e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
Form
10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2008
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number
001-34176
ASCENT MEDIA
CORPORATION
(Exact name of Registrant as
specified in its charter)
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State of Delaware
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26-2735737
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer Identification
No.)
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520 Broadway,
5th floor
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Santa Monica, California
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90401
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(Address of principal executive
offices)
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(Zip Code)
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Registrants telephone number, including area code:
(310) 434-7500
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 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 o
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Non-accelerated
filer þ
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The number of outstanding shares of Ascent Media
Corporations common stock as of October 31, 2008 was:
Series A
common stock 13,399,099 shares; and
Series B common stock 659,732 shares.
TABLE OF CONTENTS
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Condensed
Consolidated Balance Sheets
(unaudited)
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September 30,
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December 31,
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2008
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2007
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amounts in thousands
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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356,078
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201,633
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Trade receivables, net
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136,718
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122,079
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Prepaid expenses
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13,703
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13,084
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Deferred income tax assets, net
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17,019
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12,907
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Assets of discontinued operations (note 3)
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13,232
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Other current assets
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2,182
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2,298
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Total current assets
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525,700
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365,233
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Investments in marketable securities
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23,545
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Property and equipment, net
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234,818
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259,026
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Goodwill (note 6)
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95,069
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95,069
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Deferred income tax assets, net
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20,704
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27,076
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Assets of discontinued operations
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50,038
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Other assets, net
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8,712
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10,999
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Total assets
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$
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885,003
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830,986
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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29,815
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24,768
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Accrued payroll and related liabilities
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22,063
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23,614
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Other accrued liabilities
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36,956
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34,120
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Deferred revenue
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17,155
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24,492
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Income taxes payable
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17,704
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12,764
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Liabilities of discontinued operations (note 3)
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2,779
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Total current liabilities
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123,693
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122,537
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Other liabilities
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23,817
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21,553
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Total liabilities
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147,510
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144,090
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Commitments and contingencies (note 8)
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Stockholders Equity:
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Preferred stock, $.01 par value. Authorized
5,000,000 shares; no shares issued
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Series A common stock, $.01 par value. Authorized
45,000,000 shares; issued and outstanding
13,399,099 shares at September 30, 2008
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134
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Series B common stock, $.01 par value. Authorized
5,000,000 shares; issued and outstanding
659,732 shares at September 30, 2008
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7
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Series C common stock, $.01 par value. Authorized
45,000,000 shares; no shares issued
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Additional paid-in capital
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1,459,338
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Parents investment
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1,437,520
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Accumulated deficit
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(728,068
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)
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(761,337
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)
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Accumulated other comprehensive earnings
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6,082
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10,713
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Total stockholders equity
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737,493
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686,896
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Total liabilities and stockholders equity
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$
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885,003
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830,986
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See accompanying notes to condensed consolidated financial
statements.
I-1
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Condensed
Consolidated Statements of Operations and Comprehensive Earnings
(Loss)
(unaudited)
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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2008
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2007
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2008
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2007
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amounts in thousands,
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except per share
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amounts
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Net revenue
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$
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146,146
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152,287
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472,602
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440,465
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Operating expenses:
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Cost of services
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106,530
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106,947
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346,335
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310,587
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Selling, general, and administrative, including stock-based and
long-term incentive compensation (note 4)
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34,821
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29,978
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96,515
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91,684
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Restructuring and other charges
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1,436
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192
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2,699
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192
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Gain on sale of operating assets, net
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(7,332
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)
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(63
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)
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(7,152
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)
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(52
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)
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Depreciation and amortization
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15,103
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15,846
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45,785
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46,634
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|
|
|
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|
|
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|
|
|
|
|
|
|
|
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150,558
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152,900
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484,182
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449,045
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|
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Operating loss
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(4,412
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)
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|
|
(613
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)
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(11,580
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)
|
|
|
(8,580
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)
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Other income:
|
|
|
|
|
|
|
|
|
|
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Interest income
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1,661
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2,953
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5,160
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8,378
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Other income (expense), net
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1,274
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(407
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)
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|
(34
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)
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(1,317
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,935
|
|
|
|
2,546
|
|
|
|
5,126
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|
|
|
7,061
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Earnings (loss) from continuing operations before income tax
|
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|
(1,477
|
)
|
|
|
1,933
|
|
|
|
(6,454
|
)
|
|
|
(1,519
|
)
|
