e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D. C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2008
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number
001-34176
ASCENT MEDIA
CORPORATION
(Exact name of Registrant as
specified in its charter)
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State of Delaware
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26-2735737
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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12300 Liberty Boulevard
Englewood, Colorado
(Address of principal
executive offices)
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80112
(Zip Code)
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Registrants telephone number, including area code:
(720) 875-5622
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Exchange on Which Registered
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Series A Common Stock, par value $.01 per share
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The Nasdaq Stock Market LLC
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Securities registered pursuant to Section 12(g) of the
Act:
Series B Common Stock, par value $.01 per share
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act of
1933. Yes o No þ
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of
1934. Yes o No þ
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) has been subject
to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of Registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. 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
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Smaller
reporting
company o
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(Do not check if a smaller
reporting company)
Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the
Act) Yes o No þ
The aggregate market value of the voting stock held by
nonaffiliates of Ascent Media Corporation computed by reference
to the last sales price of such stock, as of the closing of
trading on February 27, 2009, was approximately
$313 million.
The number of shares outstanding of Ascent Media
Corporations common stock as of February 27, 2009
was: Series A common stock 13,410,044 shares; and
Series B common stock 659,679 shares.
DOCUMENTS
INCORPORATED BY REFERENCE
The Registrants definitive proxy statement for its 2009
Annual Meeting of Stockholders is hereby incorporated by
reference into Part III of this Annual Report on
Form 10-K.
ASCENT
MEDIA CORPORATION
2008 ANNUAL REPORT ON
FORM 10-K
Table
of Contents
2
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ITEM 1.
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DESCRIPTION
OF OUR BUSINESS
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(a)
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General
Development of Business
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Ascent Media Corporation (Ascent Media) was
incorporated in the state of Delaware on May 29, 2008 as a
wholly-owned subsidiary of Discovery Holding Company
(DHC). On September 17, 2008, DHC completed the
spin-off of Ascent Media to DHCs shareholders and we
became an independent, publicly traded company. In the spin-off,
each holder of DHC common stock received 0.05 of a share of our
Series A common stock for each share of DHC Series A
common stock held and 0.05 of a share of our Series B
common stock for each share of DHC Series B common stock
held. 13,401,886 shares of our Series A common stock
and 659,732 shares of our Series B common stock were
issued in the spin-off, which was intended to qualify as a
tax-free transaction.
Our principal assets are our wholly-owned operating subsidiary
Ascent Media Group, LLC (AMG) and cash and cash
equivalents. At December 31, 2008, cash and cash
equivalents, on a consolidated basis, totaled $341,517,000,
which included AMGs cash on hand. We currently have no
indebtedness for borrowed money. We intend to continue to
operate AMG, while also looking for opportunities to leverage
our strong capital position through strategic acquisitions or
other investments.
AMG is primarily engaged in the business of providing content
and creative services to the media and entertainment industries
in the United States, the United Kingdom and Singapore. Through
its Content Services and Creative Services groups, AMG provides
solutions for the creation, management and distribution of
content to major motion picture studios, independent producers,
broadcast networks, programming networks, advertising agencies
and other companies that produce, own
and/or
distribute entertainment, news, sports, corporate, educational,
industrial and advertising content. Services are marketed to
target industry segments through AMGs internal sales force
and may be sold on a bundled or individual basis.
Recent
Developments
On September 4, 2008, we consummated the sale of 100% of
the outstanding ownership interests in Ascent Media CANS, LLC
(AccentHealth) to an unaffiliated third party, for
approximately $120 million in cash. AccentHealth operates
an advertising-supported captive audience television network in
doctor office waiting rooms nationwide. Our assets at the time
of the spin-off included the cash proceeds we received in such
sale, net of selling expenses. The results of operations of
AccentHealth have been treated as discontinued operations for
all periods presented in this Annual Report.
* * * * *
Certain statements in this Annual Report on
Form 10-K
constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including
statements regarding our business, marketing and operating
strategies, integration of acquired businesses, new service
offerings, financial prospects and anticipated sources and uses
of capital. In particular, statements under Item 1.
Business, Item 1A. Risk Factors,
Item 2. Properties, Item 3. Legal
Proceedings, Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations and Item 7A. Quantitative and
Qualitative Disclosures About Market Risk contain
forward-looking statements. Where, in any forward-looking
statement, we express an expectation or belief as to future
results or events, such expectation or belief is expressed in
good faith and believed to have a reasonable basis, but there
can be no assurance that the expectation or belief will result
or be achieved or accomplished. The following include some but
not all of the factors that could cause actual results or events
to differ materially from those anticipated:
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general economic and business conditions;
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industry trends including the timing of, and spending on,
feature film, television and television commercial production;
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spending on domestic and foreign television advertising and
spending on domestic and foreign first-run and existing content
libraries;
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the regulatory and competitive environment of the industries in
which we, and the entities in which we have interests, operate;
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continued consolidation of the broadband distribution and movie
studio industries;
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uncertainties inherent in the development of new business lines
and business strategies;
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integration of acquired operations;
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uncertainties associated with product and service development
and market acceptance, including the development and provision
of programming for new television and telecommunications
technologies;
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changes in the distribution and viewing of television
programming, including the expanded deployment of personal video
recorders, video on demand and internet protocol-based
television and their impact on television advertising revenue;
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rapid technological changes;
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future financial performance, including availability, terms and
deployment of capital;
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fluctuations in foreign currency exchange rates;
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political unrest in international markets;
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the ability of suppliers and vendors to deliver products,
equipment, software and services;
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the outcome of any pending or threatened litigation;
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availability of qualified personnel;
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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;
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changes in, or failure or inability to comply with, government
regulations, including, without limitation, regulations of the
Federal Communications Commission, or FCC, and adverse outcomes
from regulatory proceedings;
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changes in the nature of key strategic relationships with
partners and joint venturers;
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competitor responses to our products and services, and the
products and services of the entities in which we have
interests; and
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threatened terrorists attacks and ongoing military action in the
Middle East and other parts of the world.
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These forward-looking statements and such risks, uncertainties
and other factors speak only as of the date of this Annual
Report, and we expressly disclaim any obligation or undertaking
to disseminate any updates or revisions to any forward-looking
statement contained herein, to reflect any change in our
expectations with regard thereto, or any other change in events,
conditions or circumstances on which any such statement is
based. When considering such forward-looking statements, you
should keep in mind the factors described in Item 1A,
Risk Factors and other cautionary statements
contained in this Annual Report. Such risk factors and
statements describe circumstances which could cause actual
results to differ materially from those contained in any
forward-looking statement.
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(b)
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Financial
Information About Reportable Segments
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We identify our reportable segments based on financial
information reviewed by our chief operating decision maker. We
report financial information for our consolidated business
segments that represent more than 10% of our consolidated
revenue or earnings before taxes and equity affiliates whose
share of earnings represent more than 10% of our earnings before
taxes.
Based on the foregoing criteria, our two reportable segments are
our Content Services group and our Creative Services group,
which are also operating segments of AMG. Financial information
related to our reportable segments can be found in note 16
to our consolidated financial statements found in Part II
of this Annual Report.
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(c)
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Narrative
Description of Business
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Through our wholly-owned subsidiary AMG, we are primarily
engaged in the business of providing services to the media and
entertainment industries in the United States, the United
Kingdom and Singapore.
AMG provides a wide variety of creative services and content
management and delivery services to the media and entertainment
industries in the United States, the United Kingdom and
Singapore. AMG provides solutions for the creation, management
and distribution of content to major motion picture studios,
independent producers, broadcast networks, programming networks,
advertising agencies and other companies that produce, own
and/or
distribute entertainment, news, sports, corporate, educational,
industrial and advertising content. Services are marketed to
target industry segments through AMGs internal sales force
and may be sold on a bundled or individual basis.
The assets and operations of AMG are composed primarily of the
assets and operations of various businesses acquired from 2000
through 2004, including The Todd-AO Corporation, Four Media
Company, Video Services Corporation, Group W Network Services,
London Playout Centre and the systems integration business of
Sony Electronics. The combination and integration of these and
other acquired entities allows AMG to offer integrated
outsourcing solutions for the technical and creative
requirements of its clients, from content creation and other
post-production services to media management and transmission of
the final product to broadcast television stations, cable system
head-ends and other destinations and distribution points.
In the quarter ended December 31, 2008, AMG changed its
alignment of operating segments. As a result, AMG is organized
into two operating groups: businesses that provide content
management and delivery services and businesses that provide
creative services. The content services businesses will provide
fully integrated content delivery solutions and services to its
customers. The creative services businesses will focus on
providing post-production services to the television and movie
industry. Segment information for prior periods has been revised
to retrospectively reflect AMGs current segment reporting
structure. The change to segment reporting has no effect on our
reported net earnings (loss).
Content
Services
AMGs Content Services group provides a full complement of
facilities and services necessary to optimize, archive, manage,
and reformat and repurpose completed media assets for global
distribution via freight, satellite, fiber and the Internet, as
well as the facilities, technical infrastructure, and operating
staff necessary to assemble programming content for cable and
broadcast networks and to distribute media signals via satellite
and terrestrial networks. AMGs Content Services group
operates from facilities located in California, Connecticut,
Florida, Minnesota, New York, New Jersey, Virginia, the United
Kingdom and Singapore. As used in the media services industry,
the term element refers to a unit of created content
of any length, such as a feature film, television episode,
commercial spot, movie trailer, promotional clip or other unique
product, such as a foreign language version or alternate format
of any of the foregoing.
Key services provided by AMGs Content Services group
include the following:
Assembly, formatting and master creation and
duplication. AMG implements clients
creative decisions, including decisions regarding the
integration of sound and visual effects, to assemble source
material into its final form. In addition, AMG uses
sophisticated computer graphics equipment to generate titles and
character imagery and to format certain entertainment media
content to meet specific production and distribution
requirements, including time compression and commercial breaks.
Finally, AMG creates and delivers multiple master copies of the
applicable final product for distribution, broadcast, archival
and other purposes designated by the customer.
Digital media management services. AMGs
Digital Media Distribution Center provides services that enable
content owners to digitize content once, then store, manage,
re-purpose and distribute such content globally in multiple
formats and languages to numerous providers. These file-based
services can help AMGs clients exploit existing and
emerging global revenue streams, including broadband, mobile and
other digital outlets and devices, reducing time-to-market while
providing increased security, flexibility and database
functionality. Such services can be implemented as a fully
outsourced platform or individual managed services.
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Advertising distribution. Once a television
commercial has been completed, AMG provides support services
required to manufacture and deliver commercials to specific
television broadcasters or radio stations, including format
conversion, video and audio duplication, distribution, and
storage and asset management, for advertising agencies,
corporate advertisers and other content owners. AMG uses
satellite, fiber-optic and Integrated Services Digital Network,
or ISDN, Internet access, terrestrial broadband, and
conventional air freight for the delivery of television and
radio spots to broadcasters and radio stations. AMGs
commercial television distribution facilities in Los Angeles and
San Francisco, California enable AMG to service any
regional or national client.
Restoration, preservation and asset protection of existing
and damaged content. AMG provides film
restoration, preservation and asset protection services.
AMGs technicians use photochemical and digital processes
to clean, repair and rebuild a films elements in order to
return the content to its original and sometimes to an improved
image quality. AMG also protects film element content from
future degradation by transferring film images to newer archival
film stocks and digital files. AMG also provides asset
protection services for its clients color library titles,
which is a preservation process whereby B/W, silver image,
polyester, positive and color separation masters are created, to
protect the images of new and older films.
Transferring film to video or digital media
masters. A considerable amount of film content is
ultimately distributed to the home video, broadcast, cable or
pay-per-view
television markets. This requires film images to be transferred
to a video or digital file format. Each frame must be color
corrected and adapted to the desired aspect ratio to meet the
required distribution specifications and ensure the highest
level of conformity to the original film version. Because
certain film formats require transfers with special
characteristics, it is not unusual for a motion picture to be
mastered in many different versions. Technological developments,
such as the domestic introduction of television sets with a 16 X
9 aspect ratio and the implementation of advanced and high
definition digital television systems for terrestrial and
satellite broadcasting, have contributed to the growth of
AMGs film transfer business. AMG also digitally removes
dirt and scratches from a damaged film master that is
transferred to a digital file format.
Professional duplication and standards
conversion. AMG provides professional
duplication, which is the process of creating broadcast quality
and resolution independent sub-masters for distribution to
professional end users. AMG uses master elements to make
sub-masters in numerous domestic and international broadcast
standards as well as up to 22 different tape formats. AMG also
provides standards conversion, which is the process of changing
the frame rate of a video signal from one video standard, such
as the United States standard (NTSC), to another, such as a
European standard (PAL or SECAM). Content is regularly copied,
converted and checked by quality control for use in intermediate
processes, such as editing, on-air backup and screening and for
final delivery to cable and
pay-per-view
programmers, broadcast networks, television stations, airlines,
home video duplicators and foreign distributors. AMGs
duplication and standards conversion facilities are technically
advanced with unique characteristics that significantly increase
equipment capacity while reducing error rates and labor cost.
DVD compression and authoring and menu
design. AMG provides all stages of DVD
production, including creative menu design, special feature
production, interactive features, compression, authoring, multi
channel audio mixing, and quality control. AMG supports DVD
production in traditional DVD formats as well as the Blu Ray
format. AMG also prepares and optimizes content for evolving
formats of digital distribution, such as
video-on-demand
and interactive television.
Storage of elements and working
masters. AMGs physical archives are
designed to store working master videotapes and film elements in
a highly controlled environment protected from temperature and
humidity variation, seismic disturbance, fire, theft and other
external events. In addition to the physical security of the
archive, content owners require frequent and regular access to
their libraries. Physical elements stored in AMGs archive
are uniquely bar-coded and maintained in a library management
database offering rapid access to elements, concise reporting of
element status and element tracking throughout its travel
through AMGs operations. AMG also provides file-based
digital archive services, as discussed under the heading
Digital media management services above.
