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 September 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, as defined in
Rule 12b-2
of the Exchange Act.
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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 October 31, 2010 was:
Series A common stock 13,556,343 shares;
and
Series B common stock 733,599 shares.
TABLE OF CONTENTS
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Condensed
Consolidated Balance Sheets
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September 30,
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December 31,
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2010
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2009
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Amounts in thousands (Unaudited)
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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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279,023
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292,914
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Trade receivables, net
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81,848
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91,414
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Prepaid expenses
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10,300
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9,711
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Deferred income tax assets, net
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75
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562
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Assets of discontinued operations
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2,862
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Income taxes receivable
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15,945
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17,793
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Other current assets
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1,657
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1,635
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Total current assets
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388,848
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416,891
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Investments in marketable securities (note 2)
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96,906
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56,197
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Property and equipment, net
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172,903
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185,891
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Deferred income tax assets, net
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1,029
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Assets of discontinued operations
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10,868
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Other assets, net
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11,362
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11,607
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Total assets
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$
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670,019
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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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19,245
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18,228
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Accrued payroll and related liabilities
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19,822
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17,706
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Other accrued liabilities
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24,831
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21,647
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Deferred revenue
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9,254
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8,618
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Liabilities related to assets of discontinued operations
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774
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4,673
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Total current liabilities
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73,926
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70,872
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Deferred tax liabilities
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1,094
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Other liabilities
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26,893
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29,015
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Total liabilities
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101,913
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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
13,556,343 shares at September 30, 2010
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136
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134
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Series B common stock, $.01 par value. Authorized
5,000,000 shares; issued and outstanding
733,599 shares at September 30, 2010
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7
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7
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Series C common stock, $.01 par value. Authorized
45,000,000 shares; no shares issued
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Additional paid-in capital
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1,467,207
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1,464,925
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Accumulated deficit
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(894,927
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)
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(878,853
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)
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Accumulated other comprehensive loss
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(4,317
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)
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(3,617
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)
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Total stockholders equity
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568,106
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582,596
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Total liabilities and stockholders equity
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$
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670,019
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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
Loss
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Three Months Ended
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Nine Months Ended
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September 30,
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September 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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Amounts in thousands, except per share amounts
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(Unaudited)
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Net revenue
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$
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103,407
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106,949
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307,433
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336,475
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Operating expenses:
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Cost of services
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75,217
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78,107
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223,178
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244,416
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Selling, general, and administrative, including stock-based and
long-term incentive compensation (note 5)
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25,481
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25,322
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80,813
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81,709
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Restructuring charges
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817
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1,160
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2,013
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2,646
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Gain on sale of operating assets, net
