SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1996
......or
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-27192
ASCENT ENTERTAINMENT GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware ...... 52-1930707
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Tabor Center
1200 Seventeenth Street, Suite 2800
Denver, Colorado 80202
(Address of principle executive office)
(303) 626-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (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
The number of shares outstanding of the Registrant's Common Stock as of
June 30, 1996 was 29,752,400 shares.
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ASCENT ENTERTAINMENT GROUP, INC.
Condensed Consolidated Balance Sheets
(In thousands)
<CAPTION>
June 30, December 31,
1996 1995
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents............. $ 2,873 $11,012
Receivables, net ..................... 29,626 41,331
Other ................................ 21,031 15,255
------- -------
Total current assets.............. 53,530 67,598
------- -------
Property and equipment, net .............. 245,108 220,602
Franchise rights, net..................... 104,595 107,962
Goodwill, net............................. 47,485 49,803
Investments............................... 10,104 6,628
Other assets.............................. 55,934 52,420
------- -------
Total Assets ............................. $516,756 $505,013
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt ...................... $52,536 $ _
Accounts payable and accrued liabilities 40,440 43,379
Payable to COMSAT..................... 4,354 7,217
Deferred income....................... 1,825 35,435
------- -------
Total current liabilities......... 99,155 86,031
------- -------
Long-term debt............................ 72,000 70,000
Deferred income taxes..................... 7,443 4,436
Other long-term liabilities............... 14,800 13,843
------- -------
Total liabilities................. 193,398 174,310
------- -------
Minority interest......................... 28,144 27,867
------- -------
Stockholders' equity:
Common stock......................... 297 297
Additional paid-in capital........... 303,771 303,771
Accumulated deficit.................. (11,898) (1,232)
Unrealized gain on available for
sale securities, net of taxes..... 3,044 -
------- -------
Total stockholders' equity...... 295,214 302,836
------- -------
Total Liabilities and Stockholders' equity $ 516,756 $ 505,013
========= =========
See accompanying notes to these condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ASCENT ENTERTAINMENT GROUP, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended June 30,Six Months Ended June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues...................... $49,131 $49,360 $118,643 $96,735
------- ------- -------- -------
Operating expenses:
Cost of services.......... 37,103 28,205 92,606 65,262
Depreciation and amortization 16,069 12,656 31,904 24,632
General and administrative 2,904 2,558 5,124 4,844
------- ------- -------- -------
Total operating expenses.. 56,076 43,419 129,634 94,738
------- ------- -------- -------
Operating income (loss)....... (6,945) 5,941 (10,991) 1,997
Other income (expense), net... 71 214 (237) (1,155)
Interest expense, net......... (1,990) (157) (3,622) (209)
------- ------- -------- -------
Income (loss) before taxes and
minority interest.......... (8,864) 5,998 (14,850) 633
Income tax benefit (expense).. 2,663 (1,903) 4,448 (194)
------- ------- -------- -------
Income (loss) before minority
interest (6,201) 4,095 (10,402) 439
Minority interest............. (122) (336) (264) (124)
------- ------- -------- -------
Net income (loss)............. $(6,323) $ 3,759 $(10,666) $ 315
======= ======= ======== =======
Net income (loss) per share... $ (.21) $ .16 $ (.36) $ .01
======== ======= ========= =======
Weighted Average number of
common shares outstanding..... 29,752 24,000 29,752 24,000
======= ======= ======== =======
See accompanying notes to these condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ASCENT ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Cash Flow Statements
(Unaudited)
(In thousands)
<CAPTION>
Six Months Ended June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ........ $(10,666) $ 315
Adjustment for depreciation and amortization 31,904 24,632
Changes in operating assets and liabilities (18,412) 4,929
Other ........ (11) 2,673
------- -------
Net cash provided by operating
activities ........ 2,815 32,549
------- -------
Cash flows from investing activities:
Purchase of property and equipment.... (48,584) (44,321)
Investments in unconsolidated businesses (4,125) (3,666)
Expenditures for film production costs (8,088) (6,268)
Other ........ - 7
-------- -------
Net cash used in investing activities. (60,797) (54,248)
--------- --------
Cash flows from financing activities:
Repayment of long-term debt ........ (172) (513)
Net short-term borrowings ........ 50,000 -
Net transfer from COMSAT and subsidiaries - 25,123
Other ........ 15 -
------- --------
Net cash provided by financing activities 49,843 24,610
------- ---------
Net increase (decrease) in cash and
cash equivalents (8,139) 2,911
Cash and cash equivalents, beginning
of period 11,012 3,358
--------- ---------
Cash and cash equivalents, end of period.. $ 2,873 $ 6,269
========= =========
</TABLE>
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. General
The accompanying unaudited condensed consolidated financial statements have
been prepared by Ascent Entertainment Group, Inc. ("Ascent" or the "Company")
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "Commission"). These financial statements should be read in the context of
the financial statements and notes thereto filed with the Commission in the
Company's 1995 Annual Report on Form 10-K. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such regulations. The accompanying condensed consolidated financial
statements reflect all adjustments and disclosures which are, in the opinion of
management, necessary for a fair presentation. All such adjustments are of a
normal recurring nature. The results of operations for the interim periods are
not necessarily indicative of the results of the entire year. Certain December
31, 1995 balance sheet amounts have been reclassified to conform with the June
30, 1996 presentation.
2. Organization and Basis of Presentation
The accompanying financial statements include the accounts of Ascent and its
majority-owned subsidiaries which include On Command Video Corporation ("OCV"),
Ascent Network Services, Inc. ("ANS") (formerly COMSAT Video Enterprises, Inc.),
the Denver Nuggets Limited Partnership (the "Nuggets"), Beacon Communications
Corp. ("Beacon") and since July 1, 1995 the Colorado Avalanche LLC (the
"Avalanche"). Intercompany transactions have been eliminated.
Ascent executed an initial public offering (the "Offering") of its common
stock on December 18, 1995. Prior to the Offering, Ascent was a wholly owned
subsidiary of COMSAT Corporation ("COMSAT"). As of June 30, 1996, COMSAT
continues to own a majority (80.67%) of Ascent's common stock and continues to
control Ascent. In addition, Ascent's relationship with COMSAT is governed by
agreements entered into in connection with the Offering, including an
intercompany services agreement, a corporate agreement and a tax allocation and
indemnity agreement. (See Note 5 to the Company's 1995 financial statements.)
3. Investments and Denver Arena Development Project
As discussed in Note 15 to the Company's 1995 financial statements, on March
28, 1996, the Company entered into an agreement with The Anschutz Corporation
("TAC") pursuant to which the Company purchased all of TAC's interests in the
proposed arena development project in Denver and related goodwill, rights,
plans, specifications, drawings, contracts, relationships, approvals, permits
and other work product of every kind that had been generated by the efforts of
TAC and Ascent with respect to the proposed arena (the "Arena Assets"), and TAC
agreed to use reasonable efforts to facilitate the development and construction
of the proposed arena. Ascent and TAC had worked together on the proposed arena
development from early 1994 until September 1995. In consideration for TAC's
interest in the Arena Assets and its agreement to facilitate development of the
proposed arena, Ascent paid TAC $6,600,000 in cash. On a contingent and
non-interest bearing basis Ascent agreed to pay TAC an additional $5,000,000 and
grant a paid-up suite license, both linked to the construction and occupancy of
the proposed arena. This obligation, net of discount, has been accrued and is
included in the accompanying balance sheet in short-term debt ($2,500,000) and
long-term debt ($2,000,000) at June 30, 1996.
<PAGE>
Also pursuant to the agreement with TAC, as of March 30, 1996, Ascent
purchased all of TAC's interests in New Elitch Gardens, Ltd. ("Elitch Gardens"),
a company which owns and operates an amusement park in downtown Denver, for
$4,100,000 in cash. This purchase increased Ascent's interest in Elitch Gardens
from 13% to 26% of the outstanding partnership units.