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Syndicated television distribution. AMGs
syndication services provide AMOL-encoding and closed-captioned
sub-mastering, commercial integration, library distribution,
station list management and v-chip encoding. AMG distributes
syndicated television content by freight, satellite, fiber or
the Internet, in formats ranging from low-resolution proxy
streams to full-bandwidth high-definition television and
streaming media.
Network origination and master control. AMG
provides outsourced network origination services to cable,
satellite and
pay-per-view
programming networks. This suite of services involves the
digitization and management of client-provided media assets
(programs, advertisements, promotions and secondary events) and
their aggregation into a continuous playout stream in accordance
with the programming schedule. Currently, over two hundred
programming feeds running 24 hours a day, seven
days a week are supported by AMGs facilities
in the United States, London and Singapore. Network origination
services are provided from large-scale technical platforms with
integrated asset management, hierarchical storage management (a
data storage technique which automatically moves data between
high-cost and low-cost storage media), and broadcast automation
capabilities. These platforms, which are designed, built, owned
and operated by AMG, require AMG to incorporate and integrate
hardware and software from multiple third-party suppliers into a
coordinated service solution. Associated services include
cut-to-clock and compliance editing, tape library management,
ingest & quality control, format conversion, and tape
duplication. For
multi-language
television services, AMG facilitates the collection,
aggregation, and playout of languaging materials, including
subtitles and foreign language dubs. On-air graphics and other
secondary events are also integrated with the content. In
conjunction with network origination services, AMG operates
television production studios and provides complete
post-production services for on-air promotions for some clients.
Transport and connectivity. AMG operates
satellite earth station facilities in Singapore, California, New
York, New Jersey, Minnesota and Connecticut. AMGs
facilities are staffed 24 hours a day and may be used for
uplink, downlink and turnaround services. AMG accesses various
satellite neighborhoods, including basic and premium
cable, broadcast syndication, direct-to-home and DBS markets.
AMG resells transponder capacity for occasional and full-time
use and operates a global fiber network with both real-time and
file-transport capabilities. AMGs teleports
are high-bandwidth communications gateways with video switches
and facilities for satellite, optical fiber and microwave
transmission. AMGs facilities offer satellite antennae
capable of transmitting and receiving feeds in both C-Band and
Ku-Band frequencies. AMG operates a global fiber network to
carry real-time video and data services between its various
locations in the US, London, and Singapore. This network is used
to provide full-time program feeds and ad hoc services to
clients and to transport files and real-time signals between AMG
locations. AMG also operates industry-standard encryption
and/or
compression systems as needed for customer satellite
transmission. AMGs transport and connectivity services may
be directly associated with network origination services or may
be provided on a stand-alone basis.
Engineering and systems integration. AMG
designs, builds, installs and services advanced technical
systems for production, management and delivery of rich media
content to the worldwide broadcast, cable television, broadband,
government and telecommunications industries. AMGs
engineering and systems integration business operates out of
facilities in New Jersey, California, Virginia, and London, and
services global clients including major broadcasters, cable and
satellite networks, telecommunications providers, and corporate
television networks, as well as numerous production and
post-production facilities. Services offered include program
management, engineering design, equipment procurement, software
integration, construction, installation, service and support.
Strategic consulting services. AMG provides
strategic, technology and business consulting services to the
media and entertainment industry. Key practice areas include:
digital migration, content delivery strategies, workflow
analysis and design, emerging delivery platforms (such as
Internet-protocol television, mobile and broadband), technology
assessment, and technology-enabled business strategies.
The Content Services group has entered into long-term contracts
mainly for its content origination and transport services and
its systems integration services with many of its largest
customers, including its largest customer, Motorola, Inc. At
December 31, 2008, service commitments that are deemed to
be under long-term
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contracts totaled $273 million with approximately
$107 million of this amount expected to be earned in fiscal
year 2009. At December 31, 2007, service commitments under
these types of contracts were $374 million.
Creative
Services
AMGs Creative Services group provides various technical
and creative services necessary to complete principal
photography into final products, such as feature films, movie
trailers and TV spots, documentaries, independent films,
scripted and reality television, TV movies and mini-series,
television commercials, internet and new media advertising,
music videos, interactive games and new digital media,
promotional and identity campaigns and corporate communications.
These services are referred to generally in the entertainment
industry as post-production services.
AMG markets its creative services under various brand names that
are generally well known in the entertainment industry,
including Company 3, Encore Hollywood, FilmCore, Level 3
Post, Method, RIOT Santa Monica, RIOT Atlanta, Rushes and
Ascent 142.
The creative services client base comprises major motion picture
studios and their international divisions, independent
television production companies, broadcast networks, cable
programming networks, advertising agencies, creative editorial
companies, corporate media producers, independent owners of
television and film libraries and emerging new media
distribution channels. The principal facilities of the Creative
Services group are in Los Angeles, the New York metropolitan
area and London, with additional facilities in Atlanta, Chicago
and San Francisco.
Key services provided by AMGs Creative Services group
include the following:
Dailies. Clients that are in production
require daily screening of their previous days footage
captured on film, video or data in order to evaluate technical
and aesthetic qualities of the production and to facilitate the
creative editorial process. AMG provides the services necessary
for clients to view principal photography on a daily basis
(known as dailies in the United States and
rushes in Europe), including film processing and
digital transfer, which is the transfer of film negatives to
video or digital data. Dailies may be delivered to customers in
a variety of videotape or file based formats. AMG also provides
dailies viewing environments at client locations and in
editorial cutting rooms for their clients productions.
Digital intermediates. AMGs digital
intermediate service provides customers with the ability to
convert film to a high resolution digital master file for color
correction, creative editorial and electronic assembly of
masters in other formats. The digital intermediate process
provides filmmakers and commercial producers with greater
creative control through enhanced visual manipulation options
and the ability to see their creative decisions applied in real
time.
Color correction. The color correction process
allows for the development of a creative look and feel for media
content, which can then be applied to different source elements
that are assembled in sequence to allow for consistency of
visual presentation, notwithstanding variations in the original
source material and the differing color spectrums of film and
other media. AMG employs highly-skilled creative talent who
utilize creative colorizing techniques, equipment and processes
to enable its clients to achieve desired results for creative
content including television commercials, music videos, feature
films and television shows.
Creative editorial. After principal
photography of advertising content has been completed,
AMGs editors assemble various elements into a cohesive
story consistent with the messaging, branding and creative
direction of AMGs advertising clients. AMG provides the
tools and talent required through all stages of the
finishing process necessary for creation, and
primary and secondary distributions, of completed advertising
content.
Visual effects. Visual effects can be used to
create images that cannot be created physically through a more
cost-effective means, to digitally remove elements captured in
principal photography, and to enhance or supplement original
visual images by integrating computer generated images with
images captured during principal photography. AMG provides its
visual effects services with teams of artists utilizing an array
of graphics and animation workstations and using a variety of
software to accomplish unique effects.
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Industry
The entertainment and media services industry supports the
entertainment and media industries in the creation, management
and distribution of various forms of media content, including
motion pictures, movie trailers, television programs, television
commercials, music videos, interactive games, new digital media,
promotional and identity campaigns and corporate communications.
Motion pictures are generally released in a
first-run distribution, such as in a theatrical or
straight-to-DVD release, or on broadcast or cable networks, and
later in one or more additional distribution channels, such as
home video, online media providers,
pay-per-view,
or domestic or international syndication. Television content is
generally initially distributed over broadcast or cable
networks, and may be concurrently distributed over secondary
networks or via the Internet on network websites or by online
media providers. Television content may be subsequently
distributed or repurposed in the form of network re-broadcasts,
clip shows, syndicated reruns, on-demand programming, additional
online programming or home video distributions (including series
or season DVD releases).
AMGs business segments benefit from the volume of content
being created and distributed as well as the success or
popularity of an individual motion picture, television program
or other stand-alone media property. The following trends in the
creative media services industry are expected to have an impact
on AMGs business and operations:
Growing worldwide demand for original entertainment
content. The global demand for entertainment
content continues to increase, and the entertainment and media
industry is increasingly reliant on international revenue.
Accordingly, the need for the associated technical and creative
services AMG offers is expanding. At the same time, the pace of
technological change continues to accelerate. This may lead to
an increased demand for capital expenditures in order to meet
the industry demand for technological innovation. If AMG meets
these technological challenges, AMG may benefit from the ability
to provide an increasingly complex mix of content formats and
broadcast standards to various geographic locations and cultures.
The development of new business opportunities for existing
content libraries. The vast libraries of the
major film and television studios are an ongoing source of
programming for traditional and new channels of media
distribution. For exploitation in a digital environment, these
libraries must be re-mastered, augmented, restored, re-colored,
converted and reformatted. In addition, current and developing
digital media formats have contributed to the lack of uniformity
in worldwide motion picture and television format, distribution
and presentation standards, thus creating the need for the
creation of new master elements in unique formats.
Continued proliferation of new distribution
channels. Advances in technology and the creation
and market acceptance of such content distribution channels as
video-on-demand,
mobile video over cell phones, and Internet distribution, as
well as the government-mandated transition to digital
television, facilitating the deployment of high-definition
and/or
multiple standard definition broadcast feeds, require new
technical and operational infrastructure to create, manage and
distribute content. The industry requires technical facilities
and operational management that facilitates the creation,
management, formatting and delivery of that content to the
applicable markets and viewing audiences. At the same time, such
changes have provided content owners the opportunity to create
multiple distribution outlets and revenue streams from the same
programming.
Increased demand for innovation, technical and creative
quality and format options. Advances in
technology, new broadcast standards, growing adoption by
consumers of personal video recorders, which facilitate
time shifting of programming by the television
consumer, and increasing audience fragmentation require content
owners, producers and distributors to cost-effectively increase
image and audio quality and create increasingly innovative,
compelling viewing experiences for audiences. Such advances have
also resulted in audience acceptance of and demand for multiple
content format options, including, in certain markets, standard
and high-definition motion picture and television content, and
variant audio tracks and aspect ratios associated with such
content.
Reality-based programming. Broadcast and cable
programmers continue to rely on reality-based programming for
significant portions of their daytime, primetime and
pre-primetime schedules. Although many such shows have tended to
have lower post-production budgets and costs than scripted
programming,
9
AMG does not believe that the demand for its services has been
negatively impacted by recent increases in primetime
reality-based programming. However, further increased reliance
on such reality-based programming could reduce industry demand
for some of the services that AMG provides.
Content repurposing. Broadcast and cable
programmers have continued to show and distribute more
regular-season reruns in regular time slots, at alternative
viewing times and on-line. To the extent that this practice may
reduce demand for original programming, or erode the traditional
concept of the 24-week television season, such trends could
reduce industry demand for some of AMGs services,
potentially offsetting in whole or in part other industry trends.
Extended use of advertising spots. Although
television commercials have traditionally had a relatively short
shelf-life, with spots updated frequently within a
given advertising campaign, some advertisers have begun to
re-use the same television commercials for longer periods. If it
becomes more widespread, this practice may negatively impact the
production of new short-form television commercials.
Demands of studios and independent production
companies. While the domestic motion picture
industry continues to be dominated by the major studios,
including Paramount Pictures, Sony Pictures Entertainment,
Twentieth Century Fox, Universal Pictures, The Walt Disney
Company, and Warner Bros. Entertainment, smaller studios or
mini-majors and independent production companies
also play an important role in the production of motion pictures
for domestic and international feature film markets. AMG markets
its services to the full-range of content creators, owners and
distributors.
Strategy
We are actively seeking opportunities to leverage our strong
capital position through strategic acquisitions in the
technology, media, telecommunications and related industries. In
evaluating potential acquisition candidates we will consider
various factors, including among other things:
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financial characteristics, including free cash flow;
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growth potential;
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potential return on investment incorporating appropriate
financial leverage, including the targets existing
indebtedness and opportunities to restructure any existing
target indebtedness; and
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potential synergies with AMG, including for example the
potential of the acquired business to benefit from AMG
technology relating to content preparation and distribution.
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We will consider acquisitions for cash, leveraged acquisitions,
and acquisitions for Ascent Media stock. In addition to
acquisitions, we will consider majority ownership positions,
minority equity investments and, in appropriate circumstances,
senior debt investments that include a path to full ownership or
control, the possibility for high returns on investment, or
significant strategic benefits.
In addition, Ascent Medias goal is to be the worlds
leading supplier of integrated digital media services by
offering superior creative and technological solutions to the
media and entertainment industry creating, managing
and distributing rich media content across all distribution
channels on a global basis. We believe we can optimize our
position in the market by pursuing the following strategies:
Provide a broad range of media services. The
entertainment services industry has historically been
fragmented, with numerous providers offering discrete,
geographically-limited, non-integrated services. We provide a
broad range of services from the creation and management of
media content to the distribution of content via multiple
transmission paths, including satellite, fiber and Internet
Protocol-based networks on a global basis. We believe our range
of service offerings and in-depth knowledge of media workflows
provide us with a strategic advantage over less-diversified
service providers in developing deep, long-term relationships
with creators, owners and distributors of creative content. In
addition, we believe that the reputations of our
highly-respected creative boutiques, which operate under our own
well-known brand names, help distinguish us from commodity
suppliers.
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Grow digital media management business. We
seek to increase business with major media and entertainment
clients by creating, storing, managing, repurposing and
distributing their digital media content through traditional
channels as well as emerging new media outlets on a global
basis. We believe that the technical complexity and scale issues
associated with providing these services will make outsourcing
of activities more attractive to our client base, creating
opportunities for increased market share. In 2008, we extended
the geographical reach of our proprietary digital media
management system, adding capabilities in Singapore to our
existing centers in Los Angeles, the New York metropolitan area
and the United Kingdom.