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(75
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)
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(340
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)
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(16
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)
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(130
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)
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Depreciation and amortization
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12,172
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14,125
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38,483
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41,591
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|
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|
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|
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|
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113,612
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|
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118,374
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344,471
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|
370,232
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|
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Operating loss
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|
(10,205
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)
|
|
|
(11,425
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)
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|
|
(37,038
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)
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|
(33,757
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)
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Other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Interest income
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1,095
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|
|
742
|
|
|
|
2,666
|
|
|
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1,899
|
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Other income (expense), net
|
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|
(491
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)
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|
|
78
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|
|
|
(1,770
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)
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|
(636
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
604
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|
|
|
820
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|
|
|
896
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|
|
|
1,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Loss from continuing operations before income taxes
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|
|
(9,601
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)
|
|
|
(10,605
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)
|
|
|
(36,142
|
)
|
|
|
(32,494
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)
|
Income tax benefit from continuing operations
|
|
|
520
|
|
|
|
2,998
|
|
|
|
2,331
|
|
|
|
9,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net loss from continuing operations
|
|
|
(9,081
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)
|
|
|
(7,607
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)
|
|
|
(33,811
|
)
|
|
|
(22,621
|
)
|
Discontinued operations (note 3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued operations
|
|
|
(2,591
|
)
|
|
|
1,409
|
|
|
|
22,427
|
|
|
|
3,440
|
|
Income tax benefit (expense)
|
|
|
1,826
|
|
|
|
(215
|
)
|
|
|
(4,690
|
)
|
|
|
(885
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued operations, net of income tax
|
|
|
(765
|
)
|
|
|
1,194
|
|
|
|
17,737
|
|
|
|
2,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net loss
|
|
|
(9,846
|
)
|
|
|
(6,413
|
)
|
|
|
(16,074
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)
|
|
|
(20,066
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
1,653
|
|
|
|
(1,026
|
)
|
|
|
145
|
|
|
|
4,400
|
|
Unrealized holding gains (losses) arising during the period, net
of income tax
|
|
|
1,277
|
|
|
|
817
|
|
|
|
(1,047
|
)
|
|
|
2,134
|
|
Pension liability adjustments
|
|
|
67
|
|
|
|
34
|
|
|
|
202
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss)
|
|
|
2,997
|
|
|
|
(175
|
)
|
|
|
(700
|
)
|
|
|
6,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(6,849
|
)
|
|
|
(6,588
|
)
|
|
|
(16,774
|
)
|
|
|
(13,432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share (note 6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.64
|
)
|
|
|
(0.54
|
)
|
|
|
(2.38
|
)
|
|
|
(1.61
|
)
|
Discontinued operations
|
|
|
(0.05
|
)
|
|
|
0.08
|
|
|
|
1.25
|
|
|
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(0.69
|
)
|
|
|
(0.46
|
)
|
|
|
(1.13
|
)
|
|
|
(1.43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
3
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
|
(Unaudited)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(16,074
|
)
|
|
|
(20,066
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations, net of income tax
|
|
|
(17,737
|
)
|
|
|
(2,555
|
)
|
Depreciation and amortization
|
|
|
38,483
|
|
|
|
41,591
|
|
Stock based compensation
|
|
|
2,491
|
|
|
|
1,834
|
|
Deferred income tax expense
|
|
|
2,610
|
|
|
|
1,307
|
|
Other non-cash activity, net
|
|
|
949
|
|
|
|
1,493
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
9,566
|
|
|
|
14,207
|
|
Prepaid expenses and other assets
|
|
|
1,803
|
|
|
|
(8,935
|
)
|
Payables and other liabilities
|
|
|
4,182
|
|
|
|
(13,858
|
)
|
Operating activities from discontinued operations, net
|
|
|
(7,074
|
)
|
|
|
3,951
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
19,199
|
|
|
|
18,969
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(24,056
|
)
|
|
|
(20,529
|
)
|
Purchases of marketable securities (note 2)
|
|
|
(41,756
|
)
|
|
|
(43,274
|
)
|
Proceeds from sales of marketable securities (note 2)
|
|
|
|
|
|
|
6,112
|
|
Cash paid for acquisitions (note 4)
|
|
|
|
|
|
|
(2,702
|
)
|
Proceeds from sale of discontinued operations
|
|
|
34,828
|
|
|
|
|
|
Proceeds from sale of operating assets
|
|
|
25
|
|
|
|
959
|
|
Equity investments
|
|
|
(1,384
|
)
|
|
|
(1,785
|
)
|
Investing activities from discontinued operations, net
|
|
|
(301
|
)
|
|
|
(1,962
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(32,644
|
)
|
|
|
(63,181
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Payment of capital lease obligations
|
|
|
(1,448
|
)
|
|
|
(1,345
|
)
|
Proceeds from credit facility
|
|
|
1,000
|
|
|
|
|
|
Other
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(446
|
)
|
|
|
(1,345
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(13,891
|
)
|
|
|
(45,557
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
292,914
|
|
|
|
341,517
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
279,023
|
|
|
|
295,960
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
4
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Unaudited 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 September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Beginning Balance
|
|
$
|
95,629
|
|
|
|
32,173
|
|
|
|
56,197
|
|
|
|
|
|
Purchases
|
|
|
|
|
|
|
13,309
|
|
|
|
41,756
|
|
|
|
43,274
|
|
Sales(1)
|
|
|
|
|
|
|
(5,376
|
)
|
|
|
|
|
|
|
(5,376
|
)
|
Unrealized gain (loss)
|
|
|
1,277
|
|
|
|
1,370
|
|
|
|
(1,047
|
)
|
|
|
3,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
96,906
|
|
|
|
41,476
|
|
|
|
96,906
|
|
|
|
41,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the three and nine months ended September 30, 2009,
proceeds from the sales of marketable securities totaled
$6,112,000, which included a pre-tax gain of $736,000. |
5
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
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 sheets and in other comprehensive income
(loss) on the consolidated statements of operations and
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
(972
|
)
|
|
|
1,317
|
|
|
|
1,352
|
|
|
|
|
|
Gains (losses), net of tax(1)
|
|
|
1,277
|
|
|
|
1,256
|
|
|
|
(1,047
|
)
|
|
|
2,573
|
|
Gains recognized into earnings, net of tax(2)
|
|
|
|
|
|
|
(439
|
)
|
|
|
|
|
|
|
(439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
305
|
|
|
|
2,134
|
|
|
|
305
|
|
|
|
2,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts are net of tax expense of $0 and $850,000 for the three
months ended September 30, 2010 and 2009, respectively, and
$0 and $1,741,000 for the nine months ended September 30,
2010 and 2009, respectively. |
|
(2) |
|
Amounts are net of tax of $297,000 for both the three and nine
months ended September 30, 2009. |
|
|
(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 $4,690,000 of related income tax expense. The
gain and related income tax expense are included in earnings
(loss) from discontinued operations in the accompanying
condensed consolidated statement of operations.
