e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D. C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
June 30,
2010
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number 001-34176
ASCENT MEDIA
CORPORATION
(Exact name of Registrant as
specified in its charter)
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State of Delaware
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26-2735737
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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12300 Liberty Boulevard
Englewood, Colorado
(Address of principal
executive offices)
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80112
(Zip Code)
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Registrants telephone number, including area code:
(720) 875-5622
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(Section 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
o
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Accelerated filer
þ
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Non-accelerated
filer o
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Smaller Reporting
company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The number of outstanding shares of Ascent Media
Corporations common stock as of July 30, 2010 was:
Series A common stock 13,558,436 shares; and
Series B common stock 734,027 shares.
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
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June 30,
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December 31,
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2010
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2009
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(Unaudited)
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Amounts in thousands
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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284,688
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292,914
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Trade receivables, net
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83,254
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91,414
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Prepaid expenses
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11,525
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9,756
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Deferred income tax assets, net
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71
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562
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Assets held for sale
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2,817
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Income taxes receivable
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13,906
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17,793
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Other current assets
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1,824
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1,635
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Total current assets
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395,268
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416,891
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Investments in marketable securities (note 2)
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95,629
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56,197
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Property and equipment, net
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173,798
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187,498
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Deferred income tax assets, net
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1,029
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Assets held for sale
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9,261
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Other assets, net
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11,015
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11,607
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Total assets
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$
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675,710
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682,483
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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16,277
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18,731
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Accrued payroll and related liabilities
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22,862
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17,778
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Other accrued liabilities
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24,537
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21,647
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Deferred revenue
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9,651
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8,618
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Liabilities related to assets held for sale
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4,098
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Total current liabilities
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73,327
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70,872
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Deferred tax liabilities
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1,067
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Other liabilities
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26,992
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29,015
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Total liabilities
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101,386
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99,887
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Commitments and contingencies (note 7)
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Stockholders equity:
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Preferred stock, $.01 par value. Authorized
5,000,000 shares; no shares issued
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Series A common stock, $.01 par value. Authorized
45,000,000 shares; issued and outstanding
13,558,436 shares at June 30, 2010
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135
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134
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Series B common stock, $.01 par value. Authorized
5,000,000 shares; issued and outstanding
734,027 shares at June 30, 2010
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7
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7
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Series C common stock, $.01 par value. Authorized
45,000,000 shares; no shares issued
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Additional paid-in capital
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1,466,578
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1,464,925
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Accumulated deficit
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(885,081
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)
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(878,853
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)
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Accumulated other comprehensive loss
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(7,315
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)
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(3,617
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)
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Total stockholders equity
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574,324
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582,596
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Total liabilities and stockholders equity
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$
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675,710
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682,483
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See accompanying notes to condensed consolidated financial
statements.
2
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and
Comprehensive Earnings (Loss)
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Three Months Ended
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Six Months Ended
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June 30,
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June 30,
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2010
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2009
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2010
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2009
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(Unaudited)
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Amounts in thousands, except per share amounts
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Net revenue
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$
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99,508
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114,269
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204,027
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229,526
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Operating expenses:
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Cost of services
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74,448
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83,755
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148,573
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166,763
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Selling, general, and administrative, including stock-based and
long-term incentive compensation (note 5)
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28,829
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27,955
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56,464
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57,164
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Restructuring and other charges (note 4)
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495
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1,088
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1,196
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1,486
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Loss on sale of operating assets
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|
56
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58
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|
210
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|
Depreciation and amortization
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|
12,953
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|
|
|
13,982
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26,653
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27,575
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|
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|
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116,725
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|
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126,836
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232,944
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|
|
253,198
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|
|
|
|
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|
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|
|
|
|
|
|
|
|
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Operating loss
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|
(17,217
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)
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|
|
(12,567
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)
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|
|
(28,917
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)
|
|
|
(23,672
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)
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Other income:
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|
|
|
|
|
|
|
|
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|
|
|
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Interest income
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|
888
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|
|
|
605
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|
|
1,570
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|
|
|
1,156
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Other expense, net
|
|
|
(1,188
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)
|
|
|
(450
|
)
|
|
|
(1,274
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)
|
|
|
(716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(300
|
)
|
|
|
155
|
|
|
|
296
|
|
|
|
440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(17,517
|
)
|
|
|
(12,412
|
)
|
|
|
(28,621
|
)
|
|
|
(23,232
|
)
|
Income tax benefit from continuing operations
|
|
|
1,171
|
|
|
|
3,945
|
|
|
|
1,811
|
|
|
|
7,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(16,346
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)
|
|
|
(8,467
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)
|
|
|
(26,810
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)
|
|
|
(15,990
|
)
|
Discontinued operations (note 3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Earnings from discontinued operations
|
|
|
|
|
|
|
1,843
|
|
|
|
27,098
|
|
|
|
3,373
|
|
Income tax benefit (expense)
|
|
|
208
|
|
|
|
(580
|
)
|
|
|
(6,516
|
)
|
|
|
(1,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations, net of income tax
|
|
|
208
|
|
|
|
1,263
|
|
|
|
20,582
|
|
|
|
2,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(16,138
|
)
|
|
|
(7,204
|
)
|
|
|
(6,228
|
)
|
|
|
(13,652
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
344
|
|
|
|
6,722
|
|
|
|
(1,508
|
)
|
|
|
5,426
|
|
Unrealized holding gains (losses), net of income tax
|
|
|
(2,563
|
)
|
|
|
1,317
|
|
|
|
(2,324
|
)
|
|
|
1,317
|
|
Pension liability adjustment
|
|
|
67
|
|
|
|
34
|
|
|
|
134
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss)
|
|
|
(2,152
|
)
|
|
|
8,073
|
|
|
|
(3,698
|
)
|
|
|
6,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss)
|
|
$
|
(18,290
|
)
|
|
|
869
|
|
|
|
(9,926
|
)
|
|
|
(6,842
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share (note 6):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(1.15
|
)
|
|
|
(0.60
|
)
|
|
|
(1.89
|
)
|
|
|
(1.14
|
)
|
Discontinued operations
|
|
|
0.01
|
|
|
|
0.09
|
|
|
|
1.45
|
|
|
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1.14
|
)
|
|
|
(0.51
|
)
|
|
|
(0.44
|
)
|
|
|
(0.97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
3
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
Amounts in thousands
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,228
|
)
|
|
|
|
|
|
|
(13,652
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations, net of income tax
|
|
|
(20,582
|
)
|
|
|
|
|
|
|
(2,338
|
)
|
Depreciation and amortization
|
|
|
26,653
|
|
|
|
|
|
|
|
27,575
|
|
Stock based compensation
|
|
|
1,793
|
|
|
|
|
|
|
|
1,262
|
|
Deferred income tax expense
|
|
|
2,587
|
|
|
|
|
|
|
|
2,500
|
|
Other non-cash activity, net
|
|
|
228
|
|
|
|
|
|
|
|
2,755
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
8,160
|
|
|
|
|
|
|
|
11,395
|
|
Prepaid expenses and other current assets
|
|
|
2,419
|
|
|
|
|
|
|
|
(8,382
|
)
|
Payables and other liabilities
|
|
|
5,785
|
|
|
|
|
|
|
|
(6,104
|
)
|
Operating activities from discontinued operations, net
|
|
|
(6,380
|
)
|
|
|
|
|
|
|
2,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
14,435
|
|
|
|
|
|
|
|
17,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(13,818
|
)
|
|
|
|
|
|
|
(16,131
|
)
|
Proceeds from sale of discontinued operations
|
|
|
34,828
|
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(41,756
|
)
|
|
|
|
|
|
|
(29,965
|
)
|
Cash paid for acquisitions
|
|
|
|
|
|
|
|
|
|
|
(2,702
|
)
|
Proceeds from sale of operating assets
|
|
|
|
|
|
|
|
|
|
|
618
|
|
Equity investments
|
|
|
(959
|
)
|
|
|
|
|
|
|
(971
|
)
|
Investing activities from discontinued operations, net
|
|
|
|
|
|
|
|
|
|
|
(274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(21,705
|
)
|
|
|
|
|
|
|
(49,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of capital lease obligations
|
|
|
(957
|
)
|
|
|
|
|
|
|
(888
|
)
|
Issuance of common stock
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(956
|
)
|
|
|
|
|
|
|
(888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(8,226
|
)
|
|
|
|
|
|
|
(32,604
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
292,914
|
|
|
|
|
|
|
|
341,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
284,688
|
|
|
|
|
|
|
|
308,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
4
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
|
|
(1)
|
Basis of
Presentation
|
The accompanying Ascent Media Corporation (Ascent
Media or the Company) condensed consolidated
financial statements represent the financial position and
results of operations of Ascent Media and its consolidated
subsidiaries. The Company has two reportable segments: the
Content Services group and the Creative Services group. The
Companys reportable segments are strategic business units
that offer different products and services. They are managed
separately because each segment requires different technologies,
distribution channels and marketing strategies.
