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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 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)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: None
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 by check mark if disclosure of delinquent filers pursuant to item 405
of regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [Not Applicable]
As of March 21, 1997, there were 100 shares of the registrant's common stock,
par value $1 per share, issued and outstanding. The aggregate market value of
voting stock held by non-affiliates of the registrant as of March 21, 1997 was
zero.
THE REGISTRANT, A WHOLLY OWNED SUBSIDIARY OF TIME WARNER INC., MEETS THE
CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(a) AND (b) OF FORM 10-K AND IS
THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO
GENERAL INSTRUCTION J(2).
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SUMMIT COMMUNICATIONS GROUP, INC.
FORM 10-K
TABLE OF CONTENTS
PART I Page
Item 1 Business..................................... 3
Item 2 Properties................................... 11
Item 3 Legal Proceedings............................ 11
Item 4 (Not Applicable)
PART II
Item 5 Market for the Registrant's Common Equity and
Related Shareholder Matters................ 12
Item 6 (Not Applicable)
Item 7 Management's Discussion and Analysis of
Results of Operations...................... 13
Item 8 Financial Statements and Supplementary Data.. 14
Item 9 (Not Applicable)
PART III (Not Applicable)
PART IV
Item 14 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K ................... 30
SIGNATURES.............................................. 36
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Summit Communications Group, Inc. (the "Company") is an indirect, wholly owned
subsidiary of Time Warner Companies, Inc. ("Time Warner", formerly named Time
Warner Inc.). The Company owns and operates cable television systems (the "Cable
Systems") serving approximately 184,000 subscribers and passing approximately
253,000 homes located in 6 franchise areas in suburban northwest Atlanta,
Georgia (the "Atlanta System") and in 12 franchise areas in Winston-Salem, North
Carolina and its surrounding area (the "Winston-Salem System"). Prior to March
31, 1995, the Company owned and operated three radio stations. In 1995, the
Company derived approximately 90% of its net revenues and approximately 95% of
its operating income before general corporate and other operating expenses from
its cable operations, with the balance attributable to the Company's radio
operations.
Effective October 1, 1996, Time Warner contributed all of the Company's common
stock to TWI Cable Inc., a direct, wholly owned subsidiary ("TWI Cable",
formerly known as Cablevision Industries Corporation and Subsidiaries), in
connection with a reorganization of certain of its wholly owned cable
subsidiaries.
On May 2, 1995, the Company and its shareholders 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 in a tax-free exchange (the
"Merger"). As a result of this Merger, the Company was recapitalized. The new
capital structure consists of 100 shares of common stock, par value $1 per
share. Time Warner Cable, a division of Time Warner Entertainment Company L.P.
("TWE"), manages the operations of the Company for a management fee as discussed
in the Notes to Consolidated Financial Statements (Note 7).
On March 31, 1995, the Company sold the last of its radio stations to Granum
Communications, Inc. for $130.0 million in cash plus $3.5 million for accounts
receivable. The net proceeds from this sale were invested in short-term
investments. After consummation of the sale of its radio stations, the Company
terminated its Credit Agreement and as of December 31, 1995 the long-term
indebtedness consists of $140.0 million principal amount of 10 1/2% Senior
Subordinated Debentures Due 2005 (the "Debentures").
The Company did not apply the net cash proceeds from the sale of its radio
assets to the retirement of the Debentures or to an investment in capital assets
in one of the Company's lines of business within 300 days after the sale, and
believed the sale of its outstanding stock to Time Warner constituted a "change
of control" of the Company, therefore, the Company was required to make an offer
to purchase an aggregate principal amount of the Debentures. On May 19, 1995,
an offer to repurchase the Debentures at a price of 101% of the principal amount
was made. This offer expired on June 28, 1995 with all such holders refusing
the offer.
The Company's principal executive offices are located at 75 Rockefeller Plaza,
New York, NY, 10019, and its telephone number is (212) 484-8000.
CABLE TELEVISION
The cable television business principally consists of the delivery of a wide
variety of channels of television programming, primarily video entertainment and
informational programming, to subscribers who pay a monthly fee for the services
they receive. Television and radio signals are received off-air or via
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satellite delivery by antennas, microwave relay stations and satellite earth
stations and are modulated, amplified and distributed over a network of coaxial
and fiber optic cable to the subscribers' television sets. Cable television
systems are constructed and operated pursuant to non-exclusive franchises
awarded by local governmental authorities for specified periods of time.
PROGRAMMING
The Company provides certain video programming to its subscribers pursuant to
multi-year contracts with program suppliers who are paid a monthly fee per
subscriber. Many of these contracts contain price escalation provisions;
however, in most cases the cable operator has a right to cancel the contract if
the supplier raises its price beyond agreed limits. The loss of any one
supplier would not have a material adverse effect on the Company's operations.
SERVICE AND PROGRAMMING CHARGES
The Company's systems offer subscribers packages of basic and cable
programming services consisting of television signals available off-air, a
limited number of television signals from distant cities, numerous satellite-
delivered, non-broadcast channels (such as Cable News Network ("CNN"), Music
Television ("MTV"), USA Network, Entertainment and Sports Programming Network
("ESPN"), Arts and Entertainment Channel ("A & E"), Turner Network Television
("TNT"), and Nickelodeon), displays of information such as time, news, weather
and stock market reports, and public, governmental and educational access
channels. In some systems these satellite-delivered, non-broadcast services are
packaged together to form a tier of services offered at a discount. The
Company's systems also provide premium televisions services to their basic
subscribers for an extra monthly charge. Such services (including Home Box
Office ("HBO"), Showtime, The Disney Channel and regional sports networks)
consist principally of feature motion pictures presented without commercial
interruption, sporting events, concerts and other entertainment programming.
Subscribers generally pay initial connection charges and fixed monthly fees for
basic, cable programming packages and premium television services, which
constitute the principal sources of revenues to the Company.
Revenues are also generated from pay-per-view service, home shopping channels
and audio programming. Pay-per-view programming offers recently released movies
and exclusive events, such as boxing matches and concerts. Pay-per-view
programming is available to any subscriber who rents an impulse addressable
converter.
In addition to the revenue generated from subscriber fees and program
services, the Company also derives a portion of its revenue from advertising
sales. The Cable Systems participate in two of the country's largest
advertising interconnects, which allow advertisers to purchase advertising time
on several cable networks through an agency that represents participating cable
systems serving a single market.
Cable Systems subscribers are charged monthly fees based on the level of
services selected. The monthly prices for various levels of cable television
services (excluding services offered on a per-channel or per-program basis)
range generally from $6 to $30 for residential customers. Other services
offered include equipment rentals, usually for an additional monthly fee.
Systems offering pay-per-view movies generally charge between $3 and $5 per
movie, and systems offering pay-per-view events generally charge between $6 and
$50, depending on the event.
Commercial subscribers are charged rates for cable programming services that
vary depending on the nature of the contract.
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FRANCHISES
Cable television systems are constructed and operated under non-exclusive
franchises granted by local governmental authorities. These franchises
typically contain many conditions, such as time limitations on commencement and
completion of construction; conditions of service, including number of channels,
types of programming and the provision of free service to schools and certain
other public institutions; and the maintenance of insurance and indemnity bonds.
The provisions of local franchises are subject to federal regulation under the
Cable Communications Policy Act of 1984 (the "1984 Cable Act"), as amended by
the Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act") and the Telecommunications Act of 1996 (the "1996 Act"). See
"Regulation and Legislation."
As of December 31, 1996, the Company held 18 franchises. These franchises,
all of which are non-exclusive, provide for the payment of fees to the issuing
authority. Annual franchise fees imposed on the Cable Systems range up to 5% of
gross revenues. The 1984 Cable Act prohibits franchising authorities from
imposing annual franchise fees in excess of 5% of gross revenues and also
permits the cable system operator to seek renegotiation and modification of
franchise requirements if warranted by changed circumstances.
The Company has never had a franchise revoked. In addition, all of the
franchises eligible for renewal have been renewed or extended at or prior to
their stated expirations. The 1984 Cable Act provides for an orderly franchise
renewal process, and it establishes comprehensive renewal procedures which
require that an incumbent franchisee's renewal application be assessed on its
own merit and not as part of a comparative process with competing applications.
A franchising authority may not unreasonably withhold the renewal of a
franchise. If a franchise renewal is denied, then the franchise authority must
pay the operator the "fair market value" for the system covered by the
franchise, but with no value allocated to the franchise itself. The Company's
management believes that it has excellent relationships with its franchising
communities. See "Regulation and Legislation."
REGULATION AND LEGISLATION
The cable television industry is regulated by the Federal Communications
Commission ("FCC") , some states and substantially all local governments. In
addition, various legislative and regulatory proposals under consideration from
time to time by the Congress and various federal agencies may in the future
materially affect the cable television industry. The following discussion
summarizes certain federal, state and local laws and regulations affecting cable
television.
