<PAGE>
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 Number 0-24924
----------------------
THE ASSOCIATED GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0260858
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
200 Gateway Towers, Pittsburgh, Pennsylvania 15222
(Address of principal executive offices) (Zip Code)
412-281-1907
(Registrant's telephone number)
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 each of the issuer's classes of
common stock, as of May 11, 1999:
Common Stock, Class A 18,765,924
Common Stock, Class B 19,411,620
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
THE ASSOCIATED GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------------------------------------------
(dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 296,051 $ 418,246
Accounts receivable, less allowance for doubtful accounts
(March 31, 1999--$2,534; December 31, 1998--$2,143) 7,562 5,526
Receivable from related parties 2,470 2,368
Restricted cash and investments 38,155 32,183
Deferred income taxes 1,136 1,136
Other current assets 15,166 6,124
-------------------- ---------------------
Total current assets 360,540 465,583
Property and equipment, net of accumulated depreciation and
amortization (March 31, 1999--$51,269; December 31,
1998--$49,720) 257,255 207,075
Marketable equity securities, at fair value
(cost of $6,958 at March 31, 1999 and December 31, 1998) 1,810,389 1,605,368
Notes receivable from related parties 23,258 23,820
Restricted investments 33,103 33,117
Other noncurrent assets 94,285 96,389
-------------------- ---------------------
Total assets $ 2,578,830 $ 2,431,352
==================== =====================
</TABLE>
See notes to consolidated financial statements
<PAGE>
THE ASSOCIATED GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED) - Continued
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------------------------------------------
(dollars in thousands)
<S>
LIABILITIES AND STOCKHOLDERS' EQUITY <C> <C>
Current liabilities:
Accounts payable $ 158,611 $ 138,015
Employee compensation 11,651 14,837
Interest payable 11,635 2,930
Short-term obligations 162,892 151,186
Current portion of long-term debt 2,082 2,082
Other current liabilities 7,950 6,046
-------------------- ----------------
Total current liabilities 354,821 315,096
Deferred compensation 3,760 3,484
Long-term debt, excluding current portion 587,949 580,220
Deferred income taxes 577,228 508,227
Minority interests 11,407 29,957
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, par value $.01 per share;
authorized 5,000,000 shares; none issued - -
Class A Common Stock, par value $.10 per share;
authorized 100,000,000 shares; 18,765,924 issued
and outstanding in 1999 and 1998 1,876 1,876
Class B Common Stock, par value $.10 per share;
authorized 50,000,000 shares; 19,410,120 and 19,387,564
issued and outstanding in 1999 and 1998 1,941 1,939
Additional paid-in capital 155,875 152,482
Accumulated deficit (288,258) (200,896)
Accumulated other comprehensive income 1,172,231 1,038,967
-------------------- --------------------
Total stockholders' equity 1,043,665 994,368
-------------------- --------------------
Total liabilities and stockholders' equity $ 2,578,830 $ 2,431,352
==================== ====================
</TABLE>
See notes to consolidated financial statements
<PAGE>
THE ASSOCIATED GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
-----------------------------------------
(in thousands, except per share amounts)
<S> <C> <C>
Revenues $ 10,911 $ 7,380
Costs and expenses:
Cost of sales and services 39,008 10,981
Direct research and development expenses 1,855 1,856
Sales, general and administrative expenses 54,669 25,897
Stock-based compensation expense 6,559 6,630
Depreciation and amortization expense 9,251 2,881
------------------ ------------------
111,342 48,245
------------------ ------------------
Operating loss (100,431) (40,865)
Other income (expense):
Gain on sale of marketable equity securities - 1,162
Interest and dividend income 9,888 8,556
Interest expense (22,070) (13,953)
Minority interests 22,911 22,635
------------------ ------------------
10,729 18,400
------------------ ------------------
Loss before income taxes (89,702) (22,465)
Income tax benefit 2,340 2,281
------------------ ------------------
