<PAGE>
THIS PAPER DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE 901 (d) OF REGULATIONS
S-T
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 June 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: 33-58996
SUMMIT
COMMUNICATIONS
GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-0604618
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
75 Rockefeller Plaza, New York, NY 10019
(Address of principal executive offices) (ZIP code)
212-484-8000
(Registrant's telephone number, including area code)
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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
100 shares of common stock, par value $1 per share, were outstanding as of
August 12, 1996.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (H) (1) (a)
AND (b) OF FORM 10-Q AND IS FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheet -
June 30, 1996 and December 31, 1995................................................. 3
Consolidated Statement of Operations -
Three and Six Months Ended June 30, 1996 and 1995................................... 4
Consolidated Statement of Changes in Stockholder's Equity
Six Months Ended June 30, 1996...................................................... 5
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1996 and 1995............................................. 6
Notes to Consolidated Financial Statements............................................... 7
Item 2. Management's Discussion and Analysis of
Results of Operations............................................................... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................................... 11
</TABLE>
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<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
Unaudited
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................ $104,386 $ 94,324
Receivables, less allowances of $222 and $85......... 3,094 829
Income tax refunds receivable from Time Warner Inc... 599 3,508
Deferred income taxes................................ 405 405
Other current assets................................. 2,695 1,222
-------- --------
Total current assets................................. 111,179 100,288
Loan to Time Warner Inc.............................. 24,000 24,000
Property, plant and equipment, net................... 51,633 52,676
Noncurrent deferred income taxes..................... 2,574 2,574
Intangible and other assets, net..................... 8,512 8,738
-------- --------
Total assets......................................... $197,898 $188,276
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses................ $ 8,533 $ 6,466
Accrued interest..................................... 3,138 3,186
-------- --------
Total current liabilities............................ 11,671 9,652
Long-term debt....................................... 140,000 140,000
Deferred income taxes................................ 16,148 15,604
STOCKHOLDER'S EQUITY
Common stock, $1 par value, 200 shares authorized,
100 issued and outstanding at June 30, 1996 and
and December 31, 1995............................. -- --
Additional paid-in capital........................... 1,189 1,189
Accumulated earnings................................. 28,890 21,831
-------- --------
Total stockholder's equity........................... 30,079 23,020
-------- --------
Total liabilities and stockholder's equity........... $197,898 $188,276
======== ========
</TABLE>
See accompanying notes.
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<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in Thousands)
Unaudited
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------- --------------------
1996 1995 1996 1995
------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenues............................................ $18,111 $ 16,460 $35,777 $ 32,665
Costs and Expenses:
Operating......................................... 5,610 2,973 11,320 8,551
Selling, general and administrative............... 2,610 5,431 4,818 7,973
Depreciation and amortization.................... 2,610 1,832 5,189 3,943
------- -------- ------- ---------
Total costs and expenses.................... 10,830 10,236 21,327 20,467
Income From Operations.............................. 7,281 6,224 14,450 12,198
Other Income (Expense):
Interest expense.................................. (3,711) (3,703) (7,425) (6,692)
Interest income................................... 1,953 1,449 4,780 1,449
Other, net....................................... -- (17,706) -- ( 18,147)
------- -------- ------- ---------
Total other (expense)....................... (1,758) (19,960) (2,645) ( 23,390)
------- -------- ------- ---------
Income (Loss) Before Income Taxes.................... 5,523 (13,736) 11,805 (11,192)
Income Tax Expense (Benefit)......................... 2,220 (2,602) 4,746 5,963
------- -------- ------- ---------
Income (Loss) From Continuing Operations............. 3,303 (11,134) 7,059 (17,155)
Discontinued Operations:
Loss from discontinued operations
(less applicable income tax of $147).............. -- -- -- (283)
Net gain on sale of discontinued operations
(less applicable income tax of $9,754)............ -- -- -- 40,647
------- -------- ------- ---------
Income (Loss) Before Extraordinary Item.............. 3,303 (11,134) 7,059 23,209
Extraordinary Item (less applicable
income tax benefit of $328)........................ -- -- -- (609)
------- -------- ------- ---------
Net Income (Loss).................................... 3,303 (11,134) 7,059 22,600
Preferred Stock Dividend Requirements................ -- -- -- 750
------- -------- ------- ---------
Net Income (Loss) Available
to Common Stockholders.............................. $ 3,303 $(11,134) $ 7,059 $ 21,850
======= ======== ======= =========
</TABLE>
See accompanying notes.