Federal Laws. The Cable Communications Policy Act of 1984 ("1984 Cable Act"),
the 1992 Cable Act and the 1996 Telecommunications Act are the principal federal
statutes governing the cable industry. These statutes regulate the cable
industry, among other things, with respect to: (I) cable system rates for both
basic and certain nonbasic services; (ii) programming access and exclusivity
arrangements; (iii) access to cable channels by unaffiliated programming
services; (iv) leased access terms and conditions; (v) horizontal and vertical
ownership of cable systems; (vi) consumer protection and customer service
requirements; (vii) franchise renewals; (viii) television broadcast signal
carriage and retransmission consent; (ix) technical standards; and (x) privacy
of customer information.
Federal Regulations. The FCC, the principal federal regulatory agency with
jurisdiction over cable television, has promulgated regulations implementing the
federal statutes.
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Rate Regulation. Under the 1992 Cable Act, nearly all cable television
systems are subject to local rate regulation of basic service pursuant to a
formula established by the FCC and enforced by local franchising authorities.
Additionally, the legislation required the FCC to review rates for nonbasic
service tiers (other than per-channel or per-program services) in response to
complaints filed by franchising authorities and/or cable customers; prohibited
cable television systems from requiring subscribers to purchase service tiers
above basic service in order to purchase premium service if the system is
technically capable of doing so; required the FCC to adopt regulations to
establish, on the basis of actual costs, the price for installation of cable
service and rental of cable equipment; and allowed the FCC to impose
restrictions on the retiering and rearrangement of basic and non-basic services
under certain limited circumstances.
Under the 1996 Telecommunications Act, regulation of nonbasic tier rates is
scheduled to terminate on March 31, 1999. Regulation of both basic and
nonbasic tier cable rates also ceases for any cable system subject to "effective
competition." The 1996 Telecommunications Act expands the definition of
"effective competition" to cover situations where a local telephone company or
its affiliate, or any multichannel video provider using telephone company
facilities, offers comparable video service by any means except DTH.
The FCC's rate regulations employ a benchmark system for measuring the
reasonableness of existing basic and nonbasic service rates. Alternatively,
cable operators have the opportunity to make cost-of-service showings which, in
some cases, may justify rates above the applicable benchmarks. The regulations
also provide that future rate increases may not exceed an inflation-indexed
amount, plus increases in certain costs beyond the cable operator's control,
such as taxes, franchise fees and costs. Cost-based adjustments to these capped
rates can also be made in the event a cable operator adds or deletes channels or
significantly upgrades its system. In addition, new product tiers consisting of
services new to the cable system can be created free of rate regulation as long
as certain conditions are met, e.g., services may not be moved from existing
tiers to the new product tier. The rules also require that charges for cable-
related equipment (e.g., converter boxes and remote control devices) and
installation be unbundled from the provision of cable service and based upon
actual costs plus a reasonable profit.
Local franchising authorities and/or the FCC are empowered to order a
reduction of existing rates which exceed the maximum permitted level for either
basic and/or nonbasic cable services and associated equipment, and refunds can
be required.
On November 30, 1995, the FCC adopted a Social Contract with Time Warner Cable
which resolved all of the cable television rate complaints pending against Time
Warner Cable and requires Time Warner Cable to upgrade its domestic cable
television systems. The Social Contract was negotiated in accordance with the
FCC's authority to consider and adopt "social contracts" as alternatives to
other regulatory approaches applicable to cable television rates. Specifically,
the Social Contract provides for an estimated $4.7 million plus interest in
refunds in the form of bill credits to subscribers of certain designated Time
Warner Cable systems, a commitment by Time Warner Cable to establish a lifeline
basic service priced at 10% below Time Warner Cable's benchmark regulated rates
with an adjustment to the nonbasic tier to recoup the reduced basic service tier
revenue; and a commitment by Time Warner Cable to upgrade its domestic systems
by December 31, 2000. Court appeals filed by the city of Austin, Texas and the
Intercommunity Cable Regulatory Commission (which represents 28 Cincinnati
suburbs served by Time Warner Cable) seeking review of the FCC decision adopting
the Social Contract as well as certain FCC staff decisions implementing the
Social Contract are pending. The appeals contend, among other things, that the
terms of the Social Contract and the process by which it was negotiated and
implemented are contrary to the 1992 Cable Act, and are inconsistent with the
FCC's own rules. These parties also filed a petition with the FCC for
reconsideration of the Social Contract, which is currently pending.
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A purported nationwide class action has been brought in a federal court in New
York alleging that any charges imposed by Time Warner Cable for additional
outlet connections violate the 1992 Cable Act and the FCC's rate regulation
rules to the extent those charges exceed Time Warner Cable's costs. Time Warner
Cable has opposed this claim.
Carriage of Broadcast Television Signals. The 1992 Cable Act allows
commercial television broadcast stations which are "local" to a cable system to
elect every three years either to require the cable system to carry the station,
subject to certain exceptions, or to negotiate for "retransmission consent" to
carry the station. Broadcast stations typically seek monetary compensation or
the carriage of additional programming in return for granting retransmission
consent. Local non-commercial television stations are also given mandatory
carriage rights, subject to certain exceptions. Unlike commercial stations,
noncommercial stations are not given the option to require negotiation of
retransmission consent. In addition, cable systems must obtain retransmission
consent for the carriage of all "distant" commercial broadcast stations, except
for certain "superstations," i.e., commercial satellite-delivered independent
stations such as WTBS and WGN. Time Warner Cable has obtained any necessary
retransmission consents from all stations carried, which consents have varying
expiration dates. The next three-year election between mandatory carriage and
retransmission consent for local commercial television stations will occur on
October 1, 1999. The mandatory carriage rule is presently under review by the
United States Supreme Court.
Deletion of Certain Programming. Cable television systems that serve 1,000 or
more customers must delete the simultaneous or nonsimultaneous network
programming of a distant station upon the appropriate request of a local
television station holding local exclusive rights to such programming. FCC
regulations also enable television broadcast stations that have obtained
exclusive distribution rights for syndicated programming in their market to
require a cable system to delete or "black out" such programming from other
television stations which are carried by the cable system.
Public and Leased Access Channels. The 1984 Cable Act permits local
franchising authorities to require operators to set aside certain channels for
public, educational and governmental access programming. The 1984 Cable Act
further requires cable television systems with thirty-six or more activated
channels to designate a portion of their channel capacity for commercial leased
access by unaffiliated third parties. The 1992 Cable Act requires leased access
rates to be set according to a formula determined by the FCC.
Ownership. The 1996 Telecommunications Act repealed the 1984 Cable Act's
restrictions on local exchange telephone companies ("LECs") from providing video
programming directly to customers within their local exchange telephone service
areas. With certain limited exceptions, a LEC may not acquire more than a 10%
equity interest in an existing cable system operating within the LEC's service
area. The 1996 Telecommunications Act also authorized LECs and others to
operate "open video systems" without obtaining a local cable franchise, although
LECs operating such systems can be required to make payments to local
governmental bodies in lieu of cable franchise fees. A number of separate
entities have been certified to operate open video systems in New York City and
in other areas where the Company operates cable systems.
The 1996 Telecommunications Act eliminated the FCC rule prohibiting common
ownership between a cable system and a national broadcast television network,
and the statutory ban covering certain common ownership interests, operation or
control between a television station and cable system within the station's Grade
B signal coverage area. However, the parallel FCC rule against cable/television
station cross-ownership remains in place, subject to review by the FCC within
two years. Finally, the 1992 Cable Act prohibits common ownership, control or
interest in cable television systems and multichannel MDS ("MMDS") facilities
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or satellite master antenna television ("SMATV") systems having overlapping
service areas, except in limited circumstances. The 1996 Telecommunications Act
exempts cable systems facing "effective competition" from the MMDS and SMATV
cross-ownership restrictions.
Pursuant to the 1992 Cable Act, the FCC has adopted rules which, with certain
exceptions, preclude a cable television system from devoting more than 40% of
its first 75 activated channels to national video programming services in which
the cable system owner has an attributable interest. The FCC also has set a
limit of 30% of total nationwide cable homes that can be served by any multiple
cable system operator.
Other FCC Regulations and FTC Consent Decree. Additional FCC regulations
relate to a cable system's carriage of local sports programming; privacy of
customer information; equipment compatibility, franchise transfers; franchise
fees; equal employment opportunity; pole attachments; restrictions on
origination and cable casting by cable system operators; application of the
rules governing political broadcasts; customer service; technical standards,
home wiring and limitations on advertising contained in nonbroadcast children's
programming. The 1996 Telecommunications Act changes the formula for pole
attachment fees which could result in substantial increases in payments by cable
operators to utilities for pole attachment rights when services other than cable
services are delivered by cable systems.
Under the terms of the FTC Consent Decree entered into in connection with the
consummation of the TBS Transaction, Time Warner Cable is required to carry on a
significant number of its cable systems a 24-hour per day news and information
channel that is not owned, controlled by or affiliated with the Company.