Deploy an international media network. We plan
to provide clients access to a fiber-based network integrated
with our creative services and content management and delivery
services. The network, which was deployed in 2008 and will be
further expanded in 2009, will provide global connectivity and
file transport capabilities, which will make client workflows
more efficient and enhance our end-to-end portfolio of services.
Invest in core business operations. We intend
to increase our capabilities through internal investments to
improve the capacity, utilization and throughput of our existing
facilities. We will also consider opportunities that may arise
to add scale or service offerings, or to increase market share,
through strategic acquisitions or joint ventures. Consistent
with this strategy, we will also seek opportunities to divest
non-core assets, when appropriate.
Seek opportunities to offer new services within core
competencies. We intend to expand our market
share by applying our core capabilities to develop new
value-added service offerings, participating in emerging high
revenue-generating services such as re-versioning content for
distribution to new platforms. We will endeavor to develop
service offerings that meet the unique needs of our customers.
In that regard, we are in the process of developing an online
marketplace that will give content owners and rights holders a
platform to sell and distribute film, television, short film and
other video content to web publishers, cable outlets, television
networks and stations world-wide, and we plan to roll out the
online marketplace in the third quarter of 2009.
For a description of the risks associated with the foregoing
strategies, and with Ascent Medias business in general,
see Risk Factors section beginning on page 13.
Seasonality
The demand for AMGs core motion picture services,
primarily in its Creative Services group, has historically been
seasonal, with higher demand in the spring (second fiscal
quarter) and fall (fourth fiscal quarter), and lower demand in
the winter and summer. Similarly, demand for AMGs
television program services, primarily in its Creative Services
group, is higher in winter (first fiscal quarter) and fall
(fourth fiscal quarter) and lowest in the summer. Demand for
AMGs commercial services, primarily in its Creative
Services group, has historically been fairly consistent with
slightly higher activity in the summer (third fiscal quarter).
However, as a result of economic conditions in the United States
and the possibility of a strike by the Screen Actors Guild,
there has been increased volatility in the volume of production
of commercials and feature films over the course of the past
year, and, in particular, the third and fourth quarters of 2008.
AMG anticipates greater fluctuation in demand for its commercial
and feature film services as a result of this volatility in
production volume. In addition, changes in the timing of the
demand for television program services may result in increased
business for AMG in the summer. In addition, the timing of
long-term projects in AMGs Content Services group have
started to offset the quarters in which there has been
historically lower demand for AMGs motion picture and
television services.
Regulatory
Matters
Some of AMGs subsidiary companies hold licenses and
authorizations from the FCC, required for the conduct of their
businesses, including earth station and various classes of
wireless licenses and an authorization to provide certain
services pursuant to Section 214 of the Communications Act
of 1934, as amended. Many of the FCC licenses held by such
subsidiaries are for transmit/receive earth stations, which
cannot be operated without individual licenses. The licenses for
these stations are granted for a period of fifteen years and,
while the FCC generally renews licenses for satellite earth
stations, there can be no assurance that these licenses will be
renewed at their expiration dates. Registration with the FCC,
rather than licensing, is required for receiving transmissions
from domestic
11
satellites from points within the United States. AMG relies on
third party licenses or authorizations when it and its
subsidiaries transmit domestic satellite traffic through earth
stations operated by third parties. The FCC establishes
technical standards for satellite transmission equipment that
change from time to time and requires coordination of earth
stations with land-based microwave systems at certain
frequencies to assure non-interference. Transmission equipment
must also be installed and operated in a manner that avoids
exposing humans to harmful levels of radio-frequency radiation.
The placement of earth stations or other antennae also is
typically subject to regulation under local zoning ordinances.
Wireless licenses generally are granted for a period of ten
years. The FCC regulates technical standards governing wireless
licenses. The transfer of control and assignment of
transmit/receive earth stations and most wireless licenses are
subject to the prior approval of the FCC.
Competition
The entertainment and media services industry is highly
competitive, with much of the competition centered in Los
Angeles, California, the largest and most competitive market,
particularly for domestic television and feature film production
as well as for the management of content libraries. We expect
that competition will increase as a result of industry
consolidation and alliances, as well as from the emergence of
new competitors. In particular, major motion picture studios
such as Paramount Pictures, Sony Pictures Entertainment,
Twentieth Century Fox, Universal Pictures, The Walt Disney
Company, and Warner Bros. Entertainment, while AMGs
customers, can perform similar services in-house with
substantially greater financial resources than AMGs, and
in some cases significant marketing advantages. These studios
may also outsource their requirements to other independent
providers like us or to other studios. Other major competitors
of AMG include: Thomson, a French corporation, particularly
under its Technicolor brand; Kodak, through its Laser Pacific
division; Deluxe Entertainment Services; and DG FastChannel,
Inc. In addition, there may be new entrants into aspects of the
entertainment and media services industry, which may include new
media companies, such as Google and Amazon, consulting
companies, such as Accenture and Deloitte, and traditional
information technology companies, such as IBM and
Hewlett-Packard. These companies may become competitors of AMG
as well. AMG also actively competes with certain industry
participants that have a unique operating niche or specialty
business. There is no assurance that AMG will be able to compete
effectively against these competitors. AMGs management
believes that important competitive factors include the range of
services offered, reputation for quality and innovation, pricing
and long-term relationships with customers.
Employees
Ascent Media, together with its subsidiaries, has approximately
3,100 employees, most of which work on a full-time basis.
Approximately 2,150 of the employees are employed in the United
States, with the remaining 950 employed outside the United
States, principally in the United Kingdom and the Republic of
Singapore.
Approximately 75 of AMGs employees belong to either the
International Alliance of Theatrical Stage Employees in the
United States or the Broadcasting Entertainment Cinematograph
and Theatre Union in the United Kingdom.
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(d)
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Financial
Information About Geographic Areas
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For financial information related to our geographic areas in
which we do business, see note 16 to our consolidated
financial statements found in Part II of this Annual Report.
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(e)
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Available
Information
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All of our filings with the Securities and Exchange Commission
(the SEC), including our
Form 10-Ks,
Form 10-Qs
and
Form 8-Ks,
as well as amendments to such filings are available on our
Internet website free of charge generally within 24 hours
after we file such material with the SEC. Our website address is
www.ascentmediacorporation.com.
Our corporate governance guidelines, code of business conduct
and ethics, compensation committee charter, nominating and
corporate governance committee charter, and audit committee
charter are available on our website. In addition, we will
provide a copy of any of these documents, free of charge, to any
shareholder who calls or
12
submits a request in writing to Investor Relations, Ascent Media
Corporation, 520 Broadway, 5th Floor,
Santa Monica, CA 90401. Telephone No.
(310) 434-7000.
The information contained on our website is not incorporated by
reference herein.
The risks described below and elsewhere in this Annual Report
are not the only ones that relate to our businesses or our
common stock. The risks described below are considered to be the
most material. However, there may be other unknown or
unpredictable economic, business, competitive, regulatory or
other factors that also could have material adverse effects on
our businesses. If any of the events described below were to
occur, our businesses, prospects, financial condition, results
of operations
and/or cash
flows could be materially adversely affected.
Factors
Relating to our Business
We
have a history of losses and may incur losses in the future,
which could materially and adversely affect the market price of
our common stock.
On a combined basis, our subsidiaries incurred losses in three
out of the last five fiscal years. In future periods, we may not
be able to increase or sustain profitability on a consistent
quarterly or annual basis. Failure to maintain profitability in
future periods may materially and adversely affect the market
price of our common stock.
We
have a limited operating history as a separate company upon
which you can evaluate our performance.
Although our subsidiary AMG was a separate public company prior
to June 2003, we have had an operating history as a separate
public company only since September 2008. There can be no
assurance that our business strategy will be successful on a
long-term basis. We may not be able to grow our businesses as
planned and may not be profitable.
Our
historical financial information may not be representative of
our results as a separate company.
Certain historical financial information included in this Annual
Report reflects our results of operations, financial condition
and cash flow with respect to time periods during which we were
not a stand-alone entity, and may not necessarily reflect what
such metrics would have been had we been a separate, stand-alone
entity pursuing independent strategies during the periods
presented.
The
failure of any banking institution in which we deposit our funds
or the failure of any such banking institutions to operate in
the ordinary course could have a material adverse effect on our
results of operations and financial position.
Recent conditions in global credit and other financial markets
have resulted in significant volatility and disruptions in the
availability of credit and in some cases have pressured the
solvency or liquidity of some financial institutions. Some of
these financial institutions, including banks, have had
difficulty providing financial services in the ordinary course
and in some cases have failed or otherwise been largely taken
over by governments. We and our subsidiaries deposit our cash
and cash equivalents with a number of financial institutions
around the world. Should some or all of these financial
institutions fail or otherwise be unable to operate in the
ordinary course, our access to our own funds may be interrupted
or delayed. If we are unable to timely access such funds, we may
need to seek credit from other banks or financial institutions,
to the extent available. No assurances can be given that we
would be able to obtain credit in such circumstances on terms
acceptable to us, or on any terms. If we are unable to access
some or all of our cash on deposit, either temporarily or
permanently, or if we required to borrow to meet our working
capital needs, or are unable to do so, it could have a negative
impact on our operations, including our reported operating
results, or our financial position, or both.
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Disruptions
in worldwide credit markets have increased the risk of default
by the issuers of instruments in which we invest cash and other
financial institutions.
Disruptions in the credit and other financial markets have
impacted the creditworthiness of certain financial institutions.
Although we seek to manage the credit risks associated with our
cash and other investments, we are exposed to an increased risk
that our counterparties may default on their obligations to us.
At December 31, 2008, our total assets included short-term
marketable securities of $328 million. Were one or more of
our counterparties to fail or otherwise be unable to meet its
obligations to us, our financial condition could be adversely
affected.
An
inability to access capital markets at attractive rates could
materially increase our expenses.
Although we currently have sufficient cash and investments
available to meet our currently anticipated capital
requirements, we may in the future require access to capital
markets as a source of liquidity for capital expenditures not
satisfied by operating cash flows. However, in such event there
can be no assurance that we will be able to obtain financing on
terms acceptable to us or on any terms. If our ability to access
required capital were to become significantly constrained, we
could incur material interest costs, our financial condition
could be harmed and future results of operations could be
adversely affected.
We may
not be successful in implementing our acquisition
strategy.
One focus of our corporate strategy is to seek opportunities to
grow free cash flow through strategic acquisitions, which may
include leveraged acquisitions. However, there can be no
assurance that we will be able to consummate that strategy, and
if we are not able to invest our capital in acquisitions that
are accretive to free cash flow it could negatively impact the
growth of our business. Our ability to consummate such
acquisitions may be negatively impacted by various factors,
including among other things:
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failure to identify attractive acquisition candidates on
acceptable terms;
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competition from other bidders;
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inability to raise any required financing; and
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antitrust or other regulatory restrictions, including any
requirements that may be imposed by government agencies as a
condition to any required regulatory approval.
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If we engage in any acquisition, we will incur a variety of
costs, and may never realize the anticipated benefits of the
acquisition. Our business strategy includes the future
acquisition of businesses that we believe are strategically
attractive and that we expect will be accretive to consolidated
free cash flow. If we undertake any acquisition, the process of
operating such acquired business on a stand-alone basis, or of
integrating an acquired business with AMG, may result in
unforeseen operating difficulties and expenditures and may
absorb significant management attention. Moreover, we may fail
to realize the anticipated benefits of any acquisition as
rapidly as expected or at all. Future acquisitions could reduce
our current stockholders ownership percentage, cause us to
incur debt, expose us to future liabilities and result in
amortization expenses related to intangible assets with definite
lives. We may incur significant expenditures in anticipation of
an acquisition that is never realized.
We
cannot be certain that AMG will be successful in integrating any
acquired businesses.
AMGs businesses may grow through acquisitions in selected
markets. Integration of new businesses may present significant
challenges, including: realizing economies of scale; eliminating
duplicative overheads; and integrating networks, financial
systems and operational systems. We cannot assure you that, with
respect to any acquisition, AMG will realize anticipated
benefits or successfully integrate any acquired business with
its existing operations. In addition, while AMG intend to
implement appropriate controls and procedures as they integrate
acquired companies, we may not be able to certify as to the
effectiveness of these companies disclosure controls and
procedures or internal control over financial reporting (as
required by United States federal securities laws and
regulations) until AMG has fully integrated them.
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Our
businesses are subject to risks of adverse government
regulation.
The industries in which we operate, and those of our customers,
are subject to varying degrees of regulation in the United
States by the FCC and other entities and in foreign countries by
similar entities. There can be no assurance that our business,
either directly or through AMGs reliance on customers or
vendors impacted by such regulations, will not be adversely
affected by any future legislation, new regulation or
deregulation.
A loss
of any of AMGs largest customers would reduce its
revenue.
Although AMG serviced over 3,000 customers during the year ended
December 31, 2008, its ten largest customers accounted for
approximately 52% of its consolidated revenue. The ten largest
customers of the Content Services group accounted for
approximately 60% of the revenue of the Content Services
operating segment during the 2008 fiscal year, with one customer
accounting for approximately 18% of the groups revenue.
The ten largest customers of the Creative Services group
accounted for approximately 46% of the revenue of the Creative
Services operating segment during the 2008 fiscal year. The loss
of, and failure to replace, any significant portion of the
revenue generated from sales to any of AMGs largest
customers could have a material adverse effect on the business
of AMG or on the affected operating segment. However, the
Creative Services groups revenue generated by AMGs
largest customers represents various types of services provided
by various facilities within the group for multiple points of
contact at the corporate customer. Network origination services
are generally provided pursuant to contracts with terms of one
to three years or longer. AMGs ten largest customers
include, among others, the parent companies of the six major
motion picture studios.
AMGs
business depends on certain client industries.
AMG derives substantially all its revenue from services provided
to the motion picture, television and advertising industries.