In September 2010, the Company shut down the operations of the
Global Media Exchange (GMX), which was previously
included in the Content Services group. The GMX assets and
liabilities were classified as discontinued operations at
September 30, 2010, and the results of operations of GMX
have been treated as discontinued operations in the condensed
consolidated financial statements for all periods presented.
Ascent Media recorded a charge of $1,838,000 to writeoff the
assets and record severance costs in connection with the
shutdown.
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
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
Amounts in thousands
|
|
Revenue
|
|
$
|
|
|
|
$
|
5,008
|
|
|
$
|
2,533
|
|
|
$
|
13,425
|
|
Earnings (loss) before income taxes(a)
|
|
$
|
(2,591
|
)
|
|
$
|
1,409
|
|
|
$
|
22,427
|
|
|
$
|
3,440
|
|
|
|
|
(a) |
|
The three and nine months ended September 30, 2010 amounts
include a charge of $1,838,000 related to the shutdown of the
GMX operations. The nine months ended September 30, 2010
amount includes a $25,498,000 gain on the sale of the Chiswick
Park facility. |
6
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
|
|
(4)
|
Restructuring
Charges
|
The Company recorded restructuring charges in continuing
operations of $817,000 and $1,160,000, during the three months
ended September 30, 2010 and 2009, respectively, and
$2,013,000 and $2,646,000 during the nine months ended
September 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. These
changes, which were concluded in September 2010, 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, 2008
|
|
|
Additions
|
|
|
Deductions(a)
|
|
|
September 30, 2009
|
|
|
Severance
|
|
$
|
2,526
|
|
|
|
2,632
|
|
|
|
(4,289
|
)
|
|
|
869
|
|
Excess facility costs
|
|
|
3,294
|
|
|
|
14
|
|
|
|
(1,353
|
)
|
|
|
1,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,820
|
|
|
|
2,646
|
|
|
|
(5,642
|
)
|
|
|
2,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
Additions
|
|
|
Deductions(a)
|
|
|
September 30, 2010
|
|
|
Severance
|
|
$
|
699
|
|
|
|
1,407
|
|
|
|
(1,944
|
)
|
|
|
162
|
(b)
|
Excess facility costs
|
|
|
4,375
|
|
|
|
606
|
|
|
|
(2,828
|
)
|
|
|
2,153
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,074
|
|
|
|
2,013
|
|
|
|
(4,772
|
)
|
|
|
2,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
|
|
(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.
7
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Weighted average Series A and Series B shares
|
|
|
14,206,481
|
|
|
|
14,081,872
|
|
|
|
14,194,973
|
|
|
|
14,076,216
|
|
Dilutive effect of stock options and unvested restricted stock
|
|
|
175,676
|
|
|
|
206,593
|
|
|
|
176,053
|
|
|
|
191,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
14,382,157
|
|
|
|
14,288,465
|
|
|
|
14,371,026
|
|
|
|
14,267,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7)
|
Commitments,
Contingencies and Other Liabilities
|
The Company is involved in litigation and similar 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)
|
Revolving
Credit Facility
|
In July 2010, AMG entered into a $30 million secured
revolving credit facility with Wells Fargo Capital Finance, LLC,
as agent. The credit facility has a four year term and the
interest rate was 2.76% at September 30, 2010. 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. As of September 30, 2010,
AMG had borrowed $1,000,000 under the credit facility, which is
included in other liabilities on the consolidated balance sheet.
|
|
(9)
|
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.
|
8
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
The following summarizes the fair value level of assets and
liabilities that are measured on a recurring basis at
September 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds(a)
|
|
$
|
262,672
|
|
|
|
|
|
|
|
|
|
|
|
262,672
|
|
Investments in marketable securities(b)
|
|
|
96,906
|
|
|
|
|
|
|
|
|
|
|
|
96,906
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
(3,938
|
)
|
|
|
(3,938
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
359,578
|
|
|
|
|
|
|
|
(3,938
|
)
|
|
|
355,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Beginning balance
|
|
$
|
(3,327
|
)
|
|
|
(4,226
|
)
|
Contingent consideration
|
|
|
|
|
|
|
(3,162
|
)
|
Amounts expensed(a)
|
|
|
(611
|
)
|
|
|
(169
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance(b)
|
|
$
|
(3,938
|
)
|
|
|
(7,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The amounts expensed consisted of changes in the fair value of
contingent consideration. These amounts were recorded in
SG&A on the consolidated statement of operations. |
|
(b) |
|
The 2010 amount consists of contingent consideration of
$3,804,000 and a participating residual interest of $134,000.
