<PAGE> 1
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, 2000
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.)
1225 Seventeenth Street, Suite 1800
Denver, Colorado 80202
(Address of principal executive office)
(303) 308-7000
(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, 2000 was 29,755,600 shares.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ASCENT ENTERTAINMENT GROUP, INC.
(A MAJORITY-OWNED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 49,317 $ 60,349
Receivables, net 40,323 33,492
Receivable from stockholder (Note 2) 3,857 --
Prepaid expenses and other current assets 1,131 3,592
Net assets of discontinued operations (Note 3) 90,856 82,216
------------ ------------
Total current assets 185,484 179,649
------------ ------------
Property and equipment, net 294,732 294,498
Goodwill, net 88,474 90,086
Investments 364 364
Deferred income taxes 9,320 9,320
Other assets, net 7,283 7,384
------------ ------------
Total Assets $ 585,657 $ 581,301
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,141 $ 32,038
Deferred income 2,173 788
Other taxes payable 5,374 5,476
Accrued compensation 16,531 10,715
Income taxes payable 1,670 1,680
Current portion of capital lease obligations 1,807 2,533
Other accrued liabilities 25,954 15,140
------------ ------------
Total current liabilities 86,650 68,370
------------ ------------
Long-term debt (Note 4) 352,692 339,922
Obligations under capital leases and other long-term liabilities 1,915 2,082
------------ ------------
Total liabilities 441,257 410,374
------------ ------------
Minority interest 69,931 71,206
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 307,747 307,873
Accumulated deficit (233,575) (208,449)
------------ ------------
Total stockholders' equity 74,469 99,721
------------ ------------
Total Liabilities and Stockholders' Equity $ 585,657 $ 581,301
============ ============
</TABLE>
See accompanying notes to these condensed unaudited consolidated financial
statements.
2
<PAGE> 3
ASCENT ENTERTAINMENT GROUP, INC.
(A MAJORITY-OWNED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
------------ ------------
<S> <C> <C>
Revenues $ 70,036 $ 66,328
------------ ------------
Operating expenses:
Cost of services 48,899 45,178
Depreciation and amortization 20,690 25,250
General and administrative 16,829 2,982
------------ ------------
Total operating expenses 86,418 73,410
------------ ------------
Loss from continuing operations before interest, taxes and minority interest (16,382) (7,082)
Interest and other income, net 890 809
Interest expense (8,493) (6,856)
------------ ------------
Loss from continuing operations before taxes and minority interest (23,985) (13,129)
Income tax benefit (expense) (106) 315
------------ ------------
Loss from continuing operations before minority interest (24,091) (12,814)
Minority interest in loss of subsidiary, net of taxes 1,980 2,960
------------ ------------
Loss from continuing operations (22,111) (9,854)
Loss from discontinued operations, net of taxes (Note 3) (3,012) (9,242)
Gain from sale of discontinued operations, net of taxes (Note 3) -- 3,237
------------ ------------
Net loss $ (25,123) $ (15,859)
============ ============
Basic and diluted net loss per common share:
Loss from continuing operations $ (.74) $ (.33)
Discontinued operations (.10) (.20)
------------ ------------
Basic and diluted net loss per share $ (.84) $ (.53)
============ ============
Weighted average number of common shares outstanding 29,756 29,756
============ ============
</TABLE>
See accompanying notes to these condensed unaudited consolidated financial
statements.
3
<PAGE> 4
ASCENT ENTERTAINMENT GROUP, INC.
(A MAJORITY-OWNED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
------------ ------------
<S> <C> <C>
Operating activities:
Net loss $ (25,123) $ (15,859)
Adjustments to reconcile net loss to net cash provided by continuing operations:
Loss from discontinued operations, net of gain 3,012 6,005
Depreciation and amortization 20,690 25,250
Minority interest in losses of subsidiary (1,980) (2,960)
Interest accretion on Senior Secured Notes 4,770 4,211
Changes in operating assets and liabilities (12,535) (4,607)
------------ ------------
Net cash provided by operating
activities of continuing operations (11,166) 12,040
Net cash provided by (used in) discontinued operations 12,811 (3,119)
------------ ------------
Net cash provided by operating activities 1,645 8,921
------------ ------------
Investing activities:
Proceeds from sale of Beacon Communications, LLC -- 15,893
Purchase of property and equipment (19,786) (20,348)
------------ ------------
Net cash used in investing activities (19,786) (4,455)
------------ ------------
Financing activities:
Proceeds from borrowings under credit facilities 8,000 8,000
------------ ------------
Payments on obligations under capital lease (891) --
------------ ------------
Net cash provided by financing activities 7,109 8,000
------------ ------------
Net increase (decrease) in cash and cash equivalents (11,032) 12,466
Cash and cash equivalents, beginning of period 60,349 44,576
------------ ------------
Cash and cash equivalents, end of period $ 49,317 $ 57,042
============ ============
Supplemental cash flow information:
Interest paid, net of interest capitalized $ 2,002 $ 2,551
============ ============
Income taxes paid $ 56 $ 152
============ ============
</TABLE>
See accompanying notes to these condensed unaudited consolidated financial
statements.
