<PAGE>
U.S. 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, 1998
-------------
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition p
eriod from ________________ to ________________
Commission file number 0-22-093
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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 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.
<TABLE>
<CAPTION>
Class Outstanding at July 31, 1998
--------------- ---------------------------------
<S> <C>
Class A Common Stock, $0.10 par value 1,000
Class B Common Stock, $0.10 par value 24,000
Class C Common Stock, $0.10 par value 75,000
</TABLE>
<PAGE>
SCOTT CABLE COMMUNICATIONS, INC.
INDEX
FORM 10-Q
June 30, 1998
Pages
-----
PART I: FINANCIAL INFORMATION
Item I. Financial Statements:
Consolidated Balance Sheets as of June 30, 1998 (unaudited)
and December 31, 1997 2
Consolidated Statements of Operations for the three months
and six months ended June 30, 1998 and 1997 (unaudited) 3
Consolidated Statements of Cash Flows for the six months
ended June 30, 1998 and 1997 (unaudited) 4
Notes to the Consolidated Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6-11
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signature Page 13
<PAGE>
SCOTT CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1998 DECEMBER 31,
(UNAUDITED) 1997
------------- -------------
<S> <C> <C>
ASSETS
INVESTMENT IN CABLE TELEVISION SYSTEMS:
Land and land improvements $ 28,508 $ 28,508
Vehicles 1,709,572 1,652,141
Buildings and improvements 127,326 127,326
Office furniture and equipment 457,330 450,732
CATV distribution systems and related equipment 39,561,095 38,307,414
------------- -------------
Total fixed assets 41,883,831 40,566,121
Less accumulated depreciation (25,229,899) (23,084,031)
------------- -------------
Total fixed assets - net 16,653,932 17,482,090
FRANCHISE COSTS - net 504,042
GOODWILL - net 18,866,290 19,207,528
DEFERRED FINANCING COSTS - net 1,948,828 2,204,128
DEFERRED INCOME TAXES 19,213,266 16,529,105
CASH AND CASH EQUIVALENTS 3,282,363 2,821,365
ACCOUNTS RECEIVABLE less allowance for doubtful
accounts of $125,333 and $152,301, respectively 247,073 379,073
PREPAID AND OTHER ASSETS 109,894 480,414
------------- -------------
TOTAL ASSETS $ 60,321,646 $ 59,607,745
============= =============
LIABILITIES AND
SHAREHOLDERS' DEFICIENCY
LIABILITIES:
Notes and loans payable $ 170,070,395 $ 164,428,668
Accounts payable and accrued expenses 5,251,167 6,334,770
Unearned income 204,375 183,879
Deferred income taxes 6,298,636 5,838,148
------------- -------------
Total liabilities 181,824,933 176,785,465
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SHAREHOLDERS' DEFICIENCY:
Common stock 10,000 10,000
Additional paid- in- capital 4,229,850 4,229,850
Deficit (125,743,137) (121,417,570)
------------- -------------
Total shareholders' deficiency (121,503,287) (117,177,720)
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY $ 60,321,646 $ 59,607,745
============= =============
</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,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 8,667,578 $ 8,081,652 $ 17,240,283 $15,951,768
Costs and expenses:
Operating expenses 3,127,526 2,803,798 6,196,861 5,423,476
Selling, general and administrative
expenses 1,195,305 1,358,604 2,541,217 2,698,260
Management fees 390,041 362,502 775,813 717,830
Depreciation and amortization 1,394,550 2,121,738 3,281,142 4,228,476
Reorganization items 54,665 92,679 54,665 160,864
----------- ----------- ----------- -----------
Total costs and expenses 6,162,087 6,739,321 12,849,698 13,228,906
----------- ----------- ----------- -----------
Operating income 2,505,491 1,342,331 4,390,585 2,722,862
Interest expense, net of interest income
of $29,721 and $15,023 for the three months ended
June 30, 1998 and 1997, and $53,542 and $37,780 for
the six months ended June 30, 1998 and 1997. (5,468,980) (5,039,007) (10,938,742) (9,993,733)
----------- ----------- ----------- -----------
Loss before income taxes (2,963,489) (3,696,676) (6,548,157) (7,270,871)
Income tax benefit 1,280,273 26,658 2,222,590 31,120
----------- ----------- ----------- -----------
Net loss $(1,683,216) $(3,670,018) $(4,325,567) $(7,239,751)
=========== =========== =========== ===========
</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,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,325,567) $(7,239,751)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 2,180,562 1,868,634
Amortization 1,100,580 2,359,842
Disposition of assets 24,544 30,281
Accretion of notes and loans payable 7,966,727 6,864,665
Deferred income taxes (2,223,673) (31,120)
Changes in assets and liabilities:
Increase in unearned income 20,856 16,476
Decrease in accounts receivable 132,000 33,003
Decrease in prepaid and other assets 370,520 751,958
(Decrease) increase in accounts payable
and accrued expenses (1,083,603) 165,801
----------- -----------
Net cash provided by operating activities $(4,162,946) 4,819,789
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,376,948) (2,914,696)
----------- -----------
Net cash used in investing activities (1,376,948) (2,914,696)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on senior bank credit facility (2,325,000)
Adjustment in deferred financing costs 17,035
----------- -----------
Net cash (used in) provided by financing activities (2,325,000) 17,035
----------- -----------
Net change in cash and cash equivalents 460,998 1,922,128
Cash and cash equivalents - Beginning of period 2,821,365 838,232
----------- -----------
Cash and cash equivalents - End of period $ 3,282,363 $ 2,760,360
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the six months for interest $ 3,448,105 $ 1,772,369
=========== ===========
Reorganization items paid during the six months
Legal fees $ 54,665 $ 97,121
Other - 63,743
----------- -----------
$ 54,665 $ 160,864
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
SCOTT CABLE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 1998
(UNAUDITED)
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The interim financial statements for Scott Cable Communications, Inc. and
consolidated subsidiaries (the "Company") as of June 30, 1998 and for the three
months and six months ended June 30, 1998 and 1997 are unaudited. These interim
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements as of December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997,
included within the Company's Annual Report on Form 10-K. 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, 1998 and for the three months and six
months ended June 30, 1998 and 1997 have been made. The results of operations
for the three months and six months ended June 30, 1998 and 1997 are not
necessarily indicative of the results for the entire year.
As discussed more fully in "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Recent Developments", the
Company recently entered into an agreement to sell substantially all of its
assets, which provides for the consummation of the sale to be effected through a
prepackaged Chapter 11 bankruptcy proceeding. The financial statements
included in this Form 10-Q have been prepared on a going concern basis which
assumes continuity of operations and realization of assets and liquidations of
liabilities in the ordinary course of business. The financial statements do not
include any adjustments anticipating the outcome of either the sale transaction
or the bankruptcy proceedings.
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to those used in 1998.
NOTE 2 - TRANSACTIONS WITH RELATED PARTIES
Scott Cable Management Company, Inc. ("Management") acts as manager for the
Company. Under the 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%, was $775,813 and $717,830 for the six months ended June 30,
1998 and 1997, respectively. Additionally, the Company reimbursed Management
for out-of-pocket expenses in the amounts of $23,019 and $29,877 for the six
months ended June 30, 1998 and 1997, respectively.
-5-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Reference is made to the Company's Annual Report on Form 10-K 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.
RECENT DEVELOPMENTS
As reported on Form 8-K filed with the Securities and Exchange Commission on
July 10, 1998, the Company entered into a definitive asset sale agreement (the
"Sale Agreement") with InterLink Communications Partners, LLLP ("InterLink"),
providing for the sale by the Company of substantially all of its assets to
InterLink for a purchase price of $165,000,000, subject to closing adjustments.
The Sale Agreement provides for the consummation of the sale to be effected
through a prepackaged Chapter 11 bankruptcy proceeding and requires the Company
to commence that bankruptcy proceeding by September 30, 1998. In connection
therewith, the Company is preparing to commence promptly the pre-bankruptcy
solicitation process with respect to its plan of reorganization. Both that plan
of reorganization and the Sale Agreement contemplate that all of the Company's
trade creditors will be paid in full. The Company's plan of reorganization also
contemplates payment in full of the Company's obligations under its senior
credit facility and its Senior Subordinated PIK notes, but only partial payment
of its Junior Subordinated PIK notes.