Income tax benefit (expense) from continuing operations
|
|
|
27
|
|
|
|
(1,671
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)
|
|
|
(4,512
|
)
|
|
|
(6,550
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations
|
|
|
(1,450
|
)
|
|
|
262
|
|
|
|
(10,966
|
)
|
|
|
(8,069
|
)
|
Discontinued operations (note 3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations
|
|
|
70,857
|
|
|
|
2,609
|
|
|
|
77,236
|
|
|
|
6,678
|
|
Income tax expense
|
|
|
30,079
|
|
|
|
1,228
|
|
|
|
33,001
|
|
|
|
2,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations, net of income tax
|
|
|
40,778
|
|
|
|
1,381
|
|
|
|
44,235
|
|
|
|
3,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
39,328
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|
|
|
1,643
|
|
|
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33,269
|
|
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|
(4,342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(5,296
|
)
|
|
|
2,037
|
|
|
|
(4,729
|
)
|
|
|
4,042
|
|
Unrealized holding gains arising during the period, net of
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Minimum pension liability adjustment
|
|
|
98
|
|
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss)
|
|
|
(5,198
|
)
|
|
|
2,037
|
|
|
|
(4,631
|
)
|
|
|
4,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss)
|
|
$
|
34,130
|
|
|
|
3,680
|
|
|
|
28,638
|
|
|
|
(298
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share (note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(.10
|
)
|
|
|
.02
|
|
|
|
(.78
|
)
|
|
|
(.57
|
)
|
Discontinued operations
|
|
|
2.90
|
|
|
|
.10
|
|
|
|
3.15
|
|
|
|
.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
2.80
|
|
|
|
.12
|
|
|
|
2.37
|
|
|
|
(.31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share (note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(.10
|
)
|
|
|
.02
|
|
|
|
(.78
|
)
|
|
|
(.57
|
)
|
Discontinued operations
|
|
|
2.90
|
|
|
|
.10
|
|
|
|
3.14
|
|
|
|
.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
2.80
|
|
|
|
.12
|
|
|
|
2.36
|
|
|
|
(.31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
I-2
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
amounts in thousands
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
33,269
|
|
|
|
(4,342
|
)
|
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations, net of income tax
|
|
|
(44,235
|
)
|
|
|
(3,727
|
)
|
Depreciation and amortization
|
|
|
45,785
|
|
|
|
46,634
|
|
Deferred income tax expense
|
|
|
3,527
|
|
|
|
5,233
|
|
Gain on sale of operating assets
|
|
|
(7,152
|
)
|
|
|
(52
|
)
|
Other non-cash activity, net
|
|
|
61
|
|
|
|
(628
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
(15,058
|
)
|
|
|
(3,919
|
)
|
Prepaid expenses and other current assets
|
|
|
(1,250
|
)
|
|
|
(4,374
|
)
|
Payables and other liabilities
|
|
|
19,956
|
|
|
|
(3,225
|
)
|
Operating activities from discontinued operations, net
|
|
|
(6,597
|
)
|
|
|
2,606
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
28,306
|
|
|
|
34,206
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(28,931
|
)
|
|
|
(33,106
|
)
|
Net sales (purchases) of marketable securities
|
|
|
23,545
|
|
|
|
(41
|
)
|
Cash proceeds from sale of discontinued operations
|
|
|
127,833
|
|
|
|
|
|
Cash proceeds from sale of operating assets
|
|
|
11,398
|
|
|
|
88
|
|
Other investing activities, net
|
|
|
|
|
|
|
58
|
|
Investing activities from discontinued operations, net
|
|
|
(5,455
|
)
|
|
|
(1,338
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
128,390
|
|
|
|
(34,339
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Net cash transfers from (to) Discovery Holding Company
(DHC)
|
|
|
(1,735
|
)
|
|
|
2,380
|
|
Payment of capital lease obligation
|
|
|
(516
|
)
|
|
|
(469
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(2,251
|
)
|
|
|
1,911
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
154,445
|
|
|
|
1,778
|
|
Cash and cash equivalents at beginning of period
|
|
|
201,633
|
|
|
|
154,455
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
356,078
|
|
|
|
156,233
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activity:
|
|
|
|
|
|
|
|
|
Capital lease
|
|
$
|
|
|
|
|
5,774
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
I-3
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Condensed
Consolidated Statement of Stockholders Equity
Nine months ended September 30, 2008
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Preferred
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Parents
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Stock
|
|
|
Series A
|
|
|
Series B
|
|
|
Series C
|
|
|
Capital
|
|
|
Investment
|
|
|
Deficit
|
|
|
Earnings
|
|
|
Equity
|
|
|
|
amounts in thousands
|
|
|
Balance at January 1, 2008
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,437,520
|
|
|
|
(761,337
|
)
|
|
|
10,713
|
|
|
|
686,896
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,269
|
|
|
|
|
|
|
|
33,269
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,631
|
)
|
|
|
(4,631
|
)
|
Contribution of net operating losses from DHC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,694
|
|
|
|
|
|
|
|
|
|
|
|
23,694
|
|
Net cash transfers to DHC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,735
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,735
|
)
|
Change in capitalization in connection with AMC Spin Off
(note 2)
|
|
|
|
|
|
|
134
|
|
|
|
7
|
|
|
|
|
|
|
|
1,459,338
|
|
|
|
(1,459,479
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2008
|
|
$
|
|
|
|
$
|
134
|
|
|
|
7
|
|
|
|
|
|
|
|
1,459,338
|
|
|
|
|
|
|
|
(728,068
|
)
|
|
|
6,082
|
|
|
|
737,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
I-4
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2008
(unaudited)
|
|
(1)
|
Basis of
Presentation
|
For periods prior to the September 17, 2008 consummation of
the spin off transaction (AMC Spin Off) described in
note 2, the accompanying condensed consolidated financial
statements of Ascent Media Corporation (AMC or the
Company) represent a combination of the historical
financial information of (1) Ascent Media Group, LLC
(Ascent Media), a wholly-owned subsidiary of DHC,
(2) Ascent Media CANS, LLC (dba AccentHealth)
(AccentHealth), a wholly-owned subsidiary of DHC
until its sale on September 4, 2008 (see
note 3) and (3) cash and investment assets of
DHC. For the period following September 17, 2008, the
accompanying condensed consolidated financial statements of AMC
represent AMC and its consolidated subsidiaries. The AMC Spin
Off has been accounted for at historical cost due to the pro
rata nature of the distribution.
AMC is comprised of two reportable segments. AMCs creative
services group provides services necessary to complete the
creation of original content, including feature films,
mini-series, television shows, television commercials, music
videos, promotional and identity campaigns, and corporate
communications programming. The group manipulates or enhances
original visual images captured in principal photography or
creates new three dimensional images and animation sequences. In
addition, the creative services group provides a full complement
of facilities and services necessary to archive, manage and
repurpose completed media assets for global distribution via
freight, satellite, fiber, and the Internet. The network
services group provides the facilities and services necessary to
assemble and distribute programming content for cable and
broadcast networks via fiber, satellite, and the Internet to
programming providers in North America, Europe, and Asia.
Additionally, the network services group provides systems
integration, design, consulting, engineering and project
management services for the worldwide broadcast, cable
television, broadband, government and telecommunications markets.
AccentHealth operated an advertising-supported captive audience
television network in doctor office waiting rooms nationwide,
and was included as part of the network services group for
financial reporting purposes until its sale on September 4,
2008.
The accompanying interim condensed consolidated financial
statements are unaudited but, in the opinion of management,
reflect all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the results for
such periods. The results of operations for any interim period
are not necessarily indicative of results for the full year.
These condensed consolidated financial statements should be read
in conjunction with the Ascent Media Group December 31,
2007 combined financial statements and notes thereto included in
the Companys Information Statement, which was filed as
Exhibit 99.1 to the Companys Registration Statement
on Form 10, as amended, as filed with the Securities and
Exchange Commission on September 17, 2008 (the
Information Statement).
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles
(GAAP) requires management to make estimates and
assumptions that affect the reported amounts of revenue and
expenses for each reporting period. The significant estimates
made in preparation of the Companys condensed consolidated
financial statements primarily relate to valuation of goodwill,
other intangible assets, long-lived assets, deferred tax assets,
and the amount of the allowance for doubtful accounts. Actual
results could differ from the estimates upon which the carrying
values were based.
|
|
(2)
|
AMC 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 AMC to
the holders of DHC Series A and Series B common stock.
The AMC Spin Off was approved in connection with a transaction
between DHC and Advance/Newhouse Programming Partnership
(Advance/Newhouse) signed on June 4, 2008,
pursuant to which DHC and Advance/Newhouse combined their
respective indirect interests in Discovery Communications, LLC
(Discovery), a leading global media and
entertainment company.
I-5
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial
Statements (Continued)
The AMC 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 AMC Series A and Series B common stock,
respectively. Holders of DHC common stock on September 17,
2008 received 0.05 of a share of AMC Series A common stock
for each share of DHC Series A common stock owned and 0.05
of a share of AMC Series B common stock for each share of
DHC Series B common stock owned. Approximately
13,399,000 shares of AMC Series A common stock and
660,000 shares of AMC Series B common stock were
issued in the AMC Spin Off. The AMC 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 U.S. federal income tax purposes.
Following the AMC Spin Off, AMC and DHC operate independently,
and neither has any stock ownership, beneficial or otherwise, in
the other. In connection with the AMC Spin Off, AMC and DHC
entered into certain agreements in order to govern certain of
the ongoing relationships between AMC and DHC after the AMC Spin
Off and to provide mechanisms for an orderly transition. These
agreements include a Reorganization Agreement, a Services
Agreement and a Tax Sharing Agreement.
The Reorganization Agreement provides for, among other things,
the principal corporate transactions required to effect the AMC
Spin Off and cross indemnities. Pursuant to the Services
Agreement, AMC will provide a subsidiary of DHC with certain
general and administrative services for a one-year period
beginning on the date of the AMC Spin Off, including accounting,
finance, human resources, information technology, payroll and
real estate management services. In consideration for such
services, DHCs subsidiary will pay AMC a fee of
$1,000,000. DHCs subsidiary will also reimburse AMC for
any out-of-pocket expenses incurred by AMC in providing these
services. In addition, during the term of the Services
Agreement, AMC has agreed to make cash advances to such
subsidiary of DHC from time to time, in an aggregate principal
amount not to exceed $1.5 million, as reasonably required
to meet this DHC subsidiarys current payroll and to pay
third-party vendors in the ordinary course of its business. Such
advances will be due and payable in full on the first
anniversary of the AMC Spin Off and will bear interest at the
prime rate, calculated on an average daily balance basis.
Under the Tax Sharing Agreement, AMC will be responsible for all
taxes attributable to it or one of its subsidiaries, whether
accruing before, on or after the AMC Spin Off (other than any
such taxes for which DHC is responsible under the Tax Sharing
Agreement). AMC has 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 AMC Spin Off
(and for any tax period that begins on or before and ends after
the date of the AMC Spin Off, for the portion of that period on
or before the date of the AMC Spin Off), other than such taxes
arising as a result of the AMC Spin Off and related internal
restructuring of DHC and (ii) all taxes arising as a result
of the AMC 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 will be responsible for (i) all
U.S. federal, state, local and foreign income taxes
attributable to DHC or any of its subsidiaries for any tax
period that begins after the date of the AMC Spin Off (and for
any tax period that begins on or before and ends after the date
of the AMC Spin Off, for the portion of that period after the
date of the AMC Spin Off), other than such taxes arising as a
result of the AMC Spin Off and related internal restructuring of
DHC, (ii) all taxes arising as a result of the AMC Spin Off
to the extent such taxes arise as a result of any breach on or
after the date of the AMC 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 AMC 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
AMC Spin Off by DHC or a subsidiary or shareholder of DHC.
