<PAGE> 1
As Filed with the Securities and Exchange Commission on May 17, 1999
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 the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ____________________
Commission File No. 0-22815
TCI MUSIC, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
State of Delaware 84-1380293
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
67 Irving Place North, 4th Floor
New York, NY 10003
- --------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 387-7700
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 Series A common stock
and Series B Common Stock as of April 30, 1999 were 20,732,666 and 62,500,000,
respectively.
<PAGE> 2
PART I - FINANCIAL STATEMENTS
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Liberty Media Corporation)
Consolidated Balance Sheets
(amounts in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
(unaudited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,699 5,860
Trade receivables:
Unaffiliated 12,310 12,187
Related party (note 3) 2,081 2,185
Allowance for doubtful accounts (1,076) (877)
------------ ------------
13,315 13,495
Prepaid expenses and other current assets 3,084 2,711
Equipment inventory 4,108 5,557
------------ ------------
Total current assets 26,206 27,623
------------ ------------
Net assets of discontinued operation (note 6) 604 132
Property and equipment, at cost:
Furniture and equipment 20,753 18,236
Leasehold improvements 1,103 565
Studio and other support equipment 11,986 11,466
------------ ------------
33,842 30,267
Less accumulated depreciation 8,584 6,671
------------ ------------
25,258 23,596
------------ ------------
Intangible assets 176,429 174,791
Less accumulated amortization 27,967 23,090
------------ ------------
148,462 151,701
------------ ------------
Other assets 8,086 8,167
------------ ------------
Total Assets $ 208,616 211,219
============ ============
</TABLE>
(continued)
I-1
<PAGE> 3
PART I - FINANCIAL STATEMENTS
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Liberty Media Corporation)
Consolidated Balance Sheets
(amounts in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- -------------
(unaudited)
Liabilities and Stockholders' Equity
<S> <C> <C>
Current liabilities:
Accounts payable $ 2,191 4,648
Accrued expenses 13,950 13,397
Accrued loss on disposal - DMX-Europe N.V 1,117 1,117
Current portion of debt, including related party debt
(notes 3 and 4) 1,859 1,724
Income tax payable, related party (note 3) 539 1,509
------------- -------------
Total current liabilities 19,656 22,395
------------- -------------
Other liabilities 4,320 4,072
Related party debt (note 3) 1,739 226
Debt (note 4) 101,078 96,244
Negative investment in DMX-Europe N.V 9,058 9,058
------------- -------------
Total liabilities 135,851 131,995
------------- -------------
Redeemable convertible preferred stock, $.01 par value;
Authorized 5,000,000 shares; Issued and outstanding
1,616,574 shares in 1999 and 1,617,574 shares in 1998;
36,240,000 and $36,347,000 liquidation preference and
redemption value in 1999 and 1998, respectively 34,679 34,322
Stockholders' equity (note 5):
Common stock, $.01 par value:
Series A;
Authorized 295,000,000 shares; Issued and outstanding
18,879,867 shares in 1999 and 18,876,867 shares in 1998 189 189
Series B;
Authorized 200,000,000 shares; Issued and outstanding
62,500,000 shares in 1999 and 1998 625 625
Paid-in capital 73,308 73,665
Accumulated deficit (35,957) (29,578)
Accumulated other comprehensive earnings (losses)
net of taxes (79) 1
------------- -------------
Total stockholders' equity 38,086 44,902
------------- -------------
Commitments and contingencies (note 7)
Total liabilities and stockholders' equity $ 208,616 211,219
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
I-2
<PAGE> 4
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Liberty Media Corporation)
Consolidated Statements of Operations and Comprehensive Loss
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 1998
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
Revenue - unaffiliated $ 14,859 10,620
Revenue - related party (note 3) 7,732 7,808
------------ ------------
22,591 18,428
Operating expenses:
Operating (note 3) 6,112 5,305
Selling, general and administrative 14,649 10,723
Stock compensation (note 5) 138 42
Depreciation and amortization 6,837 5,218
------------ ------------
27,736 21,288
------------ ------------
Net operating loss (5,145) (2,860)
Other expense:
Interest expense:
Unaffiliated, net (1,497) (952)
Related party (note 3) (21) (88)
------------ ------------
(1,518) (1,040)
Other, net (157) (111)
------------ ------------
Loss from continuing operations before income taxes (6,820) (4,011)
Income tax benefit 441 91
------------ ------------
Loss from continuing operations (6,379) (3,920)
------------ ------------
Loss from discontinued operations
(net of income taxes of $280) (note 6) -- (507)
------------ ------------
Net loss $ (6,379) (4,427)
Accretion of redeemable convertible preferred stock $ (378) (374)
------------ ------------
Net loss attributable to common stockholders $ (6,757) (4,801)
============ ============
Basic and diluted loss from continuing operations per
common share (note 5) $ (0.08) (0.05)
============ ============
Basic and diluted loss attributable to common
stockholders per common share (note 5) $ (0.08) (0.06)
============ ============
Weighted average number of common shares 81,377 80,749
============ ============
Comprehensive loss $ (6,459) (4,465)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
I-3
<PAGE> 5
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Liberty Media Corporation)
Consolidated Statement of Stockholders' Equity
(amounts in thousands)
<TABLE>
<CAPTION>
Common stock Accumulated other
------------------- Paid in Accumulated comprehensive losses,
Series A Series B capital deficit net of taxes Total
-------- -------- ------- ------------ --------------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 $ 189 625 73,665 (29,578) 1 44,902
Conversion of preferred stock -- -- 21 -- -- 21
Accretion of redeemable
convertible preferred stock -- -- (378) -- --
(378)
Foreign currency translation
adjustment -- -- -- -- (80) (80)
Net loss -- -- -- (6,379) -- (6,379)
-------- -------- ------- ----------- --------- ------
Balance at March 31, 1999,
(unaudited) $ 189 625 73,308 (35,957) (79) 38,086
======== ======== ======= =========== ========= ======
</TABLE>
See accompanying notes to consolidated financial statements
