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, 1998
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) dentification No.)
One Tabor Center
1200 Seventeenth Street, Suite 2800
Denver, Colorado 80202
(Address of principal 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, 1998 was 29,755,600 shares.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASCENT ENTERTAINMENT GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $25,832 $25,250
Receivables, net 65,986 62,572
Prepaid expenses 10,245 15,876
Income taxes receivable (Note 4) 8,433 8,212
Deferred income taxes 1,295 2,577
Current portion of film inventory 815 8,628
Other current assets 1,242 1,462
------- -------
Total current assets 113,848 124,577
------- -------
Property and equipment, net 347,358 336,859
Goodwill, net 120,184 122,341
Franchise rights, net 96,170 97,373
Film inventory, net (Note 3) 15,263 17,442
Investments 6,994 5,979
Other assets, net 28,793 34,413
------- -------
TOTAL ASSETS $728,610 $738,984
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $33,158 $24,202
Deferred income 20,247 48,004
Other taxes payable 10,754 10,657
Accrued compensation 17,286 13,480
Income taxes payable 2,253 2,213
Other accrued liabilities 20,128 18,239
------- -------
Total current liabilities 103,826 116,795
------- -------
Long-term debt 275,737 259,958
Other long-term liabilities 39,496 37,448
Deferred income taxes 1,107 1,917
------- -------
TOTAL LIABILITIES 420,166 416,118
------- -------
Minority interest 92,270 95,168
Commitments and contingencies (Note 5) -- --
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per
share, 5,000 shares authorized, none
outstanding -- --
Common stock, par value $.01 per share,
60,000 shares authorized; 29,756
shares issued and outstanding 297 297
Additional paid-in capital 307,586 307,248
Accumulated deficit (94,031) (81,147)
Other 2,322 1,300
-------- --------
Total stockholders' equity 216,174 227,698
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $728,610 $738,984
--------- ---------
--------- ---------
See accompanying notes to these condensed unaudited consolidated
financial statements.
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<TABLE>
ASCENT ENTERTAINMENT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
<S> <C> <C>
REVENUES $118,033 $89,849
-------- -------
OPERATING EXPENSES:
Cost of services 100,058 85,972
Depreciation and amortization 26,896 25,365
General and administrative 2,137 1,998
-------- -------
Total operating expenses 129,091 113,335
-------- -------
Operating loss (11,058) (23,486)
Other income, net 409 196
Interest expense, net (5,636) (4,730)
--------- --------
Loss before taxes and minority
interest (16,285) (28,020)
Income tax benefit 26 5,231
--------- --------
Loss before minority interest (16,259) (22,789)
Minority interest in
loss of subsidiaries, net of taxes 3,375 5,141
--------- --------
NET LOSS $(12,884) $(17,648)
--------- ---------
--------- ---------
BASIC AND DILUTED NET
LOSS PER COMMON SHARE $(.43) $(.59)
--------- ---------
--------- ---------
Weighted average number of
common shares outstanding 29,756 29,754
--------- ---------
--------- ---------
See accompanying notes to these condensed unaudited consolidated
financial statements.
</TABLE>
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<TABLE>
ASCENT ENTERTAINMENT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(12,884) $(17,648)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 26,896 25,365
Amortization of film inventory 13,714 40
Minority interest in losses
of subsidiaries, net (3,375) (5,141)
Interest accretion on Senior
Secured Notes 3,779 --
Changes in operating assets and
liabilities (6,833) 6,389
--------- ---------
Net cash provided by operating
activities 21,297 9,005
--------- ---------
INVESTING ACTIVITIES:
Payments on note receivable 654 715
Proceeds from sale of investment 261 1,920
Purchase of property and equipment (32,513) (20,334)
Net expenditures for film
production costs (1,117) (2,297)
--------- ---------
Net cash used in investing activities (32,715) (19,996)
--------- ---------
FINANCING ACTIVITIES - proceeds from
borrowings under credit facilities 12,000 17,000
--------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 582 6,009
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 25,250 3,963
--------- ---------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $25,832 $ 9,972
--------- ---------
--------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of interest
capitalized $2,278 $ 3,632
Income taxes paid $ 77 $ 82
See accompanying notes to these condensed unaudited consolidated
financial statements.