Fundamental changes in the business practices of any of these
client industries could cause a material reduction in demand by
AMGs clients for the services offered by AMG. AMGs
business benefits from the volume of motion picture and
television content being created and distributed as well as the
success or popularity of an individual television show.
Accordingly, a decrease in either the supply of, or demand for,
original entertainment content would have a material adverse
effect on AMGs results of operations. Because spending for
television advertising drives the production of new television
programming, as well as the production and deployment of
television commercials and the sale of existing content
libraries for syndication, a reduction in television advertising
spending would adversely affect AMGs business. Factors
that could impact television advertising and the general demand
for original entertainment content include the growing use of
personal video recorders and
video-on-demand
services, continued fragmentation of and competition for the
attention of television audiences, the proliferation of
alternatives to traditional television viewing (including
Internet video services) and general economic conditions.
Because
AMG uses third-party satellite and terrestrial connectivity
services to provide certain of its creative and content
services, a material disruption to such connectivity services
could have a negative impact on AMGs
operations.
AMG obtains satellite transponder capacity, fiber-optic capacity
and Internet connectivity pursuant to long-term contracts and
other arrangements with third-party vendors. Such connectivity
services are used in connection with many aspects of AMGs
business, including network origination, teleport services,
digital media management, dailies, telecine services,
distribution of advertising, syndicated television programming
and other content, and various Web-based services and
interfaces. Although AMG believes that its arrangements with
connectivity suppliers are adequate, disruptions in such
services may occur from time to time as a result of technical
malfunction, disputes with suppliers, force majeure or other
causes. In the event of any such disruption in satellite or
terrestrial connectivity services, AMG may incur additional
costs to supplement or replace the affected service, and may be
required to compensate its own customers for any resulting
declines in service levels.
15
A
significant labor dispute in AMGs client industries could
have a material adverse effect on its business.
An industry-wide strike or other job action by or affecting the
Writers Guild, Screen Actors Guild or other major entertainment
industry union could reduce the supply of original entertainment
content, which would in turn reduce the demand for AMGs
services. An extensive work stoppage would affect feature film
production as well as episodic television and commercial
production and could have a material adverse effect on the
Creative Services group, including the potential loss of key
personnel and the possibility that broadcast and cable networks
will seek to reduce the proportion of their schedules devoted to
scripted programming.
On November 5, 2007, the Writers Guild of America, East and
West (the 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 AMGs creative
services business for services provided on new entertainment
projects utilizing scripted content and the production of new
television commercials during the
2007-2008
television 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. Further, the commercial contracts
between the Screen Actors Guild, the American Federation of
Television and Radio Artists and the advertising industry for
television, radio and internet/new media commercials is
scheduled to expire on March 31, 2009. The failure to
finalize and ratify a new agreement with the AMPTP or the
failure to enter into new commercial contracts upon expiration
of the current contracts could lead to a strike or other job
action. Any such labor dispute could have an adverse effect on
the television
and/or
motion picture production industries, including AMGs
business, and in the case of a severe or prolonged work
stoppage, the adverse effect on AMGs business, operations,
results of operations
and/or
financial condition could be material.
Changes
in technology may limit the competitiveness of and demand for
AMGs services.
The post-production industry is characterized by technological
change, evolving customer needs and emerging technical
standards. Historically, AMG has expended significant amounts of
capital to obtain equipment using the latest technology.
Obtaining access to any new technologies that may be developed
in AMGs industries will require additional capital
expenditures, which may be significant and may have to be
incurred in advance of any revenue that may be generated by such
new technologies. In addition, the use of some technologies may
require third party licenses, which may not be available on
commercially reasonable terms. Although we believe that AMG will
be able to continue to offer services based on the newest
technologies, we cannot assure you that AMG will be able to
obtain any of these technologies, that AMG will be able to
effectively implement these technologies on a cost-effective or
timely basis or that such technologies will not render obsolete
AMGs role as a provider of motion picture and television
production services. If AMGs competitors providing content
management and delivery services have technology that enables
them to provide services that are more reliable, faster, less
expensive, reach more customers or have other advantages over
the network origination and content distribution services AMG
provides, then the demand for AMGs content management and
delivery services may decrease.
While
AMG believes that its business methods and technical processes
do not infringe upon the proprietary rights of any third
parties, there can be no assurances that third parties will not
assert infringement claims against AMG.
AMGs business of providing creative services and content
management and delivery services is highly dependent upon the
technical abilities and knowledge of its personnel and business
methods and processes developed by AMG and its subsidiaries and
their respective predecessors over time. There can be no
assurance that third parties will not bring trade secret,
copyright infringement or other proprietary rights claims
against AMG, or claim that AMGs use of certain
technologies violates a patent. There can be no assurances as to
the outcome of any such claims. However, even if these claims
are not meritorious, they could be costly and could divert
managements attention from other more productive
activities. If it is determined that AMG has infringed upon or
misappropriated a third partys proprietary rights, there
can be no assurance that any necessary license or rights could
be obtained on
16
terms satisfactory to AMG, if at all. The inability to obtain
any such license or rights could result in the incurrence of
expenses and changes in the way AMG operates its business.
Loss
of key personnel could negatively impact AMGs
business.
AMGs future success depends in large part on the
retention, continued service and specific abilities of its key
creative, technical and management personnel. A significant
percentage of our revenue can be attributed to services that can
only be performed by certain highly compensated, specialized
employees, and in certain instances, our customers have
identified by name those personnel requested to work on such
customers projects. Competition for highly qualified
employees in the entertainment and media services industry is
intense and the process of locating and recruiting key creative,
technical and management personnel with the combination of
skills and abilities required to execute AMGs strategy is
time-consuming. AMG has employment agreements with many of its
key creative, technical and management personnel. However, there
can be no assurance that AMG will continue to attract, motivate
and retain key personnel, and any inability to do so could
negatively impact our business and our ability to grow.
Risk
of loss from earthquakes or other catastrophic events could
disrupt AMGs business.
Some of AMGs purpose-built facilities are located in
Southern California, a region known for seismic activity. Due to
the extensive amount of specialized equipment incorporated into
specially designed editorial suites, digital intermediates
suites and theaters, and other post-production facilities, as
well as teleports, AMGs operations in this region may not
be able to be temporarily relocated to mitigate the impacts of a
catastrophic event. AMG carries insurance for property loss and
business interruption resulting from such events, including
earthquake insurance, subject to deductibles, and for certain
operations has facilities in other geographic locations.
Although we believe AMG has adequate insurance coverage relating
to damage to its property and the temporary disruption of its
business from casualties, and that it could provide services at
other geographic locations, there can be no assurance that such
insurance and other facilities would be sufficient to cover all
of AMGs costs or damages or AMGs loss of income
resulting from its inability to provide services in Southern
California for an extended period of time.
Failure
to obtain renewal of FCC licenses could disrupt AMGs
business.
AMG holds licenses, authorizations and registrations from the
FCC required for the conduct of its content services business,
including earth station and various classes of wireless licenses
and an authorization to provide certain services. Many of the
FCC licenses held by AMG are for transmit/receive earth
stations, which cannot be operated without individual licenses.
The licenses for these stations are granted for a period of
fifteen years and, while the FCC generally renews licenses for
satellite earth stations routinely, there can be no assurance
that AMGs licenses will be renewed at their expiration
dates. Registration with the FCC, rather than licensing, is
required for receiving transmissions from satellites from points
within the United States. AMG relies on third party licenses or
authorizations when it transmits domestic satellite traffic
through earth stations operated by third parties. Our failure,
and the failure of third parties, to obtain renewals of such FCC
licenses could disrupt the content services segment of AMG and
have a material adverse effect on AMG. The FCC generally grants
wireless licenses for ten year terms and regulates the technical
standards governing wireless licenses. Failure to comply with
the FCCs wireless license regulations may cause the FCC to
impose fines and forfeitures on a licensee. Further material
changes in the law and regulatory requirements must be
anticipated, and there can be no assurance that our businesses
will not be adversely affected by future legislation, new
regulation, deregulation or court decisions.
AMG
operates in an increasingly competitive market, and there is a
risk that it may not be able to compete effectively with other
providers in the future.
The entertainment and media services industries in which AMG
competes are highly competitive and service-oriented, and the
network origination and data transmission industries are
currently saturated with companies providing services similar to
AMGs. AMG has few long-term or exclusive service
agreements with its creative services customers. Business
generation in these markets is based primarily on the reputation
of the providers creative talent and customer satisfaction
with reliability, timeliness, quality and price. The major
motion picture studios, which are AMGs customers, such as
Paramount Pictures, Sony Pictures Entertainment, Twentieth
Century
17
Fox, Universal Pictures, The Walt Disney Company and Warner
Bros. Entertainment, have the capability to perform similar
services in-house. These studios also have substantially greater
financial resources than AMGs, and in some cases
significant marketing advantages. Thus, depending on the
in-house capacity available to some of these studios, a studio
may be not only a customer but also a competitor. There are also
numerous independent providers of services similar to AMGs
and we actively compete with certain industry participants that
have a unique operating niche or specialty business. If there
were a significant decline in the number of motion pictures or
the amount of original television programming produced, or if
the studios or AMGs other clients either established
in-house post-production facilities or significantly expanded
their in-house capabilities, AMGs operations could be
materially and adversely affected.
We may
have substantial indemnification obligations under certain
inter-company agreements we entered into in connection with the
spin-off.
Pursuant to our tax sharing agreement with DHC, we have agreed
to be responsible for all taxes attributable to us or any of our
subsidiaries, whether accruing before, on or after the spin-off
(subject to specified exceptions). We have also agreed to be
responsible for and indemnify DHC with respect to
(i) certain taxes attributable to DHC or any of its
subsidiaries (other than Discovery Communications, LLC) and
(ii) all taxes arising as a result of the spin-off (subject
to specified exceptions). Our indemnification obligations under
the tax sharing agreement are not limited in amount or subject
to any cap. Pursuant to the reorganization agreement we entered
into with DHC in connection with the spin-off, we assumed
certain indemnification obligations designed to make our company
financially responsible for substantially all non-tax
liabilities that may exist relating to the business of AMG,
whether incurred prior to or after the spin-off, as well as
certain obligations of DHC. Any indemnification payments under
the tax sharing agreement or the reorganization agreement could
be substantial.
We
cannot predict or quantify the impact weakening economic
conditions in the United States and abroad may have on the media
and entertainment industries or the demand for our
services.
The media and entertainment industries, as well as our business
and earnings, are affected by general business and economic
conditions in the United States and abroad, and the current
downturn of such conditions could adversely affect demand for
our products and services. Adverse economic conditions, such as
high unemployment rates, fluctuations in debt and equity
markets, poor credit availability, high cost of capital and
declining investor confidence, may cause a significant reduction
in consumer entertainment spending, media production levels,
advertising spending, capital expenditures for systems
integration projects, and media outsourcing demands, which would
in turn materially impair our business and earnings. There can
be no assurance as to the effectiveness of any legislative or
other act or initiative of any federal or state governmental
authority designed to respond to the ongoing financial crisis
and economic downturn. Accordingly, our ability to increase or
maintain revenue and earnings could be adversely affected to the
extent that relevant economic environments remain weak or
decline further. We are unable to predict the extent of any of
these potential adverse effects.
Piracy
of elements may harm our business.
AMGs customers rely on it to process, complete and deliver
filmed, video and digital footage for motion pictures,
television programming, commercials and other proprietary
content prior to public release and to archive, manage and
distribute copyrighted media elements. Any failure or inability
to protect the intellectual property rights of AMGs
clients from piracy, counterfeiting or other unauthorized use
could negatively affect AMGs business. Although AMG
believes its security policies and procedures are adequate,
there can be no assurances that AMG will not experience
liability losses arising from piracy claims in the future and
any such claims may have a negative impact on AMGs
reputation and our sales.
18
Factors
Relating to our Common Stock and the Securities Market
We
cannot be certain that an active trading market will be
sustained, and our stock price may fluctuate
significantly.
We cannot assure you that an active trading market will be
sustained for our common stock, nor can we predict the prices at
which either series of our common stock may trade. The market
price of our common stock may fluctuate significantly due to a
number of factors, some of which may be beyond our control,
including:
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actual or anticipated fluctuations in our operating results;
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changes in earnings estimated by securities analysts or our
ability to meet those estimates;
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the operating and stock price performance of comparable
companies; and
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domestic and foreign economic conditions.
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If we
are unable to satisfy the requirements of Section 404 of
the Sarbanes-Oxley Act of 2002, or our internal control over
financial reporting is not effective, the reliability of our
financial statements may be questioned and our stock price may
suffer.
Section 404 of the Sarbanes-Oxley Act of 2002 requires any
company subject to the reporting requirements of the United
States securities laws to do a comprehensive evaluation of its
and its consolidated subsidiaries internal control over
financial reporting. To comply with this statute, we are
required to document and test our internal control procedures;
our management will be required to assess and issue a report
concerning our internal control over financial reporting; and
our independent auditors will be required to issue an
attestation regarding our internal control over financial
reporting. Our compliance with Section 404 of the
Sarbanes-Oxley Act will first be tested in connection with the
filing of our Annual Report on
Form 10-K
for the fiscal year ending December 31, 2009. The rules
governing the standards that must be met for management to
assess our internal control over financial reporting are
complex, subject to change, and require significant
documentation, testing and possible remediation to meet the
detailed standards under the rules. During the course of its
testing, our management may identify material weaknesses or
deficiencies which may not be remedied in time to meet the
deadline imposed by the Sarbanes-Oxley Act. If our management
cannot favorably assess the effectiveness of our internal
control over financial reporting or our auditors identify
material weaknesses in our internal control, investor confidence
in our financial results may weaken, and our stock price may
suffer.
It may
be difficult for a third party to acquire us, even if doing so
may be beneficial to our shareholders.
