<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
Commission File Number 00-21315
ON COMMAND CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 77-04535194
- --------------------------------------------- -------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
6331 SAN IGNACIO AVE, SAN JOSE, CALIFORNIA 95119
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(Address of principal executive offices) (Zip Code)
(408) 360-4500
------------------------------------------------
(Registrant's telephone number, including area code)
(not applicable)
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(Former name, former address and former fiscal year,
if changed since last report)
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 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 29,860,613 shares.
<PAGE> 2
ON COMMAND CORPORATION
FORM 10Q
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of March 31,1998 and December 31,1997. 3
Condensed Consolidated Statements of Operations for the Three Months
Ended March 31, 1998 and 1997. 4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31,1998 and 1997. 5
Notes to Condensed Consolidated Financial Statements. 6-7
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations. 8-12
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 13
Item 4 - Submission of Matters to a Vote of Security Holders 13
Item 6 - Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
ON COMMAND CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,063 $ 6,287
Accounts receivable, net 31,022 26,827
Other current assets 1,863 1,959
--------- ---------
Total current assets 38,948 35,073
Video systems, net 274,353 270,531
Property and equipment, net 7,973 7,850
Goodwill, net 80,955 82,049
Other assets, net 5,410 5,885
--------- ---------
$ 407,639 $ 401,388
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 23,772 $ 20,155
Accrued compensation 4,455 5,805
Other accrued liabilities 10,722 9,763
Taxes payable 10,180 11,115
--------- ---------
Total current liabilities 49,129 46,838
Other accrued liabilities 3,629 4,383
Revolving credit facility 145,000 133,000
--------- ---------
Total liabilities 197,758 184,221
--------- ---------
Stockholders' equity:
Common stock, $.01 par value; shares authorized - 50,000 in 1998 and 1997
shares issued and outstanding, 29,861 in 1998 and 29,801 in 1997;
shares subscribed - 276 in 1998 and 315 in 1997 301 301
Additional paid-in capital 249,452 249,431
Common stock warrants 31,450 31,450
Cumulative translation adjustments (433) (964)
Accumulated deficit (70,889) (63,051)
--------- ---------
Total stockholders' equity 209,881 217,167
--------- ---------
$ 407,639 $ 401,388
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE> 4
ON COMMAND CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Room revenues $ 54,246 $ 49,963
Video system sales / other 1,622 2,101
-------- --------
Total revenues 55,868 52,064
-------- --------
Direct costs:
Room revenues 23,122 24,430
Video system sales / other 798 1,066
-------- --------
Total direct costs of revenue 23,920 25,496
-------- --------
Direct income 31,948 26,568
Operating expenses:
Operations 8,421 9,854
Research and development 1,688 1,614
Selling, general and administrative 5,965 6,190
Depreciation and amortization 21,456 19,009
-------- --------
Total operating expenses 37,530 36,667
-------- --------
Operating loss (5,582) (10,099)
Interest/other expense, net (2,282) (1,857)
-------- --------
Loss before income taxes (7,864) (11,956)
Income tax benefit 26 --
-------- --------
Net loss $ (7,838) $(11,956)
======== ========
Basic and diluted net loss per share $ (0.26) $ (0.40)
======== ========
Shares used in basic and diluted per share computations 30,118 30,047
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE> 5
ON COMMAND CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,838) $(11,956)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 21,456 19,009
Loss on disposal of fixed assets 77 92
Changes in assets and liabilities:
Accounts receivable, net (4,164) (62)
Other assets (13) 799
Accounts payable 3,608 5,386
Accrued compensation (1,359) 274
Taxes payable (993) 326
Other accrued liabilities 134 (1,182)
-------- --------
Net cash provided by operating activities 10,908 12,686
Cash flows from investing activities:
Capital expenditures (23,202) (19,453)
Other assets -- (20)
-------- --------
Net cash used in investing activities (23,202) (19,473)
-------- --------
Cash flows from financing activities:
Proceeds from revolving credit facility 12,000 5,000
Proceeds from issuance of common stock 21 --
-------- --------
Net cash provided by financing activities 12,021 5,000
-------- --------
Effect of exchange rate changes on cash 49 (46)
-------- --------
Net decrease in cash and cash equivalents (224) (1,833)
Cash and cash equivalents, beginning of period 6,287 5,733
-------- --------
Cash and cash equivalents, end of period $ 6,063 $ 3,900
======== ========
Supplemental information:
Cash paid for income taxes $ -- $ 82
======== ========
Cash paid for interest $ 2,210 $ 1,603
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE> 6
ON COMMAND CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1. BASIS OF PRESENTATION
On Command Corporation (the "Company" or "OCC") is a Delaware
corporation formed by Ascent Entertainment Group, Inc. ("Ascent") for
the purpose of effecting (i) the merger (the "Merger") of On Command
Video Corporation ("OCV"), a majority-owned subsidiary of Ascent, with a
wholly-owned subsidiary of OCC, after which OCV became a wholly owned
subsidiary of OCC, and (ii) the acquisition (the "Acquisition") of
SpectraDyne, Inc., a wholly owned subsidiary of SpectraVision, Inc.
