e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D. C.
20549
Form
10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2010
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OR
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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
(State or other jurisdiction
of
incorporation or organization)
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26-2735737
(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) 875-6672
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each class
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Name of Exchange on Which Registered
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Series A Common Stock, par value $.01 per share
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The Nasdaq Stock Market LLC
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Securities registered pursuant to Section 12(g) of the
Act:
Series B Common Stock, par value $.01 per share
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act of
1933. Yes o No þ
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of
1934. Yes o No þ
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 Website, if any, any
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of Registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
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
Act) Yes o No þ
The aggregate market value of the voting stock held by
nonaffiliates of Ascent Media Corporation computed by reference
to the last sales price of such stock, as of the closing of
trading on June 30, 2010, was approximately
$340 million.
The number of shares outstanding of Ascent Media
Corporations common stock as of February 28, 2011
was: Series A common stock 13,554,998 shares; and
Series B common stock 731,852 shares.
DOCUMENTS
INCORPORATED BY REFERENCE
The Registrants definitive proxy statement for its 2011
Annual Meeting of Stockholders is hereby incorporated by
reference into Part III of this Annual Report on
Form 10-K.
ASCENT
MEDIA CORPORATION
2010 ANNUAL REPORT ON
FORM 10-K
Table of Contents
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(a)
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General
Development of Business
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Ascent Media Corporation (Ascent Media) was
incorporated in the state of Delaware on May 29, 2008 as a
wholly-owned subsidiary of Discovery Holding Company
(DHC). On September 17, 2008, DHC completed the
spin-off of Ascent Media to DHCs shareholders and we
became an independent, publicly traded company. In the spin-off,
each holder of DHC common stock received 0.05 of a share of our
Series A common stock for each share of DHC Series A
common stock held and 0.05 of a share of our Series B
common stock for each share of DHC Series B common stock
held. 13,401,886 shares of our Series A common stock
and 659,732 shares of our Series B common stock were
issued in the spin-off, which was intended to qualify as a
tax-free transaction.
We are a holding company. At December 31, 2010, our assets
consist primarily of our wholly-owned operating subsidiary,
Monitronics International, Inc. (Monitronics), the
Content Distribution business, cash and cash equivalents. At
December 31, 2010, we had cash and cash equivalents, on a
consolidated basis, of $149,857,000. We also own assets used in
the operation of our corporate and support functions and other
non-core assets including certain real estate interests
primarily in the United States and the Systems Integration
business described below. The Content Distribution business was
subsequently sold on February 28, 2011.
During 2010, there were substantial changes in our operations.
Historically, our principal asset was our wholly-owned operating
subsidiary Ascent Media Group, LLC (AMG). AMG was
primarily engaged in the business of providing content and
creative services to the media and entertainment industries. AMG
provided a wide variety of creative services and content
management and delivery services to the media and entertainment
industries from facilities in the United States, the United
Kingdom and Singapore. AMG provided solutions for the creation,
management and distribution of content to major motion picture
studios, independent producers, broadcast networks, programming
networks, advertising agencies and other companies that produce,
own and/or
distribute entertainment, news, sports and advertising content.
AMG also provided solutions for the management and distribution
of content to multichannel video programming distributors such
as cable operators and IPTV providers. Services were marketed to
target industry segments through AMGs internal sales
force, which were sold on both a bundled and an individual basis.
The businesses of AMG were organized into two operating
segments: businesses that provide content management and
delivery services (Content Services), and businesses
that provide creative services (Creative Services).
The Content Services segment was in turn divided into three
business units: (i) the content distribution business unit
(Content Distribution), (ii) the media
management services business unit (Media Services)
and (iii) the systems integration business unit
(Systems Integration or SI).
In February 2010, AMG consummated the sale of the assets and
operations of its Chiswick Park facility in the United Kingdom,
which was previously included in the Content Services group, to
Discovery Communications, Inc., for net cash proceeds of
approximately $35 million. AMG recognized a pre-tax gain of
approximately $25.5 million from the sale. For further
information regarding this transaction, see the MD&A
section of this Annual Report. The results of operations of the
Chiswick Park facility have been treated as discontinued
operations in the consolidated financial statements for all
periods presented in this Annual Report.
On November 24, 2010, the Company entered into an agreement
to sell the assets and operations of the Creative Services and
Media Services business units (the Creative/Media
business) to Deluxe Entertainment Services Group Inc. and
its wholly-owned subsidiary. This sale closed on
December 31, 2010 for net cash proceeds of approximately
$69 million, subject to customary post-closing adjustments.
Based on the estimated purchase price, the Company recognized a
net pre-tax loss of approximately $27 million from the sale
of the Creative/Media business. For further information
regarding this transaction, see the MD&A section of this
Annual Report. The Creative/Media business results of operations
have been treated as discontinued operations in the consolidated
financial statements for all periods presented in this Annual
Report.
On December 2, 2010, we entered into an agreement to sell
the assets and operations of the Content Distribution business
unit to Encompass Digital Media, Inc. and its wholly owned
subsidiary (together Encompass). For more
information regarding this sale, please see
Recent Developments and the MD&A
sections below. The financial statements of the Company included
in this Annual Report on
Form 10-K
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include the financial position and results of operations of the
Content Distribution business on a consolidated basis for all
periods reflected.
On December 17, 2010, we acquired 100% of Monitronics, a
leading national security alarm monitoring company. The
transaction value comprised $396 million of cash
consideration and we also assumed $795 million of net debt
(which we define as the principal amount of such debt less cash)
of Monitronics. Monitronics provides monitored business and home
security system services to more than 665,000 subscribers in the
United States and Canada, through a nationwide network of
independent authorized dealers. For more information about the
Monitronics business, please see Narrative
Description of the Business Monitronics
International, Inc. below. The financial statements of the
Company included in this Annual Report on
Form 10-K
include the financial position of Monitronics in the
Companys consolidated balance sheet as at
December 31, 2010, and the results of operations of
Monitronics on a consolidated basis for the period from
December 17, 2010 through December 31, 2010.
Recent
Developments
On February 28, 2011, the Company and Encompass consummated
the sale of the Content Distribution business. The Company
received net cash proceeds of approximately $104 million.
The Company expects to recognize an estimated pre-tax gain of
approximately $65 million from the sale, subject to
customary post-closing adjustments. The Content Distribution
results of operations will be treated as discontinued operations
in our consolidated financial statements starting in the first
quarter of 2011. For further information regarding this
transaction, see the MD&A section of this Annual Report.
* * * * *
Certain statements in this Annual Report on
Form 10-K
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. In particular, statements under Item 1.
Business, Item 1A. Risk Factors,
Item 2. Properties, Item 3. Legal
Proceedings, Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations and Item 7A. Quantitative and
Qualitative Disclosures About Market Risk contain
forward-looking statements. 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:
Factors relating to the Company and its consolidated
subsidiaries, as a whole:
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general economic and business conditions and industry trends;
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the regulatory and competitive environment of the industries in
which we, and the entities in which we have interests, operate;
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uncertainties inherent in the development of new business lines
and business strategies, including market acceptance;
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integration of acquired businesses;
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rapid technological changes;
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the availability and terms of capital;
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the outcome of any pending or threatened litigation;
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availability of qualified personnel;
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changes in the nature of key strategic relationships; and
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competitor and overall market response to our products and
services including acceptance of the pricing of such products
and services.
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Factors relating to the business of Monitronics:
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Monitronics high degree of leverage and the restrictive
covenants governing its indebtedness;
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Monitronics anticipated growth strategies;
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Monitronics ability to acquire and integrate additional
accounts, including competition for dealers with other alarm
monitoring companies;
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the operating performance of Monitronics network of
independent alarm systems dealers;
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changes in the nature of strategic relationships with original
equipment manufacturers, dealers and other Monitronics business
partners;
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changes in Monitronics expected rate of subscriber
attrition;
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Monitronics ability to continue to control costs and
maintain quality;
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the impact of false alarm ordinances and other
potential changes in regulations or standards;
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changes in technology that may make Monitronics services
less attractive or obsolete, or require significant expenditures
to upgrade;
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the development of new services or service innovations by
competitors;
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potential liability for failure to respond adequately to alarm
activations;
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the potential for system failure as a result of a catastrophic
event or natural disaster, including potential failure of
back-up
arrangements.
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the trend away from the use of public switched telephone network
lines.
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the ability of Monitronics to obtain additional funds to grow
its business, including the terms of any additional financing
with respect thereto; and
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the ability of Monitronics to refinance its existing debt on
attractive terms.
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These forward-looking statements and such risks, uncertainties
and other factors speak only as of the date of this Annual
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. When considering such forward-looking statements, you
should keep in mind the factors described in Item 1A,
Risk Factors and other cautionary statements
contained in this Annual Report. Such risk factors and
statements describe circumstances which could cause actual
results to differ materially from those contained in any
forward-looking statement.
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(b)
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Financial
Information About Reportable Segments
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We identify our reportable segments based on financial
information reviewed by our chief operating decision maker. We
report financial information for our consolidated business
segments that represent more than 10% of our consolidated
revenue or earnings before income taxes.
Based on the foregoing criteria, our two reportable segments at
December 31, 2010 are our Content Services group and our
Monitronics business. Financial information related to our
reportable segments can be found in note 19 to our
consolidated financial statements in Part II of this Annual
Report.
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(c)
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Narrative
Description of Business
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Ascent Media Corporation, a Delaware corporation, is a holding
company. Our principal executive office is located at 12300
Liberty Boulevard, Englewood, Colorado 80112, telephone number
(720) 875-6672.
At
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December 31, 2010, following the consummation of the sale
of our Creative/Media business, our principal assets consisted
of our wholly owned operating subsidiary, Monitronics
International, Inc. (Monitronics), the Content
Distribution and System Integration businesses described below,
and cash and cash equivalents. The financial statements included
in this
Form 10-K
include (i) the historical financial information for our
Content Distribution business, which was sold on
February 28, 2011, (ii) the historical financial
information for our Systems Integration business and
(iii) financial information for Monitronics at
December 31, 2010, and for the period from
December 17, 2010 through December 31, 2010. The
results of operations of the Creative/Media business have been
treated as discontinued operations in the consolidated financial
statements for all periods presented in this Annual Report. For
further historical financial information with regard to
Monitronics, please see our Current Report on
Form 8-K/A
filed with the SEC on December 28, 2010.
The Content Distribution business was sold on February 28,
2011. We are currently exploring opportunities to dispose of the
Systems Integration business, which we consider non-core. There
can be no assurances that the disposition of the SI business
will be completed in the near term
and/or on
terms favorable to Ascent Media, or on any terms.
We are also currently exploring opportunities to dispose of or
monetize our owned real property, which is not required for our
operations.
Content
Services
The Content Services group provided the services to archive,
optimize, transform, and repurpose completed media assets for
global distribution via satellite, fiber, the Internet and
freight, as well as the post-production facilities, technical
infrastructure, and operating staff necessary to assemble
programming content for cable and broadcast networks and to
distribute media signals via satellite and terrestrial networks.
The Content Services group was operated from facilities located
in California, Connecticut, Minnesota, New York, New Jersey,
Virginia, the United Kingdom and Singapore.
The Content Services group historically included the Media
Services business, the Content Distribution business and the
Systems Integration business. The Media Services business was
sold in 2010 and therefore is not included in the description
below. The Content Distribution business described below was
sold in a recent transaction to Encompass. For more information
regarding this sale, see Recent
Developments above.
The
Content Distribution Business
The key services provided by the Content Distribution business
included the following:
Network origination, playout and master
control. The Content Distribution business
provided outsourced network origination services to cable,
satellite and
pay-per-view
programming networks. This suite of services involved the
digitization and management of client-provided media assets
(programs, advertisements, promotions and secondary events) and
their aggregation into a continuous linear playout stream in
accordance with the clients programming schedule. More
than one hundred programming feeds running
24 hours a day, seven days a week were
supported by the Content Distribution businesss facilities
in the United States, London and Singapore. Network origination
services were provided from large-scale technical platforms with
integrated asset management, hierarchical storage management (a
data storage technique which automatically moves data between
high-cost and low-cost storage media), and broadcast automation
capabilities. These platforms, which are designed, built, owned
and operated by the Content Distribution business, require
incorporation and integration of hardware and software from
multiple third-party suppliers into a coordinated service
solution. Associated services included
cut-to-clock
and compliance editing, tape library management,
ingest & quality control, format conversion, and tape
duplication. For
multi-language
television services, the Content Distribution business
facilitated the collection, aggregation, and playout of
language-specific materials, including subtitles and foreign
language dubs. On-air graphics and other secondary events were
also integrated with the content. In conjunction with network
origination services, the Content Distribution business operated
television production studios and provided complete
post-production services for on-air promotions for some clients.
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Transport and connectivity. The Content
Distribution business operated satellite earth station
facilities in Singapore, California, New York, New Jersey,
Minnesota and Connecticut. The Content Distribution
businesss facilities were staffed 24 hours a day and
used for uplink, downlink and turnaround services. The business
accessed various distribution points, including basic and
premium cable, broadcast syndication,
direct-to-home
and DBS markets and resold transponder capacity for both
occasional and full-time use. The Content Distribution
businesss teleports were high-bandwidth
communications gateways with video switches and facilities for
satellite, optical fiber and microwave transmission. The
businesss facilities offered satellite antennae capable of
transmitting and receiving feeds in both C-Band and Ku-Band
frequencies. The Content Distribution business also operated a
global fiber network to carry real-time video and data services
between its various locations in the US, London, and Singapore.
This network was used to provide full-time program feeds and ad
hoc services to clients and to transport files and real-time
signals between the Content Distribution businesss
locations. The Content Distribution business also operated
industry-standard encryption and compression systems as needed
for customer satellite transmission. The Content Distribution
businesss transport and connectivity services could be
directly associated with network origination services or could
be provided on a stand-alone basis.
The
Systems Integration Business
The System Integration business designs, builds, installs and
services advanced technical systems for production, management
and delivery of rich media content to the worldwide broadcast,
cable television, broadband, government and telecommunications
industries. The System Integration business operates out of
facilities in New Jersey, California and Virginia, and services
global clients including major broadcasters, cable and satellite
networks, telecommunications providers, and corporate television
networks, as well as numerous production and post-production
facilities. Services offered include program management,
engineering design, equipment procurement, software integration,
construction, installation, service and support. The Company
considers the Systems Integration business unit to be a non-core
asset and is currently exploring opportunities to dispose of
that business.
Monitronics
International, Inc.
Through our wholly-owned subsidiary, Monitronics, we are
primarily engaged in the business of providing security alarm
monitoring services: monitoring signals from burglaries, fires
and other events, as well as, providing customer service and
technical support. Monitronics is the third largest alarm
monitoring company in the United States, with over 665,000
subscribers under contract. With subscribers in all
50 states, the District of Columbia, Puerto Rico, and
Canada, Monitronics provides a wide range of mainly residential
security services including hands-free two-way interactive voice
communication with the monitoring center, cellular options, and
an interactive service option which allows the customer to
control their security system remotely using a computer or smart
phone. Monitronics was incorporated in 1994 and is headquartered
in Dallas, Texas.
Operations
Unlike many of its national competitors, Monitronics outsources
the sales, installation and field service functions to its
dealers. By outsourcing the low margin, high fixed-cost elements
of its business to a large network of independent service
providers, Monitronics is able to allocate capital to growing
its revenue-generating account base rather than to local offices
or depreciating hard assets.
During 2010, Monitronics purchased alarm monitoring contracts
from more than 400 dealers. Monitronics generally enters into
alarm monitoring purchase agreements with dealers only after a
thorough review of the dealers qualifications, licensing
and financial situation. Once a dealer has qualified,
Monitronics generally obtains rights of first refusal to
purchase all accounts sold by that dealer for a period of three
years.
Revenue is generated primarily from fees charged to customers
under alarm monitoring contracts. The initial contract term is
typically three years, with automatic renewal on a
month-to-month
basis. Monitronics generates incremental revenue from retail
customers by providing additional services, such as maintenance.
Monitronics also
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generates revenue from fees charged to other security alarm
companies for monitoring their accounts on a wholesale basis.
Monitronics authorized independent dealers are typically
single-location businesses that sell and install alarm systems.
These dealers focus on the sale and installation of security
systems and generally do not retain the monitoring contracts for
their customers and do not have their own facilities to monitor
such systems due to the large upfront investment required to
create the account and build a monitoring station. They also do
not have the scale required to operate a monitoring station
efficiently. These dealers typically sell the contracts to
companies who have monitoring stations and outsource the
monitoring function for any accounts they retain. We have the
ability to monitor signals from nearly all types of residential
security systems. We generally enter into exclusive contracts
with dealers under which the dealers sell and install security
systems and we have a right of first refusal to purchase the
associated alarm monitoring contracts. We seek to attract
dealers from throughout the U.S. rather than focusing on
specific local or regional markets in order to maximize
revenues. In evaluating the quality of potential participants
for our dealer program, Monitronics conducts an internal due
diligence review and analysis of each dealer using information
obtained from third party sources. This process includes:
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lien searches and background checks on the dealer; and
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a review of the dealers licensing status and
creditworthiness.
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Once a dealer is approved and signed as a Monitronics Authorized
Dealer, the primary steps in creating an account are as follows:
1. Dealer sells an alarm system to a homeowner or small
business.
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Dealer installs the alarm system, which is monitored by
Monitronics central monitoring center, trains the customer on
its use, and receives a signed three to five year contract for
monitoring services.
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3. Dealer presents the account to Monitronics for purchase.
4. Monitronics performs diligence on the alarm monitoring
account to validate quality.
5. Monitronics acquires the customer contract at a
formula-based price.
6. Customer becomes a Monitronics account.
7. All future billing and customer service is conducted
through Monitronics.
Monitronics believes its ability to maximize its return on
invested capital is largely dependent on the quality of the
accounts purchased. The company conducts a review of each
account to be purchased from the dealer. This process typically
includes:
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Subscriber credit score reviews;
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Telephone surveys to confirm satisfaction with the installation
and security systems;
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An individual review of each alarm monitoring contract;
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Confirmation that the customer is a homeowner; and
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Confirmation that each security system has been programmed to
Monitronics central monitoring station prior to purchase.
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Monitronics generally pays its dealers a purchase price for each
new customer account based on a multiple of the accounts
monthly recurring revenue. The purchase terms are provided for
in the dealer contract. The dealer contract generally provides
that, if a customer account acquired by Monitronics is
terminated within the first 12 months, the dealer must
replace the account or refund the purchase price paid by
Monitronics. To secure the dealers obligation, Monitronics
typically holds back a percentage of the purchase price for a
12 month period.
Monitronics believes that this process, which includes both
clearly defined customer account standards and a consistently
applied due diligence process, contributes significantly to the
high quality of its subscriber base. For
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each of its last five calendar years, the average credit score
of accounts purchased by Monitronics, was in excess of 700 on
the FICO scale.
Approximately 93% of Monitronics subscribers are residential
homeowners and the remainder are small commercial accounts.
Monitronics believes by focusing on residential homeowners
rather than renters it can reduce attrition, because homeowners
relocate less frequently than renters.
Monitronics provides monitoring services as well as billing and
24-hour
telephone support through its central monitoring station,
located in Dallas, Texas. This facility is Underwriters
Laboratories (UL) listed. To obtain and maintain a
UL listing, an alarm monitoring center must be located in a
building meeting ULs structural requirements, have
back-up and
uninterruptable power supplies, have secure telephone lines and
maintain redundant computer systems. UL conducts periodic
reviews of alarm monitoring centers to ensure compliance with
their requirements. Monitronics central monitoring station
in Dallas has also received the Central Station Alarm
Associations (CSAA) prestigious Five Diamond
Certification. According to the CSAA, less than 4% of all
central monitoring stations in the U.S. have attained Five
Diamond Certified status. Monitronics also has a
back-up
facility located in McKinney, Texas that is capable of
supporting monitoring, billing and customer service operations
in the event of a disruption at its primary monitoring center. A
call center in Mexico provides telephone support for
Spanish-speaking subscribers.
Monitronics telephone systems utilize high-capacity,
high-quality, digital circuits backed up by conventional
telephone lines. When an alarm signal is received at the
monitoring facility, it is routed to an operator. At the same
time, information concerning the subscriber whose alarm has been
activated and the nature and location of the alarm signal are
delivered to the operators computer terminal. The operator
is then responsible for following standard procedures to contact
the subscriber or take other appropriate action, including, if
the situation requires, contacting local emergency service
providers. Monitronics never dispatches its own personnel to the
subscribers premises. If a subscriber lives in an area
where the emergency service provider will not respond without
verification of an actual emergency, Monitronics will contract
with an independent third party responder (Patrol Company) if
available in that area.
Monitronics seeks to increase subscriber satisfaction and
retention by carefully managing customer and technical service.
The customer service center handles all general inquiries from
subscribers, including those related to subscriber information
changes, basic alarm troubleshooting, alarm verification,
technical service requests and requests to enhance existing
services. Monitronics has a proprietary centralized information
system that enables it to satisfy over 85% of subscriber
technical inquiries over the telephone, without dispatching a
service technician. If the customer requires field service,
Monitronics relies on its nationwide network of over 400 service
dealers to provide such service on a time and materials basis.
Monitronics closely monitors service dealer performance with
customer satisfaction forms,
follow-up
quality assurance calls and other performance metrics.
Monitronics also provides central station monitoring services on
a wholesale basis for other independent alarm companies that do
not have the capability to monitor systems for their customers.
Intellectual
Property
The Company has a registered service mark for the Monitronics
name and a service mark for the Monitronics logo. It owns
certain proprietary software applications that are used to
provide services to its dealers and subscribers. Monitronics
does not hold any patents or other intellectual property rights
on its proprietary software applications.
Sales
and Marketing
General. We believe Monitronics
nationwide network of authorized dealers is the most effective
way for Monitronics to market alarm systems. Locally-based
dealers are often an integral part of the communities they serve
and understand the local market and how best to satisfy local
needs. By combining the dealers local presence and
reputation with Monitronics high quality service and
support, Monitronics is able to cost-effectively provide local
services and take advantage of economies of scale where
appropriate.
9
Agreements with dealers provide for the purchase of the
dealers subscriber accounts on an ongoing basis. The
dealers install the alarm system and arrange for subscribers to
enter into a multi-year alarm monitoring agreement in a form
acceptable to Monitronics. The dealer then submits this
monitoring agreement for Monitronics due diligence review
and purchase.
Dealer Network Development. Monitronics
remains focused on expanding its network of independent
authorized dealers. To do so, Monitronics has established a
dealer program that provides participating dealers with a
variety of support services to assist them as they grow their
businesses. Authorized dealers may use the Monitronics brand
name in their sales and marketing activities and on the products
they sell and install. Monitronics authorized dealers benefit
from their affiliation with Monitronics and its national
reputation for high customer satisfaction, as well as the
support they receive from Monitronics. Authorized dealers
benefit by generating operating capital and profits from the
sale of their accounts to Monitronics. Monitronics also provides
authorized dealers with the opportunity to obtain discounts on
alarm systems and other equipment purchased by such dealers from
original equipment manufacturers, including alarm systems
labeled with the Monitronics logo. Monitronics also makes
available sales, business and technical training, sales
literature, co-branded marketing materials, sales leads and
management support to its authorized dealers. In most cases
these services and cost savings would not be available to
security alarm dealers on an individual basis.
Currently, Monitronics employs sales representatives to promote
its authorized dealer program, find account acquisition
opportunities and sell Monitronics monitoring services.
Monitronics targets independent alarm dealers across the
U.S. that can benefit from the Monitronics dealer program
services and can generate high quality monitoring customers for
Monitronics. Monitronics uses a variety of marketing techniques
to promote the dealer program and related services. These
activities include direct mail, trade magazine advertising,
trade shows, internet web site marketing, publicity and
telemarketing.
Dealer Marketing Support. Monitronics offers
its authorized dealers an extensive marketing support program.
Monitronics focuses on developing professionally designed sales
and marketing materials that will help dealers market alarm
systems and monitoring services with maximum effectiveness.
Materials offered to authorized dealers include:
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sales brochures and flyers;
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yard signs;
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window decals;
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customer forms and agreements;
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sales presentation binders;
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door hangers;
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lead boxes;
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vehicle graphics;
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trade show booths; and
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clothing bearing the Monitronics brand name.
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These materials are made available to dealers at prices that
management believes would not be available to dealers on an
individual basis.
Monitronics sales materials promote both the Monitronics
brand and the dealers status as a Monitronics authorized
dealer. Dealers often sell and install alarm systems which
display the Monitronics logo and telephone number, which further
strengthens consumer recognition of their status as Monitronics
authorized dealers. Management believes that the dealers
use of the Monitronics brand to promote their affiliation with
one of the nations largest alarm monitoring companies
boosts the dealers credibility and reputation in their
local markets and also assists in supporting their sales success.
Customer Integration and Marketing. The
customers awareness and identification of the Monitronics
brand as the monitoring service provider is further supported by
the distribution of Monitronics-branded materials by the
10
dealer to the customer at the point of sale. Such materials may
include Monitronics yard signs, brochures, instruction cards,
and other promotional items. Monitronics dealers typically
introduce customers to Monitronics in the home when describing
Monitronics central monitoring station.
Following the purchase of a monitoring agreement from a dealer,
the customer is sent a brochure notifying them that Monitronics
has assumed responsibility for all their monitoring needs and
providing them service instructions. All materials focus on the
Monitronics brand and the role of Monitronics as the single
source of support for the customer.
Negotiated Account Acquisitions. In addition
to the development of Monitronics dealer network,
Monitronics occasionally acquires alarm monitoring accounts from
other alarm companies in bulk on a negotiated basis.
Monitronics management has extensive experience in
identifying potential opportunities, negotiating account
acquisitions and performing thorough due diligence, which helps
facilitate execution of new acquisitions in a timely manner.
Strategy
Corporate
Strategy
Ascent Media Corporation actively seeks opportunities to
leverage our strong capital position through strategic
acquisitions and other potential transactions in various
industries. As part of this strategy, we divested the businesses
that were historically operated by our former operating
subsidiary, AMG, and acquired Monitronics, a subscription-based
business that delivers solid, predictable revenue and cash flow
and has what we believe is a scalable and leveragable business
model.
We continue to evaluate acquisition opportunities that we
believe offer the opportunity for attractive returns on equity.
In evaluating potential acquisition candidates we consider
various factors, including among other things:
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financial characteristics, including recurring revenue streams
and free cash flow;
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growth potential;
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potential return on investment incorporating appropriate
financial leverage, including the targets existing
indebtedness and opportunities to restructure some or all of
that indebtedness;
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risk profile of business; and
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strong management team in place.
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We consider acquisitions utilizing cash, leverage and Ascent
Media Corporation stock. In addition to acquisitions, we
consider majority ownership positions, minority equity
investments and, in appropriate circumstances, senior debt
investments that we believe provide either a path to full
ownership or control, the possibility for high returns on
investment, or significant strategic benefits.
Our acquisition strategy entails substantial risk. We consider
potential acquisitions in a variety of industries, which could
result in significant additional changes in our operations from
those historically conducted by us. Please see Risk
Factors below.
Monitronics
Strategy
Monitronics goal is to maximize return on invested
capital, which we believe can be achieved by pursuing the
following strategies:
Maximize Subscriber Retention. We seek to
maximize subscriber retention by continuing to acquire high
quality accounts and to increase the average life of an account
through the following initiatives:
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Maintain the high quality of our subscriber base by continuing
to implement our highly disciplined account acquisition program;
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Continue to incentivize our dealers to sell us only high-quality
accounts through quality incentives built into the purchase
price and by having a performance guarantee on each account from
the dealer;
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Provide superior customer service on the telephone and in the
field; and
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Actively identify subscribers who are relocating, the number one
reason for account cancellations, and target retention of such
subscribers.
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Maximize Economics of Business Model. As we
continue to grow our subscriber base, we believe the
attractiveness of our business model will increase. Due to the
scalability of our operations and the low fixed and variable
costs inherent in our cost structure, we believe our EBITDA
margins may increase as these costs are spread over larger
recurring revenue streams. We believe our cash flows may also
benefit from our continued efforts to increase subscriber
retention rates and reduce response times, call duration and
false alarms. As used in this annual report, the term
EBITDA means earnings before interest, taxes,
depreciation and amortization, and EBITDA margin
means EBITDA as a percentage of revenue.
Expand Our Network of Dealers. We plan to
continue to expand our dealer network in both new and existing
geographic regions by targeting dealers that can benefit from
our dealer program services and that can generate high quality
subscribers for us. We believe we are an attractive partner for
dealers for the following reasons:
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We provide our dealers with a full range of services designed to
assist them in all aspects of their business, including sales
leads, sales training, technical training, comprehensive on-line
account access, detailed weekly account summaries, sales support
materials and discounts on security system hardware purchased
through our strategic alliances with security system
manufacturers;
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Individual dealers retain local name recognition and
responsibility for
day-to-day
sales and installation efforts, thereby supporting the
entrepreneurial culture at the dealer level and allowing us to
capitalize on the considerable local market knowledge, goodwill
and name recognition of our dealers; and
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We are a reliable purchaser of accounts at competitive rates.
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For a description of the risks associated with the foregoing
strategies, and with Ascent Medias business in general,
see Risk Factors section beginning on page 14.
Industry;
Competition
The security alarm industry is highly competitive and highly
fragmented. We compete with several major firms and with
numerous smaller providers. Competitors for alarm subscribers
with national scope include the following:
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ADT Security Services, Inc., a subsidiary of Tyco International,
Ltd (ADT);
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Protection One, Inc.; and
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Stanley Security Solutions, a subsidiary of The Stanley Works.
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Certain alarm service companies have adopted, in whole or in
part, a strategy similar to ours that entails the purchase of
alarm monitoring accounts through an authorized dealer program.
A competitor for dealers with national scope includes ADT.
Competition in the security alarm industry is based primarily on
reputation for quality of service, market visibility, services
offered, price and the ability to identify prospective dealers
and subscriber accounts. We believe that we compete effectively
with other national, regional and local alarm monitoring
companies due to our reputation for reliable monitoring,
customer and technical services, the high quality services and
benefits we offer to dealers in our authorized dealer program
and our low cost structure. However, we compete with several
companies that have account acquisition and loan programs for
independent dealers, and one of those competitors is
significantly larger than we are and has more capital.