Copyright. Cable television systems are subject to federal copyright
licensing covering carriage of broadcast signals. In exchange for making semi-
annual payments to a federal copyright royalty pool and meeting certain other
obligations, cable operators obtain a statutory license to retransmit broadcast
signals. The amount of this royalty payment varies, depending on the amount of
system revenues from certain sources, the number of distant signals carried, and
the location of the cable system with respect to over-the-air television
stations.
State and Local Regulation. Because a cable television system uses local
streets and rights-of-way, cable television systems are subject to local
regulation, typically imposed through the franchising process, and certain
states have also adopted cable television legislation and regulations. Cable
franchises are nonexclusive, granted for fixed terms and usually terminable if
the cable operator fails to comply with material provisions. No Time Warner
Cable franchise has been terminated due to breach. Franchises usually call for
the payment of fees (which are limited under the 1984 Cable Act to 5% of the
system's gross revenues from cable service) to the granting authority. The
terms and conditions of cable franchises vary materially from jurisdiction to
jurisdiction, and even from city to city within the same state, historically
ranging from reasonable to highly restrictive or burdensome.
The 1992 Cable Act prohibits exclusive franchises and allows franchising
authorities to operate their own multichannel video distribution system without
having to obtain a franchise. Moreover, franchising authorities are immunized
from monetary damage awards arising from regulation of cable television systems
or decisions made on franchise grants, renewals, transfers and amendments.
The 1996 Telecommunications Act provides that local franchising authorities
may not condition the grant or renewal of a cable franchise on the provision of
telecommunications service or facilities (other than institutional networks) and
clarifies that the calculation of franchise fees is to be based solely on
revenues derived from the provision of cable services, not revenues derived from
telecommunications services.
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Renewal of Franchises. The 1984 Cable Act established renewal procedures and
criteria designed to protect incumbent franchisees against arbitrary denials of
renewal. While these formal procedures are not mandatory unless timely invoked
by either the cable operator or the franchising authority, they can provide
substantial protection to incumbent franchisees. The 1992 Cable Act makes
several changes to the renewal process which could make it easier in some cases
for a franchising authority to deny renewal.
In the renewal process, a franchising authority may seek to impose new and
more onerous requirements, such as upgraded facilities, increased channel
capacity or enhanced services, although the municipality must take into account
the cost of meeting such requirements. The Company may be required to make
significant additional investments in its cable television systems as part of
the franchise renewal process. Of the Company's franchises, as of January 1,
1997, five franchises serving approximately 90,776 subscribers expire during the
period ending December 31, 1999. Although Time Warner Cable has been successful
in the past in negotiating new franchise agreements, there can be no assurance
as to the renewal of franchises in the future.
The foregoing does not describe all present and proposed federal, state and
local regulations and legislation relating to the cable television industry.
Other existing federal regulations, copyright licensing and, in many
jurisdictions, state and local franchise requirements, currently are the subject
of a variety of judicial proceedings, legislative hearings and administrative
and legislative proposals which could change, in varying degrees, the manner in
which cable television systems operate. Neither the outcome of these
proceedings nor their impact upon the cable television industry or Time Warner
Cable can be predicted at this time.
COMPETITION
Cable television systems face strong competition for viewer attention from a
wide variety of established providers and new entrants, including broadcast
television, DTH, MMDS, SMATV systems and telephone companies. Cable television
systems also compete with these and other media for advertising dollars.
DTH. The FCC has awarded conditional permits to several companies for orbital
slots from which high-power Ku-Band DTH service can be provided. DTH services
offer pre-packaged programming that can be received by relatively small and
inexpensive receiving dishes. As of the end of 1996, satellite-delivered DTH
services including Echostar, DirecTV, USSB and Primestar, a medium-powered DTH
service partially owned by TWE, were reported to be serving approximately five
million subscribers. In addition, News Corp. is scheduled to launch a DTH
service later in 1997, and recently announced a plan to merge that service with
Echostar's. If consummated, the combined venture would have greater satellite
transponder, and hence channel, capacity than other DTH services. News Corp.
has also announced that unlike other DTH services, the new venture will deliver
some local broadcast stations in some areas. In addition to DTH, most cable
programming is available to owners of larger, more expensive C-Band satellite
dishes ("TVROs"), either directly from the programmers or through third-party
packagers.
MMDS/Wireless Cable. Wireless cable operators use microwave technology to
distribute video programming. Wireless cable has grown rapidly, reportedly
servicing 12 million subscribers nationwide as of September 1996. In recent
years, the FCC has adopted rules to facilitate the use of greater numbers of
channels by wireless cable operators.
SMATV. Additional competition may come from private cable television systems
servicing condominiums, apartment complexes and certain other multiple unit
residential developments. The operators of these private systems, known as
SMATV systems, often enter into exclusive agreements with apartment building
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owners or homeowners' associations which preclude franchised cable television
operators from serving residents of such private complexes. Under the 1996
Telecommunications Act a SMATV system is not a cable system as long as it uses
no public right-of-way. SMATV systems offer both improved reception of local
television stations and many of the same satellite-delivered program services as
offered by franchised cable television systems.
Overbuilds. Under the 1992 Cable Act, franchising authorities are prohibited
from unreasonably refusing to award additional franchises. There are an
increasing number of overlapping cable systems operating in Time Warner Cable
franchise areas. Municipalities themselves are authorized to operate cable
systems without a franchise. No such municipally-owned systems are presently in
operation in Time Warner Cable franchise areas, although several municipalities
have indicated an interest in doing so.
Telephone Companies. The 1996 Telecommunications Act eliminated the
restriction against ownership and operation of cable systems by local telephone
companies within their local exchange service areas. Telephone companies are now
free to enter the retail video distribution business through any means, such as
DTH, MMDS, SMATV or as traditional franchised cable system operators.
Alternatively, the 1996 Telecommunications Act authorizes local telephone
companies to operate "open video systems" without obtaining a local cable
franchise, although telephone companies operating such systems can be required
to make payments to local governmental bodies in lieu of cable franchise fees.
Where demand exceeds available channel capacity, up to two-thirds of the
channels on an "open video system" must be available to programmers unaffiliated
with the local telephone company. The open video system concept replaces the
FCC's video dialtone rules.
Other Competition. Cable television systems compete with other communications
and entertainment media, including off-air television broadcast signals which a
viewer is able to receive directly using the viewer's own television set and
antenna. Cable systems also face competition from alternative methods of
distributing and receiving television signals and from other sources of
entertainment such as live sporting events, movie theaters and home video
products, including videocassette recorders. In recent years, the FCC has
adopted policies providing for authorization of new technologies and a more
favorable operating environment for certain existing technologies that provide,
or may provide, substantial additional competition for cable television systems.
EMPLOYEES
At December 31, 1996, the Company employed a total of approximately 203
persons.
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ITEM 2. PROPERTIES
All corporate functions for the Company are now performed by Time Warner
Cable's existing corporate office staff located in Stamford, Connecticut. The
Company owns or leases headend and tower, warehouse and office facilities in
each locality where it operates. Lease terms expire between 1998 and 2003. The
cable headend and tower sites are located at strategic points within each
franchise area to support the distribution system. The Company believes that
its facilities are in good operating condition and are satisfactory for their
present and intended uses. The following table contains certain information
describing the general character of the Company's properties:
<TABLE>
<CAPTION>
APPROXIMATE EXPIRATION
OWNED OR SQUARE FEET DATE OF
LOCATION & PRINCIPAL USE LEASED OR ACREAGE LEASE
- ------------------------------ -------- ------------ ----------
<S> <C> <C> <C>
Winston-Salem North Carolina
Offices..................... Owned 9,600 sq.ft.
Warehouse................... Owned 3,000 sq.ft
Headend..................... Owned 2.1 acres
Land........................ Owned 5.1 acres
Lexington, North Carolina
Offices..................... Owned 3,300 sq.ft.
Headend..................... Leased 5.9 acres 2003
Kernersville, North Carolina
Offices..................... Leased 800 sq. ft. 1998
Headend..................... Owned 2.8 acres
Bethania, North Carolina
Headend..................... Owned 2.5 acres
Marietta, Georgia
Offices..................... Leased 8,084 sq.ft 2002
Warehouse................... Leased 6,000 sq.ft. 2000
Headend..................... Leased 1.7 acres 2002
Warehouse Land.............. Leased 1.1 acres 2000
-----------
Totals 30,784 sq.ft.
21.2 acres
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company from time to time is involved in litigation incidental to the
conduct of its business. The Company is not a party to any lawsuit or legal
proceeding that, in the opinion of management, is likely to have a material
adverse effect on the Company.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There is no established public trading market for the common stock of the
Company. TWI Cable, a wholly owned subsidiary of Time Warner, is the sole
stockholder of the Company's common stock.
No dividends have been declared on outstanding shares of common stock during
1995 and 1996. The Company's long-term debt agreements contain covenants which
limit the payment of cash dividends on its common stock, see Note 4 to
Consolidated Financial Statements. For information with respect to cash
dividends declared on preferred stock of the Company, see Note 6 to Consolidated
Financial Statements.