</TABLE>
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<TABLE>
ASCENT ENTERTAINMENT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
(IN THOUSANDS)
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
<S> <C> <C>
Net loss $(12,884) $(17,648)
Other comprehensive income (loss):
Unrealized gain (loss) on securities 1,197 (250)
Income tax (expense) benefit related
to other comprehensive income (419) 88
Other comprehensive income (loss),
net of tax 778 (162)
--------- ---------
Comprehensive Loss $(12,106) $(17,810)
--------- ---------
--------- ---------
See accompanying notes to these condensed unaudited consolidated
financial statements.
</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 1997 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 for the
entire year.
During the quarter ended March 31, 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income." Accordingly, the Company has
included in these condensed consolidated statements, Condensed
Consolidated Statements of Comprehensive Loss for the three
month periods ended March 31, 1998 and 1997, respectively.
2. Organization and Basis of Presentation
The accompanying consolidated financial statements include the
accounts of Ascent and its majority-owned subsidiaries which
include On Command Corporation ("OCC"), the Denver Nuggets
Limited Partnership (the "Nuggets"), the Colorado Avalanche LLC
(the "Avalanche"), Beacon Communications Corp. ("Beacon") and the
Ascent Arena Company, LLC (the "Arena Company"). Ascent Network
Services, Inc. ("ANS"), formerly a wholly owned subsidiary of
Ascent was merged into Ascent and became an operating division of
Ascent on May 30, 1997. Significant 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"). Until June 27, 1997 COMSAT continued to own a
majority (80.67%) of Ascent's common stock and control Ascent.
In addition, Ascent's relationship with COMSAT was governed by
three agreements entered into in connection with the Offering; an
Intercompany Services Agreement, a Corporate Agreement and a Tax
Sharing Agreement.
On June 27, 1997, COMSAT consummated the distribution of its
80.67% ownership interest in Ascent to the COMSAT shareholders on
a pro-rata basis in a transaction that was tax-free for federal
income tax purposes (the "Distribution"). As discussed in Note 14
to the Company's 1997 Consolidated Financial Statements, Ascent
and COMSAT entered into a Distribution Agreement and a Tax
Disaffiliation Agreement in connection with the Distribution. In
order to maintain the tax-free status of the Distribution, Ascent
is subject to the numerous restrictions under the Distribution
Agreement, including restrictions on the following activities:
(i) Ascent shall not take any action, nor fail or omit to take
any action, that would cause the Distribution to be taxable or
cause any representation made in the tax ruling documents related
to the Distribution to be untrue in a manner which would have an
adverse effect on the tax-free status of the Distribution;
(ii) until July 1998, Ascent will not sell or otherwise issue to
any person, or redeem or otherwise acquire from any person, any
Ascent stock or securities exercisable or convertible into Ascent
stock or any instruments that afford any person the right to acquire
stock of Ascent; (iii) until July 1999, Ascent will not sell, transfer
or otherwise dispose of assets that, in the aggregate, constitute
more than 60% of its gross assets as of the Distribution, other
than in the ordinary course of business; (iv) until July 1999,
Ascent will not voluntarily dissolve or liquidate or engage in
any merger, consolidation or other reorganization; (v) until July
1999, Ascent will continue the active conduct of its ANS satellite
distribution, service and maintenance business; and (vi) until
July 1999, Ascent will not unwind the merger of ANS with and
into Ascent in any way.
The restrictions noted in items (ii) through (vi) above will be
waived with respect to any particular transaction if either COMSAT
or Ascent have obtained a ruling from the IRS in form and substance
reasonably satisfactory to COMSAT that such transaction will not
adversely affect the tax-free status of the Distribution, or COMSAT
has determined in its sole discretion, exercised in good faith solely
to preserve the tax-free status of the Distribution that such
transaction could not reasonably be expected to have a material adverse
effect on the tax-free status of the Distribution, or, with respect to
a transaction occurring at least one year after the Distribution, Ascent
obtains an unqualified tax opinion in form and substance reasonably
acceptable to COMSAT that such transaction will not disqualify the
Distribution's tax-free status.