The closing of the sale is expected to be consummated in the fourth quarter of
this year subject to, among other things, the U.S. Bankruptcy Court's approval
of the proposed sale and the Court's confirmation of the Company's prepackaged
bankruptcy plan of reorganization, the Federal Trade Commission's grant of any
necessary approval under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, the Federal Communications Commission's approval of the transfer of
certain of the Company's licenses, and the issuance of consents or waivers by
various franchising authorities, real property lessors and other third parties.
InterLink is a Colorado limited liability limited partnership and maintains its
headquarters in Denver, Colorado. It is an affiliate of and is managed by
Rifkin & Associates, Inc., an established manager of cable television systems.
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
-6-
<PAGE>
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 United States Bankruptcy Code. Subsequently, the Company
obtained 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
provided 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, 1998 and 1997
REVENUES. Revenues for the six months ended June 30, 1998 increased
approximately $1,288,000, or 8.1% over the same period of the previous year.
Average subscribers for the six months were 77,392 in 1998 compared with 75,856
in 1997.
Revenue from basic services increased approximately $1,106,000 or 8.8%.
Approximately $253,000 of this increase is attributable to the higher average
number of subscribers during 1998 compared to 1997, while $853,000 is due to
higher average basic revenue per subscriber. The average monthly rate for the
quarter increased from $27.49 in 1997 to $29.33 in 1998. 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 premium services decreased approximately $2,000 from 1997 due to a
decrease in pay units, offset by an increase in the average pay rate per unit.
This net decrease of 10.2% average pay units in 1998 compared to 1997 was
partially due 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 had been offered individually
at retail rates less than the average of all premium services, so the
repositioning of these services resulted in a higher average rate on the
currently offered services. In addition, the average rate per pay unit
increased due to a reduction in the number of pay units subscribing at
promotional rates.
All other revenues increased by approximately $184,000 or 9.2%. Approximately
$50,000 of the increase was attributable to an increase in revenue from pay per
view events; approximately $52,000 was from an increase in the number of
converters rented; and all other revenues increased approximately $82,000.
OPERATING EXPENSES. Operating expenses increased approximately $773,000, or
14.3% from 1997 to 1998. Basic programming costs increased by approximately
$585,000, or 23.2%. The increase is due to cost increases from program
providers, increased average subscribers, the repositioning of Disney as a basic
service, and additional programs being added. Programming costs related to pay
per view revenue increased by $10,000 as a function of the increase in pay per
view revenues. Premium programming costs increased $34,000 due to cost
increases from program providers. Franchise fee expenses increased
approximately $31,000 as a function of the increase in total revenues. General
insurance expense increased approximately $40,000. All other operating costs
increased by $73,000 from 1997 to 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES . Selling, general and
administrative expenses for the six months ended June 30, 1998 decreased by
approximately $157,000, or 5.8% from the same period of the prior year.
Components of the decrease were as follows: bad debt expense decreased
approximately $101,000, representing a decrease from 1.7% of revenues in 1997 to
1.0% in 1998; marketing costs dropped approximately $115,000 mostly due to
reduced contract marketing costs; wages and fringes decreased by $24,000 mostly
due to the staffing vacancies, and other selling, general and administrative
expenses increased approximately $83,000.
-7-
<PAGE>
MANAGEMENT FEES. Management fees increased by approximately $58,000 due to
increased revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased by
approximately $947,000 due to franchise costs being fully amortized. This
decrease was offset in part by an increase in depreciation from ongoing capital
additions.
REORGANIZATION ITEMS. Reorganization expenses for the six months ended June 30,
1998 consist of legal fees associated with the pending Chapter 11 bankruptcy
proceedings as contemplated by the terms of the Sale Agreement (see 'Recent
Developments section of this Item 2). Expenses incurred in 1997 were for the
Chapter 11 filing in 1996 (see "background" section of this Item 2).