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ITEM 7. 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, in 1996 operating income before depreciation and amortization
("EBITDA") increased to $40.5 million compared to $22.6 million in 1995. This
increase in EBITDA principally resulted from increased revenues and reductions
in selling, general and administrative 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.
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.
OPERATING INCOME
In 1996, revenues increased to $72.2 million, compared to $65.8 million in
1995. Income from operations increased to $31.5 million in 1996, compared to
$14.3 million 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,
year-to-year basic subscriber growth, and an increase in pay-per-view and
advertising revenues. 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. Such termination costs totaled $11.5 million in 1995.
NON-OPERATING INCOME AND EXPENSE
Interest income increased to $8.7 million in 1996, compared to $4.5 million 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 $70,000 in 1996,
compared to $6.6 million in 1995. This decrease is primarily attributed to
transaction costs incurred during 1995 in connection with the Merger (see Note
2).
13
<PAGE>
ITEM 8
SUMMIT COMMUNICATIONS GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER FINANCIAL INFORMATION
Page
----
Reports of Independent Auditors.................. 15
Consolidated Financial Statements:
Balance Sheet................................ 17
Statement of Operations...................... 18
Statement of Cash Flows...................... 19
Statement of Shareholder's Equity (Deficit).. 20
Notes to Consolidated Financial Statements... 21
14
<PAGE>
Report of Independent Auditors
To the Board of Directors of Summit Communications Group, Inc.:
We have audited the consolidated balance sheet of Summit Communications Group,
Inc. ("Summit") as of December 31, 1996 and 1995, and the related consolidated
statements of operations, changes in shareholder's equity (deficit) and cash
flows for the years then ended. Our audits also included the financial
statement schedule listed in the index at Item 14(a) at and for the years ended
December 31, 1996 and 1995. These financial statements and schedule are the
responsibility of Summit's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Summit at December
31, 1996 and 1995, and the consolidated results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
New York, New York
February 11, 1997
15
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Summit Communications Group, Inc.:
We have audited the accompanying consolidated statements of operations,
shareholder's deficit, and cash flows of Summit Communications Group, Inc. ("the
Company") for the year ended December 31, 1994. Our audit also included the
financial statement schedule for the aforementioned period listed in the Index
at Item 14. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of the Company for
the year ended December 31, 1994 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects, the information set forth
therein for such aforementioned period.
Deloitte & Touche LLP
Atlanta, Georgia
March 10, 1995
16
<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995
<S> -------- ---------
ASSETS <C> <C>
CURRENT ASSETS
Cash and equivalents................................ $ 94,473 $ 94,324
Receivables, less allowances of $218 and $85........ 2,699 829
Interest due from Time Warner....................... 2,594 1,027
Income tax refunds due from Time Warner............. -- 3,508
Prepaid expenses.................................... 205 195
-------- --------
Total current assets................................ 99,971 99,883
Loans to Time Warner................................ 39,000 24,000
Property, plant and equipment, net.................. 58,733 52,676
Cable television franchises, net.................... 8,286 8,738
Other assets........................................ 1,070 --
-------- --------
Total assets........................................ $207,060 $185,297
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable.................................... $ 1,484 $ 1,161
Accrued interest expense............................ 3,186 3,186
Accrued programming expense......................... 954 1,955
Accrued franchise fees.............................. 1,150 1,040
Accrued income taxes payable to Time Warner......... 10,833 --
Other current liabilities........................... 745 2,310
-------- --------
Total current liabilities........................... 18,352 9,652
Long-term debt...................................... 140,000 140,000
Deferred income taxes............................... 9,001 12,625
Other liabilities................................... 1,452 --
SHAREHOLDER'S EQUITY
Common stock, $1 par value, 200 shares authorized,
100 shares issued and outstanding................. -- --
Paid-in capital..................................... 1,189 1,189
Accumulated earnings................................ 37,066 21,831
-------- --------
Total shareholder's equity.......................... 38,255 23,020
-------- --------
Total liabilities and shareholder's equity.......... $207,060 $185,297
======== ========
</TABLE>
See accompanying notes.
17
<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31,
(THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Revenues................................................ $ 72,151 $ 65,814 $ 62,873
Costs and expenses:
Operating and programming (a).......................... 22,551 20,064 22,143
Selling, general and administrative (a)................ 9,098 23,136 10,052
Depreciation and amortization.......................... 8,966 8,335 8,211
-------- -------- --------
Total costs and expenses............................. 40,615 51,535 40,406
-------- -------- --------
Operating income........................................ 31,536 14,279 22,467
Interest expense........................................ (14,908) (14,206) (12,791)
Interest income (b)..................................... 8,731 4,471 --
Other expense........................................... (70) (6,640) (1,274)
-------- -------- --------
Income (loss) from continuing operations
before income taxes.................................... 25,289 (2,096) 8,402
Income tax (provision) benefit.......................... (10,054) 820 (3,723)
-------- -------- --------
Income (loss) from continuing operations................ 15,235 (1,276) 4,679
Discontinued operations:
(Loss) income from discontinued operations (less
applicable income taxes of $147 in 1995 and
$2,256 in 1994)...................................... -- (283) 343
Net gain on sale of discontinued operations (less
applicable income taxes of $9,754 in 1995 and
$9,591 in 1994)...................................... -- 40,647 18,769
-------- -------- --------
Income before extraordinary item........................ 15,235 39,088 23,791
Extraordinary loss on retirement of debt (less
applicable income tax benefit of $328 in
1995 and $779 in 1994)................................. -- (609) (1,219)
-------- -------- --------
Net income.............................................. 15,235 38,479 22,572
Preferred dividend requirements......................... -- (750) (3,000)
-------- -------- --------
Net income applicable to common shares.................. $ 15,235 $ 37,729 $ 19,572
======== ======== ========
(a) Includes expenses resulting from
transactions with affiliates (Note 7).................. $ 8,758 $ 4,567 $ --
======== ======== ========
(b) Includes interest income from affiliates (Note 7)... $ 1,593 $ 1,027 $ --
======== ======== ========
</TABLE>
See accompanying notes.
18
<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
OPERATIONS
Net income.................................................................... $ 15,235 $ 38,479 $ 22,572
Adjustments for noncash and nonoperating items:
Gain on sale of discontinued operations....................................... -- (40,647) (18,769)
Write-off of deferred financing fees.......................................... -- 937 1,998
Depreciation and amortization................................................. 8,966 9,031 12,767
Noncash interest expense...................................................... -- 283 1,218
Deferred income tax (benefit) expense......................................... (297) 12,404 5,331
Changes in operating assets and liabilities, net of effects of dispositions:..
Receivables................................................................. (1,870) (2,300) (93)
Other assets................................................................ (1,520) (602) 411
Accounts payable and accrued expenses....................................... (568) (1,121) 1,655
Incentive and retention compensation........................................ -- (2,441) (1,460)
Accrued income taxes........................................................ (2,664) (14,900) (937)
Income taxes due to/(from) Time Warner...................................... 14,341 (3,508) --
Other balance sheet changes................................................. (1,846) ( 4,945) (475)
-------- -------- --------
Cash provided (used) by operations............................................ 29,777 (9,330) 24,218
-------- -------- --------
INVESTING ACTIVITIES
Capital expenditures.......................................................... (14,628) (9,253) (9,764)
Net proceeds from sale of discontinued operations............................. -- 128,304 69,367
Other......................................................................... -- 204 (2,440)
-------- -------- --------
Cash (used) provided by investing activities.................................. (14,628) 119,255 57,163
-------- -------- --------
FINANCING ACTIVITIES
Preferred stock dividends paid................................................ -- (750) (4,250)
Loans to Time Warner.......................................................... (15,000) (24,000) --
Borrowings.................................................................... -- -- 4,000
Debt repayments............................................................... -- -- (81,000)
-------- -------- --------
Cash used by financing activities............................................. (15,000) (24,750) (81,250)
-------- -------- --------
INCREASE IN CASH AND EQUIVALENTS.............................................. 149 85,175 131
CASH AND EQUIVALENTS AT BEGINNING OF YEAR..................................... 94,324 9,149 9,018
-------- -------- --------
CASH AND EQUIVALENTS AT END OF YEAR........................................... $ 94,473 $ 94,324 $ 9,149
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid................................................................. $ 14,959 $ 15,016 $ 19,595
======== ======== ========
Income taxes paid............................................................. $ 2,002 $ 9,912 $ 619
======== ======== ========
</TABLE>
See accompanying notes.