On March 28, 1996, the Company entered into a Land Purchase Agreement (the
Agreement) with Southern Pacific Transportation Company ("SPT") pursuant to
which the Company would purchase approximately 49 acres in Denver as the site
for the proposed arena for $20,000,000. Pursuant to the Agreement, the closing
of the land purchase had to have occurred on or before June 28, 1996. The
closing did not take place by this time and the Agreement terminated. It is
management's belief that SPT will reinstate the Agreement and the closing date
for the Agreement will be extended. If the Agreement is reinstated, consummation
of the transaction would be subject to several conditions, including obtaining
satisfactory financing and reaching agreements with the City and County of
Denver regarding the construction of the proposed arena and the release of the
Nuggets and the Avalanche from their existing leases at their current arena,
McNichols Arena. The Land Purchase Agreement also provides for SPT to effect a
state-approved environmental clean-up plan on the site, and provide continuing
indemnification with regard to certain environmental liabilities.
4. Restructuring
During the third quarter of 1995, management of the Company decided to
discontinue the Satellite Cinema scheduled movie operations. As a result of this
decision, a restructuring charge of $10,866,000 was recorded in the third
quarter of 1995. The components of this restructuring charge included a
write-down of property and equipment of $5,140,000 to their estimated salvage
value, an accrual for severance costs of $1,010,000 and a charge of $4,716,000
for costs related to contractual commitments that would not be fulfilled.
Through June 30, 1996, the Company has made cash payments for severance costs
and contractual commitment costs totaling $4,421,000 and has written-off other
assets of $129,000 relating to contractual commitments. The Company has
$1,176,000 remaining in restructuring accruals as of June 30, 1996, which is
primarily for severance and contractual obligations to be paid through July,
1997. Although subject to future adjustment, management of Ascent believes it
has adequate reserves as of June 30, 1996, to complete the restructuring plan of
Satellite Cinema's operations.
During the six month period ended June 30, 1996, the Company recognized no
revenues or expenses related to Satellite Cinema operations. During the six
month period ended June 30, 1995, Satellite Cinema operations reflected revenues
of $13,741,000 and an operating loss, before allocation of general and
administrative expenses, of $2,799,000.
In December 1995, the assets and contracts relating to Satellite Cinema
rooms not transitioned to OCV were sold for a $4,000,000 promissory note due in
June 1996. The assets sold consisted principally of installed video systems and
related equipment inventory with payment of the note dependent on the buyer's
ability to deploy the purchased assets profitably. Collection of the note was
not received on June 30, 1996 pursuant to the terms of the note and management
is pursuing the note's collection. Payments totalling $1,700,000 were received
in July, 1996 with collection of the remaining balance dependent upon the buyer
obtaining additional sources of cash. Management expects additional payments on
the note to be received in August, 1996. As of December 31, 1995, Ascent did not
record the note receivable due to the uncertainty of its collection and included
the net book value of the assets sold of $1,689,000 in Other Long Term Assets in
the accompanying balance sheet. At June 30, 1996, the Company has reclassified
the $1,689,000 to Other Current Assets. The Company will reflect the sold assets
as a disposal as additional cash payments on the note are received.
<PAGE>
5. Other Matters
On April 19, 1996, Ascent and OCV entered into an agreement with
SpectraVision, Inc. (SpectraVision), which is currently operating under Chapter
11 bankruptcy protection, and SpectraVision's Creditors Committee. Pursuant to
the agreement, Ascent would combine its approximately 85 percent owned
subsidiary OCV (approximately 79 percent owned on a fully diluted basis) with
SpectraVision's assets, and certain of its liabilities, to form a new company
which would be 72.5 percent owned by Ascent and the current minority
shareholders of OCV. The SpectraVision bankruptcy estate would receive 27.5
percent of the new company's stock which would be distributed through a
bankruptcy plan to SpectraVision's creditors. The new company would also issue
warrants to be distributed by Ascent to purchase 13 percent of the new company's
common stock and warrants to SpectraVision's estate to purchase another 7
percent of the stock, in each case on a fully diluted basis. Ascent has agreed
that warrants to purchase 9.2 percent of the new company's common stock will be
distributed to Ascent's financial advisor, Gary Wilson Partners, in
consideration for services in connection with the transaction and for the new
company in the future.