Certain provisions of our certificate of incorporation and
bylaws may discourage, delay or prevent a change in control of
our company that a shareholder may consider favorable. These
provisions include the following:
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authorizing a capital structure with multiple series of common
stock: a Series B that entitles the holders to ten votes
per share, a Series A that entitles the holders to one vote
per share and a Series C that, except as otherwise required
by applicable law, entitles the holders to no voting rights;
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authorizing the issuance of blank check preferred
stock, which could be issued by our board of directors to
increase the number of outstanding shares and thwart a takeover
attempt;
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classifying our board of directors with staggered three-year
terms, which may lengthen the time required to gain control of
our board of directors;
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limiting who may call special meetings of shareholders;
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prohibiting shareholder action by written consent (subject to
certain exceptions), thereby requiring shareholder action to be
taken at a meeting of the shareholders;
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establishing advance notice requirements for nominations of
candidates for election to our board of directors or for
proposing matters that can be acted upon by shareholders at
shareholder meetings;
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19
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requiring shareholder approval by holders of at least 80% of our
voting power or the approval by at least 75% of our board of
directors with respect to certain extraordinary matters, such as
a merger or consolidation of our company, a sale of all or
substantially all of our assets or an amendment to our
certificate of incorporation;
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requiring the consent of the holders of at least 75% of the
outstanding Series B common stock (voting as a separate
class) to certain share distributions and other corporate
actions in which the voting power of the Series B common
stock would be diluted by, for example, issuing shares having
multiple votes per share as a dividend to holders of
Series A common stock; and
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the existence of authorized and unissued stock which would allow
our board of directors to issue shares to persons friendly to
current management, thereby protecting the continuity of its
management, or which could be used to dilute the stock ownership
of persons seeking to obtain control of us.
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In addition, John C. Malone, our largest shareholder,
beneficially owns shares of our common stock that represent 31%
of the aggregate voting power of our outstanding common stock.
We
have adopted a shareholder rights plan in order to encourage
anyone seeking to acquire our company to negotiate with our
board of directors prior to attempting a takeover.
While the plan is designed to guard against coercive or unfair
tactics to gain control of our company, the plan may have the
effect of making more difficult or delaying any attempts by
others to obtain control of our company.
Holders
of a single series of our common stock may not have any remedies
if an action by our directors or officers has an adverse effect
on only that series of our common stock.
Principles of Delaware law and the provisions of our certificate
of incorporation may protect decisions of our board of directors
that have a disparate impact upon holders of any single series
of our common stock. Under Delaware law, the board of directors
has a duty to act with due care and in the best interests of all
of our shareholders, including the holders of all series of our
common stock. Principles of Delaware law established in cases
involving differing treatment of multiple classes or series of
stock provide that a board of directors owes an equal duty to
all common shareholders regardless of class or series and does
not have separate or additional duties to any group of
shareholders. As a result, in some circumstances, our directors
may be required to make a decision that is adverse to the
holders of one series of our common stock. Under the principles
of Delaware law referred to above, you may not be able to
challenge these decisions if a majority of our board of
directors is disinterested, independent and adequately informed
with respect to their decisions and acts in good faith, and in
the honest belief that it is acting in the best interest of all
of our stockholders.
Our
Series B common stock trades on the OTC
Bulletin Board, which is often characterized by volatility
and illiquidity.
The OTC Bulletin Board tends to be highly illiquid, in
part, because there is no national quotation system by which
potential investors can track the market price of shares except
through information received or generated by a limited number of
broker-dealers that make markets in particular stocks. There is
also a greater chance of market volatility for securities that
trade on the OTC Bulletin Board as opposed to a national
exchange or quotation system. This volatility is due to a
variety of factors, including a lack of readily available price
quotations, lower trading volume, absence of consistent
administrative supervision of bid and
ask quotations, and market conditions. The potential
for illiquidity and volatility with respect to our Series B
common stock may also be adversely affected by (i) the
relatively small number of shares of our Series B common
stock held by persons other than our officers, directors and
persons who hold in excess of 10% of the Series B common
stock outstanding, (ii) the relatively small number of such
unaffiliated shareholders, and (iii) the low trading volume
of such shares on the OTC Bulletin Board.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
20
All of our real and tangible personal property is owned or
leased by our subsidiaries or affiliates.
The operations of Ascent Media, through its AMG subsidiary, are
conducted at approximately 50 properties. Certain of these
facilities are used by multiple operations within AMG. In the
United States, AMG utilizes owned and leased properties in
California, Connecticut, Georgia, New Jersey, New York and
Virginia; the Content Services group also operates a satellite
earth station and related facilities in Minnesota.
Internationally, AMG utilizes owned and leased properties in the
United Kingdom, in London and Milton Keynes. In addition, the
Content Services group operates two leased facilities in
Singapore.
Worldwide, AMG leases approximately 880,000 square feet and
owns another 270,000 square feet, for a total of
1,150,000 square feet. The Content Services group utilizes
670,000 square feet and the Creative Services group
utilizes 295,000 square feet. Approximately
140,000 square feet is shared between the Content Services
group and the Creative Services group, with the remaining
45,000 square feet utilized by Corporate.
In the United States, AMGs leased properties total
approximately 620,000 square feet and have terms expiring
between June 2009 and June 2019. Several of these agreements
have extension options. The leased properties are used for our
technical operations, office space and media storage.
AMGs international leases total approximately
260,000 square feet and have terms that expire between
June 2009 and June 2021, and are also used for technical
operations, office space and media storage. The majority of the
international leases have extension clauses.
Approximately 210,000 square feet of AMGs owned
properties are located in Southern California, with another
45,000 square feet located in Northvale, New Jersey,
Tappan, New York, and Minneapolis, Minnesota. In addition, AMG
owns approximately 15,000 square feet in London, England.
Nearly all of AMGs owned properties are purpose-built for
its technical and creative service operations. AMGs
facilities are adequate to support its current near-term growth
needs.
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ITEM 3.
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LEGAL
PROCEEDINGS
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None.
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ITEM 4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
21
PART II.
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ITEM 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
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Market
Information
We have two series of common stock, Series A, which trades
on the NASDAQ Global Select Market under the symbol ASCMA and
Series B, which is eligible for quotation on the OTC
Bulletin Board under the symbol ASCMB but did not trade in
2008. The following table sets forth the quarterly range of high
and low sales prices of shares of our Series A common stock
from September 18, 2008 to December 31, 2008.
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Series A
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High
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Low
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2008
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Third quarter
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$
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33.81
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24.41
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Fourth quarter
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$
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26.31
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17.00
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Holders
As of January 31, 2009, there were approximately 1,328 and
73 record holders of our Series A common stock and
Series B common stock, respectively (which amounts do not
include the number of shareholders whose shares are held of
record by banks, brokerage houses or other institutions, but
include each institution as one shareholder).
Dividends
We have not paid any cash dividends on our common stock and we
have no present intention of so doing. Payment of cash
dividends, if any, in the future will be determined by our Board
of Directors in light of our earnings, financial condition and
other relevant considerations.
Securities
Authorized for Issuance Under Equity Compensation
Plans
Information required by this item is incorporated by reference
to our definitive proxy statement for our 2009 Annual Meeting of
shareholders.
22
Stock
Performance Graph
The following performance graph and related information shall
not be deemed soliciting material or
filed with the SEC, nor shall such information be
incorporated by reference into any future filings under the
Securities Act of 1933 or the Securities Exchange Act of 1934,
each as amended, except to the extent we specifically
incorporate it by reference into such filing.
The following graph sets forth the percentage change in the
cumulative total shareholder return on our Series A common
stock for the period beginning September 18, 2008 and ended
December 31, 2008 as compared to the S&P Media Index
and the NASDAQ Stock Market Index over the same period. The
graph assumes $100 was originally invested on September 18,
2008 and that all subsequent dividends were reinvested in
additional shares.
The comparisons in the graph below are based on historical data
and are not intended to forecast the possible future performance
of our Series A common stock.
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9/18/08
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12/31/08
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ASCMA Series A
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$
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100.00
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$
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80.37
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S&P Media Index
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$
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100.00
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$
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71.29
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NASDAQ Stock Market Index
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$
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100.00
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$
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71.71
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23
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ITEM 6.
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SELECTED
FINANCIAL DATA
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Effective September 17, 2008, DHC completed a spin off
transaction pursuant to which our capital stock was distributed
as a dividend to holders of DHCs Series A and
Series B common stock. See the Ascent Media
Spin-Off section of Item 7. Management
Discussion and Analysis of Financial Condition and Results of
Operations for further information.
The following tables present selected historical information
relating to our financial condition and results of operations
for the past five years. The following data should be read in
conjunction with our consolidated financial statements.
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December 31,
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2008
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2007
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2006
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2005
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2004
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Amounts in thousands
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Summary Balance Sheet Data:
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Current assets
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$
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490,618
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363,076
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316,504
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385,868
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187,811
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Goodwill
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$
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95,069
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260,036
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351,101
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353,028
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Total assets
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$
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745,304
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830,986
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952,919
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996,627
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805,435
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Current liabilities
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$
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91,202
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119,600
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114,229
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84,783
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107,437
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Stockholders equity
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$
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625,310
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686,896
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814,696
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890,029
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677,560
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Years Ended December 31,
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2008
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2007
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2006
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2005
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2004
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Amounts in thousands, except per share amounts
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Summary Statement of Operations Data:
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Net revenue
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$
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600,613
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589,395
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571,123
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589,024
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528,608
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Operating income (loss)(a)
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$
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(116,393
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)
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(170,547
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)
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(112,453
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)
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3,416
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11,823
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Net earnings (loss) from continuing operations(a)
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$
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(111,181
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)
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(147,557
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)
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(87,864
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)
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6,297
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|
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10,644
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Net earnings (loss)(a)
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$
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(64,619
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)
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(132,331
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)
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(83,007
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)
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8,970
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15,147
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Basic and diluted earnings (loss) per common share(b)
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$
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(4.60
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)
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(9.41
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)
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(5.90
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)
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0.64
|
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1.08
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(a) |
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Includes impairment of goodwill of $95,069,000, $165,347,000 and
$93,402,000 for the years ended December 31, 2008, 2007 and
2006, respectively. |
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(b) |
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Basic and diluted net earnings (loss) per common share is based
on (1) 14,061,618 shares, which is the number of
shares issued in the spin off, for all periods prior to the spin
off and (2) the actual number of weighted average
outstanding shares for all periods subsequent to the spin off. |
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ITEM 7.
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MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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The following discussion and analysis provides information
concerning our results of operations and financial condition.
This discussion should be read in conjunction with our
accompanying consolidated financial statements and the notes
thereto included elsewhere herein.
Overview
We are a holding company and own 100% of our principal operating
subsidiary, Ascent Media Group, LLC (AMG). We sold
our other wholly-owned operating subsidiary, Ascent Media CANS,
LLC (dba AccentHealth) (AccentHealth), on
September 4, 2008.
24
Ascent
Media 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 Ascent Media Spin Off). The Ascent Media 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 Ascent Media
Spin Off did not involve the payment of any consideration by the
holders of DHC common stock and is intended to qualify as a
transaction under Section 368(a) and 355 of the Internal
Revenue Code of 1986, as amended, for United States federal
income tax purposes. The Ascent Media Spin Off was accounted for
at historical cost due to the pro rata nature of the
distribution. The Ascent Media 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 Ascent Media 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
Ascent Media 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 Ascent Media Spin Off and certain conditions to be satisfied
at the closing thereof) had been satisfied or, to the extent
waivable, waived. Following the Ascent Media 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:
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Costs associated with complying with the federal securities
laws, including compliance with the Sarbanes-Oxley Act of 2002;
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Increased professional fees for annual and quarterly public
reporting requirements, tax consulting and legal counseling;
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Fees paid to our board of directors; and
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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.
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We estimate that these costs and expenses, in the aggregate,
could result in approximately $5 to $7 million of
additional annual expense as compared to those historically
reported.
Ascent
Media Group
AMG provides creative services and content management and
delivery services to the media and entertainment industries in
the United States, the United Kingdom and Singapore. AMGs
clients include major motion picture studios, independent
producers, broadcast networks, programming networks, advertising
agencies and other companies that produce, own
and/or
distribute entertainment, news, sports, corporate, educational,
industrial and advertising content. AMGs operations are
organized into the following two groups: the Content Services
group and the Creative Services group.
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 AMGs creative services
business for services provided on new entertainment projects
utilizing scripted content and the production of new television
commercials during the
2007-2008
television 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. Further, the commercial contracts
between the Screen Actors Guild, the American Federation of
Television and Radio Artists and the advertising industry for
television, radio and internet/new media commercials is
scheduled to
25
expire on March 31, 2009. The failure to finalize and
ratify a new agreement with the AMPTP or the failure to enter
into new commercial contracts upon expiration of the current
contracts could lead to a strike or other job action. Any such
labor dispute could have an adverse effect on the television
and/or
motion picture production industries, including AMGs
business, and in the case of a severe or prolonged work
stoppage, the adverse effect on AMGs business, operations,
results of operations
and/or
financial condition could be material.
In recent years, AMG has been challenged by increasing
competition and resulting downward rate pressure for certain of
its services. Such factors have caused some margin compression
and lower operating income. AMG is continuing to focus on
leveraging its broad array of traditional media and file-based
services to be a full service provider to new and existing
customers within the feature film, television production and
advertising industries. Its strategy focuses on providing a
unified portfolio of business-to-business services intended to
enable media companies to realize increasing benefits from
digital distribution. With facilities in the United States, the
United Kingdom and Singapore, AMG hopes to increase its
services to multinational companies on a worldwide basis. The
challenges that it faces include continued development of end to
end file-based solutions, increased competition in both its
Creative Services and Content Services groups, the need to
differentiate its products and services to help maintain or
increase operating margins and financing capital expenditures
for equipment and other items to meet customers
requirements for integrated and file-based workflows.