Net loss $ (87,362) $ (20,184)
================== ==================
Net loss per common share $ (2.29) $ (.53)
================== ==================
Weighted average common shares outstanding 38,168 37,828
</TABLE>
See notes to consolidated financial statements
<PAGE>
THE ASSOCIATED GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
-----------------------------------------------
(dollars in thousands)
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $ (87,362) $ (20,184)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 9,251 2,881
Amortization of debt discount and issue costs 8,883 3,208
Provision for losses on accounts receivable 331 116
Gain on sale of investments - (1,162)
Stock-based compensation 6,559 6,630
Minority interests (22,911) (22,635)
Provision for deferred income taxes (2,441) (2,396)
Other 1,070 1,018
Change in assets and liabilities:
Accounts receivable (2,367) (473)
Other current assets (9,042) (2,156)
Accounts payable (excluding capital assets) (4,518) (5,340)
Employee compensation (3,186) 752
Interest payable 8,705 8,774
Other current liabilities 1,904 1,041
Deferred compensation 276 234
------------------ -----------------
Net Cash Used In Operating Activities (94,848) (29,692)
Cash Flows From Investing Activities
Purchases of property and equipment (32,689) (10,928)
Proceeds from sale of investments - 1,930
Restricted cash and investments (5,958) (1,320)
Increase in receivable from related parties (692) (610)
Other investing activities, net (398) (255)
------------------ -----------------
Net Cash Used In Investing Activities (39,737) (11,183)
Cash Flows From Financing Activities
Proceeds from short-term obligations, net 11,706 9,712
Proceeds from long-term debt - 250,703
Repayment of long-term debt (169) (168)
Payment of debt issue costs (31) (7,558)
Other financing activities, net 884 790
------------------ -----------------
Net Cash Provided By Financing Activities 12,390 253,479
------------------ -----------------
Net (Decrease) Increase In Cash And Cash Equivalents (122,195) 212,604
Cash And Cash Equivalents At Beginning Of Period 418,246 426,596
------------------ -----------------
Cash And Cash Equivalents At End Of Period $ 296,051 $ 639,200
================== =================
</TABLE>
See notes to consolidated financial statements
<PAGE>
THE ASSOCIATED GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in Thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of The Associated
Group, Inc. ("Associated") and Subsidiaries (the "Company," as used herein,
includes all consolidated subsidiaries, unless the context otherwise indicates)
have been prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended March 31, 1999, are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. For further information, refer to the financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
Certain amounts in the financial statements for the 1998 periods have been
reclassified to conform to the financial statement presentation for the current
period. These reclassifications have no effect on the net losses.
Consolidated subsidiaries include Teligent, Inc. ("Teligent"), a company founded
in 1996, which offers full service, facilities-based local and long distance
telecommunications, high-speed data and dedicated Internet services to small and
medium-sized businesses over its Smartwave(TM) local networks, and Grupo
Portatel, S.A. de C.V. and subsidiaries ("Grupo"), a cellular telephone service
provider in southeastern Mexico.
2. NEW ACCOUNTING PRONOUNCEMENTS
As of January 1, 1999, the Company has adopted Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1") and Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-1 requires certain internal
and external costs incurred to develop internal-use computer software during the
application development stage, as well as costs to develop or obtain software
that allows for access or conversion of old data by new systems, to be
capitalized. SOP 98-5 requires that the costs of start-up activities be expensed
as incurred, including presenting the cumulative effect of a change in
accounting principle. The effect of the adoption of these new accounting
pronouncements was not material to the Company's financial condition or results
of operations.
