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 March 31, 1997
or
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from n/a to n/a
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
March 31, 1997 was 29,754,000 shares.
<PAGE>
Part 1. Financial Information
Item 1. Financial Statements
<TABLE>
ASCENT ENTERTAINMENT GROUP, INC.
Condensed Consolidated Balance Sheets
(In thousands)
ASSETS
<CAPTION>
March 31, December 31,
1997 1996
---------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents..................... $ 9,972 $ 3,963
Receivables, net ............................. 46,787 54,695
Deferred income taxes ........................ 3,539 3,580
Income taxes receivable....................... 13,508 5,653
Prepaid expenses.............................. 5,574 11,247
Other current assets.......................... 1,438 2,759
-------- ---------
Total current assets...................... 80,818 81,897
Property and equipment, net .................... 301,972 301,498
Goodwill, net................................... 130,643 132,805
Franchise rights, net........................... 100,984 102,189
Film inventory, net ............................ 86,547 76,234
Investments..................................... 6,515 9,150
Other assets, net............................... 27,578 31,899
-------- ---------
Total Assets.................................... $735,057 $ 735,672
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings ........................ $160,000 $ 143,000
Accounts payable.............................. 23,680 19,992
Payable to COMSAT............................. 4,316 4,662
Deferred income............................... 75,460 81,942
Other accrued liabilities..................... 44,224 38,629
-------- ---------
Total current liabilities................. 307,680 288,225
Long-term debt ................................. 50,000 50,000
Other long-term liabilities .................... 14,410 14,645
Deferred income taxes .......................... 8,637 5,742
-------- ---------
Total liabilities......................... 380,727 358,612
Minority interest .............................. 102,428 107,475
Stockholders' equity:
Preferred stock, par value $.01 per share,
5,000,000 shares authorized, none
outstanding.................................. - -
Common stock, par value $.01 per share,
60,000,000 shares authorized, 29,754,000
issued and outstanding....................... 297 297
Additional paid-in capital.................... 07,569 307,569
Accumulated deficit........................... (57,281) (39,633)
Other......................................... 1,317 1,352
-------- ---------
Total stockholders' equity................ 251,902 269,585
-------- ---------
Total Liabilities and Stockholders' Equity...... $735,057 $ 735,672
======== =========
</TABLE>
<PAGE>
<TABLE>
ASCENT ENTERTAINMENT GROUP, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended March 31,
1997 1996
-------- --------
<S> <C> <C>
Revenues...................... $89,849 $ 72,340
------- --------
Operating expenses:
Cost of services.......... 85,972 58,333
Depreciation and amortization 25,365 15,732
General and administrative 1,998 2,220
------- --------
Total operating expenses.. 113,335 76,285
------- --------
Operating income (loss)....... (23,486) (3,945)
Other income (expense), net... 150 (308)
Interest expense.............. (4,684) (1,632)
------- --------
Loss before taxes and minority
interest................... (28,020) (5,885)
Income tax benefit............ 5,231 1,752
------- --------
Loss before minority interest. (22,789) (4,133)
Minority interest............. 5,141 (142)
------- --------
Net loss...................... $(17,648) $ (4,275)
========= =========
Net loss per common share..... $(0.59) $(0.14)
======= =======
Weighted Average number of
common shares outstanding..... 29,754 29,752
======= ========
</TABLE>
See accompanying notes to these condensed unaudited consolidated financial
statements.
<PAGE>
<TABLE>
ASCENT ENTERTAINMENT GROUP, INC.