Pursuant to the Distribution Agreement, Ascent will indemnify
COMSAT against any tax related losses incurred by COMSAT to the extent
such losses are caused by any breach by Ascent of its representations,
warranties or covenants made in the Distribution Agreement. In turn,
COMSAT will indemnify Ascent against any tax related losses incurred by
Ascent to the extent such losses are caused by any COMSAT action causing
the Distribution to be taxable. To the extent that tax related losses
are attributable to subsequent tax legislation or regulation, such
losses will be borne equally by COMSAT and Ascent.
In addition, Ascent and COMSAT terminated the Intercompany Services
Agreement and Corporate Agreement entered into in connection with the
Offering resulting in among other things, the termination of the
restriction on Ascent's incurring indebtedness without the consent of
COMSAT. As a result of the Distribution, Ascent became an independent
publicly held corporation.
3. FILM INVENTORY
Film inventory consists of the following at March 31, 1998 and
December 31, 1997:
1998 1997
(in thousands)
Films released, less amortization $9,592 $20,359
Development 6,486 5,711
------- -------
Total film inventory $16,078 $26,070
------- -------
------- -------
4. RELATED PARTY TRANSACTIONS WITH COMSAT
COMSAT provided administrative services to Ascent pursuant to
an Intercompany Services Agreement (the "Services Agreement").
The Services Agreement, which was amended in December 1996 to
reflect a reduced level of services to be provided effective
January 1, 1997, was terminated on June 27, 1997 in connection
with the Distribution. Total charges incurred under this
agreement were approximately $128,000 for the three months ending
March 31, 1997.
Through June 27, 1997, the date of the Distribution, Ascent
was a member of COMSAT's consolidated tax group for federal
income tax purposes. Accordingly, Ascent prepared its tax
provision based on Ascent's inclusion in COMSAT's consolidated
tax return pursuant to the tax sharing agreement entered into in
connection with the Offering (see note 2). Pursuant to the tax
sharing agreement and the Tax Disaffiliation Agreement, taxes
payable or receivable with respect to periods that Ascent was
included in COMSAT's consolidated tax group are settled with
COMSAT annually. At March 31, 1998 and December 31, 1997,
Ascent's federal income tax receivable from COMSAT was $8,264,000
and $7,945,000, respectively. As a result of the Distribution
(see note 2), the Company is no longer a part of COMSAT's
consolidated tax group and accordingly, may be unable to
recognize tax benefits and will receive no cash payments from
COMSAT for losses incurred subsequent to June 27, 1997.
5. LITIGATION
The Company and its subsidiaries are defendants, and may be
potential defendants, in lawsuits and claims arising in the
ordinary course of their businesses. While the outcomes of such
claims, lawsuits, or other proceedings cannot be predicted with
certainty, management expects that such liability, to the extent
not provided for by insurance or otherwise, will not have a
material adverse effect on the financial condition of the
Company.
6. NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the FASB issued SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information", which
redefines how operating segments are determined and requires
disclosures of certain financial and descriptive information
about a company's operating segments. Adoption of SFAS No. 131
will not impact the Company's consolidated financial position,
results of operations or cash flows. While the Company has not
completed its analysis of which operating segments it will report
under SFAS No. 131 in the future, it is required to and will
adopt SFAS 131 in the Company's 1998 Annual Report on Form 10-K.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL:
Certain of the statements in this report are forward-looking
and relate to anticipated future events and 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 Condensed Consolidated Financial
Statements (unaudited) included in this filing, and with the
Consolidated Financial Statements, notes thereto, and
Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in the Company's 1997 Annual
Report on Form 10-K, as previously filed with the Commission.
SEASONALITY, VARIABILITY AND OTHER:
The Company's businesses are subject to the effects of both
seasonality and variability. Consequently, the operating results
for the quarter ended March 31, 1998 for each segment and line of
business, and for the Company as a whole, are not necessarily
indicative of the results for the full year.