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<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDER'S EQUITY
(Dollars in Thousands)
Unaudited
<TABLE>
<CAPTION>
Additional Total
Paid-in Accumulated Stockholder's
Capital Earnings Equity
---------- ----------- --------------
<S> <C> <C> <C>
Balance, December 31, 1995........... $1,189 $21,831 $23,020
Net income........................... -- 7,059 7,059
------ ------- -------
Balance, June 30, 1996............... $1,189 $28,890 $30,079
====== ======= =======
</TABLE>
See accompanying notes.
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<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
Unaudited
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1996 1995
---- ----
OPERATING ACTIVITIES:
<S> <C> <C>
Net income........................................... $ 7,059 $ 22,600
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Write-off of deferred financing fees................ -- 609
Depreciation and amortization....................... 5,189 4,638
Noncash interest expense............................ 6 283
Pre-tax gain on sale of discontinued operations..... -- (50,401)
Changes in assets and liabilities, net of
effects from dispositions:
Accounts receivable................................ 644 1,202
Other current assets............................... (1,473) (850)
Accounts payable and accrued expenses.............. 2,067 (3,797)
Accrued interest................................... (48) (66)
Retention compensation............................. -- (2,441)
Accrued income taxes............................... -- (7,971)
Deferred income taxes.............................. 544 19,000
Deferred credits and other......................... -- (6,095)
-------- --------
Net cash provided by (used in) operating activities.. 13,988 (23,289)
-------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment........... (3,926) (3,364)
Disposal of property, plant and equipment............ -- 4
Net proceeds from sale of discontinued operations.... -- 128,304
Decrease in short-term investments................... -- 200
-------- --------
Net cash (used in) provided by investing activities.. (3,926) 125,144
-------- --------
FINANCING ACTIVITIES:
Preferred stock dividends paid....................... -- (750)
Loan to Time Warner.................................. -- (24,000)
-------- --------
Net cash (used in) financing activities.............. -- (24,750)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS............. 10,062 77,105
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...... 94,324 9,149
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............ $104,386 $ 86,254
======== ========
</TABLE>
See accompanying notes.
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<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Summit
Communications Group, Inc. and its wholly owned subsidiaries (the "Company").
All significant intercompany accounts and transactions are eliminated in
consolidation. Certain reclassifications have been made to the 1995 financial
statements to conform with the 1996 presentation.
The accompanying financial statements are unaudited but in the opinion of
management, interim consolidated financial statements reflect all adjustments,
consisting of normal recurring accruals, necessary to present fairly the
financial position, the results of operations and the cash flows for the periods
presented. Results for the interim period are not necessarily indicative of
results to be expected for the full year. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto contained in the Company's Form 10-K for the year
ended December 31, 1995.
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("FAS 121") which established standards for
the recognition and measurement of impairment losses on long-lived assets and
certain intangible assets. The adoption of FAS 121 did not have a material
effect on the Company's financial statements.
2. MERGER OF COMPANY
On May 2, 1995, the Company and its stockholders closed on an agreement pursuant
to which all of the outstanding shares of common stock and preferred stock of
the Company were converted, in a tax-free exchange (the "Merger"), into
1,550,936 shares of common stock and 3,264,508 shares of a newly-issued
convertible preferred stock, (which is convertible into common shares at an
effective price of $48 per share and has a $3.75 annual dividend) of Time Warner
Inc. ("Time Warner"). As a result of this merger, the new capital structure of
the Company consists of 100 shares of common stock with a $1 par value issued to
Time Warner. The Merger did not result in a "push down" of Time Warner's
accounting basis since the Company's public debt remains outstanding.
Therefore, the Company's accounting basis of net assets did not change as a
result of the merger.
3. DISCONTINUED OPERATIONS
On March 31, 1995, the Company completed the disposition of its radio
broadcasting business with the sale of its three remaining radio broadcasting
subsidiaries: Summit-Atlanta Broadcasting Corporation ("Summit-Atlanta"),
Summit-Baltimore Broadcasting Corporation ("Summit-Baltimore"), and Summit-
Dallas Broadcasting Corporation ("Summit-Dallas"). Through their respective
wholly-owned subsidiaries, Summit-Atlanta operated radio stations WAOK-AM and
WVEE-FM in Atlanta, Georgia; Summit-Baltimore operated radio stations WCAO-AM
and WXYV-FM in Baltimore, Maryland; and Summit-Dallas operated radio stations
KHVN-AM and KJMZ-FM in Dallas, Texas. With the closing of this sale, all the
outstanding capital stock of each subsidiary was sold to Granum Communications,
Inc. for $130,000,000 plus $3,500,000 for accounts receivable of Summit-Atlanta.