Pursuant to a Services Agreement between Liberty Media
Corporation (Liberty) and AMC, Liberty will provide
certain general and administrative services including legal,
tax, accounting, treasury and investor relations support. AMC
will reimburse Liberty for direct, out-of-pocket expenses
incurred by Liberty in providing these
I-6
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial
Statements (Continued)
services and for AMCs allocable portion of costs
associated with any shared services or personnel. Liberty and
AMC have agreed that they will review cost allocations every six
months and adjust such charges, if appropriate.
|
|
(3)
|
Discontinued
Operations
|
The condensed consolidated financial statements and accompanying
notes of AMC have been prepared reflecting the following
businesses as discontinued operations in accordance with
Statement of Financial Accounting Standard No. 144
Accounting for the Impairment and Disposal of
Long-lived Assets.
On September 4, 2008, AMC completed the sale of 100% of its
ownership interests in AccentHealth, part of the network
services group, to an unaffiliated third party for net cash
proceeds of $118,643,000. AMCs board of directors
determined that AccentHealth was a non-core asset, and that the
sale of AccentHealth would be consistent with the Companys
strategy to invest in core business operations, while seeking
opportunities to divest of non-core assets, where appropriate.
AMC recognized a pre-tax gain on the sale of $63,929,000,
subject to customary post-closing adjustments, and $27,537,000
of income tax expense on the gain. Such gain and related income
tax expense are included in earnings from discontinued
operations in the accompanying condensed consolidated statement
of operations.
On September 8, 2008, AMC sold 100% of the outstanding
membership interests in Ascent Media Systems &
Technology Services, LLC, part of the network services group,
located in Palm Bay, Florida (Palm Bay), to an
unaffiliated third party for net cash proceeds of $7,040,000.
AMCs board of directors determined that Palm Bay was a
non-core asset, and it does not anticipate that the sale of Palm
Bay will materially impact the remaining businesses and assets
of AMC. AMC recognized a pre-tax gain on the sale of $3,370,000
and recorded income tax expense on the gain of $1,452,000. Such
gain and related income tax expense are included in earnings
from discontinued operations in the accompanying condensed
consolidated statement of operations.
On September 30, 2008, AMC sold 100% of its ownership
interest in Visiontext Limited (Visiontext), part of
the creative services group, to an unaffiliated third party for
net cash proceeds of $2,150,000. AMC recognized a pre-tax gain
on the sale of $1,777,000 and recorded income tax expense on the
gain of $497,000. Such gain and related income tax expense are
included in earnings from discontinued operations in the
accompanying condensed consolidated statement of operations.
The following table presents the results of operations of the
discontinued operations that are included in Earnings from
discontinued operations, net of income tax:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
amounts in thousands
|
|
|
Revenue
|
|
|
30,394
|
|
|
|
29,483
|
|
Earnings before income taxes(1)
|
|
|
77,236
|
|
|
|
6,678
|
|
|
|
|
(1) |
|
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. |
|
|
(4)
|
Long-Term
Incentive Compensation
|
2006
Ascent Media Long-Term Incentive Plan
Ascent Media 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 Ascent Media. 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
I-7
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial
Statements (Continued)
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 Ascent Media, 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 our board of directors. Grants are
determined by the committee, with the first grant occurring on
August 3, 2006. The maximum number of PARs that may be
granted under the 2006 Plan is 500,000, and there were 483,500
PARs granted as of September 30, 2008. 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. Ascent
Media records a liability and a charge to expense based on the
PAR Value and percent vested at each reporting period.
Prior to the most recent amendment of the 2006 Plan, the
calculated value and free cash flow of AccentHealth were
included in determining the PAR value. Effective
September 9, 2008, the 2006 Plan was amended to reflect the
sale of AccentHealth. As a result of the amendment, Ascent Media
will make 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 will
be made over a three year period, beginning in February 2009,
with the majority of grantees receiving their entire
distribution in 2009. Ascent Media recorded a liability and a
charge to selling, general and administrative expense of
$3,598,000 for such distribution.
Ascent
Media Corporation 2008 Incentive Plan
The Ascent Media Corporation 2008 Incentive Plan (the 2008
incentive plan) became available to certain employees and
independent contractors on the Spin Off Date. The 2008 incentive
plan is designed to provide additional compensation to certain
employees and independent contractors for services rendered, to
encourage their investment in AMCs 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 AMCs common stock with respect to which
awards may be granted 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. As of
September 30, 2008, no awards had been granted.
Other
As of the Spin Off Date, DHC stock options held by a certain
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 AMC 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 AMC Series A
options with exercise prices ranging from $16.70 to $29.42 and
76,210 AMC 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 may elect, 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
are fully vested. The AMC Series B options (and the AMC
Series A options into which such Series B options may
be converted) expire in 3 years. The rest of the AMC
Series A options expire in 5 to 9 years.
|
|
(5)
|
Basic and
Diluted Earnings (Loss) Per Common Share
Series A and Series B
|
Basic and diluted earnings (loss) per common share
(EPS) is computed by dividing net earnings (loss) by
the number of Series A and Series B common shares
outstanding for the period. The number of shares outstanding for
periods prior to the Spin Off Date is 14,058,831 shares,
which is the number of shares that were issued on the Spin
I-8
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial
Statements (Continued)
Off Date. Dilutive EPS presents the dilutive effect on a per
share basis of potential common shares as if they had been
converted at the beginning of the periods presented. As of
September 30, 2008, the options to purchase AMC common
stock had a dilutive effect of 20,664 shares.
At September 30, 2008 and December 31, 2007, the
entire $95,069,000 of goodwill is included in the creative
services group. In September 2006, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value
Measurements (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair
value under GAAP, and expands disclosures about fair value
measurements. SFAS 157 was effective for financial
statements issued for fiscal years and interim periods beginning
after November 15, 2007. However, the effective date of
SFAS 157 has been deferred to fiscal years beginning after
November 15, 2008 and interim periods within those years,
and AMC has elected the deferral provision, as it relates to
fair value measurement requirements for (i) nonfinancial
assets and liabilities that are not remeasured at fair value on
a recurring basis (e.g. asset retirement obligations,
restructuring liabilities and assets and liabilities acquired in
business combinations) and (ii) fair value measurements
required for impairments under SFAS No. 142,
Goodwill and Other Intangible Assets and
SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets.
Although AMC was included in the DHC consolidated tax returns
while it was a subsidiary of DHC, AMC has accounted for income
taxes on a separate company return basis in the accompanying
condensed consolidated financial statements. Such methodology
resulted in AMC recording income taxes payable prior to the AMC
Spin Off. Because DHC had net operating losses to offset
$23,694,000 of the tax payable in its consolidated tax return,
AMC reduced its income tax payable by this amount immediately
prior to the AMC Spin Off with an offsetting increase to
additional paid-in capital.
During the first quarter of 2008, 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 IRS agreement resulted in a reduction of $5,370,000 and
$30,808,000 to the amount of federal and California net
operating losses (NOLs), respectively, that Liberty
allocated to the Company at the time of the 2005 spin off. The
reduction in the Companys federal NOLs resulted in tax
expense of $1,880,000 (35% of $5,370,000). The Company did not
expect to utilize the California NOLs, and had thus recorded a
valuation allowance with respect to such NOLs. Therefore, the
reduction in California NOLs was offset by a reduction in the
corresponding valuation allowance and resulted in no net tax
expense.
At September 30, 2008 AMC has fully utilized its
federal net operating losses against its current and
discontinued operations. The Company has $252 million of
California net operating losses to carry forward, which are
subject to a gross $129 million valuation allowance and a
tax effected amount of $7,417,000.