I-4
<PAGE> 6
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Liberty Media Corporation)
Consolidated Statement of Cash Flows
(amounts in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 1998
---------- ----------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,379) (4,427)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 6,837 5,251
Share of losses of affiliates 106 105
Stock compensation 138 42
Intercompany current tax allocation (226) (488)
Provision for doubtful accounts 354 180
Deferred income tax expense (benefit) (423) 117
Changes in operating assets and liabilities, net of the effect
of acquisitions:
Trade receivables (146) (881)
Prepaid expenses and other current assets 1,117 (1,881)
Accounts payable, accrued expenses and other current
liabilities (1,883) (1,397)
Net current assets of a discontinued operation (472) --
---------- ----------
Net cash used in operating activities (977) (3,379)
Cash flows from investing activities:
Cash paid for acquisitions (1,082) (10,113)
Capital expended for property and equipment, net (3,608) (2,486)
Changes in other assets (68) (146)
---------- ----------
Net cash used in investing activities (4,758) (12,745)
Cash flows from financing activities:
Borrowing on note payable to bank 4,500 18,750
Borrowing on note payable to a related party 1,650 --
Repayment of notes payable to bank and others (463) (3,233)
Repayment of principal and interest to related party (113) (3,298)
---------- ----------
Net cash provided by financing activities 5,574 12,219
---------- ----------
Net decrease in cash
and cash equivalents (161) (3,905)
Cash and cash equivalents, beginning of period 5,860 7,915
---------- ----------
Cash and cash equivalents, end of period $ 5,699 4,010
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
I-5
<PAGE> 7
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Liberty Media Corporation))
Notes to Consolidated Financial Statements
March 31, 1999
(unaudited)
(1) Organization
TCI Music, Inc. ("TCI Music" or "the Company") was incorporated on
January 21, 1997. On January 24, 1997 one share of TCI Music Series B
Common Stock, $.01 par value per share ("TCI Music Series B Common
Stock"), was issued to Tele-Communications, Inc. ("TCI") for a capital
contribution of $1. On July 11, 1997, DMX Inc. (now DMX, LLC) ("DMX")
and TCI Music consummated a merger (the "DMX Merger") pursuant to an
Agreement and Plan of Merger, dated February 6, 1997, as amended by
Amendment One to Merger Agreement dated May 29, 1997, among DMX, TCI,
TCI Music, and TCI Merger Sub ("Merger Sub"), a wholly owned subsidiary
of TCI Music, whereby Merger Sub was merged with and into DMX, with DMX
as the surviving corporation and TCI Music became the successor
registrant to DMX.
On March 9, 1999 AT&T acquired TCI in a merger (the "AT&T Merger"). In
the AT&T Merger, (1) TCI became a wholly owned subsidiary of AT&T, (2)
the businesses and assets of the Liberty Media Group and TCI Ventures
Group were combined and (3) the holders of TCI's Liberty Media Group
tracking stock and TCI Ventures Group tracking stock received in
exchange for their shares a new class of tracking stock of AT&T
intended to reflect the results of the combined Liberty Media Group and
TCI Ventures Group. Following the AT&T Merger, AT&T's "Liberty Media
Group" consists of the assets and businesses of TCI's Liberty Media
Group and TCI Ventures Group. TCI Music is included in AT&T's "Liberty
Media Group".
TCI Music has three classes of stock outstanding at March 31, 1999, the
TCI Music Series A Convertible Preferred Stock, $.01 par value per
share ("TCI Music Preferred Stock"), TCI Music Series A Common Stock,
$.01 par value per share ("TCI Music Series A Common Stock") and TCI
Music Series B Common Stock. The TCI Music Series A Common Stock, the
TCI Music Series B Common Stock, and the TCI Music Preferred Stock are
collectively referred to as the "TCI Music Stock". Liberty Media
Corporation ("Liberty") beneficially owns approximately 5.2% of the
outstanding TCI Music Preferred Stock, 62% of the outstanding shares of
TCI Music Series A Common Stock and 100% of the outstanding shares of
TCI Music Series B Common Stock, which collectively represents
approximately 86.4% of the outstanding shares of TCI Music Stock and
98.2% of the voting power of the outstanding shares of TCI Music Stock,
in each case assuming conversion of the TCI Music Preferred Stock.
TCI Music, through its subsidiaries and affiliates, is principally
engaged in (i) programming, distributing and marketing digital and
analog music delivered to homes and businesses, (ii) programming,
distributing, and marketing digital and analog music videos and (iii)
the creation, production, and distribution of music content via the
internet.
Basis of Presentation
The accompanying interim consolidated financial statements are
unaudited and, in the opinion of management, reflect all adjustments
necessary for a fair presentation of the results for such periods. The
results of operations for any interim period are not necessarily
indicative of results for the full year. The accompanying financial
information should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Company's Annual
report filed on Form 10-K for the year ended December 31, 1998.
Reclassifications
Certain reclassifications of prior period amounts have been made to
conform to the current year's reporting format.
I-6
<PAGE> 8
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Liberty Media Corporation))
Notes to Consolidated Financial Statements
March 31, 1999
(unaudited)
Derivative Financial Instruments
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133"), which is effective
for all fiscal years beginning after September 15, 1999. SFAS 133
establishes accounting and reporting standards for derivative
instruments and hedging activities by requiring that all derivative
instruments be reported as assets or liabilities and measured at their
fair values. Under SFAS 133, changes in the fair values of derivative
instruments are recognized immediately in earnings unless those
instruments qualify as hedges of the (1) fair values of existing
assets, liabilities, or firm commitments, (2) variability of cash flows
of forecasted transactions, or (3) foreign currency exposures on net
investments in foreign operations. As of March 31, 1999, the Company
has not entered into any derivative contracts nor does it hold any
derivative financial instruments.