The after tax gain resulting from this transaction was $40,647,000.
The income from operation of the discontinued radio broadcasting business,
together with the related after tax gains on dispositions, have been segregated
in the Consolidated Statements of Operations. Consolidated net revenues for
1995 exclude revenues applicable to discontinued operations of $6,999,000.
-7-
<PAGE>
4. LONG-TERM DEBT
In connection with the disposition of Summit-Atlanta, Summit-Baltimore, and
Summit-Dallas, the Company terminated the credit agreement (the "Credit
Facility"), dated as of September 1, 1993. Long-term indebtedness of the
Company at June 30, 1996 consisted of $140,000,000 principal amount of 10 1/2%
Senior Subordinated Debentures due 2005 (the "Debentures"). The Debentures
contain certain restricted covenants, including limitations on additional
borrowings, mergers, acquisitions and restricted payments. At June 30, 1996,
$11,198,000 was available for restricted payments.
An extraordinary loss on the early extinguishment of debt in the amount of
$609,000, net of an income tax benefit of $328,000, was recorded in the first
quarter of 1995. This loss resulted from the write-off of deferred financing
costs related to the terminated Credit Facility.
5. STOCKHOLDER'S EQUITY
Pursuant to the Merger, the Company was recapitalized and the new capital
structure consists of 100 shares of common stock with a $1 par value issued to
Time Warner (See Note 2). Prior to the Merger, the Company had issued and
outstanding 240,000 shares of 12 1/2% cumulative preferred stock, par value $100
per share.
In January 1995, the Company declared a $3.125 per share dividend on the 240,000
shares of cumulative preferred stock.
6. RELATED PARTIES
On May 18, 1995, the Company loaned $24,000,000 to Time Warner. This loan
provides for interest at LIBOR plus .875% per annum and is due on demand.
Interest income on this loan for the six month period ended June 30, 1996
totaled $776,000.
Included in the Company's operating expenses after the Merger are charges for
programming and promotional services provided by Home Box Office and other
affiliates of Time Warner Entertainment Company, L.P. ("TWE"). These charges
are based upon customary rates. For the six month period ended June 30, 1996,
these charges totaled $1,724,000. In addition, the Company has entered into a
management service arrangement with TWE, pursuant to which TWE is responsible
for the management and operation of the Company's cable systems. The management
fees to be paid to TWE by the Company are based on an allocation of the
corporate expenses of the cable division of TWE in proportion to the respective
number of subscribers of all cable systems to be managed by TWE's cable
division. For the six month period ended June 30, 1996, these fees totaled
$1,935,000.
7. STATEMENTS OF CASH FLOWS, SUPPLEMENTAL INFORMATION
Six Months Ended June 30,
-------------------------
(dollars in thousands)
1996 1995
---- ----
Cash paid for interest...................... $7,479 $7,544
Cash paid for income taxes.................. 1,294 8,331
-8-
<PAGE>
Item 2. SUMMIT COMMUNICATIONS GROUP, INC AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS
(Dollars in Thousands)
COMPARATIVE SECOND QUARTER AND YEAR TO DATE OPERATING RESULTS
Overview
- --------
As discussed more fully in the Notes to Consolidated Financial Statements (see
Note 3, Discontinued Operations), the Company completed the disposition of its
radio broadcasting business on March 31, 1995. All of the Company's revenue and
operating income subsequent to such date is derived solely from its cable
television business. To better reflect the Company's continuing operations, the
following discussion and analysis excludes previously reported results by the
radio broadcasting business.
Overall, revenues for the three and six months ended June 30, 1996 increased to
$18,111 and $35,777, compared to $16,460 and $32,665 for the same periods in
1995. Operating income before depreciation and amortization ("EBITDA") for the
three and six months ended June 30, 1996 increased to $9,891 and $19,639,
compared to $8,056 and $16,141 for the same periods in 1995. The increases in
operating income and EBITDA principally resulted from increased revenues and
reduced general corporate expenses, as discussed more fully below.
