<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997
-------------
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 0-22-093
--------
SCOTT CABLE COMMUNICATIONS, INC.
--------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Texas 75-1766202
- ------------------------------- --------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
Four Landmark Square, Suite 302, Stamford, CT 06901
- -----------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (203) 323-1100
--------------
Indicate by checkmark 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 NO
---------- ----------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by checkmark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X NO
----------- -----------
Indicate the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JUNE 30, 1997
- ------------------------------------------- ----------------------------
Class A common, $0.10 par value............ 1,000
Class B common, $0.10 par value............ 24,000
Class C common, $0.10 par value............ 75,000
<PAGE>
SCOTT CABLE COMMUNICATIONS, INC.
INDEX
FORM 10Q
JUNE 30, 1997
PAGES
-------
PART 1: FINANCIAL INFORMATION
Item I. Financial Statements:
Consolidated Balance Sheets as of June 30, 1997 (unaudited)
and December 31, 1996 2
Consolidated Statements of Operations for the quarters
and six months ended June 30, 1997 and 1996 (unaudited) 3
Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1996 (unaudited) 4
Notes to the Consolidated Financial Statements (unaudited) 5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-12
PART II: OTHER INFORMATION
None
Signature Page 13
<PAGE>
SCOTT CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1997 1996
- ------ -------------- ---------------
(UNAUDITED)
<S> <C> <C>
INVESTMENT IN CABLE TELEVISION SYSTEMS:
Land and land improvements.................................................... $ 18,523 $ 18,523
Vehicles...................................................................... 1,442,170 1,400,872
Buildings and improvements.................................................... 127,326 127,326
Office furniture and equipment................................................ 422,358 388,513
CATV distribution systems and related equipment............................... 42,066,275 39,415,762
-------------- ---------------
Total fixed assets............................................................ 44,076,652 41,350,996
Less accumulated depreciation................................................. (26,112,176) (24,402,301)
-------------- ---------------
Total fixed assets--net....................................................... 17,964,476 16,948,695
FRANCHISE COSTS--net............................................................ 2,234,018 3,997,320
GOODWILL--net................................................................... 19,536,708 19,877,946
DEFERRED FINANCING COSTS--net................................................... 2,487,773 2,760,110
DEFERRED FEDERAL INCOME TAXES................................................... 961,846 961,846
CASH AND CASH EQUIVALENTS....................................................... 2,760,360 838,232
ACCOUNTS RECEIVABLE less allowance for doubtful accounts of
$127,562 in 1997 and $105,881 in 1996......................................... 450,316 483,319
PREPAID AND OTHER ASSETS........................................................ 773,376 1,525,334
-------------- ---------------
TOTAL ASSETS.................................................................... $ 47,168,873 $ 47,392,802
-------------- ---------------
-------------- ---------------
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
LIABILITIES:
Notes and loans payable....................................................... $158,783,492 $ 151,918,827
Accounts payable and accrued expenses......................................... 7,253,455 7,087,654
Unearned income............................................................... 189,379 172,903
Deferred state income taxes................................................... 577,323 608,443
-------------- ---------------
Total liabilities............................................................. 166,803,649 159,787,827
SHAREHOLDERS' DEFICIENCY:
Common Stock.................................................................. 10,000 10,000
Additional paid-in-capital.................................................... 4,229,850 4,229,850
Deficit....................................................................... (123,874,626) (116,634,875)
-------------- ---------------
Total shareholders' deficiency................................................ (119,634,776) (112,395,025)
-------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY.................................. $ 47,168,873 $ 47,392,802
-------------- ---------------
-------------- ---------------
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
SCOTT CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ----------------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
------------ ------------- ------------- -------------
Revenues............................................ $ 8,081,652 $ 7,434,258 $ 15,951,768 $ 14,660,727
Costs and expenses:
Operating expenses................................ 2,803,798 2,521,256 5,423,476 5,000,350
Selling,general and administrative
expenses......................................... 1,358,604 1,168,777 2,698,260 2,331,049
Management fees................................... 362,502 334,542 717,830 659,733
Depreciation and amortization..................... 2,121,738 1,866,165 4,228,476 3,708,304
Reorganization items.............................. 92,679 720,638 160,864 1,282,289
------------ ------------- ------------- -------------
Total costs and expenses........................ 6,739,321 6,611,378 13,228,906 12,981,725