3. MARKETABLE EQUITY SECURITIES
The cost and market value of marketable equity securities classified as
available for sale at March 31, 1999, are as follows:
<TABLE>
<CAPTION>
Name of Issuer and Number of
Title of Each Issue Shares Cost Market Value
- -------------------------------------------------------- ----------------- -------------------- --------------------
<S> <C> <C> <C>
AT&T Corp.:
AT&T Common Stock 19,719,274 $3,748 $1,049,230
Liberty Media Group Class A Common Stock 11,684,477 2,285 614,485
Liberty Media Group Class B Common Stock 2,651,944 273 142,542
Others Various 652 4,132
-------------------- --------------------
$6,958 $1,810,389
==================== ====================
</TABLE>
<PAGE>
On March 9, 1999, AT&T Corp. merged with Tele-Communications, Inc. ("TCI"),
resulting in the conversion of the Company's shares of Tele-Communications, Inc.
Series A TCI Group Common Stock and Tele-Communications, Inc. Series B TCI Group
Common Stock into shares of AT&T common stock. The number of shares of AT&T
common stock above have been adjusted to reflect a three-for-two stock split
declared by AT&T, payable on April 15, 1999 to stockholders of record on March
31, 1999.
Concurrent with the AT&T merger, TCI's Liberty Media Group and TCI Ventures
Group were combined to form a new Liberty Media Group, and the Company's
holdings in Liberty Media Group and TCI Ventures Group were converted into
Liberty Media Group Class A and Class B Common Stock, which are separate
tracking stocks representing a financial interest in Liberty Media Group, a
wholly owned subsidiary of AT&T.
4. SHORT-TERM OBLIGATIONS
The Company's outstanding short-term obligations were as follows:
March 31, December 31,
1999 1998
----------------- -----------------
Bank borrowing $ 34,000 $ 30,000
Brokerage margin loan facilities 128,892 121,186
----------------- -----------------
$ 162,892 $ 151,186
================= =================
Currently, an aggregate of 8,739,639 shares of AT&T common stock (effected for
the three-for-two stock split - See Note 3) and 3,447,852 shares of Liberty
Media Group Class A Common Stock are pledged as collateral under the Company's
short-term credit facilities.
5. MINORITY INTEREST
The minority interest liability and related income reflect the outside
ownership of consolidated subsidiaries, including Teligent. However, because
Teligent's stockholders' equity became a deficit during the three months ended
March 31, 1999, the Company did not record $41,364 of minority interest income
that would have otherwise been recorded if Teligent's stockholders' equity was
not a deficit. If such minority interests had been recognized, the Company's
losses would have been $45,998, or $1.21 per share, for the three months ended
March 31, 1999.
6. CAPITAL STOCK AND PER SHARE DATA
During the three months ended March 31, 1999, shares outstanding of the
Company's Class B Common Stock increased by 22,556 shares as a result of stock
option exercises.
Loss per common share data is presented in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, and is calculated using the
weighted average number of common shares outstanding. Fully diluted net loss per
share including stock options is not presented since the effect of including the
stock options would be antidilutive.
7. COMPREHENSIVE INCOME
During the three months ended March 31, 1999 and 1998, total comprehensive
income amounted to $45,902 and $100,286, respectively, including other
comprehensive income for the unrealized gains on the Company's marketable equity
securities. Accumulated other comprehensive income represents unrealized gains
on marketable equity securities, net of deferred taxes of $631,200 and $559,443
as of March 31, 1999 and December 31, 1998, respectively.
<PAGE>
8. INCOME TAXES
The Company's financial statements reflect the income tax effects of the
consolidated income tax return of Associated as well as the separate income tax
returns of Grupo and Teligent. Teligent has recorded a valuation allowance to
offset the income tax benefit generated in the respective three month periods
ended March 31, 1999 and 1998, resulting in a reduction in the Company's
consolidated effective tax rate as compared to the statutory rate.
9. FOREIGN CURRENCY TRANSLATION
The financial statements of Grupo are translated from Mexican pesos to U.S.
dollars in accordance with SFAS No. 52, "Foreign Currency Translation." Since
its inception in 1990, Grupo has used the U.S. dollar as its functional
currency, based upon its economic dependence on its U.S. shareholders, U.S.
dollar denominated debt obligations, the level of U.S. suppliers, as well as
the inflationary environment in Mexico. As of January 1, 1999, Mexico is no
longer considered to be a "hyper-inflationary" economy under SFAS No. 52,
however, Grupo will continue to use the U.S. dollar as its functional currency
due to the significance of the other factors discussed previously.