The 2009 amount consists of contingent consideration of
$3,331,000 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.
|
|
(10)
|
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
9
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Unaudited 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
|
|
Combined
|
|
Other(a)
|
|
Total
|
|
|
Amounts in thousands
|
|
Three months ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
61,017
|
|
|
|
42,390
|
|
|
|
103,407
|
|
|
|
|
|
|
|
103,407
|
|
Adjusted OIBDA
|
|
$
|
5,664
|
|
|
|
4,568
|
|
|
|
10,232
|
|
|
|
(6,435
|
)
|
|
|
3,797
|
|
Capital expenditures
|
|
$
|
7,476
|
|
|
|
2,469
|
|
|
|
9,945
|
|
|
|
608
|
|
|
|
10,553
|
|
Nine months ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
179,866
|
|
|
|
127,567
|
|
|
|
307,433
|
|
|
|
|
|
|
|
307,433
|
|
Adjusted OIBDA
|
|
$
|
16,311
|
|
|
|
11,880
|
|
|
|
28,191
|
|
|
|
(20,339
|
)
|
|
|
7,852
|
|
Capital expenditures
|
|
$
|
15,689
|
|
|
|
4,995
|
|
|
|
20,684
|
|
|
|
3,372
|
|
|
|
24,056
|
|
Three months ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
65,332
|
|
|
|
41,617
|
|
|
|
106,949
|
|
|
|
|
|
|
|
106,949
|
|
Adjusted OIBDA
|
|
$
|
5,715
|
|
|
|
5,005
|
|
|
|
10,720
|
|
|
|
(6,405
|
)
|
|
|
4,315
|
|
Capital expenditures
|
|
$
|
3,769
|
|
|
|
860
|
|
|
|
4,629
|
|
|
|
191
|
|
|
|
4,820
|
|
Nine months ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
213,764
|
|
|
|
122,711
|
|
|
|
336,475
|
|
|
|
|
|
|
|
336,475
|
|
Adjusted OIBDA
|
|
$
|
19,664
|
|
|
|
12,109
|
|
|
|
31,773
|
|
|
|
(19,268
|
)
|
|
|
12,505
|
|
Capital expenditures
|
|
$
|
12,212
|
|
|
|
5,853
|
|
|
|
18,065
|
|
|
|
2,464
|
|
|
|
20,529
|
|
|
|
|
(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. |
10
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Unaudited 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
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Total adjusted OIBDA
|
|
$
|
3,797
|
|
|
|
4,315
|
|
|
|
7,852
|
|
|
|
12,505
|
|
Stock-based and long-term incentive compensation
|
|
|
(698
|
)
|
|
|
(573
|
)
|
|
|
(2,491
|
)
|
|
|
(1,834
|
)
|
Restructuring and other charges
|
|
|
(817
|
)
|
|
|
(1,160
|
)
|
|
|
(2,013
|
)
|
|
|
(2,646
|
)
|
Depreciation and amortization
|
|
|
(12,172
|
)
|
|
|
(14,125
|
)
|
|
|
(38,483
|
)
|
|
|
(41,591
|
)
|
Gain on sale of operating assets, net
|
|
|
75
|
|
|
|
340
|
|
|
|
16
|
|
|
|
130
|
|
Other income, net
|
|
|
604
|
|
|
|
820
|
|
|
|
896
|
|
|
|
1,263
|
|
Other(a)
|
|
|
(390
|
)
|
|
|
(222
|
)
|
|
|
(1,919
|
)
|
|
|
(321
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
$
|
(9,601
|
)
|
|
|
(10,605
|
)
|
|
|
(36,142
|
)
|
|
|
(32,494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The nine month period ended September 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. |
Information as to the Companys operations in different
geographic areas is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Amounts in thousands
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
79,667
|
|
|
|
83,875
|
|
|
|
241,148
|
|
|
|
270,748
|
|
United Kingdom
|
|
|
17,357
|
|
|
|
17,531
|
|
|
|
49,859
|
|
|
|
48,872
|
|
Singapore
|
|
|
6,383
|
|
|
|
5,543
|
|
|
|
16,426
|
|
|
|
16,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
103,407
|
|
|
|
106,949
|
|
|
|
307,433
|
|
|
|
336,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
136,327
|
|
|
|
148,312
|
|
United Kingdom
|
|
|
20,924
|
|
|
|
22,914
|
|
Singapore
|
|
|
15,652
|
|
|
|
14,665
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
172,903
|
|
|
|
185,891
|
|
|
|
|
|
|
|
|
|
|
11
|
|
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.