(2) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $1,248,000 and $1,188,000 for the three
months ended March 31, 1999 and 1998, respectively. Cash paid for taxes
for the periods presented was not material.
Significant non-cash investing and related financing activities for the
three month periods ended March 31, are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
------------ ------------
<S> <C> <C>
Cash paid for acquisitions:
Fair value of assets acquired $ 1,998 15,137
Net liabilities assumed (6) (1,123)
Debt issued (910) (775)
Common stock issued in acquisitions -- (3,126)
------------ ------------
Cash paid for acquisitions $ 1,082 10,113
============ ============
Accretion of redeemable convertible preferred stock $ 378 374
============ ============
Conversion of preferred stock into common stock $ 21 --
============ ============
Accretion of put option to purchase shares from a subsidiary $ -- 1,213
============ ============
</TABLE>
(3) Related Party Transactions
Pursuant to the Amended Contribution Agreement between TCI and TCI
Music effective since July 1, 1997, TCI is required to deliver, or
cause certain of its subsidiaries to deliver to TCI Music the annual
payments, aggregating $18 million, adjusted annually through 2017 (the
"Annual Payments"). During the three months ended March 31, 1999 and
1998, the Company recognized revenue from TCI of $4.9 million and $5.1
million, respectively, pursuant to the Amended Contribution Agreement.
TCI charged TCI Music $435,000 and $565,000, during the three months
ended March 31, 1999 and 1998, respectively, for certain services
rendered in connection with the Annual TCI Payments. Such charges are
included in operating expenses in the accompanying consolidated
statements of operations and comprehensive losses.
Pursuant to an affiliation agreement between Satellite Services, Inc.
("SSI"), a wholly-owned subsidiary of TCI, and the Company (the "SSI
Affiliation Agreement"), effective as of July 1, 1997, SSI has the
non-exclusive right to distribute and subdistribute DMX services to
commercial and residential customers for a 10-year period in exchange
for licensing fees paid by SSI to the Company. Under the SSI
Affiliation Agreement, SSI will pay an annual fee to the Company of
$8.5 million subject to annual adjustments. During the three months
ended March 31, 1999 and 1998, the Company recognized revenue of $2.1
million for each period, pursuant to the SSI Affiliation Agreement. In
addition, the Company received subscriber revenues from TCI of $672,000
and $618,000, during the three months
I-7
<PAGE> 9
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Liberty Media Corporation))
Notes to Consolidated Financial Statements
March 31, 1999
(unaudited)
ended March 31, 1999 and 1998, respectively, in connection with the
distribution of DMX services through TCI's digital business.
On March 19, 1999, the company signed a promissory note with Liberty
allowing the company to draw funds from time to time up to a total of
$15 million. The promissory note is due on or before June 30, 2006 with
interest at 9.5% per annum, payable quarterly starting March 31, 1999.
At March 31, 1999, the company had drawn funds amounting to $1,650,000
and had recorded this borrowing as long term related party debt in the
consolidated balance sheet.
Also, the company has an outstanding debt obligation of $572,000 to
National Digital Television Center, Inc. (NDTC), a subsidiary of TCI.
Such obligation extends through the year 2000 and bears interest at
9.5%. At March 31, 1999, $483,000 is reflected as current and the
balance of $89,000 is reflected as part of the long term related party
debt in the consolidated balance sheet.
The Company leases certain office space, uplinking and satellite
services from NDTC. Total expenses under such lease agreements were
$1.6 million and $1.2 million for the three months ended March 31, 1999
and 1998, respectively. Such expenses are included in operating
expenses.
TCI Music is included in the consolidated federal income tax return of
TCI up to February 28, 1999 and will be included with AT&T's starting
March 1, 1999, as a result of the AT&T Merger. Income tax expense or
benefit for TCI Music is based on those items in the consolidated
calculation applicable to TCI Music. Intercompany tax allocation
represents an apportionment of tax expense or benefit (other than
deferred taxes) among the subsidiaries of AT&T in relation to their
respective amounts of taxable earnings or losses.
(4) Debt
On December 30, 1997 the Company entered into a revolving loan
agreement (the "Revolving Loan Agreement") with several banks, which
provides for borrowings up to $100 million. Interest on borrowings
under the agreement is tied to London Interbank Offered Rate ("LIBOR"),
plus an applicable margin dependent upon the Company's leverage ratio,
(as defined in the Revolving Loan Agreement), for the preceding quarter
or at the bank's base rate. The Revolving Loan Agreement matures on
June 30, 2005 with principal reductions beginning semi-annually on June
30, 2000 based on a scheduled percentage of the total commitment. A
commitment fee is charged on the unborrowed portion of the Revolving
Loan Agreement commitment, $464,000 as of March 31, 1999, ranging from
.25% to .375% based upon the leverage ratio for the preceding quarter.
Included in accrued liabilities are $892,000 and $535,000 at March 31,
1999 and December 31, 1998, respectively, of accrued interest on the
revolving loan. The outstanding amounts of borrowings as at March 31,
1999 and December 31, 1998 were $99,536,000 and $95,036,000
respectively.
The Company assumed debt and issued notes payable to former owners in
connection with acquisitions made in 1998 and during the three months
ended March 31, 1999. The notes bearing interest range from 5% to the
Prime Rate and have a total balance of $2,918,000, of which $1,375,000
is classified as current in the accompanying consolidated balance sheet
as of March 31, 1999.
The fair market value of TCI Music's debt approximated its carrying
value at March 31, 1999.