Condensed Consolidated Cash Flow Statements
(Unaudited)
(In thousands)
<CAPTION>
Three Months Ended March 31,
1997 1996
------- -------
<S> <C> <C>
Operating activities:
Net loss ....................................... $(17,648) $ (4,275)
Adjustments for non-cash expenses:
Depreciation and amortization ............... 25,365 15,732
Amortization of film industry ............... 40 4,446
Changes in operating assets and liabilities .... 1,248 (20,924)
Other .......................................... -- 503
-------- --------
Net cash provided by operating
activities .................................. 9,005 (4,518)
-------- --------
Investing activities:
Payments on note receivable .................... 715 694
Proceeds from sale of investment ............... 1,920 --
Purchase of property and equipment ............. (20,334) (28,971)
Net expenditures for film production costs ..... (2,297) (687)
Investments in unconsolidated businesses ....... -- (4,125)
-------- --------
Net cash used in investing activities .......... (19,996) (33,089)
-------- --------
Financing activities:
Repayment of long-term debt .................... -- (120)
Net short-term borrowings ...................... 17,000 29,000
Other .......................................... -- 15
-------- --------
Net cash provided by financing activities ...... 17,000 28,895
-------- --------
Net increase (decrease) in cash &
cash equivalents ................................ 6,009 (8,712)
Cash and cash equivalents,
beginning of period ............................. 3,963 11,012
-------- --------
Cash and cash equivalents,
end of period ................................... $ 9,972 $ 2,300
======== ========
Supplemental cash flow information:
Interest paid ...................................... $ 3,632 $ 1,271
======== ========
Income taxes paid .................................. $ 82 $ 71
======== ========
</TABLE>
See accompanying notes to these condensed unaudited consolidated financial
statements.
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three months ended March 31, 1997 and 1996
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 1996 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, 1996 balance sheet amounts have been reclassified to conform with the
current periods presentation.
The accompanying financial statements include the accounts of Ascent and its
majority-owned subsidiaries which include On Command Corporation ("OCC"), Ascent
Network Services, Inc. ("ANS"), the Denver Nuggets Limited Partnership (the
"Nuggets"), the Colorado Avalanche LLC (the "Avalanche") and Beacon
Communications Corp. ("Beacon"). Intercompany transactions have been eliminated.
2. Business Combination
As discussed in Note 2 to the Company's 1996 financial statements, effective
October 8, 1996, Ascent through its newly formed subsidiary, OCC, acquired the
assets, properties and certain liabilities of SpectraVision, Inc., a leading
provider of in-room entertainment services to the lodging industry. Pursuant to
the Acquisition Agreement, OCC acquired all of the outstanding capital stock of
SpectraDyne, Inc. the primary operating subsidiary of SpectraVision, together
with certain other assets of SpectraDyne and its affiliates in exchange for
shares of OCC common stock. SpectraDyne subsequently changed its name to
SpectraVision, Inc. Prior to the Acquisition, On Command Video Corporation
("OCV"), formerly an 84% wholly owned subsidiary of Ascent, was merged with a
subsidiary of OCC and became a wholly owned subsidiary of OCC pursuant to an
Agreement and Plan of Merger. Ascent owns approximately 57.2% of the common
stock of OCC as of March 31, 1997. The acquisition of SpectraVision has been
accounted for under the purchase method and, accordingly, the results of
operations of SpectraVision are included in the consolidated financial
statements from the date of acquisition.
3. Denver Arena Project
As discussed in Note 4 to the Company's 1996 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 other accrued liabilities
($2,500,000) and other long-term liabilities($2,170,000) as of March 31, 1997.
On May 7, 1997, the Company entered into a Land Purchase Agreement (the
"Agreement") with Southern Pacific Transportation Company ("SPT") pursuant to
which the Company will purchase approximately 49 acres in Denver as the site
for the proposed arena for $20,000,000. The Agreement is similar to the
previously expired agreement between SPT and the Company. Pursuant to the
Agreement, the closing of the land purchase needs to occur on or before August
31,1997. Consummation of the transaction is 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 the City
and County of Denver's current arena, McNichols Arena. The Agreement also
provides for SPT to effect a state-approved environmental clean-up plan on the
site, and to provide continuing partial indemnification with regard to certain
environmental liabilities. Management believes that these negotiations will be
successfully concluded, but there can be no assurance that Ascent will be able
to reach acceptable terms for the construction of the new arena.
4. Film Inventory
<TABLE>
Film inventory consists of the following at March 31, 1997 and December 31,
1996:
<CAPTION>
1997 1996
------- -------
(in thousands)
<S> <C> <C>
Films released, less amortization .............. $ 3,134 $ 3,382
Films in process and development ............... 79,426 69,732
Development .................................... 3,987 3,120
------- -------
Total film inventory ........................ $86,547 $76,234
======= =======
</TABLE>
During the first quarter of 1997, the Company increased film inventory and
deferred revenues by approximately $8,600,000 in connection with the
distribution rights relating to certain films under development at March 31,
1997.