On August 2, 1996, the Bankruptcy Court approved SpectraVision's disclosure
statement for distribution to SpectraVision's creditors. The Court set September
4, 1996 as the date by which creditors must vote on SpectraVision's Plan of
Reorganization (the Plan) described in the disclosure statement, and set
September 11, 1996 as the date for a confirmation hearing to approve the Plan.
Ascent, OCV and SpectraVision are negotiating the final terms and conditions of
certain agreements which must be entered into prior to consummation of the
transaction. Ascent management believes the transaction will close by the end of
the third quarter. The transaction remains subject to bankruptcy court approval
and other conditions.
6. New Accounting Pronouncements
As discussed in Note 1 to the Company's 1995 financial statements, Statement
of Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based
Compensation" was issued in 1995 and was effective beginning January 1, 1996.
SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25,
"Accounting for Stock Issued to Employees", which recognizes compensation based
on the intrinsic value of the equity instrument awarded. The Company has elected
to apply APB No. 25 to its stock based compensation awards to employees and will
disclose the required proforma effect on net income and earnings per share in
the Company's 1996 annual financial statements.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results
of Operations
ANALYSIS OF OPERATIONS
Consolidated Operations
Three months ended June 30, 1996 compared to Three months Ended June 30, 1995
Revenues for the second quarter of 1996 were $ 49.1 million as compared to
$49.3 million in revenues for the second quarter of 1995. Second quarter 1995
revenues included the recognition of an $8.8 million NBA expansion fee payable
to the Nuggets and $6.8 million of revenue from the Company's Satellite Cinema
business, which ceased operations on December 31, 1995. Excluding these 1995
revenue sources, the Company's business segments both reported solid growth in
revenues during the second quarter of 1996. The increase in the Multimedia
segment is primarily attributable to an increase of $8.7 million in revenues at
OCV, and the increase in the Entertainment segment is primarily attributable to
the inclusion of revenues of $8.6 million from the Avalanche, which was acquired
in July 1995 and was not included in the Company's consolidated results until
the second half of last year.
Cost of services for the second quarter of 1996 was $37.1 million, an
increase of $8.9 million or 32% over the second quarter of 1995. This increase
is attributable to the inclusion of the Avalanche and the overall increase in
the number of pay-per-view rooms served by OCV. These increases were partially
offset by a decline in costs from the termination in 1995 of the Satellite
Cinema pay-per-view operations. The decline in margin is primarily attributable
to the absence of NBA expansion fees in the second quarter of 1996 and the
negative operating margins of the Nuggets and the Avalanche.
Depreciation and amortization for the second quarter of 1996 were $16.1
million, an increase of $3.4 million or 27% over the second quarter of 1995.
This increase reflects a higher installed room base and the resulting increase
in depreciation and the amortization of the intangible assets created by the
Avalanche acquisition in July 1995.
General and Administrative expenses for the second quarter of 1996 were $2.9
million, an increase of 14% over the second quarter of 1995. This increase
reflects the costs incurred to relocate the Company's headquarters to Denver and
the costs associated with being a publicly traded corporation in 1996.
Other income (expense) decreased by $.1 million in the second quarter of
1996 as compared to the same period last year. This decrease is due primarily to
operating losses associated with the Company's equity investment in Elitch
Gardens, a Denver Amusement Park.
Interest expense increased $1.8 million in the second quarter of 1996, as
compared to the second quarter of 1995. This increase is the result of the
borrowings incurred in conjunction with the Offering in December 1995 (see Note
5 to the Company's 1995 financial statements) and the additional borrowings
incurred by the Company during the second quarter of 1996 to meet capital
expenditure and investment requirements.
The Company recorded an income tax benefit of $2.6 million in the second
quarter of 1996 as compared to income tax expense of $1.9 million in the second
quarter of 1995. The tax expense recorded in 1995 was attributable to the
Ascent's operating income in the second quarter of 1995 as a result of the
recognition of the NBA expansion fee during the quarter.