INTEREST EXPENSE. Interest expense, net of interest income increased by
approximately $945,000. This increase was principally due to the accretion and
accrual of interest on the Senior and Junior PIK notes.
INCOME TAX BENEFIT. Income tax benefit increased by approximately $2,192,000
over the same period for the previous year. This is primarily attributable to
the recognition of the deferred tax benefits arising from the current period's
net operating loss. These benefits were previously offset by a valuation
allowance which is no longer deemed necessary.
NET LOSS. Net loss for the six months ended June 30,1998 was approximately
$4,326,000 as compared to approximately $7,240,000 for the six months ended
June 30, 1997. This change was the net effect of the changes in revenues and
expenses as discussed above.
Three Months ended June 30, 1998 and 1997
REVENUES. Revenues for the quarter ended June 30, 1998 increased approximately
$586,000, or 7.3% over the same period of the previous year. Average subscribers
for the quarter were 77,226 in 1998
compared with 75,891 in 1997.
Revenue from basic services increased approximately $513,000 or 8.1%.
Approximately $111,000 of this increase is attributable to the higher average
number of subscribers during 1998 compared to 1997, while $402,000 is due to
higher average basic revenue per subscriber. The average monthly rate for the
quarter increased from $27.83 in 1997 to $29.57 in 1998. The increase was
mostly attributable to subscriber rate increases.
Revenue from premium services increased approximately $5,000 or .7% over 1997
due principally to increase in the average pay rate per unit, offset in part
by the drop in the average pay units.
All other revenues increased by approximately $68,000 or 6.6%, comprised of
numerous small variances.
OPERATING EXPENSES. Operating expenses increased approximately $324,000, or
11.5% from 1997 to 1998. Basic programming costs increased by approximately
$250,000, or 19.2%. The increase is due to cost increases from program
providers, increase in average number of subscribers and additional programs
being added. Programming costs related to premium revenue increased by $32,000
due to cost increases from program providers. All other direct operating costs
increased by $42,000 from 1997 to 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES . Selling, general and
administrative expenses for the quarter ended June 30, 1998 decreased by
approximately $163,000, or 12% from the same period of the prior year.
Components of the decrease were as follows: bad debt expense decreased
approximately $90,000, representing a decrease from 2.0% of revenues in 1997 to
.8% in 1998; and marketing costs declined approximately $81,000 or 68.5% mostly
due to reduced contract marketing costs. Other selling, general and
administrative expenses increased approximately $8,000.
MANAGEMENT FEES. Management fees increased by approximately $28,000 due to
increased revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased by
approximately $727,000 due to franchise costs being fully amortized. This
decrease was offset in part by an increase in depreciation from ongoing capital
additions.
-8-
<PAGE>
REORGANIZATION ITEMS. Reorganization expenses decreased approximately $38,000
(see explanation in comparison of six months ended June 30, 1998 and 1997
above).
INTEREST EXPENSE. Interest expense, net of interest income increased by
approximately $430,000. This increase was mostly due to the accretion and
accrual of interest on the Senior and Junior PIK notes.
INCOME TAX BENEFIT. Income tax benefit increased by approximately $1,253,000
over the second quarter 1997. This is primarily attributable to the
recognition of the deferred tax benefits arising from the current period's
net operating loss. These benefits were previously offset by a valuation
allowance which is no longer deemed necessary.
NET LOSS. Net loss for the quarter ended June 30,1998 was approximately
$1,683,000 as compared to approximately $3,670,000 for the prior year. This
change was the net effect of the changes in revenues and expenses as discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
As discussed in the "Recent Developments" section of this Item 2., the Company
has entered into a Sale Agreement to sell substantially all of its assets, which
provides for the consummation of the sale to be effected through a prepackaged
Chapter 11 bankruptcy proceeding and requires the Company to commence that
bankruptcy proceeding by September 23, 1998. The Company's plan of
reorganization also contemplates payment in full of the Company's obligations
under its senior credit facility and its Senior Subordinated PIK notes, but only
partial payment of its Junior Subordinated PIK notes.