("Oldco"). Following the Acquisition in 1996, SpectraDyne, Inc. changed
its name to SpectraVision, Inc. ("SpectraVision"). Ascent had been a
majority-owned subsidiary of COMSAT Corporation ("COMSAT") and 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").
The condensed financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). While the quarterly financial information
contained in this filing is unaudited, the financial statements
presented reflect all adjustments (consisting only of normal recurring
adjustments) which the Company considers necessary for a fair
presentation of the financial position at March 31, 1998 and December
31, 1997, and the results of operations and cash flows for the three
months ended March 31, 1998 and 1997. The results for interim periods
are not necessarily indicative of the results to be expected for the
entire year.
2. NET LOSS PER SHARE
Basic and diluted net loss per share are computed by dividing net
income available to common stockholders (numerator) by the
weighted-average number of common shares outstanding (denominator) for
the period. Common equivalent shares include common stock options and
warrants and at March 31, 1998 and 1997 approximately 10.1 million and
9.9 million equivalent dilutive securities, respectively, have been
excluded in weighted-average number of common shares outstanding for the
diluted EPS computation as common stock equivalents because their effect
is antidilutive.
3. COMPREHENSIVE LOSS
Total comprehensive loss of $7.3 million at March 31, 1998 is
comprised of $ 7.8 million net loss less $0.5 million net change in the
cumulative translation account. At March 31, 1997, total comprehensive
loss of $11.8 million is comprised of $12.0 million net loss less $0.2
million net change in the cumulative translation account.
4. DEBT
On November 24, 1997, the Company refinanced its former credit
facility and entered into an amended and restated agreement with its
lender (the "Credit Facility"). Under the amended Credit Facility, the
amount available to the Company was increased from $150 million to $200
million, and certain other terms were amended; most notably, the
inclusion of restrictions on the Company's ability to pay dividends or
make other distributions until the later of January 1, 1999 or until
certain operating ratios are attained. The Credit Facility matures in
November 2002 and , subject to certain conditions, can be renewed for
two additional years. At March 31, 1998, there was $55 million of
available borrowings under the Credit Facility, subject to certain
covenant restrictions.
5. LITIGATION
The Company is a defendant, and may be a potential defendant, 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.
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<PAGE> 7
6. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information", (SFAS 131) which
establishes annual and interim reporting standards for an enterprise's
business segments and related disclosures about its products, services,
geographic areas, and major customers. Adoption of this statement will
not impact the Company's consolidated financial position, results of
operations or cash flow. The Company is required to and will adopt SFAS
131 for the fiscal year 1998.
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<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q may contain forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which reflect OCC's current
judgment on those issues. Because such statements apply to future events, they
are subject to risks and uncertainties that could cause the actual results to
differ materially. The following should be read in conjunction with the
Condensed Consolidated Financial Statements (unaudited) included elsewhere
herein, and with the Condensed Consolidated Financial Statements, notes thereto,
and Management Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's 1997 Annual Report on Form 10-K, as filed
with the Securities and Exchange Commission.
OVERVIEW
OCC is the leading provider (by number of hotel rooms served) of on-demand
in-room video entertainment for the United States lodging industry. The
on-demand OCC system is a patented video selection and distribution system that
allows guests to select at any time, on a pay-per-view basis, from up to 50
motion pictures on computer controlled television sets located in their rooms.