I-8
<PAGE> 10
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Liberty Media Corporation))
Notes to Consolidated Financial Statements
March 31, 1999
(unaudited)
(5) Stockholders' Equity
Stock Options and Stock Appreciation Rights
Estimates of the compensation relating to options and/or stock
appreciation rights granted to employees of TCI Music and members of
the Board have been recorded in the accompanying financial statements,
but are subject to future adjustment based upon vesting and the market
value of TCI Music Series A Common Stock and, ultimately, on the final
determination of market value when the rights are exercised. The
payable arising from the compensation related to the options and/or
stock appreciation rights is included in other liabilities.
Capital Stock
The Company has the authority to issue 500 million shares of capital
stock consisting of (i) 295 million shares of TCI Music Series A Common
Stock; (ii) 200 million shares of TCI Music Series B Common Stock; and
(iii) 5 million shares of TCI Music Preferred Stock. The TCI Music
Series A Common Stock and TCI Music Series B Common Stock are identical
except for voting and conversion rights. Each share of TCI Music Series
A Common Stock entitles the holder to one vote and each share of TCI
Music Series B Common Stock entitles the holder to ten votes, on each
matter submitted to stockholders for a vote. Each share of TCI Music
Series B Common Stock is convertible, at the option of the holder, at
any time into one share of TCI Music Series A Common Stock. The TCI
Music Series A Common Stock is not convertible into TCI Music Series B
Common Stock. The TCI Music Preferred Stock may be converted by the
holder at any time in whole or in part into shares of TCI Music Series
A Common Stock at the conversion rate of three shares of TCI Music
Series A Common Stock for each share of TCI Music Preferred Stock. Each
share of TCI Music Preferred Stock is entitled to vote on all matters
submitted to a vote of the holders of TCI Music Series A Common Stock
and the number of votes is equal to the number of shares of TCI Music
Series A Common Stock into which such shares are convertible as of the
record date in the matters to be voted upon.
Loss Per Common and Potential Common Share
Basic earnings per share ("basic EPS") is measured as the income or
loss available to common stockholders divided by the weighted average
outstanding common shares for the period. Diluted earnings per share
("diluted EPS") is similar to basic EPS but presents the dilutive
effect on a per share basis of potential common shares as if they had
been converted at the beginning of the periods presented. Potential
common shares that have an anti-dilutive effect are excluded from
diluted EPS.
The basic and diluted loss attributable to TCI Music common
stockholders per common share for the three months ended March 31, 1999
were computed by dividing the net loss, including accretion of the
redeemable preferred stock of $378,000 and $374,000 for the three
months ended March 31,1999 and 1998, respectively, by the weighted
average number of common shares outstanding during such periods.
Potential common shares were not included in the computation of
weighted average shares outstanding because their inclusion would be
anti-dilutive.
At March 31, 1999, there were 10.4 million potential common shares,
consisting of director and employee stock options and shares of TCI
Music Series A common stock issuable upon conversion of shares of TCI
Music Preferred Stock that could potentially dilute future EPS
calculations in periods of net income. Such potential common share
amount does not take into account the assumed number of shares that
would be repurchased by TCI Music upon exercise of the director and
employee stock options.
I-9
<PAGE> 11
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Liberty Media Corporation))
Notes to Consolidated Financial Statements
March 31, 1999
(unaudited)
(6) Discontinuance of Paradigm Associated Labels
On December 21, 1998 the management of TCI Music decided to discontinue
the operations and sell the assets of Paradigm Associated Labels
("PAL"), which was a separate operating entity acquired in the Paradigm
Merger. The Company executed a letter of intent with a purchaser for
the purchaser to acquire all the assets of PAL in exchange for
assumption of all operating liabilities starting March 1, 1999. The
disposal of PAL was accounted for as a discontinued operation in 1998
and accordingly the operating results of PAL for the three months ended
March 31, 1998 have been reclassified as a discontinued operation in
the consolidated statement of operations and comprehensive losses to
conform with the current period reporting format. The remaining assets
of PAL after giving effect to its disposal are shown as "net assets of
discontinued operation" in the consolidated balance sheet as summarized
below:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Income tax receivable, related party $ 1,130 1,130
Accounts payable and accrued expenses $ (526) (998)
--------------- ---------------
Net assets $ 604 132
=============== ===============
</TABLE>
(7) Commitments and Contingencies
Parent Guarantees
The Company has guaranteed certain contracts of DMX-E related to
DMX-E's uplink services agreement and subscriber management services
agreement. To the extent DMX-E is unable to perform under the
agreements, certain creditors of DMX-E may pursue claims against the
Company under the guarantees. The Company has also guaranteed certain
other obligations of DMX-E under the Subscriber Management Services
Agreement between DMX-E and Selco Servicegesellschaft fur elektronische
Kommunikation GmbH ("Selco"), and the related side letter agreement
(the "Selco Agreement"). The Company cannot estimate the amount of any
potential claims at this time under such guarantee. However, the
Company has received a letter from counsel for Selco requesting that
the Company make a proposal to settle claims alleged by Selco for
damages in the amount of approximately $2.5 million with respect to a
guarantee by the Company of obligations of DMX-E under the Selco
Agreement. Selco's counsel has indicated that Selco intends to initiate
formal legal proceedings if DMX does not offer a settlement proposal.
On February 8, 1999 the Company received a letter and proposed
complaint from Selco, indicating that if the Company did not make a
settlement offer, Selco would file the proposed complaint. On April 8,
1999 the Company made Selco a settlement offer in the amount of
$250,000. Selco has not responded to the settlement offer. The Company
has accrued certain amounts based on the facts available as of the date
of this Form 10-Q. Not withstanding the forgoing settlement offer, no
assurance can be given that Selco will not continue to pursue its
claims and, if Selco elects to initiate formal legal proceedings,
whether the Company will be held liable for any material amount.