12
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. Currently, 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 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.
13
Results
of Operations
Our operations are organized into the following reportable
segments: the Content Services group and the Creative Services
group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Dollar amounts in thousands
|
|
|
Dollar amounts in thousands
|
|
|
Consolidated Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
103,407
|
|
|
|
106,949
|
|
|
|
307,433
|
|
|
|
336,475
|
|
Loss from continuing operations before income taxes
|
|
$
|
(9,601
|
)
|
|
|
(10,605
|
)
|
|
|
(36,142
|
)
|
|
|
(32,494
|
)
|
Net loss
|
|
$
|
(9,846
|
)
|
|
|
(6,413
|
)
|
|
|
(16,074
|
)
|
|
|
(20,066
|
)
|
Segment Result of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Content Services group
|
|
$
|
61,017
|
|
|
|
65,332
|
|
|
|
179,866
|
|
|
|
213,764
|
|
Creative Services group
|
|
$
|
42,390
|
|
|
|
41,617
|
|
|
|
127,567
|
|
|
|
122,711
|
|
Adjusted OIBDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Content Services group
|
|
$
|
5,664
|
|
|
|
5,715
|
|
|
|
16,311
|
|
|
|
19,664
|
|
Creative Services group
|
|
|
4,568
|
|
|
|
5,005
|
|
|
|
11,880
|
|
|
|
12,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment adjusted OIBDA
|
|
|
10,232
|
|
|
|
10,720
|
|
|
|
28,191
|
|
|
|
31,773
|
|
Corporate general and administrative expenses
|
|
|
(6,435
|
)
|
|
|
(6,405
|
)
|
|
|
(20,339
|
)
|
|
|
(19,268
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjusted OIBDA(a)
|
|
$
|
3,797
|
|
|
|
4,315
|
|
|
|
7,852
|
|
|
|
12,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted OIBDA as a percentage of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Content Services group
|
|
|
9.3
|
%
|
|
|
8.7
|
%
|
|
|
9.1
|
%
|
|
|
9.2
|
%
|
Creative Services group
|
|
|
10.8
|
%
|
|
|
12.0
|
%
|
|
|
9.3
|
%
|
|
|
9.9
|
%
|
|
|
|
(a) |
|
See reconciliation to loss from continuing operations before
income taxes below. |
Revenue. Our consolidated revenue decreased
$3,542,000 or 3.3% and $29,042,000 or 8.6% for the three months
and nine months ended September 30, 2010, respectively, as
compared to the corresponding prior year periods. The Content
Services group revenue decreased $4,315,000 or 6.6% and
$33,898,000 or 15.9% for the three months and nine months ended
September 30, 2010, respectively, compared to the prior
year periods. The Creative Services group revenue increased by
$773,000 or 1.9% and $4,856,000 or 4.0% for such periods.
The decrease in the Content Services group revenue for the three
month period was mainly due to (i) a decrease of $2,922,000
in system integration service revenues as customers reduced
spending on system integration projects, with one customer,
Motorola, accounting for $1.7 million of the decrease and
(ii) a decrease of $2,106,000 due to a decline in
traditional media services in the United States and the United
Kingdom including mastering, tape and syndication services.
These decreases were partially offset by an increase of
$1,014,000 due to higher revenues for content distribution and
transport services. The decrease in the Content Services group
revenue for the nine month period was mainly due to (i) a
decrease of $22,528,000 in system integration service revenues
as customers reduced spending on system integration projects,
with one customer, Motorola, accounting for $15.8 million
of the decrease, (ii) a decrease of $8,227,000 due to a
decline in traditional media services primarily in the United
States including mastering, tape, syndication and DVD services,
(iii) a decrease of $2,101,000 due to lower revenues for
content distribution and transport services and (iv) a
decrease of $2,015,000 due to a decline in digital services
revenues.
The increase in Creative Services group revenue for the three
month period was due to (i) an increase of $966,000 due to
increases in our digital intermediate and telecine feature film
projects compared to the prior year and (ii) an increase of
$347,000 in editorial services in the United States. These
increases were offset by a decrease of $454,000 in episodic
television revenues due to the timing of television production
and lower revenues earned per
14
show. The increase in Creative Services group revenue for the
nine month period was due to (i) an increase of $7,185,000
in editorial services in the United States, (ii) an
increase of $2,667,000 from commercial digital intermediate and
telecine services as commercial production levels increased in
2010 and (iii) an increase of $1,877,000 for visual effects
services in the United States and United Kingdom. These
increases were partially offset by (i) a decrease of
$4,134,000 due to a decline in large digital intermediate and
telecine feature film projects compared to the prior year and
(ii) a decrease of $3,241,000 in episodic television
revenues due to the timing of television production and lower
revenues earned per show.