OCC (OCV prior to October 8, 1996) has experienced rapid growth in the past six
years, increasing its base of installed rooms from approximately 37,000 rooms at
the end of 1992 to approximately 902,000 rooms at March 31, 1998. OCC also
provides in-room viewing of free-to-guest programming of select cable channels
and other interactive services. OCC provides its services under long-term
contracts primarily to business and luxury hotel chains such as Marriott,
Hilton, Hyatt, Wyndham, Doubletree, Fairmont, Four Seasons, Loews, Stouffer,
Embassy Suites, Holiday Inn and Harvey Hotels, and to other hotel management
companies and individually owned and franchised hotel properties.
At March 31, 1998, approximately 87% of OCC's 902,000 installed rooms were
located in the United States, with the balance located in Canada, Asia, Europe
and Mexico. Of these installed systems, approximately 86% had on-demand
capability.
GUEST PAY SERVICES
OCC provides scheduled and on-demand in-room television viewing of major
motion pictures (including new releases) and independent non-rated motion
pictures for mature audiences for which a hotel guest pays on a per-view basis.
Depending on the type of system installed and the size of the hotel, guests can
choose among twenty (20) to fifty (50) different movies with an on demand system
or among eight (8) to twelve (12) movies with a scheduled system.
OCC obtains the non-exclusive rights to show recently released motion
pictures from major motion picture studios generally pursuant to a master
agreement with each studio. The license period and fee for each motion picture
are negotiated individually with each studio, which typically receives a
percentage of that picture's gross revenues generated by the pay-per-view
system. Typically, OCC obtains rights to exhibit major motion pictures during
the time frame after initial theatrical release and before release for home
video distribution or cable television exhibition. OCC also obtains independent
motion pictures, most of which are non-rated and are intended for mature
audiences, for a one-time flat fee that is nominal in relation to the licensing
fees paid for major motion pictures.
Under OCC's standard arrangements with hotels, OCC installs its system into
the hotel and retains ownership of all its equipment used in providing the
service. Depending on the size of the hotel property and the configuration of
the system installed, the installed cost of a new on-demand system with
interactive and video game services capabilities, including the head-end
equipment, averages from approximately $300 to $700 per room. The hotels collect
movie viewing charges from their guests and retain a commission equal to a
percentage of the total pay-per-view revenue that can vary depending on the
system, the hotel, and amount of revenue generated.
The revenues generated from the Company's pay-per-view service are
influenced by occupancy rates at the hotel property, the "buy rate" or
percentage of occupied rooms 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. 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. Buy rates also
vary over time with general economic conditions.
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<PAGE> 9
FREE-TO-GUEST SERVICES
OCC also markets a free-to-guest service pursuant to which a hotel may
elect to receive one or more satellite programming channels, such as HBO,
Showtime, CNN, ESPN, WTBS, and other cable networks. OCC provides hotels
free-to-guest services through a variety of arrangements including having the
hotel pay the Company a fixed monthly fee per room for each programming channel
selected or having the price of such programming included in the Company's other
offerings.
INTERACTIVE AND OTHER SERVICES
In addition to entertainment services, OCC provides interactive services to
the lodging industry. These services use two-way interactive communications
capability of the Company's equipment and room availability monitoring.
In addition to installing systems in hotels served by OCC, OCC sells
systems to certain other providers of in-room entertainment including MagiNet
Corporation (formerly Pacific Pay Video Limited), which is licensed to use OCC's
system to provide on-demand in-room entertainment in the Asia Pacific region,
and Hospitality Networks, a provider of pay-per-view services to the certain
hotels in the Las Vegas, Nevada region.
ANALYSIS OF OPERATIONS
EFFECTS OF SATELLITE DISRUPTION
On January 11, 1997, OCC experienced an interruption in service for certain
of its SpectraVision hotels caused by the loss of communication with a satellite
used to deliver pay-per-view programming. Approximately 950 of OCC's
approximately 3,100 hotels were affected. Of the hotels affected, approximately
410 hotels continued to provide limited pay-per-view services through alternate
disk or tape-based systems. By February 9, 1997, OCC was able to obtain
alternate satellite service and had restored full service to all the hotels
affected. The Company believes the loss of satellite service in the first
quarter of 1997 resulted in approximately $3 million of decreased EBITDA through
reduced revenues and increased expenses in that period. On July 23, 1997, the
alternate satellite service was terminated. As of that date, many of the rooms
previously receiving only satellite broadcast were installed with tape based
replacement systems. The remaining satellite only rooms, which totaled
approximately 37,000 rooms, were either assigned to another provider or had
service discontinued.