Seasonality
Monitronics operations are subject to a certain level of
seasonality in our operations. Since more household moves take
place during the second and third calendar quarters of each
year, Monitronics disconnect rate and expenses related to
retaining customers are typically higher in those calendar
quarters than in the first and fourth
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quarters. There is also a slight seasonal effect resulting in
higher new customer volume, and related cash expenditures
incurred in investment in new subscribers, in the second and
third quarters.
Regulatory
Matters
Monitronics operations are subject to a variety of laws,
regulations and licensing requirements of federal, state and
local authorities. In certain jurisdictions, Monitronics is
required to obtain licenses or permits, to comply with standards
governing employee selection and training and to meet certain
standards in the conduct of its business. The security industry
is also subject to requirements imposed by various insurance,
approval, listing and standards organizations. Depending upon
the type of subscriber served, the type of security service
provided and the requirements of the applicable local
governmental jurisdiction, adherence to the requirements and
standards of such organizations is mandatory in some instances
and voluntary in others.
Although local governments routinely respond to panic and
smoke/fire alarms, there are an increasing number of local
governmental authorities that have adopted or are considering
various measures aimed at reducing the number of false burglar
alarms. Such measures include:
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subjecting alarm monitoring companies to fines or penalties for
false alarms;
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imposing fines on alarm subscribers for false alarms;
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imposing limitations on the number of times the police will
respond to false alarms at a particular location;
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requiring additional verification of intrusion alarms by calling
two different phone numbers prior to dispatch (Enhanced Call
Verification); and
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requiring visual verification of an actual emergency at the
premise before the police will respond to an alarm signal
(Verified Response).
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Enhanced Call Verification has been implemented as standard
policy by Monitronics. See Operations
Monitoring Services.
Monitronics alarm monitoring business utilizes telephone
lines, internet connections, cellular networks and radio
frequencies to transmit alarm signals. The cost of telephone
lines, and the type of equipment which may be used in telephone
line transmission, are currently regulated by both federal and
state governments. The operation and utilization of cellular and
radio frequencies are regulated by the Federal Communications
Commission and state public utility commissions.
Employees
At December 31, 2010, Ascent Media, together with its
subsidiaries, has approximately 1,330 full-time employees
and an additional 100 employees that are employed on a
part-time or freelance basis. Approximately 1,060 of the
employees are employed in the United States, with the remaining
amount employed outside the United States, principally in the
United Kingdom and the Republic of Singapore.
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(d)
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Financial
Information About Geographic Areas
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For financial information related to our geographic areas in
which we do business, see note 19 to our consolidated
financial statements found in Part II of this Annual Report.
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(e)
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Available
Information
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All of our filings with the Securities and Exchange Commission
(the SEC), including our
Form 10-Ks,
Form 10-Qs
and
Form 8-Ks,
as well as amendments to such filings are available on our
Internet website free of charge generally within 24 hours
after we file such material with the SEC. Our website address is
www.ascentmediacorporation.com.
Our corporate governance guidelines, code of business conduct
and ethics, compensation committee charter, nominating and
corporate governance committee charter, and audit committee
charter are available on our website.
13
In addition, we will provide a copy of any of these documents,
free of charge, to any shareholder who calls or submits a
request in writing to Investor Relations, Ascent Media
Corporation,12300 Liberty Boulevard, Englewood, Colorado 80112.
Telephone No.
(720) 875-6672.
The information contained on our website is not incorporated by
reference herein.
The risks described below and elsewhere in this Annual Report
are not the only ones that relate to our businesses or our
common stock. The risks described below are considered to be the
most material. However, there may be other unknown or
unpredictable economic, business, competitive, regulatory or
other factors that also could have material adverse effects on
our businesses. If any of the events described below were to
occur, our businesses, prospects, financial condition, results
of operations
and/or cash
flows could be materially adversely affected.
Factors
Relating to Our Corporate Strategy
We
have substantially changed the businesses in which our
subsidiaries operate. Accordingly, it may be difficult to
evaluate our performance based on our operating
history.
The financial statements included in this Annual Report on
Form 10-K
include the financial position and results of operations of the
Content Distribution business unit formerly operated by AMG. We
completed the sale of the Content Distribution business unit on
February 28, 2011, and such business unit will be reflected
as discontinued operations in future filings. We acquired our
current principal operating subsidiary Monitronics on
December 17, 2010, so the results of operations of
Monitronics are only included in our consolidated operating
statement for the period December 17, 2010 through
December 31, 2010, inclusive. Our Current Report on
Form 8-K/A
filed December 28, 2010, includes
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the audited consolidated financial statements of Monitronics
International, Inc., for the years ended June 30, 2010,
2009 and 2008;
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the unaudited consolidated financial statements of Monitronics
International, Inc., including the balance sheet as of
September 30, 2010 and the statements of operations,
shareholders net capital (deficiency) and cash flows for the
three months ended September 30, 2010 and 2009;
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the unaudited pro forma condensed combined balance sheet of
Ascent Media Corporation as of September 30, 2010, giving
effect to the acquisition of Monitronics and the dispositions of
the
Creative/Media
and Content Distributions businesses, on a pro forma basis, as
if such transactions had occurred on that date; and
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the unaudited pro forma condensed combined statements of
operations of Ascent Media Corporation for the nine months ended
September 30, 2010 and the year ended December 31,
2009, giving effect to the acquisition of Monitronics and the
dispositions of the Creative/Media and Content Distributions
businesses, on a pro forma basis, as if such transactions had
occurred on January 1, 2009.
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However, the historical financial information included in such
Current Report reflects the results of operations, financial
condition and cash flows of Monitronics with respect to time
periods during which it was a stand-alone entity, rather than
part of a public company, and may not necessarily reflect what
such metrics would have been if Monitronics had been a
subsidiary of Ascent Media Corporation during the periods
presented. Moreover, the unaudited pro forma condensed combined
financial statements included in such report do not purport to
represent, and are not necessarily indicative of, what our
financial position or results of operations would have been had
such transactions occurred on the dates indicated. Past results
may not be indicative of future performance.
Our
acquisition strategy may not be successful.
One focus of our corporate strategy is to seek opportunities to
grow free cash flow through strategic acquisitions, which may
include leveraged acquisitions. However, there can be no
assurance that we will be able to consummate that strategy, and
if we are not able to invest our capital in acquisitions that
are accretive to free cash
14
flow it could negatively impact the growth of our business. Our
ability to consummate such acquisitions may be negatively
impacted by various factors, including among other things:
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failure to identify attractive acquisition candidates on
acceptable terms;
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competition from other bidders;
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inability to raise any required financing; and
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antitrust or other regulatory restrictions, including any
requirements that may be imposed by government agencies as a
condition to any required regulatory approval.
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If we engage in any acquisition, we will incur a variety of
costs, and may never realize the anticipated benefits of the
acquisition. Our business strategy includes the future
acquisition of businesses that we believe are strategically
attractive and that we expect will be accretive to consolidated
free cash flow. If we undertake any acquisition, the process of
operating such acquired business on a stand-alone basis (or, if
necessary, of integrating any acquired business with
Monitronics) may result in unforeseen operating difficulties and
expenditures and may absorb significant management attention.
Moreover, we may fail to realize the anticipated benefits of any
acquisition as rapidly as expected or at all. Future
acquisitions could reduce our current stockholders
ownership percentage, cause us to incur debt, expose us to
future liabilities and result in amortization expenses related
to intangible assets with definite lives. We may incur
significant expenditures in anticipation of an acquisition that
is never realized. In addition, while we intend to implement
appropriate controls and procedures as we integrate any acquired
companies, we may not be able to certify as to the effectiveness
of these companies disclosure controls and procedures or
internal control over financial reporting within the time
periods required by United States federal securities laws and
regulations. This strategy entails a high degree of risk.
We are
a holding company and derive substantially all of our revenue
and cash flow from our subsidiaries.
Our subsidiaries are separate and independent legal entities and
have no obligation to make funds available to us, whether in the
form of loans, dividends or otherwise. The ability of our
subsidiaries to pay dividends to us is subject to, among other
things, the availability of sufficient earnings and funds in
such subsidiaries, applicable state laws, and their compliance
with covenants in their respective credit facilities. Claims of
creditors of our subsidiaries will generally have priority as to
the assets of such subsidiaries over our claims and our
creditors and shareholders.
An
inability to access capital markets at attractive rates could
materially increase our expenses.
Although we currently have sufficient cash and investments
available to meet our currently anticipated capital
requirements, we may in the future require access to capital
markets as a source of liquidity for investments and
expenditures. In any such event there can be no assurance that
we would be able to obtain financing on terms acceptable to us
or on any terms. If our ability to access required capital were
to become significantly constrained, we could incur material
borrowing costs, our financial condition could be harmed and
future results of operations could be adversely affected.
Disruptions
in worldwide credit markets may increase the risk of default by
the issuers of instruments in which we invest cash and other
financial institutions. The failure of any banking institution
in which we deposit funds or the failure of banking institutions
to operate in the ordinary course could have a material adverse
effect on our financial position and operating
results.
Recent conditions in global credit and other financial markets
resulted in significant volatility and disruptions in the
availability of credit and in some cases pressured the solvency
or liquidity of financial institutions. Although we seek to
manage the credit risks associated with our cash and
investments, we are exposed to a risk that financial
institutions may fail or that our counterparties may default on
their obligations to us.
15
Factors
Relating to our Common Stock
We
have a history of losses and may incur losses in the future,
which could materially and adversely affect the market price of
our common stock.
Our subsidiaries incurred losses in each of our last five fiscal
years, and Monitronics incurred losses in two of its last three
full fiscal years. In future periods, we may not be able to
achieve or sustain profitability on a consistent quarterly or
annual basis. Failure to maintain profitability in future
periods may materially and adversely affect the market price of
our common stock.
Our
stock price may fluctuate significantly.
We cannot predict the prices at which either series of our
common stock may trade. The market price of our common stock may
fluctuate significantly due to a number of factors, some of
which may be beyond our control, including:
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actual or anticipated fluctuations in our operating results;
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changes in earnings estimated by securities analysts or our
ability to meet those estimates;
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the operating and stock price performance of comparable
companies; and
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domestic and foreign economic conditions.
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It may
be difficult for a third party to acquire us, even if doing so
may be beneficial to our shareholders.
Certain provisions of our certificate of incorporation and
bylaws may discourage, delay or prevent a change in control of
our company that a shareholder may consider favorable. These
provisions include the following:
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a capital structure with multiple series of common stock: a
Series B that entitles the holders to ten votes per share,
a Series A that entitles the holders to one vote per share,
and a Series C that, except in such limited circumstances
as may be required by applicable law, entitles the holders to no
voting rights;
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authorizing the issuance of blank check preferred
stock, which could be issued by our board of directors to
increase the number of outstanding shares and thwart a takeover
attempt;
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classifying our board of directors with staggered three-year
terms, which may lengthen the time required to gain control of
our board of directors through a proxy contest or exercise of
voting rights;
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limiting who may call special meetings of shareholders;
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prohibiting shareholder action by written consent (subject to
certain exceptions), thereby requiring shareholder action to be
taken at a meeting of the shareholders;
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establishing advance notice requirements for nominations of
candidates for election to our board of directors or for
proposing matters that can be acted upon by shareholders at
shareholder meetings;
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requiring shareholder approval by holders of at least 80% of our
voting power or the approval by at least 75% of our board of
directors with respect to certain extraordinary matters, such as
a merger or consolidation of our company, a sale of all or
substantially all of our assets or an amendment to our
certificate of incorporation;
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requiring the consent of the holders of at least 75% of the
outstanding Series B common stock (voting as a separate
class) to certain share distributions and other corporate
actions in which the voting power of the Series B common
stock would be diluted, for example by issuing shares having
multiple votes per share as a dividend to holders of
Series A common stock; and
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the existence of authorized and unissued stock which would allow
our board of directors to issue shares to persons friendly to
current management, thereby protecting the continuity of its
management, or which could be used to dilute the stock ownership
of persons seeking to obtain control of us.
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In addition, John C. Malone, a member of our board of directors
and our largest shareholder in terms of voting power,
beneficially owns shares of our common stock that represent 30%
of the aggregate voting power of our outstanding common stock.
We
have adopted a shareholder rights plan in order to encourage
anyone seeking to acquire our company to negotiate with our
board of directors prior to attempting a takeover.
While the plan is designed to guard against coercive or unfair
tactics to gain control of our company, the plan may have the
effect of making more difficult or delaying any attempts by
others to obtain control of our company.
Holders
of a single series of our common stock may not have any remedies
if an action by our directors or officers has an adverse effect
on only that series of our common stock.
Principles of Delaware law and the provisions of our certificate
of incorporation may protect decisions of our board of directors
that have a disparate impact upon holders of any single series
of our common stock. Under Delaware law, the board of directors
has a duty to act with due care and in the best interests of all
of our shareholders, including the holders of all series of our
common stock. Principles of Delaware law established in cases
involving differing treatment of multiple classes or series of
stock provide that a board of directors owes an equal duty to
all common shareholders regardless of class or series and does
not have separate or additional duties to any group of
shareholders. As a result, in some circumstances, our directors
may be required to make a decision that is adverse to the
holders of one series of our common stock. Under the principles
of Delaware law referred to above, you may not be able to
challenge these decisions if a majority of our board of
directors is disinterested, independent and adequately informed
with respect to their decisions and acts in good faith, and in
the honest belief that it is acting in the best interest of all
of our stockholders.
Our
Series B common stock trades on the OTC
Bulletin Board, which is often characterized by volatility
and illiquidity.
The OTC Bulletin Board tends to be highly illiquid, in
part, because there is no national quotation system by which
potential investors can track the market price of shares except
through information received or generated by a limited number of
broker-dealers that make markets in particular stocks. There is
also a greater chance of market volatility for securities that
trade on the OTC Bulletin Board as opposed to a national
exchange or quotation system. This volatility is due to a
variety of factors, including a lack of readily available price
quotations, lower trading volume, absence of consistent
administrative supervision of bid and
ask quotations, and market conditions. The potential
for illiquidity and volatility with respect to our Series B
common stock may also be adversely affected by (i) the
relatively small number of shares of our Series B common
stock held by persons other than our officers, directors and
persons who hold in excess of 10% of the Series B common
stock outstanding, (ii) the relatively small number of such
unaffiliated shareholders, and (iii) the low trading volume
of such shares on the OTC Bulletin Board.
Other
Factors Relating to Ascent Media Corporation
We may
have substantial indemnification obligations under certain
inter-company agreements we entered into in connection with the
spin-off of Ascent Media from DHC.
Pursuant to our tax sharing agreement with DHC, we have agreed
to be responsible for all taxes attributable to us or any of our
subsidiaries, whether accruing before, on or after the spin-off
(subject to specified exceptions). We have also agreed to be
responsible for and indemnify DHC with respect to
(i) certain taxes attributable to DHC or any of its
subsidiaries (other than Discovery Communications, LLC) and
(ii) all taxes arising as a result of the spin-off (subject
to specified exceptions). Our indemnification obligations under
the tax sharing agreement are not limited in amount or subject
to any cap. Pursuant to the reorganization agreement we entered
into with DHC in connection with the spin-off, we assumed
certain indemnification obligations designed to make our company
financially responsible for substantially all non-tax
liabilities that may exist relating to the business of AMG,
whether incurred prior to or after the spin-off, as well as
certain obligations of DHC. Any indemnification payments under
the tax sharing agreement or the reorganization agreement could
be substantial.
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If we
are unable to satisfy the requirements of Section 404 of
the Sarbanes-Oxley Act of 2002, or our internal control over
financial reporting is not effective, the reliability of our
financial statements may be questioned and our stock price may
suffer.
Section 404 of the Sarbanes-Oxley Act of 2002 requires any
company subject to the reporting requirements of the United
States securities laws to do a comprehensive evaluation of its
and its consolidated subsidiaries internal control over
financial reporting. To comply with this statute, we are
required to document and test our internal control procedures,
our management is required to assess and issue a report
concerning our internal control over financial reporting, and
our independent auditors are required to issue an attestation
regarding our internal control over financial reporting. The
rules governing the standards that must be met for management to
assess our internal control over financial reporting are
complex, subject to change, and require significant
documentation, testing and possible remediation to meet the
detailed standards under the rules. During the course of its
testing, our management may identify material weaknesses or
deficiencies which may not be remedied in time to meet the
deadline imposed by the Sarbanes-Oxley Act. If our management
cannot favorably assess the effectiveness of our internal
control over financial reporting or our auditors identify
material weaknesses in our internal control, investor confidence
in our financial results may weaken, and our stock price may
suffer. Timely compliance with Section 404 of the
Sarbanes-Oxley Act may be made more difficult by the
complexities inherent in acquiring and integrating Monitronics
and disposing of the operating businesses of AMG.
Factors
relating to Monitronics
Monitronics
has a substantial amount of indebtedness, which could have a
material adverse effect on its financial condition and
operations.
Monitronics has and will continue to have a significant amount
of indebtedness. At December 31, 2010, the principal
balance of our total indebtedness was approximately
$944 million, of which $106 million was outstanding
under Monitronics senior secured credit facility and
$838 million was outstanding under Monitronics
existing securitization facility. Ascent Media has guaranteed
only $30 million of the term loan included in the senior
secured credit facility. Monitronics level of indebtedness could
limit its ability to operate its business and impair its
competitive position. For example, it could:
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make it more difficult for it to satisfy its debt obligations;
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increase its vulnerability to general adverse economic and
industry conditions;
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limit its ability to fund future subscriber account purchases,
working capital, capital expenditures and other general
corporate requirements;
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require a substantial portion of its cash flow from operations
for debt payments;
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limit its flexibility to plan for, or react to, changes in its
business and the industry in which it operates;
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place it at a competitive disadvantage compared to its
competitors that have less debt; and
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limit its ability to borrow additional funds.
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Despite its current levels of indebtedness, Monitronics still
may be able to incur substantially more debt. The terms of the
agreements relating to its existing indebtedness permit it to
incur additional indebtedness, subject to compliance with
certain financial and other covenants. At December 31,
2010, the credit facility included a $115 million revolving
credit facility, of which approximately $69 million was
undrawn and available for future borrowing subject to the
satisfaction of applicable covenants. If its current debt levels
are increased as a result of new borrowings
and/or
refinancings, the related risks it now faces could intensify.
Monitronics
credit facility and securitization indebtedness impose many
restrictions on it.
The agreements governing Monitronics indebtedness restrict
our ability to, among other things:
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incur additional indebtedness;
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pay dividends and make distributions;
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18
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issue common and preferred stock of any future subsidiaries;
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make certain investments;
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create liens;
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enter into transactions with affiliates;
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merge or consolidate; and
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transfer and sell assets.
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In addition, Monitronics must comply with certain financial
covenants under the credit facility and the securitization
indebtedness, including those that relate to capital expenditure
limits, maximum total debt to EBITDA, maximum total senior
liabilities to EBITDA, senior debt interest coverage fixed
charge coverage, attrition rate maximums and average recurring
monthly revenue minimums. If Monitronics cannot comply with such
financial covenants, it may not be able to borrow under the
revolving credit facility. In addition, failure to comply with
the restrictions contained in the credit facility or the
existing securitization indebtedness could lead to an event of
default, which could result in an acceleration of indebtedness.
The
terms of Monitronics securitization facility limit its
access to the cash generated by a substantial portion of its
alarm monitoring contracts.
The long-term debt of Monitronics at December 31, 2010,
includes $838 million in principal in secured notes under a
securitization facility. These notes were issued by Monitronics
Funding LP, a subsidiary of Monitronics, which we refer to as
Funding. Pursuant to the terms of the securitization
facility, alarm monitoring contracts for approximately 622,000
of Monitronics subscriber accounts are owned by Funding,
representing approximately 93% of the total number of subscriber
accounts of Monitronics and its subsidiaries as of
December 31, 2010. Such alarm monitoring agreements, and
the monthly recurring revenue and other proceeds thereof, are
pledged as collateral to secure the obligations of Funding under
the securitization facility, and the cash generated by such
accounts is accordingly restricted. In that connection, at
December 31, 2010, Funding held approximately
$51 million in restricted cash as a reserve for interest
payments and other obligations of Monitronics under the
facility. Under the terms of the securitization, Funding
currently pays Monitronics Security LP (another subsidiary of
Monitronics, which we refer to as Security) for
monitoring and servicing the subscriber accounts owned by
Funding, at an effective rate of $12.00 per active subscriber
account per month. As such servicing fees currently exceed the
aggregate
out-of-pocket
cost to Security of monitoring and servicing such subscriber
accounts, the amount of such excess is available to Monitronics
for other corporate purposes, including the purchase of
additional subscriber accounts. However, under the terms of the
securitization facility, effective July 2012, the amount of the
monthly servicing fees payable by Funding to Security will
decrease from an effective rate of $12.00 per active subscriber
account per month to $7.50 per active subscriber account per
month. This decrease will substantially reduce or eliminate the
excess cash available to Security for distribution to
Monitronics. If Monitronics does not repay or refinance the
securitization facility by July 15, 2012, the decrease in
servicing fees could have a substantially adverse affect on its
liquidity and reduce the capital resources available to
Monitronics for purchasing alarm monitoring accounts, which
could have a material adverse effect on Monitronics. There can
be no assurances that such a refinancing or amendment will be
available to Monitronics on terms acceptable to it, or on any
terms.
If we
do not refinance or repay the existing Monitronics
securitization facility by July 2012, our borrowing costs under
that facility will increase substantially.
If Monitronics does not repay or refinance the securitization
facility by July 2012, contingent additional interest will begin
to accrue at the rate of 5% per annum (including 0.5% of fees)
on the two variable funding notes (or VFNs) under
the Monitronics securitization facility, which have an aggregate
principal balance of $288,000,000. The effective interest rate
payable by the Company under $550 million notional amount
of swaps relating to the term notes under the securitization
facility would also increase by 5% per annum (including 0.5% of
fees) beginning July 2012, if such swaps are then outstanding.
Although such additional interest will not be payable in cash
until all the securitization debt has been paid off, the
increased leverage resulting
19
from the accrual of such additional interest could reduce the
amount available for borrowing by Monitronics under its new
credit facility and may indirectly reduce Monitronics
ability to acquire new subscriber accounts.
We may
be unable to obtain additional funds to grow Monitronics
business.
Monitronics intends to continue to pursue growth through the
acquisition of subscriber accounts through its authorized dealer
program. To continue its growth strategy, Monitronics will be
required to make additional draw downs under its credit facility
or seek additional financing through new loans or from the
possible sale of additional securities in the future, or a
refinancing of its existing securitization facility, which may
lead to higher leverage. Monitronics could also use its
operating cash to fund its growth. An inability to obtain
funding through external financing is likely to adversely affect
Monitronics ability to continue or accelerate its
subscriber account acquisition activities. Monitronics cannot be
assured that it will be able to obtain external funding. Even if
it obtains external financing, there is no assurance that it
will be able to do so on attractive terms. Obtaining financing
on terms less favorable than what is in place today may have an
adverse affect on cash flows and operations.
Monitronics
relies on our authorized dealers to generate subscriber
growth.
Monitronics experiences loss of dealers from its dealer program
due to various factors, such as dealers becoming inactive or
discontinuing their electronic security business, non-renewal of
dealer contracts and competition from other alarm monitoring
companies. If Monitronics experiences a significant loss of
dealers from its dealer program or if Monitronics is unable to
replace or recruit dealers in accordance with its business
plans, its future operating results may be adversely affected.
Monitronics
may be unable to manage its growth effectively.
A principal element of its business strategy is to grow through
the acquisition of subscriber accounts purchased through its
authorized dealer program. This expansion has placed and will
continue to place substantial demands on its management and
operational resources, including its information systems.
Monitronics future operating results will depend in large
part on its ability to grow and manage this growth effectively.
Monitronics
faces risks in acquiring and integrating subscriber
accounts.
Acquisitions of subscriber accounts involve a number of risks,
including the possibility of unanticipated problems not
discovered prior to the acquisition and the risk that the
purchase may not be profitable due to account attrition, higher
than expected servicing costs or lower than expected revenues
from the acquired accounts. The purchase price Monitronics pays
for a subscriber account is affected by the monthly recurring
revenue generated by that account, as well as several other
factors, including the level of competition, its prior
experience with accounts purchased from the dealer, the
geographic location of the account, the number of accounts
purchased, the subscribers credit score and the type of
security equipment used by the subscriber. In purchasing
accounts, Monitronics relies on managements knowledge of
the industry, due diligence procedures and representations and
warranties of the dealers. Monitronics cannot assure you that in
all instances the representations and warranties made by the
dealers are true and complete or, if the representations and
warranties are inaccurate, that Monitronics due diligence
procedures will be able to detect the problem or that
Monitronics will be able to recover damages from the dealers in
an amount sufficient to fully compensate us for any resulting
losses. Monitronics expects that future account acquisitions
will present the same risks to it as our prior account
acquisitions.
The
high level of competition in Monitronics industry could
adversely affect its business.
The security alarm monitoring industry is highly competitive and
highly fragmented. Monitronics faces competition from other
alarm monitoring companies, including companies that have more
capital than it has and that may offer higher prices and more
favorable terms to dealers for subscriber accounts purchased, or
charge lower prices for monitoring services provided. This
competition could reduce the acquisition opportunities available
to Monitronics, thus slowing its rate of growth, or require it
to increase the price it pays for such account acquisitions,
thus reducing its return on investment and negatively impacting
its revenues and results of operations. Monitronics
20
cannot assure that it will be able to purchase subscriber
accounts on favorable terms in the future. These uncertainties
and other measures could have a materially adverse effect on
Monitronics and cause its revenues to decrease.
Monitronics also faces potential competition from improvements
in self-monitoring systems, which enable subscribers to monitor
their home environment without third-party involvement. Advances
in self-monitoring systems could progress to the point where
Monitronics could be at a competitive disadvantage. Similarly,
it is possible that one or more of its competitors could develop
a significant technical advantage over it that allows them to
provide additional service or better quality service or to lower
their price, which could put Monitronics at a competitive
disadvantage. Either development could adversely affect its
growth and results of operations.
Monitronics
relies on a significant number of its subscribers remaining with
it as subscribers for long periods of time.
Monitronics incurs significant upfront cash costs for each new
subscriber. It requires a substantial amount of time for it to
receive cash payments (net of its variable cash operating costs)
from a particular subscriber that are sufficient to offset this
upfront cost, which often exceeds the initial term of the
subscriber agreement. Accordingly, Monitronics long-term
profitability is dependent on its subscribers remaining with it
as subscribers for as long as possible. This requires that
Monitronics minimize its rate of subscriber disconnects, or
attrition. Factors that can increase disconnects include
subscribers who relocate and do not reconnect, problems with
service quality, competition from other alarm monitoring
companies, adverse economic conditions and the affordability of
its service. If it fails to keep its subscribers for a
sufficiently long period of time, Monitronics financial
position and results of operations could be adversely affected.
Monitronics
relies on technology that may become obsolete, which could
require significant expenditures.
Monitronics monitoring services depend upon the technology
(both hardware and software) of security alarm systems located
at its subscribers premises. Monitronics may be required
to implement new technology either to attract and retain
subscribers or in response to changes in land-line or cellular
technology or other factors, which could require significant
expenditures. Monitronics may not be able to successfully
implement new technologies or adapt existing technologies to
changing market demands. If it is unable to adapt in response to
changing technologies, market conditions or customer
requirements in a timely manner, such inability could adversely
affect its business.
Shifts
in customer selection of telecommunications services could
increase attrition rates and could adversely impact
Monitronics earnings and cash flow.
Monitronics operating model relies to some degree on its
subscribers continued use of traditional, land-line
telecommunications services, which Monitronics uses to
communicate with its monitoring operations. Although it offers
alarm systems that can communicate signals to its central
stations using various wireless
and/or
Internet-based communication technologies, such solutions are
presently more expensive than alarm communicators based on the
traditional Public Switched Telephone Network or PSTN. In order
to continue to service existing subscribers who cancel their
land-line telecommunications services and to service new
customers who do not subscribe to PSTN services, subscribers may
be required to upgrade to more expensive technologies. Higher
costs may reduce the market for new customers of alarm
monitoring services, and the trend away from traditional land
lines to alternatives which may mean more existing subscribers
will cancel service with Monitronics. Continued shifts in
customer preferences regarding telecommunications services could
continue to have an adverse impact on its earnings, cash flow
and subscriber attrition rates.
Monitronics
depends on its relationships with alarm system manufacturers and
suppliers. If it is not able to maintain or renew these
strategic alliances, or enter into new alliances, it may be
unable to fully implement its growth strategy, which could
negatively impact its revenues.
Monitronics currently has agreements with certain alarm system
manufacturers and suppliers of hardware to offer purchase
discounts to its dealers. These relationships:
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provide important introductions to prospective dealers, which
helps it in the dealer recruiting process;
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21
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provide an additional source of prospective subscriber
accounts; and
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enhance its existing dealer relationships.
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Monitronics may not be able to maintain or renew its existing
strategic alliances on terms and conditions favorable to it or
enter into alliances with additional manufacturers and
suppliers. If it is unable to maintain or renew its existing
strategic alliances or enter into new alliances, it may not be
able to fully implement its growth strategy.
False
alarm ordinances could adversely affect Monitronics
operations.
Significant concern has arisen in certain municipalities about
the high incidence of false alarms. In some localities, this
concern has resulted in local ordinances or policies that
restrict police response to third-party monitored burglar
alarms. In addition, an increasing number of local governmental
authorities have considered or adopted various measures aimed at
reducing the number of false alarms, including:
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subjecting alarm monitoring companies to fines or penalties for
transmitting false alarms;
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imposing fines on alarm subscribers for false alarms;
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imposing limitations on the number of times the police will
respond to false alarms at a particular location; and
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requiring further verification of an alarm signal, such as
visual verification or verification to two different phone
numbers, before the police will respond.
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Enactment of these measures could adversely affect
Monitronics future business, operations and financial
results. For example, 20 cities or metropolitan areas have
implemented verified response ordinances for residential and
commercial burglar alarms. A verified response policy means that
police officers generally do not respond to an alarm until
someone else (e.g., the resident, a neighbor or a security
guard) first verifies that it is valid. Some alarm monitoring
companies operating in these areas hire security guards or use
third-party guard firms to verify an alarm. If Monitronics needs
to hire security guards or use third-party guard firms, it could
have a material adverse effect on its business through either
increased costs to Monitronics or increased costs to its
customer which may limit its ability to attract new customers.