19
<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
PREFERRED COMMON PAID-IN EARNINGS TREASURY
STOCK STOCK CAPITAL (DEFICIT) STOCK TOTAL
--------- ------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 $ 24,000 $ 164 $1,025 $(35,470) $(24,000) $(34,281)
Net income............................ -- -- -- 22,572 -- 22,572
Dividends on preferred stock -
$12.50 per share..................... -- -- -- (3,000) -- (3,000)
-------- ------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1994 24,000 164 1,025 (15,898) (24,000) (14,709)
Net income............................ -- -- -- 38,479 -- 38,479
Dividends on preferred stock -
$3.125 per share (1st quarter)....... -- -- -- (750) -- (750)
Elimination of Summit preferred,
common and treasury stock
resulting from the Time Warner Inc.
acquisition.......................... (24,000) (164) 164 -- 24,000 --
-------- ------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1995 -- -- 1,189 21,831 -- 23,020
Net income............................ -- -- -- 15,235 -- 15,235
-------- ------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1996 $ - $ -- $ 1,189 $ 37,066 $ -- $38,255
======== ======= ======== ======== ======== ========
</TABLE>
See accompanying notes.
20
<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Summit Communications Group, Inc. (the "Company") is an indirect, wholly owned
subsidiary of Time Warner Companies, Inc.("Time Warner", formerly named Time
Warner Inc.). Effective October 1, 1996, Time Warner contributed all of the
Company's common stock to TWI Cable Inc., a direct, wholly owned subsidiary
("TWI Cable", formerly known as Cablevision Industries Corporation and
Subsidiaries), in connection with a reorganization of certain of its wholly
owned cable subsidiaries. The Company owns and operates cable television systems
(the "Cable Systems") located in suburban northwest Atlanta, Georgia and
Winston-Salem, North Carolina respectively, serving approximately 184,000
total basicsubscribers.
BASIS OF CONSOLIDATION
The consolidated financial statements include 100% of the assets, liabilities,
revenues, expenses, income, loss and cash flows of the Company and its wholly
owned subsidiaries, as if the Company and its subsidiaries were a single
company. Significant intercompany accounts and transactions between the
consolidated companies have been eliminated. Significant accounts and
transactions with Time Warner and its affiliates are disclosed as related party
transactions.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and footnotes thereto.
Actual results could differ from those estimates.
REVENUES AND COSTS
Subscriber fees are recorded as revenue in the period related services are
provided and advertising revenues are recognized in the period related
advertisements are exhibited. Rights to exhibit programming are purchased from
various cable networks. The costs of such rights are generally expensed as the
related services are made available to subscribers. Prior to the sale of the
Company's remaining radio operations in March 1995, radio advertising revenues
were recognized when the related advertisements were broadcast and were recorded
net of advertising agency commissions.
ADVERTISING
Advertising costs are expensed upon the first exhibition of related
advertisements. Advertising expense amounted to $514,000 in 1996, $199,000 in
1995 and $3.4 million in 1994. Advertising expenses for 1994 primarily relate
to the radio segment. See Note 3 relating to the radio broadcasting business
disposition.
CASH AND EQUIVALENTS
Cash equivalents consist of money market funds, overnight deposits and other
21
<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
investments that are readily convertible into cash and have original maturities
of three months or less when purchased.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Additions to property,
plant and equipment generally include material, labor, overhead and interest.
Depreciation is provided on the straight-line method over estimated useful lives
as follows:
Buildings and improvements ............ 5-20 years
Equipment ............................. 3-15 years
Property, plant and equipment consist of:
December 31,
--------------------
(thousands)
1996 1995
-------- --------
Land and buildings............. $ 2,519 $ 1,546
Cable television equipment..... 124,946 114,993
Construction in progress....... 5,277 2,724
-------- --------
132,742 119,263
Less accumulated depreciation.. (74,009) (66,587)
-------- --------
Total.......................... $ 58,733 $ 52,676
======== ========
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.
CABLE TELEVISION FRANCHISES
The cost of purchased businesses in excess of net tangible assets acquired is
stated at cost less accumulated amortization. At December 31, 1996 and 1995,
these amounts were entirely related to cable television franchise rights which
the Company amortizes over a twenty year period using the straight-line method.
Amortization expense prior to 1995 primarily included goodwill and cable
television franchise rights. In 1996, 1995, and 1994 amortization of cable
television franchises amounted to $452,000, $963,000 and $670,000, respectively;
and amortization of goodwill amounted to $3.0 million in 1994. Accumulated
amortization at December 31, 1996 and 1995 was $752,000 and $300,000,
respectively.
The Company separately reviews the carrying value of acquired intangible
assets for each acquired entity on a quarterly basis to determine whether an
impairment may exist. The Company considers relevant cash flow and
profitability information, including estimated future operating results, trends
and other available information, in assessing whether the carrying value of
intangible assets can be recovered. Upon a determination that the carrying
value of intangible assets will not be recovered from the undiscounted future
22
<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
cash flows of the acquired business, the carrying value of such intangible
assets would be considered impaired and would be reduced by a charge to
operations in the amount of the impairment. An impairment charge is measured as
any deficiency in estimated discounted future cash flows of the acquired
business to recover the carrying value related to the intangible assets.
INCOME TAXES
Under a tax-sharing agreement between the Company and Time Warner, the Company
will pay to (receive from) Time Warner amounts equal to the total current
domestic income tax provision (benefit) provided by the Company. Income taxes
are provided using the liability method prescribed by FASB Statement No. 109,
"Accounting for Income Taxes." Under the liability method, deferred income
taxes reflect tax carryforwards and the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial statement
and income tax purposes, as determined under enacted tax laws and rates.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform to the 1996 presentation.
2. MERGER
On May 2, 1995, the Company and its shareholders 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 in a tax-free exchange (the
"Merger"). As a result of this Merger, the Company was recapitalized. The new
capital structure consists of 100 shares of common stock, par value $1 per
share.
Effective October 1, 1996, Time Warner contributed all of the Company's common
stock to TWI Cable 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. Accordingly, the
Company's accounting basis of its 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.
23
<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1994, the Company sold all the outstanding capital stock of Summit
Broadcasting Holding Company to Emmis Broadcasting Corporation for $68.0 million
in cash plus $3.8 million in cash for accounts receivable. Through its wholly
owned subsidiary, Summit-New York Broadcasting operated radio station WRKS in
New York, New York. The after tax gain resulting from this transaction was
$18.8 million.
The income from operations 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 revenues for 1995 and
1994 exclude revenues applicable to discontinued operations of $7.0 million and
$46.1 million, respectively.
4. LONG-TERM DEBT
Long-term indebtedness at December 31, 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 December 31, 1996, $10.5 million 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 termination of a credit agreement dated as of September 1,
1993, between the Company, the lenders identified therein and The Chase
Manhattan Bank as agent.
An extraordinary loss on the early extinguishment of debt in the amount of
$1.2 million, net of an income tax benefit of $779,000, was recorded in the
fourth quarter of 1994 which related to the write-off of deferred financing fees
on the total debt repaid.
Based on prevailing interest rates, the fair value of the Company's long-term
debt exceeded its carrying value by $15.0 million, at December 31, 1996 and
December 31, 1995.
5. EMPLOYEE BENEFIT PLANS
Effective with the Merger date, the Company began participating in the Time
Warner Cable Pension Plan (the "Pension Plan"), a noncontributory defined
benefit pension plan, and the Time Warner Cable Employees Savings Plan (the
"Savings Plan") which are administered by a committee appointed by the Board of
Representatives of Time Warner Entertainment Company, L.P. ("TWE"), an affiliate
of Time Warner, and covers substantially all employees.
Benefits under the Pension Plan are determined based on formulas which reflect
an employee's years of service and compensation levels during the employment
period. Pension expense under this plan for the year ended December 31, 1996
was $224,000 and for the period of May 2, 1995 to December 31, 1995 totaled
$77,000.
24
<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's contributions to the Savings Plan are limited to 6.67% of an
employee's eligible compensation during the plan year. The Board of
Representatives of TWE has the right in any year to set the maximum amount of
the Company's contribution. Defined contribution plan expense for the year
ended December 31, 1996 was $167,000 and for the period of May 2, 1995 to
December 31, 1995 totaled $125,000.
On May 5, 1994, the Board of Directors authorized the termination of the
Company's defined benefit pension plan which covered regular full-time and
certain part-time employees. This termination was effective on September 30,
1994. All accrued benefits to participants in the plan were frozen on June 30,
1994, resulting in a curtailment of the plan. During the second quarter of
1994, the Company, based on information provided by the Plan actuary, recorded a
curtailment gain of approximately $1.1 million resulting primarily from the
decrease in the pension obligation as a result of freezing the benefit accruals.
In connection with the decision to terminate the plan, the Company provided
certain special termination benefits which included fully vesting plan
participants retroactively to January 1, 1994 and service and compensation
enhancements to all active plan participants on June 30, 1994. The Company
expensed approximately $376,000 related to these special termination benefits
during the second quarter of 1994.
The settlement of the vested benefit obligation by the purchase of
nonparticipating annuity contracts for, or the lump-sum payments to, each
covered employee was completed in December 1994. This settlement resulted in an
additional Company contribution of $1.9 million to satisfy the obligations of
the plan. The Company expensed approximately $1.7 million related to the
settlement of the plan's obligations during the fourth quarter of 1994. At
December 31, 1994, all pension plan obligations were settled in full.