<PAGE>
5. Notes Payable and Long-Term Debt
On March 23, 1997, OCC entered into an amendment to its revolving credit
facility with a bank (the "OCC Amendment"). Under the OCC Amendment, the amount
available under the OCC revolving credit facility was increased from $125.0
million to $150.0 million, and certain other terms were amended to clarify such
terms. At March 31, 1997, there was $47.0 million of available borrowings under
the amended OCC revolving credit facility, subject to certain covenant
restrictions.
On March 23, 1997, Ascent entered into an amendment and restatement of its
revolving credit facility with a bank (the "Ascent Amendment"). The Ascent
Amendment provides, among other things, that the Ascent revolving credit
facility will only be renewable for two additional one year options beyond
October 9, 1997 if, prior thereto, Ascent has received not less than $50.0
million in proceeds from a new debt financing which is subordinated to the
Ascent revolving credit facility; for the maximum amount available to be
borrowed under the facility to be reduced from $200.0 million to $140.0 million;
for the elimination of the $125.0 million limit on available borrowings under
the facility prior to the receipt of NBA and NHL consents; that those financial
covenants contained in the Ascent revolving credit facility related to the
financial results of OCC will not be measured until year end 1997; for the
$140.0 million of availability to be divided into a term loan of $50.0 million
and a revolving facility of $90.0 million; and for amendments to certain other
financial covenants. In addition, the failure of Ascent to commence construction
on the Denver Arena Project (see Note 4) prior to August 31, 1997 is an event of
default under the Ascent revolving credit facility. Based on current market
conditions, management of Ascent currently believes that they will be successful
in obtaining the additional subordinated debt by October 9, 1997. In addition,
management currently believes that they will have commenced construction on the
Denver Arena Project prior to August 31, 1997 or they will have made sufficient
progress on the negotiations involving the Denver Arena Project to enable Ascent
to obtain an extension under the Ascent revolving credit facility. However,
there can be no assurances that other contingencies will not arise which could
impact Ascent's ability to obtain this additional subordinated financing, that
such financing will be available on terms acceptable to Ascent or that
negotiations with the City and County of Denver on the Denver Arena Project will
have been completed or progressed sufficiently. If Ascent were not able to
obtain the additional subordinated financing, Ascent could be required to
refinance the Ascent Credit Facility which could require Ascent to reduce or
reschedule planned capital investments, reduce capital outlays, or sell assets.
At March 31, 1997, there was $33.0 million of available borrowings under the
Ascent revolving credit facility.
6. New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" (EPS).
This Statement establishes standards for computing and presenting earnings per
share. This Statement is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; early application is
not permitted. The Company will adopt this Statement in the fourth quarter of
1997 and will restate all prior period earnings per share data presented as
required.
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income available to nonredeemable common stock by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
If SFAS 128 had been in effect during the quarters ended March 31, 1997 and
1996, basic and diluted EPS would not have been different than fully diluted EPS
currently reported for the periods.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Certain of the statements that follow are forward-looking and relate to
anticipated future operating results. Statements which look forward in time are
based on management's current expectations and assumptions, which may be
affected by subsequent developments and business conditions, and necessarily
involve risks and uncertainties. Therefore, there can be no assurance that
actual future results will not differ materially from anticipated results.
Although the Company has attempted to identify some of the important factors
that may cause actual results to differ materially from those anticipated, those
factors should not be viewed as the only factors which may affect future
operating results. Accordingly, the following should be read in conjunction with
the Consolidated Financial Statements (unaudited) included in this filing, and
with the Consolidated Financial Statements, notes thereto, and Management
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's annual report on Form 10-K for 1996, as previously
filed with the Commission.