Although Monitronics has less than 17,000 subscribers in these
areas, a more widespread adoption of such a policy or similar
policies in other cities or municipalities could adversely
affect its business. In addition, such limitations, or the
perception that police departments will not respond to
third-party monitored burglar alarms, may reduce customer
satisfaction with traditional monitored alarm systems, which may
result in increased attrition rates or decreased customer demand.
Future
government regulations could adversely affect Monitronics
operations.
Monitronics operations are subject to a variety of laws,
regulations and licensing requirements of federal, state and
local authorities. In certain jurisdictions, Monitronics is
required to obtain licenses or permits, to comply with standards
governing monitoring station employee selection and training and
to meet certain standards in the conduct of our business. The
loss of these licenses in jurisdictions where it has significant
business, or the imposition of conditions to the granting or
retention of these licenses, could have a material adverse
effect on Monitronics. If these laws, regulations
and/or
licensing requirements change, it could require Monitronics to
modify its operations or to utilize resources to maintain
compliance with such rules and regulations. There can be no
assurance that new laws or regulations that increase its costs
or otherwise have a material adverse effect on its results of
operations will not be implemented in the future.
Monitronics
business operates in a regulated industry.
Monitronics operations and employees are subject to various
U.S. federal, state and local consumer protection,
licensing and other laws and regulations. Most states in which
Monitronics operates have licensing laws directed specifically
toward the monitored security services industry. Its business
relies heavily upon wireline and cellular telephone service to
communicate signals. Wireline and cellular telephone companies
are currently regulated by both the federal and state
governments. Monitronics Canadian operation is subject to
comparable regulation. Changes in laws or regulations could
require it to change the way it operates, which could increase
costs or
22
otherwise disrupt operations. In addition, failure to comply
with any applicable laws or regulations could result in
substantial fines or revocation of its operating permits and
licenses. If laws and regulations were to change or Monitronics
failed to comply, its business, financial condition and results
of operations could be materially and adversely affected.
Risks
of liability from Monitronics operations are
significant.
The nature of the services Monitronics provides potentially
exposes it to greater risks of liability for employee acts or
omissions or system failure than may be inherent in other
businesses. Substantially all of its alarm monitoring contracts
contain provisions limiting its liability to subscribers and
dealers in an attempt to reduce this risk. However, in the event
of litigation with respect to these matters, Monitronics cannot
assure that these limitations will be enforced, and the costs of
such litigation or the related settlements could have a material
adverse effect on it. In addition, there can be no assurance
that Monitronics is adequately insured for these risks. Certain
of its insurance policies and the laws of some states may limit
or prohibit insurance coverage for punitive or certain other
types of damages or liability arising from gross negligence.
An
interruption to its monitoring facilities from a disaster could
adversely affect Monitronics business.
A disruption to its monitoring facilities could affect its
ability to provide alarm monitoring services and serve its
subscribers which could have a material adverse effect on
Monitronics business. Any such disruption could occur for
many reasons, including fire, natural disasters, weather,
disease, transportation interruption, or terrorism. These risks
are mitigated by having a
back-up
monitoring facility. In the event of an emergency at its main
monitoring facility, all monitoring operations can be quickly
transferred to the
back-up
facility. While we have taken reasonable precautions to mitigate
the risk, there is no assurance that the
back-up
facility wont be impacted by the same catastrophic event
or natural disaster. The main monitoring facility holds
Underwriters Laboratories (UL) listings as
protective signaling services stations and maintains certain
standards of building integrity, redundant computer and
communications facilities and backup power, among other
safeguards.
Monitronics
is dependent upon its experienced senior management, who would
be difficult to replace.
The success of the Monitronics business is largely dependent
upon the active participation of its executive officers, who
have extensive experience in the industry. The loss of service
of one or more of such officers or the inability to attract or
retain qualified personnel for any reason may have an adverse
effect on its business.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
At December 31, 2010, the operations of the Content
Distribution business, which is part of the Content Services
group, were conducted at approximately 17 properties. In the
United States, the Content Distribution business utilized owned
and leased properties in California, Connecticut, Minnesota, New
Jersey and New York. Internationally, the Content Distribution
business utilized owned and leased properties in the United
Kingdom, in London and Milton Keynes. In addition, the Content
Distribution business operated two facilities in Singapore.
Worldwide, the Content Distribution business leased
approximately 296,000 square feet and owned another
75,000 square feet, for a total of 371,000 square
feet. The SI business, which is the remaining portion of the
Content Services group, utilized 72,000 square feet, with
the remaining 45,000 square feet utilized by Corporate.
Monitronics leases approximately 120,000 square feet in
Dallas, Texas to house its executive offices, monitoring center,
sales and marketing and data retention functions, of which
approximately 10,000 square feet is currently under lease
expiring on February 28, 2011, and remains on a month to
month lease. Approximately 98,000 square feet of the
remaining 110,000 square feet is under an eleven-year lease
expiring May 31, 2015 and 12,000 square feet is under
a seven-year lease expiring January 31, 2015. Monitronics
also leases approximately 13,000 square feet for the
McKinney, Texas
back-up
monitoring facility.
23
As part of the reorganization process that was completed prior
to the two sales, the Company assumed certain leases for the
space utilized for corporate functions. Currently, the Company
leases approximately 40,000 square feet in California. All
other properties leased by the Content Distribution business
were included in the sale of the Content Distribution business
to Encompass.
In addition, the Company owns approximately 290,000 square
feet of real estate that is leased to third parties. The Company
is currently exploring opportunities to dispose of or monetize
such real property.
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ITEM 3.
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LEGAL
PROCEEDINGS
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Ascent Media and its subsidiaries are party to various legal
proceedings and claims arising in the ordinary course of our
business from time to time. Although no assurance can be given,
in the opinion of management, such proceedings and claims are
not expected to have a material impact on our business,
financial position or results of operations, either individually
or in the aggregate.
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ITEM 4.
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(REMOVED
AND RESERVED)
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24
PART II.
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ITEM 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
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Market
Information
We have two series of common stock outstanding. Holders of our
Series A common stock are entitled to one vote for each
share held, and holders of our Series B common stock are
entitled to 10 votes for each share held, as well as a separate
class vote on certain corporate actions. Each share of the
Series B common stock is convertible, at the option of the
holder, into one share of Series A common stock; the
Series A common stock is not convertible. Except for such
voting rights, conversion rights and designations, shares of
Series A common stock and Series B common stock are
substantially identical.
Our Series A common stock trades on the NASDAQ Global
Select Market under the symbol ASCMA. Our Series B common
stock is eligible for quotation on the OTC Bulletin Board
under the symbol ASCMB, but it is not actively traded.
The following table sets forth the quarterly range of high and
low sales prices of shares of our Series A common stock for
the years ended December 31, 2010 and 2009. High and low
bid information for our Series B common stock is not
available.
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Series A
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High
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Low
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2010
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First quarter
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28.43
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24.66
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Second quarter
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30.53
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25.26
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Third quarter
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28.85
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25.27
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Fourth quarter
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39.12
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26.73
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2009
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First quarter
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26.75
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22.58
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Second quarter
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29.65
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25.66
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Third quarter
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28.51
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24.52
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Fourth quarter
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26.54
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22.37
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Holders
As of January 31, 2011, there were approximately 1,190 and
66 record holders of our Series A common stock and
Series B common stock, respectively (which amounts do not
include the number of shareholders whose shares are held of
record by banks, brokerage houses or other institutions, but
include each institution as one shareholder).
Dividends
We have not paid any cash dividends on our common stock and have
no present intention to do so. Any payment of cash dividends in
the future will be determined by our Board of Directors in light
of our earnings, financial condition, alternative uses for cash
and other relevant considerations.
Securities
Authorized for Issuance Under Equity Compensation
Plans
Information required by this item is incorporated by reference
to our definitive proxy statement for our 2011 Annual Meeting of
shareholders.
25
Stock
Performance Graph
The following performance graph and related information shall
not be deemed soliciting material or
filed with the SEC, nor shall such information be
incorporated by reference into any future filings under the
Securities Act of 1933 or the Securities Exchange Act of 1934,
each as amended, except to the extent we specifically
incorporate it by reference into such filing.
The following graph sets forth the percentage change in the
cumulative total shareholder return on our Series A common
stock for the period beginning September 18, 2008 and ended
December 31, 2010 as compared to the S&P Media Index
and the NASDAQ Stock Market Index over the same period. The
graph assumes $100 was originally invested on September 18,
2008 and that all subsequent dividends were reinvested in
additional shares.
The comparisons in the graph below are based on historical data
and are not intended to forecast the possible future performance
of our Series A common stock.
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9/18/08
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12/31/08
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12/31/09
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12/31/10
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ASCMA Series A
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$
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100.00
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$
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80.37
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$
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93.83
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$
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142.45
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S&P Media Index
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$
|
100.00
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$
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71.29
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$
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96.43
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$
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116.88
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NASDAQ Stock Market Index
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$
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100.00
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$
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71.71
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$
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103.19
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$
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120.63
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Purchases
of Equity Securities By the Issuer
During the three months ended December 31, 2010,
3,092 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.
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|
|
|
|
|
|
|
|
|
|
Total Number of Shares
|
|
|
Average Price
|
|
Period
|
|
Purchased (Surrendered)
|
|
|
Paid Per Share
|
|
|
10/01/10 - 10/31/10
|
|
|
|
|
|
|
|
|
11/01/10 - 11/30/10
|
|
|
|
|
|
|
|
|
12/01/10 - 12/31/10
|
|
|
3,092(a
|
)
|
|
$
|
34.62
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,092(a
|
)
|
|
$
|
34.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents 2,409 shares withheld from Mr. Fitzgerald
and 683 shares withheld from Mr. Orr. |
26
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The following tables present selected historical information
relating to our financial condition and results of operations
for the past five years. The following data should be read in
conjunction with our consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Amounts in thousands
|
|
|
Summary Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
240,686
|
|
|
|
416,891
|
|
|
|
490,042
|
|
|
|
362,725
|
|
|
|
316,381
|
|
Property and Equipment, net
|
|
$
|
140,158
|
|
|
|
123,294
|
|
|
|
138,166
|
|
|
|
166,871
|
|
|
|
167,879
|
|
Total assets
|
|
$
|
1,652,025
|
|
|
|
682,987
|
|
|
|
745,304
|
|
|
|
830,986
|
|
|
|
952,919
|
|
Current liabilities
|
|
$
|
96,815
|
|
|
|
70,872
|
|
|
|
91,202
|
|
|
|
119,571
|
|
|
|
114,229
|
|
Long-term debt
|
|
$
|
896,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
$
|
551,974
|
|
|
|
582,596
|
|
|
|
625,310
|
|
|
|
686,896
|
|
|
|
814,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Amounts in thousands, except per share amounts
|
|
|
Summary Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
139,462
|
|
|
|
154,471
|
|
|
|
260,225
|
|
|
|
228,314
|
|
|
|
218,446
|
|
Operating loss(a)
|
|
$
|
(23,045
|
)
|
|
|
(27,764
|
)
|
|
|
(15,667
|
)
|
|
|
(185,829
|
)
|
|
|
(25,553
|
)
|
Net loss from continuing operations(a)
|
|
$
|
(26,395
|
)
|
|
|
(52,225
|
)
|
|
|
(6,913
|
)
|
|
|
(147,953
|
)
|
|
|
(15,523
|
)
|
Net loss(a),(b)
|
|
$
|
(34,260
|
)
|
|
|
(52,897
|
)
|
|
|
(64,619
|
)
|
|
|
(132,331
|
)
|
|
|
(83,007
|
)
|
Basic and diluted loss per common share(c)
|
|
$
|
(2.41
|
)
|
|
|
(3.76
|
)
|
|
|
(4.60
|
)
|
|
|
(9.41
|
)
|
|
|
(5.90
|
)
|
|
|
|
(a) |
|
Includes impairment of goodwill of $165,347,000 for the year
ended December 31, 2007. This impairment charge relates to
the Content Services group. |
|
(b) |
|
Includes impairment of goodwill of $95,069,000 and $93,402,000
for the years ended December 31, 2008 and 2006,
respectively. These impairment charges relates to the
Creative/Media business which was included in discontinued
operations for all periods presented. |
|
(c) |
|
Basic and diluted net earnings (loss) per common share is based
on (1) the actual number of basic and diluted shares for
all periods subsequent to the spin off and
(2) 14,061,618 shares, which is the number of shares
issued in the spin off, for all years prior to 2008. |
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
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 consolidated financial statements and the notes
thereto included elsewhere herein.
Overview
At December 31, 2010, our assets consisted of our
wholly-owned operating subsidiary, Monitronics International,
Inc. (Monitronics) and the Content Services group,
which is comprised of the Content Distribution business and the
System Integration business. The Content Distribution business
was subsequently sold on February 28, 2011.
Content
Services Group
The Content Services group is comprised of two business units:
the Content Distribution business unit (Content
Distribution) and the System Integration business unit
(System Integration or SI).
27
Content Distribution includes the facilities, technical
infrastructure, and operating staff necessary to assemble
programming content and to distribute media signals via
satellite and terrestrial networks. The key services provided by
Content Distribution include network origination, playout and
control services provided to cable, satellite and
pay-per-view
programming networks. Content Distribution also provides
transport and connectivity services by operating satellite earth
station facilities which are used for uplink, downlink and
turnaround services. In addition, it operates a global fiber
network which carries video and data services between its
various locations. Content Distribution operates from facilities
located in California, Connecticut, Minnesota, New York, New
Jersey, Virginia, the United Kingdom and Singapore.
System Integration designs, builds, installs and services
advanced technical systems for production, management and
delivery of rich media content to the worldwide broadcast, cable
television, broadband, government and telecommunications
industries. SI operates out of facilities in New Jersey,
California and Virginia, and services global clients including
major broadcasters, cable and satellite networks,
telecommunications providers, and corporate television networks,
as well as numerous production and post-production facilities.
Services offered include program management, engineering design,
equipment procurement, software integration, construction,
installation, service and support.
The Content Services groups revenue consists primarily of
fees relating to facilities and services necessary to optimize,
archive, manage, reformat and repurpose completed media assets
for global distribution via freight, satellite, fiber and the
internet. For the year ended December 31, 2010,
approximately 83% of the Content Services groups revenue
relates to Content Distribution services. Most Content
Distribution revenue is earned monthly under long-term contracts
ranging generally from one to seven years, with a portion earned
for occasional services. The remaining Content Services group
revenue relates to systems integration and engineering services
that are provided on a project basis over terms generally
ranging from three to twelve months.
On December 2, 2010, we entered into a definitive agreement
with Encompass Digital Media, Inc. (Encompass),
pursuant to which we agreed to sell to Encompass, and Encompass
agreed to purchase, 100% of the Content Distribution business.
The sale of the Content Distribution business was completed on
February 28, 2011, for a purchase price of
$104 million in cash, subject to adjustment based on final
working capital adjustments as of the closing date and other
balance sheet items, plus the assumption of certain liabilities
and obligations relating to the Content Distribution business.
Such cash purchase price reflects the base purchase price under
the purchase agreement of $113,250,000, as reduced or increased
by the following adjustments provided for in the purchase
agreement:
|
|
|
|
|
increased by a net working capital adjustment of $180,000;
|
|
|
|
reduced by a cash deferred revenue adjustment of
$4.1 million;
|
|
|
|
reduced by a net capital expenditure/added investment adjustment
of $4.5 million; and
|
|
|
|
reduced by a credit of $1 million, which will be paid to us
by Encompass upon the transfer of fee title to certain owned
real property.
|
In addition, the purchase price included $300,000 paid by
Encompass for certain licenses pursuant to the purchase
agreement. We did not treat the Content Distribution business as
a discontinued operation for any periods presented in this
Annual Report on
Form 10-K
because shareholder approval of the sale did not occur until
February 24, 2011. The Content Distribution business will
be treated as a discontinued operation beginning in the first
quarter of 2011.
Monitronics
On December 17, 2010, we signed and closed an agreement to
acquire 100% of the outstanding capital stock of Monitronics,
through the merger of our wholly owned subsidiary, Mono Lake
Merger Sub, Inc., with and into Monitronics, with Monitronics
surviving such merger. The cash consideration paid in connection
with the merger was $395,876,000. We also assumed approximately
$795,000,000 in net debt (debt less cash) of Monitronics. In
connection with the acquisition, Monitronics entered into a
Credit Agreement, which provides a $60,000,000 term loan and a
$115,000,000 revolving credit facility. The obligations under
the credit facility are secured by a security
28
interest on substantially all the assets of Monitronics and its
wholly owned subsidiary, Monitronics Canada, Inc., as well as a
pledge by Ascent Media Corporation of all outstanding stock of
Monitronics. Ascent Media Corporation has guaranteed payment of
the term loan up to the first $30,000,000 of obligations
thereunder. At closing, Monitronics borrowed the full amount of
the term loan and $45,000,000 under the revolving credit
facility, for total initial borrowings under the credit facility
of $105,000,000. The proceeds of such loans, after repayment of
$5,000,000 outstanding under a previously existing credit
facility, and payment of certain fees and expenses relating to
the credit facility, were used to fund a portion of the
aggregate merger consideration payable in connection with the
acquisition of Monitronics. The remaining cash consideration
paid was funded by cash on hand.
Monitronics is primarily engaged in the business of providing
security alarm monitoring services: monitoring signals from
burglaries, fires and other events, as well as providing
customer service and technical support. Nearly all of its
revenues are derived from monthly recurring revenues under
security alarm monitoring contracts purchased from independent
dealers in our exclusive nationwide network.
Revenues are recognized as the related monitoring services are
provided. Other revenues are derived primarily from the
provision of third-party contract monitoring services and from
field technical repair services. All direct external costs
associated with the creation of subscriber accounts are
capitalized and amortized over ten years using a 135% declining
balance method. Internal costs, including all personnel and
related support costs incurred solely in connection with
subscriber account acquisitions and transitions, are expensed as
incurred.
Account cancellation, otherwise referred to as subscriber
attrition, has a direct impact on the number of subscribers that
Monitronics serves and on its financial results, including
revenues, operating income and cash flow. A portion of the
subscriber base can be expected to cancel its service every
year. Subscribers may choose not to renew or terminate their
contract for a variety of reasons, including relocation, cost,
switching to a competitors service, and service issues. A
majority of canceled accounts result from subscriber relocation
or the inability to contact the subscriber. Monitronics defines
its attrition rate as the number of canceled accounts in a given
period divided by the weighted average of subscribers for that
period. Monitronics considers an account canceled when a
subscriber terminates in accordance with the terms of the
contract or if payment from the subscriber is deemed
uncollectible. If a subscriber relocates but continues its
service, this is not a cancellation. If the subscriber
relocates, discontinues its service and a new subscriber takes
over the original subscribers service continuing the
revenue stream (a new owner takeover), this is also
not a cancellation. Monitronics adjusts the number of canceled
accounts by excluding those that are contractually guaranteed by
its dealers. The typical dealer contract provides that if a
subscriber cancels in the first year of its contract, the dealer
must either replace the canceled account with a new one or
refund the purchase price. To help ensure the dealers
obligation to Monitronics, Monitronics holds back a portion of
the purchase price for every account purchased, typically 10%.
In some cases, the amount of the purchase holdback may be less
than actual attrition experience. In recent years, a substantial
portion of the accounts that canceled within this initial
12-month
period were replaced or refunded by the dealers at no additional
cost to Monitronics.
Monitronics also analyzes its attrition by classifying accounts
into annual pools based on the year of purchase. Monitronics
then tracks the number of accounts that cancel as a percentage
of the initial number of accounts purchased for each pool for
each year subsequent to its purchase. Based on the average
cancellation rate across the pools, Monitronics achieves nearly
0% attrition in the first year net of canceled accounts that are
contractually guaranteed by the dealers. In the next three
years, the number of subscribers that cancel as a percentage of
the initial number of subscribers in that pool gradually
increases and historically has peaked between the third and
fourth years. The peak between the third and fourth years is
primarily a result of the buildup of subscribers that moved or
no longer had need for the service prior to the third year but
did not cancel their service until the end of their three-year
contract. After the fourth year, the number of subscribers that
cancel as a percentage of the initial number of subscribers in
that pool declines. As a result, Monitronics believes its
attrition rate decreases as the age of the accounts increases.
29
The table below presents subscriber data for the twelve months
ended December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Beginning balance of accounts Content Services group
|
|
|
621,592
|
|
|
|
560,871
|
|
Accounts purchased
|
|
|
126,619
|
|
|
|
134,841
|
|
Accounts cancelled(a)
|
|
|
(71,403
|
)
|
|
|
(68,818
|
)
|
Accounts guaranteed to be refunded from holdback
|
|
|
(5,854
|
)
|
|
|
(5,302
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance of accounts
|
|
|
670,954
|
|
|
|
621,592
|
|
|
|
|
|
|
|
|
|
|
Monthly weighted average accounts
|
|
|
643,625
|
|
|
|
589,176
|
|
|
|
|
|
|
|
|
|
|
Attrition rate
|
|
|
(11.1
|
)%
|
|
|
(11.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Net of canceled accounts that are contractually guaranteed by
the dealer. |
Monitronics trailing twelve-month attrition rate decreased
from 11.6% for the period ended December 31, 2009 to 11.1%
for the period ended December 31, 2010. The improvement in
the attrition rate was due to several factors, including
Monitronics focus on customer service and higher credit
scores for customers acquired over the past several years.
The following table includes pro forma information for Ascent
Media, which includes the historical operating results of
Monitronics prior to ownership by us. This pro forma information
gives effect to certain adjustments resulting from the
acquisition method of accounting, including increased
amortization to reflect the fair value assigned in the
acquisition to the suscriber accounts and dealer network,
increased depreciation to reflect the fair value assigned in the
acquisition to property and equipment and increased interest
expense, including amortization of the discount recorded to
reflect the fair value of the long-term debt. The pro-forma
results assume that the acquisition had occurred on
January 1, 2009 for all periods presented. They are not
necessarily indicative of our results of operations that would
have occurred if the acquisition had been made at the beginning
of the periods presented or that may be obtained in the future.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Pro-forma revenue
|
|
$
|
411,648
|
|
|
|
408,208
|
|
Pro-forma net loss(a)
|
|
$
|
(73,569
|
)
|
|
|
(81,634
|
)
|
Pro-forma basic and diluted loss per share
|
|
$
|
(5.18
|
)
|
|
|
(5.80
|
)
|
|
|
|
(a) |
|
The 2010 amount includes the following non-recurring amounts:
restructuring charges of $5.7 million, gain on sale of
operating assets of $2.7 million, transaction costs related
to the Monitronics acquisition of $14.9 million and a
$1.2 million charge for a lump-sum payment related to the
death benefit of the Companys chief operating officer
under the terms of his employment contract. The 2009 amount
includes the following non-recurring amounts: restructuring
charges of $4.8 million and a credit for the reduction in
the fair value of a participating residual interest liability of
$4.1 million. |
Sale of
Creative and Media Businesses
On December 31, 2010, Ascent Media, pursuant to a
definitive agreement with Deluxe Entertainment Services Group
Inc. (Deluxe), completed the sale of 100% of its
creative services business unit and 100% of its media services
business unit (which is refered to collectively as
Creative/Media), for an aggregate purchase price of
$69 million in cash, subject to adjustments based on net
working capital on the closing date and other balance sheet
items, plus the assumption of certain capital leases.
Historically, the creative services business unit was its own
reportable segment and the media services business unit was
included in the Content Services group reportable segment. We
have accounted for the disposition of the Creative/Media
business as discontinued operations in the
30
consolidated financial statements for all periods presented in
this Annual Report. We recorded a pre-tax loss on the sale of
$27,110,000 and $7,587,000 of related income tax benefit, which
is also included in discontinued operations.
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 expense (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.
Results
of Operations
Our operations are organized into the following reportable
segments: the Content Services group and the Monitronics
business as discussed above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amounts in thousands
|
|
|
Consolidated Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
139,462
|
|
|
|
154,471
|
|
|
|
260,225
|
|
Loss from continuing operations before income taxes
|
|
$
|
(24,908
|
)
|
|
|
(24,535
|
)
|
|
|
(8,035
|
)
|
Net loss
|
|
$
|
(34,260
|
)
|
|
|
(52,897
|
)
|
|
|
(64,619
|
)
|
Segment Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Content Services group
|
|
$
|
127,286
|
|
|
|
154,471
|
|
|
|
260,225
|
|
Monitronics business
|
|
$
|
12,176
|
|
|
|
|
|
|
|
|
|
Adjusted OIBDA
|
|
|
|
|
|
|
|
|
|
|
|
|
Content Services group
|
|
$
|
25,384
|
|
|
|
23,556
|
|
|
|
31,401
|
|
Monitronics business
|
|
$
|
8,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment adjusted OIBDA
|
|
$
|
34,008
|
|
|
|
23,556
|
|
|
|
31,401
|
|
Corporate general and administrative expenses
|
|
$
|
(20,167
|
)
|
|
|
(19,625
|
)
|
|
|
(21,812
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjusted OIBDA(a)
|
|
$
|
13,841
|
|
|
|
3,931
|
|
|
|
9,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Adjusted OIBDA as a Percentage of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Content Services group
|
|
|
19.9
|
%
|
|
|
15.2
|
%
|
|
|
12.1
|
%
|
Monitronics business
|
|
|
70.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
See reconciliation to loss from continuing operations before
income taxes below. |
31
Revenue. Our consolidated revenue decreased
$15,009,000 or 9.7% and $105,754,000 or 40.6% for the years
ended December 31, 2010 and 2009, respectively, as compared
to the corresponding prior year. In 2010, Content Services
revenue decreased by $27,185,000 or 17.6% due to a decrease of
$27,474,000 in system integration services as customers reduced
their spending on system integration projects, with one
customer, Motorola, accounting for $17.0 million of the
decease and (ii) a decrease of $1,165,000 due to lower
revenues for content distribution and transport services in the
United States and Singapore. These decreases were partially
offset by favorable changes in foreign currency rates of
$1,192,000. In 2009, Content Services revenue decreased by
$105,754,000 or 40.6% due to (i) a decrease of $95,511,000
in system integration services revenue due to a significant
number of large projects in the United States and the United
Kingdom in the prior year with one customer, Motorola,
accounting for $47.8 million of the decrease, and a decline
in system integration projects in 2009 as customers reduced
their spending in response to a weaker economic climate,
(ii) $7,282,000 due to lower content origination and
transport services in the United States and the United Kingdom
and (iii) unfavorable changes in foreign currency exchange
rates of $3,826,000.
Monitronics revenue was $12.2 million for the year ended
December 31, 2010, which represents revenue earned from
alarm monitoring operations from the date of acquisition,
December 17, 2010.
Cost of Services. Our cost of services
decreased $25,539,000 or 23.7% and $94,007,000 or 46.6% for the
years ended December 31, 2010 and 2009, respectively, as
compared to the corresponding prior year. A significant portion
of the 2010 decrease related to lower production material costs
mainly resulting from lower volumes of system integration
services in the Content Services group. Further, we restructured
the Company starting at the end of 2008, by combining facilities
and reducing the number of employees at certain locations, which
resulted in a reduction in labor and facility costs for the year
ended December 31, 2010, compared to the prior year. We
also had lower outside services expenses due to our efforts to
reduce costs.
A significant portion of the 2009 decrease related to lower
production material costs mainly resulting from lower volumes of
system integration services in the Content Services group. Labor
costs also declined as a result of the lower volumes of system
integration services and the restructuring activities. We also
had lower production equipment and outside services expenses due
to our efforts to reduce costs. In addition, cost of services
decreased as a result of favorable changes in foreign currency
exchange rates of $3,538,000 for the year ended
December 31, 2009.
As a percent of revenue, cost of services was 59.1%, 69.9% and
77.4% for the years ended December 31, 2010, 2009 and 2008,
respectively. The 2010 decrease in cost of services as a percent
of revenue is mainly a result of revenue mix as system
integration projects, which incur higher production material
costs, were significantly lower in 2010 compared to 2009. In
addition, the 2010 revenue amount included $12.2 million of
revenue from the Monitronics business which incurs significantly
less cost of services than the Content Services group. The 2009
decrease in cost of services as a percent of revenue is mainly a
result of revenue mix as system integration projects were
significantly lower in 2009 as compared to 2008. The percentage
decrease was also the result of the 2008 restructuring and cost
mitigation measures that were implemented across both segments.
Selling, General and Administrative. Our
selling, general and administrative expenses
(SG&A) are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amounts in thousands
|
|
|
SG&A(a)
|
|
$
|
43,220
|
|
|
|
42,600
|
|
|
|
48,690
|
|
Stock-based and long-term incentive compensation
|
|
|
4,182
|
|
|
|
2,401
|
|
|
|
2,764
|
|
Accretion expense on asset retirement obligations
|
|
|
190
|
|
|
|
220
|
|
|
|
225
|
|
Participating residual interest change in fair value
|
|
|
(134
|
)
|
|
|
(4,092
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SG&A
|
|
$
|
47,458
|
|
|
|
41,129
|
|
|
|
51,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
SG&A includes corporate G&A expenses of $20,167,000,
$19,625,000 and $21,812,000 for the years ended
December 31, 2010, 2009 and 2008, respectively, which are
not included in total segment adjusted OIBDA. |
32
SG&A, excluding stock-based and long-term incentive
compensation, accretion expense on asset retirement obligations
and participating residual interest change in fair value,
increased $620,000 or 1.5% and decreased $6,090,000 or 12.5% for
the years ended December 31, 2010 and 2009, respectively,
as compared to the corresponding prior year. For 2010, the
increase was mainly due to SG&A expenses from the
Monitronics business which was acquired on December 17,
2010 and transaction costs of $1.3 million incurred for the
acquisition. These increases were partially offset by lower
labor and other administrative costs, which declined due to the
implementation of restructuring and cost mitigation measures.
For 2009, the decrease was mainly driven by lower administrative
and labor costs, which declined due to the implementation of the
2008 restructuring and cost mitigation measures and lower bad
debt expense. In addition, SG&A was impacted by favorable
changes in foreign currency exchange rates of $1,317,000 for the
year ended December 31, 2009. As a percent of revenue, our
SG&A, excluding stock-based and long-term incentive
compensation, accretion expense on asset retirement obligations
and participating residual interest change in fair value, was
31.0%, 27.6% and 18.7% for the years ended December 31,
2010, 2009 and 2008, respectively.