The MultiMedia Distribution segment revenues and primarily
those of OCC are influenced principally by hotel occupancy rates,
the "buy rate" or percentage of occupied rooms at hotels that buy
movies or other services at the property and the price of the
movie or service. Occupancy rates vary by property based on the
property's location, competitive position within its marketplace,
seasonal factors, and general economic conditions. Higher
revenues are generally realized during the summer months and
lower revenues realized during the winter months due to business
and vacation travel patterns which impact the lodging industry's
occupancy rates. Buy rates generally reflect the hotel's guest
mix profile, the popularity of the motion picture or services
available at the hotel and the guests' other entertainment
alternatives.
The Entertainment segment revenues are influenced by various
factors. Revenues for the Nuggets and Avalanche correspond to
the NBA and NHL playing seasons, which extend from the fall to
late spring depending on the extent of each team's post-season
playoff participation. Accordingly, the Company realizes the
vast majority of its revenues from the Nuggets and the Avalanche
during such period. Conversely, Beacon's revenues fluctuate
based upon the delivery and/or availability of the films it
produces, the timing of theatrical and home video releases and
seasonal consumer purchasing behavior. Release and delivery
dates for theatrical products are determined by several factors,
including the distributor's schedule, the timing of vacation and
holiday periods and competition in the market. Specifically,
Beacon released AIR FORCE ONE to the home video market in February
1998 and accordingly, Beacon's revenues significantly increased
during the first quarter of 1998 as compared to the same period in
1997.
Furthermore, Beacon's operating results are significantly
affected by accounting policies required for the film and
entertainment industry and management's estimates of the ultimate
realizable value of its films. Production advances received
prior to the delivery or completion of a film are treated and
recorded as deferred income and are generally recognized as
revenues on the date the film is delivered or made available for
delivery. The Company generally capitalizes all costs incurred
to produce a film. Such costs include the acquisition of story
rights, the development of stories, the direct costs of
production, print and advertising costs, production overhead and
interest expense relating to financing the project. Capitalized
exploitation or distribution costs include those costs that
clearly benefit future periods such as film prints and prerelease
and early release advertising that is expected to benefit the
film in future markets. These costs, as well as participation
and talent residuals, are amortized each period under the
individual film forecast method which uses the ratio that the
current period's gross revenues from all sources for the film
bear to management's estimate of anticipated total gross revenues
for such film from all sources. In the event management reduces
its estimates of the future gross revenues associated with a
particular film, which had been expected to yield greater future
proceeds, a write-down and a corresponding decrease in the
Company's earnings for the quarter and fiscal year end in which
such write-down is taken could result and could be material.
ANALYSIS OF OPERATIONS
CONSOLIDATED OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1997
Revenues for the first quarter of 1998 were $118.0 million, an
increase of $28.2 million or 31.4%, as compared to $89.8 million
in revenues for the first quarter of 1997. This increase is
attributable to a $3.8 million increase in revenues at OCC within
the Multimedia Distribution segment and a $24.6 million increase
in revenues within the Entertainment segment. The increase in
revenues at OCC is primarily attributable to the non-recurrence
of the interruption in satellite service to a number of
SpectraVision hotels which occurred during the first quarter of
1997. The increase in revenues in the entertainment segment is
primarily attributable to an increase in revenues of $17.2
million at Beacon combined with increased revenues from both the
Avalanche and the Nuggets. During the first quarter of 1998,
Beacon recognized revenues of $13.5 million from the video
release of the motion picture AIR FORCE ONE and additional
revenues from the delivery of the motion picture A THOUSAND ACRES
to foreign distributors. In contrast, during the first quarter
of 1997, Beacon had minimal revenues as no pictures were released
or delivered. In addition, during the quarter ended March 31,
1998, the Avalanche realized increased revenues from regular
season ticket and sponsorship sales, and the Nuggets realized
increased distributions from the NBA's national television
contract. Furthermore, both teams realized increased
distributions under their regional broadcasting agreements with
Fox Sports Rocky Mountain.