Cost of Services. Cost of services decreased
$2,890,000 or 3.7% and $21,238,000 or 8.7% for the three and
nine months ended September 30, 2010, respectively, as
compared to the corresponding prior year periods. We began a
restructuring program at the end of 2008 across all of our
businesses, which concluded in September 2010, that resulted in
a reduction in labor costs in the three and nine months ended
September 30, 2010, compared to the corresponding prior
periods. A significant portion of the decrease for the nine
months ended September 30, 2010, resulted from lower
volumes of system integration services in the Content Services
segment driving significant decreases in production material
costs. These decreases were offset by an increase in production
equipment costs for both periods compared to the prior year.
Also, cost of services for the three months ended
September 30, 2010, was impacted by unfavorable changes in
foreign currency exchange rates of $563,000.
As a percent of revenue, cost of services was 72.7% and 73.0%
for the three month periods ended September 30, 2010 and
2009, respectively. As a percent of revenue, cost of services
was 72.6% and 72.6% for the nine month periods ended
September 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
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Amounts in thousands
|
|
|
SG&A(a)
|
|
$
|
24,393
|
|
|
|
24,526
|
|
|
|
76,403
|
|
|
|
79,554
|
|
Stock-based and long-term incentive compensation
|
|
|
698
|
|
|
|
573
|
|
|
|
2,491
|
|
|
|
1,834
|
|
Accretion expense on asset retirement obligations (AROs)
|
|
|
55
|
|
|
|
54
|
|
|
|
157
|
|
|
|
152
|
|
Other(b)
|
|
|
335
|
|
|
|
169
|
|
|
|
1,762
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SG&A
|
|
$
|
25,481
|
|
|
|
25,322
|
|
|
|
80,813
|
|
|
|
81,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
SG&A includes corporate SG&A of $6,435,000 and
$6,405,000 for the three months ended September 30, 2010
and 2009, respectively, and $20,339,000 and $19,268,000 for the
nine months ended September 30, 2010 and 2009,
respectively, which are not included in total segment adjusted
OIBDA. |
|
(b) |
|
The nine months period ended September 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
$133,000 or 0.5% and $3,151,000 or 4.0% for the three and nine
months ended September 30, 2010, respectively, compared to
the corresponding prior year periods. The decrease for the three
month period was due to lower facility costs and professional
fees. The decrease for the nine month period was due to lower
facility costs and lower bad debt expense which was partially
offset by higher professional fees.
Stock-based and Long-term Incentive
Compensation. Stock-based and long-term incentive
compensation was $698,000 and $573,000 for the three months
ended September 30, 2010 and 2009, respectively, and
$2,491,000 and $1,834,000 for the nine months ended
September 30, 2010 and 2009, respectively. This expense was
related to restricted stock and stock option awards granted to
certain executives. The nine months ended September 30,
2010 amount also includes approximately $425,000 of accelerated
vesting of restricted stock and stock options related to
15
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 in continuing operations of $817,000 and
$1,160,000 during the three months ended September 30, 2010
and 2009, respectively, and $2,013,000 and $2,646,000 during the
nine months ended September 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. These changes, which were
concluded in September 2010, included 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, 2008
|
|
|
Additions
|
|
|
Deductions(a)
|
|
|
September 30, 2009
|
|
|
Severance
|
|
$
|
2,526
|
|
|
|
2,632
|
|
|
|
(4,289
|
)
|
|
|
869
|
|
Excess facility costs
|
|
|
3,294
|
|
|
|
14
|
|
|
|
(1,353
|
)
|
|
|
1,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,820
|
|
|
|
2,646
|
|
|
|
(5,642
|
)
|
|
|
2,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
Additions
|
|
|
Deductions(a)
|
|
|
September 30, 2010
|
|
|
Severance
|
|
$
|
699
|
|
|
|
1,407
|
|
|
|
(1,944
|
)
|
|
|
162
|
(b)
|
Excess facility costs
|
|
|
4,375
|
|
|
|
606
|
|
|
|
(2,828
|
)
|
|
|
2,153
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,074
|
|
|
|
2,013
|
|
|
|
(4,772
|
)
|
|
|
2,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $1,953,000 or 13.8% and
$3,108,000 or 7.5% for the three and nine months ended
September 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 September 30, 2010, we had a pre-tax
loss from continuing operations of $9,601,000 and an income tax
benefit from continuing operations of $520,000, for an effective
tax benefit rate of 5.4%. For the nine months ended
September 30, 2010, we had a pre-tax loss from continuing
operations of $36,142,000 and an income tax benefit from
continuing operations of $2,331,000, for an effective tax
benefit rate of 6.4%. For the three months ended
September 30, 2009, we had a pre-tax loss from continuing
operations of $10,605,000 and an income tax benefit from
continuing operations of $2,998,000, for an effective tax
benefit rate of 28.3%. For the nine months ended
September 30, 2009, we had a pre-tax loss from continuing
operations of $32,494,000 and an income tax benefit from
continuing operations of $9,873,000, for an effective tax
benefit rate of 30.4%. For the three and nine months ended
September 30, 2010, we recorded a charge of approximately
$3.1 million and $14.0 million, respectively, to
increase the valuation allowance, which reduced our net income
tax benefit from continuing operations and lowered the effective
tax benefit rate.