4
<PAGE> 5
ASCENT ENTERTAINMENT GROUP, INC.
(A MAJORITY-OWNED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
------------ ------------
<S> <C> <C>
Net loss $ (25,123) $ (15,859)
Other comprehensive loss:
Unrealized loss on securities -- (119)
Income tax benefit related
to other comprehensive income -- 42
------------ ------------
Other comprehensive loss, net of tax -- (77)
------------ ------------
Comprehensive loss $ (25,123) $ (15,936)
============ ============
</TABLE>
See accompanying notes to these condensed unaudited consolidated financial
statements.
5
<PAGE> 6
ASCENT ENTERTAINMENT GROUP, INC.
(A MAJORITY- OWNED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)
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 consolidated financial statements and notes thereto filed with the
Commission in the Company's 1999 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.
2. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Ascent and its majority-owned subsidiary, On Command Corporation ("OCC"). 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. The Company's
discontinued operations are comprised of the results of the Company's former
entertainment segment, which included the Denver Nuggets, the Colorado Avalanche
and Ascent Arena Company (the "Arena Company"), the owner and manager of the
Pepsi Center (collectively the "Sports-related businesses"), which the Company
has agreed to sell (see Note 3). In addition, discontinued operations also
include the results of the Company's former subsidiary, Beacon Communications,
LLC ("Beacon"), in which a 90% interest was sold on January 20, 1999.
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. 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 Notes 1 and 12 to the Company's 1999
Consolidated Financial Statements, Ascent and COMSAT entered into a Distribution
Agreement and a Tax Disaffiliation Agreement in connection with the
Distribution. Accordingly, in order to maintain the tax-free status of the
Distribution, Ascent is subject to numerous restrictions under the Distribution
Agreement, most of which have expired. The most significant restriction still in
place is that 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 ruling documents to be untrue in a manner which would
have an adverse effect on the tax-free status of the Distribution.
On February 22, 2000, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Liberty Media Corporation ("Liberty") and
Liberty AEG Acquisition, Inc. ("Merger Sub"), an indirect wholly-owned
subsidiary of Liberty. Pursuant to the Merger Agreement, Merger Sub commenced a
tender offer (the "Offer") offering Ascent stockholders $15.25 in cash for each
share of Ascent common stock. Liberty commenced the Offer on February 29, 2000
which expired at midnight on March 27, 2000 whereupon approximately 25.2 million
shares of Ascent common stock were validly tendered and not withdrawn pursuant
to the Offer. On March 28, 2000, Merger Sub accepted for payment all shares of
Ascent common stock tendered, which constitutes approximately 85% of the total
outstanding shares of Ascent common stock. Merger Sub purchased such shares at
an aggregate purchase price of approximately $385 million with funds contributed
to it by Liberty from its cash on hand. Under the terms of the Merger Agreement,
Merger Sub will be merged with and into Ascent (the "Merger"). Pursuant to the
Merger Agreement, any issued and outstanding shares of Ascent common stock which
were not tendered and purchased by Merger Sub pursuant to the Offer will be
converted into the right to receive $15.25 per share in cash on the terms and
conditions set forth in the Merger Agreement. At the time of the Merger, Ascent
will become an indirect, wholly-owned subsidiary of Liberty. The Merger is
expected to occur during the second quarter of 2000.
6
<PAGE> 7
During the three month period ended March 31, 2000, the Company expensed
approximately $8.5 million of costs associated with the Merger Agreement,
primarily investment banker and legal costs. In addition, severance costs for
employees of the parent company, totalling $3.8 million, were incurred as a
result of the change of control of the Company pursuant to the Merger Agreement.
While these costs have been accrued as an obligation of the Company, they have
been reflected as a cost of the acquisition by Merger Sub and will be reimbursed
by Liberty when the Company makes the severance payments. Accordingly, such
costs have not been expensed by the Company during the three month period ended
March 31, 2000 and the Company has reflected a receivable due from Liberty.
NOTE 3 - DISCONTINUED OPERATIONS:
Beacon - On January 20, 1999, the Company sold 90% of its interest in Beacon to
an investor group controlled by Beacon's management and venture capital
investors (the "Buyers") pursuant to a Purchase and Sale Agreement (the
"Purchase Agreement"). The purchase price for the 90% interest was $19.0 million
in cash, net of certain adjustments. At closing, approximately $15.9 million in
cash was received. After the sale of the 90% interest, the Company has no future
obligations to fund any of Beacon's liabilities or film development or
production commitments. The 10% interest in Beacon retained by the Company is
subject to purchase and sale options between the Company and the Buyers, at a
price proportionate to the purchase price, which the Company intends to exercise
in the near future. During the first quarter of 1999, the Company reported a
gain of $3.2 million on the sale of 90% of its interest in Beacon.
