<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
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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.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 75-1766202
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(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 / X / 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 SEPTEMBER 30, 1997
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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
September 30, 1997
Pages
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PART 1: FINANCIAL INFORMATION
Item I. Financial Statements:
Consolidated Balance Sheets as of
September 30, 1997 (unaudited)
and December 31, 1996 2
Consolidated Statements of Operations
for the three months and nine months ended
September 30, 1997 and 1996 (unaudited) 3
Consolidated Statements of Cash Flows for
the nine months ended September 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
Item 6. Exhibits 13
Signature Page 14
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SCOTT CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997 DECEMBER 31,
(UNAUDITED) 1996
------------- -------------
ASSETS
<S> <C> <C>
INVESTMENT IN CABLE TELEVISION SYSTEMS:
Land and land improvements $ 18,523 $ 18,523
Vehicles 1,607,857 1,400,872
Buildings and improvements 127,326 127,326
Office furniture and equipment 427,768 388,513
CATV distribution systems and related equipment 42,843,686 39,415,762
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Total fixed assets 45,025,160 41,350,996
Less accumulated depreciation (27,084,558) (24,402,301)
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Total fixed assets - net 17,940,602 16,948,695
FRANCHISE COSTS - net 1,352,365 3,997,320
GOODWILL - net 19,366,090 19,877,946
DEFERRED FINANCING COSTS - net 2,360,123 2,760,110
DEFERRED FEDERAL INCOME TAXES 961,846 961,846
CASH AND CASH EQUIVALENTS 3,406,967 838,232
ACCOUNTS RECEIVABLE less allowance for
doubtful accounts of $126,014 and
$105,881, respectively 417,876 483,319
PREPAID AND OTHER ASSETS 807,951 1,525,334
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TOTAL ASSETS $ 46,613,820 $ 47,392,802
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LIABILITIES AND
SHAREHOLDERS' DEFICIENCY
LIABILITIES:
Notes and loans payable $ 162,459,285 $ 151,918,827
Accounts payable and accrued expenses 6,907,940 7,087,654
Unearned income 197,005 172,903
Deferred state income taxes 550,664 608,443
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Total liabilities 170,114,894 159,787,827
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SHAREHOLDERS' DEFICIENCY:
Common stock 10,000 10,000
Additional paid- in- capital 4,229,850 4,229,850
Deficit (127,740,924) (116,634,875)
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Total shareholders' deficiency (123,501,074) (112,395,025)
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TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY $ 46,613,820 $ 47,392,802
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</TABLE>
See notes to consolidated financial statements.
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<PAGE>
SCOTT CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $8,098,525 $7,479,380 $24,050,293 $22,140,107
---------- ---------- ----------- -----------
Costs and expenses:
Operating expenses 2,819,521 2,643,918 8,242,997 7,644,268
Selling, general and administrative
expenses 1,334,756 1,243,969 4,033,016 3,575,018
Management fees 364,433 336,571 1,082,263 996,304
Depreciation and amortization 2,161,228 1,997,832 6,389,704 5,706,136
Reorganization items 0 682,522 160,864 1,964,811
---------- ---------- ----------- -----------
Total costs and expenses 6,679,938 6,904,812 19,908,844 19,886,537
---------- ---------- ----------- -----------
Operating income 1,418,587 574,568 4,141,449 2,253,570
Interest expense, net of interest income
of $26,730 and $116,895 for the three months ended
September 30, 1997 and 1996, and $64,510 and $334,977 for
the nine months ended September 30, 1997 and 1996. (5,304,265) (1,582,129) (15,297,998) (6,109,542)
---------- ---------- ----------- -----------
Loss before income taxes (3,885,678) (1,007,561) (11,156,549) (3,855,972)
Income tax benefit 19,380 49 50,500 1,049
---------- ---------- ----------- -----------
Net loss ($3,866,298) ($1,007,512) ($11,106,049) ($3,854,923)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
SCOTT CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended September
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(11,106,049) $ (3,854,923)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 2,849,941 2,594,711
Amortization 3,539,763 3,111,425
Accretion of notes and loans payable 10,540,458 648,636
Deferred federal and state income taxes (57,779) (13,349)
Changes in assets and liabilities:
Increase in unearned income 24,102 3,562
Decrease (increase) in accounts receivable 65,443 (284,979)
Decrease in prepaid and other assets 717,383 2,872,796
(Decrease) increase in accounts payable
and accrued expenses (179,714) 5,160,631
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Net cash provided by operating activities 6,393,548 10,238,510
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,841,848) (3,483,787)
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Net cash used in investing activities (3,841,848) (3,483,787)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Adjustment in deferred financing costs 17,035 (407,227)
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Net cash provided by (used in) financing
activities 17,035 (407,227)
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Net change in cash and cash equivalents 2,568,735 6,347,496
Cash and cash equivalents - Beginning
of period 838,232 4,332,744
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Cash and cash equivalents - End of period $ 3,406,967 $ 10,680,240
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid for the nine months $ 3,367,932 $ 2,463,116
------------ ------------
------------ ------------
Income taxes paid for the nine months $ 12,480 $ 216,480
------------ ------------
------------ ------------
Reorganization items paid during the nine months
Legal fees $97,121 $989,035
Financial advisory fees - 922,819
Other $63,743 52,957
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Total reorganization items paid $ 160,864 $ 1,964,811
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</TABLE>
See notes to consolidated financial statements.