At September 30, 2008 AMC has provided for
$1,876,000 of U.S. tax expense for future repatriation
of cash from its Singapore operations pursuant to APB Opinion
No. 23,Accounting for Income Taxes
Special Areas. This charge represents all
undistributed earnings from Singapore not previously taxed in
the U.S. In addition, AMC has received a benefit of
$2,144,000 of foreign tax credits from its Singapore
operations, now available for use in 2008 and future years by
AMC.
As of January 1, 2008, the Companys tax reserves
related to unrecognized tax benefits for uncertain tax positions
were not significant. The Company does not expect that the total
amounts of unrecognized tax benefits will significantly increase
or decrease during the year ended December 31, 2008.
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 (expense), net, in the accompanying condensed
consolidated statements of operations. Any accrual of penalties
related to underpayment of income taxes on uncertain tax
positions is included in
I-9
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial
Statements (Continued)
other income (expense), net, in the accompanying condensed
consolidated statements of operations. As of September 30,
2008, accrued interest and penalties related to uncertain tax
positions were not significant.
|
|
(8)
|
Commitments,
Contingencies and Other Liabilities
|
The Company is involved in litigation and similar claims
incidental to the conduct of its business. In managements
opinion, none of the pending actions is likely to have a
material adverse impact on the Companys financial position
or results of operations.
The Company and its subsidiaries lease offices, satellite
transponders and certain equipment under capital and operating
lease arrangements.
On December 31, 2003, AMC acquired the operations of Sony
Electronics systems integration center business and
related assets, which we refer to as SIC. In the 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 AMCs
wholly owned subsidiary, AF Associates, Inc. (AF
Associates), and SIC. The value of 20% of the combined
business of AF Associates and SIC is estimated at $6,100,000. On
July 30, 2008, AMC and Sony Electronics entered in to an
amended agreement which required AMC to immediately pay
$1,874,000 to Sony Electronics as a partial payment of the 20%
of value, but delayed any further payments until a date no
earlier than December 31, 2012. As a result of this amended
agreement and payment to Sony Electronics, the estimated
remaining liability was reduced from $6,100,000 to $4,226,000,
and such amount is included in other liabilities in the
accompanying condensed consolidated balance sheet. The combined
business of AF Associates and SIC is included in AMCs
network services group.
|
|
(9)
|
Related
Party Transactions
|
AMC provides services, such as satellite uplink, systems
integration, origination, and post-production, to Discovery
Communications, Inc. (DCI). AMC, previously a
wholly-owned subsidiary of DHC, and DCI, previously an equity
investment of DHC, were related parties through the Spin Off
Date. Revenue recorded by AMC for these services in 2008 through
the Spin Off Date and for the nine months ended
September 30, 2007 aggregated $24,727,000 and $34,281,000,
respectively. AMC continues to provide services to DCI
subsequent to the Spin Off Date.
|
|
(10)
|
Information
About Reportable Segments
|
The Companys chief operating decision maker, or his
designee (the CODM), has identified the
Companys reportable segments based on (i) financial
information reviewed by the CODM and (ii) those operating
segments that represent more than 10% of the Companys
combined revenue or earnings before taxes. Based on the
foregoing criteria, the Companys business units have been
aggregated into two reportable segments: the creative services
group and the network services group.
The creative services group provides services necessary to
complete the creation of original content, including feature
films, mini-series, television shows, television commercials,
music videos, promotional and identity campaigns and corporate
communications. These services are referred to generally in the
entertainment industry as post-production services.
In addition, the creative services group provides a full
complement of facilities and services necessary to archive,
manage and repurpose completed media assets for global
distribution via freight, satellite, fiber and the Internet. The
network services group provides the facilities and services
necessary to assemble and distribute programming content for
cable and broadcast networks via fiber, satellite and the
Internet to programming providers in North America, Europe and
Asia. Additionally, the network services group provides systems
integration, design, consulting, engineering and project
management services for the worldwide broadcast, cable
television, broadband, government and telecommunications markets.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies and
are consistent with GAAP.
I-10
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial
Statements (Continued)
The Company evaluates the performance of these operating
segments based on financial measures such as revenue and
adjusted operating income before depreciation and amortization
(adjusted OIBDA). The Company defines 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). This non-GAAP financial measure is used by
management to view operating results and perform analytical
comparisons and identify strategies to improve performance.
The Companys reportable segments are strategic business
units that offer different products and services. They are
managed separately because each segment requires different
technologies, distribution channels and marketing strategies.
Summarized financial information concerning the Companys
reportable segments is presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
|
|
|
|
Creative
|
|
|
Network
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Services
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Group
|
|
|
Group(1)
|
|
|
Total
|
|
|
Other(2)
|
|
|
Total
|
|
|
|
|
|
|
amounts in thousands
|
|
|
|
|
|
Three months ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
84,235
|
|
|
|
61,911
|
|
|
|
146,146
|
|
|
|
|
|
|
|
146,146
|
|
Adjusted OIBDA
|
|
$
|
7,661
|
|
|
|
7,847
|
|
|
|
15,508
|
|
|
|
(7,055
|
)
|
|
|
8,453
|
|
Capital expenditures
|
|
$
|
8,484
|
|
|
|
4,895
|
|
|
|
13,379
|
|
|
|
1,504
|
|
|
|
14,883
|
|
Total assets
|
|
$
|
334,495
|
|
|
|
195,194
|
|
|
|
529,689
|
|
|
|
355,314
|
|
|
|
885,003
|
|
Nine months ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
242,317
|
|
|
|
230,285
|
|
|
|
472,602
|
|
|
|
|
|
|
|
472,602
|
|
Adjusted OIBDA
|
|
$
|
19,351
|
|
|
|
33,258
|
|
|
|
52,609
|
|
|
|
(19,354
|
)
|
|
|
33,255
|
|
Capital expenditures
|
|
$
|
17,508
|
|
|
|
7,628
|
|
|
|
25,136
|
|
|
|
3,795
|
|
|
|
28,931
|
|
Three months ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
84,679
|
|
|
|
67,608
|
|
|
|
152,287
|
|
|
|
|
|
|
|
152,287
|
|
Adjusted OIBDA
|
|
$
|
11,014
|
|
|
|
10,189
|
|
|
|
21,203
|
|
|
|
(5,650
|
)
|
|
|
15,553
|
|
Capital expenditures
|
|
$
|
4,900
|
|
|
|
4,469
|
|
|
|
9,369
|
|
|
|
387
|
|
|
|
9,756
|
|
Nine months ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
257,334
|
|
|
|
183,131
|
|
|
|
440,465
|
|
|
|
|
|
|
|
440,465
|
|
Adjusted OIBDA
|
|
$
|
32,332
|
|
|
|
24,021
|
|
|
|
56,353
|
|
|
|
(16,905
|
)
|
|
|
39,448
|
|
Capital expenditures
|
|
$
|
17,386
|
|
|
|
12,131
|
|
|
|
29,517
|
|
|
|
3,589
|
|
|
|
33,106
|
|
|
|
|
(1) |
|
Included in network services group revenue is broadcast services
revenue of $32,201,000 and $31,089,000 and systems integration
revenue of $29,710,000 and $36,519,000 for the three months
ended September 30, 2008 and 2007, respectively. Included
in network services group revenue is broadcast services revenue
of $101,321,000 and $96,173,000 and systems integration revenue
of $128,964,000 and $86,958,000 for the nine months ended
September 30, 2008 and 2007, respectively. |
|
(2) |
|
Amounts shown in other provide a reconciliation of total
reportable segments to the Companys consolidated total.