During the second and third quarters of 1999, the Company attempted to
collect the remaining balance due under the Purchase Agreement of $900,000. In
turn, Beacon filed a claim against the Company seeking an adjustment to the
purchase price. Pursuant to the Purchase Agreement, any disputes or
disagreements among the parties were to be settled pursuant to binding
arbitration in the State of California. The arbitration commenced in November
1999 and on February 21, 2000, the arbitrator issued his opinion awarding Beacon
approximately $3.5 million which was paid in May of 2000. Accordingly, the
Company recorded a $3.5 million expense during the fourth quarter of 1999,
resulting in the Company's recognition of a $0.2 million loss (net of the gain
recognized during the first quarter of 1999) from the sale of its 90% interest
in Beacon. The Company began accounting for Beacon as a discontinued operation
as of December 31, 1998.
Sports-related businesses - The Company began accounting for the Sports-related
businesses as a discontinued operation as of March 31, 1999, pursuant to
guidance contained in Emerging Issues Task Force Issues (EITF) No. 95-18,
"Accounting and Reporting for Discontinued Business Segment when the Measurement
Date occurs after the Balance Sheet Date but before the Issuance of the
Financial Statements." That is, in conjunction with the Company entering into an
agreement on April 25, 1999 to sell its Sports-related businesses, the
Sports-related businesses met the conditions for classification as discontinued
operations contained in EITF 95- 18. While the agreement dated April 25, 1999
was terminated and a subsequent agreement to sell the Sports-related businesses
to The Sturm Group was terminated on December 1, 1999 (see Note 3 to the
Company's 1999 Consolidated Financial Statements), it continues to be the
Company's intent to sell its Sports-related businesses.
On April 24, 2000, the Company entered into a definitive Purchase and Sale
Agreement (the "Sports Sale Agreement") to sell the Sports-related businesses to
a group of entities controlled by E. Stanley Kroenke (the "Kroenke entities")
for approximately $313.8 million in cash and assumption of approximately $136.2
million in outstanding non-recourse Arena Note obligations, which will remain
the obligation of an entity to be acquired by the Kroenke entities (see Note 3
of the Company's 1999 Consolidated Financial Statements), subject to adjustments
for working capital related items in an agreed-upon amount of $27.5 million and
for an approximate 6.5% interest in the Sports-related businesses to be retained
by a wholly-owned subsidiary of Liberty in the agreed-upon amount of
approximately $18.7 million.
Assuming a timely closing, as to which there can be no assurances, the
Company expects to report a pre-tax gain, net of transaction costs, of
approximately $155.0 million on the sale of the Sports-related businesses in the
second quarter of 2000. Transaction costs, including investment banker and
attorney fees and expenses and other associated costs of the transaction are
estimated to be approximately $3.4 million and will be netted against the
proceeds from the transaction for financial reporting purposes.
7
<PAGE> 8
The loss from Beacon and the Sports-related businesses, net of tax, for the
three months ended March 31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
(in thousands)
<S> <C> <C>
Revenues $ 74,081 $ 38,611
============ ============
Loss from discontinued operations before taxes $ (3,012) $ (10,264)
Income tax benefit -- 1,022
------------ ------------
Loss from discontinued operations $ (3,012) $ (9,242)
============ ============
</TABLE>
The net assets of the discontinued operations included in the condensed
consolidated balance sheets as of March 31, 2000 and December 31, 1999, consist
of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
(in thousands)
<S> <C> <C>
Current Assets $ 31,284 $ 61,997
Property and equipment, net 194,312 194,823
Restricted cash held in trust 13,512 30,915
Franchise rights, net 86,541 87,745
Other assets 23,813 21,685
Current liabilities, including current portion of Arena notes (97,388) (154,680)
Long-term portion of non-recourse Arena notes (126,685) (126,685)
Other long term liabilities (34,533) (33,584)
------------ ------------
Net assets of discontinued operations $ 90,856 $ 82,216
============ ============
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following at March 31, 2000 and December 31,
1999:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
(in thousands)
<S> <C> <C>
Senior Secured Discount Notes, 11.875%, due
2004, net of unamortized discount of
$60,308 and $65,078 $ 164,692 $ 159,922
OCC Credit Facility, variable rate, due 2002 188,000 180,000
------------ ------------
Total Long Term Debt $ 352,692 $ 339,922
============ ============
</TABLE>
Bank Credit Facilities - The Company and OCC have separate bank credit
facilities. The Ascent credit facility provides for borrowings up to $39.4
million through June 2000. The available borrowings will be permanently reduced
thereafter in varying amounts through 2002 when the Ascent credit facility will
terminate. The OCC credit facility provides for borrowings up to $200.0 million,
matures in 2002 and, subject to certain conditions, can be renewed for an
additional two years. Based on borrowings outstanding at March 31, 2000, OCC had
access to $12.0 million of long-term financing under the OCC credit facility
subject to certain covenant restrictions (see Note 6 of the Company's 1999
Consolidated Financial Statements). At March 31, 2000, the Company had no
outstanding borrowings under the Ascent credit facility.
