestricted
publicly traded equity investment, classified as available for sale, was
recorded at its estimated fair value of $18.7 million and $17.9 million,
respectively, based on the quoted market prices at such dates. The
unrealized gain on this investment of $15.7 million and $14.9 million as of
March 31, 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 $5.5 million and $5.2
million, respectively.
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 $41.4 million and $37.7 million during
the three months ended March 31, 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.
4. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company recognized non-cash dividends on the preferred stock of Comcast
Storer Finance Sub, Inc. of approximately $22.3 million and $19.1 million
during the three months ended March 31, 1996 and 1995, respectively. The
preferred stock dividends recognized were credited to the Company's
additional capital.
5
STORER COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
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 or results of operations 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
$1.2 million of bill credits for such refunds, including interest, were
given during the three months ended March 31, 1996. 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 FCC's order has been appealed to a federal appellate
court by a local franchising authority whose rate complaint against Comcast
was resolved by the negotiated settlement. 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 or results of
operations.
6
STORER COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 three
months ended March 31, 1996 and 1995 is as follows (dollars in millions, "NM"
denotes percentage is not meaningful):
Three Months Ended
March 31, Increase / (Decrease)
1996 1995 $ %
Service income............................................ $103.9 $95.4 $8.5 8.9%
Operating, selling, general and administrative
expenses............................................... 67.0 62.8 4.2 6.7
------ -----
Operating income before depreciation and
amortization (1) ...................................... 36.9 32.6 4.3 13.2
Depreciation and amortization............................. 26.2 21.7 4.5 20.7
------ -----
Operating income.......................................... 10.7 10.9 (0.2) (1.8)
------ -----
Interest expense.......................................... 4.2 4.0 0.2 5.0
Investment income......................................... (0.1) 0.1 NM
Income tax expense........................................ 4.0 3.4 0.6 17.6
------ -----
Net income................................................ $2.6 $3.5 ($0.9) (25.7%)
==== ====
<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 comparing 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>
Of the $8.5 million increase in service income from 1995 to 1996, $2.5 million
is attributable to subscriber growth, $4.9 million relates to changes in rates
and $1.1 million relates to growth in other product offerings.
7
STORER COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
Of the $4.2 million increase in operating, selling, general and administrative
expenses from 1995 to 1996, $2.9 million is attributable to increases in the
costs of cable programming as a result of subscriber growth, additional
programming offerings and changes in rates and $1.3 million results 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 increase in depreciation and amortization expense of $4.5 million from 1995
to 1996 is primarily due to the effects of capital expenditures and the rebuild
and upgrade of certain of the Company's cable plant.
For the three months ended March 31, 1996 and 1995, the Company's earnings
before income tax expense and fixed charges (interest expense) of $10.8 million
and $10.9 million, respectively, exceeded its fixed charges of $4.2 million and
$4.0 million, respectively.
The Company believes that its operations are not materially affected by
inflation.
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 $1.2 million of bill credits
for such refunds, including interest, were given during the three months ended
March 31, 1996. 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 FCC's order has been appealed to a
federal appellate court by a local franchising authority whose rate complaint
against Comcast was resolved by the negotiated settlement. 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 or results of operations.
8
STORER COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
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 or results of operations.
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 MARCH 31, 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/ LAWRENCE S. SMITH
--------------------------------------------
Lawrence S. Smith
Senior Vice President
Accounting and Administration
(Chief Accounting Officer)
Date: May 15, 1996
10