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<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 September 30, 1997 and for the
three months and nine months ended September 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 September 30,
1997 and for the three months and nine months ended September 30, 1997 and 1996
have been made. The results of operations for the three months and nine months
ended September 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 September
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.
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<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
$1,082,263 and $996,304 for the nine months ended September 30, 1997 and 1996,
respectively. Additionally, the Company paid Management for out-of-pocket
expenses in the amount of $41,918 and $40,582 for the nine months ended
September 30, 1997 and 1996, respectively.
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<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
Nine Months ended September 30, 1997 and 1996
REVENUES. Revenues for the nine months ended September 30, 1997 increased
approximately $1,910,000, or 8.6% over the same period of the previous year.
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<PAGE>
Revenue from basic services (the most popular levels of service with
subscribers) increased approximately $1,532,000 or 9.2%. Approximately $242,000
of this increase is attributable to the greater average number of subscribers
during 1997 compared to 1996, while $1,290,000 is due to higher average basic
revenue per subscriber. The average monthly rate for the nine months increased
from $25.50 in 1996 to $27.43 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
sold as a premium service. Revenue from commercial accounts and
multi-dwelling unit complexes billed on a bulk basis increased approximately
$44,000, or 6.5% due primarily to rate increases.
Revenue from premium services (single channels offered to subscribers for an
additional monthly charge) increased approximately $95,000 or 4.6% over 1996 due
to a higher average revenue per pay unit. This increase more than offset the
reduction in revenues from 14% 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
22% higher average rate on the currently offered services.
All other revenues increased by approximately $239,000 or 8.5%. Approximately
$147,000 of the increase was attributable to an increase in revenue from pay per
view events, and approximately $57,000 of the increase was from advertising
revenue.
OPERATING EXPENSES. Operating expenses increased approximately $599,000, or
7.8% from 1996 to 1997. Basic programming costs increased by approximately
$591,000, or 18.4%. 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 programming services being added.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES . Selling, general and
administrative expenses for the nine months September 30, 1997 increased by
approximately $458,000, or 12.8% over the same period of the prior year.
Components of the increase were as follows: marketing expenses increased
approximately $47,000 or 13.3%; bad debt expense increased approximately
$190,000, representing an increase from 0.9% of revenues in 1996 to 1.6% in
1997; health insurance increased approximately $69,000, or 26.7% due to
increased medical claims; costs associated with billing of subscribers increased
approximately $51,000, or 14.1 % due to the use of more sophisticated billing
systems, and; other selling, general and administrative expenses net increased
approximately $101,000, primarily due to inflation.
REORGANIZATION ITEMS. Reorganization expenses decreased approximately
$1,800,000 from 1996 to 1997 as the bankruptcy filing and refinancing were
largely completed during 1996.
MANAGEMENT FEES. Management fees increased by approximately $86,000 due to
increased revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased by
approximately $683,000 or 12% due to ongoing capital additions and amortization
of deferred financing costs.
INTEREST EXPENSE. Interest expense, net of interest income increased by
approximately $9,188,000. 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. Average cash balances during
the nine 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 $2.7million escrow required under the terms of the 1993 debt
maturity extension agreement.
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<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 ($162,459,285 as of September 30, 1997 as
compared to $151,305,086 as of September 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 nine months ended September 30, 1997 increased
approximately $7,251,000. This change was the net effect of the changes in
revenues and expenses as discussed above.