Cost of services for the first quarter of 1998 were $100.1
million, an increase of $14.1 million or 16.4% compared to the
first quarter of 1997. This increase is attributable to
increased film amortization costs of $13.8 million at Beacon,
primarily from AIR FORCE ONE, and higher costs at the Avalanche
and Nuggets. Cost of services at OCC decreased by $3.2 million.
This decrease in costs at OCC is due to several factors, including,
the continued conversion of hotels served by SpectraVision equipment
to OCC equipment, which has lower operating costs, the
termination of satellite lease expenses related to SpectraVision
rooms, reduced operating expenses reflecting the integration of
SpectraVision's operations, and the non-recurrence of the
satellite outage.
Depreciation and amortization for the first quarter of 1998 was
$26.9 million, an increase of $1.5 million or 5.9% compared to
the first quarter of 1997. This increase is attributable to the
continuing installation of on-demand video systems at OCC and the
resulting increase in depreciation.
General and administrative expenses for the first quarter of
1998 were $2.1 million, an increase of $100,000 or 5.0% compared
to the first quarter of 1997. This increase primarily reflects
the expense recognized during the first quarter of 1998 for the
Company's stock appreciation rights, which were granted in June
1997, offset by the reduction in 1998 of certain general and
administrative service charges from COMSAT. From January through
June 1997, COMSAT provided only limited administrative and
support services to the Company and, since July 1997, has
provided no services.
Other income increased by $213,000 in the first quarter of 1998
as compared to the same period last year. This increase is
primarily attributable to an increase in interest income
recognized on the Company's cash and cash equivalent balances.
Interest expense increased $906,000 in the first quarter of
1998 as compared to the first quarter of 1997. This increase is
attributable to additional borrowings incurred during 1997 and
the first quarter of 1998 combined with an increase in borrowing
costs at Ascent, primarily those costs related to the issuance of
the Company's 11.875% Senior Secured Discount Notes in December
1997.
The Company recorded a minimal income tax benefit in the first
quarter of 1998 as compared to an income tax benefit of $5.2
million in the first quarter of 1997. Prior to the Distribution
from COMSAT on June 27, 1997, the Company was able to recognize
tax benefits from its taxable losses as part of its inclusion as
a member of the consolidated tax group of COMSAT. During the
first quarter of 1998, the Company and the members of its
consolidated tax group recognized no tax benefit from its
operating losses due to uncertainties regarding its ability to
realize a portion of the benefits associated with future
deductible temporary differences (deferred tax assets) and net
operating loss carry forwards, prior to their expiration.
Minority interest reflects the losses attributable to the
minority interest in the Company's 57% owned subsidiary, OCC.
SEGMENT OPERATING RESULTS
As discussed in Note 13 to the Company's 1997 Consolidated
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 are as follows:
THREE MONTHS ENDED MARCH 31
1998 1997
INCOME STATEMENT DATA: (dollars in millions)
Revenues:
Multimedia Distribution $60.7 $57.1
Entertainment 57.3 32.7
------ -----
Total Revenues $118.0 $89.8
------ -----
------ -----
Operating Loss:
Multimedia Distribution $(5.2) $(9.7)
Entertainment (3.7) (11.8)
General & Administrative (2.2) (2.0)
------- -------
Total Operating Loss $(11.1) $(23.5)
------- -------
------- -------
OTHER DATA:
EBITDA (1):
Multimedia Distribution $18.7 $11.7
Entertainment (0.8) (7.8)
General & Administrative (2.1) (2.0)
------ ------
Total EBITDA $15.8 $ 1.9
------ ------
------ ------
Capital Expenditures:
Multimedia Distribution $24.9 $20.1
Entertainment 7.6 .2
------ ------
Total Capital Expenditures $32.5 $20.3
------ ------
------ ------
ROOM DATA:
Number of Guest-Pay rooms
(at end of period):
On-Demand 777,000 712,000
Schedule only 125,000 205,000
------- -------
Total Guest-Pay rooms 902,000 917,000
------- -------
------- -------
(1) 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, which
are presented in the Condensed Consolidated Statements of Cash
Flows (unaudited) 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 1998 increased
$3.6 million, or 6.3% over last year's first quarter. OCC's
revenues grew $3.8 million during the first quarter of 1998, due
primarily to the non-recurrence of the satellite outage
experienced at SpectraVision properties during 1997.