Adjusted
OIBDA
We evaluate the performance of our operating segments based on
financial measures such as revenue and adjusted operating income
before depreciation and amortization (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) determined in
each case for the relevant operating segment only. 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 evaluate 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, gains on sale
of operating assets and other income that are included in the
measurement of earnings (loss) before income taxes pursuant to
GAAP. Accordingly, adjusted OIBDA should be considered in
addition to, but not as a substitute for, earnings (loss) before
income taxes, cash flow provided by operating activities and
other measures of financial performance prepared in accordance
with GAAP. Because segment adjusted OIBDA excludes corporate and
other SG&A (as defined below), and does not include an
allocation for corporate overhead, segment adjusted OIBDA should
not be used as an indication of the operating results that could
be expected if either operating segment were operated on a
stand-alone basis.
Results
of Operations
Our operations are organized into the following reportable
segments: the Content Services group and the Creative Services
group.
The Content Services groups revenue consists of fees
relating to facilities and services necessary to optimize,
archive, manage and reformat and repurpose completed media
assets for global distribution via freight, satellite, fiber and
the Internet. In addition, the Content Services group includes
the facilities, technical infrastructure, and operating staff
necessary to assemble programming content for cable and
broadcast networks and to distribute media signals via satellite
and terrestrial networks. The Content Services group includes
AMGs 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. Additionally, the Content
Services group provides owners of film libraries a broad range
of restoration, preservation, archiving, professional mastering
and duplication services. The scope of these 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. For the year ended December 31,
2008, approximately 31% of the Content Services groups
revenue relates to broadcast services, satellite operations and
fiber services that are earned monthly under long-term contracts
ranging generally from one
26
to seven years. Additionally, approximately 33% 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.
AMGs Creative Services group generates revenue primarily
from fees for various technical and creative services necessary
to complete principal photography into final products.
Generally, these services pertain to the completion of feature
films, television programs, television commercials and new
digital media. These services are referred to generally in the
entertainment industry as post-production services.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Amounts in thousands
|
|
|
Consolidated Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
600,613
|
|
|
|
589,395
|
|
|
|
571,123
|
|
Loss from continuing operations before income tax
|
|
$
|
(108,810
|
)
|
|
|
(161,294
|
)
|
|
|
(102,638
|
)
|
Net loss
|
|
$
|
(64,619
|
)
|
|
|
(132,331
|
)
|
|
|
(83,007
|
)
|
Segment Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Content Services group
|
|
$
|
430,648
|
|
|
|
404,043
|
|
|
|
386,984
|
|
Creative Services group
|
|
$
|
169,965
|
|
|
|
185,352
|
|
|
|
184,139
|
|
Adjusted OIBDA
|
|
|
|
|
|
|
|
|
|
|
|
|
Content Services group
|
|
$
|
47,169
|
|
|
|
45,560
|
|
|
|
39,066
|
|
Creative Services group
|
|
$
|
22,480
|
|
|
|
35,529
|
|
|
|
40,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment adjusted OIBDA(a)
|
|
$
|
69,649
|
|
|
|
81,089
|
|
|
|
79,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted OIBDA as a Percentage of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Content Services group
|
|
|
11.0
|
%
|
|
|
11.3
|
%
|
|
|
10.1
|
%
|
Creative Services group
|
|
|
13.2
|
%
|
|
|
19.2
|
%
|
|
|
22.2
|
%
|
|
|
|
(a) |
|
See reconciliation to loss from continuing operations before
income taxes below. |
Revenue. Our consolidated revenue increased
$11,218,000 or 1.9% and $18,272,000 or 3.2% for the years ended
December 31, 2008 and 2007, respectively, as compared to
the prior year. In 2008, Content Services revenue increased by
$26,605,000 due to (i) an increase of $31,951,000 in system
integration services revenue reflecting a significant number of
larger projects in the United States and Europe in 2008, with
one customer in the United States contributing to a
significant amount of the increase, (ii) an increase of
$8,259,000 for traditional media services both in the United
States and the United Kingdom and (iii) an increase of
$3,070,000 for content origination and transport services
primarily with existing customers worldwide. These increases
were partially offset by (i) a decrease of $6,625,000 in
lab revenues driven by declines in the photochemical market in
the United States and the disruption impact of consolidation of
our labs in the United Kingdom (ii) a decrease of
$4,525,000 in subtitling services in the United Kingdom,
(iii) a decrease of $2,094,000 in DVD services in the
United States driven by lower number of titles due to delayed
transition to BluRay and (iv) unfavorable changes in
foreign currency exchange rates of $7,145,000. In 2008, Creative
Services revenue decreased by $15,387,000 due to (i) a
decrease of $8,798,000 in television post production services
primarily driven by the Writers Guild strike earlier in the
year, (ii) a decrease of $5,323,000 in commercial revenue
driven by a weaker worldwide commercial production market
particularly in the later half of 2008 (iii) a decrease of
$4,130,000 resulting from the shut down of certain operations in
Mexico and United States and (iv) unfavorable changes in
foreign currency exchange rates of $1,282,000. These decreases
were partially offset by an increase of $5,007,000 in feature
film revenue driven by increased titles for digital intermediate
and post-production services.
For the year ended December 31, 2008, $77,088,000 of the
content services revenue was generated by one customer,
Motorola, Inc., under system integration services contracts. For
the year ended December 31, 2007, these
27
Motorola contracts generated $36,011,000 of content services
revenue. These contracts expire in July 2009 and we could only
sustain this level of revenue in the future if we enter into
other contracts of this same magnitude, for which there can be
no assurances.
For the year ended December 31, 2007, Content Services
groups revenue increased $17,059,000 from the prior year
due to (i) an increase of $16,823,000 in system integration
services revenue due to an increase in the number of projects,
(ii) an increase of $10,363,000 in new digital media
management services and (iii) favorable changes in foreign
currency exchange rates of $9,352,000. These increases in
revenue were partially offset by (i) a decrease of
$9,218,000 in worldwide media services including audio,
broadcast, subtitling and lab, (ii) a decrease of
$5,704,000 primarily due to the expiration of certain service
contracts and (iii) decrease of $3,867,000 in content
origination and transport services with the expiration of
certain contracts primarily in the United Kingdom. In 2007,
Creative Services group revenue increased $1,213,000 due to
(i) an increase of $5,025,000 in commercial revenue driven
primarily by strong worldwide demand in the first quarter,
(ii) an increase of $3,818,000 in feature revenue driven by
increased titles for digital intermediate and post production
services and (iii) favorable changes in foreign currency
exchange rates of $1,452,000. These increases were partially
offset by a $6,520,000 decrease in television post production
services in the United States as the Creative Services revenue
was negatively impacted by the Writers Guild strike, which
primarily impacted television production in the fourth quarter
of 2007.
Cost of Services. Our cost of services
increased $24,462,000 or 5.9% and $25,554,000 or 6.5% for the
years ended December 31, 2008 and 2007, respectively, as
compared to the corresponding prior year. A significant portion
of the 2008 increase related to Content Services resulting from
higher volumes of system integration services, driving large
increases in production material and labor costs. This was
partially offset by lower cost of services in Creative Services
driven by decreases in television production services impacted
by the Writers Guild strike.
A significant portion of the 2007 increase related to Content
Services resulting from higher volumes of system integration
services, which have a higher percentage of production material
and labor costs. The cost of services for the Creative Services
group was higher on only slightly higher revenue due to higher
labor costs which were fixed despite the loss of revenue from
the Writers Guild strike at the end of 2007.
As a percent of revenue, cost of services was 73.5%, 70.8% and
68.5% for the years ended December 31, 2008, 2007 and 2006,
respectively. The percentage increases are mainly a result of
revenue mix primarily driven by the higher production material
costs for system integration projects in the Content Services
group. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Amounts in thousands
|
|
|
SG&A(a)
|
|
$
|
117,112
|
|
|
|
113,864
|
|
|
|
126,194
|
|
Stock-based and long-term incentive compensation
|
|
|
3,531
|
|
|
|
262
|
|
|
|
934
|
|
Accretion expense on asset retirement obligations
|
|
|
296
|
|
|
|
296
|
|
|
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SG&A
|
|
$
|
120,939
|
|
|
|
114,422
|
|
|
|
127,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
SG&A includes corporate SG&A of $27,617,000,
$22,565,000 and $26,420,000 for the years ended
December 31, 2008, 2007 and 2006, respectively, which are
not included in total segment adjusted OIBDA. |
SG&A, excluding stock-based and long-term incentive
compensation and accretion expense on asset retirement
obligations, increased $3,248,000 or 2.9% and decreased
$12,330,000 or 9.8% for the years ended December 31, 2008
and 2007, respectively, as compared to the corresponding prior
year. For 2008, the increase was due to higher public company
costs primarily for professional fees, start up costs relating
to development efforts on new businesses, higher facility costs
related to duplicative rent as a creative services business unit
relocates and higher bad-debt expense. These increases were
partially offset by lower personnel costs at the Creative
Services
28
group as a result of the strike and the shutdown of Mexico
operations and the impact of headcount reductions made in the
fourth quarter in conjunction with restructuring activities. For
2007, the decline is driven by lower personnel costs, resulting
from restructuring in the third and fourth quarters of 2006, and
lower professional fees. As a percent of revenue, our SG&A,
excluding stock-based and long-term incentive compensation and
accretion expense on asset retirement obligations, was 19.5%,
19.3% and 22.1% for the years ended December 31, 2008, 2007
and 2006, respectively.
Stock-based and Long-term Incentive
Compensation. Stock-based compensation was
$3,531,000, $262,000 and $934,000 for the years ended
December 31, 2008, 2007 and 2006, respectively, and is
included in SG&A in our consolidated statements of
operations. Effective August 3, 2006, AMG 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 AMG that are payable in cash or stock at the
compensation 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 AMG. 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 totaling $3,523,000 to the
grantees who held PARs on the date of the AccentHealth sale.
These cash distributions will be made over a three year period,
beginning in February 2009, with the majority of grantees
expected to receive their entire distribution in 2009. The
charge to expense is included in stock-based and long-term
incentive compensation for the year ended December 31,
2008. We recorded 2006 Plan expense of $276,000 for the year
ended December 31, 2007, with no expense recorded in 2006.
Restructuring Charges. During 2008, we
recorded restructuring charges of $8,801,000, related to certain
severance and facility costs in conjunction with ongoing
structural changes being implemented to align our organization
with our strategic goals and with how we operate, manage and
sell our services. Such changes include the consolidation of
certain facilities in the United States and the United Kingdom,
the closing of our operations in Mexico and reduction in
headcount to realign with the new reporting structure.
Approximately $4.8 million of the 2008 restructuring
charges related to the Creative Services group in the United
States and United Kingdom while the remaining amount related
mainly to the Content Services group. Any additional future
restructuring costs for the ongoing structural changes being
implemented is not currently determinable.
During 2007, we recorded restructuring charges of $761,000
related to severance in conjunction with restructuring efforts
primarily within the United Kingdom creative services business.
During 2006, we recorded restructuring charges of $10,832,000
primarily related to severance from the realignment of its
operating divisions. These restructuring activities were
primarily in the Corporate and other group in the United States
and United Kingdom.
29
The following table provides the activity and balances of the
restructuring reserve.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Additions
|
|
|
Deductions(a)
|
|
|
Balance
|
|
|
|
|
|
|
Amounts in thousands
|
|
|
|
|
|
Severance
|
|
$
|
|
|
|
|
8,645
|
|
|
|
(2,694
|
)
|
|
|
5,951
|
|
Excess facility costs
|
|
|
3,828
|
|
|
|
2,187
|
|
|
|
(2,251
|
)
|
|
|
3,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
$
|
3,828
|
|
|
|
10,832
|
|
|
|
(4,945
|
)
|
|
|
9,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
5,951
|
|
|
|
761
|
|
|
|
(5,355
|
)
|
|
|
1,357
|
|
Excess facility costs
|
|
|
3,764
|
|
|
|
|
|
|
|
(2,142
|
)
|
|
|
1,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
$
|
9,715
|
|
|
|
761
|
|
|
|
(7,497
|
)
|
|
|
2,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
1,357
|
|
|
|
5,183
|
|
|
|
(4,014
|
)
|
|
|
2,526
|
(b)
|
Excess facility costs
|
|
|
1,622
|
|
|
|
3,618
|
|
|
|
(1,946
|
)
|
|
|
3,294
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
$
|
2,979
|
|
|
|
8,801
|
|
|
|
(5,960
|
)
|
|
|
5,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Primarily represents cash payments. |
|
(b) |
|
Substantially all of this amount is expected to be paid in 2009. |
|
(c) |
|
Substantially all of this amount is expected to be paid by 2012. |
Gain on Sale of Operating Assets, net. During
2008, we recorded a gain on sale of operating assets, net, of
$9,038,000. Included in these amounts was a pre-tax gain of
$10,174,000 for the 2008 sales of United Kingdom real estate for
net cash proceeds of $16,215,000.
Depreciation and Amortization. Depreciation
and amortization expense decreased 4.9% to $59,766,000 and
increased 1.2% to $62,868,000 for the years ended
December 31, 2008 and 2007, respectively, as compared to
the corresponding prior year. The 2008 decrease is the result of
a decrease in property, plant and equipment as the amount of
assets that were either sold or fully depreciated exceeded the
depreciation on new assets placed in service during 2008. The
2007 increase is due to depreciation on new assets placed in
service in 2007 partially offset by assets becoming fully
depreciated.
Impairment of Goodwill. In connection with our
2008 annual evaluation of the recoverability of our goodwill, we
estimated the value of our commercial TV reporting unit, which
is included in the Creative Services group, using a discounted
cash flow analysis. The result of this valuation indicated that
the fair value of the commercial TV reporting unit was less than
its carrying value. The commercial TV reporting unit fair value
was then used to calculate an implied value of the goodwill
related to this reporting unit. The $95,069,000 excess of the
carrying amount of the Creative Services goodwill over its
implied value was recorded as an impairment charge in the fourth
quarter of 2008. The impairment charge is the result of lower
future expectations for commercial TV operating cash flow due to
the impact of the current global economic climate on our
customers in the entertainment industry.