10. OPERATING SEGMENT INFORMATION
Three months ended March 31,
1999 1998
------------- --------------
Revenues:
Mexican cellular communications $ 7,892 $ 6,511
Fixed microwave communications 1,523 98
Radio broadcasting 841 552
All other 655 219
------------ ---------------
$ 10,911 $ 7,380
============ ===============
Operating profit (loss):
Mexican cellular communications $ 71 $ (46)
Fixed microwave communications (93,457) (33,975)
Radio broadcasting (248) (373)
All other (6,797) (6,471)
------------ --------------
$(100,431) $ (40,865)
============ ==============
The operating loss for fixed microwave communications includes noncash
stock-based compensation expense of $6,559 and $6,630 in 1999 and 1998,
respectively.
March 31, December 31,
1999 1998
------------ --------------
Segment assets:
Mexican cellular communications $ 37,532 $ 38,260
Fixed microwave communications 694,448 761,200
Radio broadcasting 3,110 3,217
All other 1,843,740 1,628,675
------------ --------------
$2,578,830 $2,431,352
============ ==============
Assets other than those of reportable segments includes assets of segments below
the quantitative thresholds, intercompany eliminations, and corporate assets,
primarily marketable equity securities of $1,810,389 and $1,605,368 in 1999 and
1998, respectively.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Form 10-Q contains certain "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors including, but not limited to economic, key employee, competitive,
governmental and technological factors affecting the Company's growth,
operations, markets, products, services, licenses and other factors discussed in
the Company's other filings with the Securities and Exchange Commission. These
factors may cause the actual results, performance or achievements of the
Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Given these uncertainties, prospective investors are
cautioned not to place undue reliance on such forward-looking statements.
Financial Condition
The Company has funded significant start-up operating and capital costs
for its wireless communications related businesses and interests, primarily
Teligent and its wireless location business TruePosition, Inc. ("TruePosition"),
during 1999 and 1998. The Company expects to continue to incur substantial costs
developing its businesses and technologies.
Currently, the Company's cash requirements, other than those of
Teligent (see below), are principally being met by i) borrowings under two
margin loan facilities and a bank demand loan, and ii) proceeds from the sale of
investments. The Company's bank demand loan and margin loan facilities are
secured by shares of AT&T common stock and AT&T's Liberty Media Group common
stock. Borrowings under one margin loan facility are limited to 65% of the
market value of the pledged stock, up to a maximum borrowing capacity of $200
million. Borrowings under the other brokerage margin loan facility are limited
to 50% of the market value of the pledged stock. Borrowings under the bank
demand loan and margin loan facilities bear interest at variable rates based
upon the Fed Funds rate plus an applicable margin.
As of May 11, 1999, based on (a) the market value of the AT&T common
stock and Liberty Media Group common stock pledged in the aggregate and (b)
aggregate outstanding short-term obligations under the credit facilities
described above of approximately $165 million, the Company's unused borrowing
capacity was approximately $272 million. A significant portion of the Company's
assets are liquid, and can be pledged as security for added borrowing capacity.
Given the market value on May 11, 1999 of the remaining shares of the Company's
marketable equity securities portfolio that can be pledged as additional
security, the Company estimates that it could secure approximately $706 million
of additional borrowings on similar terms as existing margin facilities. The
Company's ability to meet cash needs in the near term for future development
depends in large part on the value of the marketable equity securities. The
Company periodically evaluates its financial position and alternative financing
arrangements.
In 1998 and 1999, Teligent's cash requirements have been met through
its equity and debt offerings which were completed in the second half of 1997
and first quarter of 1998. Teligent launched full commercial service in ten
major U.S. markets in October 1998, and has since expanded its service offerings
to an additional 16 markets. Teligent's existing cash and investments, together
with a presently unused credit facility providing up to $800 million, are
expected to be sufficient to carry out Teligent's current business plan through
the year 2000.