------------ ------------- ------------- -------------
Operating income.................................... 1,342,331 822,880 2,722,862 1,679,002
Interest expense, net of interest income
of $15,023 and $115,365 for the three months
ended June 30, 1997 and 1996, and $37,780 and
$218,082 for the six months ended June 30, 1997
and 1996........................................... (5,039,007) (1,568,003) (9,993,733) (4,527,413)
------------ ------------- ------------- -------------
Loss before income taxes............................ (3,696,676) (745,123) (7,270,871) (2,848,411)
Income tax benefit.................................. 26,658 1,000 31,120 1,000
------------ ------------- ------------- -------------
Net loss............................................ ($ 3,670,018) ($ 744,123) ($ 7,239,751) ($ 2,847,411)
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
SCOTT CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996
----------- ------------
<S> <C> <C>
Net loss......................................................................... ($ 7,239,751) ($ 2,847,411)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation.................................................................. 1,868,634 1,649,150
Amortization.................................................................. 2,359,842 2,059,154
Accretion of Notes and Loans payable.......................................... 6,864,665 648,135
Deferred Federal and state income taxes....................................... (31,120) --
Changes in assets and liabilities:
Increase in unearned income..................................................... 16,476 11,816
Decrease (increase) in accounts receivable...................................... 33,003 (233,915)
Decrease in prepaid and other assets............................................ 751,958 814,870
Increase in accounts payable and accrued expenses............................... 165,801 3,410,300
------------- -------------
Net cash provided by operating activities.......................................... 4,789,508 5,512,099
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................. (2,884,415) (2,134,800)
------------- -------------
Net cash used in investing activities.............................................. (2,884,415) (2,134,800)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Adjustment in deferred financing costs........................................... 17,035 (500,000)
------------- -------------
Net cash provided by (used in) financing activities................................ 17,035 (500,000)
------------- -------------
Net change in cash and cash equivalents............................................ 1,922,128 2,877,299
Cash and cash equivalents--Beginning of period..................................... 838,232 4,332,744
------------- -------------
Cash and cash equivalents--End of period........................................... $ 2,760,360 $ 7,210,043
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the six months for interest....................................... $ 1,772,369 $ 1,304,694
------------- -------------
------------- -------------
Cash paid during the six months for income taxes................................... -- --
------------- -------------
------------- -------------
Reorganization items paid during the six months
Legal fees....................................................................... $ 97,121 $ 767,706
Financial advisory fees.......................................................... -- 491,140
Other............................................................................ 63,743 23,443
------------- ------------
$ 160,864 $ 1,282,289
-------------- -------------
-------------- -------------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
SCOTT CABLE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The interim financial statements for Scott Cable Communications, Inc. and
consolidated subsidiaries (the "Company") as of June 30, 1997 and for the
three months and six months ended June 30, 1997 and 1996 are unaudited. These
interim consolidated financial statements should be read in conjunction with
the Company's audited consolidated financial statements as of December 31,
1996 and 1995 and for each of the three years in the period ended December
31, 1996, included within the Company's Registration of its Class A common
stock on Form 10. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the
consolidated financial position, results of operations and cash flows as of
June 30, 1997 and for the three months and six months ended June 30, 1997 and
1996 have been made. The results of operations for the three months and six
months ended June 30, 1997 and 1996 are not necessarily indicative of the
results for the entire year.
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to those used in 1997.
NOTE 2 - EMERGENCE FROM BANKRUPTCY
As more fully described in Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations, the Company filed a voluntary
petition for relief under Chapter 11 of the Bankruptcy Code in February,
1996. The Bankruptcy Court (the "Court") confirmed a Plan of Reorganization
(the "Plan"), and it became effective on December 18, 1996. Pursuant to the
terms of the Plan, the Company entered into an agreement for a new senior,
secured credit facility. Proceeds of this facility were used to retire the
Company's previously outstanding Senior Debt, Senior Subordinated Notes, and
Zero Coupon Subordinated Notes. The Company also issued Senior PIK Notes and
Junior PIK Notes in exchange for its previously outstanding Subordinated
Debentures and Junior Subordinated Debentures, respectively (see Liquidity
and Capital Resources discussion in Item 2 and Registration on Form 10 for
additional information).