Prior to Merger, the Company also had a defined contribution savings plan
covering substantially all of its regular full-time and part-time employees.
The Company matched 25% of the first 6% of employee contributions. The cost of
the Company contribution for the period January 1, 1995 to May 1, 1995 was
$28,000, and for the year ended December 31, 1994 was $163,000. This plan was
terminated effective May 1, 1995.
6. SHAREHOLDER'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. Effective October 1, 1996, Time Warner contributed all of the
Company's common stock to TWI Cable in connection with a reorganization of
certain of its wholly owned cable subsidiaries (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.
7. RELATED PARTIES
In the normal course of conducting their businesses, the Company had various
transactions with Time Warner and its affiliates, generally on terms resulting
from a negotiation between the affected units that in management's view results
in reasonable allocations.
25
<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On May 18, 1995, the Company loaned $24.0 million to Time Warner. Interest
income on the loan totaled $1.6 million and $1.0 million for the years ended
December 31, 1996 and 1995, respectively. On December 20, 1996, the Company
loaned $15.0 million to TWI Cable. Interest income on this loan for the year
ended December 31, 1996 totaled $31,000. These loans provide for interest at
LIBOR plus .875% per annum and are due on demand.
Included in the Company's post Merger operating expenses are charges for
programming and promotional services provided by Home Box Office, Turner
Broadcasting System, Inc. and other Time Warner affiliates. These charges
totaled $5.7 million and $2.2 million for the year ended December 31, 1996 and
for the period from May 2, 1995 through December 31, 1995, respectively. These
charges are based upon customary rates and are in the ordinary course of
business. Accrued related party expenses for these programming and promotional
services are included in other current liabilities for the years ended December
31, 1996 and 1995 and amounted to $1.3 million and $1.0 million, respectively.
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 year ended December 31, 1996 and for the period
from May 2, 1995 through December 31, 1995, these fees totaled $3.1 million and
$2.4 million, respectively.
Under the Company's tax sharing agreement with Time Warner the accrued income
taxes payable to Time Warner amounted to $10.8 million as of December 31, 1996
and income tax refunds of $3.5 million due from Time Warner as of December 31,
1995.
8. INCOME TAXES
Since May 2, 1995 the Company has been included in the consolidated federal
income tax return of Time Warner Inc. The provision for income tax has been
calculated on a separate company basis. The income tax expense (benefit)
applicable to the Company's continuing and discontinued operations before
extraordinary items are as follows:
26
<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Years Ended December 31,
-------------------------
1996 1995 1994
------- ------- -------
(thousands)
Continuing operations........................... $10,054 $ (820) $ 3,723
Discontinued operations:
Income from operations........................ -- 147 2,256
Gains on Dispositions......................... -- 9,754 9,591
------- ------ -------
-- 9,901 11,847
------- ------ -------
Total........................................... $10,054 $9,081 $15,570
======= ====== =======
Current and deferred income tax expense (benefit) provided are as follows:
Years Ended December 31,
---------------------------
1996 1995 1994
-------- -------- -------
(thousands)
Federal:
Current....................................... $ 8,291 $(2,436) $ 9,539
Deferred...................................... (261) 10,150 4,515
State:
Current....................................... 2,060 (888) 700
Deferred...................................... (36) 2,255 816
------- ------- -------
Total........................................... $10,054 $ 9,081 $15,570
======= ======= =======
The differences between income taxes expected at the U.S. federal statutory
income tax rate and income taxes provided are as set forth below:
Years Ended December 31,
----------------------------
1996 1995 1994
-------- -------- --------
(thousands)
Taxes on income at U.S. federal statutory rate.. $ 8,851 $16,860 $13,776
State and local taxes, net...................... 1,316 889 1,515
Nondeductible goodwill amortization............. -- -- 1,064
Other nondeductible expenses.................... 4 185 --
Basis differences on sale of subsidiaries....... -- (8,479) (1,297)
Other........................................... (117) (374) 512
------- ------- -------
Total........................................... $10,054 $ 9,081 $15,570
======= ======= =======
27
<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's net deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1996 1995
------------ ------------
(thousands)
<S> <C> <C>
Reserves not currently deductible................................ $ (338) $ (376)
Investment tax credits & minimum tax credits..................... (3,752) (2,574)
Other............................................................ (395) (29)
------- -------
Total deferred tax assets........................................ (4,485) (2,979)
Difference in book & tax basis of property, plant and equipment.. 13,486 15,604
------- -------
Net deferred tax liabilities..................................... $ 9,001 $12,625
======= =======
</TABLE>
9. RETENTION COMPENSATION
In February 1994, the Company instituted a retention compensation plan which
provided for the payment to certain key employees of a bonus payable on the
earlier December 31, 1995 or the sale of the Company, as defined therein. The
estimated aggregate retention bonus was recognized as expense over the retention
period. The plan provided for the additional compensation contingent on the sale
of the Company. Such contingent compensation is included in other expense in
the period in which related payments were made. Upon consummation of the Merger
on May 2, 1995, the Company paid out its remaining obligation under the plan
consisting of $2.6 million in retention bonuses and $4.0 million in contingent
compensation. In total, the Company paid out $6.1 million in retention bonuses
and $4.5 million in contingent compensation under this plan.
10. LONG-TERM INCENTIVE COMPENSATION PLANS
In March 1994, the Company and its top two executives negotiated a settlement
to their existing phantom appreciation rights arrangements. The settlement
provided for the executives to receive an aggregate of 1.3% of net proceeds, as
defined, from the Merger and partial disposition of the Company up to net
proceeds of $400.0 million plus an aggregate of 2.5% of net proceeds in excess
of $400.0 million. The Company paid an additional $1.5 million to these
executives upon completion of the Merger. At December 31, 1994, the Company had
accrued $3.6 million under these arrangements. These executives were also paid
retention compensation as described in Note 9.
Prior to 1995, the Company had other long-term compensation plans for certain
other key employees and directors. Depending on the plan, compensation expense
was determined based on the appraised value or net worth of the Company. One of
these plans was settled in 1994 for $3.9 million. Compensation expense for
these plans, which is included in selling, general and administrative expenses,
was $57,000 in 1994.
28
<PAGE>
SUMMIT COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities, transmitter sites, and various items of
equipment under noncancelable operating leases. Many of these lease agreements
contain renewal options. Total rental expense was $941,000, $1.1 million and
$1.8 million for the years ended December 31, 1996, 1995, and 1994,
respectively.
Future minimum annual rental payments under noncancelable leases are as
follows (in thousands):
Years Ending
December 31,
- ---------------
1997........................................... $ 317
1998........................................... 317
1999........................................... 317
2000........................................... 313
2001........................................... 313
2002........................................... 313
------
$1,890
======
The Company from time to time is involved in litigation incidental to the
conduct of its business. The Company is not a party to any lawsuit or legal
proceeding that, in the opinion of management, is likely to have a material
adverse effect on the Company.
In exchange for certain flexibility in establishing cable rate pricing
structures for regulated services that went into effect on January 1, 1996 and
consistent with Time Warner Cable's ("TWC") long-term strategic plan, TWC has
agreed with the Federal Communications Commission (the "FCC") to invest a total
of $4 billion in capital costs in connection with the upgrade of its cable
infrastructure, which is expected to be substantially completed over the next
four years. The agreement with the FCC covers all of the cable operations of
TWC, including the owned or managed cable television systems of the Company and
the other owned or managed cable television systems of Time Warner and TWE. The
Company expects that a portion of its cable television systems will be upgraded
in connection with this agreement. TWC owns or manages a total of approximately
12.3 million subscribers, of which approximately 184,000 subscribers are owned
by the Company.
29
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. A listing of the consolidated financial statements, notes and reports of
independent auditors required by Item 8 are listed on page 14 of this
Annual Report on Form 10-K.
2. The following financial statement schedule required to be filed by Items 8
and 14(d) of Form 10-K is filed as part of this Report in part IV:
Schedule II - Valuation and Qualifying Accounts...............F-1
All other financial statements schedules required by Article 5-04 of
Regulation S-X have been omitted since they are not applicable.
3. Exhibits required to be filed by Item 601 of Regulation S-K:
Exhibit No. Description
----------- -----------
2.1 Agreement and Plan of Merger by and among Time Warner Inc., Summit
Communications Group, Inc., and the Stockholders of Summit
Communications Group, Inc. (Incorporated by reference to Exhibit 2.1
to the Company's Form 10-Q for the quarterly period ended September
30, 1994.)
2.2 Stock Purchase Agreement by and among Summit Communications Group,
Inc., Summit Broadcasting Holding Company and Granum Communications,
Inc. (Incorporated by reference to Exhibit 4.1 to the Company's Form
10-Q for the quarterly period ended June 30, 1994.)