Earnings from Discontinued Operations, Net of Income
Taxes. We recorded earnings (loss) from
discontinued operations, net of income taxes, of $(765,000) and
$1,194,000 for the three months ended September 30, 2010
and 2009, respectively, and $17,737,000 and $2,555,000 for the
nine months ended September 30, 2010 and 2009,
respectively. These amounts included the results of the Chiswick
Park facility which was sold in February 2010 and the Global
Media Exchange which was shut down at the end of September 2010.
The three and nine
16
months ended September 30, 2010 amounts include a charge of
$1,838,000 to writeoff assets and record severance costs related
to the shutdown of the GMX operations. The nine months ended
September 30, 2010 amount also includes the gain on the
sale of the Chiswick Park facility of $25,498,000 and the
related income tax expense of $4,690,000.
Adjusted OIBDA. The following table provides a
reconciliation of total adjusted OIBDA to loss from continuing
operations before income taxes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Total adjusted OIBDA
|
|
$
|
3,797
|
|
|
|
4,315
|
|
|
|
7,852
|
|
|
|
12,505
|
|
Stock-based and long-term incentive compensation
|
|
|
(698
|
)
|
|
|
(573
|
)
|
|
|
(2,491
|
)
|
|
|
(1,834
|
)
|
Restructuring and other charges
|
|
|
(817
|
)
|
|
|
(1,160
|
)
|
|
|
(2,013
|
)
|
|
|
(2,646
|
)
|
Depreciation and amortization
|
|
|
(12,172
|
)
|
|
|
(14,125
|
)
|
|
|
(38,483
|
)
|
|
|
(41,591
|
)
|
Gain (Loss) on sale of operating assets, net
|
|
|
75
|
|
|
|
340
|
|
|
|
16
|
|
|
|
130
|
|
Other income, net
|
|
|
604
|
|
|
|
820
|
|
|
|
896
|
|
|
|
1,263
|
|
Other(a)
|
|
|
(390
|
)
|
|
|
(222
|
)
|
|
|
(1,919
|
)
|
|
|
(321
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
$
|
(9,601
|
)
|
|
|
(10,605
|
)
|
|
|
(36,142
|
)
|
|
|
(32,494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The nine month period ended September 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 9.3% and 8.7% for the three months ended September 30,
2010 and 2009, respectively, and 9.1% and 9.2% for the nine
months ended September 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
70% 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 slightly by
$51,000 or 0.9% for the three months ended September 30,
2010, compared to the prior year period. This decrease was due
to (i) a $1,232,000 decrease in adjusted OIBDA resulting
from lower revenues for traditional media services in the United
States and United Kingdom including mastering, tape and
syndication services and (ii) a $418,000 decrease in
adjusted OIBDA resulting from lower revenues from digital
services. These decreases were partially offset by (i) an
adjusted OIBDA increase of $1,195,000 in the content
distribution business.
Content Services group adjusted OIBDA decreased $3,353,000 or
17.1% for the nine months ended September 30, 2010,
compared to the prior year period. This decrease was due to
(i) a $2,746,000 decrease in adjusted OIBDA resulting from
lower revenues for traditional media services in the United
States including mastering, tape and syndication services and
(ii) a $2,499,000 decrease in adjusted OIBDA resulting from
lower revenues from digital services. These decreases were
partially offset by an adjusted OIBDA increase of $1,860,000 in
the content distribution business, which reduced operating costs
more than its decline in revenues.