I-10
<PAGE> 12
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Liberty Media Corporation))
Notes to Consolidated Financial Statements
March 31, 1999
(unaudited)
Legal Actions
On September 8, 1996, a purported class action lawsuit entitled
Brickell Partners v. Jerold H. Rubinstein, Donne F. Fisher, Leo J.
Hindery, Jr., James R. Shaw, Sr., Kent Burkhart, J.C. Sparkman, Bhaskar
Menon, DMX Inc., and Tele-Communications, Inc. (Civil Action No. 15206)
was filed in the Delaware Chancery Court alleging, among other things,
that the proposed acquisition of DMX by TCI was wrongful, unfair and
harmful to DMX's public stockholders and seeking to enjoin the
consummation of the Merger. This case has been dismissed.
On or about July 7, 1993, the American Society of Composers, Authors,
and Publishers ("ASCAP") initiated an action against the Company and
others in the United States District Court for the Southern District of
New York. The action is being brought by ASCAP for a determination of a
reasonable license fee for the right to use music in the ASCAP
repertory. The Company entered into a stipulation with ASCAP wherein
the Company will not actively participate in the proceedings, but will
be bound by the District Court's findings.
On or about December 8, 1998, Broadcast Music, Inc. ("BMI") initiated
an action against the Company and others in the United States District
Court for the Southern District of New York. The action is being
brought by BMI for a determination of a reasonable license fee for the
right to use music in the BMI repertory. The parties are currently
beginning the discovery process and will be submitting briefs to
determine the issues in the case.
From time to time the Company may be a party to legal actions arising
in the ordinary course of business, including claims by former
employees. In the opinion of the Company's management, after
consultation with counsel, disposition of such matters are not expected
to have a material adverse effect upon the financial position, results
of operations or liquidity of the Company.
(8) Information about the Company's segments
TCI Music has three reportable business segments from its continuing
operations: "Audio", which represents the operations of DMX, a segment
engaged in programming, distributing and marketing a digital music
service delivered to homes and businesses via cable or satellite;
"Video", which represents the operations of The Box, a segment engaged
in programming, distributing and marketing a television music
programming service delivered through satellite and low power TV
signals; and "Internet", which represents the operations of SonicNet,
which is engaged in creating, distributing and marketing interactive
music programming, products and services via the internet.
The Company evaluates performance based on income or loss from
operations before income taxes. The Company's reportable segments are
strategic business units that offer different products and services.
They are managed separately because each business requires different
technology and marketing strategies. The Company utilizes the following
financial information for the purpose of making decisions about
allocating resources to a segment and assessing a segment's performance
(amounts in thousands):
I-11
<PAGE> 13
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Liberty Media Corporation))
Notes to Consolidated Financial Statements
March 31, 1999
(unaudited)
<TABLE>
<CAPTION>
Audio Video Internet Total
----- ----- -------- -----
Three months ended March 31, 1999
- ---------------------------------
<S> <C> <C> <C> <C>
Revenues $ 15,725 6,270 596 22,591
Income (loss) from continuing operations before
income taxes $ 373 (3,886) (3,307) (6,820)
Expenditures for segment assets $ 4,332 1,004 664 6,000
March 31, 1999
- --------------
Segment assets $ 171,678 28,247 8,087 208,012
Three months ended March 31, 1998
- ---------------------------------
Revenues $ 12,750 5,338 340 18,428
Income (loss) from continuing operations before
income taxes $ 415 (2,586) (1,840) (4,011)
Expenditures for segment assets $ 16,087 1,100 44 17,231
December 31, 1998
- -----------------
Segment assets $ 163,614 33,218 14,255 211,087
</TABLE>
A reconciliation of reportable segment assets to the Company's consolidated
assets is as follows (amounts in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Total assets for reportable segments $ 208,012 211,087
Assets of discontinued operations 604 132
------------- -------------
$ 208,616 211,219
============= =============
</TABLE>
I-12
<PAGE> 14
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Liberty Media Corporation))
Notes to Consolidated Financial Statements
March 31, 1999
(unaudited)
(9) Subsequent event
On April 6, 1999, the company received a proposal from Liberty to enter
into a transaction, in which Liberty would contribute substantially all
of its Internet and interactive television assets, including those held
by its wholly owned subsidiary, Liberty Digital, Inc. to the Company in
exchange for newly issued shares of TCI Music Series B Common Stock.
The assets proposed to be contributed include equity investments in
various internet companies as well as Liberty's rights with respect to
channel capacity on AT&T's cable systems for the processing of
interactive video services under an agreement entered into in
connection with the AT&T Merger. The Company would assume approximately
$50 million in debt related to the contributed assets.
As part of the proposal, Liberty also proposes to loan up to $50
million to the Company pursuant to a convertible note on terms to be
mutually agreed upon and any debt currently owed by the Company to
Liberty also would be exchanged for convertible debt on the same terms.
Following the transaction, the company would change its name to Liberty
Digital, Inc. The proposal states that subject to mutually agreeable
terms and conditions, Liberty will agree that the Company will be its
primary vehicle for investing in and developing Internet and other
interactive media businesses.
Under the proposal, 128,755,360 shares of TCI Music Series B Common
Stock would be issued to Liberty, thereby causing Liberty's interest in
the Company to increase from approximately 86% to 94% of the
outstanding shares of TCI Music Stock.
Liberty and TCI Music are in the process of negotiating a definitive
agreement with respect to the proposed transaction.
I-13
<PAGE> 15
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Liberty Media Corporation))
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion and analysis provides information concerning the
results of operations and financial condition of the Company and should be read
in conjunction with the accompanying consolidated financial statements and notes
thereto of the Company. Additionally, the following discussion and analysis
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and financial statements included
in Part IV of the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. The following discussion focuses on material trends, risks
and uncertainties affecting the results of operations and financial condition of
the Company.