The accompanying interim condensed consolidated financial
statements are unaudited but, in the opinion of management,
reflect all adjustments (consisting of normal recurring
accruals) 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.
These condensed consolidated financial statements should be read
in conjunction with the Ascent Media Annual Report on
Form 10-K
for the year ended December 31, 2009.
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles
(GAAP) requires management to make estimates and
assumptions that affect the reported amounts of revenue and
expenses for each reporting period. The significant estimates
made in preparation of the Companys condensed consolidated
financial statements primarily relate to long-lived assets,
deferred tax assets, and the amount of the allowance for
doubtful accounts. Actual results could differ from the
estimates upon which the carrying values were based.
|
|
(2)
|
Investments
in Marketable Securities
|
Starting in the second quarter of 2009, Ascent Media purchased
marketable securities consisting of diversified corporate bond
funds for cash. The following table presents the activity of
these investments, which have all been classified as
available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Beginning Balance
|
|
$
|
66,608
|
|
|
|
|
|
|
|
56,197
|
|
|
|
|
|
Purchases
|
|
|
31,757
|
|
|
|
29,965
|
|
|
|
41,756
|
|
|
|
29,965
|
|
Unrealized gain (loss)
|
|
|
(2,736
|
)
|
|
|
2,208
|
|
|
|
(2,324
|
)
|
|
|
2,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
95,629
|
|
|
|
32,173
|
|
|
|
95,629
|
|
|
|
32,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the net after-tax unrealized gains
(losses) on the investments in marketable securities that were
recorded in accumulated other comprehensive income on the
consolidated balance sheet and in other comprehensive income on
the consolidated statements of operations and comprehensive
earnings (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
1,591
|
|
|
|
|
|
|
|
1,352
|
|
|
|
|
|
Gains (losses), net of tax(1)
|
|
|
(2,563
|
)
|
|
|
1,317
|
|
|
|
(2,324
|
)
|
|
|
1,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
(972
|
)
|
|
|
1,317
|
|
|
|
(972
|
)
|
|
|
1,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts are net of tax expense (benefit) of $(173,000) and
$891,000 for the three months ended June 30, 2010 and 2009,
respectively, and $0 and $891,000 for the six months ended
June 30, 2010 and 2009, respectively. |
5
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial
Statements (Continued)
|
|
(3)
|
Discontinued
Operations
|
In February 2010, the Company completed the sale of the assets
and operations of the Chiswick Park facility in the United
Kingdom, which was previously included in the Content Services
group, to Discovery Communications, Inc. The net cash proceeds
on the sale were $34.8 million. The Chiswick Park assets
and liabilities were classified as held for sale at
December 31, 2009, and the results of operations of the
Chiswick Park facility have been treated as discontinued
operations in the condensed consolidated financial statements
for all periods presented. Ascent Media recorded a pre-tax gain
on the sale of $25,498,000, subject to customary post-closing
adjustments, and $6,131,000 of related income tax expense. The
gain and related income tax expense are included in earnings
from discontinued operations in the accompanying condensed
consolidated statement of operations.
The following table presents the results of operations of the
discontinued operations that are included in earnings from
discontinued operations, net of income tax on the condensed
consolidated statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
Amounts in thousands
|
|
Revenue
|
|
$
|
|
|
|
$
|
4,408
|
|
|
$
|
2,532
|
|
|
$
|
8,418
|
|
Earnings before income taxes
|
|
$
|
|
|
|
$
|
1,843
|
|
|
$
|
27,098
|
(a)
|
|
$
|
3,373
|
|
|
|
|
(a) |
|
The 2010 amount includes a $25,498,000 gain on the sale of the
Chiswick Park facility. |
|
|
(4)
|
Restructuring
Charges
|
The Company recorded restructuring charges of $495,000 and
$1,088,000, during the three months ended June 30, 2010 and
2009, respectively, and $1,196,000 and $1,486,000 during the six
months ended June 30, 2010 and 2009, respectively. These
charges related to certain severance and facility costs in
conjunction with ongoing structural changes commenced in late
2008 that were implemented to align our organization with our
strategic goals and with how we operate, manage and sell our
services. Such changes include the consolidation of certain
facilities in the United Kingdom and further restructuring and
labor cost mitigation measures undertaken across all of our
businesses.