Historical Cash Flows
Net cash used in operating activities was $94,848,000 and $29,692,000
for the three months ended March 31, 1999 and 1998, respectively. The Company's
operating cash needs increased in the 1999 period primarily for operating
expenses of Teligent which launched full commercial service in October 1998 and
continues to expand its service offerings to new markets. Net cash used in
investing activities was $39,737,000 and $11,183,000 in the three months ended
March 31, 1999 and 1998, respectively. The change between periods was primarily
due to an
<PAGE>
additional $21,761,000 used to purchase property and equipment in the 1999
period as compared to the 1998 period, primarily for the build-out of Teligent's
network. Net cash provided by financing activities in the 1999 and 1998 periods
was $12,390,000 and $253,479,000, respectively. The 1998 period includes
$243,145,000 of net proceeds from Teligent's 11.5% Senior Discount Notes issued
in February 1998, which is being used to fund the capital requirements of
Teligent.
Operating Results for the Three Months Ended March 31, 1999, Compared to the
Three Months Ended March 31, 1998
Revenues increased $3,531,000, or 48% in the 1999 period compared to
the 1998 period. The increase is attributable to Teligent, which launched
commercial service in October 1998 and has expanded to provide service in 26
major U.S. markets as of March 31, 1999. Growth in Grupo's subscriber base has
also led to a 21% increase in revenues in the Company's Mexican cellular
communications segment in the 1999 period as compared to the same period of
1998. Cost of sales and services increased $28,027,000, principally due to
higher operating costs incurred by Teligent in connection with the launch and
growth of its service offerings.
Sales, general and administrative expenses were $54,669,000 and
$25,897,000 in the 1999 and 1998 periods, respectively. The increase of
$28,772,000 was principally the result of expenditures relating to the growth of
Teligent's operations. Depreciation and amortization expense increased from
$2,881,000 in the three months ended March 31, 1998, to $9,251,000 in the same
period of 1999, principally due to the increase in Teligent's property and
equipment.
Interest and dividend income was $9,888,000 and $8,556,000 in the 1999
and 1998 periods, respectively. The change between periods is principally the
result of a $4,338,000 dividend from AT&T recorded in March 1999, offset by a
decrease in Teligent's investment earnings in the 1999 period as compared to
1998, reflecting the utilization of funds for operations and debt service.
Interest expense was $22,070,000 and $13,953,000 in the 1999 and 1998 periods,
respectively, reflecting an increase due to the issuance of Teligent's 11.5%
Senior Discount Notes on February 20, 1998.
Minority interests were $22,911,000 and $22,635,000 in the 1999 and
1998 periods, respectively. Since Teligent's accumulated losses through the end
of the first quarter of 1999 have exceeded its capital, minority interests for
the three months ended March 31, 1999 do not include an additional $41,364,000
of the Teligent loss for the period attributable to Teligent's outside ownership
interests. As a result, the Company must recognize 100% of any additional losses
incurred in excess of Teligent's capital.
The Company recognized an income tax benefit (net of foreign tax
expense of Grupo) at an effective rate of approximately 3% and 10% in the 1999
and 1998 periods, respectively. The principal differences between the effective
tax rate and the statutory rate in 1999 are the accounting for minority
interests and valuation allowances recorded by Teligent which files separate tax
returns. For 1998, the principal difference was the valuation allowances
recorded by Teligent.
The Company's net loss was $87,362,000 for the three months ended March
31, 1999, compared to a net loss of $20,184,000 for the three months ended March
31, 1998. The higher loss in the 1999 period resulted primarily from increased
operating and administrative costs from the growth of Teligent, and an increase
in the portion of Teligent's loss recognized by the Company as a result of
Teligent's negative equity position.