<PAGE>
Minority interest reflects the (earnings) losses attributable to the
minority interest in the Company's 85% owned subsidiary, OCV.
Six Months ended June 30, 1996 compared to six months ended June 30, 1995
Revenues for the six months ended June 30, 1996 were $118.7 million, an
increase of $21.9 million or 23% over the $96.7 million in revenues for the six
months ended June 30, 1995. Year-to-date 1995 revenues included the recognition
of an $8.8 million NBA expansion fee and $13.7 million of revenue from the
Company's discontinued Satellite Cinema business. Excluding these 1995 revenue
sources, revenues for the first half of 1996 reflected solid growth. The
increase in the Multimedia distribution segment is primarily attributable to an
increase of $16.2 million in revenues from OCV and the increase in the
Entertainment segment is primarily attributable to the inclusion of revenues of
$23.5 million from the Avalanche, which was acquired in July 1995 and was not
included in the consolidated results until the second half of last year.
Cost of services for the six months ended June 30, 1996 was $92.6 million,
an increase of $27.3 million or 42% over the six months ended June 30, 1995. The
significant increase is attributable to the inclusion of the Avalanche, the
overall increase in the number of pay-per-view rooms served by OCV and the
amortization of film costs at Beacon. These increases were partially offset by a
decline in costs from the termination in 1995 of the Satellite Cinema
pay-per-view operations. The decline in margin is primarily attributable to the
absence of NBA expansion fees in 1996 and the negative operating margins of
Beacon, the Nuggets and the Avalanche in 1996.
Depreciation and amortization for the six months ended June 30, 1996 were
$31.9 million, an increase of $7.3 million or 30% over the six months ended June
30, 1995. This increase reflects a higher installed room base and the resulting
increase in depreciation and the amortization of the intangible assets created
by the Avalanche acquisition in July 1995.
General and Administrative expenses for the six months ended June 30, 1996
were $5.1 million, an increase of 5.8% over the six months ended June 30 of
1995. This increase is due to the relocation of Ascent's corporate headquarters
to Denver and the costs associated with being a publicly traded corporation in
1996.
Other income (expense) improved by $.9 million in the six months ended June
30, 1996, as compared to the same period last year. The six months ended June
30, 1995 included a $1.5 million charge for settlement of a lawsuit brought by a
former employee of OCV.
Interest expense increased $3.6 million in the six months ended June 30,
1996, as compared to the six months ended June 30, 1995. This increase is the
result of the borrowings incurred in conjunction with the Offering in December
1995 (see Note 5 to the Company's 1995 financial statements) and the additional
borrowings incurred by the Company during the six months ended June 30, 1996 to
meet capital expenditure and investment requirements.
The Company recorded an income tax benefit of $4.4 million in the six months
ended June 30, 1996 as compared to income tax expense of $.2 million during the
same period last year. The tax expense recorded in 1995 was attributable to the
Company's operating income in the second quarter of 1995 as a result of the
recognition of the NBA expansion fee during the quarter..
Minority interest reflects the (earnings) losses attributable to the
minority interest in the Company's 85% owned subsidiary, OCV.