The transactions involving Liberty (see Note 2) resulted in the termination
of the Ascent Credit Facility due to the change of control. The Company intends
to negotiate with the lenders under the Ascent Credit Facility, including a
possible reinstatement of such facility or a replacement of such facility with a
short-term facility.
8
<PAGE> 9
Senior Notes - As a result of the acquisition by Liberty of 85% of the
Company's stock, which constituted a change in control under the terms of the
Senior Notes, the Company is required to offer to redeem the Senior Notes at
101% of their accreted value within 60 to 90 days after such change in control.
On April 27, 2000, the Company notified the registered holders of the Senior
Notes of its offer to purchase the Senior Notes pursuant to the terms of the
Indenture (the "Purchase Right Notice"). The Purchase Right Notice provides that
the Company will pay a cash purchase price for the Senior Notes equal to 101% of
the accreted value on the date of purchase. Pursuant to the Purchase Right
Notice, the noteholders have until May 30, 2000 to tender their notes, unless
the offer is extended.
5. CONTINGENCIES
On September 11, 1998, OCC reached an agreement with LodgeNet Entertainment
Corporation ("LodgeNet") to settle all pending litigation between the companies.
As a result, the two providers of in-room entertainment and information services
to the lodging industry have dismissed all pending litigation between the
parties in United States Federal District Courts in California and South Dakota,
with no admission of liability by either party. The terms of the confidential
settlement include a cross-license of each company's patented technologies at
issue to the other party and a covenant not to engage in patent litigation
against the other party for a period of five years. Each company is responsible
for its own legal costs and expenses, and in connection with the multiple
cross-licenses, OCC expects to receive royalty payments, net of legal fees and
expenses, in an aggregate amount of approximately $10,800,000. OCC received the
first payment of approximately $2,900,000 (net of expenses) in September 1998
and received the second payment of approximately $3,950,000 (net of expenses) in
July 1999. OCC expects to receive the final payment of approximately $3,900,000
(net of expenses) in July 2000 although no assurance can be given in this
regard. OCC has been and will be recognizing the royalty revenue when payments
are received.
In September 1998, On Command Video Corporation, a wholly owned subsidiary
of OCC ("OCV") filed suit against MagiNet Corporation ("MagiNet"), alleging a
breach by MagiNet of a license agreement between OCV and MagiNet, and
terminating the license agreement. OCV has also demanded the payment of license
fees from MagiNet which OCC believes were due and payable under the License
Agreement and have not been paid by MagiNet. MagiNet has counter-claimed against
OCV and OCC, alleging that OCV breached the license agreement, and alleging
various torts by OCV and OCC in their respective relationships with MagiNet.
While the outcome of MagiNet's counterclaim cannot be predicted with certainty,
the Company intends to defend itself vigorously and expects that any liability,
to the extent not provided by insurance or otherwise, will not have a material
adverse effect on the financial condition of the Company.
In June 1999, the Company and certain of its present and former directors
were named as defendants in lawsuits filed by shareholders (the "Shareholder
lawsuits") in June 1999 in the Delaware Court of Chancery. These proposed class
actions asserted that the Company's agreement to sell the Company's
Sports-related businesses to entities controlled by William and Nancy Laurie
constituted a sale of substantially all assets of the Company, thereby requiring
a shareholder vote, and resulted from breaches of fiduciary duties by the
director defendants (see Note 3 of Notes to Condensed Consolidated Financial
Statements). On June 23, 1999, the Company, the director defendants and the
Laurie-controlled purchasing entities that were also named as defendants,
entered into an agreement with the shareholder plaintiffs to settle the
lawsuits. Under the settlement agreement, the Company, the director defendants,
and the Laurie-controlled entities agreed, among other things, to amend the
terms of the proposed sale to the Laurie entities to permit the Company to
conduct a new process in which the Company would solicit additional offers for
the purchase of the Sports-related businesses. The Company and the director
defendants also agreed, among other things, to engage an additional investment
banker to assist in the new auction process, and to add Peter W. May to the
Company's Board of Directors. On July 27, 1999, as a result of the new auction
process, the Company entered into a definitive agreement to sell the
Sports-related businesses to The Sturm Group. The settlement of the Shareholder
lawsuits is subject to the approval of the Delaware Court of Chancery after a
hearing that is anticipated to occur after the closing of the sale of the
Sports-related businesses during the second quarter of 2000. If approved by the
Court, the settlement would result in, among other things, the dismissal with
prejudice of the claims asserted in the Shareholder lawsuits and the payment by
the Company of plaintiff attorney fees and expenses in an amount to be approved
by the Court. During the three month period ended March 31, 2000, the Company
accrued $3.0 million of costs in conjunction with the contemplated settlement of
the Shareholder lawsuits.