ANALYSIS OF OPERATIONS
Consolidated Operations
Three months ended March 31, 1997 compared to Three months Ended March 31,
1996
Revenues for the first quarter of 1997 were $89.8 million, an increase of
$17.5 million or 24%, as compared to $72.3 million in revenues for the first
quarter of 1996 This increase is primarily attributable to a $22.0 million
increase in revenues at OCC within the Multimedia segment. The increase in
revenues at OCC was due to a larger number of hotel rooms served, resulting
primarily from the acquisition of SpectraVision assets in October 1996. The
Entertainment segment reflected a decrease in revenues of $4.5 million during
the first quarter of 1997 from the comparable period in 1996. During the first
quarter of 1996, Beacon generated revenues of $4.3 million from the home video
release of a motion picture. During the first quarter of 1997, Beacon had no
movie releases and generated minimal revenues from prior movie releases.
Cost of services for the first quarter of 1997 were $85.9 million, an
increase of $27.6 million or 47% compared to the first quarter of 1996. This
increase is primarily attributable to an increase in cost of services at OCC due
to the overall increase in the number of pay-per-view rooms served by OCC, costs
associated with the continued integration of SpectraVision and OCV and the
increased expenses to operate OCC as a public company and, to a lesser degree,
higher costs at the Colorado Avalanche.
Depreciation and amortization for the first quarter of 1997 was $25.4
million, an increase of $9.6 million or 61% compared to the first quarter of
1996. This increase is attributable to a higher installed room base and the
resulting increase in depreciation at OCC combined with the amortization of the
intangible assets acquired in connection with the SpectraVision acquisition in
October, 1996.
General and administrative expenses for the first quarter of 1997 were $2.0
million, a decrease of $.2 million or 9% compared to the first quarter of 1996.
This decrease primarily reflects the reduction of approximately $.4 million in
certain general and administrative service charges from COMSAT offset by an
increase in corporate personnel costs of $.2 million. Since January 1997,
COMSAT has provided only limited administrative and support services to the
Company.
Other income (expense) increased by $.5 million in the first quarter of 1997
as compared to the same period last year. The improvement in other income during
the quarter is primarily attributable to the Company's recognition of losses of
$.5 million during the first quarter of 1996 from its limited partnership
investment in Elitch Gardens. Elitch Gardens, a Denver amusement park, was sold
in October 1996.
Interest expense increased $3.1 million in the first quarter of 1997 as
compared to the first quarter of 1996. This increase is attributable to the
additional borrowings incurred during 1996 and the first quarter of 1997 for
capital expenditures, investment requirements (primarily the assumption of debt
in the SpectraVision transaction) and the funding of operating requirements of
Ascent and its subsidiaries.
The Company recorded an income tax benefit of $5.2 million in the first
quarter of 1997 as compared to an income tax benefit of $1.8 million in the
first quarter of 1996. The Company's effective rate declined to 19% in the first
quarter of 1997 from 30% during the first quarter of 1996. The decline in the
Company's effective tax rate is attributable to the losses incurred by OCC
during the first quarter of 1997, in which no tax benefit was recognized due to
uncertainties regarding OCC's ability to realize a portion of the benefits
associated with future deductible temporary differences (deferred tax assets)
and net operating loss carryforwards, prior to their expiration.
Minority interest reflects the losses attributable to the minority interest
in the Company's 57% owned subsidiary, OCC.
<PAGE>
Segment Operating Results
As discussed in Note 13 to the Company's 1996 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 is as follows:
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
------- ------
(dollars in millions)
<S> <C> <C>
Income Statement Data:
Revenues:
Multimedia Distribution (1) $ 57.1 $ 35.1
Entertainment............. 32.7 37.2
------- ------
Total Revenues (1)...... $ 89.8 $ 72.3
======= ======
Operating Income (Loss):
Multimedia Distribution... $ (9.7) $ 2.2
Entertainment............. (11.8) (3.9)
General & Administrative.. (2.0) (2.2)
--------- -------
Total operating loss.... $ (23.5) $ (3.9)
======== =======
Other Data:
EBITDA: (2)
Multimedia Distribution... $ 11.7 $ 14.7
Entertainment ............ (7.8) (.7)
General & Administrative.. (2.0) (2.2)
--------- -------
Total EBITDA............ $ 1.9 $ 11.8
======= ======
Capital Expenditures:
Multimedia Distribution... $ 20.1 $ 22.0
Entertainment............. .2 6.9
------- ------
Total capital expenditures $ 20.3 $ 28.9
======= ======
Room Data:
Number of Guest-Pay rooms (at end of period):
On Demand................. 712,000 386,000
Schedule Only............. 205,000 -
------- -------
Total................... 917,000 386,000
======= =======
</TABLE>
(1)Includes $19.4 million in revenues from SpectraVision. The results of
operations for the first quarter of 1997 include the results from
SpectraVision assets which were acquired on October 8, 1996. See Note 2 of
Notes to the Condensed Consolidated Financial Statements.