NOTE 3 - BASIS OF PRESENTATION
Pursuant to the Plan, the Court required the Company to put in escrow the
aggregate sum of $387,000 pending the resolution of a claim by certain of the
Company's former Senior Secured Noteholders. The claim includes interest
computed at the default rate on a portion of the then outstanding Senior
Secured Notes. The Company has objected to the claim. This cash held in
escrow is included in the Balance Sheet caption "Prepaid and Other Assets" at
June 30, 1997 and December 31, 1996.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS
No. 109"). The statement requires the use of an asset and liability approach
for financial accounting and reporting for income taxes. Deferred tax
assets relate primarily to net operating losses, investment tax credits and
Federal Alternative Minimum Tax credit carryforwards. Deferred tax
liabilities relate to temporary differences between book and tax depreciation
and amortization expenses, and deferred gain on installment sales.
-5-
<PAGE>
NOTE 4 - TRANSACTIONS WITH RELATED PARTIES
Scott Cable Management Company, Inc. ("Management") acts as manager for the
Company. In accordance with the management agreement, Management was paid a
management fee equal to 4.5% of total revenues (as defined in the agreement)
through December 31, 1996. The Company entered into a new management
agreement with Management which became effective January 1, 1997. Under the
new agreement, Management is to be paid a management fee equal to 4.25% of
total revenues, plus an additional 0.25% of revenues if certain operating
results are met. The management fee, including the potential additional
0.25% in 1997 was $717,830 and $659,733 for the six months ended June 30,
1997 and 1996, respectively. Additionally, the Company paid Management for
out-of-pocket expenses in the amount of $29,877 and $28,391 for the six
months ended June 30, 1997 and 1996, respectively.
-6-
<PAGE>
SCOTT CABLE COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
Reference is made to Form 10 for Scott Cable Communications, Inc. (the
"Company") for additional information regarding the Company's background and
significant accounting policies. Due to a changing competitive and
regulatory environment, the Company's historic interim financial results
discussed below are not necessarily indicative of future performance.
BACKGROUND
In January 1988, Simmons Communications Merger Corp. merged with and into the
Company pursuant to a merger agreement whereby each share of common stock of
the Company was converted into the right to receive $27.25 in cash or
approximately $129.3 million in the aggregate. As a result of the Merger,
the Company became highly leveraged.
In October 1992, the 1992 Cable Act was enacted and the FCC imposed extensive
regulations on the rates charged by cable television owners and operators.
Beginning in 1993, the Company's revenue and cash flow were adversely
impacted by these regulations as the Company was required to reduce many of
its service rates effective September 1993 and again in August 1994.
In 1993, the Company extended the maturity date of its senior indebtedness to
November 1995 and in conjunction with such extension, agreed to make
principal payments of $15 million in January 1994 and $18 million in March
1995. As part of the Company's effort to satisfy these mandatory payment
obligations and provide additional working capital, the Company sold cable
systems located in Rancho Cucamonga, California in January 1994 for $23.6
million and Missouri, Oklahoma, Kansas and northern Texas for $12.4 million
in February 1995.
In October 1995, the Company failed to make an interest payment on its
outstanding subordinated debentures and in November 1995, the Company's
senior secured debt aggregating approximately $34.4 million matured and the
Company failed to pay such debt on maturity. The Company entered into 90-day
standstill agreements with holders of its senior bank loans and notes and
holders of its senior subordinated notes in order to seek refinancing
alternatives; however, the Company was unable to refinance its obligations or
negotiate a restructuring on favorable terms prior to the expiration of the
agreements.
In February 1996, the Company filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code. Subsequently, the Company sought new
financing to replace approximately $62.3 million of debt which had matured
and negotiated new terms for approximately $88.4 million of subordinated and
junior subordinated debt, including the deferral of cash interest payments
for several years. In December 1996, the Bankruptcy Court confirmed the Plan
of Reorganization and it became effective on December 18, 1996 concurrently
with the Company's consummation of a new senior, secured credit facility
which provides for up to $67.5 million in loans and the issuance of Senior
and Junior PIK Notes (as defined below) in the aggregate principal amount of
$88.4 million. See "Liquidity and Capital Resources" below.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
REVENUES. Revenues for the six months ended June 30, 1997 increased
approximately $1,291,000, or 8.8% over the same period of the previous year.