ROOM AND INVESTMENT ACTIVITY
At March 31, 1998, the Company's installed room base was approximately
902,000, as compared to approximately 917,000 at the end of the first quarter of
1997. In the first quarter, the Company installed its on-demand system in
approximately 42,000 rooms, of which approximately 33,000 were conversions of
SpectraVision properties, and approximately 9,000 were net new hotel
installations. The decline in the installed room total at the end of the first
quarter 1998 was due primarily to the previously announced transfer of rooms to
Skylink Cinema Corporation in 1997, and room losses from the termination of
satellite broadcast movie services in SpectraVision hotels. The hotels included
in the transfer and termination of service consisted primarily of rooms that did
not fit the Company's target economic profile. Capital expenditures totaled
$23.2 million during the quarter primarily in support of the SpectraVision
conversions, new hotel installations, increased inventory, and internal fixed
asset purchases. Following is selected financial information for the three
months ended March 31, 1998 compared to the same period for 1997.
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<PAGE> 10
SELECTED FINANCIAL INFORMATION
(In thousands, except hotel and room amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------
% OF % OF
MARCH 31, TOTAL MARCH 31, TOTAL
1998 REVENUE 1997 REVENUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Revenues:
Room Revenues $ 54,246 97.1% $ 49,963 96.0%
Video Systems/Other 1,622 2.9% 2,101 4.0%
-------- ----- -------- -----
Total Revenues 55,868 100.0% 52,064 100.0%
Direct Costs
Room Revenues 23,122 41.4% 24,430 46.9%
Video Systems/Other 798 1.4% 1,066 2.0%
-------- ----- -------- -----
Total Direct Costs 23,920 42.8% 25,496 49.0%
-------- ----- -------- -----
Direct Profit 31,948 57.2% 26,568 51.0%
Operations 8,421 15.1% 9,854 18.9%
Research & Development 1,688 3.0% 1,614 3.1%
Selling, General & Administrative 5,965 10.7% 6,190 11.9%
-------- ----- -------- -----
16,074 28.8% 17,658 33.9%
-------- ----- -------- -----
EBITDA (1) 15,874 28.4% 8,910 17.1%
Depreciation & Amortization 21,456 38.4% 19,009 36.5%
Interest 2,282 4.1% 1,857 3.6%
Taxes (26) 0.0% -- 0.0%
-------- ----- -------- -----
23,712 42.4% 20,866 40.1%
======== ===== ======== =====
Net Loss $ (7,838) (14.0%) $(11,956) (23.0%)
======== ===== ======== =====
CAPITAL EXPENDITURES $ 23,202 $ 19,453
</TABLE>
<TABLE>
<CAPTION>
% OF % OF
MARCH 31, TOTAL MARCH 31, TOTAL
1998 ROOMS 1997 ROOMS
------- ----- --------- -------
<S> <C> <C> <C> <C>
TOTAL HOTELS 3,096 3,138
TOTAL ROOMS 902,000 917,000
ROOM COMPOSITION:
Geographic
Domestic 781,000 86.6% 799,000 87.1%
International 121,000 13.4% 118,000 12.9%
System Type
Scheduled Only 125,000 13.9% 205,000 22.4%
On-Demand 777,000 86.1% 712,000 77.6%
</TABLE>
(1) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. The most significant differences between EBITDA and cash
provided from operations is changes in working capital and interest
expense. 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 pre- sented 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 pre-
sented in the financial statements in Item 1 and discussed in Item 2 under
Liquidity and Capital Resources.
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<PAGE> 11
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,1997
Total revenues for the first quarter of 1998 increased $3.8 million or
7.3% to $55.9 million, as compared to $52.1 million for the comparable period of
1997. Room revenues increased $4.3 million or 8.6% in the first quarter of 1998
to $54.2 million, as compared to $49.9 million in the first quarter of 1997. The
increase was primarily due to the satellite outage in the first quarter of 1997,
stronger selection of feature movies during the first quarter of 1998, and a
higher percentage of total rooms being served by OCV equipment in the first
quarter of 1998 as compared to the first quarter 1997. Video system sales and
other revenues decreased $0.5 million or 22.8% to $1.6 million in the first
quarter of 1998, as compared to $2.1 million in the first quarter of 1997,
reflecting a slowdown in ordering of video systems from two of the Company's
primary licensees.