Industry analysts generally consider EBITDA to be an important measure of
comparative operating performance for the cable industry, and when used in
comparison to debt levels or the coverage of interest expense, as a measure of
liquidity. However, EBITDA should be considered in addition to, not as a
substitute for, operating income, net income, cash flow and other measures of
financial performance and liquidity reported in accordance with generally
accepted accounting principles.
Income From Operations
- ----------------------
Revenues increased to $18,111 and $35,777 for the three and six months ended
June 30, 1996, compared to $16,460 and $32,665 for the three and six months
ended June 30, 1995. Income from operations increased to $7,281 and $14,450 for
the three and six months ended June 30, 1996, compared to $6,224 and $12,198 for
the three and six months ended June 30, 1995. These increases were primarily
due to growth in basic revenue attributable to residential basic subscriber
growth and basic revenue rate increases averaging approximately 10% as permitted
under the Time Warner Cable's "social contract" with the Federal Communications
Commission. Income from operations increased as a result of the revenue gain,
lower programming expenses resulting from the transition to Time Warner's
programming contracts and lower corporate related expenses reflecting the
reduction of corporate expenses in connection with the closing of corporate
facilities and the subsequent termination of related personnel as a direct
result of the integration of the operations of Summit into Time Warner's
existing operating structure.
Other Income and Expense
- ------------------------
Total other expense, net decreased to $1,758 and $2,645 for the three and six
months ended June 30, 1996, compared to $19,960 and $23,390 for the same periods
in 1995. These decreases were primarily attributable to transaction costs
incurred in connection with the Company's merger with Time Warner. See Note 2
of the Notes to the Consolidated Financial Statements. The Company had no such
costs in 1996. In addition, interest income increased to $1,953 and $4,780 for
the three and six months ended June 30, 1996 compared to $1,449
-9-
<PAGE>
and $1,449 for the same periods in 1995. These increases primarily resulted
from the short-term investment of the majority of the $128,304 net proceeds
received from the radio station dispositions on March 31, 1995. The Company also
loaned $24,000 to Time Warner in May 1995 resulting in interest income of $392
and $776 for the three and six months ended June 30, 1996 compared to $188 for
the same periods in 1995. These decreases in other income and expense were
partially offset by interest expense. Interest expense increased to $3,711 and
$7,425 for the three and six months ended June 30, 1996, compared to $3,703 and
$6,692 for the same periods in 1995. These increases were primarily due to the
unfavorable comparison to the first quarter of 1995, when a portion of interest
expense was allocated to the discontinued radio operations.
Income Tax Expense
- ------------------
The calculation of the tax effect on the sale of the discontinued operations for
the three months ended March 31, 1995 was based on an estimate. This estimate
was subsequently adjusted to properly account for the sale of the discontinued
operations in the 1995 year-end tax provision.
-10-
<PAGE>
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
There were no material legal proceedings instituted during the six months
ended June 30, 1996. There were also no material developments in any of the
other existing legal proceedings which were previously reported in the Company's
Annual Report filed with the SEC on Form 10-K for the fiscal year ended December
31, 1995.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
None.
b) Reports on Form 8-K.
None.
-11-
<PAGE>
SIGNATURES
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.
SUMMIT COMMUNICATIONS GROUP, INC.
Date: August 12, 1996 By: /s/RICHARD M. PETTY
--------------- ---------------------------
Richard M.Petty
Vice President and Controller
(Principal Accounting Officer)
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 104,386
<RECEIVABLES> 3,316
<ALLOWANCES> 222
<INVENTORY> 0
<CURRENT-ASSETS> 111,179
<PP&E> 122,507
<DEPRECIATION> 70,874
<TOTAL-ASSETS> 197,898
<CURRENT-LIABILITIES> 11,671
<BONDS> 140,000
0
0
<COMMON> 0
<OTHER-SE> 30,079
<TOTAL-LIABILITY-AND-EQUITY> 197,898
<SALES> 35,777
<TOTAL-REVENUES> 35,777
<CGS> 11,320
<TOTAL-COSTS> 11,320
<OTHER-EXPENSES> 5,189<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,425
<INCOME-PRETAX> 11,805
<INCOME-TAX> 4,746
<INCOME-CONTINUING> 7,059
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,059
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Depreciation and amortization
</FN>
</TABLE>