Certain statements in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. In particular, some of the statements contained
under this caption are forward-looking. Such forward-looking statements involve
known and unknown risks, uncertainties and other important factors that could
cause the actual results, performance or achievements of the Company to differ
materially from future results, performance, or achievements expressed or
implied by such forward-looking statements. Such risks, uncertainties and other
factors include, among others: general economic and business conditions and
industry trends; the regulatory and competitive environment of the industries in
which the Company has interests or operations; uncertainties inherent in new
business strategies; uncertainties inherent in the changeover to year 2000,
including the Company's projected state of readiness, the projected cost of
remediation, the expected date of completion of each program or phase, the
projected worst case scenarios; and the expected contingency plans associated
with such worst case scenarios; new product launches and development plans;
rapid technological changes; development and provisions of programming for new
television and telecommunications technologies; future financial performance,
including availability, terms and deployment of capital; the ability of vendors
to deliver required equipment, software and services; availability of qualified
personnel; changes in, or failure or inability to comply with, government
regulations; changes in the nature of key strategic relationships with partners
and joint venturers; and competitor responses to the Company's products and
services, and the products and services of the entities in which the Company has
interests, and the overall market acceptance of such products and services.
These forward-looking statements (and such risks, uncertainties and other
factors) speak only as of the date of this Report, and the Company expressly
disclaims any obligation or undertaking to disseminate any updates or revisions
to any forward-looking statement contained herein to reflect any change in the
Company's expectations with regard thereto, or any other change in events,
conditions or circumstances on which any such statement is based. Any statement
contained within Management's Discussion and Analysis of Financial Condition and
Results of Operations related to year 2000 are hereby denominated as "Year 2000
Statements" within the meaning of the Year 2000 Information and Readiness
Disclosure Act.
Year 2000
During the three months ended March 31, 1999, TCI Music, in conjunction with
AT&T, continued its enterprise-wide comprehensive efforts to assess and
remediate its computer systems and related software and equipment to ensure such
systems, software and equipment recognize, process and store information in the
year 2000 and thereafter. AT&T's year 2000 remediation efforts include an
assessment of TCI Music's most critical systems, equipment, and facilities. AT&T
also continued its effort to verify the year 2000 readiness of TCI Music's
significant suppliers and vendors and continued to communicate with significant
business partners to assess such partners year 2000 status.
AT&T has a year 2000 Program Management Office (the "PMO") to organize and
manage its year 2000 remediation efforts. The PMO is responsible for overseeing,
coordinating and reporting on TCI Music's year 2000 remediation efforts. The PMO
has defined a four-phase approach to determining the year 2000 readiness of TCI
Music's systems, software and equipment. Such approach is expected to provide a
detailed method for tracking the evaluation, repair and testing of TCI Music's
critical systems,
I-14
<PAGE> 16
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Liberty Media Corporation))
software and equipment. Phase 1, Assessment, involves the inventory of all
critical systems, software and equipment and the identification of any year 2000
issues. Phase 1 also includes the preparation of the work plans needed for
remediation. Phase 2, Remediation, involves repairing, upgrading and/or
replacing any non-compliant critical equipment and systems. Phase 3, Testing
involves testing TCI Music's critical systems, software and equipment for year
2000 readiness, or in certain cases, relying on test results provided to TCI
Music. Phase 4, Implementation, involves placing compliant systems, software and
equipment into production or service.
At March 31, 1999, TCI Music's overall progress by phase was as follows:
<TABLE>
<CAPTION>
Phase Percentage of Year 2000 Projects Expected Completion Date
-------------------------------- ------------------------
Completed by Phase* All Year 2000 Projects
------------------- ----------------------
<S> <C> <C>
Phase 1-Assessment 100% n/a
Phase 2-Remediation 68% May 1999
Phase 3-Testing 52% June 1999
Phase 4-Implementation 44% July 1999
</TABLE>
- ---------------------
*Number of Year 2000 projects completed in each phase as a percentage
of the total number of Year 2000 projects.
The completion dates set forth above are based on TCI Music's current
expectations. However, due to the uncertainties inherent in year 2000
remediation, no assurances can be given as to whether such projects will be
completed on such dates.
TCI Music is completing an inventory of critical systems with embedded
technologies that impact it's operations and is currently determining the
correct remediation approach. The embedded technology assessments were completed
at the end of April 1999.
During the three months ended March 31, 1999, AT&T continued its survey of
significant third-party vendors and suppliers whose systems, services or
products are important to TCI Music's operations. The year 2000 readiness of
such providers is critical to continued provision of TCI Music's services. AT&T
has received information that critical systems, services or products supplied to
TCI Music by third parties are either year 2000 ready or are expected to be year
2000 ready by mid-1999.
In addition to the survey process described above, management of TCI Music has
identified its most critical supplier/vendor relationships and has instituted a
verification process to determine the vendors' year 2000 readiness. Such
verification includes, as deemed necessary, reviewing vendors' test and other
data and engaging in regular conferences with vendors' year 2000 team. TCI Music
is also requiring testing to validate the year 2000 compliance of certain
critical products and services.
Year 2000 expenses and capital expenditures incurred during the three months
ended March 31, 1999 were immaterial. Management of TCI Music currently
estimates the total cost associated with TCI Music's year 2000 remediation
efforts to be not less than $530,000 (including TCI Music's pro rata share of
the $33 million cost for replacement of noncompliant information technology
("IT") systems). Although no assurances can be given, management currently
expects that (i) cash flow from operations will fund the costs associated with
year 2000 compliance and (ii) the total projected cost associated with TCI
Music's year 2000 program will not be material to TCI Music's financial
position, results of operations or cash flows.
AT&T is a widely distributed enterprise in which allocation of certain
resources, including IT support is decentralized. Accordingly, neither AT&T nor
TCI Music consolidates an IT budget. Therefore, total estimated year 2000 costs
as a percentage of an IT budget are not available. There are currently no
planned IT projects being deferred due to year 2000 costs.