The following table provides the activity and balances of the
restructuring reserve. At June 30, 2010, approximately
$2.6 million of the ending liability balance is included in
other accrued liabilities with the remaining amount recorded in
other long-term liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
Additions
|
|
|
Deductions(a)
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Severance
|
|
$
|
2,526
|
|
|
|
1,472
|
|
|
|
(3,265
|
)
|
|
|
733
|
|
Excess facility costs
|
|
|
3,294
|
|
|
|
14
|
|
|
|
(939
|
)
|
|
|
2,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,820
|
|
|
|
1,486
|
|
|
|
(4,204
|
)
|
|
|
3,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
Additions
|
|
|
Deductions(a)
|
|
|
2010
|
|
|
|
Amounts in thousands
|
|
|
Severance
|
|
$
|
699
|
|
|
|
645
|
|
|
|
(1,195
|
)
|
|
|
149
|
(b)
|
Excess facility costs
|
|
|
4,375
|
|
|
|
551
|
|
|
|
(2,132
|
)
|
|
|
2,794
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,074
|
|
|
|
1,196
|
|
|
|
(3,327
|
)
|
|
|
2,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Primarily represents cash payments. |
|
(b) |
|
Substantially all of this amount is expected to be paid in 2010. |
|
(c) |
|
Substantially all of this amount is expected to be paid by 2012. |
6
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial
Statements (Continued)
|
|
(5)
|
Stock-Based
and Long-Term Incentive Compensation
|
During the first quarter of 2010, certain key employees were
granted a total of 12,766 shares of restricted stock awards
that vest quarterly over one year. The restricted stock had a
fair value of $28.20 per share which was the closing price of
the Ascent Media Series A common stock on the date of grant.
|
|
(6)
|
Basic and
Diluted Earnings (Loss) Per Common Share
Series A and Series B
|
Basic earnings (loss) per common share (EPS) is
computed by dividing net earnings (loss) by the weighted average
number of Series A and Series B common shares
outstanding for the period. Diluted EPS is computed by dividing
net earnings (loss) by the sum of the weighted average number of
Series A and Series B common shares outstanding and
the effect of dilutive securities such as outstanding stock
options and unvested restricted stock. However, since the
Company recorded a loss from continuing operations for all
periods presented, diluted EPS is computed the same as basic EPS.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Weighted average Series A and Series B shares
|
|
|
14,195,044
|
|
|
|
14,076,073
|
|
|
|
14,189,124
|
|
|
|
14,073,341
|
|
Dilutive effect of stock options and unvested restricted stock
|
|
|
202,156
|
|
|
|
216,010
|
|
|
|
188,860
|
|
|
|
192,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
14,397,200
|
|
|
|
14,292,083
|
|
|
|
14,377,984
|
|
|
|
14,265,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7)
|
Commitments,
Contingencies and Other Liabilities
|
The Company is involved in litigation and other claims
incidental to the conduct of its business. In managements
opinion, none of the pending actions is likely to have a
material adverse impact on the Companys financial position
or results of operations.
|
|
(8)
|
Fair
Value Measurements
|
According to the Fair Value Measurements and Disclosures Topic
of the FASB Accounting Standards Codification, fair value is
defined as the amount that would be received for selling an
asset or paid to transfer a liability in an orderly transaction
between market participants and requires that assets and
liabilities carried at fair value are classified and disclosed
in the following three categories:
|
|
|
|
|
Level 1 Quoted prices for identical instruments
in active markets.
|
|
|
|
Level 2 Quoted prices for similar instruments
in active or inactive markets and valuations derived from models
where all significant inputs are observable in active markets.
|
|
|
|
Level 3 Valuations derived from valuation
techniques in which one or more significant inputs are
unobservable in any market.
|
7
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial
Statements (Continued)
The following summarizes the fair value level of assets and
liabilities that are measured on a recurring basis at
June 30, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
Amounts in thousands
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds(a)
|
|
$
|
272,143
|
|
|
|
|
|
|
|
|
|
|
|
272,143
|
|
Investments in marketable securities(b)
|
|
|
56,197
|
|
|
|
|
|
|
|
|
|
|
|
56,197
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
(3,327
|
)
|
|
|
(3,327
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
328,340
|
|
|
|
|
|
|
|
(3,327
|
)
|
|
|
325,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds(a)
|
|
$
|
269,582
|
|
|
|
|
|
|
|
|
|
|
|
269,582
|
|
Investments in marketable securities(b)
|
|
|
95,629
|
|
|
|
|
|
|
|
|
|
|
|
95,629
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
(3,603
|
)
|
|
|
(3,603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
365,211
|
|
|
|
|
|
|
|
(3,603
|
)
|
|
|
361,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Included in cash and cash equivalents on the condensed
consolidated balance sheet. |
|
(b) |
|
Investments consist entirely of diversified corporate bond funds
and are all classified as
available-for-sale
securities. |
The Level 3 liabilities consist of contingent consideration
and participating residual interests related to business
acquisitions which were computed using discounted future cash
flow models which use estimated discount rates. The following
table presents the activity in the Level 3 balances:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Beginning balance
|
|
$
|
(3,327
|
)
|
|
|
(4,226
|
)
|
Contingent consideration
|
|
|
|
|
|
|
(3,162
|
)
|
Amounts expensed(a)
|
|
|
(276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance(b)
|
|
$
|
(3,603
|
)
|
|
|
(7,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amount consisted of a contingent consideration change in fair
value expense of $276,000. This amount was recorded in SG&A
on the consolidated statement of operations. |
|
(b) |
|
The 2010 amount consists of contingent consideration of
$3,469,000 and a participating residual interest of $134,000.
The 2009 amount consists of contingent consideration of
$3,162,000 and a participating residual interest of $4,226,000. |
Ascent Medias financial instruments, including cash and
cash equivalents, accounts receivable and accounts payable are
carried at cost, which approximates their fair value because of
their short-term maturity.
|
|
(9)
|
Information
About Reportable Segments
|
Ascent Media evaluates the performance of its reportable
segments based on financial measures such as revenue and
adjusted operating income before depreciation and amortization
(which is referred to as adjusted OIBDA). Ascent
Media defines adjusted OIBDA as revenue less cost of
services and selling, general and administrative expenses
(excluding stock-based and long-term incentive compensation and
accretion expense on
8
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial
Statements (Continued)
asset retirement obligations) and defines segment adjusted
OIBDA as adjusted OIBDA as determined in each case for the
indicated operating segment or segments only. Ascent Media
believes that segment adjusted OIBDA is an important indicator
of the operational strength and performance of its businesses,
including the businesses ability to fund their ongoing
capital expenditures and service any debt. In addition, this
measure is used by management to evaluate operating results and
perform analytical comparisons and identify strategies to
improve performance.
Adjusted OIBDA excludes depreciation and amortization,
stock-based and long-term incentive compensation, accretion
expense on asset retirement obligations, restructuring and
impairment charges, gains/losses on sale of operating assets and
other income and expense that are included in the measurement of
earnings (loss) before income taxes pursuant to GAAP.
Accordingly, adjusted OIBDA and segment adjusted OIBDA should be
considered in addition to, but not as a substitute for, earnings
(loss) before income taxes, cash flow provided by operating
activities and other measures of financial performance prepared
in accordance with GAAP. Because segment adjusted OIBDA excludes
corporate and other SG&A (as defined below), and does not
include an allocation for corporate overhead, segment adjusted
OIBDA should not be used as a measure of Ascent Medias
liquidity or as an indication of the operating results that
could be expected if either operating segment were operated on a
stand-alone basis. Adjusted OIBDA and segment adjusted OIBDA are
non-GAAP financial measures. As companies often define non-GAAP
financial measures differently, adjusted OIBDA and segment
adjusted OIBDA as calculated by Ascent Media should not be
compared to any similarly titled measures reported by other
companies.