Creative Services group adjusted OIBDA as a percentage of
revenue was 10.8% and 12.0% for the three months ended
September 30, 2010 and 2009, respectively, and 9.3% and
9.9% for the nine months ended September 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 76% of the
segment revenue. The Creative Services groups other
primary cost components are production equipment, materials cost
and general and administrative expenses.
17
Creative Services group adjusted OIBDA decreased $437,000 or
8.7% for the three months ended September 30, 2010,
compared to the prior period. This decrease was due to
(i) a $866,000 decrease in adjusted OIBDA resulting from
visual effects projects in the United States and (ii) a
$460,000 decrease in adjusted OIBDA resulting from lower
revenues from large digital intermediate and telecine feature
film projects compared to the prior year. These decreases were
partially offset by (i) cost savings of $655,000 due to the
consolidation of facilities in the episodic television business
and (ii) a $309,000 increase in adjusted OIBDA due to
higher revenues related to editorial services in the United
States.
Creative Services group adjusted OIBDA decreased $229,000 or
1.9% for the nine months ended September 30, 2010, compared
to the prior period. This decrease was due to (i) a
$3,625,000 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,
(ii) a $1,305,000 decrease in adjusted OIBDA resulting from
visual effects projects in the United States and
(ii) $998,000 of duplicative rental costs as a result of a
business unit relocating to a new facility. These decreases were
partially offset by (i) a $2,221,000 increase in adjusted
OIBDA resulting from higher revenues for editorial services in
the United States, (ii) cost savings of $1,965,000 due to
the consolidation of facilities in the episodic television
business (iii) an $851,000 increase in adjusted OIBDA
resulting from higher revenues for visual effects projects in
the United Kingdom and (iv) $712,000 due to higher revenues
from commercial digital intermediate and telecine services as
commercial production levels increased in 2010.
Liquidity
and Capital Resources
At September 30, 2010, we had cash, cash equivalents and
marketable securities, on a consolidated basis, of $375,929,000.
This amount consisted of $279,023,000 of cash and cash
equivalents and $96,906,000 of investments in marketable
securities, which are generally liquid and available for sale.
We may use a portion of these assets to fund potential
acquisitions or investment opportunities. The cash and cash
equivalents and marketable securities are 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 nine months ended
September 30, 2010 and 2009, our cash provided by operating
activities was $19,199,000 and $18,969,000, 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 nine months ended September 30, 2010 and 2009,
we used cash of $24,056,000 and $20,529,000, 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 $43,274,000
during 2009 in order to improve our investment rate of return.
In July 2010, AMG entered into a $30 million secured
revolving credit facility with Wells Fargo Capital Finance, LLC,
as agent. The credit facility has a four year term and the
interest rate was 2.76% at September 30, 2010. 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. As of September 30, 2010,
AMG has borrowed $1,000,000 under the credit facility.
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 three quarters of 2010 and our understanding
of the variable factors driving such cash flow from continuing
operations We also considered the new credit facility at AMG. We
considered that currently we have approximately $5 million
of capital lease obligations, which will be paid over the next
five years, and $1 million outstanding on the credit
facility which is payable in four years. 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
18
business as well as discretionary expenditures that could be
adjusted by management. We currently have commitments for
capital expenditures to be incurred following our 2010 fiscal
year but they are not significant. Based on this analysis, we
expect to have sufficient sources of liquidity, including
available cash, cash equivalents and marketable securities, 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 potential acquisitions or 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 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 September 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 September 30, 2010 that has materially affected, or
is reasonably likely to materially affect, its internal controls
over financial reporting.
19
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 September 30, 2010,
2,521 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 of Shares
|
|
Average Price
|
Period
|
|
Purchased (Surrendered)
|
|
Paid per Share
|
|
07/01/10 07/31/10
|
|
|
|
|
|
|
|
|
08/01/10 08/31/10
|
|
|
|
|
|
|
|
|
09/01/10 09/30/10
|
|
|
2,521(a
|
)
|
|
$
|
26.81
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,521(a
|
)
|
|
$
|
26.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents 1,837 shares withheld from Mr. Fitzgerald
and 684 shares withheld from Mr. Orr. |
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. |
20
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, President and Chief Executive Officer
|
Date: November 5, 2010
|
|
|
|
By:
|
/s/ George
C. Platisa
|
George C. Platisa
|
|
|
|
|
Executive Vice President and Chief Financial Officer
|
Date: November 5, 2010
21
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
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.1
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Rule 13a-14(a)/15d-14(a)
Certification*
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|
31
|
.2
|
|
Rule 13a-14(a)/15d-14(a)
Certification*
|
|
32
|
|
|
Section 1350 Certification**
|
|
|
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* |
|
Filed herewith. |
|
** |
|
Furnished herewith. |
22