The Company is a party to certain additional legal proceedings in the
ordinary course of its business. However, the Company does not believe that any
such legal proceedings will have a material adverse effect on the Company's
financial position or results of operations. In connection with its ownership of
the Nuggets and the Avalanche, the Company is a defendant along with other
National Basketball Association ("NBA") and National Hockey League ("NHL")
owners in various lawsuits incidental to the operations of the two professional
sports leagues. The Company will generally be liable, jointly and severally,
with all other owners of the NBA or NHL, as the case may be, for the costs of
defending such
9
<PAGE> 10
lawsuits and any liabilities of the NBA or NHL which might result from such
lawsuits. The Company does not believe that any such lawsuits, individually or
in the aggregate, will have a material adverse effect on the Company's financial
position or results of operations. The Nuggets, along with three other teams,
have also agreed to indemnify the NBA, its member teams and other related
parties against certain American Basketball Association ("ABA") related
obligations and litigation, including costs to defend such actions. Management
of Ascent believes that the ultimate disposition and the costs of defending
these or any other incidental NBA or NHL legal matters or of reimbursing related
costs, if any, will not have a material adverse effect on the financial
statements of the Company.
6. SEGMENT OPERATING RESULTS
As discussed in Note 11 to the Company's 1999 Consolidated Financial Statements,
the Company implemented Statement of Financial Accounting Standards (SFAS) No.
131, "Disclosures about Segments of an Enterprise and Related Information",
during the fourth quarter of 1999. In accordance with SFAS No. 131, the Company
classified its businesses into 3 reporting segments: multimedia distribution,
network services and entertainment. The multimedia distribution segment includes
the video distribution and on-demand video entertainment services provided by
OCC to the lodging industry. The network services segment includes the results
of ANS and the video distribution services it provides to the NBC television
network and other private networks. The Company's former entertainment segment
(see Note 2 of Notes to Condensed Consolidated Financial Statements) included
the Denver Nuggets, the Colorado Avalanche and the Arena Company. Results by
segment are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
------------ ------------
INCOME STATEMENT DATA: (dollars in millions)
<S> <C> <C>
Revenues:
Multimedia Distribution $ 64.9 $ 61.2
Network Services 5.1 5.1
------------ ------------
Total revenues $ 70.0 $ 66.3
============ ============
Operating income (loss):
Multimedia Distribution $ (1.2) $ (5.1)
Network Services 2.2 1.0
Corporate (17.4) (3.0)
------------ ------------
Total operating loss $ (16.4) $ (7.1)
============ ============
OTHER DATA:
EBITDA (1):
Multimedia Distribution $ 18.6 $ 18.2
Network Services 2.5 3.0
General & Administrative (16.8) (3.0)
------------ ------------
Total EBITDA 4.3 18.2
------------ ------------
Less reconciling item - depreciation and amortization 20.7 25.3
------------ ------------
Total operating loss $ (16.4) $ (7.1)
============ ============
Capital Expenditures:
Multimedia Distribution $ 19.6 $ 20.2
Network Services .2 .1
------------ ------------
Total Capital Expenditures $ 19.8 $ 20.3
============ ============
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
------------ ------------
<S> <C> <C>
Room Data (Relates only to Multimedia Distribution):
Number of Guest-Pay rooms (at end of period):
On-Demand 893,000 842,000
Schedule only 65,000 92,000
------------ ------------
Total Guest-Pay rooms 958,000 934,000
============ ============
</TABLE>
(1) EBITDA represents earnings from continuing operations before interest
expense, income taxes, depreciation and amortization, other income
(expense) and non-cash charges related to stock based compensation. The
most significant difference between EBITDA and cash provided from operating
activities 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 income 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 and discussed in Item 2 under Liquidity and Capital
Resources. See the Company's 1999 Consolidated Financial Statements and the
Notes thereto. The Company's method for calculating EBITDA may be different
than other companies.
7. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standard Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which defines
derivatives, requires that all derivatives be carried at fair value, and
provides for hedging accounting when certain conditions are met. SFAS No. 133,
which has been amended by SFAS 137, is effective for the Company's fiscal year
ending December 31, 2000. The Company does not believe adoption of SFAS No. 133
will have a material impact on the Company's financial position, results of
operations, or cash flows.
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<PAGE> 12
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 1999 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.
The Multimedia Distribution segment revenues are influenced principally by
hotel occupancy rates and the "buy rate" or percentage of occupied rooms at
hotels that buy movies or other services at the property. 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 pictures or services available
at the hotel and the guests' other entertainment alternatives.