Summarized financial information concerning the Companys
reportable segments is presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
|
Content
|
|
Creative
|
|
|
|
|
|
|
|
|
Services
|
|
Services
|
|
|
|
|
|
Consolidated
|
|
|
Group
|
|
Group
|
|
Total
|
|
Other(a)
|
|
Total
|
|
|
Amounts in thousands
|
|
Three months ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
60,346
|
|
|
|
39,162
|
|
|
|
99,508
|
|
|
|
|
|
|
|
99,508
|
|
Adjusted OIBDA
|
|
$
|
4,528
|
|
|
|
1,122
|
|
|
|
5,650
|
|
|
|
(6,939
|
)
|
|
|
(1,289
|
)
|
Capital expenditures
|
|
$
|
4,874
|
|
|
|
1,810
|
|
|
|
6,684
|
|
|
|
1,672
|
|
|
|
8,356
|
|
Six months ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
118,852
|
|
|
|
85,175
|
|
|
|
204,027
|
|
|
|
|
|
|
|
204,027
|
|
Adjusted OIBDA
|
|
$
|
8,902
|
|
|
|
7,312
|
|
|
|
16,214
|
|
|
|
(13,902
|
)
|
|
|
2,312
|
|
Capital expenditures
|
|
$
|
8,527
|
|
|
|
2,526
|
|
|
|
11,053
|
|
|
|
2,765
|
|
|
|
13,818
|
|
Three months ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
73,837
|
|
|
|
40,432
|
|
|
|
114,269
|
|
|
|
|
|
|
|
114,269
|
|
Adjusted OIBDA
|
|
$
|
7,390
|
|
|
|
2,473
|
|
|
|
9,863
|
|
|
|
(6,666
|
)
|
|
|
3,197
|
|
Capital expenditures
|
|
$
|
4,223
|
|
|
|
3,269
|
|
|
|
7,492
|
|
|
|
1,764
|
|
|
|
9,256
|
|
Six months ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
148,431
|
|
|
|
81,095
|
|
|
|
229,526
|
|
|
|
|
|
|
|
229,526
|
|
Adjusted OIBDA
|
|
$
|
12,719
|
|
|
|
7,103
|
|
|
|
19,822
|
|
|
|
(12,862
|
)
|
|
|
6,960
|
|
Capital expenditures
|
|
$
|
8,863
|
|
|
|
4,993
|
|
|
|
13,856
|
|
|
|
2,275
|
|
|
|
16,131
|
|
|
|
|
(a) |
|
Amounts shown in Other provide a reconciliation of total
reportable segments to the Companys consolidated total.
Included in Other is corporate SG&A expenses and capital
expenditures incurred at a corporate level. |
9
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial
Statements (Continued)
The following table provides a reconciliation of total adjusted
OIBDA to loss from continuing operations before income taxes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Total adjusted OIBDA
|
|
$
|
(1,289
|
)
|
|
|
3,197
|
|
|
|
2,312
|
|
|
|
6,960
|
|
Stock-based and long-term incentive compensation
|
|
|
(1,138
|
)
|
|
|
(585
|
)
|
|
|
(1,793
|
)
|
|
|
(1,262
|
)
|
Restructuring and other charges
|
|
|
(495
|
)
|
|
|
(1,088
|
)
|
|
|
(1,196
|
)
|
|
|
(1,486
|
)
|
Depreciation and amortization
|
|
|
(12,953
|
)
|
|
|
(13,982
|
)
|
|
|
(26,653
|
)
|
|
|
(27,575
|
)
|
Loss on sale of operating assets, net
|
|
|
|
|
|
|
(56
|
)
|
|
|
(58
|
)
|
|
|
(210
|
)
|
Other income (expense), net
|
|
|
(300
|
)
|
|
|
155
|
|
|
|
296
|
|
|
|
440
|
|
Other(a)
|
|
|
(1,342
|
)
|
|
|
(53
|
)
|
|
|
(1,529
|
)
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
$
|
(17,517
|
)
|
|
|
(12,412
|
)
|
|
|
(28,621
|
)
|
|
|
(23,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The three and six months periods ended June 30, 2010,
includes an expense of approximately $1.2 million for a
lump-sum payment related to the death benefits of our chief
operating officer under the terms of his employment contract. |
Information as to the Companys operations in different
geographic areas is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Amounts in thousands
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
78,253
|
|
|
|
92,483
|
|
|
|
161,483
|
|
|
|
186,874
|
|
United Kingdom
|
|
|
16,000
|
|
|
|
16,134
|
|
|
|
32,502
|
|
|
|
31,340
|
|
Singapore
|
|
|
5,255
|
|
|
|
5,652
|
|
|
|
10,042
|
|
|
|
11,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
99,508
|
|
|
|
114,269
|
|
|
|
204,027
|
|
|
|
229,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
138,423
|
|
|
|
149,919
|
|
United Kingdom
|
|
|
20,795
|
|
|
|
22,914
|
|
Singapore
|
|
|
14,580
|
|
|
|
14,665
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
173,798
|
|
|
|
187,498
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
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, including
statements regarding our business, marketing and operating
strategies, integration of acquired businesses, new service
offerings, financial prospects, and anticipated sources and uses
of capital. Where, in any forward-looking statement, we express
an expectation or belief as to future results or events, such
expectation or belief is expressed in good faith and believed to
have a reasonable basis, but there can be no assurance that the
expectation or belief will result or be achieved or
accomplished. The following include some but not all of the
factors that could cause actual results or events to differ
materially from those anticipated:
|
|
|
|
|
lack of operating history as a stand-alone company;
|
|
|
|
general economic and business conditions and industry trends
including the timing of, and spending on, motion picture,
television and television advertising;
|
|
|
|
integration of acquired businesses;
|
|
|
|
the regulatory and competitive environment of the industries in
which we and our customers operate;
|
|
|
|
retention of our largest customer accounts;
|
|
|
|
availability of third-party satellite and terrestrial
connectivity services relied on by us to provide our services;
|
|
|
|
the possibility of an industry-wide strike or other job action
affecting a major entertainment industry union, or the duration
of any existing strike or job action;
|
|
|
|
rapid technological changes;
|
|
|
|
present and future financial conditions, including availability
and terms of capital;
|
|
|
|
the outcome of any pending or threatened litigation;
|
|
|
|
availability of qualified personnel;
|
|
|
|
changes in, or failure or inability to comply with, government
regulations, including, without limitation, regulations of the
Federal Communications Commission, and adverse outcomes from
regulatory proceedings;
|
|
|
|
competitor and overall market response to our products and
services, including acceptance of the pricing of such products
and services; and
|
|
|
|
risk of loss from earthquakes and other catastrophic events.
|
For additional risk factors, please see our Annual Report on
Form 10-K
for the year ended December 31, 2009. These forward-looking
statements and such risks, uncertainties and other factors speak
only as of the date of this Quarterly Report, and we expressly
disclaim any obligation or undertaking to disseminate any
updates or revisions to any forward-looking statement contained
herein, to reflect any change in our expectations with regard
thereto, or any other change in events, conditions or
circumstances on which any such statement is based.