Operating losses for this segment decreased by $4.5 million for
the quarter ended March 31, 1998, as compared to the same period
last year. The operating losses at OCC for the first quarter of
1997 were impacted on January 11, 1997 by the loss of communication
with a satellite, which delivered pay-per-view
programming to certain SpectraVision properties. While service
was restored to all affected hotels within a month, the loss of
revenue and costs associated with this loss of service resulted
in a decrease in operating income of approximately $3.0 million
during the first quarter of 1997. In addition, the decrease in
the operating loss during the first quarter of 1998 is also
attributable to several factors including; increased revenues at
OCC as discussed above and the continued conversion of hotels
served by SpectraVision equipment to OCC equipment, which has
lower operating costs, the termination of satellite lease
expenses related to SpectraVision rooms and reduced operating
expenses reflecting the integration of SpectraVision's
operations.
EBITDA of the Multimedia Distribution segment increased by $7.0
million for the quarter ended March 31, 1998, as compared to the
same period last year. As discussed above, this increase in
EBITDA in the first quarter of 1998 is primarily attributable to
the non-recurrence of the satellite failure which occurred during
the first quarter of 1997 and, to a lesser degree, the conversion
of SpectraVision equipment to OCC equipment, which has lower
operating costs.
Capital expenditures for the segment increased by $4.8 million
for the first quarter of 1998 as compared to the same period last
year. This increase in capital expenditures is primarily
attributable to conversions of SpectraVision customer rooms to
OCC systems and to a lesser extent, the installation of OCC
equipment for new hotel customers.
ENTERTAINMENT
The Entertainment segment includes the results of the Nuggets,
the Avalanche, the Arena Company and Beacon. Revenues of the
Entertainment segment for the first quarter of 1998 increased by
$24.6 million over the same quarter last year. This increase in
revenues is primarily attributable to an increase in revenues at
Beacon of $17.2 combined with increased revenues at both the
Avalanche and Nuggets of $3.2 million and $3.7 million,
respectively. During the first quarter of 1998, Beacon generated
revenues of $13.5 million from the video release of the motion
picture AIR FORCE ONE and additional revenues from the delivery
of the motion picture, A THOUSAND ACRES, to foreign distributors.
During the first quarter of 1997, Beacon had no movie releases
and generated minimal revenues from prior movie releases. In
addition, the Avalanche realized increased revenues from regular
season ticket and sponsorship sales while the Nuggets realized
increased revenues from an improvement in distributions from the
NBA national television contract. Both teams also realized
increased revenues from their regional broadcasting agreements
with Fox Sports Rocky Mountain. The Nuggets revenue improvements
noted above were partially offset by a decrease in ticket sales.
Operating losses for this segment decreased by $8.1 million
during the quarter ended March 31, 1998, as compared to the same
period last year. This improvement for the quarter is primarily
attributable to Beacon and an increase in its operating margin of
$3.1 million from the successful video release of AIR FORCE ONE.
In addition, the decreased operating loss in the segment is also
attributable to increased revenues from both the Avalanche and
the Nuggets partially offset by higher operating costs (players'
salaries at the Avalanche and contract termination costs at the
Nuggets).
EBITDA for the Entertainment segment increased by $7.0 million
for the first quarter of 1998 as compared to the same period last
year. This increase primarily reflects Beacon's improved
operating margin resulting from Air Force One and decreased
losses at both the Avalanche and the Nuggets as previously
discussed.
Capital expenditures for the Entertainment segment increased by
$7.4 million for the first quarter of 1998 as compared to the
same period last year. This increase is due to capital
expenditures incurred relating to the construction of the Pepsi
Center, the new arena in downtown Denver to be owned and managed
by the Arena Company.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of cash during the three months ended
March 31, 1998 were cash from operating activities of $21.3
million and borrowings under OCC's credit facility of $12.0
million. Cash was expended primarily for property and equipment
as the Company continued to make investments to support business
growth. Specifically, capital expenditures of $23.9 million were
made by OCC for the continuing installation and conversion of on-
demand systems and of $7.6 million were made by the Arena Company
for construction costs at the Pepsi Center. In addition, $1.1
million of cash was invested by Beacon on films under development
and to acquire rights for film properties.