Stock-based and Long-term Incentive
Compensation. Stock-based and long-term incentive
compensation was $4,182,000, $2,401,000 and $2,764,000 for the
years ended December 31, 2010, 2009 and 2008, respectively,
and is included in SG&A in our consolidated statements of
operations. The expense for the year ended December 31,
2010, was related to restricted stock, stock options and cash
distributions for awards granted in 2010 under the amended 2006
Long-Term Incentive Plan (2006 LTIP). In addition,
the 2010 amount 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. The expense for the year ended December 31,
2009, was related to restricted stock and stock option awards
granted to certain executives. The expense for the year ended
December 31, 2008, relates primarily to awards granted
under the 2006 LTIP, for which a cash distribution was made to
certain executives in connection with the sale of AccentHealth
in September 2008.
Participating Residual Interest Change in Fair
Value. For the years ended December 31, 2010
and 2009, participating residual interest change in fair value
was a credit of $134,000 and $4,092,000, respectively. These
amounts relate to a reduction in the fair value of a
participating residual interest liability related to a portion
of our system integration business that was acquired in 2003.
See footnote 17 in the financial statements for further
information.
Restructuring Charges. During 2010, 2009 and
2008, we completed certain restructuring activities and recorded
charges of $5,713,000, $4,845,000 and $3,257,000, respectively.
In the fourth quarter of 2010, we began a new restructuring plan
(the 2010 Restructuring Plan) in conjunction with the
expected sales of the Creative/Media and Content Distribution
businesses. The 2010 Restructuring Plan was implemented to meet
the changing strategic needs of the Company as we sold most of
our media and entertainment services assets and acquired
Monitronics, an alarm monitoring business. Such changes include
retention costs for employees to remain employed until the sales
are complete, severance costs for certain employees that were
not retained by the buyers and facility costs that were no
longer being used by us due to the Creative/Media and Content
Distribution sales.
Before we implemented the 2010 Restructuring Plan, we had just
completed a restructuring plan that was implemented in 2008 and
concluded in September 2010 (the 2008 Restructuring
Plan). The 2008 Restructuring Plan was implemented to
align our organization with our strategic goals and how we
operate, manage and sell our services. The 2008 Restructuring
Plan charges included severance costs from labor cost mitigation
measures undertaken across all of the businesses and facility
costs in conjunction with the consolidation of certain
facilities in the United Kingdom and the closing of our Mexico
operations.
33
The following table provides the activity and balances of the
2010 Restructuring Plan and the 2008 Restructuring Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Additions
|
|
|
Deductions(a)
|
|
|
Balance
|
|
|
|
Amounts in thousands
|
|
|
2010 Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and retention
|
|
$
|
|
|
|
|
4,434
|
|
|
|
(638
|
)
|
|
|
3,796
|
(b)
|
2008 Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
1,310
|
|
|
|
2,157
|
|
|
|
(2,486
|
)
|
|
|
981
|
|
Excess facility costs
|
|
|
(92
|
)
|
|
|
1,100
|
|
|
|
(948
|
)
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
$
|
1,218
|
|
|
|
3,257
|
|
|
|
(3,434
|
)
|
|
|
1,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
981
|
|
|
|
1,919
|
|
|
|
(2,364
|
)
|
|
|
536
|
|
Excess facility costs
|
|
|
60
|
|
|
|
2,926
|
|
|
|
(20
|
)
|
|
|
2,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
$
|
1,041
|
|
|
|
4,845
|
|
|
|
(2,384
|
)
|
|
|
3,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
536
|
|
|
|
1,119
|
|
|
|
(1,646
|
)
|
|
|
9
|
(b)
|
Excess facility costs
|
|
|
2,966
|
|
|
|
160
|
|
|
|
(1,631
|
)
|
|
|
1,495
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
$
|
3,502
|
|
|
|
1,279
|
|
|
|
(3,277
|
)
|
|
|
1,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Primarily represents cash payments. |
|
(b) |
|
Substantially all of this amount is expected to be paid in 2011. |
Gain on Sale of Operating Assets, net. The
2010 amount includes the gain on sale of $2,736,000 for the sale
of real estate in California for net cash proceeds of
$6,176,000. The 2008 amount includes a gain on sale of
$10,174,000 for the sale of real estate in the United Kingdom
for net cash proceeds of $16,215,000.
Depreciation and Amortization. Depreciation
expense decreased $3,478,000 or 12.3% and $102,000 or 0.4% for
the years ended December 31, 2010 and 2009, respectively,
as compared to the corresponding prior year. The 2010 decrease
is due to the impact of an impairment charge of $972,000
recorded in 2009 related to a content services facility and a
decrease in depreciation expense for the Content Services group.
The decrease was partially offset by depreciation on the
property and equipment that was acquired in the Monitronics
acquisition. The 2009 decrease was due to the impact of
favorable changes in foreign currency exchange rates of
$1,428,000 for the year ended December 31, 2009. This
increase was partially offset by the $972,000 impairment charge
recorded in 2009 for a content services facility and the lower
level of property and equipment in 2009 as more assets were
fully depreciated.
Amortization of Subscriber Accounts and Dealer
Network. Amortization expense was $4,793,000 for
the year ended December 31, 2010. The 2010 amount is the
amortization related to subscriber accounts and dealer networks
intangibles that were acquired in the Monitronics acquisition.
Income Taxes from Continuing Operations. For
the year ended December 31, 2010, we had a pre-tax loss
from continuing operations of $24,908,000 and an income tax
expense from continuing operations of $1,487,000. For the year
ended December 31, 2009, we had a pre-tax loss from
continuing operations of $24,535,000 and an income tax expense
from continuing operations of $27,690,000. For the year ended
December 31, 2008, we had a pre-tax loss from continuing
operations of $8,035,000 and an income tax benefit from
continuing operations of $1,122,000.
For 2010, we incurred income tax expense despite a pre-tax loss
from operations mainly due to an increase in the valuation
allowance of $7,487,000. For 2009, we incurred income tax
expense despite a pre-tax loss from operations due to an
increase in the valuation allowance of $34,839,000. For 2008, we
recorded a $1,122,000 income tax benefit mainly due to tax
expense of $1,512,000 recorded at our foreign operations.
34
Earnings from Discontinued Operations, Net of Income
Taxes. We recorded losses from discontinued
operations, net of income taxes of $7,865,000, $672,000 and
$57,706,000 for the years ended December 31, 2010, 2009 and
2008, respectively. These amounts included the earnings of the
discontinued operations and the gain or loss on the sales. See
further information about the discontinued operations below.
Adjusted OIBDA. The following table provides a
reconciliation of total adjusted OIBDA to loss from continuing
operations before income taxes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amounts in thousands
|
|
|
Total adjusted OIBDA
|
|
$
|
13,841
|
|
|
|
3,931
|
|
|
|
9,589
|
|
Stock-based and long-term incentive compensation
|
|
|
(4,182
|
)
|
|
|
(2,401
|
)
|
|
|
(2,764
|
)
|
Restructuring and other charges
|
|
|
(5,713
|
)
|
|
|
(4,845
|
)
|
|
|
(3,257
|
)
|
Depreciation and amortization
|
|
|
(29,655
|
)
|
|
|
(28,340
|
)
|
|
|
(28,442
|
)
|
Gain on sale of operating assets, net
|
|
|
2,720
|
|
|
|
19
|
|
|
|
9,433
|
|
Participating residual interest change in fair value
|
|
|
134
|
|
|
|
4,092
|
|
|
|
|
|
Interest income
|
|
|
3,639
|
|
|
|
2,660
|
|
|
|
6,579
|
|
Interest expense
|
|
|
(2,953
|
)
|
|
|
(410
|
)
|
|
|
(399
|
)
|
Unrealized loss on derivatives
|
|
|
(1,682
|
)
|
|
|
|
|
|
|
|
|
Other, net(a)
|
|
|
(1,057
|
)
|
|
|
759
|
|
|
|
1,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
$
|
(24,908
|
)
|
|
|
(24,535
|
)
|
|
|
(8,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The year ended December 31, 2010 amount includes an expense
of approximately $1.2 million for a lump-sum payment
related to the death benefit of the Companys chief
operating officer under the terms of his employment contract. |
Content Services group segment adjusted OIBDA as a percentage of
revenue was 19.9%, 15.2% and 12.1% for the years ended
December 31, 2010, 2009 and 2008, respectively. The
increase in the Content Services group adjusted OIBDA margin for
the year ended December 31, 2010, was due to lower labor
costs as a result of our cost mitigation measures and lower
material costs due to the decrease in system integration
revenues. The increase in the Content Services group segment
adjusted OIBDA margin for the year ended December 31, 2009,
was due to lower labor and other administrative costs as a
result of our cost mitigation measures and a $2.7 million
loss that was recorded in 2008 on a system integration contract.
In 2009, the primary cost components for the Content Services
group were labor and materials, with these costs comprising
about 62% 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 62% 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 segment adjusted OIBDA increased
$1,828,000 or 7.8% for the year ended December 31, 2010,
compared to the prior year. This increase was due to an increase
of (i) $2,211,000 in the content distribution business,
which reduced operating costs more than its decline in revenues
and (ii) favorable changes in foreign currency exchange
rates of $473,000. These increases were partially offset by a
decrease of $1,293,000 from lower system integration revenues.
Content Services group segment adjusted OIBDA decreased
$7,845,000 or 25.0% for the year ended December 31, 2009,
compared to the prior year. This decrease was due to (i) a
decrease of $8,529,000 from lower system integration revenues
and (ii) a decrease of $1,223,000 from lower content
distribution revenues. These decreases were partially offset by
cost reductions of $1,718,000 for development of new business in
2009 compared to 2008.
The Monitronics adjusted OIBDA as a percentage of revenue was
70.8% for the year ended December 31, 2010. The Monitronics
business adjusted OIBDA was $8.6 million for the year ended
December 31, 2010, which
35
represents adjusted OIBDA recognized from alarm monitoring
operations from the date of acquisition, December 17, 2010.
Discontinued
Operations
The following businesses have been treated as discontinued
operations in the consolidated financial statements for all
periods presented.
Creative/Media
As discussed above, we sold our Creative/Media business to
Deluxe on December 31, 2010. For the year ended
December 31, 2010, the Creative/Media business generated
$296 million in revenue and contributed $19 million of
adjusted OIBDA. We recorded a pre-tax loss on the sale of
$27.1 million and recorded an income tax benefit of
$7.6 million.
GMX
In September 2010, the Company shut down the operations of the
Global Media Exchange (GMX), which was previously
included in the Content Services group. Ascent Media recorded a
charge of $1,838,000 to write off the assets and recorded
severance costs in connection with the shutdown for the year
ended December 31, 2010.
Chiswick
Park
In February 2010, we 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. We recorded a pre-tax gain on the sale
of $25,498,000 and $3,423,000 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 for the year
ended December 31, 2010.
AccentHealth
AccentHealth, which was acquired in January 2006, operated an
advertising-supported captive audience television network in
doctor office waiting rooms nationwide. AccentHealth was part of
the Content Services group. On September 4, 2008, we
completed the sale of 100% of the ownership interests in
AccentHealth to an unaffiliated third party for net cash
proceeds of $118,641,000. Our board of directors determined that
AccentHealth was a non-core asset, and that the sale of
AccentHealth would be consistent with our strategy of continuing
to invest in core business operations while seeking
opportunities to divest our non-core assets. We recognized a
pre-tax gain on the sale of $63,929,000 and $35,046,000 of
income tax expense on the gain in the year ended
December 31, 2008.
Palm
Bay
Ascent Media Systems & Technology Services, LLC,
located in Palm Bay, Florida (Palm Bay), provided
field service operations through an on-staff network of field
engineers located throughout the United States and was part of
the Content Services group. On September 8, 2008, AMG sold
Palm Bay to an unaffiliated third party for net cash proceeds of
$7,040,000. AMG recognized a gain on this sale of $3,370,000,
and income tax expense of $2,463,000 on such gain in the year
ended December 31, 2008.
Visiontext
Visiontext Limited (Visiontext) operated a
post-production subtitling business in the United Kingdom and
United States and was part of the Creative Services group. On
September 30, 2008, AMG sold Visiontext to an unaffiliated
third party for net cash proceeds of $2,150,000. AMG recognized
a gain on this sale of $1,777,000, and income tax expense of
$498,000 on such gain in the year ended December 31, 2008.
36
Liquidity
and Capital Resources
At December 31, 2010, we have $149,857,000 of cash and cash
equivalents on a consolidated basis. We may use a portion of
these assets to fund potential strategic acquisitions or
investment opportunities. On February 28, 2011, we closed
the sale of the Content Distribution business and received net
cash proceeds of $104 million, subject to post-closing
adjustments.
Additionally, our other source of funds is our cash flows from
operating activities. In 2010 and in prior years, the operating
cash flows were generated from the Creative/Media, Content
Distribution and SI businesses. Since we have sold both the
Creative/Media and Content Distribution business and acquired
the Monitronics business, future operating cash flows will be
generated primarily from the operations of Monitronics. The
Creative/Media business is treated as discontinued operations in
the financial statements included in this annual report on
Form 10-K.
During the years ended December 31, 2010, 2009 and 2008,
our cash flow from operating activities was $50,300,000,
$35,974,000 and $21,041,000, 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 for equipment 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 years ended December 31, 2010, 2009 and 2008, we
used cash of $20,492,000, $12,862,000 and $12,293,000,
respectively, to fund our capital expenditures. These
expenditures related to the purchase of new equipment, the
upgrade of facilities and the buildout of our existing
facilities to meet specific customer contracts of the Content
Distribution, which were capitalized as additions and remained
our property (not that of the customer) until the sale of the
Content Distribution business. In December 2010, we paid cash of
$395,876,000 to purchase the Monitronics business, which
included cash on hand of $7,475,000. During 2010, we purchased
marketable securities consisting of diversified corporate bond
funds for cash of $41,757,000 in order to improve our investment
rate of return and then sold all of these securities in December
2010 for cash proceeds of $96,685,000 to fund the acquisition of
Monitronics. During 2009, we purchased marketable securities
consisting of diversified corporate bond funds for cash of
$68,126,000 in order to improve our investment rate of return.
We sold a portion of these securities for cash proceeds of
$16,309,000. During 2008, we sold marketable securities for cash
of $23,545,000.
As part of the Monitronics acquisition, we assumed Monitronics
long-term debt with a principal balance of $838 million at
December 31, 2010. Such indebtedness is the obligation of
Monitronics and certain of its subsidiaries and is not
guaranteed by us or any of our subsidiaries other than
Monitronics. In addition to the Monitronics cash on hand,
we also acquired restricted cash which totaled $51 million
at December 31, 2010. Also, in order to partially fund the
cash consideration used for the Monitronics acquisition,
Monitronics entered into a Credit Agreement with the lenders
party thereto and Bank of America, N.A., as administrative agent
(the Credit Facility). The Credit Facility provides
a $60,000,000 term loan and an $115,000,000 revolving credit
facility, under which Monitronics has borrowed $46,300,000 as of
December 31, 2010. The term loan matures on June 30,
2012, and requires principal installments of $20,000,000 on
December 31, 2011 and March 31, 2012. The revolving
credit facility matures on December 17, 2013. We have
guaranteed $30,000,000 of the aggregate principal amount
outstanding under the Credit Facility.
Our liquidity requirements for 2011 and beyond have
significantly changed from the prior year. In considering our
liquidity requirements for 2011, we evaluated our known future
commitments and obligations. We will require the availability of
funds to finance the strategy of Monitronics, our primary
operating subsidiary, which is to grow through subscriber
account purchases. In addition, additional cash will be needed
to meet Monitronics debt service obligations on its
long-term debt, any settlement of Monitronics derivative
financial instruments in advance of their scheduled terms, and
capital expenditures. We also considered the expected cash flow
from Monitronics, as this business will be the primary driver of
our operating cash flows. In addition, we considered the
borrowing capacity under Monitronics Credit Facility,
under which Monitronics could borrow approximately $69,000,000.
Based on this analysis, we expect that cash on hand, cash flow
generated from operations and borrowings under the
Monitronics Credit Facility will provide sufficient
liquidity, given our anticipated current and future requirements.
37
The existing long-term debt of Monitronics at December 31,
2010 includes the principal balance of $838 million under a
securitization facility. The
Class A-1
term notes issued under the securitization facility in the
aggregate outstanding principal amount of $450,000,000 are due
in full on July 15, 2027; all other notes issued under the
facility, including the variable funding notes described below,
are due on July 15, 2037. However, certain terms of such
securitization facility may impact our liquidity and capital
structure in 2012.
As of December 31, 2010, alarm monitoring agreements for
approximately 622,000 of Monitronics subscriber accounts are
owned by Monitronics Funding LP, a subsidiary of Monitronics,
which we refer to as Funding. Such alarm monitoring
agreements, and the monthly recurring revenue and other proceeds
thereof, are pledged as collateral to secure the obligations of
Monitronics under the securitization facility. Under the terms
of such facility, Issuer currently pays Monitronics Security LP
(another subsidiary of Monitronics, which we refer to as
Security) for monitoring and servicing the
subscriber accounts owned by Funding, at an effective rate of
$12.00 per active subscriber account. Fees paid from Funding to
Security can be distributed to Monitronics, but cash balances at
Funding must be used to service the securitization indebtedness.
As the servicing fees paid by Funding to Security currently
exceed the aggregate
out-of-pocket
costs of monitoring and servicing such subscriber accounts, the
amount of such excess is available to Monitronics for other
corporate purposes, including the purchase of additional
subscriber accounts. However, under the terms of the
securitization facility, effective July 2012, the amount of the
servicing fees payable by Funding to Security will decrease from
an effective rate of $12.00 per active subscriber account to
$7.50 per active subscriber account. This decrease will
substantially reduce or eliminate the excess cash available to
Security for distribution to Monitronics. Accordingly, if
Monitronics does not repay or refinance the securitization
facility by July 2012, the decrease in servicing fees could have
a substantially adverse affect on our liquidity and reduce the
capital resources available to Monitronics for purchasing alarm
monitoring accounts, further adversely affecting
Monitronicss business model and potential profitability.
Monitronics is currently exploring opportunities to refinance or
amend the terms of its securitization facility to avoid such
potential adverse on its liquidity and capital resources.
However, there can be no assurances that such a refinancing or
amendment will be available to Monitronics on terms acceptable
to us, or on any terms.
In addition, if Monitronics does not repay or refinance the
securitization facility by July 2012, contingent additional
interest will begin to accrue at the rate of 5% per annum
(including 0.5% of fees) on the two variable funding notes (or
VFNs) under the Monitronics securitization facility,
which have an aggregate principal balance of $288,000,000. The
effective interest rate payable by the Company under
$550 million notional amount of swaps relating to the term
notes under the securitization facility would also increase by
5% per annum (including 0.5% of fees) beginning July 2012, if
such swaps are then outstanding. Although such additional
interest will not be payable in cash until all of the
securitization debt has been paid off, the accrued amount would
reduce the borrowing base available to Monitronics under its new
credit facility and may indirectly reduce Monitronics
ability to acquire new subscriber accounts.
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 or affecting our industry and
our customers and to general economic, political, financial,
competitive, legislative and regulatory factors beyond our
control.
38
Contractual
Obligations
Information concerning the amount and timing of required
payments under our contractual obligations at December 31,
2010 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
After 5
|
|
|
|
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
Years
|
|
|
Total
|
|
|
|
Amounts in thousands
|
|
|
Operating leases
|
|
$
|
14,595
|
|
|
|
12,748
|
|
|
|
6,723
|
|
|
|
6,906
|
|
|
|
40,972
|
|
Capital lease
|
|
|
1,080
|
|
|
|
2,160
|
|
|
|
|
|
|
|
|
|
|
|
3,240
|
|
Long-term debt(a)
|
|
|
20,000
|
|
|
|
86,300
|
|
|
|
|
|
|
|
838,000
|
|
|
|
944,300
|
|
Other
|
|
|
10,166
|
|
|
|
28
|
|
|
|
324
|
|
|
|
1,128
|
|
|
|
11,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
45,841
|
|
|
|
101,236
|
|
|
|
7,047
|
|
|
|
846,034
|
|
|
|
1,000,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amounts reflect principal amounts owed and therefore excludes
discount of $27,567,000. Amounts also exclude interest payments
which are based on variable interest rates. |
We have contingent liabilities related to legal proceedings and
other matters arising in the ordinary course of business.
Although it is reasonably possible we may incur losses upon
conclusion of such matters, an estimate of any loss or range of
loss cannot be made. In the opinion of management, it is
expected that amounts, if any, which may be required to satisfy
such contingencies will not be material in relation to the
accompanying consolidated financial statements.
Off-Balance
Sheet Arrangements
None.
Critical
Accounting Policies and Estimates
Valuation of Subscriber Accounts. Subscriber
accounts, which totaled $829,540,000 at December 31, 2010,
relate to the cost of acquiring portfolios of monitoring service
contracts from independent dealers. The subscriber accounts
acquired in the Monitronics acquisition were recorded at fair
value under the acquisition method of accounting. Subscriber
accounts purchased subsequent to the acquisition are recorded at
cost. All direct external costs associated with the creation of
subscriber accounts are capitalized. Internal costs, including
all personnel and related support costs, incurred solely in
connection with subscriber account acquisitions and transitions
are expensed as incurred. The cost of subscriber accounts is
currently amortized using the
10-year 135%
declining balance method. We continue to assess the useful life
and appropriate amortization method for the subscriber accounts.
Currently, a
10-year 135%
declining balance amortization method is used to provide a
matching of amortization expense to individual subscriber
revenues based on historical performance of our subscriber base.
The realizable value and remaining useful lives of these assets
could be impacted by changes in subscriber attrition rates,
which could have an adverse effect on our earnings.
We will review the subscriber accounts for impairment or a
change in amortization period whenever events or changes
indicate that the carrying amount of the asset may not be
recoverable or the life should be shortened. For purposes of
recognition and measurement of an impairment loss, we view
subscriber accounts as a single pool because of the assets
homogeneous characteristics, and because the pool of subscriber
accounts is the lowest level for which identifiable cash flows
are largely independent of the cash flows of the other assets
and liabilities. This treatment results from the due diligence
program that we have implemented in which a contract must meet
certain purchase criteria before we purchase the account. All of
our customers contract for essentially the same service and we
are consistent in providing that service regardless of the
customers locations. If we determine that an impairment
has occurred, we write the subscriber accounts down to their
fair value.
39
Valuation of Long-lived Assets and Amortizable Other
Intangible Assets. We perform impairment tests
for our long-lived assets if an event or circumstance indicates
that the carrying amount of our long-lived assets may not be
recoverable. In response to changes in industry and market
conditions, we may also strategically realign our resources and
consider restructuring, disposing of, or otherwise exiting
businesses. Such activities could result in impairment of our
long-lived assets or other intangible assets. We are subject to
the possibility of impairment of long-lived assets arising in
the ordinary course of business. We regularly consider the
likelihood of impairment and may recognize impairment if the
carrying amount of a long-lived asset or intangible asset is not
recoverable from its undiscounted cash flows in accordance with
the Property, Plant and Equipment Topic of the FASB ASC.
Impairment is measured as the difference between the carrying
amount and the fair value of the asset. We use both the income
approach and market approach to estimate fair value. Our
estimates of fair value are subject to a high degree of judgment
since they include a long-term forecast of future operations.
Accordingly, any value ultimately derived from our long-lived
assets may differ from our estimate of fair value.
Valuation of Trade Receivables. We must make
estimates of the collectability of our trade receivables. For
the Content Service group receivables, our management analyzes
the collectability based on historical bad debts, customer
concentrations, customer credit- worthiness, current economic
trends and changes in our customer payment terms. We record an
allowance for doubtful accounts based upon specifically
identified receivables that we believe are uncollectible. In
addition, we also record an amount based upon a percentage of
each aged category of our trade receivables. These percentages
are estimated based upon our historical experience of bad debts.
For the Monitronics business, we perform extensive credit
evaluations on the portfolios of subscriber accounts prior to
purchase and require no collateral on the accounts that are
acquired. We establish an allowance for doubtful accounts for
estimated losses resulting from the inability of subscribers to
make required payments. Factors such as historical-loss
experience, recoveries and economic conditions are considered in
determining the sufficiency of the allowance to cover potential
losses. Our trade receivables balance was $32,318,000, net of
allowance for doubtful accounts of $825,000, as of
December 31, 2010. As of December 31, 2009, our trade
receivables balance was $23,535,000, net of allowance for
doubtful accounts of $1,305,000.
Valuation of Deferred Tax Assets. In
accordance with the Income Taxes Topic of the FASB ASC, we
review the nature of each component of our deferred income taxes
for the ability to realize the future tax benefits. As part of
this review, we rely on the objective evidence of our current
performance and the subjective evidence of estimates of our
forecast of future operations. Our estimates of realizability
are subject to a high degree of judgment since they include such
forecasts of future operations. After consideration of all
available positive and negative evidence and estimates, we have
determined that it is more likely than not that we will not
realize the tax benefits associated with our United States
deferred tax assets and certain foreign deferred tax assets, and
as such, we have a valuation allowance which totaled $33,347,000
and $24,047,000 as of December 31, 2010 and 2009,
respectively.
Valuation of Goodwill. As of December 31,
2010, we had goodwill of $349.7 million, which represents
almost 21% of our total assets. This goodwill was recorded in
connection with the acquisition of Monitronics on
December 17, 2010. We are required to test goodwill
annually for impairment and record an impairment charge if the
carrying amount exceeds the fair value. We will use a discounted
cash flow approach as well as other methods to determine the
fair value used in our test for impairment of goodwill. The
results of this methodology will depend upon a number of
estimates and assumptions relating to cash flows, discount rates
and other matters. Accordingly, such testing is subject to
various uncertainties, which could cause the fair value of
goodwill to fluctuate from period to period.
We will perform our annual goodwill impairment analysis in the
fourth quarter of 2011. In the event that we are not able to
achieve expected cash flow levels, or other factors indicate
that goodwill is impaired, we may need to write off all or part
of our goodwill, which would adversely impact our operating
results and financial position.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES 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
40
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 and results of operations.
Interest
Rate Risk
As part of the acquisition of Monitronics on December 17,
2010, we assumed variable interest debt obligations with
principal amounts of $838 million. In addition, we incurred
an additional $106 million of variable rate debt in
December 2010 primarily to partially fund the cash consideration
paid for the Monitronics acquisition. Therefore, we now have
exposure to changes in interest rates related to these debt
obligations. Historically, Monitronics used derivative financial
instruments to manage the exposure related to the movement in
interest rates. At the date of Ascent Medias acquisition
of Monitronics, we recorded a derivative financial instrument
liability of approximately $65 million, which represented
the derivatives fair value at such acquisition date. The
derivatives are not designated as hedges and were entered into
with the intention of reducing the risk associated with variable
interest rates on the debt obligations. We do not use derivative
financial instruments for trading purposes.
Tabular
Presentation of Interest Rate Risk
The table below provides information about our debt obligations
and derivative financial instruments that are sensitive to
changes in interest rates. Interest rate swaps are presented at
fair value and by maturity date. Debt amounts represent
principal payments by maturity date.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Maturity
|
|
Swaps(a)
|
|
|
Variable Rate Debt
|
|
|
Total
|
|
|
|
Amounts in thousands
|
|
|
2011
|
|
$
|
|
|
|
|
20,000
|
|
|
|
20,000
|
|
2012
|
|
|
42,935
|
|
|
|
40,000
|
|
|
|
82,935
|
|
2013
|
|
|
|
|
|
|
46,300
|
|
|
|
46,300
|
|
2014
|
|
|
21,810
|
|
|
|
|
|
|
|
21,810
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
838,000
|
|
|
|
838,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
64,745
|
|
|
|
944,300
|
|
|
|
1,009,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
$
|
64,745
|
|
|
$
|
916,733
|
|
|
$
|
981,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The average interest rate paid on the Swaps is 6.48% and the
average interest rate received is the
1-month
LIBOR rate plus 0.9%. |
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Our consolidated financial statements are filed under this Item,
beginning on Page 43. The financial statement schedules
required by
Regulation S-X
are filed under Item 15 of this Annual Report on
Form 10-K.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
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 chairman,
president 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 December 31, 2010 to provide reasonable
assurance that information required to
41
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 control
over financial reporting identified during the three months
ended December 31, 2010 that has materially affected, or is
reasonably likely to materially affect, its internal control
over financial reporting.
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Ascent Medias management is responsible for establishing
and maintaining adequate internal control over the
Companys financial reporting. The Companys internal
control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of the consolidated
financial statements and related disclosures in accordance with
generally accepted accounting principles. The Companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions of the Company; (2) provide
reasonable assurance that transactions are recorded as necessary
to permit preparation of the consolidated financial statements
and related disclosures in accordance with generally accepted
accounting principles; (3) provide reasonable assurance
that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and
directors of the Company; and (4) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
Companys assets that could have a material effect on the
consolidated financial statements and related disclosures.
Because of inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies and procedures may deteriorate.
The Company assessed the design and effectiveness of internal
control over financial reporting as of December 31, 2010.
In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal
Control Integrated Framework .
Based upon our assessment using the criteria contained in COSO,
management has concluded that, as of December 31, 2010,
Ascent Medias internal control over financial reporting is
effectively designed and operating effectively.
The Company acquired Monitronics on December 17, 2010, and
management excluded from its assessment of the effectiveness of
Ascent Media Corporations internal control over financial
reporting as of December 31, 2010, Monitronics
internal control over financial reporting associated with total
assets of $1.38 billion and total revenues of
$12.2 million included in the consolidated financial
statements of Ascent Media Corporation and subsidiaries as of
and for the year ended December 31, 2010.
Ascent Medias independent registered public accountants
audited the consolidated financial statements and related
disclosures in the Annual Report on
Form 10-K
and have issued an attestation report on the effectiveness of
the Companys internal control over financial reporting.
This report appears on page 43 of this Annual Report on
Form 10-K.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
42
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Ascent Media Corporation:
We have audited the internal control over financial reporting of
Ascent Media Corporation as of December 31, 2010, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Management of
the Company is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Managements Report on
Internal Control over Financial Reporting in Item 9A. Our
responsibility is to express an opinion on the Companys
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Ascent Media Corporation maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2010, based on criteria
established in Internal Control Integrated
Framework issued by COSO.