The following discussion and analysis provides information
concerning our results of operations and financial condition.
This discussion should be read in conjunction with our
accompanying condensed consolidated financial statements and the
notes thereto included elsewhere herein and our Annual Report on
Form 10-K
for the year ended December 31, 2009.
Overview
We are a holding company and own 100% of our principal operating
subsidiary, Ascent Media Group, LLC (AMG), as well
as cash and cash equivalents.
11
Ascent
Media Group
AMG provides creative services and content management and
delivery services to the media and entertainment industries in
the United States, the United Kingdom and Singapore. AMGs
clients include major motion picture studios, independent
producers, broadcast networks, programming networks, advertising
agencies and other companies that produce, own
and/or
distribute entertainment, news, sports, corporate, educational,
industrial and advertising content. AMGs operations are
organized into the following two groups: the Content Services
group and the Creative Services group.
In recent years, AMG has encountered increasingly challenging
media, entertainment and advertising markets which have impacted
our revenues. In addition, AMG has been challenged by increasing
competition and resulting downward rate pressure for certain of
its services. Such factors have caused margin compression and
lower revenue and operating income. AMG is continuing to focus
on leveraging its broad array of traditional media and
file-based services to be a full service provider to new and
existing customers within the feature film, television
production and advertising industries. Its strategy focuses on
providing a unified portfolio of
business-to-business
services intended to enable media companies to realize
increasing benefits from digital distribution. With facilities
in the United States, the United Kingdom and Singapore, AMG
hopes to increase its services to multinational companies on a
worldwide basis. The challenges that it faces include the
continued development of
end-to-end
file-based solutions, increased competition in both its Creative
Services and Content Services groups, the need to differentiate
its products and services to help maintain or increase operating
margins and financing capital expenditures for equipment and
other items to meet customers requirements including their
need for both integrated and file-based workflows.
Adjusted
OIBDA
We evaluate the performance of our operating segments based on
financial measures such as revenue and adjusted operating income
before depreciation and amortization (which we refer to as
adjusted OIBDA). We define adjusted
OIBDA as revenue less cost of services and selling,
general and administrative expenses (excluding stock-based and
long-term incentive compensation and accretion expense on asset
retirement obligations) and define segment adjusted
OIBDA as adjusted OIBDA as determined in each case for the
indicated operating segment or segments only. We believe these
non-GAAP financial measures are important indicators of the
operational strength and performance of our businesses,
including each businesss ability to fund its ongoing
capital expenditures and service any debt. In addition, this
measure is used by management to evaluate operating results and
perform analytical comparisons and identify strategies to
improve performance. Adjusted OIBDA excludes depreciation and
amortization, stock-based and long-term incentive compensation,
accretion expense on asset retirement obligations, restructuring
and impairment charges, gains/losses on sale of operating assets
and other income and expense that are included in the
measurement of earnings (loss) before income taxes pursuant to
GAAP. Accordingly, adjusted OIBDA and segment adjusted OIBDA
should be considered in addition to, but not as a substitute
for, earnings (loss) before income taxes, cash flow provided by
operating activities and other measures of financial performance
prepared in accordance with GAAP. Because segment adjusted OIBDA
excludes corporate and other SG&A (as defined below), and
does not include an allocation for corporate overhead, segment
adjusted OIBDA should not be used as a measure of our liquidity
or as an indication of the operating results that could be
expected if either operating segment were operated on a
stand-alone basis. Adjusted OIBDA and segment adjusted OIBDA are
non-GAAP financial measures. As companies often define non-GAAP
financial measures differently, adjusted OIBDA and segment
adjusted OIBDA as calculated by Ascent Media should not be
compared to any similarly titled measures reported by other
companies.
12
Results
of Operations
Our operations are organized into the following reportable
segments: the Content Services group and the Creative Services
group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Dollar amounts in thousands
|
|
|
Dollar amounts in thousands
|
|
|
Consolidated Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
99,508
|
|
|
|
114,269
|
|
|
|
204,027
|
|
|
|
229,526
|
|
Loss from continuing operations before income taxes
|
|
$
|
(17,517
|
)
|
|
|
(12,412
|
)
|
|
|
(28,621
|
)
|
|
|
(23,232
|
)
|
Net loss
|
|
$
|
(16,138
|
)
|
|
|
(7,204
|
)
|
|
|
(6,228
|
)
|
|
|
(13,652
|
)
|
Segment Result of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Content Services group
|
|
$
|
60,346
|
|
|
|
73,837
|
|
|
|
118,852
|
|
|
|
148,431
|
|
Creative Services group
|
|
$
|
39,162
|
|
|
|
40,432
|
|
|
|
85,175
|
|
|
|
81,095
|
|
Adjusted OIBDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Content Services group
|
|
$
|
4,528
|
|
|
|
7,390
|
|
|
|
8,902
|
|
|
|
12,719
|
|
Creative Services group
|
|
|
1,122
|
|
|
|
2,473
|
|
|
|
7,312
|
|
|
|
7,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment adjusted OIBDA
|
|
|
5,650
|
|
|
|
9,863
|
|
|
|
16,214
|
|
|
|
19,822
|
|
Corporate general and administrative expenses
|
|
|
(6,939
|
)
|
|
|
(6,666
|
)
|
|
|
(13,902
|
)
|
|
|
(12,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjusted OIBDA(a)
|
|
$
|
(1,289
|
)
|
|
|
3,197
|
|
|
|
2,312
|
|
|
|
6,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted OIBDA as a percentage of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Content Services group
|
|
|
7.5
|
%
|
|
|
10.0
|
%
|
|
|
7.5
|
%
|
|
|
8.6
|
%
|
Creative Services group
|
|
|
2.9
|
%
|
|
|
6.1
|
%
|
|
|
8.6
|
%
|
|
|
8.8
|
%
|
|
|
|
(a) |
|
See reconciliation to loss from continuing operations before
income taxes below. |
Revenue. Our consolidated revenue decreased
$14,761,000 or 12.9% and $25,499,000 or 11.1% for the three
months and six months ended June 30, 2010, respectively, as
compared to the corresponding prior year periods. The Content
Services group revenue decreased $13,491,000 or 18.3% and
$29,579,000 or 19.9% for the three months and six months ended
June 30, 2010, respectively, compared to the prior year
periods. The Creative Services group revenue decreased
$1,270,000 or 3.1% and increased $4,080,000 or 5.0% for such
periods.