<PAGE>
Segment Operating Results
As discussed in Note 12 to the Company's 1995 financial statements, Ascent
reports operating results in two segments: multimedia distribution and
entertainment. Results by segment and certain information regarding the
pay-per-view customer base and certain statistical data affecting pay-per-view
rooms follows:
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30, Six-months ended June 30,
1996 1995 1996 1995
(dollars in millions)
<S> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Multimedia Distribution... $ 33.4 $ 30.9 $ 65.9 $ 62.1
Entertainment............. 15.7 18.4 52.8 34.6
------- ------- ------ -------
Total Revenues............ $ 49.1 $ 49.3 $118.7 $ 96.7
======= ======= ====== =======
Operating Income (Loss):
Multimedia Distribution... $ 2.0 $ 1.1 $ 4.2 $ 1.7
Entertainment............. (6.1) 7.4 (10.1) 5.1
General & Administrative.. (2.9) (2.6) (5.1) (4.8)
------- ------- ------ -------
Total operating income
(loss) $ (7.0) $ 5.9 $ (11.0) $ 2.0
======= ====== ======= ======
Other Data:
EBITDA: (1)
Multimedia Distribution... $ 15.2 $ 12.1 $ 29.9 $ 22.9
Entertainment ............ (3.3) 9.1 (3.9) 8.5
General & Administrative.. (2.9) (2.6) (5.1) (4.8)
------- -------- ------- -------
Total EBITDA........... $ 9.0 $ 18.6 $ 20.9 $ 26.6
======= ======= ====== =======
Capital Expenditures:
Multimedia Distribution... $ 17.9 $ 20.7 $ 39.9 $ 42.3
Entertainment............. 1.8 1.3 8.7 2.0
------- ------- ------ -------
Total capital expenditures $ 19.7 $ 22.0 $ 48.6 $ 44.3
======= ======= ====== =======
OCV installed rooms with On Demand Service (2) 419,000 303,000
======= =======
OCV On Demand backlog rooms (2) 92,000 120,000
======= =======
</TABLE>
(1) Earnings before interest expense, income taxes, depreciation and
amortization ("EBITDA") is presented because it is a widely accepted
financial indicator used by certain investors and analysts to analyze and
compare companies on the basis of operating performance. EBITDA is not
intended to represent cash flows for the period, nor has it been presented
as an alternative to operating income as an indicator of operating
performance and should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with generally accepted
accounting principles.
(2) OCV installed rooms with On Demand Service represents the approximate
number of hotel rooms served by OCV's on demand pay-per-view movie system
as of the end of the period. OCV backlog represents the approximate number
of hotel rooms which are awaiting installation of OCV equipment, which are
reasonably expected to be installed as of the end of the period.
<PAGE>
Multimedia Distribution
The Multimedia Distribution segment includes the results of OCV and ANS. The
segment's second quarter revenues for 1996 increased $2.5 million over last
year's second quarter. Excluding the revenue of $6.8 million from Satellite
Cinema, which ceased operations at the end of 1995, revenue increased 39% in the
second quarter of 1996 over the second quarter of 1995. Year-to-date revenues
for Multimedia increased $3.8 million over the first half of 1995. Absent the
1995 revenues from Satellite Cinema of $13.7 million, revenue increased 36% on a
year-to-date basis in 1996 over the first half of 1995. These improvements were
primarily attributable to growth in total rooms served by OCV, approximately
419,000 rooms on June 30, 1996 versus approximately 303,000 rooms one year
earlier. ANS's year-to-date revenues grew by $1.3 million over the first half of
1995 due to an increase in support services for network customers.
Operating Income for the segment increased by $ .9 million and $2.5 million
for the second quarter and first half of 1996, respectively, as compared to the
same periods last year. The improvements in operating income are primarily
attributable to the elimination of unprofitable Satellite Cinema operations,
which reflected operating losses of $1.6 million and $2.7 million in the second
quarter and the first half of 1995, respectively.
EBITDA of the Multimedia Distribution segment increased by $3.1 million and
$7.0 million for the second quarter and first half of 1996, respectively, as
compared to the same periods last year. This increase reflects a higher
installed room base and the resulting increase in depreciation, the elimination
of the Satellite Cinema operations and the overall improvement in operating
income during the first half of 1996.
Capital expenditures for the segment decreased by $2.8 million and $2.4
million for the second quarter and first half of 1996, respectively, as compared
to the same periods last year. While OCV continued to install approximately
9,000 - 10,000 rooms per month during the first half of 1996, the costs of
installation have decreased. This decline in capital expenditures is
attributable to the increasing installation of the VideoNOW system, which has a
lower installed cost per room than OCV's traditional on-demand system.