ANALYSIS OF OPERATIONS
The Company's continuing operations are comprised of the results of On
Command Corporation, Ascent Network Services and the parent company, Ascent
Entertainment Group, Inc. The Company's discontinued operations are comprised of
the results of the Company's former entertainment segment, which included the
Denver Nuggets, the Colorado Avalanche and the Arena Company which the Company
has announced an agreement to sell (see Note 3 of Notes to the Condensed
Consolidated Financial Statements). In addition, discontinued operations include
the results of the Company's former subsidiary, Beacon, in which a 90% interest
was sold on January 20, 1999.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Continuing Operations
Revenues for the first quarter of 2000 were $70.0 million, an increase of
$3.7 million or 5.6%, as compared to $66.3 million in revenues for the first
quarter of 1999. This increase is attributable to a $3.7 million increase in
revenues at OCC within the Multimedia Distribution segment. The increase in
revenues at OCC is primarily attributable to higher total rooms being served
during the period, and a higher percentage of total rooms being served by higher
revenue producing on-demand equipment in the first quarter of 2000, as compared
to the same period of 1999. In addition, OCC's revenues increased due to strong
buy rates for feature movies during the quarter, reduced movie denial rates, as
well as increasing Internet, game and free-to-guest revenues.
Cost of services for the first quarter of 2000 were $48.9 million, an
increase of $3.7 million or 8.2%, compared to $45.2 million in the first quarter
of 1999. Cost of services at OCC increased by $3.4 million. This increase in
costs at OCC is due to increased direct costs associated with the increase in
movie revenues at OCC (primarily studio royalties, hotel commissions and
free-to-guest expenses) partially offset by reduced operating expenses.
Depreciation and amortization for the first quarter of 2000 was $20.7
million, a decrease of $4.5 million or 17.8%, compared to $25.2 million in the
first quarter of 1999. This decrease occurred primarily due to the expiration of
depreciation costs for certain video systems assets acquired during the 1996
merger between Spectravision and OCC, which were fully depreciated at the end of
1999. In addition, depreciation and amortization expense at ANS decreased by
$1.5 million during the first quarter of 2000 as compared to the same period
last year. ANS depreciated the equipment relating to the network distribution
system over the term of the original agreement with NBC, which expired in
December 1999. Accordingly, depreciation expense relating to such equipment has
decreased, as such equipment was fully depreciated as of December 31, 1999.
12
<PAGE> 13
General and administrative expenses, which include only those costs
incurred by the parent company, were $16.8 million for the first quarter of
2000, an increase of $13.8 million, as compared to $3.0 million for the first
quarter of 1999. This increase primarily reflects the expense recognized during
the first quarter of 1999 for the Company's stock appreciation rights and costs
relating to the Merger Agreement with Liberty. Specifically, $3.6 million of
expense was recognized for the Company's stock appreciation rights due to
increases in the Company's stock price, $8.5 million of expenses were recognized
in connection with the Company's Merger Agreement with Liberty, primarily
investment banker and legal costs, and an additional $3.0 million of costs were
accrued in conjunction with the contemplated settlement of the Shareholder
lawsuits (see Note 5 of Notes to Condensed Consolidated Financial Statements).
Other income increased by $.1 million in the first quarter of 2000 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 $1.6 million in the first quarter of 2000 as
compared to the first quarter of 1999. This increase is attributable to
additional borrowings incurred during 2000 combined with an increase in
borrowing costs at Ascent, primarily those costs related to the interest
accretion on the Company's 11.875% Senior Secured Discount Notes issued in
December 1997 (the "Senior Notes").
The Company recorded an income tax expense from continuing operations of
$.1 million during the first quarter of 2000 as compared to a $.3 million income
tax benefit from continuing operations during the first quarter of 1999. The
decline in the Company's effective tax benefit during the first quarter of 2000
is due to the Company's inability to recognize tax benefits 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 carryforwards, prior to their expiration.
Minority interest in loss of subsidiary reflects the losses attributable to
the minority interest in the Company's 57% owned subsidiary, OCC.
Discontinued Operations
The combined loss from discontinued operations totaled $3.0 million during
the first quarter of 2000 as compared to a loss of $9.2 million during the first
quarter of 1999. The decreased loss is primarily due to the improvement in the
operations of the Colorado Avalanche and the Arena Company, partially offset by
the operations of the Nuggets. The improvement in operating results for the
Avalanche during 2000 is attributable to an increase in revenues from more home
games and an incremental increase in attendance, which has resulted in increased
ticket and ancillary sales revenues (parking and concessions). The Arena
Company's improved financial results are due principally to the Arena Company
being an operating entity during the first quarter of 2000 as compared to being
under construction during the comparable period in 1999. While revenues for the
Nuggets increased during the first quarter of 2000 as compared to 1999,
operating expenses (primarily player salaries) significantly increased during
this same period.
The $3.2 million gain from sale of discontinued operations, net of taxes,
during the first quarter of 1999 reflects the gain from the sale of the
Company's 90% interest in Beacon. As discussed in Note 3 to the Condensed
Consolidated Financial Statements, this gain was reduced during the fourth
quarter of 1999 when an arbitrator awarded Beacon a $3.5 million purchase price
adjustment.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $11.0 million since December 31,
1999 to $49.3 million at March 31, 2000. The primary sources of cash during the
first quarter were cash from continuing operating activities of $1.6 million and
borrowings under the OCC Credit Facility of $8.0 million. Cash was expended
primarily for property and equipment at OCC, specifically $19.6 million of
capital expenditures were incurred at OCC to support continued hotel
installations with the OCX and OCV systems, conversions of SpectraVision systems
and fixed asset purchases.
