<PAGE>
THIS PAPER DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE 901 (d) OF
REGULATION 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 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: 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
November 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.
1
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SUMMIT COMMUNICATIONS GROUP, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated balance sheets at September 30, 1996 and December 31, 1995..................... 3
Consolidated statements of operations for the three and nine months ended
September 30, 1996 and 1995............................................................... 4
Consolidated statements of changes in stockholder's equity for the nine
months ended September 30, 1996........................................................... 5
Consolidated statements of cash flows for the nine months ended
September 30, 1996 and 1995............................................................... 6
Notes to consolidated financial statements.................................................. 7
Item 2. Management's Discussion and Analysis of Results of Operations......................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................................... 11
Item 6. Exhibits and Reports on Form 8-K...................................................... 11
</TABLE>
2
<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------------ -----------------
(thousands, except per share amounts)
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents................................ $111,194 $ 94,324
Receivables, less allowances of $225 and $85........ 3,227 829
Income tax refunds receivable from Time Warner...... -- 3,508
Other current assets................................ 3,640 1,627
-------- --------
Total current assets................................ 118,061 100,288
Loan to Time Warner................................. 24,000 24,000
Property, plant and equipment, net.................. 54,094 52,676
Noncurrent deferred income taxes.................... 2,574 2,574
Cable television franchises, net.................... 8,399 8,738
-------- --------
Total assets........................................ $207,128 $188,276
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable and accrued expenses, including
$2.8 million due to Time Warner................... $ 9,512 $ 6,466
Accrued interest.................................... 6,901 3,186
-------- --------
Total current liabilities........................... 16,413 9,652
Long-term debt...................................... 140,000 140,000
Deferred income taxes............................... 16,696 15,604
Stockholder's equity
Common stock, $1 par value, 200 shares authorized,
100 issued and outstanding at September 30, 1996
and December 31, 1995.............................. -- --
Paid-in capital..................................... 1,189 1,189
Accumulated earnings................................ 32,830 21,831
-------- --------
Total stockholder's equity.......................... 34,019 23,020
-------- --------
Total liabilities and stockholder's equity.......... $207,128 $188,276
======== ========
</TABLE>
See accompanying notes.
3
<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
(thousands)
<S> <C> <C> <C> <C>
Revenues...................................... $18,126 $16,537 $53,903 $49,202
------- ------- ------- -------
Costs and expenses:
Operating and programming (a)................ 5,560 4,901 16,880 14,474
Selling, general and administrative (a)...... 2,127 2,191 6,945 9,142
Depreciation and amortization................ 1,964 2,278 7,153 6,221
------- ------- ------- -------
Total costs and expenses.................. 9,651 9,370 30,978 29,837
------- ------- ------- -------
Operating income.............................. 8,475 7,167 22,925 19,365
------- ------- ------- -------
Interest expense.............................. (3,746) (3,757) (11,171) (10,449)
Interest income (b)........................... 1,930 1,807 6,710 3,256
Other expense, net............................ (70) (1) (70) (18,148)
------- ------- ------- -------
Income (loss) before income taxes............. 6,589 5,216 18,394 (5,976)
Income tax provision.......................... (2,649) (2,175) (7,395) (8,138)
------- ------- ------- -------
Operating income (loss) from
continuing operations........................ 3,940 3,041 10,999 (14,114)
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 before extraordinary item.............. 3,940 3,041 10,999 26,250
Extraordinary loss on retirement of debt
(less applicable income tax benefit of $328). -- -- -- (609)
------- ------- ------- -------
Net income.................................... 3,940 3,041 10,999 25,641
Preferred dividend requirements............... -- -- -- 750
------- ------- ------- -------
Net income applicable to common shares........ $ 3,940 $ 3,041 $10,999 $24,891
======= ======= ======= =======
(a) Includes the following expenses
resulting from transactions with
affiliate (Note 6)...................... $ 1,407 $ 1,671 $ 5,066 $ 2,860
(b) Includes interest income with
affiliate (Note 6)...................... 400 423 1,176 611
</TABLE>
See accompanying notes.