Entertainment
The Entertainment segment includes the results of the Nuggets, the Avalanche,
and Beacon. Revenues of the Entertainment segment for the second quarter of 1996
decreased by $2.7 million over the same quarter last year. Excluding the
recognition of the $8.8 million NBA expansion fee in the second quarter of 1995,
revenues in the second quarter of 1996 grew 63% compared to the second quarter
of 1995. This increase in revenues is attributable to the inclusion of the
Avalanche, which was acquired in July 1995. While the Avalanche generated
revenues of $8.6 million in the second quarter of 1996, of which $6.3 million
was attributable to the NHL playoffs, these revenues were offset by lower
revenues from the Nuggets due to their non-participation in the NBA playoffs in
1996 and lower revenues from Beacon due to the timing of its releases to the
video market. Year-to-date revenues for the Entertainment segment increased
$18.2 million over the first half of 1995. This increase is attributed to the
inclusion of Avalanche revenues of $23.5 million and ticket price increases for
the Nuggets during the 1995/1996 playing season offset by the NBA expansion fee
recognized during the first half of 1995.
Operating losses for this segment increased by $13.5 million and $15.2
million in the second quarter of 1996 and the first half of 1996 as compared to
the same periods last year. These declines are primarily attributable to the
losses incurred by the Avalanche and the Nuggets and the absence of NBA
expansion fees in 1996.
<PAGE>
EBITDA for the Entertainment segment declined by $12.4 million for the second
quarter and first half of 1996, respectively, as compared to the same periods
last year. This decline primarily reflects the operating losses incurred by the
Avalanche and the Nuggets and the absence of the NBA expansion fees.
Capital expenditures for the Entertainment segment during the second quarter
of 1996 increased by $.5 million over the same quarter last year. This increase
is primarily attributable to leasehold improvements at McNichols arena in Denver
for hockey operations. Capital expenditures for the first half of 1996 increased
by $6.7 million over the same period last year. This increase is attributable to
the purchase in March 1996 of TAC's interest's in the proposed arena and
development project in Denver (see Note 3 to Part I, Item I of this Form).
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of cash during the six-months ended June 30, 1996 was
cash from operations of $2.8 million and short-term borrowings of $50.0 million
under Ascent's Credit Facility (see Note 5 of the Company's 1995 financial
statements). Cash was expended primarily for property and equipment, including
capital expenditures of $39.0 million for the continuing installation by OCV of
on-demand systems, $6.6 million for the development of the proposed arena in
Denver and the funding of $8.1 million incurred by Beacon for the initial costs
relating to the development and production of three motion pictures.
The Company's negative working capital position increased by $27.2 million
from December 31, 1995 to June 30, 1996. This is attributable to an increase in
long-term assets of $25.8 million along with peak seasonal borrowings by the
Nuggets and Avalanche of approximately $10.0 million. Excluding the short-term
debt increase, the working capital position improved by $25.3 million reflecting
a reduction in deferred revenue related to both the Nuggets and the Avalanche
due to the completion of their respective playing seasons. Receipts for season
tickets and sponsorship agreements are recorded by the Nuggets and Avalanche as
deferred revenues and recognized as games are played.
The Company has access to short-term and long-term financing at favorable
rates under its Credit Facility. At June 30, 1996, the Company has available
short-term borrowings of $55 million under the Credit Facility.
The Company's cash requirements through the remainder of 1996 are expected
to include (i) the continuing installation by OCV of on-demand systems, (ii) the
continued funding of the production of motion pictures, one which is currently
in production and two additional pictures for which production is set to
commence in September 1996, (iii) an investment in the proposed new arena and
entertainment complex in Denver and (iv) the payment of interest under the
Credit Facility. The Company anticipates that capital expenditures for the
continued installation by OCV of on-demand services will be financed primarily
through cash flows from OCV's operations and, subject to the closing of the
SpectraVision transaction, financed under a separate credit facility obtained by
the new company in the second half of 1996 as discussed below. While the Company
continues to plan to finance the construction of the new arena in Denver,
whereby the Company's financial participation will result in expenditures
totalling $15-$30 million, the initial cash expenditures for such financing may
be delayed until late in 1996 or calendar 1997 due to continued delays in
reaching an agreement with the City and County of Denver. Capital requirements
with respect to the funding of movie productions at Beacon are anticipated to be
approximately $20 million through the remainder of 1996. These productions are
being financed in part pursuant to Beacon's development, production and domestic
distribution agreement with Sony Pictures Entertainment, Inc. in addition to
agreements with other film distributors.