Total direct costs of revenues for the first quarter of 1998 decreased
$1.6 million or 6.2% to $23.9 million, as compared to $25.5 million for the
first quarter of 1997. Direct costs associated with room revenue in the first
quarter of 1998 decreased $1.3 million or 5.4% to $23.1 million, as compared to
$24.4 million for the same period of 1997, and as a percentage of room revenue
decreased to 42.6% at March 31, 1998 from 48.9% at March 31, 1997. The decrease
is principally attributed to termination of satellite movie service related to
SpectraVision rooms. The decrease was partially offset by an increase in movie
royalty and commission expenses in relation to the increase in movie revenue.
Direct costs from video system sales and other revenues decreased $0.3 million
or 25.1% to $0.8 million in the first quarter of 1998, as compared to $1.1
million in the same period of 1997, primarily as a result of declining video
systems sales. Direct costs as a percentage of video system sales and other
revenues decreased to 49.2% for the first quarter of 1998 from 50.7% for the
same period of 1997, primarily attributable to an increase in other revenues
which have significantly higher margins than video system sales.
Operations expenses, which consists primarily of technical field support
for the hotels, for the first quarter of 1998 decreased $1.4 million or 14.5% to
$8.4 million, as compared to $9.8 million in the first quarter of 1997, and as a
percentage of total revenue decreased to 15.1% from 18.9% in the first quarter
of 1997. The decrease is primarily due to $0.8 million of non-recurring
satellite re-deployment expenses incurred in the first quarter of 1997. The
lower expenses are also the result of more efficient field support due to the
higher ratio of OCV equipped rooms in the first quarter of 1998 as compared to
the first quarter of 1997.
Research and development expenses for the first quarter of 1998 remains
consistent with the first quarter of 1997. The savings from decreased
engineering support on SpectraVision equipped rooms, is offset by costs from
increasing efforts in the development of the Company's new digital platforms
and programming support.
Selling, general and administrative expenses for the first quarter of
1998 decreased $0.2 million or 3.6% to $6.0 million, as compared to $6.2 million
in the first quarter of 1997, and as a percentage of total revenue decreased to
10.7% from 11.9% in the first quarter of 1997. The decrease is principally due
to savings generated from the consolidation of SpectraVision's and OCV's
financial and administrative functions.
Depreciation and amortization expenses for the first quarter of 1998
increased $2.4 million or 12.9% to $21.4 million, as compared to $19.0 million
for the first quarter of 1997, and as a percentage of total revenue increased to
38.4% at March 31, 1998 from 36.5% at March 31, 1997. These expenses are
primarily attributable to depreciable video systems that generate movie revenue.
The dollar increase is mainly due to capital investments associated with the
growing OCV room base. The percentage of total revenue increase is attributable
to the higher cost basis of the increased number of hotels served by OCV
equipment.
Interest/other expense, net for the first quarter of 1998 increased $0.4
million or 22.9% to $2.3 million, as compared to $1.9 million in the first
quarter of 1997. The increase is due to the Company's greater reliance on debt
financing to continue the expansion of its installed customer base and
replacement of SpectraVision systems with OCV systems.
Provision for income taxes for the first quarter of 1998 represents tax
benefits on losses in certain foreign jurisdictions.
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<PAGE> 12
EBITDA for the first quarter of 1998 increased $7.0 million or 78.2% to
$15.9 million as compared to $8.9 million in the first quarter of 1997. EBITDA
as a percentage of total revenue increased to 28.4% in the first quarter of 1998
from 17.1% in the same period of 1997. The improved EBITDA is primarily
attributable to the satellite outage in the first quarter 1997, the termination
in July 1997 of all satellite pay-per-view service related to SpectraVision
rooms, lower field support expenses as a result of reduced number of
SpectraVision rooms, and the consolidation of SpectraVision and OCV financial
and administrative functions, as discussed above.
Net loss decreased to $7.8 million for the first quarter of 1998 from
$12.0 million for the first quarter of 1997 due to the factors described above.