4
<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(Unaudited)
Total
Paid-In Accumulated Stockholder's
Capital Earnings Equity
--------- ------------- ---------------
(thousands)
Balance at December 31, 1995... $1,189 $21,831 $23,020
Net income..................... -- 10,999 10,999
------ ------- -------
Balance at September 30, 1996.. $1,189 $32,830 $34,019
====== ======= =======
See accompanying notes.
5
<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-------------------
1996 1995
-------- --------
(thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income..................................................................... $ 10,999 $ 25,641
Adjustments for noncash and nonoperating items:
Write-off of deferred financing fees........................................... -- 609
Depreciation and amortization.................................................. 7,153 6,221
Noncash interest expense....................................................... 22 283
Gain on sale of discontinued operations........................................ -- (40,647)
Deferred income taxes.......................................................... 1,092 18,884
Changes in operating assets and liabilities, net of effects from dispositions.. 5,858 (22,787)
-------- --------
Cash provided (used) by operating activities 25,124 (11,796)
-------- --------
INVESTING ACTIVITIES
Capital expenditures........................................................... (8,254) (4,933)
Net proceeds from discontinued operations...................................... -- 128,304
Other.......................................................................... -- 204
-------- --------
Cash provided (used) by investing activities................................... (8,254) 123,575
-------- --------
FINANCING ACTIVITIES
Preferred stock dividends paid................................................. -- (750)
Loan to Time Warner............................................................ -- (24,000)
-------- --------
Cash used by financing activities.............................................. -- (24,750)
-------- --------
INCREASE IN CASH AND EQUIVALENTS............................................... 16,870 87,029
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD.................................... 94,324 9,149
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD.......................................... $111,194 $ 96,178
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid.................................................................. $ 7,479 $ 7,544
Income taxes paid.............................................................. 1,964 9,628
</TABLE>
See accompanying notes.
6
<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Summit Communications Group, Inc. and its wholly owned subsidiaries (the
"Company"). All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain reclassifications have been made to the
1995 financial statements to conform with the 1996 presentation.
These consolidated financial statements are unaudited but, in the opinion of
management, reflect all adjustments (consisting of a normal recurring nature)
considered necessary to present fairly the financial position, the results of
operations and the cash flows for the periods presented in conformity with
generally accepted accounting principles applicable to interim periods. Results
for the interim period are not necessarily indicative of results to be expected
for the full year. The consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
contained in the Company's Annual Report on 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 acquired by Time Warner Companies, Inc. ("Time Warner",
formerly known as Time Warner Inc.) in a tax-free exchange (the "Merger"). As a
result of this Merger, the Company was recapitalized and the new capital
structure consists of 100 shares of common stock, par value $1 per share, owned
by Time Warner. Effective October 1, 1996, Time Warner contributed all of the
Company's common stock to TWI Cable Inc. (formerly Cablevision Industries
Corporation and Subsidiaries) in connection with a reorganization of certain of
its wholly owned cable subsidiaries.
These transactions 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 these
transactions.
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 $130.0 million plus $3.5 million for accounts receivable of Summit-
Atlanta. The after tax gain resulting from this transaction was $40.6 million.
7
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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 Statement of Operations. Consolidated net revenues for 1995
exclude revenues applicable to discontinued operations of $7.0 million.
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 September 30, 1996 consisted of $140.0 million 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 September 30,
1996, $18.3 million was available for restricted payments.
An extraordinary loss on the early extinguishment of debt in the amount of $0.6
million, net of an income tax benefit of $0.3 million, 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 $24.0 million to Time Warner. This loan
provides for interest at LIBOR plus .875% per annum and is due on demand.
Interest income on this loan totaled $1.2 million and $0.6 million for the nine
month periods ended September 30, 1996 and 1995, respectively.
Included in the Company's post Merger operating expenses 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 and totaled $2.6 million and $1.4 million for
the nine month periods ended September 30, 1996 and 1995, respectively. 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 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
managed by TWE's cable division. For the nine month periods ended September 30,
1996 and 1995, these fees totaled $2.5 million and $1.5 million, respectively.