The decrease in the Content Services group revenue for the three
month period was mainly due to (i) a decrease of $7,888,000
in system integration service revenues as customers reduced
spending on system integration projects, with one customer,
Motorola, accounting for $4.8 million of the decrease,
(ii) a decrease of $2,416,000 due to a decline in
traditional media services in the United States including
mastering, tape, syndication and DVD services (iii) a
decrease of $1,883,000 due to lower digital services revenues
and (iv) a decrease of $1,152,000 due to lower revenues for
content distribution and transport services. The decrease in the
Content Services group revenue for the six month period was
mainly due to (i) a decrease of $19,606,000 in system
integration service revenues as customers reduced spending on
system integration projects, with one customer, Motorola,
accounting for $14.0 million of the decrease, (ii) a
decrease of $6,153,000 due to a decline in traditional media
services in the United States including mastering, tape,
syndication and DVD services, (iii) a decrease of
$3,090,000 due to lower revenues for content distribution and
transport services and (iv) a decrease of $2,116,000 due to
a decline in digital services revenues. These decreases were
offset by favorable changes in foreign currency exchange rates
of $1,177,000.
The decrease in Creative Services group revenue for the three
month period was due to (i) a decrease of $3,264,000 due to
a decline in large digital intermediate and telecine feature
film projects compared to the prior year and (ii) a
decrease of $1,170,000 in episodic television revenues due to
the timing of television production and lower
13
revenues earned per show. These decreases were partially offset
by (i) an increase of $1,341,000 from visual effects
projects in the United States and the United Kingdom,
(ii) an increase of $1,055,000 from commercial digital
intermediate and telecine services as commercial production
levels increased in 2010 and (iii) an increase of $528,000
in editorial services in the United States. The increase in
Creative Services group revenue for the six month period was due
to (i) an increase of $7,105,000 in editorial services in
the United States, (ii) an increase of $3,524,000 from
commercial digital intermediate and telecine services as
commercial production levels increased in 2010 and
(iii) favorable changes in foreign currency exchange rates
of $123,000. These increases were partially offset by (i) a
decrease of $5,371,000 due to a decline in large digital
intermediate and telecine feature film projects compared to the
prior year and (ii) a decrease of $2,786,000 in episodic
television revenues due to the timing of television production
and lower revenues earned per show.
Cost of Services. Cost of services decreased
$9,307,000 or 11.1% and $18,190,000 or 10.9% for the three and
six months ended June 30, 2010, respectively, as compared
to the corresponding prior year periods. A significant portion
of the decrease for both periods resulted from lower volumes of
system integration services in the Content Services segment
driving significant decreases in production material costs and,
to a lesser extent, labor costs. In addition, we began a
restructuring program at the end of 2008 across all of our
businesses, which is still ongoing, that resulted in a reduction
in labor and facility costs in the three and six months ended
June 30, 2010, compared to the corresponding prior period.
Also, cost of services was impacted by unfavorable changes in
foreign currency exchange rates of $826,000 for the six months
ended June 30, 2010.
As a percent of revenue, cost of services was 74.8% and 73.3%
for the three month periods ended June 30, 2010 and 2009,
respectively. As a percent of revenue, cost of services was
72.8% and 72.7% for the six month periods ended June 30,
2010 and 2009, respectively.
Selling, General and Administrative. Our
selling, general and administrative expenses
(SG&A) are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Amounts in thousands
|
|
|
SG&A(a)
|
|
$
|
26,349
|
|
|
|
27,317
|
|
|
|
53,142
|
|
|
|
55,803
|
|
Stock-based and long-term incentive compensation
|
|
|
1,138
|
|
|
|
585
|
|
|
|
1,793
|
|
|
|
1,262
|
|
Accretion expense on asset retirement obligations (AROs)
|
|
|
50
|
|
|
|
53
|
|
|
|
102
|
|
|
|
99
|
|
Other(b)
|
|
|
1,292
|
|
|
|
|
|
|
|
1,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SG&A
|
|
$
|
28,829
|
|
|
|
27,955
|
|
|
|
56,464
|
|
|
|
57,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
SG&A includes corporate SG&A of $6,939,000 and
$6,666,000 for the three months ended June 30, 2010 and
2009, respectively, and $13,902,000 and $12,862,000 for the six
months ended June 30, 2010 and 2009, respectively, which
are not included in total segment adjusted OIBDA. |
|
(b) |
|
The three and six months periods ended June 30, 2010,
includes an expense of approximately $1.2 million for a
lump-sum payment related to the death benefits of our chief
operating officer under the terms of his employment contract. |
Our SG&A, excluding stock-based and long-term incentive
compensation, accretion expense on AROs and other, decreased
$968,000 or 3.5% and $2,661,000 or 4.8% for the three and six
months ended June 30, 2010, respectively, compared to the
corresponding prior year periods. The decrease for the three and
six months periods was mainly driven by lower labor and other
administrative costs which declined due to the implementation of
restructuring and cost mitigation measures during 2009 and lower
bad debt expense. These decreases were partially offset by
higher professional fees.
Stock-based and Long-term Incentive
Compensation. Stock-based and long-term incentive
compensation was $1,138,000 and $585,000 for the three months
ended June 30, 2010 and 2009, respectively, and $1,793,000
and $1,262,000 for the six months ended June 30, 2010 and
2009, respectively. This expense was related to restricted
14
stock and stock option awards granted to certain executives. The
three months and six months ended June 30, 2010 also
includes approximately $425,000 of accelerated vesting of
restricted stock and stock options related to the death benefits
of our chief operating officer pursuant to the terms of the
Ascent Media Corporation 2008 Incentive Plan.
Restructuring Charges. We recorded
restructuring charges of $495,000 and $1,088,000, during the
three months ended June 30, 2010 and 2009, respectively,
and $1,196,000 and $1,486,000 during the six months ended
June 30, 2010 and 2009, respectively. These charges related
to certain severance and facility costs in conjunction with
ongoing structural changes commenced in late 2008 that were
implemented to align our organization with our strategic goals
and with how we operate, manage and sell our services. Such
changes include the consolidation of certain facilities in the
United Kingdom and further restructuring and labor cost
mitigation measures undertaken across all of our businesses.
The following table provides the activity and balances of the
restructuring reserve (all amounts are in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
Additions
|
|
|
Deductions(a)
|
|
|
2009
|
|
Severance
|
|
$
|
2,526
|
|
|
|
1,472
|
|
|
|
(3,265
|
)
|
|
|
733
|
|
Excess facility costs
|
|
|
3,294
|
|
|
|
14
|
|
|
|
(939
|
)
|
|
|
2,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,820
|
|
|
|
1,486
|
|
|
|
(4,204
|
)
|
|
|
3,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
Additions
|
|
|
Deductions(a)
|
|
|
2010
|
|
Severance
|
|
$
|
699
|
|
|
|
645
|
|
|
|
(1,195
|
)
|
|
|
149
|
(b)
|
Excess facility costs
|
|
|
4,375
|
|
|
|
551
|
|
|
|
(2,132
|
)
|
|
|
2,794
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,074
|
|
|
|
1,196
|
|
|
|
(3,327
|
)
|
|
|
2,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Primarily represents cash payments. |
|
(b) |
|
Substantially all of this amount is expected to be paid in 2010. |
|
(c) |
|
Substantially all of this amount is expected to be paid by 2012. |
Depreciation and Amortization. Depreciation
and amortization expense decreased $1,029,000 or 7.4% and
$922,000 or 3.3% for the three and six months ended
June 30, 2010, respectively, compared to the corresponding
prior year periods. The decrease for both periods is the result
of a decrease in property and equipment as the amount of assets
that were either sold or fully depreciated exceeded the
depreciation on new assets that were placed into service during
2010.