Long-term debt totaled $352.7 million at March 31, 2000 as compared to
$339.9 million at December 31, 1999. The increase in long-term debt is
attributable to additional borrowings of $8.0 million under the OCC Credit
Facility and the accretion of interest on the Company's Senior Notes. The Arena
Revenue Backed Notes of $136.2 million (the "Arena Notes") which were issued by
the Arena Company's beneficially owned trust are classified in the Company's
consolidated balance sheet in the net assets of discontinued operations. The
Arena Notes are non-recourse to the Arena Company but the Arena Company is
obligated to the noteholders to operate the Pepsi Center in a first-class
manner, as defined. In connection with the pending sale of the Sports-related
businesses (see Note 3 of Notes to Condensed Consolidated
13
<PAGE> 14
Financial Statements), the Arena Notes will remain the obligation of an entity
to be acquired by the Kroenke entities. Based on borrowings at March 31, 2000,
OCC had access to $12 million of long-term financing under its credit facility,
subject to certain covenant restrictions, (see Note 4 of the Company's Condensed
Consolidated Financial Statements.)
The Company's cash requirements through the remainder of 2000 are expected
to include (i) the continuing conversion and installation by OCC of on-demand
in-room video entertainment systems, (ii) funding the operating requirements of
Ascent and its subsidiaries, (iii) the payment of interest under the OCC Credit
Facility and the Ascent Credit Facility, if such facility is utilized, (iv) the
payment of transaction costs relating to the Liberty merger and the pending sale
of the Sports-related businesses and (v) the redemption, if any, of the
Company's Senior Notes at the election of the noteholders pursuant to the
Purchase Right Notice dated April 27, 2000. The Company anticipates capital
expenditures in connection with the continued installation and conversion by OCC
of on-demand service will be approximately $70.0 to $90.0 million through the
remainder of 2000. 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 borrowings under the OCC Credit Facility. On
Command expects that the available cash, cash flows from operations and funds
currently available under the OCC Credit Facility will be sufficient to finance
its expected investment in in-room video systems through at least the second
quarter of 2000. Management of On Command expects to need additional financing
in 2000 and is currently considering financing alternatives, including obtaining
additional financing. If OCC is unable to raise additional financing, OCC would
need to reduce its capital spending well below the levels stated above during
fiscal 2000, which would have an adverse impact on OCC. Management of the
Company believes that the available cash, cash flows from operating activities,
and proceeds from the sale of the Company's Sports-related businesses (see Note
6 of the Company's 1999 Notes to Consolidated Financial Statements) will be
sufficient for the Company, the Sports-related businesses and its Ascent Network
Services division to satisfy their capital expenditure and finance working
capital requirements during 2000. Pursuant to the terms of the Senior Notes and
as a result of the acquisition by Liberty of an 85% interest in the Company, the
Company has offered to redeem the Senior Notes at 101% of their accreted value
as of May 31, 2000 (see Note 4 of Notes to Condensed Consolidated Financial
Statements). Assuming the consummation of the sale of the Sports-related
businesses, appropriate reserves for cash adjustments relating to Nuggets,
Avalanche, and the Arena upcoming 1999/2000 playing seasons, the Company
anticipates net cash proceeds of approximately $267.6 million, subject to
closing adjustments. Under the terms of Ascent's outstanding Senior Notes, to
the extent that within one year of the sale of the Sports-related businesses,
Ascent does not use the net cash proceeds for certain permitted uses under the
Senior Note indenture, Ascent will be required to use all remaining proceeds to
offer to repurchase the Senior Notes at 100% of their accreted value. In
addition, the transactions involving Liberty resulted in the termination of the
Ascent Credit Facility. The Company intends to negotiate with the lenders under
the Ascent Credit Facility regarding a possible reinstatement of such facility
or a replacement of such facility with a short-term facility. The consummation
of the merger required by the Merger Agreement with Liberty will result in an
event of default under the Senior Notes. The Company intends to seek an
amendment to, or consent under, the indenture for the Senior Notes, or take
other action that would eliminate any adverse effects, if any, of such a
default.
No cash interest is 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 OCC's strategy,
including the installation of OCX systems and the upgrade and expansion of OCC's
technology and service offerings, OCC's ability to obtain additional financing
and the conversion of the hotel rooms acquired in the acquisition of
SpectraVision, to OCC's on-demand technology. In addition, the Company's future
performance would also be dependent on the proceeds from the sale of the
Sports-related businesses, if consummated, and the ability to attain significant
and sustained growth in the Company's cash flow. There can be no assurance that
OCC 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. Should the sale of
the Company's Sports-related businesses not be consummated, it is the Company's
current expectation with respect to its existing businesses, that it would not
have cash flows after capital expenditures sufficient to repay all of the Senior
Notes at maturity and, accordingly, it 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.
INFLATION
Inflation has not significantly impacted the Company's financial position or
operations.