Prior to the closing of the sale, the Company's ongoing need for capital will be
for debt service and capital expenditures, which the Company believes can be
funded by 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 which commenced 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. This latter requirement was waived
for excess cash flow for 1997. The $10,000,000 Revolving Facility 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
1.25% 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 specified ratio of outstanding loans to operating cash flow, which is
measured each quarter. As of June 30, 1998, the Company had $57 million
outstanding pursuant to the Term Loan and $1.95 million outstanding pursuant to
the Revolving Facility, each of which bore interest at the rate of 9.75% 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 are available 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 $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 in steps to 4.25 to 1 at September 30, 1999
and thereafter. As of June 30, 1998, the Company was in compliance with all of
the financial covenants.
-9-
<PAGE>
At June 30, 1998 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 (the
"Senior Indenture") with Fleet National Bank, as Trustee (subsequently assigned
to State Street Bank and Trust), 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
without unanimous consent of the Company's Board of Directors, 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 (the
"Junior Indenture"), with Fleet National Bank, as Trustee (subsequently assigned
to State Street Bank and Trust) 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, absent the sale
transaction described above, over the next four years it would spend
approximately $9.9 million to upgrade and rebuild its systems and
approximately $3.9 million for additional plant construction (enabling
it to pass approximately 12,800 additional homes). The Company
anticipates it will spend approximately $1.0 million and $5.2 million for
upgrades and rebuilds and approximately $.8 million and $.9 million for plant
construction during 1998 and 1999, 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.
The Company's cash and cash equivalents increased approximately $461,000 for
-10-
the six months ended June 30, 1998. 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 30,1998 do not
reflect the interest payment of approximately $1.5 million made on July 1,
1998. In addition, a mandatory principal payment of $262,500 was made on
July 1,1998 on the Term Loan.
Certain statements contained in this Form 10-Q including, without limitation,
statements containing the words "believes", "anticipates", "may", "intends",
"expects", and words of similar import, constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of the Company (or industry results, performance or achievements) expressed or
implied by such forward-looking statements to be substantially different from
those predicted.
Such factors include, among others, the following: general economic and business
conditions, both nationally and in the regions in which the Company operates;
competition; changes in business strategy or development plans; and the
Company's inability to obtain sufficient financing to continue operations, if
necessary. Certain of these factors are discussed in more detail elsewhere in
this Form 10-Q.
-11-
<PAGE>
SCOTT CABLE COMMUNICATIONS, INC. ---- FORM 10-Q ----
Part II. OTHER INFORMATION
5 Other Information
The Company's most recent Form 8-K, filed on July 10, 1998, included a
copy of that certain Asset Purchase And Sale Agreement dated as of July 1, 1998
(the "Sale Agreement") between the Company and InterLink Communications
Partners, LLLP ("Buyer"), providing for the Company's sale of substantially all
of its assets to Buyer through a pre-packaged Chapter 11 bankruptcy proceeding.
Under the terms of the Sale Agreement, the Company must (i) use its diligent,
good faith efforts to obtain the requisite acceptances of the Bankruptcy Plan
(the capitalized terms used and not otherwise defined in this paragraph being
used as defined in the Sale Agreement) from all holders of impaired claims
within seventy-five (75) days after the Signature Date and (ii) commence the
Bankruptcy Case not later than seventy-five (75) days after the Signature Date.
By an Amendment No. 1 dated as of August 5, 1998, the Company and Buyer have
amended the Sale Agreement so as to extend the foregoing 75-day period by seven
days, thereby making that period an eighty-two (82) day period and thereby
giving the Company an additional seven days in which to accomplish the foregoing
tasks. A copy of the foregoing Amendment No. 1 is filed with this Form 10-Q as
Exhibit 10.1 hereto.
6 Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amendment No. 1 dated as of August 5, 1998 to Asset Purchase And
Sale Agreement dated as of July 1, 1998 between the Company and InterLink
Communications Partners, LLLP.
27. Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K on July 10, 1998, wherein the Company
reported that it had entered into an Asset Purchase And Sale Agreement dated as
of July 1, 1998 (the "Sale Agreement") between the Company and InterLink
Communications Partners, LLLP ("Buyer"), providing for the Company's sale of
substantially all of its assets to Buyer through a prepackaged Chapter 11
bankruptcy proceeding. See "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Recent Developments" for
additional information. The Sale Agreement was filed as an exhibit with the
foregoing Form 8-K. See items 5 and 6(a)10 of this Form 10-Q for information as
to Amendment No. 1 to the Sale Agreement (a copy of which Amendment No. 1 is
filed as Exhibit 10.1 hereto).
-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 12, 1998 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)
-13-
<PAGE>
EXHIBIT LIST
10.1 Amendment No. 1 dated as of August 5, 1998 to Asset Purchase And
Sale Agreement dated as of July 1, 1998 between the Company and
InterLink Communications Partners, LLLP.
27 Financial Data Schedule.
<PAGE>
Exhibit 10.1
AMENDMENT NO. 1
Dated as of August 5, 1998
To
ASSET PURCHASE AND SALE AGREEMENT
Dated as of July 1, 1998
WHEREAS, Scott Cable Communications, Inc., a Texas corporation ("Seller"), and
InterLink Communications Partners, LLLP, a Colorado limited liability limited
partnership ("Buyer"), are parties to that certain Asset Purchase And Sale
Agreement dated as of July 1, 1998 (the "Agree-ment", the capitalized terms used
and not otherwise defined herein being used as defined therein);
WHEREAS, the Agreement provides for Seller (i) to use its diligent, good faith
efforts to obtain the requisite acceptances of the Bankruptcy Plan from all
holders of impaired claims within seventy-five (75) days after the Signature
Date and (ii) to commence the Bankruptcy Case not later than seventy-five (75)
days after the Signature Date;
WHEREAS, Buyer and Seller desire to amend the Agreement to provide Seller an
additional seven calendar days for Seller to fulfill its foregoing obligations
under the Agreement;
NOW, THEREFORE, in consideration of the premises, Buyer and Seller hereby agree
that:
1. The Agreement shall be, and is hereby, amended as follows, effective as of
August 5, 1998:
A. the clause "seventy-five (75) days after the Signature Date" is hereby
deleted from the first sentence of Section 9.8, and the clause
"eighty-two (82) days after the Signature Date" is hereby inserted in
place thereof;
B. the clause "seventy-five (75) days after the Signature Date" is hereby
deleted from the first sentence of Section 9.9(a), and the clause
"eighty-two (82) days after the Signature Date" is hereby inserted in
place thereof;
C. the clause "seventy-five (75) days after the Signature Date" is hereby
deleted from Section 14(a)(ix), and the clause "eighty-two (82) days
after the Signature Date" is hereby inserted in place thereof;
D. the clause "the foregoing 75-day period" is hereby deleted from
Section 14(a)(ix), and the clause "the foregoing 82-day period" is
hereby inserted in place thereof; and
E. the clause "seventy-five (75) days after the Signature Date" is hereby
deleted from Section 14(d)(i), and the clause "eighty-two (82) days
after the Signature Date" is hereby inserted in place thereof.
-1-
<PAGE>
2. As hereinabove amended, the Agreement is hereby ratified and confirmed to be
in full force and effect.
3. This instrument may be executed in the form of one or more original or
facsimile counterparts, each of which shall be deemed to be an original and all
of which shall be deemed to constitute one and the same instrument.
4. This instrument shall be construed in accordance with and governed by the
laws of the State of Colorado.
IN WITNESS WHEREOF, the undersigned parties have executed this Amendment No. 1
as of the date first set forth above.
SCOTT CABLE COMMUNICATIONS, INC.
By: /s/ Bruce Armstrong
-------------------------------------
Bruce A. Armstrong,
President and CEO
INTERLINK COMMUNICATIONS PARTNERS, LLLP
By: Rifkin Co., its general partner
By: /s/ Kevin Allen
-------------------------------------
Kevin B. Allen,
Vice President
-2-
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