Ascent Media Corporation acquired Monitronics International,
Inc. (Monitronics) on December 17, 2010, and management
excluded from its assessment of the effectiveness of Ascent
Media Corporations internal control over financial
reporting as of December 31, 2010, Monitronics
internal control over financial reporting associated with total
assets of $1.38 billion and total revenues of
$12.2 million included in the consolidated financial
statements of Ascent Media Corporation and subsidiaries as of
and for the year ended December 31, 2010. Our audit of
internal control over financial reporting of Ascent Media
Corporation also excluded an evaluation of the internal control
over financial reporting of Monitronics.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Ascent Media Corporation and
subsidiaries as of December 31, 2010 and 2009, and the
related consolidated statements of operations and comprehensive
loss, cash flows and stockholders equity for each of the
years in the three-year period ended December 31, 2010, and
our report dated March 14, 2011 expressed an unqualified
opinion on those consolidated financial statements.
Los Angeles, California
March 14, 2011
43
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Ascent Media Corporation:
We have audited the accompanying consolidated balance sheets of
Ascent Media Corporation and subsidiaries as of
December 31, 2010 and 2009, and the related consolidated
statements of operations and comprehensive loss, cash flows and
stockholders equity for each of the years in the
three-year period ended December 31, 2010. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Ascent Media Corporation and subsidiaries as of
December 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2010, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Ascent Media Corporations internal control over financial
reporting as of December 31, 2010, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report
dated March 14, 2011 expressed an unqualified opinion on
the effectiveness of the Companys internal control over
financial reporting.
Los Angeles, California
March 14, 2011
44
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
December 31,
2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands, except share amounts
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
149,857
|
|
|
|
292,914
|
|
Restricted cash (note 3)
|
|
|
28,915
|
|
|
|
|
|
Trade receivables, net of allowance of $825 (2010) and
$1,305 (2009)
|
|
|
32,318
|
|
|
|
23,535
|
|
Deferred income tax assets, net (note 13)
|
|
|
9,083
|
|
|
|
562
|
|
Assets of discontinued operations (note 5)
|
|
|
533
|
|
|
|
78,773
|
|
Income taxes receivable
|
|
|
9,018
|
|
|
|
17,793
|
|
Prepaid and other current assets
|
|
|
10,962
|
|
|
|
3,314
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
240,686
|
|
|
|
416,891
|
|
Restricted cash (note 3)
|
|
|
35,000
|
|
|
|
|
|
Investments in marketable securities (note 8)
|
|
|
|
|
|
|
56,197
|
|
Property and equipment, net (note 6)
|
|
|
140,158
|
|
|
|
123,294
|
|
Subscriber accounts, net (note 3)
|
|
|
829,540
|
|
|
|
|
|
Dealer network, net (note 3)
|
|
|
49,980
|
|
|
|
|
|
Goodwill
|
|
|
349,674
|
|
|
|
|
|
Deferred income tax assets, net (note 13)
|
|
|
|
|
|
|
1,098
|
|
Assets of discontinued operations (note 5)
|
|
|
|
|
|
|
83,153
|
|
Other assets, net (note 3)
|
|
|
6,987
|
|
|
|
2,354
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,652,025
|
|
|
|
682,987
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
20,000
|
|
|
|
|
|
Accounts payable
|
|
|
15,327
|
|
|
|
8,054
|
|
Accrued payroll and related liabilities
|
|
|
11,932
|
|
|
|
6,558
|
|
Other accrued liabilities
|
|
|
23,039
|
|
|
|
14,337
|
|
Deferred revenue
|
|
|
14,206
|
|
|
|
7,076
|
|
Purchase holdbacks
|
|
|
10,154
|
|
|
|
|
|
Liabilities related to assets of discontinued operations
(note 5)
|
|
|
2,157
|
|
|
|
34,847
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
96,815
|
|
|
|
70,872
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
896,733
|
|
|
|
|
|
Derivative financial instruments
|
|
|
64,745
|
|
|
|
|
|
Deferred income tax liability, net (note 13)
|
|
|
14,261
|
|
|
|
|
|
Other liabilities
|
|
|
27,497
|
|
|
|
17,328
|
|
Liabilities related to assets of discontinued operations
(note 5)
|
|
|
|
|
|
|
12,191
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,100,051
|
|
|
|
100,391
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (note 17)
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value. Authorized
5,000,000 shares; no shares issued
|
|
|
|
|
|
|
|
|
Series A common stock, $.01 par value. Authorized
45,000,000 shares; issued and outstanding
13,553,251 shares at December 31, 2010
|
|
|
136
|
|
|
|
134
|
|
Series B common stock, $.01 par value. Authorized
5,000,000 shares; issued and outstanding
733,599 shares at December 31, 2010
|
|
|
7
|
|
|
|
7
|
|
Series C common stock, $.01 par value. Authorized
45,000,000 shares; no shares issued
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
1,467,757
|
|
|
|
1,464,925
|
|
Accumulated deficit
|
|
|
(913,113
|
)
|
|
|
(878,853
|
)
|
Accumulated other comprehensive loss
|
|
|
(2,813
|
)
|
|
|
(3,617
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
551,974
|
|
|
|
582,596
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,652,025
|
|
|
|
682,987
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
45
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Years
ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amounts in thousands, except
|
|
|
|
per share amounts
|
|
|
Net revenue
|
|
$
|
139,462
|
|
|
|
154,471
|
|
|
|
260,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
82,401
|
|
|
|
107,940
|
|
|
|
201,947
|
|
Amortization of subscriber accounts and dealer network
|
|
|
4,793
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative, including stock-based and
long-term compensation (note 14)
|
|
|
47,458
|
|
|
|
41,129
|
|
|
|
51,679
|
|
Restructuring charges (note 12)
|
|
|
5,713
|
|
|
|
4,845
|
|
|
|
3,257
|
|
Gain on sale of operating assets, net
|
|
|
(2,720
|
)
|
|
|
(19
|
)
|
|
|
(9,433
|
)
|
Depreciation and amortization
|
|
|
24,862
|
|
|
|
28,340
|
|
|
|
28,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162,507
|
|
|
|
182,235
|
|
|
|
275,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(23,045
|
)
|
|
|
(27,764
|
)
|
|
|
(15,667
|
)
|
Other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
3,639
|
|
|
|
2,660
|
|
|
|
6,579
|
|
Interest expense
|
|
|
(2,953
|
)
|
|
|
(410
|
)
|
|
|
(399
|
)
|
Unrealized loss on derivative financial instruments
|
|
|
(1,682
|
)
|
|
|
|
|
|
|
|
|
Other (expense) income, net
|
|
|
(867
|
)
|
|
|
979
|
|
|
|
1,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,863
|
)
|
|
|
3,229
|
|
|
|
7,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(24,908
|
)
|
|
|
(24,535
|
)
|
|
|
(8,035
|
)
|
Income tax (expense) benefit from continuing operations
(note 13)
|
|
|
(1,487
|
)
|
|
|
(27,690
|
)
|
|
|
1,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(26,395
|
)
|
|
|
(52,225
|
)
|
|
|
(6,913
|
)
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(16,165
|
)
|
|
|
(9,231
|
)
|
|
|
(23,539
|
)
|
Income tax (expense) benefit from discontinued operations
|
|
|
8,300
|
|
|
|
8,559
|
|
|
|
(34,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of income taxes
|
|
|
(7,865
|
)
|
|
|
(672
|
)
|
|
|
(57,706
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(34,260
|
)
|
|
|
(52,897
|
)
|
|
|
(64,619
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss) (note 15):
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
4,026
|
|
|
|
4,693
|
|
|
|
(18,603
|
)
|
Unrealized holding gain (loss), net of income tax
|
|
|
(1,352
|
)
|
|
|
1,352
|
|
|
|
|
|
Pension liability adjustment
|
|
|
(1,870
|
)
|
|
|
(1,709
|
)
|
|
|
(63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss)
|
|
|
804
|
|
|
|
4,336
|
|
|
|
(18,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(33,456
|
)
|
|
|
(48,561
|
)
|
|
|
(83,285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share (note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(1.86
|
)
|
|
|
(3.71
|
)
|
|
|
(0.49
|
)
|
Discontinued operations
|
|
|
(0.55
|
)
|
|
|
(0.05
|
)
|
|
|
(4.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2.41
|
)
|
|
|
(3.76
|
)
|
|
|
(4.60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
46
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Years
ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amounts in thousands
|
|
|
|
(See Note 3)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(34,260
|
)
|
|
|
(52,897
|
)
|
|
|
(64,619
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of income tax
|
|
|
7,865
|
|
|
|
672
|
|
|
|
57,706
|
|
Depreciation and amortization
|
|
|
24,862
|
|
|
|
28,340
|
|
|
|
28,442
|
|
Amortization of subscriber accounts and dealer network
|
|
|
4,793
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
3,148
|
|
|
|
2,443
|
|
|
|
293
|
|
Gain on sale of assets, net
|
|
|
(2,720
|
)
|
|
|
(19
|
)
|
|
|
(9,433
|
)
|
Deferred income tax expense
|
|
|
3,854
|
|
|
|
19,362
|
|
|
|
6,211
|
|
Other non-cash credits, net
|
|
|
(1,101
|
)
|
|
|
(2,646
|
)
|
|
|
(11,246
|
)
|
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
4,115
|
|
|
|
26,735
|
|
|
|
(2,460
|
)
|
Prepaid expenses and other assets
|
|
|
4,705
|
|
|
|
(3,964
|
)
|
|
|
(9,379
|
)
|
Payables and other liabilities
|
|
|
4,657
|
|
|
|
(15,738
|
)
|
|
|
(12,213
|
)
|
Operating activities from discontinued operations, net
|
|
|
30,382
|
|
|
|
33,686
|
|
|
|
37,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
50,300
|
|
|
|
35,974
|
|
|
|
21,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(20,492
|
)
|
|
|
(12,862
|
)
|
|
|
(12,293
|
)
|
Cash paid for acquisitions, net of cash acquired
|
|
|
(388,401
|
)
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(41,757
|
)
|
|
|
(68,126
|
)
|
|
|
|
|
Proceeds from sales of marketable securities
|
|
|
96,685
|
|
|
|
16,309
|
|
|
|
23,545
|
|
Proceeds from the sale of discontinued operations
|
|
|
92,121
|
|
|
|
|
|
|
|
127,831
|
|
Proceeds from the sale of operating assets
|
|
|
6,201
|
|
|
|
310
|
|
|
|
17,592
|
|
Purchases of subscriber accounts
|
|
|
(4,214
|
)
|
|
|
|
|
|
|
|
|
Increase in restricted cash
|
|
|
(13,318
|
)
|
|
|
|
|
|
|
|
|
Other investing activities, net
|
|
|
54
|
|
|
|
|
|
|
|
(93
|
)
|
Investing activities from discontinued operations, net
|
|
|
(17,200
|
)
|
|
|
(20,519
|
)
|
|
|
(35,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(290,321
|
)
|
|
|
(84,888
|
)
|
|
|
121,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
110,300
|
|
|
|
|
|
|
|
|
|
Payments of long-term debt
|
|
|
(9,000
|
)
|
|
|
|
|
|
|
|
|
Payment of deferred financing costs
|
|
|
(2,388
|
)
|
|
|
|
|
|
|
|
|
Stock option exercises
|
|
|
|
|
|
|
2,121
|
|
|
|
|
|
Other
|
|
|
(813
|
)
|
|
|
(752
|
)
|
|
|
(2,487
|
)
|
Financing activities from discontinued operations, net
|
|
|
(1,135
|
)
|
|
|
(1,058
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
96,964
|
|
|
|
311
|
|
|
|
(2,487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(143,057
|
)
|
|
|
(48,603
|
)
|
|
|
139,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
|
|
292,914
|
|
|
|
341,517
|
|
|
|
201,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
149,857
|
|
|
|
292,914
|
|
|
|
341,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Preferred
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Parents
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Stock
|
|
|
Series A
|
|
|
Series B
|
|
|
Series C
|
|
|
Capital
|
|
|
Investment
|
|
|
Deficit
|
|
|
Earnings (Loss)
|
|
|
Equity
|
|
|
|
Amounts in thousands
|
|
|
Balance at December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,437,520
|
|
|
|
(761,337
|
)
|
|
|
10,713
|
|
|
|
686,896
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,619
|
)
|
|
|
|
|
|
|
(64,619
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,666
|
)
|
|
|
(18,666
|
)
|
Contribution of net operating losses from DHC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(553
|
)
|
|
|
23,694
|
|
|
|
|
|
|
|
|
|
|
|
23,141
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
293
|
|
Net cash transfers to parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,735
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,735
|
)
|
Change in capitalization in connection with Ascent Media Spin
Off (note 2)
|
|
|
|
|
|
|
134
|
|
|
|
7
|
|
|
|
|
|
|
|
1,459,338
|
|
|
|
(1,459,479
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
|
|
|
|
134
|
|
|
|
7
|
|
|
|
|
|
|
|
1,459,078
|
|
|
|
|
|
|
|
(825,956
|
)
|
|
|
(7,953
|
)
|
|
|
625,310
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,897
|
)
|
|
|
|
|
|
|
(52,897
|
)
|
Other comprehensive earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,336
|
|
|
|
4,336
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,443
|
|
Stock option exercises (note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,121
|
|
Shares withheld for tax liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(263
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
|
|
|
|
134
|
|
|
|
7
|
|
|
|
|
|
|
|
1,464,925
|
|
|
|
|
|
|
|
(878,853
|
)
|
|
|
(3,617
|
)
|
|
|
582,596
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,260
|
)
|
|
|
|
|
|
|
(34,260
|
)
|
Other comprehensive earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
804
|
|
|
|
804
|
|
Stock-based compensation
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
3,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,148
|
|
Shares withheld for tax liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(314
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(314
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
|
|
|
|
136
|
|
|
|
7
|
|
|
|
|
|
|
|
1,467,757
|
|
|
|
|
|
|
|
(913,113
|
)
|
|
|
(2,813
|
)
|
|
|
551,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
48
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
December 31, 2010, 2009 and 2008
|
|
(1)
|
Basis of
Presentation
|
For periods prior to the September 17, 2008 consummation of
the spin off transaction (Ascent Media Spin Off)
described in note 2, the accompanying consolidated
financial statements of Ascent Media Corporation (Ascent
Media or the Company) represent a combination
of the historical financial information of (1) Ascent Media
Group, LLC (AMG), a wholly-owned subsidiary of
Discovery Holding Company (DHC), (2) Ascent
Media CANS, LLC (dba AccentHealth) (AccentHealth), a
wholly-owned subsidiary of DHC until its sale on
September 4, 2008 (see note 8) and (3) cash
and investment assets of DHC. For the periods following
September 17, 2008, the accompanying consolidated financial
statements of Ascent Media represent Ascent Media and its
consolidated subsidiaries. The Ascent Media Spin Off has been
accounted for at historical cost due to the pro rata nature of
the distribution.
Ascent Media is comprised of two reportable segments: the
Content Services group and the Monitronics business. The Content
Services group includes the Content Distribution business, which
provides a full complement of facilities and services necessary
to optimize, archive, manage, and reformat and repurpose
completed media assets for global distribution via freight,
satellite, fiber and the Internet, as well as the facilities,
technical infrastructure, and operating staff necessary to
assemble programming content for cable and broadcast networks
and to distribute media signals via satellite and terrestrial
networks. Content Services also includes the System Integration
business, which provides program management, engineering design,
equipment procurement, software integration, construction,
installation, maintenance and support services for advanced
technical systems for the media and telecommunications
industries and other customers. The Monitronics business
provides security alarm monitoring and related services to
residential and business subscribers throughout the United
States and parts of Canada. Monitronics monitors signals arising
from burglaries, fires and other events through security systems
installed by independent dealers at subscribers premises.
The Company had a third reportable segment, the Creative
Services group, which was part of the businesses that were sold
to Deluxe on December 31, 2010. See Note 5 for further
information. The Creative Services group provided various
technical and creative services necessary to complete principal
photography into final products, such as feature films,
commercials and television programs.
|
|
(2)
|
Ascent
Media Spin-Off Transaction
|
During the fourth quarter of 2007, the Board of Directors of DHC
approved a resolution to spin off the capital stock of Ascent
Media to the holders of DHC Series A and Series B
common stock. The Ascent Media Spin Off was approved in
connection with a transaction between DHC and Advance/Newhouse
Programming Partnership (Advance/Newhouse) pursuant
to which DHC and Advance/Newhouse combined their respective
indirect interests in Discovery Communications, LLC
(Discovery).
The Ascent Media Spin Off was completed on September 17,
2008 (the Spin Off Date) and was effected as a
distribution by DHC to holders of its Series A and
Series B common stock of shares of Ascent Media
Series A and Series B common stock, respectively.
Holders of DHC common stock on September 17, 2008 received
0.05 of a share of Ascent Media Series A common stock for
each share of DHC Series A common stock owned and 0.05 of a
share of Ascent Media Series B common stock for each share
of DHC Series B common stock owned. In the Ascent Media
Spin Off, 13,401,886 shares of Ascent Media Series A
common stock and 659,732 shares of Ascent Media
Series B common stock were issued. The Ascent Media Spin
Off did not involve the payment of any consideration by the
holders of DHC common stock and is intended to qualify as a
transaction under Sections 368(a) and 355 of the Internal
Revenue Code of 1986, as amended, for United States federal
income tax purposes.
Following the Ascent Media Spin Off, Ascent Media and DHC
operate independently, and neither has any stock ownership,
beneficial or otherwise, in the other. In connection with the
Ascent Media Spin Off, Ascent Media and DHC entered into certain
agreements in order to govern certain of the ongoing
relationships between Ascent Media and DHC after the Ascent
Media Spin Off and to provide mechanisms for an orderly
transition. These agreements include a Reorganization Agreement,
a Services Agreement and a Tax Sharing Agreement.
49
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Under the Tax Sharing Agreement, Ascent Media was responsible
for all taxes attributable to it or one of its subsidiaries,
whether accruing before, on or after the Ascent Media Spin Off
(other than any such taxes for which DHC is responsible under
the Tax Sharing Agreement). Ascent Media also agreed to be
responsible for and to indemnify DHC with respect to
(i) all taxes attributable to DHC or any of its
subsidiaries (other than Discovery) for any tax period that ends
on or before the date of the Ascent Media Spin Off (and for any
tax period that begins on or before and ends after the date of
the Ascent Media Spin Off, for the portion of that period on or
before the date of the Ascent Media Spin Off), other than such
taxes arising as a result of the Ascent Media Spin Off and
related internal restructuring of DHC and (ii) all taxes
arising as a result of the Ascent Media Spin Off or the internal
restructuring of DHC to the extent such taxes are not the
responsibility of DHC under the Tax Sharing Agreement. DHC is
responsible for (i) all United States federal, state, local
and foreign income taxes attributable to DHC or any of its
subsidiaries for any tax period that began after the date of the
Ascent Media Spin Off (and for any tax period that begins on or
before and ends after the date of the Ascent Media Spin Off, for
the portion of that period after the date of the Ascent Media
Spin Off), other than such taxes arising as a result of the
Ascent Media Spin Off and related internal restructuring of DHC,
(ii) all taxes arising as a result of the Ascent Media Spin
Off to the extent such taxes arise as a result of any breach on
or after the date of the Ascent Media Spin Off of any
representation, warranty, covenant or other obligation of DHC or
of a subsidiary or shareholder of DHC made in connection with
the issuance of the tax opinion relating to the Ascent Media
Spin Off or in the Tax Sharing Agreement, and (iii) all
taxes arising as a result of such internal restructuring of DHC
to the extent such taxes arise as a result of any action
undertaken after the date of the Ascent Media Spin Off by DHC or
a subsidiary or shareholder of DHC.
|
|
(3)
|
Summary
of Significant Accounting Policies
|
Cash
and Cash Equivalents
The Company considers investments with original purchased
maturities of three months or less to be cash equivalents.
Restricted
Cash
Restricted cash is cash that is restricted for a specific
purpose and cannot be included in the cash and cash equivalents
account. At December 31, 2010, restricted cash includes
$51,376,000 of cash, including $28 million that is
classified as non-current, that is restricted per the terms of
the debt obligations that were recorded for the Monitronics
acquisition or assumed as part of the Monitronics acquisition.
In addition, $7,000,000 of non-current restricted cash at
December 31, 2010 is held in an escrow account in
connection with the final settlement of the sale of the
Creative/Media business to Deluxe. The remaining amount of
restricted cash at December 31, 2010 represents cash held
in an escrow account for the eventual settlement of the
Companys defined benefit plans which is expected to occur
in 2011.
Trade
Receivables
The Company must make estimates of the collectability of its
trade receivables. For the Content Service group receivables,
the Company analyzes the collectability based on historical bad
debts, customer concentrations, customer credit-worthiness,
current economic trends and changes in its customer payment
terms. The Company records an allowance for doubtful accounts
based upon specifically identified receivables that are believed
to be uncollectible. In addition, the Company also records an
amount based upon a percentage of each aged category of its
trade receivables. These percentages are estimated based upon
the historical experience of bad debts. For the Monitronics
business, the Company performs extensive credit evaluations on
the portfolios of subscriber accounts prior to purchase and
requires no collateral on the accounts that are acquired. The
Company establishes an allowance for doubtful accounts for
estimated losses resulting from the inability of subscribers to
make required payments. Factors such as historical-loss
experience, recoveries and economic conditions are considered in
determining the sufficiency of the allowance to cover potential
losses. The allowance for doubtful accounts as of
December 31, 2010 and 2009 was $825,000 and $1,305,000,
respectively.
50
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
A summary of activity in the allowance for doubtful accounts is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
Beginning
|
|
|
Charged
|
|
|
Write-Offs
|
|
|
End of
|
|
|
|
of Year
|
|
|
to Expense
|
|
|
and Other
|
|
|
Year
|
|
|
|
|
|
|
Amounts in thousands
|
|
|
|
|
|
2010
|
|
$
|
1,305
|
|
|
|
233
|
|
|
|
(713
|
)
|
|
|
825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
1,192
|
|
|
|
246
|
|
|
|
(133
|
)
|
|
|
1,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
1,553
|
|
|
|
1,446
|
|
|
|
(1,807
|
)
|
|
|
1,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentration
of Credit Risk and Significant Customers
For the year ended December 31, 2010, one customer of the
Company generated 15% of total 2010 revenue. This customer also
generated 13% of total revenue for the year ended
December 31, 2009. Two additional customers generated
revenue greater than 10% of total revenue in prior years. One
customer generated 23% and 27% of total revenue for the years
ended December 31, 2009 and 2008, respectively. The other
customer generated 21% and 14% of total revenue for the years
ended December 31, 2009 and 2008, respectively.
Fair
Value of Financial Instruments
Fair values of cash equivalents, current accounts receivable and
current accounts payable approximate the carrying amounts
because of their short-term nature. The recorded debt
obligations of the Company approximate fair value as they bear
interest at variable market interest rates. See Note 11 for
further fair value information.
Investments
All investments in marketable securities held by the Company are
classified as
available-for-sale
(AFS) and are carried at fair value generally based
on quoted market prices. The Company records unrealized changes
in the fair value of AFS securities in the consolidated balance
sheet in accumulated other comprehensive income. When these
investments are sold, the gain or loss realized on the sale is
recorded in other income (expense) in the consolidated
statements of operations.
Property
and Equipment
Property and equipment are carried at cost and depreciated using
the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized over the shorter of
their estimated useful lives or the term of the underlying
lease. Estimated useful lives by class of asset are as follows:
|
|
|
Buildings
|
|
20 years
|
Leasehold improvements
|
|
15 years or lease term, if shorter
|
Machinery and equipment
|
|
5 - 7 years
|
Computer sytems and software (included in Machinery and
Equipment in Note 6)
|
|
3 - 5 years
|
Depreciation expense for property and equipment was $24,862,000,
$28,340,000 and $28,299,000 for the years ended
December 31, 2010, 2009 and 2008, respectively.
Subscriber
Accounts
Subscriber accounts relate to the cost of acquiring monitoring
service contracts from independent dealers. The subscriber
accounts acquired in the Monitronics acquisition were recorded
at fair value under the acquisition method of accounting.
Subscriber accounts purchased subsequent to the acquisition are
initially recorded at cost. All direct external costs associated
with the creation of subscriber accounts are initially
capitalized. Internal costs, including all personnel and related
support costs, incurred solely in connection with subscriber
account acquisitions and transitions are expensed as incurred.
51
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The costs of subscriber accounts are amortized using the
10-year 135%
declining balance method. The amortization method was selected
to provide a matching of amortization expense to individual
subscriber revenues. Amortization of subscriber accounts was
$4,373,000 for the year ended December 31, 2010, which
represents amortization recorded since December 17, 2010,
when the Company acquired Monitronics.
The Company reviews the subscriber accounts for impairment or a
change in amortization period whenever events or changes
indicate that the carrying amount of the asset may not be
recoverable or the life should be shortened. For purposes of
recognition and measurement of an impairment loss, the Company
views subscriber accounts as a single pool because of the
assets homogeneous characteristics, and the pool of
subscriber accounts is the lowest level for which identifiable
cash flows are largely independent of the cash flows of the
other assets and liabilities.
Dealer
Networks
Dealer networks is an intangible asset that relates to the
dealer relationships that were acquired as part of the
Monitronics acquisition. This intangible asset will be amortized
on a straight-line basis over its estimated useful life of five
years. For the year ended December 31, 2010, amortization
expense related to dealer networks was $420,000, which
represents amortization recorded since December 17, 2010,
when the Company acquired Monitronics.
Goodwill
The Company accounts for its goodwill pursuant to the provisions
of the Intangibles Goodwill and Other Topic of the
FASB ASC. In accordance with the FASB ASC, goodwill is not
amortized, but is tested for impairment annually in the fourth
quarter and whenever events or changes in circumstances indicate
that the carrying value may not be recoverable.
Other
Intangible Assets
Amortizable other intangible assets are amortized on a
straight-line basis over their estimated useful lives of four to
five years, and are reviewed for impairment in accordance with
the Property, Plant and Equipment Topic of the FASB ASC. For the
year ended December 31, 2008, the Company recorded $143,000
of amortization expense for other intangible assets.
Long-Lived
Assets
Management reviews the realizability of its long-lived assets
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In
evaluating the value and future benefits of long-term assets,
their carrying value is compared to managements best
estimate of undiscounted future cash flows over the remaining
economic life. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying value of the assets exceeds the estimated fair
value of the assets. For the year ended December 31, 2009,
the Company recorded an asset impairment of $972,000 for one of
its content services facilities, which is included in
depreciation and amortization on the consolidated statement of
operations.
Purchase
Holdbacks
The Company typically withholds payment of a designated
percentage of the purchase price when it purchases subscriber
accounts from dealers. The withheld funds are recorded as a
liability until the guarantee period provided by the dealer has
expired. The holdback is used as a reserve to cover any
terminated subscriber accounts that are not replaced by the
dealer during the guarantee period as well as lost revenue
during such period. At the end of the guarantee period, which is
typically one year from the date of purchase, the dealer is
responsible for any deficit or is paid the balance of the
holdback.
52
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Deferred
Financing Costs
Deferred financing costs are capitalized when the related debt
is issued or when revolving credit lines increase the borrowing
capacity of the Company. Deferred financing costs are amortized
over the term of the related debt on an effective interest
method.
Derivative
Financial Instruments
The Company uses derivative financial instruments to manage
exposure to movement in interest rates. The use of these
financial instruments modifies the exposure of these risks with
the intention of reducing the risk or cost. The Company does not
use derivatives for speculative or trading purposes. The Company
recognizes the fair value of all derivative instruments as
either assets or liabilities at fair value on the consolidated
balance sheets. Fair value is based on market quotes for similar
instruments with the same duration. Changes in the fair value of
derivatives are reported in the consolidated statements of
operations.
Foreign
Currency Translation
The functional currencies of the Companys foreign
subsidiaries are their respective local currencies. Assets and
liabilities of foreign operations are translated into United
States dollars using exchange rates on the balance sheet date,
and revenue and expenses are translated into United States
dollars using average exchange rates for the period. The effects
of the foreign currency translation adjustments are deferred and
are included in stockholders equity as a component of
accumulated other comprehensive earnings (loss).
Revenue
Recognition
Revenue in the Content Services group results primarily from
content distribution contracts, which may include multiple
elements, and is recognized ratably over the term of the
contract as services are provided. Under such contracts, any
services which are not performed ratably are not material to the
contract as a whole. Revenue from system integration services is
recognized on the basis of the estimated percentage of
completion of individual contracts. Percentage of completion is
calculated based upon actual labor and equipment costs incurred
compared to total forecasted costs for the contract. Estimated
losses on long-term service contracts are recognized in the
period in which a loss becomes evident. Prepayments received for
services to be performed at a later date are reflected in the
balance sheets as deferred revenue until such services are
provided.
Revenue from the Monitronics business is recognized as the
related monitoring services are provided. Deferred revenue
primarily includes payments for monitoring services to be
provided in the future.
Income
Taxes
The Company accounts for income taxes under the Income Taxes
Topic of the FASB ASC, which prescribes an asset and liability
approach that requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of
events that have been recognized in the Companys
consolidated financial statements or tax returns. In estimating
future tax consequences, the Company generally considers all
expected future events other than proposed changes in the tax
law or rates. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
The Income Taxes Topic of the FASB ASC specifies the accounting
for uncertainty in income taxes recognized in a companys
financial statements and prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. In instances where the Company has taken or
expects to take a tax position in its tax return and the Company
believes it is more likely than not that such tax position will
be upheld by the relevant taxing authority, the Company records
the benefits of such tax position in its consolidated financial
statements.
53
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Advertising
Costs
Advertising costs generally are expensed as incurred.
Advertising expense aggregated $607,000, $572,000 and $990,000
for the years ended December 31, 2010, 2009 and 2008,
respectively.
Stock-Based
Compensation
The Company accounts for stock-based awards pursuant to the
Stock Compensation Topic of the FASB ASC, which requires
companies to measure the cost of employee services received in
exchange for an award of equity instruments (such as stock
options and restricted stock) based on the grant-date fair value
of the award, and to recognize that cost over the period during
which the employee is required to provide service (usually the
vesting period of the award).
The Company calculated the grant-date fair value for all of its
stock options using the Black-Scholes Model. Ascent Media
calculated the expected term of the awards using the simplified
method included in SEC Staff Accounting
Bulletin No. 107. The volatility used in the
calculation is based on the historical volatility of peer
companies. The Company used the risk-free rate for Treasury
Bonds with a term similar to that of the subject options and has
assumed a dividend rate of zero.