The Company's working capital position improved by $2.2
million from December 31, 1997 to March 31, 1998. This
improvement is attributable to a reduction in deferred revenue,
primarily at the Nuggets and Avalanche, due to the recognition of
previously deferred revenues upon the playing of their regular
season games offset by the decrease in the current portion of the
film library due to the AIR FORCE ONE video release.
Long-term debt of the Company at March 31, 1998 consists
primarily of the Company's Senior Secured Discount Notes (the
"Senior Notes") totaling $130.7 million, and $145.0 million
outstanding under OCC's Credit Facility. Based on borrowings at
March 31, 1998, the Company had access to $50.0 million of long-
term financing under the Ascent credit facility and OCC had
access to $55.0 million of long-term financing under its credit
facility, subject to certain covenant restrictions (see Note 6 of
the Company's 1997 Consolidated Financial Statements.)
The Company anticipates that the Arena Company will offer
approximately $100.0 to $130.0 million of non-recourse, long-term
debt financing (the "Arena Notes") during the second quarter of
1998 for the purposes of financing the development and
construction of the Pepsi Center. The Arena Notes are expected
to be secured by certain assets of the Arena Company, including
the revenues from naming rights, suite licensing, the concession
agreements and certain corporate sponsorships.
The Company's cash requirements through the remainder of
1998 are expected to include (i) the continuing conversion and
installation by OCC of on-demand in-room video entertainment
systems, (ii) funding the development, production and/or
acquisition of rights for motion pictures at Beacon, (iii)
funding the operating requirements of Ascent and its
subsidiaries, and (iv) the payment of interest under the Ascent
credit facility and OCC credit facility. The Company anticipates
capital expenditures in connection with the continued
installation and conversion by OCC of on-demand service will be
approximately $45.0 to $65.0 million during the remainder of
1998. The Company anticipates that OCC's funding for its
operating requirements and capital expenditures for the continued
conversion and 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 expenditures for
construction of the Pepsi Center will be funded through the
anticipated proceeds of the Arena Notes. However, as a result of
the timing of the closing of the offering of the Arena Notes, the
Company will advance an additional $7.0 to $10.0 million during
the second quarter of 1998 to the Arena Company to support the
ongoing construction activity. Beacon's 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 the remainder of
1998. To fund Beacon's productions, the Company expects to
utilize Beacon's domestic distribution agreement with Universal
Pictures when appropriate, and/or pre-sell a portion of the
international distribution rights to help fund motion picture
costs. The Company's other long-term capital requirements may
include ANS's participation in an upgrade of the NBC television
affiliate network. ANS cash requirements, should it be awarded
the NBC contract, may consist of capital expenditures of $30.0 to
$35.0 million, commencing in late 1998 or 1999.
Management of the Company believes that the available cash,
cash flows from operating activities, and funds available under
the Ascent credit facility and the OCC credit facility (see Note
6 of the Company's 1997 Notes to Consolidated Financial
Statements), together with the anticipated proceeds from the
Arena Notes will be sufficient for the Company and its
subsidiaries to satisfy their growth and finance working capital
requirements during 1998. However, it is the Company's
expectation that cash flows from operations will be insufficient
to cover planned capital expenditures during 1998 and 1999
and, accordingly, the Company determined that no cash interest
would be payable on the Senior Notes until June 2003.
Thereafter, the Company's ability to pay interest on the Senior
Notes and to satisfy its other debt obligations will depend upon the
future performance of the Company and, in particular, on the
successful implementation of the Company's strategy, including
conversion of the hotel rooms acquired in the acquisition of
SpectraVision, Inc. to OCC's on-demand technology, the upgrade and
expansion of OCC's technology and service offerings and the
construction of the Pepsi Center in Denver, and the ability to
attain significant and sustained growth in the Company's cash
flow. There can be no assurance that the Company will
successfully implement its strategy or that the Company will be
able to generate sufficient cash flow from operating activities
to meet its long-term debt service obligations and working
capital requirements. Based on the Company's current expectation
with respect to its existing businesses, the Company does not
expect to have cash flows after capital expenditures sufficient
to repay all of the Senior Notes at maturity and, accordingly,
may have to refinance the Senior Notes at or before their
maturity. There can be no assurance that any such financing
could be obtained on terms that are acceptable to the Company, or
at all. In the absence of such financing, the Company could be
forced to sell assets.
