<PAGE>
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: 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 May
8, 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 1 of 12
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SUMMIT COMMUNICATIONS GROUP, INC.
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995.................... 3
Consolidated Statements of Operations -
Three Months Ended March 31, 1996 and 1995.............. 4
Consolidated Statement of Changes in Stockholder's Equity -
Three Months Ended March 31, 1996....................... 5
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1996 and 1995.............. 6
Notes to Consolidated Financial Statements................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................... 11
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SUMMIT COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
Unaudited
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................. $103,824 $ 94,324
Subscriber receivables, less allowance
for doubtful accounts of $130 at March 31, 1996 and
$85 at December 31, 1995 1,447 829
Income tax refunds receivable from Time Warner Inc.... 1,257 3,508
Deferred income taxes................................. 405 405
Other current assets.................................. 2,083 1,222
-------- --------
Total current assets 109,016 100,288
Loan to Time Warner Inc................................ 24,000 24,000
Property, plant and equipment, net .................... 51,257 52,676
Noncurrent Deferred income taxes....................... 2,574 2,574
Intangible and other assets, net....................... 8,625 8,738
-------- --------
$195,472 $188,276
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
- - - ------------------------------------
Current Liabilities:
Accounts payable and accrued expenses................. $ 7,411 $ 6,466
Accrued interest...................................... 6,900 3,186
-------- --------
Total current liabilities 14,311 9,652
Long-Term Debt......................................... 140,000 140,000
Deferred Income Taxes.................................. 14,385 15,604
-------- --------
Total liabilities..................................... 168,696 165,256
Stockholder's Equity:
Common stock, $1 par value,
200 shares authorized, 100 issued and outstanding
at March 31, 1996 and December 31, 1995 -- --
Additional paid-in capital............................ 1,189 1,189
Accumulated earnings.................................. 25,587 21.831
-------- --------
Total stockholder's equity 26,776 23,020
-------- --------
$195,472 $188,276
======== ========
</TABLE>
See notes to consolidated financial statements.
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SUMMIT COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
Unaudited
<TABLE>
<CAPTION>
Three Months
Ended March 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Revenues..................................................... $17,666 $16,205
Costs and Expenses:
Operating........................................... 5,710 5,578
Selling, general and administrative................. 1,334 1,178
General corporate expense........................... 874 1,364
Depreciation and amortization....................... 2,579 2,111
------- -------
Total costs and expenses................... 10,497 10,231
------- -------
Income From Operations....................................... 7,169 5,974
Other Income (Expense):
Interest expense.................................... (3,714) (2,988)
Interest income..................................... 2,827 --
Other, net.......................................... -- (441)
------- -------
Total other (expense)...................... (887) (3,429)
------- -------
Income From Continuing Operations
Before Income Taxes................................. 6,282 2,545
Income Tax Expense........................................... 2,526 8,566
------- -------
Income (Loss) From Continuing Operations..................... 3,756 (6,021)
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............................. 3,756 34,343
------- -------
Extraordinary Item (less applicable
income tax benefit of $328)......................... -- (609)
------- -------
Net Income................................................... 3,756 33,734
Preferred Stock Dividend Requirements........................ -- 750
------- -------
Net Income Available to Common Stockholders.................. $ 3,756 $32,984
======= =======
</TABLE>
See notes to consolidated financial statements.
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SUMMIT COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDER'S EQUITY
(Dollars in Thousands)
Unaudited
Additional
Paid-in Accumulated
Capital Earnings
---------- -----------
Balance, December 31, 1995...... $ 1,189 $21,831
Net income...................... -- 3,756
------- -------
Balance, March 31, 1996......... $ 1,189 $25,587
======= =======
See notes to consolidated financial statements.
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SUMMIT COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................... $ 3,756 $ 33,734
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization............................... 2,579 2,807
Noncash interest expense.................................... 1 247
Pre-tax (gain) on sale of discontinued operations........... -- (50,401)
Write-off of deferred financing fees........................ -- 937
Changes in assets and liabilities, net of
effects from dispositions:
Accounts receivable....................................... 1,633 727
Other current assets...................................... (861) 94
Accounts payable and accrued expenses..................... 945 295
Accrued interest.......................................... 3,714 3,699
Retention compensation.................................... -- (827)
Accrued income taxes...................................... -- (8,545)
Deferred income taxes..................................... (1,219) 18,766
Deferred credits and other................................ -- 1,889
-------- --------
Net cash provided by operating activities..................... 10,548 3,422
-------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment.................... (1,048) (1,831)
Net proceeds on sale of discontinued operations............... -- 128,304
Decrease in short-term investments............................ -- 200
Other......................................................... -- (1,908)
-------- --------
Net cash provided by (used in) investing activities.......... (1,048) 124,765
-------- --------
FINANCING ACTIVITIES:
Preferred stock dividends paid................................ -- (750)
-------- --------
Net cash (used in) financing activities....................... -- (750)
-------- --------
Net increase in cash and cash equivalents..................... 9,500 127,437
Cash and cash equivalents at beginning of period.............. 94,324 9,149
-------- --------
Cash and cash equivalents at end of period.................... $103,824 $136,586
======== ========
</TABLE>
See notes to consolidated financial statements.