<PAGE>
Management of the Company believes that available cash, funds generated by
operations and funds available under its Credit Facility or, subject to the
closing of the SpectraVision transaction, the new company's credit facility and
a refinancing of Ascent's Credit Facility will be sufficient for the Company to
satisfy its growth and finance working capital requirements through the
remainder of 1996.
Pursuant to the Company's Corporate Agreement with COMSAT, the Company has
agreed not to incur any indebtedness, other than that under the Credit Facility
(and refinancings thereof) and indebtedness incurred in the ordinary course of
business which together shall not exceed $175 million in the aggregate, without
COMSAT's consent. Further, the Company has agreed, for so long as COMSAT owns at
least 50% of the outstanding Common Stock, to utilize reasonable cash management
procedures and to use its reasonable best efforts to minimize the Company's
excess cash holdings. A primary purpose of the Corporate Agreement is to require
Ascent to coordinate its capital requirements with COMSAT so that COMSAT can
monitor its compliance with the regulations of the Federal Communications
Commission ("FCC") applicable to the capital structure and debt financing
activities of COMSAT and its consolidated subsidiaries. In consideration of the
anticipated closing of the SpectraVision transaction and the other capital
requirements described above, management of the Company is working with
management of COMSAT to ensure that the Company's financing plan will be
acceptable to COMSAT in light of the FCC regulations. Ascent management believes
that COMSAT will consent to such actions as are reasonably required by Ascent in
order to secure adequate financing to consummate the SpectraVision transaction.
COMSAT is required to submit a financial plan to the FCC for review
annually. Under existing FCC guidelines, COMSAT is subject to a maximum
long-term debt to total capital ratio of 45%, a limit of $200 million in short
term debt and an interest coverage ratio of 2.3 to 1. In April 1996, COMSAT
submitted its current plan, which seeks a temporary increase in the interest
coverage ratio to a minimum of 1.9 to 1 for the 1996 plan year and an increase
in the short term debt limit to $275 million as long as the financials of Ascent
are consolidated with those of COMSAT. COMSAT has informed Ascent that COMSAT
was in compliance with both the long-term debt to total capital ratio and the
short-term debt limit at June 30, 1996 and expects to be in compliance with
those guidelines at year end 1996 if the short term debt limit is modified as
requested. If the FCC approves COMSAT's request, COMSAT has further informed
Ascent that it expects that the cash flows from operations and COMSAT's
consolidated short-term borrowing capacity, including under the Credit Facility
or a refinancing thereof in connection with the SpectraVision transaction, will
be sufficient to fund COMSAT's aggregate cash requirements for the balance of
1996. However, COMSAT has further informed Ascent that COMSAT expects to seek a
further modification of the interest coverage ratio, in order to comply with
that guideline, at the December 31, 1996 annual measurement date, primarily due
to Ascent's operations. Accordingly, COMSAT has advised Ascent that it will need
to apply for a further modification of the interest coverage ratio and, in order
to meet its funding requirements beyond 1996, may seek a further modification of
the short-term debt limit. Finally, COMSAT has informed Ascent that if COMSAT
were to fail to satisfy one or more of the FCC guidelines as of an applicable
measurement date, COMSAT, and its consolidated subsidiaries including Ascent,
would be required to seek advance FCC approval of future financing activities on
a case by case basis. If such approval were not granted for any financing
activities sought by Ascent, Ascent could be required to reduce or reschedule
planned capital investments, reduce cash outlays, reduce debt or sell assets.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Change in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
None.
(B) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements on the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Ascent Entertainment Group, Inc.
By: /s/ David A. Holden
David A. Holden
Controller
Date: August , 1996
c:\msoffice\winword\files\finance\10-Q2.doc
08/12/96 9:25:45 AM
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This schedule contains summary financial information extracted from the
financial statements for the quarter ended June 30, 1996 and is qualified in its
entirety by reference to such financial statements.
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