(2)EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. The most significant difference between EBITDA
and cash provided from operations is changes in working capital. 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. In addition, management believes EBITDA provides an
important additional perspective on the Company's operating results and the
Company's ability to service its long-term debt and fund the Company's
continuing growth. EBITDA is not intended to represent cash flows for the
period, or to depict funds available for dividends, reinvestment or other
discretionary uses. EBITDA has not been presented as an alternative to
operating cash flow or 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, are presented and discussed in Liquidity and Capital Resources.
Multimedia Distribution
The Multimedia Distribution segment includes the results of OCC and ANS. The
segment's first quarter revenues for 1997 increased $22.0 million, or 63% over
last year's first quarter. OCC's revenues grew $21.5 million due to the growth
in total rooms served by OCC, approximately 917,000 rooms on March 31, 1997
versus approximately 386,000 rooms one year earlier. This growth in rooms is
primarily attributable to the acquisition of the SpectraVision assets as well as
the continued growth of the OCV installed room base. Revenues from the
SpectraVision acquired assets were approximately $19.4 million during the first
quarter of 1997. ANS's revenues for the first quarter of 1997 were similar to
the comparable period in 1996.
Operating losses for this segment increased by $11.9 million as compared to
the same period last year. During the first quarter of 1997, OCC's operations
were impacted by the unexpected failure of the Telstar 401 satellite, which
delivered pay-per-view programming to approximately 970 former SpectraVision
hotel customers. Service was restored to all hotels within a month, but the loss
of revenue and costs associated with the loss of service resulted in a decrease
in operating income of approximately $3.0 to $4.0 million, comprised of
decreased revenues and incremental expenses. The increase in the operating loss
during the first quarter of 1997 is also attributable to increased depreciation
expense due to the significant capital expenditures made by OCV during 1996 as
it increased its installed room base, an aggressive depreciation of
SpectraVision in-room assets due to the planned conversion to OCV equipment,
amortization of intangible assets arising from the SpectraVision transaction,
costs associated with the continued integration of SpectraVision and OCV and the
increased expenses to operate OCC as a public company.
EBITDA of the Multimedia Distribution segment for the first quarter of 1997
decreased by $3.0 million as compared to the same period last year. This
decrease in EBITDA is primarily attributable to the losses arising from the
satellite failure discussed previously.
Capital expenditures for the segment during the first quarter of 1997 were
generally consistent with the same period last year.
Entertainment
The Entertainment segment includes the results of the Nuggets, the Avalanche,
and Beacon. Revenues of the Entertainment segment for the first quarter of 1997
decreased by $4.5 million, or 12.1%, over the same quarter last year. This
decrease in revenues is attributable to lower revenues from Beacon. During the
first quarter of 1996, Beacon generated revenues of $4.3 million from the home
video release of a motion picture. During the first quarter of 1997, Beacon had
no movie releases and generated minimal revenues from prior movie releases.
While the Avalanche realized increased revenues from ticket, corporate and arena
sales of $2.0 million in the first quarter of 1997 as compared to the same
period in 1996, these increases were offset by declining revenues of $2.1
million from the Nuggets during this same period.
Operating losses for this segment increased by $7.9 million during the first
quarter of 1997 as compared to the same period last year. The increased loss is
primarily attributable to the operating losses incurred by the Avalanche and the
Nuggets caused by higher operating costs (principally player salaries) at the
Avalanche and lower revenues at the Nuggets.
EBITDA for the Entertainment segment declined by $7.1 million during the
first quarter of 1997 as compared to the same period last year. Once again, this
decline primarily reflects the increased operating losses incurred by the
Avalanche and the Nuggets.
