Our primary operating subsidiaries both added impressive leadership talent and made significant strategic progress during the second quarter, said Lee Masters, President and CEO of Liberty Digital. Game Show Network passed the 37 million subscriber milestone this month and is well on the way to achieving our distribution target for the year. With the installation of a new senior management team led by Rich Cronin the network has begun to implement programming changes and has already seen meaningful improvement in the demographics. DMX MUSIC completed its merger with AEI Music Network, creating a global player in the digital music delivery business and brought in long-time Disney executive Greg Probert as CEO to leverage the combined entity’s domestic and international market positions.
A significant portion of Liberty Digital’s activities are conducted through its interests in public and non-public entities. The consolidated statements of operations for Liberty Digital, also attached, do not include the results of non-consolidated entities except, in certain cases, as they affect the company’s interest in the earnings or losses of affiliates. As a supplement to the consolidated statements of operations, the following is a summary of operating results for:
Liberty Digital’s DMX MUSIC, Inc. subsidiary completed a merger with AEI Music Network, Inc. (AEI) on May 18, 2001 to form DMX/AEI MUSIC. Liberty Digital owned approximately 56% of DMX/AEI MUSIC as of June 30, 2001 and reports its results on a fully consolidated basis. The attached consolidated statement of operations includes AEI’s results as of June 1, 2001. For comparative purposes, results in the table below reflect 100% of DMX/AEI MUSIC results and are presented on a pro forma basis assuming the merger was completed on January 1, 2000. These pro forma results are not necessarily indicative of what the results would have been had the transaction been completed at the beginning of 2000.
For the quarter ended June 30, 2001, DMX/AEI MUSIC pro forma revenue was $46.6 million, a 9% increase compared with pro forma revenue of $42.8 million in the second quarter of 2000. Pro forma EBITDA for the second quarter totaled $4.5 million, a 15% increase over pro forma EBITDA of $3.9 million in the comparable year-ago period. DMX/AEI MUSIC had approximately $128 million in debt outstanding at the end of the 2001 second quarter reflecting the issuance and assumption of debt in connection with financing the DMX/AEI MUSIC transaction.
On June 11, 2001, DMX/AEI announced the appointment of Gregory Probert as Chief Executive Officer. Probert joined the company after 12 years as an executive at Disney, where he spearheaded the creation and expansion of Disney’s worldwide film distribution business.
Liberty Digital acquired 50% of the Game Show Network from Sony Pictures Entertainment in February 2001. The network’s results are not consolidated. Liberty Digital’s attached consolidated statements of operations reflect the company’s share of Game Show Network’s earnings or losses as well as amortization of goodwill associated with the company’s investment in the network. The summary operating results in the table below reflect 100% of Game Show Network’s results for the quarter ended June 30, 2001 and June 30, 2000.
Game Show Network operates on a March 31 fiscal year. For its first quarter ended June 30, 2001, the network increased revenue by 12% to $14.3 million, compared with $12.8 million in the prior-year period. The network reported an EBITDA loss of $2.3 million, versus $0.4 million in the corresponding period of 2000. Results reflect increased affiliate revenues driven by subscriber growth, offset by higher operating expenses.
Game Show Network added 2.7 million subscribers during the quarter, increasing its subscriber base to 35.8 million at June 30, 2001 versus 25.8 million at the end of June 2000. On May 2, Game Show Network appointed veteran cable programming executive Rich Cronin as president and CEO. Cronin formerly headed the Fox Family Channel and Fox Kids, and was the founder and president of the TV Land cable network.
Liberty Digital’s revenue for the second quarter of 2001 totaled $35.4 million, compared with $23.0 million in the 2000 second quarter. The Company’s adjusted EBITDA (operating income from continuing operations before interest, taxes, depreciation, amortization, stock compensation and other expense, net), increased to $5.2 million from $2.8 million during the same period in the prior year.
On a reported basis, the Company’s net loss for the quarter ended June 30, 2001 was $46.9 million, or $0.23 per diluted share, as compared with a loss of $9.6 million, or $0.05 per diluted share, for the same period in the prior year. Net loss for the 2001 period includes $73.5 million of non-cash charges to write down certain of the Company’s public and private equity securities to fair value. Reported net loss figures for both periods also reflect to a significant degree stock compensation expense (income) accruals as a result of changes in the Company’s stock price during the period.
In light of the developmental nature of much of the Company’s business, the impact of changes in the Company’s interests in public and private entities that are not consolidated subsidiaries, and the volatile nature of stock compensation expense accruals, reported earnings may continue to fluctuate widely. As a result, the Company views adjusted EBITDA as a more consistent measure of the operating performance of its businesses.
During the quarter, Liberty Digital monetized its Move.com Group position, generating proceeds of $50 million. Total debt (net of debt related to the monetization of the Company’s positions in priceline.com and iBeam) increased to $280 million at June 30, 2001 from $214 million at March 31, 2001. The increase in debt for the period primarily reflects DMX/AEI MUSIC debt, which is consolidated for reporting purposes, offset by repayments of the Company’s bank facility and Liberty Media borrowings with proceeds from the Move.com Group monetization. Liberty Digital’s cash, available-for-sale securities (excluding monetized priceline.com and iBeam positions) and available bank lines totaled approximately $145 million at June 30, 2001.