14
<PAGE> 15
INFORMATION SYSTEMS AND THE YEAR 2000
The Company and its subsidiaries had developed formal plans to identify,
evaluate and implement changes to its computer systems as necessary to address
the Year 2000 issue. Through the date of this report, there have been no adverse
effects on the Company's business, results of operations or financial condition
as a result of Year 2000 problems with its computer systems and operations. In
addition, the Company has not encountered any Year 2000 problems with any of its
vendors or customers. Although the Company has made reasonable efforts to
identify and protect itself with respect to external Year 2000 problems, there
can be no assurance that the Company will not be affected by such problems. The
Company will consider the necessity of implementing a formal contingency plan to
mitigate any adverse effects associated with the Year 2000 issue, should any
arise.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. The Company's exposure to market risk for changes in
interest rates relate primarily to the Company's investment portfolio, including
restricted investments, and long-term debt obligations. The Company does not use
derivative financial instruments in its investment portfolio. The Company places
its investments with high credit quality issuers and, by policy and debt
restrictions, limits the amount of credit exposure to any one issuer. As stated
in its policy, the Company is averse to principal loss and ensures the safety
and preservation of its invested funds by limiting default risk and market risk.
The Company mitigates default risk by investing in only the safest and
highest credit quality securities. The portfolio includes only short-term
investment securities with active secondary or resale markets to ensure
portfolio liquidity. At March 31, 2000, the weighted average interest rate on
the Company's cash and cash equivalent balance of $49.3 million was 6.05%
consisting of fixed rate short-term investments.
The Company does have cash flow exposure due to rate changes for portions of
its debt obligations. Specifically, no cash flow exposure exists on the
Company's Senior Notes as they represent fixed-rate obligations. (See Note 4 to
the Condensed Consolidated Financial Statements). However, revolving loans
extended under the OCC Credit Facility generally bear an interest rate that is
variable and based on the London Interbank Offering Rate ("LIBOR") and on
certain operating ratios at OCC. At March 31, 2000, OCC had $188.0 million
outstanding, under the OCC Credit Facility and the weighted average interest
rate on the OCC Credit Facility was 6.7%. Assuming no increase or decrease in
the amount outstanding a hypothetical immediate 100 basis point increase (or
decrease) in interest rates would have increased (or decreased) the Company's
annual interest expense and cash outflow by $1.4 million for the remaining
nine-months of 2000.
Foreign Currency Risk. The Company, through OCC, transacts business in
various foreign currencies, primarily in Canada, Asia and in certain European
countries. The Company believes the risks of foreign exchange rate fluctuations
on its present operations are not material to the Company's overall financial
condition. However, should the Company's international operations continue to
grow, the Company will consider using foreign currency contracts, swap
arrangements, or other financial instruments designed to limit exposure to
foreign exchange rate fluctuations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiary are defendants and may be potential
defendants in lawsuits and claims arising in the ordinary course of its
business (see Note 5 of Notes to the Condensed Consolidated Financial
Statements). 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.
15
<PAGE> 16
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) Exhibit
No. 27.0 Financial Data Schedule
(B) Reports on Form 8-K:
1.) The Registrant filed with the Commission on February 24,
2000 a Form 8-K describing that (i) the Company had entered
into an Agreement and Plan of Merger with Liberty Media
Corporation and AEG Acquisition, Inc. and, (ii) that the
consummation of the tender offer for Ascent's common stock
provided for by the Merger Agreement would be conditioned on
the tender of at least a majority of the Ascent shares and
other customary conditions.
2.) The Registrant filed with the Commission on April 12, 2000,
a Form 8-K describing that (i) the cash Tender Offer of Liberty
Media Corporation had expired and that approximately 85% of
Ascent's common stock had been purchased by AEG Acquisition,
Inc. and (ii) that a new Ascent board has been appointed,
consisting entirely of Liberty Media Corporation appointees.
3.) The Registrant filed with the Commission on April 26, 2000
a Form 8-K describing the dismissal of Deloitte & Touche, LLP
as its independent public accountant and the engagement of
KPMG, LLP as its independent public accountant.
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
Executive Vice President of Finance
and Chief Financial Officer
(Principal Accounting Officer)
Date: May 15, 2000
16
<PAGE> 17
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The financial statements for the three months ended March 31, 2000.
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<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 49,317
<SECURITIES> 0
<RECEIVABLES> 40,323
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 185,484
<PP&E> 294,732
<DEPRECIATION> 0
<TOTAL-ASSETS> 585,657
<CURRENT-LIABILITIES> 86,650
<BONDS> 352,692
0
0
<COMMON> 297
<OTHER-SE> 74,172
<TOTAL-LIABILITY-AND-EQUITY> 585,657
<SALES> 70,036
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<INCOME-PRETAX> (23,985)
<INCOME-TAX> 106
<INCOME-CONTINUING> (22,111)
<DISCONTINUED> (3,012)
<EXTRAORDINARY> 0
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<NET-INCOME> (25,123)
<EPS-BASIC> (.84)
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