Year 2000
The Company continues to assess its exposure to problems which may
arise from the inability of certain computer programs to properly recognize
dates in the year 2000. The Company's exposure to the "Year 2000" problem arises
from potential problems within its internal information and operating systems,
as well as the impact of the Year 2000 on the Company's significant vendors,
suppliers, and investees. Based on information gathered to date, many of the
Company's information and operating systems are currently Year 2000 compliant.
Management expects that, based on representations from the vendors of these
systems, necessary modifications to non-compliant systems will be in place by
the end of 1999. However, the Company cannot ensure the performance and Year
2000 readiness of its outside vendors and suppliers, and in the event any Year
2000 problems are not resolved, the
<PAGE>
Company may experience some interruption or failure of important business
operations. The following summarizes the Year 2000 status of operating
subsidiaries and investees that the Company believes may be material to its
operations and financial condition.
Teligent
Teligent has appointed a Year 2000 committee to lead its efforts to
assess the risks and ensure its computer applications will function properly.
Teligent has made substantial progress identifying potential problem
areas within its products and services, suppliers, and facilities and equipment,
and they are assessing and addressing these problem areas, including the
development of contingency plans. Although actual costs have not yet been
determined, Teligent believes that the cost to bring its systems into compliance
with the Year 2000 will be less than $5 million.
Further information on Teligent's Year 2000 readiness can be found in
Teligent's current periodic filings with the SEC.
TruePosition
TruePosition has completed its assessment of the Year 2000 issue and
believes that its wireless location system will be Year 2000 compliant with the
purchase of certain software upgrades which are currently available without
significant cost. Full compliance is expected to be achieved in mid 1999.
Certain components of the system are manufactured by third parties and Year 2000
compliance is currently dependent on the representations made by and performance
of those third parties. Testing to measure compliance with the Year 2000 is
expected to be completed in 1999.
Grupo
Grupo has assessed the risks associated with the Year 2000 issue on its
operating and financial accounting systems, its fixed assets, its inventories,
and its customer and supplier relationships. Grupo is currently negotiating with
its primary equipment vendor to replace certain of the analog switching
equipment with new digital switching equipment which is needed for additional
capacity. The primary equipment vendor has represented that the new equipment
will be year 2000 compliant. Additionally, Grupo is negotiating with the primary
equipment vendor to perform necessary modifications to the remaining analog
equipment. Although the vendor has indicated it will no longer support such
equipment, it has committed to developing a plan of action to ensure that, when
completed, such action will bring the analog equipment into compliance with the
Year 2000 issue. The cost of modifications to the analog equipment, and other
business systems of Grupo is not expected to be material to the Company's
financial position. In the event that Grupo's efforts to be Year 2000 complaint
are not successful, the operations of Grupo would be significantly affected.
AT&T
The Company's investment in AT&T (including Liberty Media Group)
accounts for a significant portion of its assets. A significant decline in the
value of the AT&T investment resulting from any adverse effects of the Year 2000
problem could have a significant impact on the Company's financial condition.
AT&T has indicated that it is assessing and working to remedy all Year 2000
problems within its computer systems and operations by June 30, 1999. However
the Year 2000 status of the systems recently acquired by AT&T are still being
assessed. More information on the Year 2000 efforts of AT&T can be found in its
recent periodic filings made with the SEC.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
The Company is exposed to market risk, the risk of changes in the
values of its assets and liabilities which are impacted by fluctuations in
interest rates, foreign exchange rates, and equity prices. The Company's
marketable equity securities, described in Note 3 to the financial statements
included elsewhere herein, are carried at fair value of
<PAGE>
$1,810,389,000 as March 31, 1999 and are subject to fluctuations in the market
prices of the securities held. The estimated potential loss in the fair value
resulting from a hypothetical 10% decline in equity prices is approximately
$181,039,000. The Company's market risk as of March 31, 1999 associated with its
exposures to the Mexican peso foreign exchange rate and interest rates
applicable to its borrowings have not changed significantly from those reported
in the Company's Annual Report on Form 10-K for the year ended December 31,
1998.