Capital expenditures for the Entertainment segment during the first quarter
of 1997 decreased by $6.7 million over the same quarter last year. This decrease
is primarily attributable to Ascent's purchase in March 1996 of TAC's interests
in the proposed arena and development project in Denver (see Note 3 of notes to
the condensed consolidated financial statements).
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of cash during the three months ended March 31, 1997
were cash from operating activities of $9.0 million, borrowings under the
Company's credit facilities of $17.0 million, partnership distributions of $1.3
million from the sale of Elitch Gardens and the collection of $.7 million on
notes and other long-term receivables. Cash was expended primarily for property
and equipment as the Company continued to make investments to support business
growth. Specifically, capital expenditures of $20.1 million were made by OCC for
the continuing installation of on-demand systems. In addition, $2.3 million of
film expenditures was incurred by Beacon for the development and production of
three major motion pictures.
The Company's negative working capital position increased by $20.5 million
from December 31, 1996 to March 31, 1997. This is primarily attributable to an
increase in short-term debt of $17.0 million used mainly for the acquisition of
long-term assets of $20.3 million.
The Company and OCC have access to short-term financing under their
respective credit facilities, as amended on March 23, 1997. (See Note 5 of Notes
to the Condensed Consolidated Financial Statements.) As a result of these
amendments, Ascent reduced the maximum amount available under the Ascent credit
facility from $200.0 million to $140.0 million and OCC increased its available
borrowings under its revolving credit facility from $125.0 million to $150.0
million. Based on these amendments and borrowings outstanding at March 31, 1997,
Ascent has $33.0 million available under the Ascent Credit Facility and OCC has
$47.0 million in available borrowings under the OCC Credit Facility, subject to
certain covenant restrictions.
The Amendment to the Ascent Credit Facility provides, among other things,
that the facility will only be renewable for two additional one year options
beyond October 9, 1997 if, prior thereto, Ascent has received not less than
$50.0 million in proceeds from a new debt financing which is subordinated to the
Ascent Credit Facility. Based on current market conditions, management of Ascent
currently believes that they will be successful in obtaining the additional
subordinated debt by October 9, 1997. However, there can be no assurances that
other contingencies will not arise which could impact Ascent's ability to obtain
the additional subordinated financing or that such financing will be available
on terms acceptable to Ascent. If Ascent were not able to obtain the additional
subordinated financing or amend its existing credit facility, Ascent may be
required to refinance the Ascent credit facility which could require Ascent to
sell assets.
The Company's cash requirements through the remainder of 1997 are expected
to include (i) the continuing installation by OCC of on-demand systems, (ii) an
investment in a new arena and entertainment complex in Denver for use by the
Nuggets and Avalanche, (iii) the funding of the production of motion pictures at
Beacon (iv) funding the operating requirements of Ascent and its subsidiaries,
and (v) the payment of interest under the Ascent and OCC credit facilities. The
Company anticipates that OCC's funding for its operating requirements and
capital expenditures for the continued installation by OCC of on-demand services
will be funded primarily through cash flows from OCC's operations and financed
under the OCC credit facility. The Company anticipates capital expenditures in
connection with the continued installation by OCC of on-demand service will be
approximately $60.0 million during the remainder of 1997. While the Company
continues to plan to finance the construction of the new arena in Denver,
whereby the Company's equity participation would consist of expenditures
totaling approximately $20-$25 million, of which approximately $11.6 million has
been incurred through March 31, 1997, any additional cash expenditures for such
participation would be delayed until the summer of 1997 due to continued delays
in reaching an agreement with the City and County of Denver. Beacon's cash
requirements with respect to the funding of its current movie productions are
expected to consist of expenditures totaling $29-$31 million during the second
and third quarters of 1997. Cash requirements with respect to the funding of
additional productions at Beacon will be dependent upon the number, nature and
timing of the projects that the Company determines to pursue during 1997. The
Company will utilize the Universal Agreement when appropriate, and/or pre-sell a
portion of the international distribution rights to help fund motion picture
costs.
Management of the Company believes that available cash and funds available
under the amended Ascent and OCC Credit Facilities will be sufficient for the
Company and its subsidiaries to satisfy their growth and finance working capital
requirements through the remainder of 1997.