2.3 Stock Purchase Agreement by and between Summit Communications Group,
Inc. and Emmis Broadcasting Corporation. (Incorporated by reference to
Exhibit 4.2 to the Company's Form 10-Q for the quarterly period
ended June 30, 1994.)
3.1 Certificate of Incorporation of the Company. (Incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-1, File No. 33-58996.)
3.2 By-laws of the Company. (Incorporated by reference to Exhibit 3.2 to
the Company's Registration Statement on Form S-1, File No. 33-58996.)
3.3 Certificate of Amendment No. 3 to Certificate of Incorporation of
Summit Communications Group, Inc. (Incorporated by reference to
Exhibit 3.1 to the Company's Form 10-Q for the quarterly period ended
March 31, 1993.)
30
<PAGE>
Exhibit No. Description
- ----------- -----------
3.4 Certificate of Designation of Summit Communications Group, Inc.
(Incorporated by reference to Exhibit 3.2 to the Company's Form 10-Q
for the quarterly period ended March 31, 1993.)
4.1 Indenture, dated as of April 15, 1993, between Summit Communications
Group, Inc. and Shawmut Bank Connecticut, N.A., as Trustee with
respect to the Company's 10-1/2% Senior Subordinated Debentures Due
2005. (Incorporated by reference to Exhibit 4.1 to the Company's Form
10-Q for the quarterly period ended March 31, 1993.)
4.2 Credit Agreement, dated as of September 1, 1993, between Summit
Communications Group, Inc.; Summit New-York Broadcasting Corporation;
The Chase Manhattan Bank (National Association), as Agent; and
Corestates/Philadelphia, National Bank, as Co-Agent. (Incorporated by
reference to Exhibit 4.1 to the Company's Form 10-Q for the quarterly
period ended September 30, 1993.)
4.3 Assignment Agreement, dated as of October 25, 1993, between The Chase
Manhattan Bank (National Association), Corestates/Philadelphia
National Bank (Assignors) and Assignees (Bank of Montreal; CIBC, Inc;
National Westminster Bank USA; Nations Bank of Texas, N.A.; Union
Bank; and LTCB Trust Company). (Incorporated by reference to Exhibit
4.2 to the Company's Form 10-Q for the quarterly period ended
September 30, 1993.)
4.4 Amendment No. 2, dated as of November 19, 1993, between Summit
Communications Group, Inc.; Summit-New York Broadcasting Corporation;
the Lenders (The Chase Manhattan Bank (National Bank),
Corestates/Philadelphia National Bank, Bank of Montreal, CIBC, Inc.,
National Westminster Bank USA, Nations Bank of Texas, N.A., Union
Bank, LTCB Trust Company); and the Chase Manhattan Bank (National
Association), as Agent. (Incorporated by reference to Exhibit 4.4 to
the Company's Form 10-K for the year ended December 31, 1993.)
4.5 Amendment No. 3, dated as of November 17, 1994, between Summit
Communications Group, Inc; Summit - New York Broadcasting Corporation;
the lenders identified therein; and The Chase Manhattan Bank (National
Association), as Agent. (Incorporated by reference to Exhibit 4. to
the Company's Form 8-K dated December 1, 1994.)
*10.1 1994 Amended Employment Agreement, dated as of March 17, 1994, by and
between Summit Communications Group, Inc. and James W. Wesley, Jr.
(Incorporated by reference to Exhibit 10.1 to the Company's Form 10-K
for the year ended December 31,1993.)
*10.2 1994 Amended Employment Agreement, dated as of March 17, 1994, by and
between Summit Communications Group, Inc. and James M. Strawn.
(Incorporated by reference to Exhibit 10.2 to the Company's Form 10-K
for the year ended December 31, 1993.)
*10.3 Employment Agreement, dated as of February 25, 1993, by and between
Summit Communications Group, Inc. and Adrian E. Cox. (Incorporated by
reference to Exhibit 10.4 to the Company's Registration Statement on
Form S-1, File No. 33-58996.)
- ---------
* Represents a management contract or compensatory plan or arrangement required
to be filed by Item 601 of Regulation S-K.
31
<PAGE>
Exhibit No. Description
- ----------- -----------
*10.4 Letter Agreement, dated as of November 30, 1990, by and between
Summit Communications Group, Inc. and Bernard Gray. (Incorporated by
reference to Exhibit 10.5 to the Company's Registration Statement on
Form S-1, File No. 33-58996.)
*10.5 Letter Agreement, dated as of August 24, 1987, by and between Summit
Communications Group, Inc. and Richard S. Stakes. (Incorporated by
reference to Exhibit 10.6 to the Company's Registration Statement on
Form S-1, File No. 33-58996.)
*10.6 Deferred Compensation Agreement, dated as of December 12, 1984, by
and between Summit Communications, Inc. and C. Boyden Gray.
(Incorporated by Exhibit 10.7 to the Company's Registration
Statement on Form S-1, File No 33-58996.)
*10.7 Deferred Compensation Agreement, dated as of December 31, 1987, by
and between Summit Communications Group, Inc. and Bernard Gray.
(Incorporated by reference to Exhibit 10.8 to the Company's
Registration Statement on Form S-1, File No. 33-58996.)
*10.8 Deferred Compensation Agreement, dated as of December 31, 1987, by
and between Summit Communications Group, Inc. and Nanette N. Allen.
(Incorporated by reference to Exhibit 10.9 to the Company's
Registration Statement on Form S-1, File No. 33-58996.)
*10.9 Deferred Compensation Agreement, dated as of January 7, 1988, by and
between Summit Communications Group, Inc. and James W. Wesley, Jr.
(Incorporated by reference to Exhibit 10.10 to the Company's
registration Statement on Form S-1, File No. 33-58996.)
*10.10 Deferred Compensation Agreement, dated as of January 7, 1988, by and
between Summit Communications Group, Inc. and James M. Strawn.
(Incorporated by reference to Exhibit 10.11 to the Company's
Registration Statement on Form S-1, File No. 33-58996.)
*10.11 Deferred Compensation Agreement, dated as of December 31, 1987, by
and between Summit Communications Group, Inc. and Richard S. Stakes.
(Incorporated by reference to Exhibit 10.12 to the Company's
Registration Statement on Form S-1, File No. 33-8996.)
*10.12 Trust Agreement, dated as of December 31, 1987, by and between
Summit Communications Group, Inc. and Southern National Bank of
North Carolina. (Incorporated by reference to Exhibit 10.13 to the
Company's Registration Statement on Form S-1, File No. 33-58996.)
*10.13 1988 Equity Equivalency Plan of Summit Communications Group, Inc.
(Incorporated by reference to Exhibit 10.15 to the Company's
Registration Statement on Form S-1, File No. 33-58996.)
*10.14 1985 Performance Share Plan of Summit Communications Group, Inc.
(Incorporated by reference to Exhibit 10.16 to the Company's
Registration Statement on Form S-1, File No. 33-58996.)
- ---------
* Represents a management contract or compensatory plan or arrangement required
to be filed by Item 601 of Regulation S-K.
32
<PAGE>
Exhibit No. Description
- ----------- -----------
*10.15 Equity Participation Contract, dated as of April 27, 1989, by and
between Summit Communications Group, Inc. and Carlysle A. Bethel.
(Incorporated by reference to Exhibit 10.17 to the Company's
Registration Statement on Form S-1, File No. 33-58996.)
10.16 Lease and License Agreement, dated October 30, 1970, by and between
Doubleday Broadcasting Company, Inc. and Group One Broadcasting
Company of Texas, and Assignment of Lease and Consent dated as of
October 28, 1986, by and among CBN Continental Broadcasting Network,
Inc. (successor in interest to Doubleday), Group One Broadcasting
Co. of Texas, KDM Broadcasting Corporation and DKM-Dallas
Broadcasting Corporation. (Incorporated by reference to Exhibit
10.20 to the Company's Registration Statement on Form S-1, File No.
33-58996.)
10.17 Lease, dated May 13, 1985, by and between Atlanta Board of Education
and DKM-Atlanta Broadcasting Corporation and First Modification of
Lease dated September 9, 1985, by and between such parties.
(Incorporated by reference to Exhibit 10.21 to the Company's
Registration Statement on Form S-1, File No. 33-58996.)
10.18 Lease among the Board of Trustees of the Community College of
Baltimore, Summit-Baltimore Broadcasting Corporation and the Mayor
and City Council of Baltimore. (Incorporated by reference to exhibit
10.22 to the Company's Registration Statement on Form S-1, File No.
33-58996.)
10.19 Lease Agreement, dated August 1, 1989, by and between The Trustees
of Davidson County Community College and Summit Cable Services of
the Thom-A-Lex, Inc. (Incorporated by reference to Exhibit 10.24 to
the Company's Registration Statement on Form S-1, File No. 33-
58996.)
10.20 Lease, dated as of April 1, 1988, by and between Gorboynard and
Summit Cable Services of Georgia, Inc. (Incorporated by reference to
Exhibit 10.25 to the Company's Registration Statement on Form S-1,
File No. 33-58996.)