The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. Management
believes that its year 2000 program will significantly reduce TCI Music's risks
associated with the changeover to the year 2000 and has implemented certain
contingency plans to minimize the effect of any potential year 2000 related
disruptions. The risks and the uncertainties discussed below and the associated
contingency plans relate to systems, software, equipment, and services that TCI
Music has deemed critical in regard to customer service, business operations,
financial impact or safety.
I-15
<PAGE> 17
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Liberty Media Corporation))
The failure of certain signal origination equipment or software could disrupt
the delivery of digital music services to customers and could necessitate
crediting customers for failure to receive such premium services. In this event,
management expects that it will transmit repetitive programming until the
problem is resolved. Further, a failure of certain hardware and software could
disrupt the delivery of music video programming services. Management anticipates
that it could resolve the issue by manual intervention until the situation could
be corrected.
A failure of the services provided by billing systems service providers could
result in a loss of customer records which could result in a disruption in the
ability to bill customers for a protracted period. TCI Music plans to prepare
electronic backup records of its customer billing information prior to the year
2000 to allow for data recovery. In addition, TCI Music continues to monitor the
year 2000 readiness of its key customer billing suppliers.
Security and fire protection systems failure could leave facilities vulnerable
to intrusion and fire. TCI Music expects to return such systems to normal
functioning by turning the power off and then on again ("power off/on"). TCI
Music also plans to have additional security staff on site and plans to
implement a backup plan for communicating with local fire and police
departments. Also, certain personal computers interface with and control
elevators, escalators, wireless systems, public access systems and certain
telephony systems. In the event such computers cease operating, conducting a
power off/on is expected to resume normal functioning. If a power off/on does
not resume normal functioning, management expects to resolve the problem by
resetting the computer to a pre-designated date, which precedes the year 2000.
In the event that the local public utility cannot supply power, TCI Music
expects to supply power for a limited time to its Denver and Miami studio
through backup generators.
The financial impact of any or all of the above worst-case scenarios has not
been and cannot be estimated by TCI Music due to the numerous uncertainties and
variables associated with such scenarios.
TCI Music does not presently anticipate that there will be material losses from
any claims of breach of contract due to year 2000 issues.
Summary of Operations
TCI Music has three reportable segments from its continuing operations: "Audio"
which represents the operations of DMX, which is engaged in programming,
distributing and marketing a digital music service delivered to homes and
businesses; "Video", which represents the operations of The Box, which is
principally engaged in programming, distributing and marketing a television
programming service under the name The Box Music Network; and "Internet", which
represents the operations of SonicNet, which is principally engaged in creating,
distributing and marketing interactive music programming, products and services
through the internet.
A principal amount of the Audio segment revenues are derived from certain
payments made by TCI under a Contribution Agreement, as amended, between TCI and
the Company (the "Amended Contribution Agreement"). Pursuant to the Amended
Contribution Agreement, TCI is required to deliver, or cause certain of its
subsidiaries to deliver to the Company monthly payments aggregating $18 million
annually, adjusted annually through 2017 (the "Annual TCI Payments"). The
adjusted payments for the three months ended March 31, 1999 was $4.9 million.
The Annual TCI Payments represent the revenue received by TCI affiliates from
sales of DMX services net of an amount equal to 10% of the revenue from such
sales to residential subscribers and net of license fees otherwise payable to
the Company.
Revenue
Total revenue, increased $4.2 million for the three months ended March 31, 1999,
a 23% increase over the corresponding period in the prior year. Of the increase,
$3.0 million or 72% is attributable to the Audio segment; $932,000 or 23% is
attributable to the Video segment; and $256,000 or 6% is attributable to the
Internet segment. Total revenues derived from the Audio segment increased $3.0
million or 23%. This growth is primarily due to increased subscriber revenue and
equipment sales as a result of continued growth in DMX's residential and
commercial subscriber bases. Total revenues
I-16
<PAGE> 18
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Liberty Media Corporation))
derived from the Video segment increased $932,000 or 18%. This increase was due
to The Box viewer revenue increasing by $673,000 or 28% as a result of increased
distribution in domestic and international households, as well as an increase of
$259,000 or 9% in national advertising revenue. Also Internet segment
advertising revenue increased $256,000 or 75% as SonicNet increased its base of
advertising clients.
Operating Expenses
Operating expenses increased $807,000 or 15% for the three months ended March
31, 1999 as compared to the corresponding period in the prior year. The increase
is attributable to higher Video segment operating expenses. In order to expand
its national penetration of cable subscribers, The Box made higher affiliation
fee payments to major cable companies. The Audio segment had slightly lower
operating expenses as a decrease in satellite expenses offset increased costs
relating to music rights and royalties.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $3.9 million or 37% for
the three months ended March 31, 1999 compared to the corresponding period in
the prior year. Of the increase, $2.1 million or 54% is attributable to the
Audio segment; $895,000 or 23% is attributable to the Video segment; and
$896,000 or 23% is attributable to the Internet segment. Selling, general and
administrative expenses incurred by the Audio segment increased $2.1 million or
44% as a result of increased personnel, occupancy and promotional expenses
associated with DMX's growth in subscriber revenues and expenses related to the
1998 expansion of its commercial business in eight new markets. Selling, general
and administrative expenses in the Video segment increased $895,000 or 20% as a
result of increased personnel, advertising commissions and tradeshows at The
Box. These costs are necessary in order to support the growth of The Box
distribution and advertising revenues. Selling, general and administrative
expenses increased $896,000 or 61% for the Internet segment as SonicNet
continued the development of its music related Internet projects and of its
websites.