Included in other is (i) SG&A expenses and capital
expenditures incurred at a corporate level and (ii) assets
held at a corporate level mainly comprised of cash, investments
in marketable securities and deferred income tax assets. |
I-11
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial
Statements (Continued)
The following table provides a reconciliation of consolidated
segment adjusted OIBDA to earnings (loss) before income taxes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
amounts in thousands
|
|
|
|
|
|
Consolidated segment adjusted OIBDA
|
|
$
|
15,508
|
|
|
|
21,203
|
|
|
|
52,609
|
|
|
|
56,353
|
|
Corporate selling, general and administrative expenses
|
|
|
(7,055
|
)
|
|
|
(5,650
|
)
|
|
|
(19,354
|
)
|
|
|
(16,905
|
)
|
Stock-based and long-term incentive compensation
|
|
|
(3,597
|
)
|
|
|
(111
|
)
|
|
|
(3,313
|
)
|
|
|
(1,018
|
)
|
Accretion expense on asset retirement obligations
|
|
|
(61
|
)
|
|
|
(80
|
)
|
|
|
(190
|
)
|
|
|
(236
|
)
|
Restructuring and other charges
|
|
|
(1,436
|
)
|
|
|
(192
|
)
|
|
|
(2,699
|
)
|
|
|
(192
|
)
|
Depreciation and amortization
|
|
|
(15,103
|
)
|
|
|
(15,846
|
)
|
|
|
(45,785
|
)
|
|
|
(46,634
|
)
|
Gain on sale of operating assets, net
|
|
|
7,332
|
|
|
|
63
|
|
|
|
7,152
|
|
|
|
52
|
|
Other, net
|
|
|
2,935
|
|
|
|
2,546
|
|
|
|
5,126
|
|
|
|
7,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before income tax
|
|
$
|
(1,477
|
)
|
|
|
1,933
|
|
|
|
(6,454
|
)
|
|
|
(1,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information as to the Companys operations in different
geographic areas is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
amounts in thousands
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
110,098
|
|
|
|
115,781
|
|
|
|
351,613
|
|
|
|
331,531
|
|
|
|
|
|
United Kingdom
|
|
|
31,439
|
|
|
|
30,505
|
|
|
|
104,106
|
|
|
|
90,339
|
|
|
|
|
|
Other countries
|
|
|
4,609
|
|
|
|
6,001
|
|
|
|
16,883
|
|
|
|
18,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
146,146
|
|
|
|
152,287
|
|
|
|
472,602
|
|
|
|
440,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
amounts in thousands
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
159,457
|
|
|
|
167,583
|
|
United Kingdom
|
|
|
56,555
|
|
|
|
68,548
|
|
Other countries
|
|
|
18,806
|
|
|
|
22,895
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
234,818
|
|
|
|
259,026
|
|
|
|
|
|
|
|
|
|
|
I-12
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Certain statements in this Quarterly Report on
Form 10-Q
constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including
statements regarding our business, marketing and operating
strategies, integration of acquired businesses, new service
offerings, financial prospects, and anticipated sources and uses
of capital. Where, in any forward-looking statement, we express
an expectation or belief as to future results or events, such
expectation or belief is expressed in good faith and believed to
have a reasonable basis, but there can be no assurance that the
expectation or belief will result or be achieved or
accomplished. The following include some but not all of the
factors that could cause actual results or events to differ
materially from those anticipated:
|
|
|
|
|
lack of operating history;
|
|
|
|
general economic and business conditions and industry trends
including the timing of, and spending on, motion picture,
television and television advertising;
|
|
|
|
integration of acquired businesses;
|
|
|
|
the regulatory and competitive environment of the industries in
which we and our customers operate;
|
|
|
|
retention of our largest customer accounts;
|
|
|
|
availability of third-party satellite and terrestrial
connectivity services relied on by us to provide our services;
|
|
|
|
the possibility of an industry-wide strike or other job action
affecting a major entertainment industry union, or the duration
of any existing strike or job action;
|
|
|
|
rapid technological changes;
|
|
|
|
future financial performance, including availability, terms and
deployment of capital;
|
|
|
|
the outcome of any pending or threatened litigation;
|
|
|
|
availability of qualified personnel;
|
|
|
|
changes in, or failure or inability to comply with, government
regulations, including, without limitation, regulations of the
Federal Communications Commission, and adverse outcomes from
regulatory proceedings;
|
|
|
|
competitor and overall market response to our products and
services, including acceptance of the pricing of such products
and services; and
|
|
|
|
risk of loss from earthquakes and other catastrophic events.
|
For additional risk factors, please see the Information
Statement, which was included in our Registration Statement on
Form 10, as amended, as filed with the Securities and
Exchange Commission on September 17, 2008 (the
Information Statement). These forward-looking
statements and such risks, uncertainties and other factors speak
only as of the date of this Quarterly Report, and we expressly
disclaim any obligation or undertaking to disseminate any
updates or revisions to any forward-looking statement contained
herein, to reflect any change in our expectations with regard
thereto, or any other change in events, conditions or
circumstances on which any such statement is based.
The following discussion and analysis provides information
concerning our results of operations and financial condition.
This discussion should be read in conjunction with our
accompanying condensed consolidated financial statements and the
notes thereto included elsewhere herein and the combined
financial statements and notes thereto included in the
Information Statement.
I-13
Overview
We are a holding company and own 100% of our principal operating
subsidiary, Ascent Media Group, LLC (Ascent Media).
We recently sold our other wholly-owned operating subsidiary,
Ascent Media CANS, LLC (dba AccentHealth)
(AccentHealth).
AMC
Spin Off
On September 17, 2008, Discovery Holding Company
(DHC) completed the spin off of our capital stock to
the holders of DHC Series A and Series B common stock
(the AMC Spin Off). The AMC Spin Off was effected as
a distribution by DHC to holders of its Series A and
Series B common stock of shares of our Series A and
Series B common stock. The AMC 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
Section 368(a) and 355 of the Internal Revenue Code of
1986, as amended, for U.S. federal income tax purposes. The
AMC Spin Off was accounted for at historical cost due to the pro
rata nature of the distribution. The AMC Spin Off was made as a
dividend to holders of record of DHC common stock as of the
close of business on September 17, 2008. The AMC Spin Off
was approved by the board of directors of DHC in connection with
a transaction between DHC and Advance/Newhouse Programming
Partnership (Advance/Newhouse), pursuant to which
DHC and Advance/Newhouse combined their respective interests in
Discovery Communications Holding, LLC. It was a condition to the
AMC Spin Off that the agreement between DHC and Advance/Newhouse
relating to that transaction was in effect and that all
conditions precedent to that transaction (other than the AMC
Spin Off and certain conditions to be satisfied at the closing
thereof) had been satisfied or, to the extent waivable, waived.
Following the AMC Spin Off, we are a separate publicly traded
company, and we and DHC operate independently.
As a result of becoming a separate publicly traded company, we
expect to incur costs and expenses greater than those we
incurred as a subsidiary of DHC. These increased costs and
expenses will arise from various factors, including, but not
limited to:
|
|
|
|
|
Costs associated with complying with the federal securities
laws, including compliance with the Sarbanes-Oxley Act of 2002;
|
|
|
|
Increased professional fees for annual and quarterly public
reporting requirements, tax consulting and legal counseling;
|
|
|
|
Fees paid to our board of directors; and
|
|
|
|
Fees associated with public company requirements, such as
listing our Series A common stock on the Nasdaq Global
Market, filing and printing our reporting requirements,
stockholder related expenses and investor relations related
expenses.
|
We estimate that these costs and expenses, in the aggregate,
could result in approximately $5 to $7 million of
additional annual expense.
Ascent
Media
Ascent Media provides creative and network services to the media
and entertainment industries in the United States, the United
Kingdom (UK) and Singapore. Ascent Medias
clients include major motion picture studios, independent
producers, broadcast networks, programming networks, advertising
agencies and other companies that produce, own
and/or
distribute entertainment, news, sports, corporate, educational,
industrial and advertising content. Ascent Medias
operations are organized into two groups: the creative services
group and the network services group.
On November 5, 2007, Writers Guild of America, East and
West (Writers Guild) declared a strike affecting the
script writing for television shows and films. The strike, which
lasted until February 12, 2008, had a significant adverse
effect on the revenue generated by Ascent Medias creative
services business for services provided on new entertainment
projects utilizing scripted content and the production of new
television commercials. The
2007-2008
television season was significantly affected by the strike.
Networks and producers resumed production of some
I-14
scripted television programming interrupted by the strike.
However, some programming never resumed production for that
season.