In the COMSAT Corporate Agreement, Ascent agreed not to incur any
indebtedness, other than that under Ascent's previous $175 million revolving
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. As part of Ascent's 1997 operating and
capital planning process, Ascent management requested that COMSAT increase its
debt limit beginning in January 1997. On March 21, 1997, COMSAT consented to
increase the limitation on aggregate consolidated indebtedness which Ascent may
incur pursuant to the Corporate Agreement to $270.0 million for the remainder of
1997; provided that (i) no more than $50 million of such indebtedness may
constitute long term debt; and (ii) indebtedness subordinated to indebtedness
under Ascent's existing credit facility could only be incurred on terms which
did not adversely affect COMSAT's ability to affect a tax-free distribution of
its interest in Ascent to COMSAT shareholders. In connection with COMSAT's
consent under the COMSAT Corporate Agreement, Ascent consented under the OCC
Corporate Agreement to increase OCC's limitation on indebtedness to not more
than $116,000,000 by June 30, 1997, and to $130,000,000 by December 31, 1997;
provided however, that (i) no more than $50,000,000 of such indebtedness may
constitute long term debt, and (ii) indebtedness may only be incurred in
compliance with the financial covenants contained in OCC's existing $150,000,000
Credit Facility, with any amendments to such covenants subject to the written
consent of Ascent. Ascent management believes that the $270.0 million aggregate
limit and related restrictions on Ascent's consolidated indebtedness will be
adequate to fund its consolidated operations through 1997. A number of factors
could cause Ascent's funding requirements to differ materially from those
projected, including, but not limited to, the ability of Ascent to obtain the
$50.0 million in additional subordinated debt financing by October 9, 1997, the
operating performance of Ascent's subsidiaries, unanticipated costs associated
with the integration of SpectraVision's and OCV's businesses, the level of
ticket sales and other revenues by Ascent's professional sports franchises, the
timing of film productions and releases, the timing of NBC's decision to grant
ANS the digital upgrade contract, and other market conditions.
A primary purpose of both the COMSAT Corporate Agreement and the OCC
Corporate Agreement is to require Ascent to coordinate its consolidated capital
requirements with COMSAT so that COMSAT can monitor 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. COMSAT is required to submit a financial plan to the FCC for
review annually. Under existing FCC guidelines, COMSAT is subject to a limit of
$200 million in short-term debt, a maximum long-term debt to total capital ratio
of 45%, and an interest coverage ratio of 2.3 to 1. In October 1996, the FCC
approved a temporary decrease in the interest coverage ratio to a minimum of 1.9
to 1, and an increase in the short-term debt limit to $325 million for the 1996
plan year and until the FCC acts on COMSAT's 1997 capital plan. The latter two
guidelines are measured at year end. COMSAT has informed Ascent that COMSAT was
in compliance with the FCC guidelines, as modified, at December 31, 1996.
In October of 1996 COMSAT announced its intent to divest its 80.67% percent
ownership interest in Ascent through a sale, spin-off or other transaction.
COMSAT has engaged Morgan Stanley & Co. Incorporated to act as its financial
advisor for the divestiture. On March 24, 1997, COMSAT announced that in January
1997 it had filed for a request for a ruling with the Internal Revenue Service
to allow the spin-off of Ascent as a tax-free dividend to its shareholders, and
that it expects to receive the ruling by May 1997. Pending the ruling, COMSAT
will continue efforts to identify a purchaser for its interest in Ascent. If the
method of divestiture by COMSAT is in the form of a tax-free spin-off, certain
restrictions on Ascent's ongoing capital and financing structure may be required
by COMSAT to support the tax free nature of the distribution. In addition, as a
result of a divestiture whereby Ascent is no longer part of COMSAT's
consolidated tax group, Ascent may be unable to recognize tax benefits and
receive cash payments from COMSAT resulting from the anticipated operating
losses to be incurred by Ascent after the divestiture by COMSAT.
<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
27.0 Financial Data Schedule
(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: May 12, 1997
Q_93096.doc/05/09/97 2:18:27 PM
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<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the quarter ended March 31, 1997 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
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