In connection with our 2007 annual evaluation of the
recoverability of our goodwill, we estimated the value of our
reporting units using a discounted cash flow analysis. The
result of this valuation indicated that the fair value of the
former Network Services group, which is now included in the
Content Services group, was less than its carrying value. The
Network Services reporting unit fair value was then used to
calculate an implied value of the goodwill related to this
reporting unit. The $165,347,000 excess of the carrying amount
of the Content Services goodwill over its implied value was
recorded as an impairment charge in the fourth quarter of 2007.
The impairment charge is the result of lower future expectations
for network services operating cash flow due to a continued
decline in operating cash flow margins as a percent of revenue,
resulting from competitive conditions in the entertainment and
media services industries and increasingly complex customer
requirements that are expected to continue for the foreseeable
future.
In 2006, the former Media Management Services group, which is
now included in the Content Services group, was tested for
goodwill impairment in the third quarter, prior to AMGs
annual goodwill valuation assessment. It was tested prior to the
annual assessment due to its restructuring activities and the
declining financial performance
30
of the former Media Management Services group, including ongoing
operating losses driven by technology and customer requirement
changes in the industry. We estimated the fair value of that
reporting unit principally by using trading multiples of revenue
and operating cash flows of similar companies in the industry.
This test resulted in a goodwill impairment loss for the former
Media Management Services group of $93,402,000, which represents
the excess of the carrying value over the implied fair value of
such goodwill.
Loss from Continuing Operations Before Income
Taxes. We recorded net losses from continuing
operations before income taxes of ($108,810,000), ($161,294,000)
and ($102,638,000) for the years ended December 31, 2008,
2007 and 2006, respectively. The changes between these years are
the result of the aforementioned changes in revenue and expenses.
Income Taxes from Continuing Operations. Our
effective tax rate was an expense of 2.2%, a benefit of 8.5% and
a benefit of 14.4% for the years ended December 31, 2008,
2007 and 2006, respectively. For 2008, we had a pre-tax loss
from continuing operations of ($108,810,000), but incurred
$2,371,000 of income tax expense. We incurred income tax expense
despite the pre-tax loss from continuing operations mainly due
to (i) the tax impact of $32,290,000 related to
non-deductible goodwill impairment and (ii) an increase in
the valuation allowance of $10,052,000. For 2007 and 2006, our
income tax rates were lower than the federal income tax rate of
35% primarily from goodwill impairment charges of $165,347,000
and $93,402,000, respectively, for which we did not receive full
tax benefits. In 2006, the impact of not receiving a tax benefit
on the impairment charge was partially offset by a $7,663,000
tax benefit resulting from a change in the valuation allowance.
Earnings from Discontinued Operations, Net of Income
Taxes. We recorded earnings from discontinued
operations, net of income taxes of $46,562,000, $15,226,000 and
$4,857,000 for the years ended December 31, 2008, 2007 and
2006, respectively. These amounts included the earnings of the
discontinued operations mentioned above. The 2008 amount
includes the pre-tax gains on the sale of the discontinued
operations totaling approximately $69 million and
$27.4 million in related income tax expense. See further
information about the discontinued operations below.
Net Loss. We recorded net losses of
($64,619,000), ($132,331,000) and ($83,007,000) for the years
ended December 31, 2008, 2007 and 2006, respectively. The
changes between these years are the result of the aforementioned
changes in revenue and expenses and discontinued operations.
Adjusted OIBDA. The following table provides a
reconciliation of consolidated segment adjusted OIBDA to loss
from continuing operations before income taxes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Amounts in thousands
|
|
|
Total segment adjusted OIBDA
|
|
$
|
69,649
|
|
|
|
81,089
|
|
|
|
79,896
|
|
Corporate selling, general and administrative expenses
|
|
|
(27,617
|
)
|
|
|
(22,565
|
)
|
|
|
(26,420
|
)
|
Stock-based and long-term incentive compensation
|
|
|
(3,531
|
)
|
|
|
(262
|
)
|
|
|
(934
|
)
|
Accretion expense on asset retirement obligations
|
|
|
(296
|
)
|
|
|
(296
|
)
|
|
|
(673
|
)
|
Restructuring and other charges
|
|
|
(8,801
|
)
|
|
|
(761
|
)
|
|
|
(10,832
|
)
|
Depreciation and amortization
|
|
|
(59,766
|
)
|
|
|
(62,868
|
)
|
|
|
(62,095
|
)
|
Gain on sale of operating assets, net
|
|
|
9,038
|
|
|
|
463
|
|
|
|
2,007
|
|
Impairment of goodwill
|
|
|
(95,069
|
)
|
|
|
(165,347
|
)
|
|
|
(93,402
|
)
|
Other income, net
|
|
|
7,583
|
|
|
|
9,253
|
|
|
|
9,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
$
|
(108,810
|
)
|
|
|
(161,294
|
)
|
|
|
(102,638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Content Services group adjusted OIBDA as a percentage of revenue
was 11.0%, 11.3% and 10.1% for the years ended December 31,
2008, 2007 and 2006, respectively. Creative Services group
adjusted OIBDA as a percentage of revenue was 13.2%, 19.2% and
22.2% for the years ended December 31, 2008, 2007 and 2006,
respectively. Due to the higher labor and material costs for the
Content Services group, as well as higher facility costs, the
adjusted OIBDA margin for the Content Services group is lower
than such margin for the Creative Services group for the years
ended December 31, 2008, 2007 and 2006.
31
The primary cost components for the Content Services group are
labor and materials, with these costs comprising over 71% of the
segment revenue. The other cost components for the Content
Services group are facility costs, production equipment and
general and administrative expenses. Content Services group
adjusted OIBDA increased $1,609,000 or 3.5% for the year ended
December 31, 2008, compared to the prior year. This
increase in adjusted OIBDA was due to (i) an increase of
$6,777,000 driven by higher systems integration revenues and
(ii) an increase of $2,200,000 driven by higher content
distribution and transport services. These increases in adjusted
OIBDA were partially offset by (i) a decrease of $2,853,000
in digital media services as more complex projects increased
costs, (ii) a $2,700,000 loss recorded on a systems
integration contract, and (iii) $2,100,000 startup costs
relating to development efforts on new businesses. As a result
of the above, for the year ended December 31, 2008, the
Content Services group adjusted OIBDA margin was slightly lower
than the prior year.
Content Services adjusted OIBDA increased $6,494,000 or 17% for
the year ended December 31, 2007, compared to the prior
year. This increase in adjusted OIBDA was due to
(i) $5,356,000 resulting from new digital media services,
(ii) $2,871,000 from higher system integration services and
(iii) $1,483,000 from reduced cost structure in media
services in the United States. This increase in adjusted OIBDA
was partially offset by a decrease of $2,527,000 from lower
content origination and transport revenues. As a result, for the
year ended December 31, 2007, content services adjusted
OIBDA margin was higher than the prior year.
The services provided by the Creative Services group are labor
intensive and they require high labor and facility costs, with
labor and facility costs representing over 73% of revenue. The
Creative Services groups other primary cost components are
production equipment, materials cost and general and
administrative expenses. Creative Services group adjusted OIBDA
decreased $13,049,000 or 37% for the year ended
December 31, 2008, compared to the prior year. This
decrease in adjusted OIBDA was due to (i) $8,018,000 from
lower commercial revenues and declines in the average size of
commercial projects resulting in a lower margin revenue mix,
(ii) $5,053,000 from the impact of the Writers Guild strike
as certain fixed costs and staffing levels continued as revenue
declined and (iii) $2,400,000 primarily from duplicative
rent and facility closures. These declines in adjusted OIBDA
were offset by an increase of $2,537,000 from higher revenues in
feature films and digital intermediate projects. As a result of
the above, the overall Creative Services group OIBDA margin was
lower for 2008 compared to 2007.
Creative Services group adjusted OIBDA decreased $5,301,000 or
13% for the year ended December 31, 2007, compared to the
prior year. This decrease in adjusted OIBDA was largely due to a
decrease of $4,527,000 due to the Writers Guild strike.
Discontinued
Operations
AccentHealth
AccentHealth, which was acquired in January 2006, operated an
advertising-supported captive audience television network in
doctor office waiting rooms nationwide. AccentHealth was part of
the Content Services group. On September 4, 2008, we
completed the sale of 100% of the ownership interests in
AccentHealth to an unaffiliated third party for net cash
proceeds of $118,641,000. Our board of directors determined that
AccentHealth was a non-core asset, and 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
$25,566,000 of income tax expense on the gain. We do not
anticipate that the sale of AccentHealth will materially impact
our remaining businesses or assets.
Palm
Bay
Ascent Media Systems & Technology Services, LLC,
located in Palm Bay, Florida (Palm Bay), provided
field service operations through an on-staff network of field
engineers located throughout the United States and was part of
the Content Services group. On September 8, 2008, AMG sold
Palm Bay to an unaffiliated third party for net cash proceeds of
$7,040,000. AMG recognized a gain on this sale of $3,370,000,
and income tax expense of $1,348,000 on such gain.
32
Visiontext
Visiontext Limited (Visiontext) operated a
post-production subtitling business in the United Kingdom and
United States and was part of the Creative Services group. On
September 30, 2008, AMG sold Visiontext to an unaffiliated
third party for net cash proceeds of $2,150,000. AMG recognized
a gain on this sale of $1,777,000, and income tax expense of
$497,000 on such gain.
Liquidity
and Capital Resources
At December 31, 2008, we have $341,517,000 of cash and cash
equivalents on a consolidated basis a portion of which we may
use to fund potential strategic acquisitions or investment
opportunities. The cash is invested in highly liquid, highly
rated short-term investments and a substantial portion of the
balance is held in investments that are participating in the
United States government guarantee program.
Additionally, our other source of funds is AMGs cash flows
from operating activities. During the years ended
December 31, 2008, 2007 and 2006, AMGs cash flow from
operating activities was $21,041,000, $61,176,000 and
$80,300,000, respectively. The primary drivers of the cash flow
from operating activities are adjusted OIBDA and changes in
working capital. Fluctuations in 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.
During the years ended December 31, 2008, 2007 and 2006,
capital expenditures totaled $39,072,000, $42,898,000 and
$71,896,000, respectively. These expenditures relate to the
purchase of new equipment, the upgrade of facilities and the
buildout of AMGs existing facilities to meet customer
contracts, which are capitalized as additions and remain the
property of AMG, not the specific customer. During the year
ended December 31, 2006, AMG used cash of $51,837,000 to
purchase marketable securities. During the years ended
December 31, 2008 and December 31, 2007, AMG then sold
those marketable securities for cash of $23,545,000 and
$28,292,000, respectively.
For the foreseeable future, we expect to have sufficient
available cash and cash equivalents and net cash from AMGs
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 2009, we expect to spend approximately $30,000,000 to
$35,000,000 for capital expenditures, which we expect will be
funded with our cash from operations and AMGs working
capital.
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.
Off-Balance
Sheet Arrangements and Contractual Obligations
Information concerning the amount and timing of required
payments under our contractual obligations at December 31,
2008 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
After 5
|
|
|
|
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
Years
|
|
|
Total
|
|
|
|
Amounts in thousands
|
|
|
Operating leases
|
|
$
|
25,063
|
|
|
|
44,367
|
|
|
|
26,768
|
|
|
|
47,577
|
|
|
|
143,775
|
|
Capital lease
|
|
|
2,392
|
|
|
|
4,769
|
|
|
|
2,867
|
|
|
|
|
|
|
|
10,028
|
|
Other
|
|
|
301
|
|
|
|
|
|
|
|
4,226
|
|
|
|
91
|
|
|
|
4,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
27,756
|
|
|
|
49,136
|
|
|
|
33,861
|
|
|
|
47,668
|
|
|
|
158,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
We have contingent liabilities related to legal proceedings and
other matters arising in the ordinary course of business.
Although it is reasonably possible we may incur losses upon
conclusion of such matters, an estimate of any loss or range of
loss cannot be made. In the opinion of management, it is
expected that amounts, if any, which may be required to satisfy
such contingencies will not be material in relation to the
accompanying consolidated financial statements.
Recent
Accounting Pronouncements
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141(R), Business
Combinations (SFAS No. 141(R)).
The statement will significantly change the accounting for
business combinations, and under this statement, an acquiring
entity will be required to recognize all the assets acquired and
liabilities assumed in a transaction at the acquisition-date
fair value with limited exceptions. SFAS No. 141 (R)
will change the accounting treatment for certain specific items,
including acquisition costs, noncontrolling interests, acquired
contingent liabilities, in-process research and development,
restructuring costs and changes in deferred tax asset valuation
allowances and income tax uncertainties after the acquisition
date. The adoption of the requirements of SFAS No. 141
(R) applies prospectively to business combinations for which the
acquisition date is on or after fiscal years beginning after
December 15, 2008.
Critical
Accounting Policies and Estimates
Valuation of Long-lived Assets and Amortizable Other
Intangible Assets. We perform impairment tests
for our long-lived assets if an event or circumstance indicates
that the carrying amount of our long-lived assets may not be
recoverable. In response to changes in industry and market
conditions, we may also strategically realign our resources and
consider restructuring, disposing of, or otherwise exiting
businesses. Such activities could result in impairment of our
long-lived assets or other intangible assets. We are subject to
the possibility of impairment of long-lived assets arising in
the ordinary course of business. We regularly consider the
likelihood of impairment and may recognize impairment if the
carrying amount of a long-lived asset or intangible asset is not
recoverable from its undiscounted cash flows in accordance with
SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets. Impairment is measured
as the difference between the carrying amount and the fair value
of the asset. We use both the income approach and market
approach to estimate fair value. Our estimates of fair value are
subject to a high degree of judgment since they include a
long-term forecast of future operations. Accordingly, any value
ultimately derived from our long-lived assets may differ from
our estimate of fair value.