Under a tax-sharing agreement between the Company and Time Warner, the Company
will pay to, or receive from, Time Warner, amounts equal to the total current
domestic income tax provision, or benefit, respectively, provided by the
Company. Included in accounts payable and accrued expenses is $2.8 million
related to such balances owed to Time Warner as of September 30, 1996 and
income tax refunds of $3.5 million receivable from Time Warner as of December
31, 1995.
8
<PAGE>
7. COMMITMENTS AND CONTINGENCIES
Pending legal proceedings are substantially limited to litigation incidental to
the business of the Company. In the opinion of counsel and management, the
ultimate resolution of these matters will not have a material effect on the
financial statements.
9
<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS
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 for the
radio broadcasting business.
Overall, revenues for the three and nine month periods ended September 30, 1996
increased to $18.1 million and $53.9 million, respectively, compared to $16.5
million and $49.2 million for the same periods in 1995. Operating income before
depreciation and amortization ("EBITDA") for the three and nine month periods
ended September 30, 1996 increased to $10.4 million and $30.1 million,
respectively, compared to $9.4 million and $25.6 million for the same periods in
1995. The increases in operating income and EBITDA principally resulted from
increased revenues and reductions in 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. EBITDA, however, 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.
The relationship between income before income taxes and income tax expense of
the Company is affected by certain financial statement expenses that are not
deductible for income taxes.
INCOME FROM OPERATIONS
Revenues increased to $18.1 million and $53.9 million for the three and nine
month periods ended September 30, 1996, respectively, compared to $16.5 million
and $49.2 million for the same periods in 1995. Income from operations
increased to $8.5 million and $22.9 million for the three and nine month periods
ended September 30, 1996, respectively, compared to $7.2 million and $19.4
million for the same periods in 1995. These increases were primarily due to
increases in regulated cable rates phased in during February 1996 as permitted
under Time Warner Cable's "social contract" with the Federal Communications
Commission and year-to-year basic subscriber growth of approximately 4%. Income
from operations also increased as a result of lower corporate related expenses
reflecting the reduction of such expenses in connection with the post Merger
closing of pre-existing corporate facilities and the subsequent termination of
related personnel as a direct result of the integration of the Company's
operations into Time Warner's existing operating structure.
NONOPERATING INCOME AND EXPENSE
Interest income increased to $6.7 million for the nine month period ended
September 30, 1996, compared to $3.3 million for the same period in 1995. This
increase primarily resulted from higher average cash balances relating to the
reinvestment of net proceeds received from the radio station dispositions on
March 31, 1995. Other net expense decreased to $0.1 million for the nine month
period ended September 30, 1996, compared to $18.1 million for the same period
in 1995. This decrease is primarily attributable to transaction costs incurred
during 1995 in connection with the Merger (see Note 2).
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There were no material legal proceedings instituted during the nine month period
ended September 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>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUMMIT COMMUNICATIONS GROUP, INC.
Date: November 12, 1996 By: /s/RICHARD M. PETTY
Name: Richard M. Petty
Title: Vice President and Controller
(Principal Accounting Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 111,194
<RECEIVABLES> 3,452
<ALLOWANCES> 225
<INVENTORY> 0
<CURRENT-ASSETS> 118,061
<PP&E> 126,542
<DEPRECIATION> 72,448
<TOTAL-ASSETS> 207,128
<CURRENT-LIABILITIES> 16,413
<BONDS> 140,000
0
0
<COMMON> 0
<OTHER-SE> 34,019
<TOTAL-LIABILITY-AND-EQUITY> 207,128
<SALES> 53,903
<TOTAL-REVENUES> 53,903
<CGS> 16,880
<TOTAL-COSTS> 16,880
<OTHER-EXPENSES> 7,153<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,171
<INCOME-PRETAX> 18,394
<INCOME-TAX> 7,395
<INCOME-CONTINUING> 10,999
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,999
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Depreciation and amortization
</FN>
</TABLE>