SEASONALITY
The Company's business is expected to be seasonal where 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 demographic mix, the popularity of the
motion picture or services available at the hotel and the guests' other
entertainment alternatives.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of cash during the three months ended March 31, 1998
were cash from operations of $10.9 million, and borrowings of $12.0 million from
its Credit Facility with NationsBank of Texas, N.A. ("NationsBank") (see note 4
of Notes to Condensed Consolidated Financial Statements). Cash was expended
primarily for capital expenditures which totaled $23.2 million for the first
three months of the year, primarily for the conversion of SpectraVision rooms,
the installation of new hotels with OCV's on-demand system, increased inventory,
and internal fixed asset purchases.
The limit of the Company's Credit Facility is $200 million. At March 31,
1998, the Company had $145.0 million outstanding under its Credit Facility and
has access to an additional $55.0 million of long-term financing. The Company
expects that the available cash, cash flows from operations and funds available
under the Credit Facility will be sufficient to finance its expected investment
in in-room video systems for the remainder of 1998.
RESTRICTIONS ON DEBT FINANCINGS
Pursuant to the Corporate Agreement entered into between Ascent and OCC,
the Company has agreed, among other things, not to incur any indebtedness
without Ascent's prior written consent, other than indebtedness under the OCC
Credit Facility and indebtedness incurred in the ordinary course of operations,
as limited by Ascent. Ascent's limitation on such OCC indebtedness currently
stands at $157 million through December 31, 1998.
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<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
From time to time the Company has been, or may become, involved in legal
proceedings incidental to the conduct of its business. While the outcome of such
proceedings cannot be predicted with certainty, the Company does not believe any
such proceedings presently pending will have a material adverse affect on the
Company's financial position or its result of operations.
ITEM 2. CHANGES 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 On Command Corporation was held
on May 6, 1998 for the following purposes:
1. Election of all directors.
2. Action on such other matters as may properly come before the meeting.
b. The directors who were elected at the meeting are as follows:
Charles Lyons
Armyan Bernstein
James A. Cronin, III
Robert M. Kavner
Brian A.C. Steel
Gary L. Wilson
c. In connection with matters voted on at the annual meeting, the
following results were obtained:
1. Election of Directors
<TABLE>
<CAPTION>
For Against Withheld Abstentions
--- ------- -------- -----------
<S> <C> <C> <C> <C>
Charles Lyons 25,907,745 - 1,465 -
Armyan Bernstein 25,907,745 - 1,465 -
James A. Cronin, III 25,907,745 - 1,465 -
Robert M. Kavner 25,907,745 - 1,465 -
Brian A.C. Steel 25,907,745 - 1,465 -
Gary L. Wilson 25,907,745 - 1,465 -
</TABLE>
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K:
None
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
27.0 Financial Data Schedule
</TABLE>
- ---------------
-13-
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Jose, State of California on May 13, 1998.
On Command Corporation
By: /s/ BRIAN A.C.STEEL
-------------------------------
Brian A.C. Steel
Executive Vice President,
Chief Financial Office,
Chief Operating Officer, and
Director
(Principal Financial Officer)
By: /s/ PAUL J. MILLEY
-------------------------------
Paul J. Milley
Senior Vice President, Finance
(Principal Accounting Officer)
-14-
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
27.01 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,063
<SECURITIES> 0
<RECEIVABLES> 31,022
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 38,948
<PP&E> 282,326
<DEPRECIATION> 0
<TOTAL-ASSETS> 407,639
<CURRENT-LIABILITIES> 49,129
<BONDS> 0
0
0
<COMMON> 301
<OTHER-SE> 209,580
<TOTAL-LIABILITY-AND-EQUITY> 407,639
<SALES> 55,866
<TOTAL-REVENUES> 55,866
<CGS> 23,920
<TOTAL-COSTS> 23,920
<OTHER-EXPENSES> 37,530
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,282
<INCOME-PRETAX> (7,864)
<INCOME-TAX> (26)
<INCOME-CONTINUING> (7,838)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,838)
<EPS-PRIMARY> (0.26)<F1>
<EPS-DILUTED> (0.26)
<FN>
<F1>FOR THE PURPOSE OF THIS FDS, PRIMARY IS BASIC
</FN>
</TABLE>