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed as part of this Form
10-Q:
Exhibit
Number Description
------- -----------
3.1 Restated Certificate of Incorporation, filed as
Exhibit 3.1 to Registration Statement on Form 10/A
dated November 15, 1994 and incorporated herein by
reference.
3.2 Amended and Restated By-Laws, filed as Exhibit 3.2
to Registration Statement on Form 10/A dated March
25, 1999 and incorporated herein by reference.
4.1 Common Stock Certificates, filed as Exhibits 4.2 and
4.3 to Form 8-K, dated December 22, 1994 and
incorporated herein by reference.
4.2 Rights Agreement, dated as of December 14, 1994, by
and between the Company and Mellon Bank, N.A., filed
as Exhibit 4.2 to Registration Statement on Form
10/A dated March 25, 1999 and incorporated herein by
reference.
27 Article 5 Financial Data Schedule for Quarterly
Report on Form 10-Q for the three months ended March
31, 1999 (filed only electronically with the
Securities and Exchange Commission).
(b) Reports on Form 8-K. The Company did not file any reports on Form
8-K during the three months ended March 31, 1999.
<PAGE>
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.
THE ASSOCIATED GROUP, INC.
(Registrant)
Date: May 11, 1999 By: /s/ Myles P. Berkman
--------------------
Myles P. Berkman
Chairman, President, Chief Executive
Officer and Treasurer
(Principal Financial and Accounting
Officer)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page Where
Found or
Exhibit Incorporated
Number by Reference
--------- -----------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation, filed as Exhibit 3.1 to
Registration Statement on Form 10/A dated November 15, 1994 and *
incorporated herein by reference.
3.2 Amended and Restated By-Laws, filed as Exhibit 3.2 to Registration *
Statement on Form 10/A dated March 25, 1999 and incorporated herein by
reference.
4.1 Common Stock Certificates, filed as Exhibits 4.2 and 4.3 to Form *
8-K, dated December 22, 1994 and incorporated herein by
reference.
4.2 Rights Agreement, dated as of December 14, 1994, by and between *
the Company and Mellon Bank, N.A., filed as Exhibit 4.2 to
Registration Statement on Form 10/A dated March 25, 1999 and
incorporated herein by reference.
27 Article 5 Financial Data Schedule for Quarterly Report on Form **
10-Q for the three months ended March 31, 1999 (filed only
electronically with the Securities and Exchange Commission).
</TABLE>
- ------------------
* Previously filed and incorporated herein by reference
** Filed only electronically with the Securities and Exchange Commission
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of The Associated Group, Inc. included in
Form 10-Q for the quarter ending March 31, 1999 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 296,051
<SECURITIES> 0<F1>
<RECEIVABLES> 10,096
<ALLOWANCES> 2,534
<INVENTORY> 1,862
<CURRENT-ASSETS> 360,540
<PP&E> 308,524
<DEPRECIATION> 51,269
<TOTAL-ASSETS> 2,578,830
<CURRENT-LIABILITIES> 354,821
<BONDS> 590,031
0
0
<COMMON> 3,817
<OTHER-SE> 1,039,848
<TOTAL-LIABILITY-AND-EQUITY> 2,578,830
<SALES> 155
<TOTAL-REVENUES> 10,911
<CGS> 96
<TOTAL-COSTS> 39,008
<OTHER-EXPENSES> 11,106
<LOSS-PROVISION> 331
<INTEREST-EXPENSE> 22,070
<INCOME-PRETAX> (89,702)
<INCOME-TAX> (2,340)
<INCOME-CONTINUING> (87,362)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (87,362)
<EPS-PRIMARY> (2.29)
<EPS-DILUTED> 0
<FN>
<F1>
Does not include $1,810,389 of noncurrent marketable equity securities and
$71,258 restricted cash and investments.
</FN>
</TABLE>