The contract between the Screen Actors Guild and the Alliance of
Motion Picture and Television Producers (AMPTP) for
theatrical motion picture and television performances expired on
June 30, 2008, without agreement on terms for a new
contract. The Screen Actors Guild continues to work under the
terms of the expired contract but the failure to finalize and
ratify a new agreement with the AMPTP could lead to a strike or
other job action. Any such labor dispute could have an adverse
effect on the television and motion picture production
industries, including Ascent Medias business, and in the
case of a severe or prolonged work stoppage, the adverse effect
on Ascent Medias business, operations, results of
operations
and/or
financial condition could be material.
In recent years, Ascent Media has been challenged by increasing
competition and resulting downward rate pressure for certain of
its networks services. Such factors have caused some margin
compression and lower operating income. Ascent Media believes
that while its networks services margins in 2007 and 2008 are
lower than in some previous years, they have stabilized for the
time being, and Ascent Media is continuing to focus on
leveraging its broad array of traditional media and file-based
services to be a full service provider to new and existing
customers within the feature film, television production and
advertising industries. Its strategy focuses on providing a
unified portfolio of business-to-business services intended to
enable media companies to realize increasing benefits from
digital distribution. With facilities in the U.S., the U.K. and
Singapore, Ascent Media hopes to increase its services to
multinational companies on a worldwide basis. The challenges
that it faces include increased competition in both its creative
and network services, the continuing need to incur capital
expenditures for equipment and other items to meet
customers requirements for integrated and file-based
workflows, technological challenges relating to the continued
development of end to end file-based solutions, and the need to
continue to differentiate products and services to help maintain
or increase operating margins.
Discontinued
Operations
The condensed consolidated financial statements and accompanying
notes of Ascent Media Corporation (AMC), included
elsewhere herein, have been prepared to reflect the following
businesses as discontinued operations for all periods presented.
AccentHealth
AccentHealth, which we acquired on January 27, 2006,
operates an advertising-supported captive audience television
network in doctor office waiting rooms nationwide. AccentHealth
was part of the network 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 $118,643,000. Our board of directors determined that
AccentHealth was a non-core asset, and 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 subject to customary post-closing adjustments, and
$27,537,000 of income tax expense on the gain. We do not
anticipate that the sale of AccentHealth will materially impact
our remaining businesses and assets.
Palm
Bay
Ascent Media Systems & Technology Services, LLC,
located in Palm Bay, Florida (Palm Bay), provides
field service operations through an on-staff network of field
engineers located throughout the United States and was part of
the network services group. Services include preventative and
reactive maintenance of satellite earth stations, fiber-based
digital transmission facilities, cable and telecommunications
stations, and other technical facilities for the distribution of
video content. It also operates a call center and a network
operations center. Palm Bays clients include major
U.S. broadcast and cable networks, telecommunications
providers, digital equipment manufacturers, and government and
corporate operations. On September 8, 2008, we sold Palm
Bay to an unaffiliated third party for net cash proceeds of
$7,040,000. We recognized a gain on this sale of $3,370,000, and
income tax expense of $1,452,000 on such gain.
I-15
Visiontext
Visiontext Limited (Visiontext) operates a
post-production subtitling business in the U.K. and
U.S. and was part of the creative services group. On
September 30, 2008, we sold Visiontext to an unaffiliated
third party for net cash proceeds of $2,150,000. We recognized a
gain on this sale of $1,777,000, and income tax expense of
$497,000 on such gain.
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 (adjusted
OIBDA). We define segment 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). We believe
this non-GAAP financial measure is an important indicator of the
operational strength and performance of our businesses,
including each business ability to invest in ongoing
capital expenditures and service any debt. In addition, this
measure is used by management to view operating results and
perform analytical comparisons and identify strategies to
improve performance. This measure of performance excludes
depreciation and amortization, stock-based and long-term
incentive compensation, accretion expense on asset retirement
obligations, restructuring and impairment charges that are
included in the measurement of operating income pursuant to
GAAP. Accordingly, adjusted OIBDA should be considered in
addition to, but not as a substitute for, operating income, cash
flow provided by operating activities and other measures of
financial performance prepared in accordance with GAAP.
Results
of Operations
Our operations are organized into two groups: creative services
and the network services.
Ascent Medias creative services group generates revenue
primarily from fees for post production, special effects and
editorial services for the television, feature film and
advertising industries. Generally, these services pertain to the
completion of feature films, television programs and television
commercials. These projects normally span from a few days to
three months or more in length, and fees for these projects
typically range from $10,000 to $1,000,000 per project.
Additionally, the creative services group provides owners of
film libraries a broad range of restoration, preservation,
archiving, professional mastering and duplication services. The
scope of these creative services vary in duration from one day
to several months depending on the nature of the service, and
fees typically range from less than $1,000 to $100,000 per
project. The creative services group includes Ascent
Medias digital media distribution center, which provides
file-based services in areas such as digital imaging, digital
vault, distribution services and interactive media to new and
existing distribution platforms.
The network services groups revenue consists of fees
relating to facilities and services necessary to assemble and
transport programming for cable and broadcast networks across
the world via fiber, satellite and the Internet. The group also
includes the Ascent Media Systems & Technology
Services division (S&TS), which derives revenue
from systems integration and field support services, technology
consulting services, design and implementation of advanced video
systems and engineering project management. For the nine months
ended September 30, 2008, approximately 44% of the network
services groups revenue relates to broadcast services,
satellite operations and fiber services that are earned monthly
under long-term contracts ranging generally from one to seven
years. Additionally, approximately 56% of revenue relates to
systems integration and engineering services that are provided
on a project basis over terms generally ranging from three to
twelve months.
I-16
Three and
Nine months ended September 30, 2008 and 2007
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|
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|
|
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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|
|
|
2008
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|
|
2007
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|
2008
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|
2007
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|
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dollar amounts in thousands
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|
Segment Revenue
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Creative Services group
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|
$
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84,235
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|
|
|
84,679
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|
|
|
242,317
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|
|
|
257,334
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|
Network Services group
|
|
$
|
61,911
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|
|
|
67,608
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|
|
|
230,285
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|
|
|
183,131
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|
Segment Adjusted OIBDA
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Creative Services group
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|
$
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7,661
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|
|
|
11,014
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|
|
|
19,351
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|
|
|
32,332
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|
Network Services group
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|
$
|
7,847
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|
|
|
10,189
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|
|
|
33,258
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|
|
|
24,021
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|
Segment Adjusted OIBDA as a percentage of Revenue
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Creative Services group
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9.1
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%
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|
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13.0
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%
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|
|
8.0
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%
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|
|
12.6
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%
|
Network Services group
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|
|
12.7
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%
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15.1
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%
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|
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14.4
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%
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|
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13.1
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%
|
Revenue. Our consolidated revenue decreased
$6,141,000 or 4.0% and increased $32,137,000 or 7.3% for the
three and nine months ended September 30, 2008, as compared
to the corresponding prior year period. The creative services
group revenue decreased $444,000 or 0.5% and $15,017,000 or 5.8%
for the three and nine months ended September 30, 2008,
respectively, while network services group revenue decreased
$5,697,000 or 8.4% and increased $47,154,000 or 25.7% for such
periods.
The decrease in creative services group revenue for the three
month period was due to (i) a decrease of $1,718,000 in
media services from lower digital, lab and DVD services and
(ii) unfavorable changes in foreign currency exchange rates
of $1,409,000, partially offset by an increase of $2,543,000 in
feature film revenue driven by increased titles for post
production work both in the U.S. and U.K. The decrease for
the nine month period was due to (i) a decrease of
$13,364,000 in television post production services primarily
driven by the impact of the Writers Guild strike earlier in the
year along with a weaker broadcast market in the U.K.,
(ii) a decrease of $2,956,000 in media services from lower
lab and digital services work, (iii) a decrease of
$2,090,000 in commercial revenue driven by a weaker worldwide
market in 2008, and (iv) unfavorable changes in foreign
currency exchange rates of $1,163,000. These decreases were
partially offset by an increase of $4,763,000 in feature film
revenue driven by increased titles for dailies and post
production services.