As previously discussed, on June 27, 1997, COMSAT completed
the Distribution of the Ascent common stock held by COMSAT as a
tax-free dividend to COMSAT's shareholders. The Distribution was
intended, among other things, to afford Ascent more flexibility
in obtaining debt financing to meet its growing needs. The
Distribution Agreement between Ascent and COMSAT, (see Note 2 of
Notes to Condensed Consolidated Financial Statements) terminated
the Corporate Agreement between Ascent and COMSAT which imposed
restrictions on Ascent to ensure compliance with certain capital
structure and debt financing restrictions imposed on COMSAT by
the Federal Communications Commission. As a result, Ascent's
financial leverage may increase in the future for numerous
reasons, including the proposed financing of the Pepsi Center. In
addition, pursuant to the Distribution Agreement, certain
restrictions have been put in place to protect the tax-free
status of the Distribution. Among the restrictions, Ascent will
not be allowed to sell, purchase or otherwise acquire stock or
instruments which afford a person the right to acquire the stock
of Ascent until July 1998 (see Note 2 of Notes to Condensed
Consolidated Financial Statements). Finally, as a result of the
Distribution, Ascent is no longer part of COMSAT's consolidated
tax group and accordingly, Ascent may be unable to recognize tax
benefits and will not receive cash payments from COMSAT resulting
from Ascent's anticipated operating losses during 1998 and
thereafter.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are defendants and
may be potential defendants in lawsuits and claims
arising in the ordinary course of its business. While
the outcomes of such claims, lawsuits, or other
proceedings cannot be predicted with certainty,
management expects that such liability, to the extent not
provided for by insurance or otherwise, will not have a
material adverse effect on the financial condition of the
Company.
ITEM 2. CHANGE IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. An annual meeting of stockholders of Ascent was held on
April 27, 1998 for the following purposes:
1. Election of two Class I directors;
2. Approval of the 1997 Non-employee Directors Stock
Appreciation Rights Plan; and
3. Action on such other matters as may properly come before the
meeting.
b. The directors who were elected at the meeting are as
follows:
CLASS I
Charles Lyons
Peter Barton
c. In connection with matters voted on at the Annual meeting,
the following results were obtained:
1. ELECTION OF DIRECTORS
For Against Withheld Abstentions
Charles Lyons 24,541,340 295,492 -- --
Peter Barton 24,541,568 295,264 -- --
2. APPROVAL OF THE 1997 NON-EMPLOYEE DIRECTORS STOCK
APPRECIATION RIGHTS PLAN
For Against Withheld Abstentions
21,831,570 2,967,142 -- 38,120
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBIT
No. 27.0 Financial Data Schedule
(B) REPORTS ON FORM 8-K:
None
SIGNATURES
Pursuant to the requirements of 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
Vice President of Finance, Controller
(Principal Accounting Officer)
Date: May 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 25,832
<SECURITIES> 0
<RECEIVABLES> 65,986
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 113,848
<PP&E> 347,358
<DEPRECIATION> 0
<TOTAL-ASSETS> 728,610
<CURRENT-LIABILITIES> 103,826
<BONDS> 275,737
0
0
<COMMON> 297
<OTHER-SE> 215,877
<TOTAL-LIABILITY-AND-EQUITY> 728,610
<SALES> 0
<TOTAL-REVENUES> 118,033
<CGS> 0
<TOTAL-COSTS> 100,058
<OTHER-EXPENSES> 29,033
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,636
<INCOME-PRETAX> (16,285)
<INCOME-TAX> (26)
<INCOME-CONTINUING> (16,259)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (12,884)
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