-7-
<PAGE>
Revenue from basic services (the most popular levels of service with
subscribers) increased approximately $1,069,000 or 9.7%. Approximately
$175,000 of this increase is attributable to the greater average number of
subscribers during 1997 compared to 1996, while $894,000 is due to higher
average basic revenue per subscriber. The average monthly rate for average
subscribers outstanding during the six months increased from $25.48 in 1996 to
$27.49 in 1997. A portion of this increase was due to the fact that The
Disney Channel was added to the Company's Satellite Tier, one of its basic
services, in most of its cable systems, whereas formerly it was a sold as a
premium service. Revenue from commercial accounts and multi-dwelling unit
complexes billed on a bulk basis increased approximately $29,000, or 6.6%
due primarily to rate increases.
Revenue from Premium Services (single channels offered to the subscribers for
an additional monthly charge) increased approximately $64,000 or 4.6% over
1996 due to a higher average revenue per pay unit. This increase more than
offset the reduction in revenues from 8% fewer average pay units in 1997
compared to 1996. The decline in average pay units was due primarily to the
repositioning of The Disney Channel as a basic service as discussed above,
and the repackaging of Showtime and The Movie Channel services as a single
premium service. These three services were offered individually at retail
rates less than the average of all premium services, so the repositioning of
these services resulted in a 13.6% higher average rate on the currently
offered services.
All other revenues increased by approximately $129,000 or 6.9%.
Approximately $80,000 of the increase was attributable to an increase in
revenue from pay per view events, and approximately $27,000 of the increase
was from advertising revenue.
OPERATING EXPENSES. Operating expenses increased approximately $423,000, or
8.5% from 1996 to 1997. Basic programming costs increased by approximately
$381,000, or 17.8%. The addition of The Disney Channel to the Satellite Tier
level of service accounted for 41% of this increase in basic programming
costs. The balance of the increase is due to cost increases from program
providers, increased average subscribers, and additional programming services
being added.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES . Selling, general and
administrative expenses for the six months June 30, 1997 increased by
approximately $367,000, or 15.8% over the same period of the prior year.
Components of the increase were as follows: marketing expenses increased
approximately $57,000 or 26.5%; bad debt expense increased approximately
$156,000, representing an increase from 0.8% of revenues in 1996 to 1.7% in
1997; health insurance increased approximately $50,000, or 29% due to
increased medical claims; costs associated with billing of subscribers
increased approximately $36,000, or 14.9 % due to the use of more
sophisticated billing systems, and; other selling, general and administrative
expenses net increased approximately $68,000, primarily due to inflation.
REORGANIZATION ITEMS. Reorganization expenses decreased approximately
$1,121,000 from 1996 to 1997 as the bankruptcy filing and refinancing were
largely completed during 1996.
MANAGEMENT FEES. Management fees increased by approximately $58,000 due to
increased revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and Amortization increased by
approximately $520,000 or 14% due to ongoing capital additions and
amortization of deferred financing costs.
INTEREST EXPENSE. Interest Expense, net of interest income increased by
approximately $5,466,000. This was due to the cessation of the accrual of
interest on the Subordinated and Junior Subordinated debentures in 1996 as a
result of the Company's filing for bankruptcy. Approximately $181,000 of the
increase was due to decreased interest income from lower available cash
balances. Average cash balances during the six months of 1996 were higher
than in 1997 due to the non-payment of the interest due on the subordinated
debentures on October 15, 1995, and an approximate $2.7 million escrow
required under the terms of the 1993 debt maturity extesnion agreement.
-8-
<PAGE>
This cash was used to repay debt and accrued interest on December 18, 1996 in
accordance with terms of the Plan. The remaining increase in interest
expense is due to higher outstanding debt ($158,783,492 as of June 30, 1997
as compared to $151,918,827 as of June 30, 1996), as well as a higher overall
effective interest rate as a result of the refinancing (see "Liquidity and
Capital Resources" below).