The decrease in the network services group revenue for the three
month period was mainly due to a decrease of $6,808,000 in
system integration services revenue primarily driven by the
timing of a large project in the third quarter of 2007. The
increase for the nine month period was due to (i) an
increase of $42,007,000 in system integration services revenue
reflecting a significant number of larger projects in 2008, with
one customer contributing to a significant amount of the
increase and (ii) an increase of $3,613,000 in content
distribution revenue in the U.S. and U.K.
For the nine months ended September 30, 2008, $65,178,000
of the network services group revenue was generated by one
customer, Motorola, Inc., under system integration services
contracts which expire in July 2009. We could only sustain this
level of revenue in the future if we enter into other contracts
of this same magnitude, of which there is no guarantee.
Additionally, from January 1, 2008 to September 17,
2008 and for the nine months ended September 30, 2007, the
network services group earned revenue from Discovery of
$24,727,000 and $34,281,000, respectively. We continue our
relationship with Discovery after the AMC Spin Off. Prior to the
AMC Spin Off, we were a wholly-owned subsidiary of DHC and
Discovery was an equity investment of DHC.
Cost of Services. Cost of services decreased
$417,000 or 0.4% and increased $35,748,000 or 11.5% for the
three and nine months ended September 30, 2008,
respectively, as compared to the corresponding prior year
period. The decrease for the three month period was mainly
attributable to network services resulting from lower volumes of
system integration services, which incur significant production
material costs. The decrease was partially offset by higher cost
of services in creative services driven by increases in features
post production work. The increase in cost of sales for the nine
month period was attributable to network services resulting from
higher volumes of system integration services, driving large
increases in production material costs. This increase was
partially offset by lower
I-17
cost of services in creative services driven by decreases in
television production services impacted by the Writers Guild
strike.
As a percent of revenue, cost of services was 72.9% and 70.2%
for the three month periods and 73.3% and 70.5% for the nine
months ended September 30, 2008 and 2007, respectively. The
percentage increase is mainly a result of revenue mix primarily
driven by the higher production material costs for system
integration projects. Additionally, creative services labor
costs decreased to a much lesser degree than revenue during the
period of the Writers Guild strike, with certain fixed costs
remaining regardless of the decline in revenue.
Selling, General and Administrative. Our
selling, general and administrative expenses
(SG&A) are comprised of the following:
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|
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|
Three Months Ended
|
|
|
Nine Months Ended
|
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|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
amounts in thousands
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|
|
SG&A
|
|
$
|
31,163
|
|
|
|
29,787
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|
|
|
93,012
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|
|
|
90,430
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|
Stock-based and long-term incentive compensation
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|
|
3,597
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|
|
|
111
|
|
|
|
3,313
|
|
|
|
1,018
|
|
Accretion expense on asset retirement obligations
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|
|
61
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|
|
|
80
|
|
|
|
190
|
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total SG&A
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|
$
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34,821
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|
|
|
29,978
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|
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96,515
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|
|
91,684
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|
Our SG&A, including AMC corporate expenses but excluding
stock-based and long-term incentive compensation and accretion
expense on asset retirement obligations, increased $1,376,000 or
4.6% and $2,582,000 or 2.9% for the three and nine months ended
September 30, 2008, respectively, as compared to the
corresponding prior year period. The increase was mainly driven
by higher facility costs related to duplicative rent as a
creative services business unit relocates to a new facility,
public company costs, primarily professional fees, and new
product development costs. As a percent of revenue, our
SG&A was 21.3% and 19.6% for the three month periods and
19.7% and 20.5% for the nine months ended September 30,
2008 and 2007, respectively.
Adjusted OIBDA. The following table provides a
reconciliation of consolidated segment adjusted OIBDA to
earnings (loss) before income taxes.
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|
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|
Three Months Ended
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|
|
Nine Months Ended
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|
|
September 30,
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|
|
September 30,
|
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|
|
2008
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2007
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2008
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|
|
2007
|
|
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|
amounts in thousands
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|
Consolidated segment adjusted OIBDA
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|
$
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15,508
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21,203
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|
|
|
52,609
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|
56,353
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|
Corporate selling, general and administrative expenses
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|
|
(7,055
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)
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|
|
(5,650
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)
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|
|
(19,354
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)
|
|
|
(16,905
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)
|
Stock-based and long-term incentive compensation
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|
|
(3,597
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)
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|
|
(111
|
)
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|
|
(3,313
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)
|
|
|
(1,018
|
)
|
Accretion expense on asset retirement obligations
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|
|
(61
|
)
|
|
|
(80
|
)
|
|
|
(190
|
)
|
|
|
(236
|
)
|
Restructuring and other charges
|
|
|
(1,436
|
)
|
|
|
(192
|
)
|
|
|
(2,699
|
)
|
|
|
(192
|
)
|
Depreciation and amortization
|
|
|
(15,103
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)
|
|
|
(15,846
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)
|
|
|
(45,785
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)
|
|
|
(46,634
|
)
|
Gain on sale of operating assets, net
|
|
|
7,332
|
|
|
|
63
|
|
|
|
7,152
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|
|
|
52
|
|
Other, net
|
|
|
2,935
|
|
|
|
2,546
|
|
|
|
5,126
|
|
|
|
7,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before income tax
|
|
$
|
(1,477
|
)
|
|
|
1,933
|
|
|
|
(6,454
|
)
|
|
|
(1,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjusted OIBDA as a percentage of revenue (OIBDA
Margin) was 5.8% and 10.2% for the three month periods and
7.0% and 9.0% for the nine months ended September 30, 2008
and 2007, respectively. The services provided by the creative
services group are very labor intensive and incur high facility
costs, with labor and facility costs representing over 71% of
revenue. The creative services groups other primary cost
components are production equipment, materials cost and general
and administrative expenses. Creative services group OIBDA
Margin was lower for 2008 compared to 2007 mainly due to the
impact of the Writers Guild strike, as certain fixed costs and
staffing requirements remained regardless of the decline in
revenue.
I-18
The primary cost components for the network services group are
labor and materials, with these costs comprising over 70% of the
networks revenue. The other primary cost components for
the network services group are facility costs, production
equipment and general and administrative expenses. For the three
months ended September 30, 2008, network services group
OIBDA Margin was lower than the corresponding prior year period
due to a $1.7 million loss recorded on a system integration
contract in 2008. For the nine months ended September 30,
2008, network services group OIBDA Margin was higher than the
corresponding prior year period as the overall revenue mix
shifted toward large systems integration projects in 2008,
causing an increase in material costs that was more than offset
by a decrease in labor and facility costs as a percentage of
revenue.
Due to the higher labor and facility costs for the creative
services group, as well as slightly higher production equipment
costs, the OIBDA Margin for creative services group is lower
than such margin for the network services group for the three
and nine months ended September 30, 2008 and 2007.
Stock-based and Long-term Incentive
Compensation. Stock-based and long-term incentive
compensation was $3,313,000 and $1,018,000 for the nine months
ended September 30, 2008 and 2007, respectively, and is
included in SG&A in our consolidated statements of
operations. Effective August 3, 2006, Ascent Media adopted
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 Ascent Media that are payable in cash or stock
at the committees discretion. The value of the PARs is
based on a formula set forth in the 2006 Plan and is tied to
cumulative free cash flow and a calculation based on certain
operating and financial results of Ascent Media. We record
compensation based on the vesting and value of the PARs.
Effective September 9, 2008, the 2006 Plan was amended to
reflect the sale of AccentHealth, which was previously included
in determining the value of the PARs. As a result of the
amendment, we will make cash distributions to each grantee who
held PARs on the date of the AccentHealth sale, which
distributions total $3,598,000. These cash distributions will be
made over a three year period, beginning in February 2009, with
the majority of grantees receiving their entire distribution in
2009. The charge to expense is included in stock-based and
long-term incentive compensation for the nine months ended
September 30, 2008.