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 income (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 income (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. For the years ended
December 31, 2010, 2009 and 2008, diluted EPS is computed
the same as basic EPS since the Company recorded a loss from
continuing operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Weighted average Series A and Series B shares
|
|
|
14,200,417
|
|
|
|
14,086,075
|
|
|
|
14,061,921
|
|
Indemnifications
Pursuant to the tax sharing agreement with DHC, Ascent Media is
responsible for all taxes attributable to it or any of its
subsidiaries, whether accruing before, on or after the Spin-Off
Date. The Company is responsible for and indemnifies DHC with
respect to (i) certain taxes attributable to DHC or any of
its subsidiaries (other than Discovery Communications,
LLC) and (ii) all taxes arising as a result of the
Ascent Media Spin Off. The indemnification obligations under the
tax sharing agreement are not limited in amount or subject to
any cap. Also, pursuant to the reorganization agreement it
entered into with DHC in connection with the Ascent Media Spin
Off, the Company assumed certain indemnification obligations
designed to make it financially responsible for substantially
all non-tax liabilities that may exist relating to the business
of AMG, whether incurred prior to or after the spin-off, as well
as certain obligations of DHC. As of December 31, 2010, the
Company has accrued $3.2 million related to matters covered
under these agreements. See Note 2 for further information.
The purchase and sale agreement dated November 24, 2010,
relating to the disposition of the Creative/Media business
contains customary indemnification obligations of each party
with respect to breaches of representations, warranties and
covenants and certain other specified matters, including any
amounts that may become due with respect to certain pre-closing
obligations of the Company relating to the Creative/Media
business, which were retained by the Company pursuant to the
agreement. Indemnification obligations with respect to losses
resulting from breach of representation or warranty are
generally subject to a deductible basket of $1 million and
a cap of $10.5 million, subject to specified exceptions.
Pursuant to the agreement, the Company has deposited
$7 million in escrow to satisfy potential indemnification
claims under the agreement. The Company does not expect to incur
any material obligations under such indemnification provisions
and anticipates that the escrow will be released in full on or
about December 31, 2012.
54
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The purchase and sale agreement dated December 2, 2010,
relating to the disposition of the Content Distribution business
contains customary indemnification obligations of each party
with respect to breaches of representations, warranties and
covenants and certain other specified matters, including any
amounts that may become due with respect to certain pre-closing
obligations of the Company relating to the Content Distribution
business, which were retained by the Company pursuant to the
agreement. Indemnification obligations with respect to losses
resulting from breach of representation or warranty are
generally subject to a deductible basket of approximately
$1.6 million and a cap of approximately $19.4 million,
subject to specified exceptions. The Company does not expect to
incur any material obligations under such indemnification
provisions.
Estimates
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles in the
United States of America (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
consolidated financial statements primarily relate to valuation
of goodwill, other intangible assets, long-lived assets,
deferred tax assets, and the amount of the allowance for
doubtful accounts. These estimates are based on
managements best estimates and judgment. Management
evaluates its estimates and assumptions on an ongoing basis
using historical experience and other factors and adjusts them
when facts and circumstances change. As the effects of future
events cannot be determined with any certainty, actual results
could differ from the estimates upon which the carrying values
were based.
Supplemental
Cash Flow Information
For the years ended December 31, 2010, 2009 and 2008, net
cash paid (received) for income taxes was $(18,738,000),
$(4,494,000) and $20,921,000, respectively.
On December 17, 2010, Ascent Media completed the
acquisition of 100% of the outstanding capital stock of
Monitronics International Inc. and subsidiaries
(Monitronics). The cash consideration paid by Ascent
Media was approximately $395,876,000, subject to certain
customary adjustments. The consideration was funded by a
$60 million term loan, a draw of $45 million on a
$115 million revolving credit facility and cash on hand.
See Note 9 for further information on the debt obligations.
The goodwill recorded in the acquisition reflects the value to
Ascent Media for Monitronics recurring revenue and cash
flow streams and its unique business strategy of partnering with
independent dealers to obtain customers. The goodwill balance is
not deductible for tax purposes and it will be included in the
Monitronics business segment.
Under the acquisition method of accounting, the purchase price
has been allocated to Monitronics tangible and identifiable
intangible assets acquired and liabilities assumed based on
preliminary estimates of fair value. The excess of the purchase
price over those fair values was recorded as goodwill. The
allocation of the purchase price in the Monitronics acquisition
to the assets acquired and liabilities assumed from Monitronics
is based on preliminary estimates and assumptions. In addition,
the Company is in the process of assessing the useful life and
appropriate amortization method for the subscriber accounts
intangible asset that was acquired from Monitronics and which is
initially being amortized using the
10-year 135%
declining balance method. These estimates and assumptions are
subject to future adjustments upon completion of the valuation,
including the subscriber accounts, purchase holdbacks, certain
other current and noncurrent liabilities and deferred revenue
accounts, and these valuations could change from the preliminary
estimates, as additional information and analysis is required.
55
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The purchase price of Monitronics has been allocated on a
preliminary basis as follows:
|
|
|
|
|
Amounts in thousands
|
|
|
|
|
Estimated fair value of assets acquired and liabilities assumed:
|
|
|
|
|
Restricted cash
|
|
$
|
43,597
|
|
Accounts receivable
|
|
|
10,694
|
|
Subscriber accounts
|
|
|
829,700
|
|
Property and equipment
|
|
|
20,802
|
|
Dealer network
|
|
|
50,400
|
|
Other current and non-current assets
|
|
|
14,419
|
|
Goodwill
|
|
|
349,674
|
|
Purchase holdbacks
|
|
|
(10,290
|
)
|
Long-term debt
|
|
|
(814,653
|
)
|
Derivative instruments
|
|
|
(64,623
|
)
|
Deferred income tax liability
|
|
|
(4,057
|
)
|
Other current and noncurrent liabilities
|
|
|
(29,787
|
)
|
|
|
|
|
|
Cash consideration paid
|
|
$
|
395,876
|
|
|
|
|
|
|
Ascent Medias results of operations include the operations
of the Montronics business from the date of acquisition. For the
year ended December 31, 2010, net revenue included
$12,176,000 of Monitronics revenue and net operating loss
included $3,632,000 of Monitronics operating income.
Ascent Media incurred transaction costs of approximately
$1.3 million in connection with the acquisition which were
included in selling, general and administrative expense on the
consolidated statement of operations.
The following table includes pro forma information for Ascent
Media which includes the historical operating results of
Monitronics prior to ownership by Ascent Media. This pro forma
information gives effect to certain adjustments, including
increased amortization to reflect the fair value assigned to the
suscriber accounts and dealer network, increased depreciation to
reflect the fair value assigned to property and equipment and
increased interest expense, including amortization of the
discount recorded to reflect the fair value of the long-term
debt. The pro-forma results assume that the acquisition had
occurred on January 1, 2009 for all periods presented. They
are not necessarily indicative of the results of operations that
would have occurred if the acquisition had been made at the
beginning of the periods presented or that may be obtained in
the future.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Pro-forma revenue
|
|
$
|
411,648
|
|
|
|
408,208
|
|
Pro-forma net loss(a)
|
|
$
|
(73,569
|
)
|
|
|
(81,634
|
)
|
Pro-forma basic and diluted loss per share
|
|
$
|
(5.18
|
)
|
|
|
(5.80
|
)
|
|
|
|
(a) |
|
The 2010 amount includes the following non-recurring amounts:
restructuring charges of $5.7 million, gain on sale of
operating assets of $2.7 million, transaction costs related
to the Monitronics acquisition of $14.9 million and a
$1.2 million charge for a lump-sum payment related to the
death benefit of the Companys chief operating officer
under the terms of his employment contract. The 2009 amount
includes the following non-recurring amounts: restructuring
charges of $4.8 million and a credit for the reduction in
the fair value of a participating residual interest liability of
$4.1 million. |
56
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
On December 2, 2010, Ascent Media entered into a definitive
agreement with Encompass Digital Media, Inc.
(Encompass), pursuant to which it agreed to sell
100% of the Content Distribution business to Encompass. The sale
of the Content Distribution business was completed on
February 28, 2011, for a sales price of $104 million
in cash, subject to adjustment based on final working capital
adjustments as of the closing date and other balance sheet
items, plus the assumption of certain liabilities and
obligations relating to the Content Distribution business.
Ascent Media expects to record an estimated pre-tax gain on the
sale of $65 million, subject to customary post-closing
adjustments. The Content Distribution business has not been
treated as a discontinued operation in the consolidated
financial statements for any periods presented because
shareholder approval of the sale did not occur until
February 24, 2011.
The consolidated financial statements and accompanying notes of
Ascent Media have been prepared reflecting the following
businesses as discontinued operations in accordance with the
Presentation of Financial Statements Topic of the FASB ASC.
On December 31, 2010, pursuant to a definitive agreement
with Deluxe Entertainment Services Group Inc.
(Deluxe) dated November 24, 2010, Ascent Media
completed the sale of 100% of its creative services business
unit and 100% of its media services business unit (which is
refered to collectively as Creative/Media), for an
aggregate purchase price of $69 million in cash, subject to
adjustments based on net working capital on the closing date and
other balance sheet items, plus the assumption of certain
capital leases. Historically, the creative services business
unit was its own reportable segment and the media services
business unit was included in the Content Services group
reportable segment. Ascent Media recorded a pre-tax loss on the
sale of $27,110,000 and $7,587,000 of related income tax benefit
for the year ended December 31, 2010. Ascent Media has
accounted for the disposition of the Creative/Media business as
discontinued operations in the consolidated financial statements
for all periods presented.
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 for the year ended December 31, 2010.
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 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 $3,423,000 of related income tax expense for
the year ended December 31, 2010. The gain and related
income tax expense are included in loss from discontinued
operations in the accompanying condensed consolidated statement
of operations.
In September 2008, Ascent Media completed the sale of 100% of
its ownership interests in AccentHealth, which was part of the
Content Services group, to an unaffiliated third party for net
cash proceeds of $118,641,000. Ascent Media recognized a pre-tax
gain on the sale of $63,929,000 and $35,046,000 of income tax
expense resulting from the gain for the year ended
December 31, 2008. Such gain and related income tax expense
are included in loss from discontinued operations in the
accompanying consolidated statement of operations.
In September 2008, Ascent Media sold 100% of the outstanding
membership interests in Ascent Media Systems &
Technology Services, LLC, which was part of the Content Services
group, located in Palm Bay, Florida (Palm Bay), to
an unaffiliated third party for net cash proceeds of $7,040,000.
Ascent Media recognized a pre-tax gain on the sale of $3,370,000
and recorded income tax expense resulting from the gain of
$2,463,000 for the year ended December 31 ,2008. Such gain and
related income tax expense are included in loss from
discontinued operations in the accompanying consolidated
statement of operations.
57
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
In September 2008, Ascent Media sold 100% of its ownership
interest in Visiontext Limited (Visiontext), which
was part of the Creative Services group, to an unaffiliated
third party for net cash proceeds of $2,150,000. Ascent Media
recognized a pre-tax gain on the sale of $1,777,000 and recorded
income tax expense resulting from the gain of $498,000 for the
year ended December 31, 2008. Such gain and related income
tax expense are included in loss from discontinued operations in
the accompanying 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amounts in thousands
|
|
|
Revenue
|
|
$
|
299,010
|
|
|
|
317,577
|
|
|
|
370,781
|
|
Loss before income taxes(a)
|
|
$
|
(16,165
|
)
|
|
|
(9,231
|
)
|
|
|
(23,539
|
)
|
|
|
|
(a) |
|
The 2010 amount includes the loss on the sale of the
Creative/Media businesses of $(27,110,000), a $25,498,000 gain
on the sale of the Chiswick Park facility and a charge of
$(1,838,000) related to the shutdown of the GMX business. The
2008 amount includes a $63,929,000 gain on the sale of
AccentHealth, a $3,370,000 gain on the sale of Palm Bay and a
$1,777,000 gain on the sale of Visiontext. |
|
|
(6)
|
Property
and Equipment
|
Property and equipment at December 31, 2010 and 2009
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
34,901
|
|
|
|
37,055
|
|
Buildings
|
|
|
103,454
|
|
|
|
103,246
|
|
Machinery and equipment
|
|
|
32,943
|
|
|
|
11,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,298
|
|
|
|
152,061
|
|
Accumulated depreciation
|
|
|
(31,140
|
)
|
|
|
(28,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
140,158
|
|
|
|
123,294
|
|
|
|
|
|
|
|
|
|
|
The following table provides the activity and balances of
goodwill in the Monitronics business group (amounts in
thousands):
|
|
|
|
|
|
|
Goodwill
|
|
|
Balance at December 31, 2008
|
|
$
|
|
|
Balance at December 31, 2009
|
|
|
|
|
Acquisition of Monitronics
|
|
|
349,674
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
349,674
|
|
|
|
|
|
|
58
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
(8)
|
Investments
in Marketable Securities
|
In 2009 Ascent Media began purchasing marketable securities
consisting primarily of diversified corporate bond funds for
cash. In December 2010, all of these investments were sold by
the Company. The following table presents the activity of these
investments, which were classified as
available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Beginning Balance
|
|
$
|
56,197
|
|
|
|
|
|
Purchases
|
|
|
41,757
|
|
|
|
68,126
|
|
Sales (at cost)(a)
|
|
|
(95,624
|
)
|
|
|
(14,259
|
)
|
Unrealized gain (loss)
|
|
|
(2,330
|
)
|
|
|
2,330
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
|
|
|
|
56,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
For the year ended December 31, 2010, total proceeds from
the sales were $96,685,000 which included a pre-tax gain of
$1,061,000. For the year ended December 31, 2009, total
proceeds from the sales were $16,309,000 which included a
pre-tax gain of $2,050,000. |
The following table presents the net after-tax unrealized and
realized gains on the investment in marketable securities that
was recorded into accumulated other comprehensive income on the
consolidated balance sheet and in other comprehensive income on
the consolidated statements of operations and comprehensive
earnings (loss):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
1,352
|
|
|
|
|
|
Gains (losses), net of tax(a)
|
|
|
(291
|
)
|
|
|
2,542
|
|
Losses (gains) recognized into earnings, net of tax(b)
|
|
|
(1,061
|
)
|
|
|
(1,190
|
)
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
|
|
|
|
1,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The 2010 amount is net of tax of $0 and the 2009 amount is net
of tax of $1,838,000. |
|
(b) |
|
The 2010 amount is net of tax of $0 and the 2009 amount is net
of tax of $860,000. |
59
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Long-term debt, which is all issued by Monitronics and its
subsidiaries, consisted of the following at December 31,
2010:
|
|
|
|
|
|
|
Amounts in
|
|
|
|
thousands
|
|
|
Class A-1a
Term Notes (matures July 2027), LIBOR plus 1.8%(a)
|
|
$
|
338,478
|
|
Class A-1b
Term Notes (matures July 2027), LIBOR plus 1.7%(a)
|
|
|
96,551
|
|
Class A-2
Term Notes (matures July 2037), LIBOR plus 2.2%(a)
|
|
|
97,338
|
|
Class A-3
Variable Funding Note (matures July 2037), LIBOR plus 1.8%(a)
|
|
|
251,032
|
|
Class A-4
Variable Funding Note (matures July 2037), LIBOR plus 1.8%(a)
|
|
|
27,034
|
|
Term Loan (matures June 30, 2012)(b)
|
|
|
60,000
|
|
$115 million revolving credit facility (matures
December 17, 2013), LIBOR plus 4%
|
|
|
46,300
|
|
|
|
|
|
|
|
|
|
916,733
|
|
Less current portion of long term debt
|
|
|
(20,000
|
)
|
|
|
|
|
|
Long-term debt
|
|
$
|
896,733
|
|
|
|
|
|
|
|
|
|
(a) |
|
The interest rate on the Term Notes and VFNs include 1.0% of
other fees. |
|
(b) |
|
The interest rate on the Term Loan is LIBOR plus 3.50% until
July 1, 2011, then LIBOR plus 4.00% until January 1,
2012, then LIBOR plus 4.50% thereafter. The term loan matures on
June 30, 2012, and requires principal installments of
$20,000,000 on December 31, 2011 and March 31, 2012.
Ascent Media has guaranteed $30 million of this Term Loan. |
Securitization
Debt
Monitronics completed a financing transaction of the type
commonly referred to as a whole business securitization in
August of 2007. Under the securitization, Funding, a newly
formed, wholly owned subsidiary of Monitronics, issued the
following debt instruments, which are included in the table of
long-term debt above:
|
|
|
|
|
|
|
Principal
|
|
|
|
Amounts in
|
|
|
|
thousands
|
|
|
Class A-1a
Term Notes
|
|
$
|
350,000
|
|
Class A-1b
Term Notes
|
|
|
100,000
|
|
Class A-2
Term Notes
|
|
|
100,000
|
|
Class A-3
Variable Funding Note
|
|
|
260,000
|
|
Class A-4
Variable Funding Note
|
|
|
28,000
|
|
Principal payments under the Term Notes and Variable Funding
Notes (VFNs) are payable monthly beginning August 2012 in
accordance with the priority of payments established in the
securitization. Available cash remaining after paying
higher-priority items is allocated ratably between the
Class A Term Notes and the VFNs. Amounts allocated to the
Class A Term Notes are paid first to the
Class A-1
Term Notes until their outstanding amount has been paid in full,
and second to the
Class A-2
Term Notes. Amounts allocated to the VFNs are paid ratably
between the
Class A-3
VFN and the
Class A-4
VFN.
Monitronics is charged a commitment fee of 0.2% on the unused
portion of the VFNs. Interest incurred on borrowings is payable
monthly. The securitization debt has an expected repayment date
of July 2012. If the securitization debt is still outstanding at
that time, contingent additional interest payments will accrue
on the $550 million notional amount of the Swaps and
$288 million of VFNs at a rate of 5% per annum (including
0.5% of other fees), in addition to the interest rates currently
applicable.
60
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
As part of the transaction, Monitronics transferred
substantially all of its then-existing subscriber assets, dealer
alarm monitoring purchase agreements, and property and equipment
related to its backup monitoring center, to Funding. Monitronics
also transferred substantially all of its other property and
equipment, dealer service agreements, contract monitoring
agreements, and employees to Security, which also was a newly
formed, wholly owned subsidiary of Monitronics. Following such
transfers, Security assumed responsibility for the monitoring,
customer service, billing, and collection functions of Funding
and Monitronics. Funding, Security and Monitronics are distinct
legal entities. Fundings assets are available only for
payment of the debt and satisfaction of the other obligations
arising under the securitization transactions and are not
available to pay Monitronics other obligations or the
claims of its other creditors. Securitys assets are
available only for the satisfaction of the other obligations
arising under the securitization transactions and are not
available to pay Monitronics other obligations or the
claims of its other creditors; provided that, subject to
compliance with applicable covenants, Security may distribute
any excess cash to Monitronics greater than $1 million. In
total, 93% of the subscriber account contracts, all of the
wholesale monitoring contracts and $19.6 million of the
property and equipment are unavailable to pay Monitronics
other obligations or the claims of its other creditors.
On the closing date of the securitization, Funding also entered
into several interest rate swaps with similar terms in an
aggregate notional amount of $550.0 million in order to
reduce the financial risk related to changes in interest rates
associated with the floating rate term notes. The interest rate
swaps have an expected repayment date of August 2012 to match
the expected refinancing of the securitization debt. The Company
entered into three interest rate caps with staggered durations
with notional amounts of $100.0 million effective
August 15, 2008 through August 15, 2009,
$260.0 million effective August 15, 2009 through
August 15, 2010, and $240.0 million effective
August 15, 2010 through May 15, 2014 and an interest
rate floor with a notional amount of $260.0 million
effective from October 15, 2007 through May 15, 2014,
to reduce the financial risk related to changes in interest
rates associated with the floating rate variable funding notes.
None of these derivative financial instruments are designated as
hedges but, in effect, they act as hedges against the variable
interest rate risk of the debt obligations. The
Class A-1a
Term Notes were effectively converted from floating to fixed
with a derivative instrument at a rate of 7.5%. The
Class A-1b
Term Notes were effectively converted from floating to fixed
with a derivative financial instrument at a rate of 7.0%. The
Class A-2
Term Notes were effectively converted from floating to fixed
with a derivative instrument at a rate of 7.6%. See Note 10
for further information regarding the derivatives.
As of December 31, 2010, Monitronics has $0 of the
Class A-3
VFN and $28 million of the
Class A-4
VFN in restricted cash, which continues to be available to
Monitronics. No amounts are available to be drawn from the VFNs.
The securitization debt has certain financial tests, which must
be met on a monthly basis. These tests include maximum attrition
rates, interest coverage, and minimum average recurring monthly
revenue. Indebtedness under the securitization is secured by all
of the assets of Funding. As of December 31, 2010, the
Company was in compliance with all required financial tests.
Credit
Facility
On December 17, 2010, in order to partially fund the cash
consideration paid for the Monitronics acquisition and provide
for growth capital, Monitronics entered into a Credit Agreement
with the lenders party thereto and Bank of America, N.A., as
administrative agent (the Credit Facility). The
Credit Facility provides a $60,000,000 term loan and an
$115,000,000 revolving credit facility, which are included in
the table of long-term debt above. There is a LIBOR floor of
1.50%, and a commitment fee of 0.50% on unused portions of the
revolving credit facility. Upon any refinancing of the notes
issued by Funding, Monitronics must prepay the term loan. At any
time after the occurrence of an event of default under the
Credit Facility, the lenders may, among other options, declare
any amounts outstanding under the Credit Facility immediately
due and payable and terminate any commitment to make further
loans under the Credit Facility. In addition, failure to comply
with restrictions contained in our existing securitization
indebtedness could lead to an event of default. The obligations
under the Credit Facility are secured by a security interest on
substantially all of the assets of Monitronics and its wholly
owned subsidiary,
61
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Monitronics Canada, Inc., as well as a pledge of the stock of
Monitronics. Ascent Media has guaranteed the term loan up to
$30,000,000.
The terms of the Credit Facility provide for certain financial
tests and covenants which include maximum leverage ratios and
minimum fixed charge coverage ratios. As of December 31,
2010, Monitronics was in compliance with all required financial
tests.
Scheduled maturities of long-term debt at December 31,
2010, utilizing the required payment schedule of the
securitization debt, are as follows for the fiscal years below
(in thousands):
|
|
|
|
|
2011
|
|
$
|
20,000
|
|
2012
|
|
|
40,000
|
|
2013
|
|
|
46,300
|
|
2014
|
|
|
|
|
2015
|
|
|
|
|
Thereafter
|
|
|
838,000
|
|
|
|
|
|
|
Total principal payments
|
|
|
944,300
|
|
Less: discount
|
|
|
(27,567
|
)
|
|
|
|
|
|
Total debt on balance sheet
|
|
$
|
916,733
|
|
|
|
|
|
|
As part of the Monitronics acquisition, the Company acquired
derivative financial instruments which are used by Monitronics
to manage its interest rate risk. The valuation of these
instruments is determined using widely accepted valuation
techniques, including discounted cash flow analysis on the
expected cash flows of each derivative. This analysis reflects
the contractual terms of the derivatives, including the period
to maturity, and uses observable market-based inputs, including
interest rate curves and implied volatilities. The fair values
of interest rate caps are determined using the market standard
methodology of discounting the future expected cash receipts
that would occur if variable interest rates rise above the
strike rate of the caps. The variable interest rates used in the
calculation of projected receipts on the cap are based on an
expectation of future interest rates derived from observable
market interest rate curves and volatilities. The Company
incorporates credit valuation adjustments to appropriately
reflect the respective counterpartys nonperformance risk
in the fair value measurements.
At December 31, 2010, derivative financial instruments
include one interest rate cap with an aggregate fair value of
$447,000, that constitutes an asset of the Company, an interest
rate floor with a fair value of $21.8 million that
constitutes a liability of the Company, and three interest rate
swaps (Swaps) with an aggregate fair value of $42.9 million
that constitute liabilities of the Company. The interest rate
caps are included in Other assets on the consolidated balance
sheet, while the interest rate floor and Swaps are included in
Derivative financial instruments on the consolidated balance
sheet. The interest rate caps, floor and Swaps have not been
designated as hedges. The net change in fair value of these
derivatives for the year ended December 31, 2010 was a loss
of $1,682,000 which is included in unrealized loss on derivative
financial instruments in the consolidated statements of
operations. Approximately $178,000 of the loss recorded was due
to the periodic change in fair value of the derivatives and the
remaining amount of $1,504,000 related to interest accruals on
the derivative instruments.
For purposes of valuation of the Swaps, the Company has
considered that certain provisions of the Term Notes and VFNs
provide for significant adverse changes to interest rates and
uses of cash flows if this debt is not repaid by July 2012. In
addition, the Swaps can be terminated with no additional costs
to the Company subject to compliance with certain make-whole
obligations in accordance with the terms thereof in connection
with any termination of the Swaps before April 2012. If the Term
Notes and the VFNs are not repaid in full by July 2012, the
Company would incur additional interest and other costs and be
restricted from making subscriber account purchases at Funding,
until the Term Notes and VFNs were repaid in full. Management
believes it is highly likely the Company will be
62
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
able to refinance
and/or repay
the Term Notes and VFNs in full by July 2012, and the valuation
considers adjustments for termination dates before and after
July 2012 on a probability weighted basis. The valuation of the
Swaps is based principally on a July 2012 maturity of the Term
Notes less a credit valuation adjustment.
All of the Companys debt obligations have variable
interest rates. The objective of the Swaps was to reduce the
risk associated with these variable interest rates. In effect,
the Swaps convert variable interest rates into fixed interest
rates on $550 million of borrowings. It is the
Companys policy to offset fair value amounts recognized
for derivative instruments executed with the same counterparty
under a master netting agreement. As of December 31, 2010,
no such amounts were offset.
The Companys Swaps are as follows:
|
|
|
|
|
|
|
Notional
|
|
Rate Paid
|
|
|
Rate Received
|
|
$350,000,000
|
|
|
6.56
|
%
|
|
1 mo. USD-LIBOR-BBA plus 0.85%
|
100,000,000
|
|
|
6.06
|
%
|
|
1 mo. USD-LIBOR-BBA plus 0.75%
|
100,000,000
|
|
|
6.64
|
%
|
|
1 mo. USD-LIBOR-BBA plus 1.25%
|
Monitronics has a single counterparty that it faces for its
derivative contracts.
|
|
(11)
|
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.
|
The following summarizes the fair value level of assets and
liabilities that are measured on a recurring basis at December
31 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds(a)
|
|
$
|
272,143
|
|
|
|
|
|
|
|
|
|
|
|
272,143
|
|
Investments in marketable securities(b)
|
|
|
56,197
|
|
|
|
|
|
|
|
|
|
|
|
56,197
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
(134
|
)
|
|
|
(134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
328,340
|
|
|
|
|
|
|
|
(134
|
)
|
|
|
328,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments assets
|
|
$
|
|
|
|
|
447
|
|
|
|
|
|
|
|
447
|
|
Derivative financial instruments liabilities
|
|
|
|
|
|
|
(21,810
|
)
|
|
|
(42,935
|
)
|
|
|
(64,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
|
(21,363
|
|
|
|
(42,935
|
)
|
|
|
(64,298
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Included in cash and cash equivalents on the consolidated
balance sheet. |
|
(b) |
|
Investments consist entirely of diversified corporate bond funds
and are all classified as
available-for-sale
securities. |
The Company has determined that the majority of the inputs used
to value its interest rate caps and floor derivatives fall
within Level 2 of the fair value hierarchy. The Company has
determined that the majority of the
63
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
inputs used to value its Swaps fall within Level 3 of the
fair value hierarchy, including managements estimates of
the refinancing date of the Term Notes, which affects the
termination date of the Swaps as the notional amount of the
Swaps is directly linked to the outstanding principal balance of
the Term Notes. The credit valuation adjustments associated with
its derivatives utilize also Level 3 inputs, such as
estimates of current credit spreads to evaluate the likelihood
of default by its counterparties. For counterparties with
publicly available credit information, the credit spreads over
LIBOR used in the calculations represent implied credit default
swap spreads obtained from a third-party credit data provider.
However, as of December 31, 2010, the Company has assessed
the significance of the impact of the credit valuation
adjustments on the overall valuation of its derivative positions
and has determined that the credit valuation adjustments are not
significant to the overall valuation of its interest rate caps
and floor derivatives, but are significant for the Swaps. As a
result, the Company has determined that its derivative
valuations on its interest rate caps and floor are classified in
Level 2 of the fair value hierarchy and its derivative
valuation on its Swaps are classified in Level 3 of the
fair-value hierarchy.
The Level 3 other liabilities relate to a participating
residual interest that was accounted for as contingent
consideration related to a business acquisition which was
computed using a discounted cash flow model which used estimated
discount rates.
The following table presents the activity in the Level 3
balances:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Derivative financial instruments liabilities
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
|
|
|
|
|
|
Derivatives acquired in the acquisition of Monitronics
|
|
|
(43,116
|
)
|
|
|
|
|
Unrealized loss
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
42,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
(134
|
)
|
|
|
(4,226
|
)
|
Contingent consideration
|
|
|
|
|
|
|
|
|
Settlements paid in cash
|
|
|
|
|
|
|
|
|
Amounts credited to income(a)
|
|
|
134
|
|
|
|
4,092
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
|
|
|
|
(134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amount consisted of a participating residual interest change in
fair value. This amount was recorded in SG&A on the
consolidated statements of operations. |
For the year ended December 31, 2009, the Company recorded
an asset impairment for one of its content services facilities.
The fair value of the asset was $7,195,000 which resulted in an
impairment charge of $972,000. The fair value was a
non-recurring, Level 3 valuation and was measured using a
discounted cash flow model which uses internal estimates of
future revenues and costs and an estimated discount rate.
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 maturities.
|
|
(12)
|
Restructuring
Charges
|
During 2010, 2009 and 2008, the Company completed certain
restructuring activities and recorded charges of $5,713,000,
$4,845,000 and $3,257,000, respectively.
64
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
In the fourth quarter of 2010, the Company began a new
restructuring plan (the 2010 Restructuring Plan) in
conjunction with the expected sales of the Creative/Media and
Content Distribution businesses. The 2010 Restructuring Plan was
implemented to meet the changing strategic needs of the Company
as it sold most of its media and entertainment assets and
acquired Monitronics, an alarm monitoring business. Such changes
include retention costs for employees to remain employed until
the sales are complete, severance costs for certain employees
that were not retained by the buyers and facility costs that
were no longer being used by the Company due to the
Creative/Media and Content Distribution sales.