Three Months ended September 30, 1997 and 1996
REVENUES. Revenues for the quarter ended September 30, 1997 increased
approximately $619,000, or 8.3% over the same period of the previous year.
Revenue from basic services increased approximately $463,000 or 8.2%.
Approximately $84,000 of this increase is attributable to the higher average
number of subscribers during 1997 compared to 1996, while $379,000 is due to
higher average basic revenue per subscriber. The average monthly rate for the
quarter increased from $25.95 in 1996 to $27.65 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
$14,000, or 6.4% due to additional volume and rate increases.
Revenue from premium services increased approximately $32,000 or 4.5% over 1996
due principally to a higher average revenue per pay unit. This increase more
than offset the reduction in revenues from 17% 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 26.6% higher average rate on the currently offered services.
All other revenues increased by approximately $110,000 or 11.8%. Approximately
$66,000 of the increase was attributable to an increase in revenue from pay per
view events.
OPERATING EXPENSES. Operating expenses increased approximately $176,000, or
6.6% from 1996 to 1997. Basic programming costs increased by approximately
$210,000, or 19.4%. The addition of The Disney Channel to the Satellite Tier
level of service accounted for 80% 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. Programming
costs related to pay per view revenue increased by $43,000 as a function of the
increase in pay per view revenues. Changes in pay services and other direct
operating costs from 1996 to 1997 dropped approximately, $77,000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES . Selling, general and
administrative expenses for the quarter ended September 30, 1997 increased by
approximately $91,000, or 7.3% over the same period of the prior year.
Components of the increase were as follows: bad debt expense increased
approximately $34,000, representing an increase from 1.1% of revenues in 1996 to
1.4% in 1997; health insurance increased approximately $19,000, or 21% due to
increased medical claims; costs associated with billing of subscribers increased
approximately $15,000, or 12.4 % due to the use of more sophisticated billing
systems, and; other selling, general and administrative expenses net increased
approximately $23,000.
REORGANIZATION ITEMS. Reorganization expenses were approximately $682,000 in
1996 while in 1997 there were no expenses incurred in the third quarter as the
bankruptcy filing and refinancing were largely completed during 1996.
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<PAGE>
MANAGEMENT FEES. Management fees increased by approximately $28,000 due to
increased revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased by
approximately $163,000 or 8.2% due to ongoing capital additions and amortization
of deferred financing costs.
INTEREST EXPENSE. Interest expense, net of interest income increased by
approximately $3,722,000. 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. Average cash balances
during the Third 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
($162,459,285 as of September 30, 1997 as compared to $151,305,086 as of
September 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 September 30, 1997 increased
approximately $2,858,000. 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 has not incurred 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 September 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
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<PAGE>
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 in steps to 4.25 to 1 at September 30, 1999 and
thereafter. At September 30, 1997 the maximum permitted ratio was 4.75 to 1.
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.
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 is 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; if requested
interest is paid through the issuance of additional notes by the Company;
otherwise the original notes represent the original principal and accrued
interest. 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.
-11-
<PAGE>
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.
The Company's cash and cash equivalents increased by approximately $2.6 million
for the nine months ended September 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 September 30,
1997 do not reflect the payment of approximately $1.6 million made on October 1,
1997. In addition, a principal paydown of $1,250,000 was made on October 10,
1997 on the Finova's Revolver loan reducing the principal balance to
$4,250,000.
-12-
<PAGE>
Part II. OTHER INFORMATION
Item 6. Exhibits
(a) Exhibits
27. Financial Data Schedule
-13-
<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: November 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)
-14-
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,406,967
<SECURITIES> 0
<RECEIVABLES> 543,890
<ALLOWANCES> (126,014)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 45,025,160
<DEPRECIATION> (27,084,558)
<TOTAL-ASSETS> 46,613,820
<CURRENT-LIABILITIES> 0
<BONDS> 162,459,285
0
0
<COMMON> 10,000
<OTHER-SE> (123,511,074)
<TOTAL-LIABILITY-AND-EQUITY> 46,613,820
<SALES> 0
<TOTAL-REVENUES> 24,050,293
<CGS> 8,242,997
<TOTAL-COSTS> 19,908,844
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,297,998
<INCOME-PRETAX> (11,156,549)
<INCOME-TAX> (50,500)
<INCOME-CONTINUING> (11,106,049)
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<EXTRAORDINARY> 0
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