10.21 Franchise Agreement, dated January 24, 1992, by and between the Town
of Lewisville, North Carolina and Summit Cable Services of Forsyth
County, Inc. (Incorporated by reference to Exhibit 10.26 to the
Company's Registration Statement on Form S-1, File No. 33-58996.)
10.22 Franchise Agreement, dated November 4, 1988, by and between the
Village of Clemmons, North Carolina and Summit Cable Services of
Forsyth County, Inc. (Incorporated by reference to Exhibit 10.27 to
the Company's Registration Statement on Form S-1, File No. 33-
58996.)
10.23 Franchise Agreement, dated February 13, 1985, by and between Board
of Commissioners of Forsyth County, North Carolina and Summit Cable
Services of Forsyth County, Inc. (Incorporated by reference to
Exhibit 10.28 to the Company's Registration Statement on Form S-1,
File No. 33-58996.)
- ---------
* Represents a management contract or compensatory plan or arrangement required
to be filed by Item 601 of Regulation S-K.
33
<PAGE>
Exhibit No. Description
- ----------- -----------
10.24 Ordinance, dated April 14, 1980, granting a franchise from the Town
of Rural Hall, North Carolina to Summit Communications, Inc.
(Incorporated by reference to Exhibit 10.29 to the Company's
Registration Statement on Form S-1, File No. 33-58996.)
10.25 Agreement, dated as of June 30, 1984, by and between the City of
Winston-Salem, North Carolina and Summit Communications, Inc., as
amended. (Incorporated by reference to Exhibit 10.30 to the
Company's Registration Statement on Form S-1, File No. 33-58996.)
10.26 Ordinance, dated October 2, 1979, granting a franchise from the Town
of Kernersville, North Carolina to Summit Communications, Inc., as
amended. (Incorporated by reference to Exhibit 10.31 to the
Company's Registration Statement on Form S-1, File No. 33-58996.)
10.27 Ordinance, dated as of February 18, 1985, granting a cable
television franchise for the County of Davie to River Cable, Inc. as
amended and assigned to Summit Cable Services of Forsyth County,
Inc. as of December 18, 1989. (Incorporated by reference to Exhibit
10.32 to the Company's Registration Statement on Form S-1, File No.
33-58996.)
10.28 Ordinance, dated as of February 14, 1989, by the County of Davidson,
granting a franchise to Summit Cable Services of Thom-A-Lex, Inc.
(Incorporated by reference to Exhibit 10.32 to the Company's
Registration Statement on Form S-1, File No. 33-58996.)
10.29 Ordinance, dated April 11, 1988, by the City of Lexington, North
Carolina, granting a franchise to Summit Cable Services of Thom-A-
Lex, Inc. (Incorporated by reference to Exhibit 10.34 to the
Company's Registration Statement on Form S-1, File No. 33-58996.)
10.30 Ordinance, dated July 18, 1988, by the City of Thomasville, North
Carolina, granting a franchise to Summit Cable Services of Thom-A-
Lex, Inc. (Incorporated by reference to Exhibit 10.35 to the
Company's Registration Statement on Form S-1, File No. 33-58996.)
10.31 Ordinance, dated September 18, 1988, by Stokes County, North
Carolina, granting a franchise to Summit Cable Services of Thom-A-
Lex, Inc. (Incorporated by reference to Exhibit 10.36 to the
Company's Registration Statement on Form S-1, File No. 33-58996.)
10.32 Cable Television Franchise Agreement, dated September 8, 1987, by
and between Cobb County, Georgia and Summit Cable Services of
Georgia, Inc. (Incorporated by reference to Exhibit 10.37 to the
Company's Registration Statement on Form S-1, File No. 33-58996.)
10.33 Agreement, dated June 11, 1991, by and between the County of
Cherokee, Georgia and Summit Cable Services of Georgia, Inc.
(Incorporated by reference to Exhibit 10.38 to the Company's
Registration Statement on Form S-1, File No 33-58996.)
10.34 Renewal Agreement, dated August 27, 1990, by and between the City of
Woodstock, Georgia and Summit Communications of Georgia, Inc.
(Incorporated by reference to Exhibit 10.39 to the Company's
Registration Statement on Form S-1, File No. 33-58996.)
10.35 Franchise Agreement, dated March 31, 1992, by and between the City
of Roswell, Georgia and Summit Cable Services of Georgia, Inc.
(Incorporated by reference to Exhibit 10.40 to the Company's
Registration Statement on Form S-1, File No. 33-58996.)
34
<PAGE>
Exhibit No. Description
- ----------- -----------
10.36 Franchise Agreement, dated October 17, 1984, by and between Fulton
county, Georgia, and Summit Communications, Inc., as amended.
(Incorporated by reference to Exhibit 10.41 to the Company's
Registration Statement on Form S-1, File No. 33-58996.)
10.37 Agreement, dated August 9, 1989, by and between Bartow County,
Georgia and Summit Cable Services of Georgia, Inc. (Incorporated by
reference to Exhibit 10.42 to the Company's Registration Statement
on Form S-1, File No. 33-58996.)
*10.38 Supplemental Executive Retirement Arrangement effective July 30,
1991 between Summit Communications Group, Inc. and Richard S.
Stakes. (Incorporated by reference to Exhibit 10.51 to the Company's
Registration Statement on Form S-1, File No. 33-58996.)
*10.39 Supplemental Executive Retirement Arrangement effective April 23,
1992 between Summit Communications Group, Inc. and Adrian E. Cox.
(Incorporated by reference to Exhibit 10.52 to the Company's
Registration Statement on Form S-1, File No. 33-58996.)
*10.40 1992 Deferred Bonus Plan of Summit Communications Group, Inc.
(Incorporated by reference to Exhibit 10.47 to the Company's Form
10-K for the year ended December 31, 1993.)
- ---------
* Represents a management contract or compensatory plan or arrangement required
to be filed by Item 601 of Regulation S-K.
b. REPORTS ON FORM 8-K
None.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on March 28, 1997.
SUMMIT COMMUNICATIONS GROUP, INC.
By: David E. O'Hayre
----------------
David E. O'Hayre
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by following persons on behalf of the Registrant
and in the capacities indicated on March 28, 1997.
Signature Title
- --------- -----
/s/ David E. O'Hayre President
- --------------------------------- (principal executive officer)
David E. O'Hayre
/s/ Tommy J. Harris Vice President-Finance & Treasurer
- --------------------------------- (principal financial officer)
Tommy J. Harris
/s/ Spencer B. Hays Vice President & Secretary & Director
- ---------------------------------
Spencer B. Hays
/s/ Richard M. Petty Vice President & Controller
- --------------------------------- (principal accounting officer)
Richard M. Petty
/s/ Warren A. Christie Vice President-Taxes and Director
- ---------------------------------
Warren A. Christie
36
<PAGE>
SUMMIT COMMUNICATIONS, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance
Beginning Costs and at End
of Period Expenses Deductions (1) of Period
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
For the year ended
December 31, 1996:
Allowance for
doubtful trade
accounts
receivable
Cable Television.... $ 85,000 $570,000 $ (437,000) $ 218,000
-------- -------- ----------- ---------
$ 85,000 $570,000 $ (437,000) $ 218,000
======== ======== =========== =========
For the year ended
December 31, 1995:
Allowance for
doubtful trade
accounts
receivable
Cable Television.... $118,000 $366,000 $ (399,000) $ 85,000
Radio broadcasting.. 221,000 -- (221,000) --
-------- -------- ----------- ---------
$339,000 $366,000 $ (620,000) $ 85,000
======== ======== =========== =========
For the year ended
December 31, 1994:
Allowance for
doubtful trade
accounts
receivable
Cable Television.... $112,000 $631,000 $ (625,000) $ 118,000
Radio broadcasting.. 344,000 294,000 (417,000) $ 221,000
-------- -------- ----------- ---------
$456,000 $925,000 $(1,042,000) $ 339,000
======== ======== =========== =========
</TABLE>
(1) Represents the write-off of uncollectible accounts, net of recoveries.
F-1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 94,473
<RECEIVABLES> 2,917
<ALLOWANCES> 218
<INVENTORY> 0
<CURRENT-ASSETS> 99,971
<PP&E> 132,742
<DEPRECIATION> 74,009
<TOTAL-ASSETS> 207,060
<CURRENT-LIABILITIES> 18,352
<BONDS> 140,000
0
0
<COMMON> 0
<OTHER-SE> 38,255
<TOTAL-LIABILITY-AND-EQUITY> 207,060
<SALES> 72,151
<TOTAL-REVENUES> 72,151
<CGS> 22,151
<TOTAL-COSTS> 22,151
<OTHER-EXPENSES> 8,966<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,908
<INCOME-PRETAX> 25,289
<INCOME-TAX> 10,054
<INCOME-CONTINUING> 15,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,235
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Depreciation and amortization
</FN>
</TABLE>