Income Taxes from Continuing Operations. For
the three months ended June 30, 2010, we had a pre-tax loss
from continuing operations of $17,517,000 and an income tax
benefit from continuing operations of $1,171,000, for an
effective tax benefit rate of 6.7%. For the six months ended
June 30, 2010, we had a pre-tax loss from continuing
operations of $28,621,000 and an income tax benefit from
continuing operations of $1,811,000, for an effective tax
benefit rate of 6.3%. For the three months ended June 30,
2009, we had a pre-tax loss from continuing operations of
$12,412,000 and an income tax benefit from continuing operations
of $3,945,000, for an effective tax benefit rate of 31.8%. For
the six months ended June 30, 2009, we had a pre-tax loss
from continuing operations of $23,232,000 and an income tax
benefit from continuing operations of $7,242,000, for an
effective tax benefit rate of 31.2%. For the three and six
months ended June 30, 2010, we recorded a charge of
approximately $7.3 million and $10.9 million,
respectively, to increase the valuation allowance which reduced
our net income tax benefit from continuing operations.
Earnings from Discontinued Operations, Net of Income
Taxes. We recorded earnings from discontinued
operations, net of income taxes, of $208,000 and $1,263,000 for
the three months ended June 30, 2010 and 2009,
respectively, and $20,582,000 and $2,338,000 for the six months
ended June 30, 2010 and 2009, respectively. These amounts
included the earnings of the Chiswick Park facility which was
sold in February 2010. The six months ended June 30, 2010
amount also includes the gain on sale of $25,498,000 and the
related income tax expense of $6,131,000.
15
Adjusted OIBDA. The following table provides a
reconciliation of total adjusted OIBDA to loss from continuing
operations before income taxes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Total adjusted OIBDA
|
|
$
|
(1,289
|
)
|
|
|
3,197
|
|
|
|
2,312
|
|
|
|
6,960
|
|
Stock-based and long-term incentive compensation
|
|
|
(1,138
|
)
|
|
|
(585
|
)
|
|
|
(1,793
|
)
|
|
|
(1,262
|
)
|
Restructuring and other charges
|
|
|
(495
|
)
|
|
|
(1,088
|
)
|
|
|
(1,196
|
)
|
|
|
(1,486
|
)
|
Depreciation and amortization
|
|
|
(12,953
|
)
|
|
|
(13,982
|
)
|
|
|
(26,653
|
)
|
|
|
(27,575
|
)
|
Loss on sale of operating assets, net
|
|
|
|
|
|
|
(56
|
)
|
|
|
(58
|
)
|
|
|
(210
|
)
|
Other income, net
|
|
|
(300
|
)
|
|
|
155
|
|
|
|
296
|
|
|
|
440
|
|
Other(a)
|
|
|
(1,342
|
)
|
|
|
(53
|
)
|
|
|
(1,529
|
)
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
$
|
(17,517
|
)
|
|
|
(12,412
|
)
|
|
|
(28,621
|
)
|
|
|
(23,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The three and six months periods ended June 30, 2010,
includes an expense of approximately $1.2 million for a
lump-sum payment related to the death benefit of our chief
operating officer under the terms of his employment contract. |
Content Services group adjusted OIBDA as a percentage of revenue
was 7.5% and 10.0% for the three months ended June 30, 2010
and 2009, respectively, and 7.5% and 8.6% for the six months
ended June 30, 2010 and 2009, respectively. In 2009, the
primary cost components for the Content Services group were
labor and materials, with these costs comprising about 67% of
the segment revenue. Due to the decline in revenue from the
system integration business, which incurs high material costs,
the primary cost components for the Content Services group in
2010 are labor and facilities costs. These costs comprise about
73% of the segment revenues in 2010. The other cost components
for the Content Services group are production equipment and
general and administrative expense.
Content Services group adjusted OIBDA decreased $2,862,000 or
38.7% for the three months ended June 30, 2010, compared to
the prior year period. This decrease was due to (i) a
$1,709,000 decrease in adjusted OIBDA resulting from lower
revenues from digital services, (ii) a $1,042,000 decrease
in adjusted OIBDA resulting from lower revenues for traditional
media services in the United States including mastering, tape,
syndication and DVD services and (iii) a decrease of
$550,000 from lower system integration revenues. These decreases
were partially offset by an adjusted OIBDA increase of $429,000
from the traditional media services business in the
United Kingdom, which reduced operating costs while revenue
remained constant. Content Services group adjusted OIBDA
decreased $3,817,000 or 30.0% for the six months ended
June 30, 2010, compared to the prior year period. This
decrease was due to (i) a $2,148,000 decrease in adjusted
OIBDA resulting from lower revenues for traditional media
services in the United States including mastering, tape,
syndication and DVD services, (ii) a $2,085,000 decrease in
adjusted OIBDA resulting from lower revenues from digital
services and (iii) $513,000 of startup costs relating to
development efforts on new businesses. These decreases were
partially offset by (i) an adjusted OIBDA increase of
$686,000 in the content distribution business, which reduced
operating costs more than its decline in revenues and
(ii) an adjusted OIBDA increase of $629,000 from the
traditional media services business in the United Kingdom, which
reduced operating costs while revenue remained constant.
Creative Services group adjusted OIBDA as a percentage of
revenue was 2.9% and 6.1% for the three months ended
June 30, 2010 and 2009, respectively, and 8.6% and 8.8% for
the six months ended June 30, 2010 and 2009, respectively.
The services provided by the Creative Services group are labor
intensive and they require high labor and facility costs, with
these costs representing about 77% of the segment revenue. The
Creative Services groups other primary cost components are
production equipment, materials cost and general and
administrative expenses.
Creative Services group adjusted OIBDA decreased $1,351,000 or
54.6% for the three months ended June 30, 2010, compared to
the prior period. This decrease was due to (i) a $2,246,000
decrease in adjusted OIBDA resulting from lower revenues from
large digital intermediate and telecine feature film projects
compared to the prior year and (ii) $599,000 of duplicative
rental costs as a result of a business unit relocating to a new
facility. These decreases
16
were partially offset by (i) cost savings of $655,000 due
to the consolidation of facilities in the episodic television
business, (ii) a $500,000 increase in adjusted OIBDA due to
higher revenues related to editorial services in the United
States and (iii) a $318,000 increase in adjusted OIBDA
resulting from higher revenues from visual effects projects in
the United States and the United Kingdom. Creative Services
group adjusted OIBDA increased $209,000 or 2.9% for the six
months ended June 30, 2010, compared to the prior period.
This increase was due to (i) a $2,020,000 increase in
adjusted OIBDA resulting from higher revenues for editorial
services in the United States, (ii) cost savings of
$1,310,000 due to the consolidation of facilities in the
episodic television business and (iii) $1,269,000 due to
higher revenues from commercial digital intermediate and
telecine services as commercial production levels increased in
2010. These increases were partially offset by (i) a
$3,491,000 decrease in adjusted OIBDA resulting from lower
revenues related to a decline in large digital intermediate and
telecine feature film projects compared to the prior year and
(ii) $798,000 of duplicative rental costs as a result of a
business unit relocating to a new facility.