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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.
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 change of accounting basis of the
net assets of the Company as presented in its March 31, 1996 balance sheet
because the Company's public debt remains outstanding.
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.
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, between
the Company, the lenders identified therein, and The Chase
Manhattan Bank (National Association) as agent. Consequently,
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long-term indebtedness of the Company at March 31, 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 March 31, 1996 $4,549,000 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 outstanding
240,000 shares of 12 1/2% cumulative preferred stock, par value issued $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 quarter ended March 31, 1996 totaled
$392,000.
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 TWE. These charges are based upon customary rates. For the quarter
ended March 31, 1996, these charges totaled $852,000. 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 quarter ended March 31, 1996, these fees totaled
$874,000.
7. STATEMENTS OF CASH FLOWS, SUPPLEMENTAL INFORMATION
Three Months Ended March 31,
---------------------------
(dollars in thousands)
1996 1995
----- ----
Cash paid for interest............................... $ -- $ 63
Cash paid for income taxes........................... 145 7,918
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Item 2. SUMMIT COMMUNICATIONS GROUP, INC AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARATIVE FIRST QUARTER 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 and oeprating income increased to $17,666,000 and $3,756,000,
respectively, for the quarter. Operating income before depreciation and
amortization ("EBITDA") increased to $9,748,000 for the quarter. Industry
analysts generally consider EBITDA to be an important measure of comparitive
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. The
increases in operating income and EBITDA principally resulted from increased
revenues and reduced general corporate expenses, as discussed more fully below.
Income From Operations
- - - ----------------------
Revenues. First quarter revenues increased by $1,461,000 or 9.0% to $17,666,000
in 1996 from $16,205,000 in 1995. This increase was primarily due to growth in
basic revenue of $1,581,000 attributable to residential basic subscriber growth
of 4.7% and basic revenue rate increases averaging approximately 10% as
permitted under Time Warner Cable's "social contract".
Direct Operating Expenses Before General Corporate and Other Expenses. First
quarter direct operating expenses before general corporate and other expenses
incresed by $288,000 or 4.3% to $7,044,000 in 1996 from $6,756,000 in 1995.
This increase was primarily due to ordinary increases in technical operating
costs.
General Corporate Expenses. First quarter general corporate expenses decreased
by $490,000 or 35.9% to $874,000 in 1996 from $1,364,000 in 1995. This decrease
reflects the closing, in May 1995, of the Summit corporate office located in
Atlanta, Georgia. All corporate activities are now performed by the Time Warner
Cable corporate staff located in Stamford, Connecticut whose expenses are
allocated to the Company based on relative basic subscriber counts.
Depreciation and Amortization. First quarter depreciation and amortization
expense increased by $468,000 or 22.2% to $2,579,000 in 1996 from $2,111,000 in
1995. This increase is primarily due to increased capital spending during the
fourth quarter of 1995.
Other Income (Expense)
- - - ----------------------
Interest Expense. First quarter interest expense increased $726,000 or 24.3% to
$3,714,000 in 1996 from $2,988,000 in 1995. This increase is 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.
Interest Income. First quarter interest income increased to $2,827,000 during
1996. Interest income primarily resulted from the short-term investment of the
majority of the $128,304,000 net proceeds received from the radio station
dispostions on March 31, 1995. The Company also loaned $24,000,000 to Time
Warner in May 1995 resulting in $392,000 of interest income for the quarter
ended March 31, 1996. For the first quarter of 1995, the Company had no
interest income.
Other, Net Expense. First quarter other, net expense of $441,000 in 1995 was
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 for the first quarter of
1996.
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SUMMIT COMMUNICATIONS GROUP, INC AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
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.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits.
None.
b) Reports on Form 8-K.
No reports on Form 8-K were filed during the period covered by this report.
11
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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: May 13, 1996 By: /s/ RICHARD M. PETTY
------------ -------------------------------
Richard M. Petty
Vice President and Controller
(Principal Accounting Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996 DEC-31-1995
<CASH> 0 0
<SECURITIES> 103824 94324
<RECEIVABLES> 1577 914
<ALLOWANCES> 130 85
<INVENTORY> 0 0
<CURRENT-ASSETS> 109016 100288
<PP&E> 120019 119263
<DEPRECIATION> 68762 66587
<TOTAL-ASSETS> 195472 188276
<CURRENT-LIABILITIES> 14311 9652
<BONDS> 140000 140000
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 26776 23020
<TOTAL-LIABILITY-AND-EQUITY> 195472 188276
<SALES> 17666 16205
<TOTAL-REVENUES> 17666 16205
<CGS> 5710 5578
<TOTAL-COSTS> 5710 5578
<OTHER-EXPENSES> 2579 <F1> 2111 <F1>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3714 2988
<INCOME-PRETAX> 6282 2545
<INCOME-TAX> 2526 8566
<INCOME-CONTINUING> 3756 (6021)
<DISCONTINUED> 0 40364
<EXTRAORDINARY> 0 (609)
<CHANGES> 0 0
<NET-INCOME> 3756 32984
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
<F1>Depreciation and amortization
</FN>
</TABLE>