NET LOSS. Net loss for the six months ended June 30, 1997 increased
approximately $4,392,000. This change was the net effect of the changes in
revenues and expenses as discussed above.
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
REVENUES. Revenues for the quarter ended June 30, 1997 increased
approximately $647,000, or 8.7% over the same period of the previous year.
Revenue from basic services increased approximately $520,000 or 9.3%.
Approximately $67,000 of this increase is attributable to the higher average
number of subscribers during 1997 compared to 1996, while $453,000 is due to
higher average basic revenue per subscriber. The average monthly rate for
average subscribers outstanding during the quarter increased from $25.81 in
1996 to $27.83 in 1997. A portion of this increase was due to the fact that
The Disney Channel was added to the Company's Satellite Tier, one of its
basic services, in most of its cable systems, whereas formerly it was a sold
as a premium service. Revenue from commercial accounts and multi-dwelling
unit complexes billed on a bulk basis increased approximately $9,000, or
4.1% due to additional volume and rate increases.
Revenue from Premium Services increased approximately $34,000 or 5.1% over
1996 due principally to a higher average revenue per pay unit. This increase
more than offset the reduction in revenues from 15% fewer average pay units
in 1997 compared to 1996. The decline in average pay units was due primarily
to the repositioning of The Disney Channel as a basic service as discussed
above, and the repackaging of Showtime and The Movie Channel services as a
single premium service. These three services were offered individually at
retail rates less than the average of all premium services, so the
repositioning of these services resulted in a 23.1% higher average rate on
the currently offered services.
All other revenues increased by approximately $84,000 or 8.8%. Approximately
$72,000 of the increase was attributable to an increase in revenue from pay
per view events.
OPERATING EXPENSES. Operating expenses increased approximately $283,000, or
11.2% from 1996 to 1997. Basic programming costs increased by approximately
$195,000, or 17.6%. The addition of The Disney Channel to the Satellite Tier
level of service accounted for 79% of this increase in basic programming
costs. The balance of the increase is due to cost increases from program
providers, increased average subscribers, and additional programs being
added. Program costs related to pay per view revenue increased by $45,000 as
a function of the increase in pay per view revenues. $43,000 less labor and
overhead was capitalized in 1997 compared to 1996. Changes in other direct
operating costs from 1996 to 1997 were insignificant.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the quarter ended June 30, 1997 increased by
approximately $190,000, or 16.2% over the same period of the prior year.
Components of the increase were as follows: marketing expenses increased
approximately $5,000 or 4.4%; bad debt expense increased approximately
$105,000, representing an increase from 0.7% of revenues in 1996 to 2.0% in
1997; health insurance increased approximately $23,000, or 27% due to
increased medical claims; costs associated with billing of subscribers
increased approximately $22,000, or 18.8 % due to the use of more
sophisticated billing systems, and; other selling, general and administrative
expenses net increased approximately $35,000, primarily due to inflation.
REORGANIZATION ITEMS. Reorganization expenses decreased approximately
$628,000 from 1996 to 1997 as the bankruptcy filing and refinancing were
largely completed during 1996.
-9-
<PAGE>
MANAGEMENT FEES. Management fees increased by approximately $28,000 due to
increased revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and Amortization increased by
approximately $256,000 or 13.7% due to ongoing capital additions and
amortization of deferred financing costs.
INTEREST EXPENSE. Interest Expense, net of interest income increased by
approximately $3,471,000. This was primarily due to the cessation of the
accrual of interest on the Subordinated and Junior Subordinated debentures in
1996 as a result of the Company's filing for bankruptcy. Approximately
$100,000 of the increase was due to decreased interest income from lower
available cash balances. Average cash balances during the Second quarter of
1996 were higher than in 1997 due to the non-payment of the interest due on
the subordinated debentures on October 15, 1995, and an approximate $2.7
million escrow required under the terms of the 1993 debt maturity extension
agreement. This cash was used to repay debt and accrued interest on December
18, 1996 in accordance with terms of the Plan. The remaining increase in
interest expense is due to higher outstanding debt ($158,783,492 as of June
30, 1997 as compared to $151,918,827 as of June 30, 1996), as well as a
higher overall effective interest rate as a result of the refinancing (see
"Liquidity and Capital Resources" below).