Restructuring Charges. During the nine months
ended September 30, 2008, we recorded restructuring charges
of $2,699,000, related to severance and facility costs in
conjunction with restructuring efforts in our U.K. creative
services group and the closing of our operations in Mexico.
During the nine months ended September 30, 2007, we
recorded restructuring charges of $192,000 related to severance
in conjunction with U.S. and U.K. restructuring efforts in
the creative services group.
Gain on Sale of Operating Assets, net. During
the three and nine months ended September 30, 2008, we
recorded a gain on sale of operating assets, net, of $7,332,000
and $7,152,000, respectively. Included in these amounts was a
pre-tax gain on sale of $7,780,000 for the August 29, 2008
sale of creative services group U.K. real estate for net cash
proceeds of $9,564,000.
Depreciation and Amortization. Depreciation
and amortization expense for the three and nine months ended
September 30, 2008 was relatively flat compared to the
corresponding prior year periods due to depreciation on new
assets placed in service offset by assets becoming fully
depreciated.
Income Taxes from Continuing Operations. For
the nine months ended September 30, 2008, we had a pre-tax
loss from continuing operations of $6,454,000, but incurred
$4,512,000 of income tax expense mainly due to (i) a
settlement with the IRS which reduced net operating losses that
had been allocated from Liberty Media Corporation (Liberty
Media), (ii) federal and state tax expense of
$1,876,000 related to certain Singapore entities and
(iii) a state rate change which generated $1,075,000 in
expense. During the first quarter of 2008, Liberty Media reached
an agreement with the IRS with respect to certain tax items that
related to periods prior to DHCs spin off from Liberty
Media in July 2005. The IRS agreement resulted in a reduction of
$5,370,000 and $30,808,000 to the amount of federal and
California net operating losses (NOLs),
respectively, that Liberty Media allocated to us at the time of
the 2005 spin off. The reduction in our federal NOLs resulted in
tax expense of $1,880,000 (35% of $5,370,000). We had no
expectation that we would be able to utilize the California
NOLs, and had thus recorded a valuation allowance with respect
to such NOLs. Therefore, reduction in California NOLs was offset
by a reduction in the corresponding valuation allowance and
resulted in no net tax expense.
I-19
For the nine months ended September 30, 2007, we had
pre-tax loss from continuing operations of $1,519,000, but
incurred income tax expense of $6,550,000 mainly due to federal
and state tax expense related to certain Singapore entities and
from an increase in our valuation allowance related to U.K.
losses.
Net Earnings (Loss). Our net earnings (loss)
increased from a loss of $4,342,000 for the nine months ended
September 30, 2007 to earnings of $33,269,000 for the nine
months ended September 30, 2008. The change in net earnings
(loss) is due to the other aforementioned changes in revenue,
expenses and other income, as well as to the earnings and gains
on sale of discontinued operations. Included in these amounts
was earnings from discontinued operations of $3,727,000 for the
nine months ended September 30, 2007 and earnings from
discontinued operations of $44,235,000 for the nine months ended
September 30, 2008.
Liquidity
and Capital Resources
Our primary sources of funds are cash on hand and cash flows
from operating activities. During the nine months ended
September 30, 2008 and 2007, our cash from operating
activities was $28,306,000 and $34,206,000, respectively. The
primary drivers of our cash flow from operating activities are
adjusted OIBDA and changes in working capital. Fluctuations in
our adjusted OIBDA are discussed in Results of
Operations above under the captions Revenue, Cost of
Services and Selling, General and Administrative. Changes in
working capital are generally due to the timing of purchases and
payments for equipment and the timing of billings and
collections for revenue. The increase in accounts receivable
from December 31, 2007 to September 30, 2008 is mainly
driven by a $6,958,000 increase in systems integration contract
billings and a $6,686,000 increase in U.K. network services
contracts. The increase in accounts payables is mainly the
result of equipment purchases on large systems integration
contracts.
During the nine months ended September 30, 2008 and 2007,
we used cash of $28,931,000 and $33,106,000, respectively, to
fund our capital expenditures. These expenditures relate to the
purchase of new equipment, the upgrade of facilities and the
buildout of our existing facilities to meet specific customer
contracts, which are capitalized as additions and remain our
property, not the specific customer. During the nine months
ended September 30, 2008, we sold marketable securities for
cash of $23,545,000. Those securities were originally purchased
in 2006. In September 2008, we received net cash proceeds of
$118,643,000 from the sale of AccentHealth, $7,040,000 from the
sale of Palm Bay, $2,150,000 from the sale of Visiontext and
$11,398,000 from the sale of other creative services group
assets.
During the nine months ended September 30, 2008, we
transferred $1,735,000 of cash to DHC, on a net basis, while we
received $2,380,000 of net cash from DHC during the nine months
ended September 30, 2007. All of the transfers occurred
prior to our September 17, 2008 spin off from DHC, while we
were still a DHC wholly-owned operating subsidiary.
At September 30, 2008, we have approximately
$356 million of cash on hand, and for the next twelve
months, we expect to have sufficient available cash balances and
net cash from operating activities to meet our working capital
needs and capital expenditure requirements. We intend to seek
external equity or debt financing in the event any new
investment opportunities, additional capital expenditures or our
operations require additional funds, but there can be no
assurance that we will be able to obtain equity or debt
financing on terms that are acceptable to us.
In the fourth quarter of 2008, we expect to spend up to
$15 million for capital expenditures, which we expect will
be funded with cash from operations and cash on hand.
Our ability to seek additional sources of funding depends on our
future financial position and results of operations, which, to a
certain extent, 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.
I-20
|
|
Item 3.
|
Quantitative
and Qualitative Disclosure about Market Risk
|
Foreign
Currency Risk
We continually monitor our economic exposure to changes in
foreign exchange rates and may enter into foreign exchange
agreements where and when appropriate. Substantially all of our
foreign transactions are denominated in foreign currencies,
including the liabilities of our foreign subsidiaries. Although
our foreign transactions are not generally subject to
significant foreign exchange transaction gains or losses, the
financial statements of our foreign subsidiaries are translated
into United States dollars as part of our consolidated financial
reporting. As a result, fluctuations in exchange rates affect
our financial position and results of operations.
|
|
Item 4T.
|
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 September 30, 2008 to provide reasonable
assurance that information required to be disclosed in its
reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules
and forms.
There has been no change in the Companys internal controls
over financial reporting identified in connection with the
evaluation described above that occurred during the three months
ended September 30, 2008 that has materially affected, or
is reasonably likely to materially affect, its internal controls
over financial reporting.
I-21
DISCOVERY
HOLDING COMPANY
PART II
OTHER INFORMATION
(a) Exhibits
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31
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.1
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Rule 13a-14(a)/15d-14(a)
Certification*
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31
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.2
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Rule 13a-14(a)/15d-14(a)
Certification*
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31
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.3
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Rule 13a-14(a)/15d-14(a)
Certification*
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32
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Section 1350 Certification**
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* |
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Filed herewith. |
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** |
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Furnished herewith. |
II-1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
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ASCENT MEDIA CORPORATION
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Date: November 11, 2008
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By:
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/s/ William
R. Fitzgerald
William
R. Fitzgerald
Chairman and Chief Executive Officer
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Date: November 11, 2008
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By:
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/s/ Jose
A. Royo
Jose
A. Royo
President and Chief Operating Officer
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Date: November 11, 2008
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By:
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/s/ George
C. Platisa
George
C. Platisa
Executive Vice President and Chief Financial Officer
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II-2
EXHIBIT INDEX
Listed below are the exhibits which are included as a part of
this Report (according to the number assigned to them in
Item 601 of
Regulation S-K):
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31
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.1
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Rule 13a-14(a)/15d-14(a)
Certification*
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31
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.2
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Rule 13a-14(a)/15d-14(a)
Certification*
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31
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.3
|
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Rule 13a-14(a)/15d-14(a)
Certification*
|
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32
|
|
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Section 1350 Certification**
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* |
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Filed herewith. |
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** |
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Furnished herewith. |