Liquidity
and Capital Resources
At June 30, 2010, we have $284,688,000 of cash and cash
equivalents on a consolidated basis. In addition, we have
investments in marketable securities of $95,629,000, which are
generally liquid and available for sale. We may use a portion of
these assets to fund potential strategic acquisitions or
investment opportunities. The cash is invested in highly liquid,
highly-rated short-term investments.
Additionally, our other source of funds is our cash flows from
operating activities, which are currently generated entirely
from the operations of AMG. During the six months ended
June 30, 2010 and 2009, our cash from operating activities
was $14,435,000 and $17,709,000, respectively. The primary
driver of our cash flow from operating activities is segment
adjusted OIBDA. Fluctuations in our segment adjusted OIBDA are
discussed in Results of Operations above. In
addition, our cash flow from operating activities is
significantly impacted by changes in working capital, which are
generally due to the timing of purchases and payments and the
timing of billings and collections for revenue, as well as
corporate general and administrative expenses which are not
included in segment adjusted OIBDA.
During the six months ended June 30, 2010 and 2009, we used
cash of $13,818,000 and $16,131,000, respectively, to fund our
capital expenditures. These expenditures relate to the purchase
of new equipment, the upgrade of facilities and the buildout of
our existing facilities to meet specific customer contracts,
which are capitalized as additions and remain our property, not
that of the customer. We purchased marketable securities for
cash of $41,756,000 during 2010 and $29,965,000 during 2009 in
order to improve our investment rate of return.
On July 23, 2010, AMG entered into a $30 million
secured revolving credit facility with Wells Fargo Capital
Finance, LLC, as agent. Proceeds of the facility, which is not
guaranteed by Ascent Media, may be used by AMG for general
business purposes, including working capital and capital
expenditures.
In considering our liquidity requirements for 2010 and
subsequent periods, we evaluated our known future commitments
and our expected capital expenditure requirements, as well as
our cash flow from continuing operations for the fiscal year
2009 and the first two quarters of 2010 and our understanding of
the variable factors driving such cash flow from continuing
operations, and the new credit facility at AMG. We considered
that currently we have less than $7 million of capital
leases which will be paid over the next five years and we have
no outstanding bank debt. In addition, we have approximately
$4 million of other commitments most of which are expected
to be paid in three to five years. Our annual capital
expenditure requirements include expenditures required to
maintain or enhance AMGs existing business and
discretionary expenditures that could be adjusted by management.
We do not currently have any commitments for capital
expenditures to be incurred following our 2010 fiscal year.
Based on this analysis, we expect to have sufficient sources of
liquidity, including available cash and cash equivalents, the
new credit facility at AMG, and net cash from AMGs
operating activities to meet our working capital needs and
capital expenditure requirements for 2010 and for the
foreseeable future.
We may seek external equity or debt financing in the event of
any new investment opportunities, additional capital
expenditures or our operations requiring additional funds, but
there can be no assurance that we will be able to obtain equity
or debt financing on terms that would be acceptable to us. Our
ability to seek additional sources of funding depends on our
future financial position and results of operations, which are
subject to general conditions in
17
or affecting our industry and our customers and to general
economic, political, financial, competitive, legislative and
regulatory factors beyond our control.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosure about Market Risk
|
Foreign
Currency Risk
We continually monitor our economic exposure to changes in
foreign exchange rates and may enter into foreign exchange
agreements where and when appropriate. Substantially all of our
foreign transactions are denominated in foreign currencies,
including the liabilities of our foreign subsidiaries. Although
our foreign transactions are not generally subject to
significant foreign exchange transaction gains or losses, the
financial statements of our foreign subsidiaries are translated
into United States dollars as part of our consolidated financial
reporting. As a result, fluctuations in exchange rates affect
our financial position, results of operations and cash flows.
|
|
Item 4.
|
Controls
and Procedures
|
In accordance with Exchange Act
Rules 13a-15
and 15d-15,
the Company carried out an evaluation, under the supervision and
with the participation of management, including its chief
executive officer and principal accounting officer (the
Executives), of the effectiveness of its disclosure
controls and procedures as of the end of the period covered by
this report. Based on that evaluation, the Executives concluded
that the Companys disclosure controls and procedures were
effective as of June 30, 2010 to provide reasonable
assurance that information required to be disclosed in its
reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules
and forms.
There has been no change in the Companys internal controls
over financial reporting that occurred during the three months
ended June 30, 2010 that has materially affected, or is
reasonably likely to materially affect, its internal controls
over financial reporting.
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
PART II
OTHER INFORMATION
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds.
|
(c) Purchases
of Equity Securities by the Issuer
During the three months ended June 30, 2010,
2,519 shares of Series A common stock were surrendered
by certain of our officers and employees to pay withholding
taxes and other deductions in connection with the vesting of
their restricted stock, as set forth in the table below.
|
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
Average
|
|
|
|
of Shares
|
|
|
Price Paid
|
|
Period
|
|
Purchased
|
|
|
per Share
|
|
|
04/01/10 04/30/10
|
|
|
|
|
|
|
|
|
05/01/10 05/31/10
|
|
|
|
|
|
|
|
|
06/01/10 06/30/10
|
|
|
2,519
|
(a)
|
|
$
|
26.26
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,519
|
(a)
|
|
$
|
26.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents 1,836 shares withheld from Mr. Fitzgerald
and 683 shares withheld from Mr. Orr. |
18
Listed below are the exhibits which are included as a part of
this Report (according to the number assigned to them in
Item 601 of
Regulation S-K):
|
|
|
|
|
|
31
|
.1
|
|
Rule 13a-14(a)/15d-14(a)
Certification*
|
|
31
|
.2
|
|
Rule 13a-14(a)/15d-14(a)
Certification*
|
|
32
|
|
|
Section 1350 Certification**
|
|
|
|
* |
|
Filed herewith. |
|
** |
|
Furnished herewith. |
19
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.
ASCENT MEDIA CORPORATION
|
|
|
|
By:
|
/s/ William
R. Fitzgerald
|
William R. Fitzgerald
Chairman and Chief Executive Officer
Date: August 6, 2010
|
|
|
|
By:
|
/s/ George
C. Platisa
|
George C. Platisa
Executive Vice President and Chief
Financial Officer
Date: August 6, 2010
20
EXHIBIT INDEX
Listed below are the exhibits which are included as a part of
this Report (according to the number assigned to them in
Item 601 of
Regulation S-K):
|
|
|
|
|
|
31
|
.1
|
|
Rule 13a-14(a)/15d-14(a)
Certification*
|
|
31
|
.2
|
|
Rule 13a-14(a)/15d-14(a)
Certification*
|
|
32
|
|
|
Section 1350 Certification**
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* |
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Filed herewith. |
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** |
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Furnished herewith. |
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