NET LOSS. Net loss for the quarter ended June 30, 1997 increased
approximately $2,926000. This change was the net effect of the changes in
revenues and expenses as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ongoing need for capital will be for debt service and capital
expenditures to the extent they exceed cash provided from operations. The
Company incurred no additional debt since its restructuring effective
December 18, 1996.
LOAN AGREEMENT. The Company's Senior credit facility consists of a Term Loan
and a Revolving Facility. The $57,500,000 term loan is payable in increasing
quarterly principal installments commencing in January, 1998 with an
aggregate of $1,050,000 payable in 1998, $1,550,000 due in 1999, $2,200,000
due in 2000, $2,600,000 due in 2001, and a final maturity of January 2, 2002.
In addition, under the Loan Agreement, the Company is required to use 75% of
its annual "excess cash flow," as defined in the Loan Agreement, to reduce
the principal outstanding under the term loan, beginning with excess cash
flow for the year ending December 31, 1997. The Revolving Facility is for
$10,000,000, and matures on January 2, 2002. Unused portions of the
revolving loans may be borrowed and reborrowed at the Company's discretion
subject to the applicable commitment and borrowing base limitations.
The outstanding Term Loan and Revolving Facility currently bear interest at
1.5% per annum above the Citibank, N.A. corporate base rate. The margin
above the corporate base rate is subject to change in the event the Company
does not meet a fixed ratio of outstanding loans to operating cash flow,
which is measured each quarter. As of June 30, 1997, the Company had $57.5
million outstanding pursuant to the Term Loan and $5.5 million outstanding
pursuant to Revolving Facility, and both loans bore interest at the rate of
10.0% per annum.
The loans are secured by, among other things, a lien on substantially all of
the Company's real and personal property and a pledge by the Company's
stockholders of all of the issued and outstanding shares of common stock in
the Company. The proceeds of the initial loans ($63.0 million) were used to
refinance existing indebtedness pursuant to the terms and provisions of the
Plan of Reorganization and the revolving loans will be used to provide the
Company with additional working capital. Subject to certain exceptions, the
Loan Agreement prohibits or restricts, among other things, the incurrence of
liens, the incurrence of indebtedness, certain fundamental corporate changes
(including mergers, acquisitions and sales of assets), dividends, the making
of specified investments and certain transactions with affiliates. In
addition, the Loan Agreement contains financial covenants which prohibit the
Company from making capital expenditures in excess of $5.6 million 1997, $4.6
million in 1998, $8.3 million in 1999, $7.3 million in 2000 and $2.7 million
in 2001. The Loan Agreement limits the ratio of senior debt to cash flow (as
defined therein) to 5.0 to 1 through June, 1997, which ratio is reduced
annually beginning September 30, 1997 to 4.25 to 1 at September 30, 1999 and
thereafter. The Loan Agreement also requires: (1) the ratio of cash flow to
fixed charges to be no less than 1.1 to 1 through 1998 and 1.05 to 1
thereafter, and; (2) a ratio of cash flow to debt service to be no less than
1.85 to 1 except for the four quarters ended September 30, 1999, during which
period it must be no less than 1.8 times.
-10-
<PAGE>
SENIOR PIK NOTES. On December 18, 1996, the Company executed an indenture
with Fleet National Bank, as Trustee (the "Senior Indenture"), pursuant to
which the Company issued an aggregate of $49,500,000 in 15% Senior
Subordinated Pay-in-Kind Notes due March 18, 2002 (the "Senior PIK Notes").
The Senior PIK Notes have been issued to a depository on behalf of the
holders of certain claims under the Plan of Reorganization. The Senior PIK
Notes are secured by, among other things, a lien on substantially all of the
Company's real and personal property, which liens are subordinate to the
liens created under the Loan Agreement. Interest accrues on the outstanding
balance of the Senior PIK Notes at 15% per annum; however, interest will be
paid through the issuance of additional notes by the Company. The principal
amount and all accrued interest with respect to the Senior PIK Notes will be
due and payable on March 18, 2002.