Before the Company implemented the 2010 Restructuring Plan, it
had just completed a restructuring plan that was implemented in
2008 and concluded in September 2010 (the 2008
Restructuring Plan). The 2008 Restructuring Plan was
implemented to align the Companys organization with its
strategic goals and how it operates, manages and sells its
services. The 2008 Restructuring Plan charges included severance
costs from labor cost mitigation measures undertaken across all
of the businesses and facility costs in conjunction with the
consolidation of certain facilities in the United Kingdom and
the closing of the Companys Mexico operations.
The following table provides the activity and balances of the
2010 Restructuring Plan and 2008 Restructuring Plan. At
December 31, 2010, $5,278,000 of the combined ending
liability balance is included in other accrued liabilities with
the remaining amount recorded in other long-term liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Additions
|
|
|
Deductions(a)
|
|
|
Balance
|
|
|
|
Amounts in thousands
|
|
|
2010 Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and retention
|
|
$
|
|
|
|
|
4,434
|
|
|
|
(638
|
)
|
|
|
3,796
|
(b)
|
2008 Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
1,310
|
|
|
|
2,157
|
|
|
|
(2,486
|
)
|
|
|
981
|
|
Excess facility costs
|
|
|
(92
|
)
|
|
|
1,100
|
|
|
|
(948
|
)
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
$
|
1,218
|
|
|
|
3,257
|
|
|
|
(3,434
|
)
|
|
|
1,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
981
|
|
|
|
1,919
|
|
|
|
(2,364
|
)
|
|
|
536
|
|
Excess facility costs
|
|
|
60
|
|
|
|
2,926
|
|
|
|
(20
|
)
|
|
|
2,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
$
|
1,041
|
|
|
|
4,845
|
|
|
|
(2,384
|
)
|
|
|
3,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
536
|
|
|
|
1,119
|
|
|
|
(1,646
|
)
|
|
|
9
|
(b)
|
Excess facility costs
|
|
|
2,966
|
|
|
|
160
|
|
|
|
(1,631
|
)
|
|
|
1,495
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
$
|
3,502
|
|
|
|
1,279
|
|
|
|
(3,277
|
)
|
|
|
1,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Primarily represents cash payments. |
|
(b) |
|
Substantially all of this amount is expected to be paid in 2011. |
65
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The Companys income tax benefit (expense) from continuing
operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amounts in thousands
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(2,230
|
)
|
|
|
10,132
|
|
|
|
1,459
|
|
State
|
|
|
(200
|
)
|
|
|
(257
|
)
|
|
|
122
|
|
Foreign
|
|
|
2,136
|
|
|
|
(126
|
)
|
|
|
185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(294
|
)
|
|
|
9,749
|
|
|
|
1,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(233
|
)
|
|
|
(24,668
|
)
|
|
|
(1,064
|
)
|
State
|
|
|
0
|
|
|
|
(13,058
|
)
|
|
|
(455
|
)
|
Foreign
|
|
|
(960
|
)
|
|
|
287
|
|
|
|
875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,193
|
)
|
|
|
(37,439
|
)
|
|
|
(644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax (expense) benefit
|
|
$
|
(1,487
|
)
|
|
|
(27,690
|
)
|
|
|
1,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of pretax loss from continuing operations are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amounts in thousands
|
|
|
Domestic
|
|
$
|
(17,162
|
)
|
|
|
(9,404
|
)
|
|
|
12,076
|
|
Foreign
|
|
|
(7,746
|
)
|
|
|
(15,131
|
)
|
|
|
(20,111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(24,908
|
)
|
|
|
(24,535
|
)
|
|
|
(8,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit differs from the amounts computed by applying
the United States federal income tax rate of 35% as a result of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amounts in thousands
|
|
|
Computed expected tax benefit
|
|
$
|
8,718
|
|
|
|
8,587
|
|
|
|
2,812
|
|
State and local income taxes, net of federal income taxes
|
|
|
2,270
|
|
|
|
2,170
|
|
|
|
653
|
|
Change in valuation allowance affecting tax expense
|
|
|
(7,487
|
)
|
|
|
(32,507
|
)
|
|
|
(949
|
)
|
U.S. taxes on foreign income
|
|
|
|
|
|
|
|
|
|
|
(1,512
|
)
|
Non-deductible expenses
|
|
|
(386
|
)
|
|
|
(1,860
|
)
|
|
|
(922
|
)
|
Dividend paid related to Chiswick park sale
|
|
|
(4,662
|
)
|
|
|
|
|
|
|
|
|
Foreign tax credit
|
|
|
|
|
|
|
|
|
|
|
2,501
|
|
Other, net
|
|
|
60
|
|
|
|
(4,080
|
)
|
|
|
(1,461
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit
|
|
$
|
(1,487
|
)
|
|
|
(27,690
|
)
|
|
|
1,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Components of deferred tax assets and (liabilities) as of
December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Accounts receivable reserves
|
|
$
|
802
|
|
|
$
|
1,338
|
|
Accrued liabilities
|
|
|
11,988
|
|
|
|
8,577
|
|
Other
|
|
|
|
|
|
|
2,550
|
|
|
|
|
|
|
|
|
|
|
Total current deferred tax assets
|
|
|
12,790
|
|
|
|
12,465
|
|
Valuation allowance
|
|
|
(3,707
|
)
|
|
|
(10,447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
9,083
|
|
|
|
2,018
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
|
37,803
|
|
|
|
2,427
|
|
Intangible assets
|
|
|
28,727
|
|
|
|
13,699
|
|
Derivative financial instruments
|
|
|
22,525
|
|
|
|
|
|
Deferred financing costs
|
|
|
9,527
|
|
|
|
|
|
Other
|
|
|
3,688
|
|
|
|
2,631
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent deferred tax assets
|
|
|
102,270
|
|
|
|
18,757
|
|
Valuation allowance
|
|
|
(29,640
|
)
|
|
|
(13,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
72,630
|
|
|
|
5,157
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net
|
|
|
81,713
|
|
|
|
7,175
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
(325
|
)
|
Noncurrent liabilities:
|
|
|
|
|
|
|
|
|
Subscriber accounts
|
|
|
(72,381
|
)
|
|
|
|
|
Long-term debt
|
|
|
(9,657
|
)
|
|
|
|
|
Property, plant and equipment
|
|
|
(3,976
|
)
|
|
|
(2,527
|
)
|
Marketable securities
|
|
|
|
|
|
|
(978
|
)
|
Other
|
|
|
(877
|
)
|
|
|
(1,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(86,891
|
)
|
|
|
(5,190
|
)
|
Total deferred tax liabilities
|
|
|
(86,891
|
)
|
|
|
(5,515
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
$
|
(5,178
|
)
|
|
$
|
1,660
|
|
|
|
|
|
|
|
|
|
|
The Companys deferred tax assets and liabilities are
reported in the accompanying consolidated balance sheets as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Current deferred tax assets, net
|
|
$
|
9,083
|
|
|
|
562
|
|
Long-term deferred tax assets, net
|
|
|
|
|
|
|
1,098
|
|
Long-term deferred tax liabilities, net
|
|
|
(14,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
$
|
(5,178
|
)
|
|
|
1,660
|
|
|
|
|
|
|
|
|
|
|
67
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
At December 31, 2010, the Company has $99,192,000,
$31,462,000 and $63,163,000 in net operating loss carryforwards
for federal, California and other state tax purposes,
respectively. The net operating losses expire at various times
from 2023 through 2030. Approximately $80 million of the
Companys net operating losses are subject to IRC
Section 382 limitations. The Company has $1,064,000 of
federal income tax credits, of which $638,000 will expire in
2013. The Company also has $1,156,000 of state credits that will
expire through year 2026.
During the first quarter of 2008, Liberty Media Corporation
(Liberty) reached an agreement with the IRS with
respect to certain tax items that related to periods prior to
DHCs spin off from Liberty in July 2005 (the 2005
spin off). The IRS agreement resulted in a reduction of
$5,370,000 of a federal net operating loss (NOL)
that Liberty allocated to the Company (which was then a
subsidiary of DHC) at the time of the 2005 spin off. The
reduction in the Companys federal NOLs resulted in a first
quarter 2008 tax expense of $1,880,000 (35% of $5,370,000).
During the fourth quarter of 2008, Liberty closed its IRS audit
for tax years through 2005, with no further adjustments
affecting the Company. At December 31, 2008, Ascent Media
had fully utilized its federal net operating losses against its
continuing and discontinued operations. In the fourth quarter of
2010, Liberty amended certain federal income tax returns which
resulted in a reduction of $7,138,000 to the amount of federal
NOL allocated to the Company. This resulted in a tax expense of
$2,500,000 in the fourth quarter of 2010.
During 2009, the Company performed an assessment of positive and
negative evidence regarding the realization of its net deferred
tax assets. Based on this assessment, management determined that
it is more likely than not that the Company will not realize the
tax benefits associated with its United States deferred tax
assets and certain foreign deferred tax assets. As such, for the
year ended December 31, 2009, the Company increased the
total valuation allowance by $35,350,000 consisting of an
increase of $34,887,000 to tax expense and an increase of
$463,000 to other comprehensive income. At December 31,
2010, the valuation allowance balance was $33,347,000. The
increase in the valuation allowance includes a tax expense of
$7,487,000 and a $405,000 adjustment due to the Monitronics
business that was purchased.
As of December 31, 2010, the Companys income tax
returns for the periods of September 18, 2008 through
December 31, 2008 and the years ended December 31,
2010 and 2009, as well as the periods July 21, 2005 through
September 17, 2008, when the Company was included in the
consolidated income tax returns of DHC, remain subject to
examination by the IRS and state authorities.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits, which is recorded in income taxes
receivable, for the year ended December 31, 2010 is as
follows:
|
|
|
|
|
|
|
Amounts in
|
|
|
|
thousands
|
|
|
Balance at January 1, 2010
|
|
$
|
304
|
|
Increase related to acquisitions
|
|
|
116
|
|
Increases for the tax positions of prior years
|
|
|
73
|
|
Reductions for tax positions of prior years
|
|
|
(190
|
)
|
Foreign currency exchange adjustments
|
|
|
(11
|
)
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
292
|
|
|
|
|
|
|
When the tax law requires interest to be paid on an underpayment
of income taxes, the Company recognizes interest expense from
the first period the interest would begin accruing according to
the relevant tax law. Such interest expense is included in other
income, net in the accompanying consolidated statements of
operations. Any accrual of penalties related to underpayment of
income taxes on uncertain tax positions is included in Other
income, net in the accompanying consolidated statements of
operations. As of December 31, 2010, accrued interest and
penalties related to uncertain tax positions were not
significant.
During 2008, the Company provided $1,512,000 of United States
tax expense for future repatriation of cash from its Singapore
operations. This charge represents undistributed earnings from
Singapore not previously taxed in the United States that is
anticipated to be repatriated.
68
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
During 2009, the Company restructured its United Kingdom and
Singapore operations which resulted in the Company permanently
reinvesting excess cash from these operations within those
countries. There were no undistributed earnings from these
operations as of December 31, 2010 and 2009.
|
|
(14)
|
Stock-based
and Long-Term Compensation
|
2006
Ascent Media Group Long-Term Incentive Plan
AMG has made awards to certain employees under its 2006
Long-Term Incentive Plan, as amended, (the 2006
Plan). The 2006 Plan provides the terms and conditions for
the grant of, and payment with respect to, Phantom Appreciation
Rights (PARs) granted to certain officers and other
key personnel of AMG and its subsidiaries. The value of a single
PAR (PAR Value) is equal to the positive amount (if
any) by which (a) the sum of (i) 6% of cumulative free
cash flow (as defined in the 2006 Plan) over a period of up to
six years, divided by 500,000; plus (ii) the calculated
value of AMG, based on a formula set forth in the 2006 Plan,
divided by 10,000,000; exceeds (b) a baseline value
determined at the time of grant. The 2006 Plan is administered
by a committee whose members are designated by the board of
directors and grants are determined by the committee. The
maximum number of PARs that may be granted under the 2006 Plan
is 500,000. The PARs vest quarterly over a three year period
beginning on the grant date, and vested PARs are payable on
March 31, 2012 (or, if earlier, on the six-month
anniversary of a grantees termination of employment for
any reason other than cause) in either cash or stock at the
committees discretion. AMG records a liability and a
charge to expense based on the PAR Value and percent vested at
each reporting period.
The first grant of the PARs occurred on August 3, 2006 and
there were 388,500 PARs granted as of December 31, 2008.
Prior to September 2008, the 2006 Plan, the calculated value and
free cash flow of AccentHealth were included in determining the
PAR value. In September 2008, the 2006 Plan was amended to
reflect the sale of AccentHealth. As a result of the amendment,
AMG or one of its subsidiaries made cash distributions to each
grantee who held PARs on the date of the AccentHealth sale, in
an aggregate amount for each grantee representative of the
increase in PAR Value related to AccentHealth from the date of
grant of PARs to such grantee through the date of sale. These
cash distributions are being made over a three year period,
which began in February 2009 and the majority of grantees
received their entire distribution in 2009. For the year ended
December 31, 2008, AMG recorded a liability and a charge to
selling, general and administrative expense of $3,523,000 for
such distribution.
As of July 2010, the outstanding PARs had decreased to 267,000
due to employee terminations. On July 9, 2010, an
additional 122,000 of PARs were granted to certain key personnel
of AMG and its subsidiaries. These PARs also vested quarterly
over a three year period beginning on the grant date, and vested
PARs are payable on March 31, 2014.
At December 31, 2010, in connection with the sale of the
Creative/Media business, all current AMG employees vested in
100% of their PARs and those shares were deemed to be exercised
at December 31, 2010. Cash distributions under the 2006
Plan will be made to all active participants under which the
employees grant date PAR value exceeded the PARs value as
computed at December 31, 2010. AMG recorded a liability and
a charge to selling, general and administrative expense of
$1,034,000 related to this distribution.
Ascent
Media Corporation 2008 Incentive Plan
The Ascent Media Corporation 2008 Incentive Plan (the 2008
incentive plan) was adopted by the Board of Directors of
the Company on September 15, 2008. The 2008 incentive plan
is designed to provide additional compensation to certain
employees and independent contractors for services rendered, to
encourage their investment in Ascent Medias capital stock
and to attract persons of exceptional ability to become officers
and employees. The number of individuals who receive awards
under the 2008 incentive plan will vary from year to year and is
not predictable. Awards may be granted as non-qualified stock
options, stock appreciation rights, restricted shares, stock
units, cash awards, performance awards or any combination of the
foregoing (collectively, awards). The maximum number
of shares of Ascent Medias common stock with respect to
which awards may be granted
69
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
under the 2008 incentive plan is 2,000,000, subject to
anti-dilution and other adjustment provisions of the incentive
plan. The base or exercise price of a stock option or stock
appreciation right may not be less than fair market value on the
day it is granted.
Ascent
Media Corporation 2008 Non-Employee Director Incentive
Plan
The Ascent Media Corporation 2008 Non-Employee Director
Incentive Plan (the 2008 director incentive
plan) was adopted by the Board of Directors of the Company
on September 15, 2008. The 2008 director incentive
plan is designed to provide additional compensation to the
non-employee Board of Director members for services rendered and
to encourage their investment in Ascent Medias capital
stock. Awards may be granted as non-qualified stock options,
stock appreciation rights, restricted shares, stock units, cash
awards, performance awards or any combination of the foregoing
(collectively, awards). The maximum number of shares
of Ascent Medias common stock with respect to which awards
may be granted under the 2008 director incentive plan is
500,000, subject to anti-dilution and other adjustment
provisions of the incentive plan. The base or exercise price of
a stock option or stock appreciation right may not be less than
fair market value on the day it is granted.
Other
As of the Spin Off Date, DHC stock options held by an officer
and director of DHC, who is currently a director of DHCs
successor, were converted into options to purchase shares of the
applicable series of Ascent Media common stock and options to
purchase shares of the applicable series of common stock of
DHCs successor. In accordance with the conversion
calculation, the holder received 11,722 Ascent Media
Series A options with exercise prices ranging from $15.21
to $29.42 and 76,210 Ascent Media Series B options with an
exercise price of $25.29. In accordance with the terms of the
original DHC option and the conversion, the holder had the
right, at the exercise date, to convert the Series B
options into 93,115 Series A options with an exercise price
of $22.53. All of these options were fully vested and the holder
exercised all of these options in 2009.
Grants
of Stock-based Awards
2010
In 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.
2009
In the fourth quarter of 2009, four non-employee directors were
granted a combined total of 15,923 shares of restricted
stock awards that vest quarterly over two years. The restricted
stock had a fair value of $24.81 per share which was the closing
price of the Ascent Media Series A common stock on the date
of grant.
In the first quarter of 2009, certain key employees were granted
a total of 116,740 options to purchase Ascent Media
Series A common stock for a weighted average exercise price
of $25.30 per share. Such options vest quarterly over four years
from the date of grant, terminate 10 years from the date of
grant and had a weighted-average fair value at the date of grant
of $12.30, as determined using the Black-Scholes Model. For the
2009 stock grants, the assumptions used in the Black-Scholes
Model to determine grant date fair value were a volatility
factor of 50%, a risk-free interest rate of 1.51%, an expected
life of 6.1 years and a dividend yield of zero.
2008
In the fourth quarter of 2008, each of the three non-employee
directors then on the Board of Ascent Media was granted 11,030
options to purchase Ascent Media Series A common stock with
an exercise price of $21.81. Such options vest quarterly over
two years from the date of grant, terminate 10 years from
the date of grant and had a grant-date fair value of $10.50 per
share, as determined using the Black-Scholes Model. In addition,
the three non-employee directors were each granted 1,146
restricted stock awards that also vest quarterly over two years.
The
70
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
restricted stock had a fair value of $21.81 per share which was
the closing price of the Ascent Media Series A common stock
on the date of grant.
In the fourth quarter of 2008, two employee officers were
granted a total of 468,858 options to purchase Ascent Media
Series A common stock with a weighted average exercise
price of $22.16 per share. Such options vest quarterly over five
years from the date of the Ascent Media Spin Off, terminate
10 years from the date of Ascent Media Spin Off and had a
weighted-average grant date fair value of $11.14, as determined
using the Black-Scholes Model. In addition, the officers were
granted a total of 126,243 restricted stock awards that vest
quarterly over four years. The restricted stock had a
weighted-average fair value of $22.16 which was equal to the
closing price of the Ascent Media Series A common stock on
the dates of grant.
For the 2008 stock grants discussed above, the weighted average
grant date assumptions used for the Black-Scholes Model were a
volatility factor of 50%, a risk-free interest rate of 2.44%, an
expected life of 5.9 years and a dividend yield of zero.
The following table presents the number and weighted average
exercise price (WAEP) of options to purchase Ascent
Media Series A and Series B common stock.
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
|
|
|
|
|
common stock
|
|
|
WAEP
|
|
|
Outstanding at January 1, 2010
|
|
|
618,688
|
|
|
$
|
22.73
|
|
Grants
|
|
|
|
|
|
$
|
|
|
Exercises
|
|
|
|
|
|
$
|
|
|
Forfeitures
|
|
|
(3,125
|
)
|
|
$
|
26.33
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
615,563
|
|
|
$
|
22.72
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2010
|
|
|
318,471
|
|
|
$
|
22.84
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, the total compensation cost
related to unvested equity awards was approximately $4,752,000.
Such amount will be recognized in the consolidated statements of
operations over a period of approximately 2.50 years. The
intrinsic value of outstanding and exercisable stock options
awards at December 31, 2010 was $6,908,000 and $3,007,000,
respectively. The weighted average remaining contractual life of
both exercisable and outstanding awards at December 31,
2010 was 7.75 years.
|
|
(15)
|
Stockholders
Equity
|
Preferred
Stock
The Companys preferred stock is issuable, from time to
time, with such designations, preferences and relative
participating, optional or other rights, qualifications,
limitations or restrictions thereof, as shall be stated and
expressed in a resolution or resolutions providing for the issue
of such preferred stock adopted by Ascent Medias Board of
Directors. As of December 31, 2010, no shares of preferred
stock were issued.
Common
Stock
Holders of Ascent Media Series A common stock are entitled
to one vote for each share held, and holders of Ascent Media
Series B common stock are entitled to 10 votes for each
share held. Holders of Ascent Media Series C common stock
are not entitled to any voting powers, except as required by
Delaware law. As of December 31, 2010,
13,553,251 shares of Series A common stock was
outstanding and 733,599 shares of Series B common
stock was outstanding. Each share of the Series B common
stock is convertible, at the option of the holder, into one
share of Series A common stock. As of December 31,
2010, no shares of Ascent Media Series C common stock were
issued.
71
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The following table presents the activity in the Series A
and Series B common stock:
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
|
Series B
|
|
|
|
common stock
|
|
|
common stock
|
|
|
Distributed on Spin Off date
|
|
|
13,401,886
|
|
|
|
659,732
|
|
Issuance of restricted stock
|
|
|
129,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
13,531,567
|
|
|
|
659,732
|
|
Conversion from Series B to Series A shares
|
|
|
1,815
|
|
|
|
(1,815
|
)
|
Issuance of restricted stock
|
|
|
15,923
|
|
|
|
|
|
Restricted stock cancelled for tax withholding
|
|
|
(10,351
|
)
|
|
|
|
|
Stock option exercises
|
|
|
11,722
|
|
|
|
76,210
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
13,550,676
|
|
|
|
734,127
|
|
Issuance of restricted stock
|
|
|
12,766
|
|
|
|
|
|
Conversion from Series B to Series A shares
|
|
|
528
|
|
|
|
(528
|
)
|
Restricted stock cancelled for tax withholding
|
|
|
(10,719
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
13,553,251
|
|
|
|
733,599
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, there were 615,563 shares of
Ascent Media Series A common stock reserved for issuance
under exercise privileges of outstanding stock options.
Other
Comprehensive Earnings (Loss)
Accumulated other comprehensive earnings (loss) included in the
consolidated balance sheets and consolidated statement of
stockholders equity reflect the aggregate of foreign
currency translation adjustments and pension adjustments.
The change in the components of accumulated other comprehensive
earnings (loss), net of taxes, is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
Foreign
|
|
|
Unrealized
|
|
|
|
|
|
Other
|
|
|
|
Currency
|
|
|
Holding
|
|
|
|
|
|
Comprehensive
|
|
|
|
Translation
|
|
|
Gains, net
|
|
|
Pension
|
|
|
Earnings (Loss),
|
|
|
|
Adjustments(a)
|
|
|
of income tax(b)
|
|
|
Adjustments(c)
|
|
|
Net of Taxes
|
|
|
|
Amounts in thousands
|
|
|
Balance at December 31, 2007
|
|
$
|
12,624
|
|
|
|
|
|
|
|
(1,911
|
)
|
|
|
10,713
|
|
Other comprehensive loss
|
|
|
(18,603
|
)
|
|
|
|
|
|
|
(63
|
)
|
|
|
(18,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
(5,979
|
)
|
|
|
|
|
|
|
(1,974
|
)
|
|
|
(7,953
|
)
|
Other comprehensive income
|
|
|
4,693
|
|
|
|
1,352
|
|
|
|
(1,709
|
)
|
|
|
4,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
(1,286
|
)
|
|
|
1,352
|
|
|
|
(3,683
|
)
|
|
|
(3,617
|
)
|
Other comprehensive income
|
|
|
4,026
|
|
|
|
(1,352
|
)
|
|
|
(1,870
|
)
|
|
|
804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
2,740
|
|
|
|
|
|
|
|
(5,553
|
)
|
|
|
(2,813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
No income taxes were recorded on foreign currency translation
amounts for 2010, 2009 and 2008 since no undistributed earnings
were remitted to the United States. |
|
(b) |
|
Net of income tax benefit of $978,000 for 2010 and income tax
expense of $978,000 for 2009. |
|
(c) |
|
No income taxes were recorded on the pension adjustment amounts
for 2010, 2009 and 2008. |
72
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
(16)
|
Employee
Benefit Plans
|
Defined
Contribution Plan
AMG offers a 401(k) defined contribution plan covering most of
its full-time domestic employees. AMG also sponsors a pension
plan for eligible employees of its foreign subsidiaries. The
plans are funded by employee and employer contributions. Total
combined 401(k) plan and pension plan expenses for the years
ended December 31, 2010, 2009 and 2008 were $990,000,
$1,394,000 and $1,763,000, respectively.
Management
Incentive Plan and Discretionary Bonuses
AMG offers a Management Incentive Plan (MIP) which
provides for annual cash incentive awards based on company and
individual performance. Certain executive officers and certain
employees with a title of divisional managing director,
corporate director or higher are eligible to receive awards
under the MIP, as determined by a management incentive plan
compensation committee. To the extent an award is earned, it is
payable no later than two and one-half months following the end
of the applicable plan year. Participants must be employed by
AMG through the payment date to be eligible to receive the
award. The forecasted award liability is accrued on a monthly
basis throughout the plan year. The Company also pays bonuses to
certain employees at the discretion of management and the
compensation committee. For the years ended December 31,
2010 and 2008, amounts recorded for MIP and discretionary
bonuses were $318,000 and $1,096,000. The liability recorded at
December 31, 2010 and December 31, 2008 was equivalent
to the expense for that year. For the year ended
December 31, 2009, no MIP or discretionary bonus amounts
were recorded.
Defined
Benefit Plans
AMG has two defined benefit plans in the United Kingdom.
Participation in the defined benefit plans is limited with
approximately 130 participants, including retired employees. The
plans are closed to new participants.
AMG uses a measurement date of December 31 for its defined
benefit pension plans.
73
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The obligations and funded status of the defined benefit plans
for the years ended December 31, 2010 and 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Amounts in thousands
|
|
|
Change in Benefit Obligation:
|
|
|
|
|
|
|
|
|
Benefit Obligation beginning of year
|
|
$
|
10,070
|
|
|
|
7,460
|
|
Service cost
|
|
|
68
|
|
|
|
49
|
|
Interest cost
|
|
|
562
|
|
|
|
514
|
|
Actuarial loss
|
|
|
2,478
|
|
|
|
1,596
|
|
Settlements
|
|
|
(333
|
)
|
|
|
(81
|
)
|
Benefits paid
|
|
|
(213
|
)
|
|
|
(231
|
)
|
Member contributions
|
|
|
14
|
|
|
|
16
|
|
Foreign currency exchange rate changes
|
|
|
(289
|
)
|
|
|
747
|
|
|
|
|
|
|
|
|
|
|
Benefit Obligation end of year
|
|
|
12,357
|
|
|
|
10,070
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
Fair Value of plan assets beginning of year
|
|
|
7,536
|
|
|
|
6,215
|
|
Actual return on assets
|
|
|
965
|
|
|
|
166
|
|
Settlements
|
|
|
(436
|
)
|
|
|
(99
|
)
|
Employer contributions
|
|
|
842
|
|
|
|
847
|
|
Member contributions
|
|
|
14
|
|
|
|
16
|
|
Benefits paid
|
|
|
(213
|
)
|
|
|
(231
|
)
|
Foreign currency exchange rate changes
|
|
|
(217
|
)
|
|
|
622
|
|
|
|
|
|
|
|
|
|
|
Fair Value of plan assets end of year
|
|
|
8,491
|
|
|
|
7,536
|
|
|
|
|
|
|
|
|
|
|
Unfunded Status
|
|
$
|
(3,866
|
)
|
|
|
(2,534
|
)
|
|
|
|
|
|
|
|
|
|
AMG had recorded the entire unfunded balance in the table above
for each year in the other liability account on the consolidated
balance sheet. The projected benefit obligation and accumulated
benefit obligation at December 31, 2010 and 2009 are equal
to the Benefit obligation end of year
amount in the table above. The accumulated other comprehensive
income balance at December 31, 2010 and 2009, included
pension adjustments of $(5,553,000) and $(3,683,000),
respectively.
The following table sets forth the average assumptions and the
asset category allocations of the defined benefit plans for the
years ended December 31, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.20
|
%
|
|
|
5.75
|
%
|
Long-term return on plan assets
|
|
|
4.20
|
%
|
|
|
5.23
|
%
|
Price inflation
|
|
|
3.60
|
%
|
|
|
3.80
|
%
|
Asset Category Allocations:
|
|
|
|
|
|
|
|
|
Debt securities
|
|
|
41
|
%
|
|
|
44
|
%
|
Equity securities
|
|
|
42
|
%
|
|
|
33
|
%
|
Other
|
|
|
17
|
%
|
|
|
23
|
%
|
74
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
In 2009, the discount rate and the long-term return on plan
asset rate were determined from high-quality corporate bonds. In
2010, these rates were based on United Kingdom government bonds
to reflect the expected settlement of the defined benefit plans
in 2011. See below for further information.
The amount of pension cost recognized for the years ended
December 31, 2010, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amounts in thousands
|
|
|
Service cost
|
|
$
|
68
|
|
|
|
49
|
|
|
|
104
|
|
Interest cost
|
|
|
543
|
|
|
|
506
|
|
|
|
540
|
|
Expected return on plan assets
|
|
|
(411
|
)
|
|
|
(341
|
)
|
|
|
(419
|
)
|
Amortization of net loss
|
|
|
373
|
|
|
|
141
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
573
|
|
|
|
355
|
|
|
|
355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company employs a mix of investments, insurance policies and
cash at a prudent level of risk in order to maximize the
long-term return on plan assets. The investment objectives are
to meet the future benefit obligations of the pension plans and
to reduce funding volatility as much as possible. The fair value
of the plan assets as of December 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Cash and cash equivalents
|
|
$
|
146
|
|
|
|
|
|
|
|
|
|
|
|
146
|
|
Pooled investment funds
|
|
|
3,945
|
|
|
|
|
|
|
|
|
|
|
|
3,945
|
|
Debt investments
|
|
|
|
|
|
|
1,638
|
|
|
|
|
|
|
|
1,638
|
|
Insurance policies
|
|
|
|
|
|
|
2,762
|
|
|
|
|
|
|
|
2,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,091
|
|
|
|
4,400
|
|
|
|
|
|
|
|
8,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company is in the process of settling all the benefit
obligations under both of its defined benefit plans and expects
to complete the settlement process in 2011. The settlement will
be funded by the plan assets and employer contributions from the
Company. Ascent Media has deposited approximately
$5.5 million in an escrow account that will be used to fund
the settlements. This amount is included in restricted cash on
the December 31, 2010 consolidated balance sheet.
|
|
(17)
|
Commitments
and Contingencies
|
Future minimum lease payments under scheduled operating leases,
which are primarily for buildings, equipment and real estate,
having initial or remaining noncancelable terms in excess of one
year are as follows (in thousands):
|
|
|
|
|
Year ended December 31:
|
|
|
|
|
2011
|
|
$
|
14,595
|
|
2012
|
|
$
|
8,730
|
|
2013
|
|
$
|
4,018
|
|
2014
|
|
$
|
3,965
|
|
2015
|
|
$
|
2,757
|
|
Thereafter
|
|
$
|
6,906
|
|
75
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Rent expense for noncancelable operating leases for real
property and equipment was $10,005,000, $11,695,000 and
$11,801,000 for the years ended December 31, 2010, 2009 and
2008, respectively. Various lease arrangements contain options
to extend terms and are subject to escalation clauses.