Stock Compensation
As a result of recent increases in the trading price of the TCI Music Series A
Common Stock during the month of April 1999, the average price of TCI Music
Common A shares increased to $40.70 per share. As a result of this price
increase, as at April 30, 1999, there were 164,130 options exercised at a
weighted average price of $46.20 per share and there were 1,444,488 options that
were vested and exercisable. The excess of the current market price over the
exercise price of the stock options (ranging from $4.00 to $6.50 per share)
which were exercised and the assumed conversion of the vested options will be
recorded as stock compensation expense. Such expense is expected to be
significant in the second quarter of 1999.
Depreciation and Amortization
Depreciation and amortization expense increased $1.6 million for the three
months ended March 31, 1999 when compared to the corresponding period in the
prior year. Such increase is primarily attributable to an increase in the
balance of property and equipment and intangibles resulting from the mergers
with DMX, The Box and Paradigm in 1997 and acquisitions made by DMX during 1998
and during the three months ending March 31, 1999.
Interest Expense
For the three months ended March 31, 1999 and 1998, the Company recorded
interest expense and financing costs of $1.5 million and $952,000 respectively.
At March 31, 1999 the Company had outstanding borrowings from unrelated parties
of $102,454,000 under variable-rate debt agreements.
TCI Music's interest expense on borrowings from related parties for the three
months ended March 31, 1999 and 1998 were insignificant.
Loss from Operations of Discontinued Operation
Paradigm Associated Labels (PAL) was acquired as part of the Paradigm Merger on
December 31, 1997. PAL was a non-core operating unit devoted to the development
of new artist recorded music releases.
I-17
<PAGE> 19
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Liberty Media Corporation))
In December 1998, as a result of changes in market conditions affecting the
viability of small record labels, management decided to discontinue the PAL
operations and focus the Company's operations on the delivery of music and music
entertainment services primarily through internet, cable and satellite channels.
As a result thereof, the Company recorded the operating losses, asset writeoffs,
and accrual for potential losses arising from its disposal, as loss from
discontinued operation in 1998. Accordingly, for the three months ended March
31, 1998, the net operating loss of PAL of $507,000, net of tax benefits of
$280,000, was reclassified as loss from discontinued operation in the
consolidated statement of operations and comprehensive losses to conform with
the same format as the current period.
Liquidity and Capital Resources
During the three months ended March 31, 1999, the Company's financing activities
provided funds of $5.6 million, which were used for its operating and investing
activities. Of the $5.6 million, $1.0 million was used for operating activities
and $4.8 million was used for new business acquisitions and purchases of
property and equipment, resulting in a net decrease in cash of $161,000.
As described in note 4 to the accompanying consolidated financial statements,
the company entered into a revolving loan agreement, which provides borrowings
of up to $100 million. At March 31, 1999, TCI Music had approximately $500,000
available under the revolving loan agreement.
On March 19, 1999 the Company signed a promissory note with Liberty, allowing
the Company to draw funds from time to time up to a total of $15 million. At
March 31, 1999, the Company had drawn funds of $1,650,000 against the promissory
note.
TCI Music believes that net cash provided by operating activities (including the
Annual TCI Payments) and available capacity pursuant to the revolving loan
agreement and the promissory note will provide adequate sources of liquidity for
this year and intermediate future. As previously described, TCI Music is
entitled to receive the Annual TCI Payments through 2017.
Contingencies
The Company accrues music rights royalties at 6.5 percent payable to Recording
Industry Association of America (RIAA). If the Company is required to pay a
license royalty rate on a retroactive basis in excess of 6.5% as a result of
negotiations with the RIAA, no assurance can be given that such outcome will not
have a material adverse effect on the Company's consolidated financial position,
results of operations, or cash flows.
For additional information concerning other commitments and contingencies of the
company, see note 7 to the consolidated financial statements.
Termination of Primestar agreement
On April 28, 1999, the Company's distribution agreement with Primestar, a Direct
Broadcast via Satellite (DBS) distributor of packaged programming to the
residential market was terminated due to the acquisition of Primestar by Hughes
Electronics Corp. As a result, Primestar subscribers will no longer receive the
DMX music service after April 28, 1999. For the three months ended March 31,
1999, gross revenues from Primestar amounted to $1,034,000. Currently, the DMX
music service is not included in any programming of any other DBS Television
programming distributor in the United States.
I-18
<PAGE> 20
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Liberty Media Corporation))
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
27 TCI Music, Inc. Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended March 31, 1999:
None.
<PAGE> 21
TCI MUSIC, INC. AND SUBSIDIARIES
(A Subsidiary of Liberty Media Corporation))
SIGNATURES
Pursuant to the requirements 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.
TCI MUSIC, INC.
Date: May 17, 1999 By: /s/ Thomas McPartland
---------------------------------------
Thomas McPartland
President and
Chief Executive Officer
Date: May 17, 1999 By: /s/ Ralph J. Sorrentino
---------------------------------------
Ralph J. Sorrentino
Executive Vice President and
Chief Financial Officer
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,699,000
<SECURITIES> 0
<RECEIVABLES> 14,391,000
<ALLOWANCES> 1,076,000
<INVENTORY> 4,108,000
<CURRENT-ASSETS> 26,206,000
<PP&E> 33,842,000
<DEPRECIATION> 8,584,000
<TOTAL-ASSETS> 208,616,000
<CURRENT-LIABILITIES> 19,656,000
<BONDS> 101,078,000
34,679,000
0
<COMMON> 814,000
<OTHER-SE> 37,272,000
<TOTAL-LIABILITY-AND-EQUITY> 208,616,000
<SALES> 22,591,000
<TOTAL-REVENUES> 22,591,000
<CGS> 0
<TOTAL-COSTS> 27,736,000
<OTHER-EXPENSES> 157,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,518,000
<INCOME-PRETAX> (6,820,000)
<INCOME-TAX> 441,000
<INCOME-CONTINUING> (6,379,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,379,000)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