Subject to certain exceptions, the Senior Indenture prohibits or restricts,
among other things, the incurrence of liens, the incurrence of indebtedness,
certain fundamental corporate changes (including mergers, acquisitions and
sales of assets), dividends, the making of specified investments and certain
transactions with affiliates. The Senior Indenture does not require the
Company to maintain any financial ratios.
JUNIOR PIK NOTES. On December 18, 1996, the Company executed an indenture
with Fleet National Bank, as Trustee (the "Junior Indenture"), pursuant to
which the Company issued an aggregate of $38,925,797 in 16% Junior
Subordinated Pay-in-Kind Notes due July 18, 2002 (the ("Junior PIK Notes").
The Junior PIK Notes have been issued directly to the appropriate class of
claimants under the Plan. The Junior PIK Notes are secured by, among other
things, a lien on substantially all of the Company's real and personal
property, which liens are subordinated to the liens created under the Loan
Agreement and the Senior Indenture. Interest accrues on the outstanding
balance of the Junior PIK Notes at 16% per annum; however, interest will be
paid through the issuance of additional notes by the Company. The principal
amount and all accrued interest with respect to the Junior PIK Notes will be
due and payable on July 18, 2002.
Subject to certain exceptions, the Junior Indenture prohibits or restricts,
among other things, the incurrence of liens, the incurrence of indebtedness,
certain fundamental corporate changes (including mergers, acquisitions and
sales of assets), dividends, the making of specified investments and certain
transactions with affiliates. The Junior Indenture does not require the
Company to maintain any financial ratios.
SYSTEM UPGRADES AND REBUILDS. The Company anticipates that over the next
four years it will spend approximately $12.2 million to upgrade and rebuild
its systems and approximately $3.6 million for additional plant construction
(enabling it to pass approximately 11,600 additional homes). The Company
anticipates it will spend approximately $2.7 million and $1.0 million for
upgrades and rebuilds and approximately $.8 million and $.8 million for plant
construction during 1997 and 1998, respectively. (These amounts are included
in the figures set forth immediately above). The Company's policy has been
to utilize fiber optics technology in its rebuild projects, when it is
appropriate. The Company believes that the addition of fiber optics in plant
construction will extend system reach, improve picture quality, allow for
increased channel capacity and improve system reliability.
Based on the Company's current plan of operations, it is anticipated that the
Company's projected cash flow from operations and current debt facilities
will provide sufficient working capital for operations, debt service
requirements and planned capital expenditures for the next several years.
However, there can be no assurance that the Company will not require
additional financing prior to that time. The Company's capital requirements
depend on, among other things, whether the Company is successful in
generating increased revenues and cash flow, governmental regulations
affecting the cable television industry generally and the Company's systems
in particular, the ability of the Company to successfully renew its franchise
agreements and competing technological market developments.
-11-
<PAGE>
The Company's cash and cash equivalents increased by approximately $1.9
million for the six months ended June 30, 1997. Interest on the Company's
Senior loans is payable quarterly in arrears on the first business day of the
subsequent quarter. Consequently, cash and cash equivalents as of June 30,
1997 do not reflect the payment of approximately $1.6 million made on July 1,
1997.
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SCOTT CABLE COMMUNICATIONS, INC.
--------------------------------
(REGISTRANT)
DATE: AUGUST 14, 1997 BY: /S/ JOHN M. FLANAGAN, JR.
-------------------------------
JOHN M. FLANAGAN, JR.
SENIOR VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
(Principal Financial Officer
and Officer Duly Authorized
to Sign on Behalf of the
Registrant)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,760,360
<SECURITIES> 0
<RECEIVABLES> 577,878
<ALLOWANCES> (127,562)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 44,076,652
<DEPRECIATION> (26,112,176)
<TOTAL-ASSETS> 47,168,873
<CURRENT-LIABILITIES> 0
<BONDS> 158,783,492
0
0
<COMMON> 10,000
<OTHER-SE> (119,644,776)
<TOTAL-LIABILITY-AND-EQUITY> 47,168,873
<SALES> 0
<TOTAL-REVENUES> 15,951,768
<CGS> 5,423,476
<TOTAL-COSTS> 13,228,906
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,993,733
<INCOME-PRETAX> (7,270,871)
<INCOME-TAX> (31,120)
<INCOME-CONTINUING> (7,239,751)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,239,751)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