In December 2003, Ascent Media acquired the operations of Sony
Electronics systems integration center business and
related assets, which is referred to as SIC. In the original
exchange, Sony received the right to be paid by the end of 2008
an amount equal to 20% of the value of the combined business of
Ascent Medias wholly owned subsidiary, AF Associates, Inc.
(AF Associates), and SIC. At the time of the
original exchange, the value of 20% of the combined business of
AF Associates and SIC was estimated at $6,100,000. On
July 30, 2008, Ascent Media and Sony Electronics entered in
to an amended agreement which required Ascent Media to
immediately pay $1,874,000 to Sony Electronics as a partial
payment of the 20% of value, but delayed Sonys right to be
paid further amounts until a date no earlier than
December 31, 2012. In 2009, the combined business of AF
Associates and SIC experienced a significant decline in the
number of large system integration projects as customers reduced
spending in response to a weaker economic climate. As a result,
the fair value of the 20% of the combined business of AF
Associates and SIC was reduced from $6,100,000 to $2,008,000.
Ascent Media recorded a credit of $4,092,000 in SG&A
expense in the consolidated statement of operations. The
remaining liability of $134,000 was included in other
liabilities in the consolidated balance sheet. In 2010, the
remaining liability was reduced to zero due to the further
decline in the system integration business. Ascent Media
recorded the credit of $134,000 in SG&A expense in the
consolidated statement of operations. The combined business of
AF Associates and SIC is included in the Content Services group.
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.
|
|
(18)
|
Related
Party Transactions
|
Through the Content Distribution business, Ascent Media provides
services, such as satellite uplink, systems integration,
origination, and post-production, to Discovery Communications,
Inc. (DCI). Ascent Media, previously a wholly-owned
subsidiary of DHC, and DCIs predecessor, previously an
equity investment of DHC, were related parties through the date
of the Ascent Media Spin Off. DHC and that predecessor are now
both wholly-owned subsidiaries of DCI. Revenue recorded by
Ascent Media for these services in 2008 through the date of the
Ascent Media Spin Off was $24,727,000. Ascent Media continues to
provide services to DCI subsequent to the Ascent Media Spin Off
that are believed to be at arms-length rates.
|
|
(19)
|
Information
About Reportable Segments
|
Ascent Medias chief operating decision maker (the
CODM), has identified Ascent Medias reportable
segments based on (i) financial information reviewed by the
CODM and (ii) those operating segments that represent or
will represent more than 10% of the Ascent Medias
consolidated revenue or earnings before taxes before continuing
operations. Based on the foregoing criteria, Ascent Medias
business units have been aggregated into two reportable
segments: the Content Services group and the Monitronics
business.
The Content Services group includes the Content Distribution
business, which provides a full complement of facilities and
services necessary to optimize, archive, manage, and reformat
and repurpose completed media assets for global distribution via
freight, satellite, fiber and the Internet, as well as the
facilities, technical infrastructure, and operating staff
necessary to assemble programming content for cable and
broadcast networks and distributed media signals via satellite
and terrestrial networks. Content Services also includes the
System Integration business, which provides program management,
engineering design, equipment procurement, software integration,
construction, installation, maintenance and support services for
advanced technical systems for the media and telecommunications
industries and other customers.
The Monitronics business provides security alarm monitoring and
related services to residential and business subscribers
throughout the United States and parts of Canada.
76
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The Company had a third reportable segment, the Creative
Services group, which was part of the Creative/Media businesses
that were sold to Deluxe on December 31, 2010. See
Note 5 for further information. This segment has been
treated as discontinued operations for all periods presented in
the consolidated financial statements.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies and
are consistent with GAAP.
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 and other equity-based compensation and
accretion expense on 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 and other
equity-based 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.
Ascent Medias 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.
77
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Summarized financial information concerning the reportable
segments is presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
Content
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Monitronics
|
|
|
|
|
|
|
|
|
|
|
|
|
Group
|
|
|
Business(b)
|
|
|
Subtotal
|
|
|
Other(a)
|
|
|
Total
|
|
|
|
Amounts in thousands
|
|
|
Year ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
127,286
|
|
|
|
12,176
|
|
|
|
139,462
|
|
|
|
|
|
|
|
139,462
|
|
Adjusted OIBDA
|
|
$
|
25,384
|
|
|
|
8,624
|
|
|
|
34,008
|
|
|
|
(20,167
|
)
|
|
|
13,841
|
|
Capital expenditures
|
|
$
|
20,292
|
|
|
|
86
|
|
|
|
20,378
|
|
|
|
114
|
|
|
|
20,492
|
|
Depreciation and amortization
|
|
$
|
22,297
|
|
|
|
4,992
|
|
|
|
27,289
|
|
|
|
2,366
|
|
|
|
29,655
|
|
Total assets
|
|
$
|
85,190
|
|
|
|
1,321,531
|
|
|
|
1,406,721
|
|
|
|
245,304
|
|
|
|
1,652,025
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
154,471
|
|
|
|
|
|
|
|
154,471
|
|
|
|
|
|
|
|
154,471
|
|
Adjusted OIBDA
|
|
$
|
23,556
|
|
|
|
|
|
|
|
23,556
|
|
|
|
(19,625
|
)
|
|
|
3,931
|
|
Capital expenditures
|
|
$
|
10,795
|
|
|
|
|
|
|
|
10,795
|
|
|
|
2,067
|
|
|
|
12,862
|
|
Depreciation and amortization
|
|
$
|
24,082
|
|
|
|
|
|
|
|
24,082
|
|
|
|
4,258
|
|
|
|
28,340
|
|
Total assets
|
|
$
|
88,489
|
|
|
|
|
|
|
|
88,489
|
|
|
|
594,498
|
|
|
|
682,987
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
260,225
|
|
|
|
|
|
|
|
260,225
|
|
|
|
|
|
|
|
260,225
|
|
Adjusted OIBDA
|
|
$
|
31,401
|
|
|
|
|
|
|
|
31,401
|
|
|
|
(21,812
|
)
|
|
|
9,589
|
|
Capital expenditures
|
|
$
|
10,622
|
|
|
|
|
|
|
|
10,622
|
|
|
|
1,671
|
|
|
|
12,293
|
|
Depreciation and amortization
|
|
$
|
23,099
|
|
|
|
|
|
|
|
23,099
|
|
|
|
5,343
|
|
|
|
28,442
|
|
Total assets
|
|
$
|
128,395
|
|
|
|
|
|
|
|
128,395
|
|
|
|
616,909
|
|
|
|
745,304
|
|
|
|
|
(a) |
|
Amounts shown in Other provide a reconciliation of total
reportable segments to the Companys consolidated total.
Included in other is (i) corporate SG&A expenses and
capital expenditures incurred at a corporate level and
(ii) assets held at a corporate level mainly comprised of
all cash and cash equivalents, investments in marketable
securities and deferred income tax assets and the assets of
discontinued operations. |
|
(b) |
|
The results of operations for Monitronics are included from
December 17, 2010, which was the date of acquisition. |
The following table provides a reconciliation of total adjusted
OIBDA to loss from continuing operations before income taxes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amounts in thousands
|
|
|
Total adjusted OIBDA
|
|
$
|
13,841
|
|
|
|
3,931
|
|
|
|
9,589
|
|
Stock-based and long-term incentive compensation
|
|
|
(4,182
|
)
|
|
|
(2,401
|
)
|
|
|
(2,764
|
)
|
Restructuring and other charges
|
|
|
(5,713
|
)
|
|
|
(4,845
|
)
|
|
|
(3,257
|
)
|
Depreciation and amortization
|
|
|
(29,655
|
)
|
|
|
(28,340
|
)
|
|
|
(28,442
|
)
|
Gain on sale of operating assets, net
|
|
|
2,720
|
|
|
|
19
|
|
|
|
9,433
|
|
Participating residual interest change in fair value
|
|
|
134
|
|
|
|
4,092
|
|
|
|
|
|
Interest income
|
|
|
3,639
|
|
|
|
2,660
|
|
|
|
6,579
|
|
Interest expense
|
|
|
(2,953
|
)
|
|
|
(410
|
)
|
|
|
(399
|
)
|
Unrealized loss on derivatives
|
|
|
(1,682
|
)
|
|
|
|
|
|
|
|
|
Other, net(a)
|
|
|
(1,057
|
)
|
|
|
759
|
|
|
|
1,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
$
|
(24,908
|
)
|
|
|
(24,535
|
)
|
|
|
(8,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
(a) |
|
The year ended December 31, 2010 amount includes an expense
of approximately $1.2 million for a lump-sum payment
related to the death benefit of the Companys chief
operating officer under the terms of his employment contract. |
Information as to the operations in different geographic areas
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amounts in thousands
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
98,897
|
|
|
|
114,916
|
|
|
|
205,187
|
|
United Kingdom
|
|
|
17,556
|
|
|
|
17,436
|
|
|
|
32,358
|
|
Other countries
|
|
|
23,009
|
|
|
|
22,119
|
|
|
|
22,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
139,462
|
|
|
|
154,471
|
|
|
|
260,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
108,371
|
|
|
|
94,533
|
|
|
|
|
|
United Kingdom
|
|
|
14,997
|
|
|
|
14,096
|
|
|
|
|
|
Other countries
|
|
|
16,790
|
|
|
|
14,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
140,158
|
|
|
|
123,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21)
|
Quarterly
Financial Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
Amounts in thousands,
|
|
|
|
except per share amounts
|
|
|
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
31,305
|
|
|
|
31,909
|
|
|
|
32,775
|
|
|
|
43,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(6,996
|
)
|
|
|
(7,357
|
)
|
|
|
(6,508
|
)
|
|
|
(2,184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
9,910
|
|
|
|
(16,138
|
)
|
|
|
(9,846
|
)
|
|
|
(18,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net earnings (loss) per common share
|
|
$
|
0.70
|
|
|
|
(1.14
|
)
|
|
|
(0.69
|
)
|
|
|
(1.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings (loss) per common share
|
|
$
|
0.69
|
|
|
|
(1.14
|
)
|
|
|
(0.69
|
)
|
|
|
(1.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
44,159
|
|
|
|
40,781
|
|
|
|
34,509
|
|
|
|
35,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(6,232
|
)
|
|
|
(7,047
|
)
|
|
|
(8,458
|
)
|
|
|
(6,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,448
|
)
|
|
|
(7,204
|
)
|
|
|
(6,414
|
)
|
|
|
(32,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.46
|
)
|
|
|
(0.51
|
)
|
|
|
(0.46
|
)
|
|
|
(2.33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
PART III.
The following required information is incorporated by reference
to our definitive proxy statement for our 2011 Annual Meeting of
Stockholders presently scheduled to be held in the second
quarter of 2011:
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
We will file our definitive proxy statement for our 2011 Annual
Meeting of stockholders with the Securities and Exchange
Commission on or before April 30, 2011.
PART IV.
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a)(1) Financial Statements
Included in Part II of this Annual Report:
Ascent Media Corporation:
|
|
|
|
|
|
|
Page
|
|
|
No.
|
|
|
|
|
43-44
|
|
|
|
|
45
|
|
|
|
|
46
|
|
|
|
|
47
|
|
|
|
|
48
|
|
|
|
|
49
|
|
(a) (2) Financial Statement Schedules
(i) All schedules have been omitted because they are not
applicable, not material or the required information is set
forth in the financial statements or notes thereto.
(a) (3) Exhibits
Listed below are the exhibits which are filed as a part of this
Report (according to the number assigned to them in
Item 601 of
Regulation S-K):
|
|
|
|
|
|
2
|
.1
|
|
Reorganization Agreement, dated as of June 4, 2008, among
Discovery Holding Company, Discovery Communications, Inc.,
Ascent Media Corporation, Ascent Media Group, LLC, and Ascent
Media Creative Sound Services, Inc. (incorporated by reference
to Exhibit 2.1 to Ascent Media Corporations
Registration Statement on Form 10 (File
No. 000-53280),
filed with the Commission on June 13, 2008).
|
|
2
|
.2
|
|
Purchase Agreement, dated as of August 8, 2008, by and
among Ascent Media Corporation, Ascent Media CANS, LLC and
AccentHealth Holdings, LLC (incorporated by reference to
Exhibit 2.2 to Amendment No. 3 to Ascent Media
Corporations Registration Statement on Form 10 (File
No. 000-53280),
filed with the Commission on August 12, 2008).
|
|
2
|
.3
|
|
Purchase and Sale Agreement dated November 24, 2010,
between Ascent Media Corporation and Deluxe Entertainment
Services Group, Inc. (incorporated by reference to
Exhibit 2.1 to Ascent Media Corporations
Form 8-K
(file
No. 001-34176),
filed with the Commission on January 5, 2011).
|
80
|
|
|
|
|
|
2
|
.4
|
|
Purchase and Sale Agreement dated December 2, 2010, between
Ascent Media Corporation and Encompass Digital Media, Inc.
(incorporated by reference to Annex B to Ascent Media
Corporations definitive proxy statement (file
No. 001-34176),
filed with the Commission on January 25, 2011).
|
|
2
|
.5
|
|
Agreement and Plan of Merger dated December 17, 2010,
between Ascent Media Corporation and Monitronics International,
Inc. (incorporated by reference to Exhibit 2.1 to Ascent
Media Corporations
Form 8-K
(file
No. 001-34176),
filed with the Commission on December 23, 2010).
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Ascent
Media Corporation (incorporated by reference to Exhibit 3.1
to Ascent Media Corporations Registration Statement on
Form 10
(File No. 000-53280),
filed with the Commission on June 13, 2008).
|
|
3
|
.2
|
|
Bylaws of Ascent Media Corporation (incorporated by reference to
Exhibit 3.2 to Ascent Media Corporations Registration
Statement on Form 10 (File
No. 000-53280),
filed with the Commission on June 13, 2008).
|
|
4
|
.1
|
|
Specimen Certificate for shares of Series A common stock,
par value $.01 per share, of Ascent Media Corporation
(incorporated by reference to Exhibit 4.1 to Ascent Media
Corporations Registration Statement on Form 10 (File
No. 000-53280),
filed with the Commission on June 13, 2008).
|
|
4
|
.2
|
|
Specimen Certificate for shares of Series B common stock,
par value $.01 per share, of Ascent Media Corporation
(incorporated by reference to Exhibit 4.2 to Ascent Media
Corporations Registration Statement on Form 10 (File
No. 000-53280),
filed with the Commission on June 13, 2008).
|
|
4
|
.3
|
|
Rights Agreement between Ascent Media Corporation and
Computershare Trust Company, N.A. (incorporated by
reference to Exhibit 4.3 to Amendment No. 1 to Ascent
Media Corporations Registration Statement on Form 10
(File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
4
|
.4
|
|
Form of Amendment No. 1 to Rights Agreement by and between
Ascent Media Corporation and Computershare Trust Company,
N.A. (incorporated by reference to Exhibit 4.1 to Ascent
Media Corporations Current Report on
Form 8-K
(File
No. 001-34176),
filed with the Commission on September 17, 2009).
|
|
10
|
.1
|
|
Services Agreement, dated September 16, 2008, between
Ascent Media Group, LLC and CSS Studios, LLC (incorporated by
reference to Exhibit 10.1 to Amendment No. 8 to Ascent
Media Corporations Registration Statement on Form 10
(File
No. 001-34176),
filed with the Commission on September 17, 2008).
|
|
10
|
.2
|
|
Tax Sharing Agreement, dated as of September 17, 2008, by
and among Discovery Holding Company, Discovery Communications,
Inc., Ascent Media Corporation, Ascent Media Group, LLC and CSS
Studios, LLC (incorporated by reference to Exhibit 10.2 to
Amendment No. 8 to Ascent Media Corporations
Registration Statement on Form 10 (File
No. 001-34176),
filed with the Commission on September 17, 2008).
|
|
10
|
.3
|
|
Ascent Media Group, LLC 2006 Long-Term Incentive Plan (As
Amended and Restated Effective September 9, 2008)
(incorporated by reference to Exhibit 10.3 to Amendment
No. 7 to Ascent Media Corporations Registration
Statement on Form 10 (File
No. 000-53280),
filed with the Commission on September 10, 2008).
|
|
10
|
.4
|
|
Ascent Media Group, LLC 2007 Management Incentive Plan
(incorporated by reference to Exhibit 10.4 to Amendment
No. 1 to Ascent Media Corporations Registration
Statement on Form 10
(File No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
10
|
.5
|
|
Ascent Media Corporation 2008 Incentive Plan (incorporated by
reference to Exhibit 4.4 to Ascent Media Corporations
Registration Statement on
Form S-8
(File
No. 333-156231),
filed with the Commission on December 17, 2008).
|
|
10
|
.6
|
|
Services Agreement, dated as of July 21, 2005, by and
between Discovery Holding Company and Liberty Media Corporation
(incorporated by reference to Exhibit 10 to the Quarterly
Report on
Form 10-Q
of Discovery Holding Company filed on August 10, 2005).
|
|
10
|
.7
|
|
Form of Indemnification Agreement between the Registrant and its
Directors and Executive Officers (incorporated by reference to
Exhibit 10.7 to Amendment No. 1 to Ascent Media
Corporations Registration Statement on Form 10 (File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
81
|
|
|
|
|
|
10
|
.8
|
|
Employment Agreement, dated as of September 1, 2006, by and
between Ascent Media Group, LLC and William E. Niles
(incorporated by reference to Exhibit 10.8 to Amendment
No. 1 to Ascent Media Corporations Registration
Statement on Form 10 (File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
10
|
.9
|
|
Employment Agreement, dated as of September 1, 2006, by and
between Ascent Media Group, LLC and George C. Platisa
(incorporated by reference to Exhibit 10.9 to Amendment
No. 1 to Ascent Media Corporations Registration
Statement on Form 10 (File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
10
|
.10
|
|
Ascent Media Corporation 2008 Non-Employee Director Incentive
Plan (incorporated by reference to Exhibit 10.13 to
Amendment No. 8 to Ascent Media Corporations
Registration Statement on Form 10
(File No. 001-34176),
filed with the Commission on September 17, 2008).
|
|
10
|
.11
|
|
Amendment, dated December 31, 2008, to Employment
Agreement, dated as of September 1, 2006, by and between
Ascent Media Group, LLC and William E. Niles (incorporated by
reference to Exhibit 10.14 to Ascent Media
Corporations Annual Report on
Form 10-K
(File
No. 001-34176),
filed with the Commission on March 31, 2009).
|
|
10
|
.12
|
|
Amendment, dated December 31, 2008, to Employment
Agreement, dated as of September 1, 2006, by and between
Ascent Media Group, LLC and George C. Platisa (incorporated by
reference to Exhibit 10.15 to Ascent Media
Corporations Annual Report on
Form 10-K
(File
No. 001-34176),
filed with the Commission on March 31, 2009).
|
|
10
|
.13
|
|
Employment Agreement, dated February 9, 2009, by and
between Ascent Media Corporation and William R. Fitzgerald
(incorporated by reference to Exhibit 10.16 to Ascent Media
Corporations Annual Report on
Form 10-K
(File
No. 001-34176),
filed with the Commission on March 31, 2009).
|
|
10
|
.14
|
|
Employment Agreement, dated as of April 13, 2009, between
Ascent Media Corporation and John A. Orr (incorporated by
reference to Exhibit 10.1 to Ascent Media
Corporations Quarterly Report on
Form 10-Q
(File
No. 001-34176),
filed with the Commission on August 13, 2009).
|
|
10
|
.15
|
|
Asset Purchase Agreement, dated February 17, 2010, between
Ascent Media Network Services Europe Limited, Ascent Media Group
LLC and Discovery Communications Europe Limited (incorporated by
reference to Exhibit 2.1 to Ascent Media Corporations
Current Report on
Form 8-K
(File
No. 001-34176),
filed with the Commission on February 23, 2010).
|
|
21
|
|
|
List of Subsidiaries of Ascent Media Corporation.*
|
|
23
|
|
|
Consent of KPMG LLP, independent registered public accounting
firm.*
|
|
24
|
|
|
Power of Attorney dated March 14, 2011.*
|
|
31
|
.1
|
|
Rule 13a-14(a)/15d-14(a)
Certification.*
|
|
31
|
.2
|
|
Rule 13a-14(a)/15d-14(a)
Certification.*
|
|
32
|
|
|
Section 1350 Certification.*
|
82
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Chief Executive Officer
Dated: March 14, 2011
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
date indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ William
R. Fitzgerald
William
R. Fitzgerald
|
|
Chairman of the Board, Director
and Chief Executive Officer
|
|
March 14, 2011
|
|
|
|
|
|
/s/ Philip
J. Holthouse
Philip
J. Holthouse
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
John
C. Malone
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ Brian
C. Mulligan
Brian
C. Mulligan
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ Michael
J. Pohl
Michael
J. Pohl
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ Carl
E. Vogel
Carl
E. Vogel
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ George
C. Platisa
George
C. Platisa
|
|
Executive Vice President, Chief Financial Officer and
Treasurer
(Principal Accounting Officer)
|
|
March 14, 2011
|
83
EXHIBIT INDEX
Listed below are the exhibits which are filed as a part of this
Report (according to the number assigned to them in
Item 601 of
Regulation S-K):
|
|
|
|
|
|
2
|
.1
|
|
Reorganization Agreement, dated as of June 4, 2008, among
Discovery Holding Company, Discovery Communications, Inc.,
Ascent Media Corporation, Ascent Media Group, LLC, and Ascent
Media Creative Sound Services, Inc. (incorporated by reference
to Exhibit 2.1 to Ascent Media Corporations
Registration Statement on Form 10 (File
No. 000-53280),
filed with the Commission on June 13, 2008).
|
|
2
|
.2
|
|
Purchase Agreement, dated as of August 8, 2008, by and
among Ascent Media Corporation, Ascent Media CANS, LLC and
AccentHealth Holdings, LLC (incorporated by reference to
Exhibit 2.2 to Amendment No. 3 to Ascent Media
Corporations Registration Statement on Form 10 (File
No. 000-53280),
filed with the Commission on August 12, 2008).
|
|
2
|
.3
|
|
Purchase and Sale Agreement dated November 24, 2010,
between Ascent Media Corporation and Deluxe Entertainment
Services Group, Inc. (incorporated by reference to
Exhibit 2.1 to Ascent Media Corporations
Form 8-K
(file
No. 001-34176),
filed with the Commission on January 5, 2011).
|
|
2
|
.4
|
|
Purchase and Sale Agreement dated December 2, 2010, between
Ascent Media Corporation and Encompass Digital Media, Inc.
(incorporated by reference to Annex B to Ascent Media
Corporations definitive proxy statement (file
No. 001-34176),
filed with the Commission on January 25, 2011).
|
|
2
|
.5
|
|
Agreement and Plan of Merger dated December 17, 2010,
between Ascent Media Corporation and Monitronics International,
Inc. (incorporated by reference to Exhibit 2.1 to Ascent
Media Corporations
Form 8-K
(file
No. 001-34176),
filed with the Commission on December 23, 2010).
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Ascent
Media Corporation (incorporated by reference to Exhibit 3.1
to Ascent Media Corporations Registration Statement on
Form 10
(File No. 000-53280),
filed with the Commission on June 13, 2008).
|
|
3
|
.2
|
|
Bylaws of Ascent Media Corporation (incorporated by reference to
Exhibit 3.2 to Ascent Media Corporations Registration
Statement on Form 10 (File
No. 000-53280),
filed with the Commission on June 13, 2008).
|
|
4
|
.1
|
|
Specimen Certificate for shares of Series A common stock,
par value $.01 per share, of Ascent Media Corporation
(incorporated by reference to Exhibit 4.1 to Ascent Media
Corporations Registration Statement on Form 10 (File
No. 000-53280),
filed with the Commission on June 13, 2008).
|
|
4
|
.2
|
|
Specimen Certificate for shares of Series B common stock,
par value $.01 per share, of Ascent Media Corporation
(incorporated by reference to Exhibit 4.2 to Ascent Media
Corporations Registration Statement on Form 10 (File
No. 000-53280),
filed with the Commission on June 13, 2008).
|
|
4
|
.3
|
|
Rights Agreement between Ascent Media Corporation and
Computershare Trust Company, N.A. (incorporated by
reference to Exhibit 4.3 to Amendment No. 1 to Ascent
Media Corporations Registration Statement on Form 10
(File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
4
|
.4
|
|
Form of Amendment No. 1 to Rights Agreement by and between
Ascent Media Corporation and Computershare Trust Company,
N.A. (incorporated by reference to Exhibit 4.1 to Ascent
Media Corporations Current Report on
Form 8-K
(File
No. 001-34176),
filed with the Commission on September 17, 2009).
|
|
10
|
.1
|
|
Services Agreement, dated September 16, 2008, between
Ascent Media Group, LLC and CSS Studios, LLC (incorporated by
reference to Exhibit 10.1 to Amendment No. 8 to Ascent
Media Corporations Registration Statement on Form 10
(File
No. 001-34176),
filed with the Commission on September 17, 2008).
|
|
10
|
.2
|
|
Tax Sharing Agreement, dated as of September 17, 2008, by
and among Discovery Holding Company, Discovery Communications,
Inc., Ascent Media Corporation, Ascent Media Group, LLC and CSS
Studios, LLC (incorporated by reference to Exhibit 10.2 to
Amendment No. 8 to Ascent Media Corporations
Registration Statement on Form 10 (File
No. 001-34176),
filed with the Commission on September 17, 2008).
|
|
10
|
.3
|
|
Ascent Media Group, LLC 2006 Long-Term Incentive Plan (As
Amended and Restated Effective September 9, 2008)
(incorporated by reference to Exhibit 10.3 to Amendment
No. 7 to Ascent Media Corporations Registration
Statement on Form 10 (File
No. 000-53280),
filed with the Commission on September 10, 2008).
|
|
10
|
.4
|
|
Ascent Media Group, LLC 2007 Management Incentive Plan
(incorporated by reference to Exhibit 10.4 to Amendment
No. 1 to Ascent Media Corporations Registration
Statement on Form 10
(File No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
|
|
|
|
|
10
|
.5
|
|
Ascent Media Corporation 2008 Incentive Plan (incorporated by
reference to Exhibit 4.4 to Ascent Media Corporations
Registration Statement on
Form S-8
(File
No. 333-156231),
filed with the Commission on December 17, 2008).
|
|
10
|
.6
|
|
Services Agreement, dated as of July 21, 2005, by and
between Discovery Holding Company and Liberty Media Corporation
(incorporated by reference to Exhibit 10 to the Quarterly
Report on
Form 10-Q
of Discovery Holding Company filed on August 10, 2005).
|
|
10
|
.7
|
|
Form of Indemnification Agreement between the Registrant and its
Directors and Executive Officers (incorporated by reference to
Exhibit 10.7 to Amendment No. 1 to Ascent Media
Corporations Registration Statement on Form 10 (File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
10
|
.8
|
|
Employment Agreement, dated as of September 1, 2006, by and
between Ascent Media Group, LLC and William E. Niles
(incorporated by reference to Exhibit 10.8 to Amendment
No. 1 to Ascent Media Corporations Registration
Statement on Form 10 (File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
10
|
.9
|
|
Employment Agreement, dated as of September 1, 2006, by and
between Ascent Media Group, LLC and George C. Platisa
(incorporated by reference to Exhibit 10.9 to Amendment
No. 1 to Ascent Media Corporations Registration
Statement on Form 10 (File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
10
|
.10
|
|
Ascent Media Corporation 2008 Non-Employee Director Incentive
Plan (incorporated by reference to Exhibit 10.13 to
Amendment No. 8 to Ascent Media Corporations
Registration Statement on Form 10
(File No. 001-34176),
filed with the Commission on September 17, 2008).
|
|
10
|
.11
|
|
Amendment, dated December 31, 2008, to Employment
Agreement, dated as of September 1, 2006, by and between
Ascent Media Group, LLC and William E. Niles (incorporated by
reference to Exhibit 10.14 to Ascent Media
Corporations Annual Report on
Form 10-K
(File
No. 001-34176),
filed with the Commission on March 31, 2009).
|
|
10
|
.12
|
|
Amendment, dated December 31, 2008, to Employment
Agreement, dated as of September 1, 2006, by and between
Ascent Media Group, LLC and George C. Platisa (incorporated by
reference to Exhibit 10.15 to Ascent Media
Corporations Annual Report on
Form 10-K
(File
No. 001-34176),
filed with the Commission on March 31, 2009).
|
|
10
|
.13
|
|
Employment Agreement, dated February 9, 2009, by and
between Ascent Media Corporation and William R. Fitzgerald
(incorporated by reference to Exhibit 10.16 to Ascent Media
Corporations Annual Report on
Form 10-K
(File
No. 001-34176),
filed with the Commission on March 31, 2009).
|
|
10
|
.14
|
|
Employment Agreement, dated as of April 13, 2009, between
Ascent Media Corporation and John A. Orr (incorporated by
reference to Exhibit 10.1 to Ascent Media
Corporations Quarterly Report on
Form 10-Q
(File
No. 001-34176),
filed with the Commission on August 13, 2009).
|
|
10
|
.15
|
|
Asset Purchase Agreement, dated February 17, 2010, between
Ascent Media Network Services Europe Limited, Ascent Media Group
LLC and Discovery Communications Europe Limited (incorporated by
reference to Exhibit 2.1 to Ascent Media Corporations
Current Report on
Form 8-K
(File
No. 001-34176),
filed with the Commission on February 23, 2010).
|
|
21
|
|
|
List of Subsidiaries of Ascent Media Corporation.*
|
|
23
|
|
|
Consent of KPMG LLP, independent registered public accounting
firm.*
|
|
24
|
|
|
Power of Attorney dated March 14, 2011.*
|
|
31
|
.1
|
|
Rule 13a-14(a)/15d-14(a)
Certification.*
|
|
31
|
.2
|
|
Rule 13a-14(a)/15d-14(a)
Certification.*
|
|
32
|
|
|
Section 1350 Certification.*
|