Valuation of Goodwill and
Non-amortizable
Other Intangible Assets. We assess the impairment
of goodwill annually and whenever events or changes in
circumstances indicate that the carrying value may not be
recoverable. Factors we consider important which could trigger
an impairment review include significant underperformance to
historical or projected future operating results, substantial
changes in our strategy or the manner of use of our assets,
significant negative industry or economic trends and the market
capitalization . Fair value of each reporting unit is determined
through a combination of discounted cash flow models and
comparisons to similar businesses in the industry. Our estimates
of fair value are subject to a high degree of judgment since
they include a long-term forecast of future operations and an
estimate of our cost of capital.
Valuation of Trade Receivables. We must make
estimates of the collectibility of our trade receivables. Our
management analyzes the collectibility based on historical bad
debts, customer concentrations, customer credit- worthiness,
current economic trends and changes in our customer payment
terms. We record an allowance for doubtful accounts based upon
specifically identified receivables that we believe are
uncollectible. In addition, we also record an amount based upon
a percentage of each aged category of our trade receivables.
These percentages are estimated based upon our historical
experience of bad debts. Our trade receivables balance was
$114,154,000, net of allowance for doubtful accounts of
$9,200,000, as of December 31, 2008. As of
December 31, 2007, our trade receivables balance was
$122,079,000, net of allowance for doubtful accounts of
$8,359,000.
Valuation of Deferred Tax Assets. In
accordance with SFAS No. 109, Accounting for
Income Taxes, we review the nature of each component
of our deferred income taxes for reasonableness. As part of this
review, we rely on an estimate of our long-term forecast of
future operations. After consideration of all available evidence
and estimates, we have determined that it is more likely than
not that we will not realize the tax benefits associated with
34
certain cumulative net operating loss carry forwards and certain
other deferred tax assets, and as such, we have established a
valuation allowance of $24,461,000 and $17,470,000 as of
December 31, 2008 and 2007, respectively.
|
|
ITEM 7A.
|
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 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Our consolidated financial statements are filed under this Item,
beginning on Page 36. The financial statement schedules
required by
Regulation S-X
are filed under Item 15 of this Annual Report on
Form 10-K.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
In accordance with Exchange Act
Rules 13a-15
and 15d-15,
the Company carried out an evaluation, under the supervision and
with the participation of management, including its chairman,
president and principal accounting officer (the
Executives), of the effectiveness of its disclosure
controls and procedures as of the end of the period covered by
this report. Based on that evaluation, the Executives concluded
that the Companys disclosure controls and procedures were
effective as of December 31, 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 during the three months
ended December 31, 2008 that has materially affected, or is
reasonably likely to materially affect, its internal controls
over financial reporting.
This Annual Report does not include a report of
managements assessment regarding internal control over
financial reporting or an attestation report of the
Companys registered public accounting firm due to a
transition period established by rules of the SEC for newly
public companies.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
35
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Ascent Media Corporation:
We have audited the accompanying consolidated balance sheets of
Ascent Media Corporation and subsidiaries as of
December 31, 2008 and 2007, and the related consolidated
statements of operations and comprehensive loss, cash flows and
stockholders equity for each of the years in the
three-year period ended December 31, 2008. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Ascent Media Corporation and subsidiaries as of
December 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2008, in conformity
with U.S. generally accepted accounting principles.
Los Angeles, California
March 31, 2009
36
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
December 31,
2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Amounts in thousands
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
341,517
|
|
|
|
201,633
|
|
Trade receivables, net
|
|
|
114,154
|
|
|
|
122,079
|
|
Prepaid expenses
|
|
|
12,223
|
|
|
|
13,084
|
|
Deferred income tax assets, net (note 10)
|
|
|
10,826
|
|
|
|
10,750
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
13,232
|
|
Income taxes receivable
|
|
|
9,122
|
|
|
|
|
|
Other current assets
|
|
|
2,776
|
|
|
|
2,298
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
490,618
|
|
|
|
363,076
|
|
Investments in marketable securities
|
|
|
|
|
|
|
23,545
|
|
Property and equipment, net (note 5)
|
|
|
223,928
|
|
|
|
259,026
|
|
Goodwill (note 6)
|
|
|
|
|
|
|
95,069
|
|
Deferred income tax assets, net (note 10)
|
|
|
22,545
|
|
|
|
29,233
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
50,038
|
|
Other assets, net
|
|
|
8,213
|
|
|
|
10,999
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
745,304
|
|
|
|
830,986
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
22,633
|
|
|
|
24,768
|
|
Accrued payroll and related liabilities
|
|
|
22,258
|
|
|
|
23,614
|
|
Other accrued liabilities
|
|
|
31,172
|
|
|
|
32,683
|
|
Deferred revenue
|
|
|
15,139
|
|
|
|
22,992
|
|
Income taxes payable
|
|
|
|
|
|
|
12,764
|
|
Liabilities of discontinued operations
|
|
|
|
|
|
|
2,779
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
91,202
|
|
|
|
119,600
|
|
Other liabilities
|
|
|
28,792
|
|
|
|
24,490
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
119,994
|
|
|
|
144,090
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (notes 13 and 14)
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value. Authorized
5,000,000 shares; no shares issued
|
|
|
|
|
|
|
|
|
Series A common stock, $.01 par value. Authorized
45,000,000 shares; issued and outstanding
13,409,776 shares at December 31, 2008
|
|
|
134
|
|
|
|
|
|
Series B common stock, $.01 par value. Authorized
5,000,000 shares; issued and outstanding
659,732 shares at December 31, 2008
|
|
|
7
|
|
|
|
|
|
Series C common stock, $.01 par value. Authorized
45,000,000 shares; no shares issued
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
1,459,078
|
|
|
|
|
|
Parents investment
|
|
|
|
|
|
|
1,437,520
|
|
Accumulated deficit
|
|
|
(825,956
|
)
|
|
|
(761,337
|
)
|
Accumulated other comprehensive earnings (loss)
|
|
|
(7,953
|
)
|
|
|
10,713
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
625,310
|
|
|
|
686,896
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
745,304
|
|
|
|
830,986
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
37
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Years
ended December 31, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Amounts in thousands, except
|
|
|
|
per share amounts
|
|
|
Net revenue
|
|
$
|
600,613
|
|
|
|
589,395
|
|
|
|
571,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
441,469
|
|
|
|
417,007
|
|
|
|
391,453
|
|
Selling, general, and administrative, including stock-based and
long-term
compensation (note 11)
|
|
|
120,939
|
|
|
|
114,422
|
|
|
|
127,801
|
|
Restructuring and other charges (note 7)
|
|
|
8,801
|
|
|
|
761
|
|
|
|
10,832
|
|
Gain on sale of operating assets, net
|
|
|
(9,038
|
)
|
|
|
(463
|
)
|
|
|
(2,007
|
)
|
Depreciation and amortization
|
|
|
59,766
|
|
|
|
62,868
|
|
|
|
62,095
|
|
Impairment of goodwill (note 6)
|
|
|
95,069
|
|
|
|
165,347
|
|
|
|
93,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
717,006
|
|
|
|
759,942
|
|
|
|
683,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(116,393
|
)
|
|
|
(170,547
|
)
|
|
|
(112,453
|
)
|
Other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
6,579
|
|
|
|
11,066
|
|
|
|
10,175
|
|
Other income (expense), net
|
|
|
1,004
|
|
|
|
(1,813
|
)
|
|
|
(360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,583
|
|
|
|
9,253
|
|
|
|
9,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(108,810
|
)
|
|
|
(161,294
|
)
|
|
|
(102,638
|
)
|
Income tax benefit (expense) from continuing operations
(note 10)
|
|
|
(2,371
|
)
|
|
|
13,737
|
|
|
|
14,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(111,181
|
)
|
|
|
(147,557
|
)
|
|
|
(87,864
|
)
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations
|
|
|
77,236
|
|
|
|
10,530
|
|
|
|
7,563
|
|
Income tax benefit (expense) from discontinued operations
|
|
|
(30,674
|
)
|
|
|
4,696
|
|
|
|
(2,706
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations, net of income taxes
|
|
|
46,562
|
|
|
|
15,226
|
|
|
|
4,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(64,619
|
)
|
|
|
(132,331
|
)
|
|
|
(83,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss), net of taxes (note 12):
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(18,603
|
)
|
|
|
2,337
|
|
|
|
13,448
|
|
Pension liability adjustment
|
|
|
(63
|
)
|
|
|
(255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss)
|
|
|
(18,666
|
)
|
|
|
2,082
|
|
|
|
13,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(83,285
|
)
|
|
|
(130,249
|
)
|
|
|
(69,559
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted earnings (loss) per share (note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(7.91
|
)
|
|
|
(10.49
|
)
|
|
|
(6.25
|
)
|
Discontinued operations
|
|
|
3.31
|
|
|
|
1.08
|
|
|
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4.60
|
)
|
|
|
(9.41
|
)
|
|
|
(5.90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
38
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Years
ended December 31, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Amounts in thousands
|
|
|
|
|
|
|
(See note 4)
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(64,619
|
)
|
|
|
(132,331
|
)
|
|
|
(83,007
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations, net of income tax
|
|
|
(46,562
|
)
|
|
|
(15,226
|
)
|
|
|
(4,857
|
)
|
Depreciation and amortization
|
|
|
59,766
|
|
|
|
62,868
|
|
|
|
62,095
|
|
Stock-based compensation
|
|
|
293
|
|
|
|
|
|
|
|
934
|
|
Gain on sale of assets, net
|
|
|
(9,038
|
)
|
|
|
(463
|
)
|
|
|
(2,007
|
)
|
Impairment of goodwill
|
|
|
95,069
|
|
|
|
165,347
|
|
|
|
93,402
|
|
Deferred income tax expense (benefit)
|
|
|
6,059
|
|
|
|
(20,466
|
)
|
|
|
(19,805
|
)
|
Other non-cash credits, net
|
|
|
(4,112
|
)
|
|
|
(965
|
)
|
|
|
860
|
|
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
8,479
|
|
|
|
5,371
|
|
|
|
(8,611
|
)
|
Prepaid expenses and other current assets
|
|
|
1,224
|
|
|
|
(7,310
|
)
|
|
|
2,268
|
|
Payables and other liabilities
|
|
|
(21,248
|
)
|
|
|
(275
|
)
|
|
|
26,380
|
|
Operating activities from discontinued operations, net
|
|
|
(4,270
|
)
|
|
|
4,626
|
|
|
|
12,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
21,041
|
|
|
|
61,176
|
|
|
|
80,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(39,072
|
)
|
|
|
(42,898
|
)
|
|
|
(71,896
|
)
|
Cash paid for acquisition, net of cash acquired
|
|
|
(3,859
|
)
|
|
|
|
|
|
|
|
|
Net sales (purchases) of marketable securities
|
|
|
23,545
|
|
|
|
28,292
|
|
|
|
(51,837
|
)
|
Cash proceeds from the sale of discontinued operations
|
|
|
127,831
|
|
|
|
|
|
|
|
|
|
Cash proceeds from the sale of operating assets
|
|
|
18,433
|
|
|
|
1,276
|
|
|
|
5,601
|
|
Other investing activities, net
|
|
|
(93
|
)
|
|
|
(23
|
)
|
|
|
(90
|
)
|
Investing activities from discontinued operations, net
|
|
|
(5,455
|
)
|
|
|
(2,198
|
)
|
|
|
(50,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
121,330
|
|
|
|
(15,551
|
)
|
|
|
(168,383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash transfers from (to) parent
|
|
|
(1,735
|
)
|
|
|
2,194
|
|
|
|
(7,182
|
)
|
Payment of capital lease obligation
|
|
|
(752
|
)
|
|
|
(641
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(2,487
|
)
|
|
|
1,553
|
|
|
|
(7,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
139,884
|
|
|
|
47,178
|
|
|
|
(95,272
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
|
|
201,633
|
|
|
|
154,455
|
|
|
|
249,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
341,517
|
|
|
|
201,633
|
|
|
|
154,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
39
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Years
ended December 31, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 December 31, 2005
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,441,100
|
|
|
|
(546,254
|
)
|
|
|
(4,817
|
)
|
|
|
890,029
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(83,007
|
)
|
|
|
|
|
|
|
(83,007
|
)
|
Other comprehensive earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,448
|
|
|
|
13,448
|
|
Stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
913
|
|
|
|
|
|
|
|
|
|
|
|
913
|
|
Net cash transfers to parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,182
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,182
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
495
|
|
|
|
|
|
|
|
|
|
|
|
495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,435,326
|
|
|
|
(629,261
|
)
|
|
|
8,631
|
|
|
|
814,696
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(132,331
|
)
|
|
|
|
|
|
|
(132,331
|
)
|
Other comprehensive earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,082
|
|
|
|
2,082
|
|
Net cash transfers from parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,194
|
|
|
|
|
|
|
|
|
|
|
|
2,194
|
|
Cumulative effect of accounting change (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
255
|
|
|
|
|
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,437,520
|
|
|
|
(761,337
|
)
|
|
|
10,713
|
|
|
|
686,896
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,619
|
)
|
|
|
|
|
|
|
(64,619
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,666
|
)
|
|
|
(18,666
|
)
|
Contribution of net operating losses from DHC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(553
|
)
|
|
|
23,694
|
|
|
|
|
|
|
|
|
|
|
|
23,141
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
293
|
|
Net cash transfers to parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,735
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,735
|
)
|
Change in capitalization in connection with Ascent Media Spin
Off (note 2)
|
|
|
|
|
|
|
134
|
|
|
|
7
|
|
|
|
|
|
|
|
1,459,338
|
|
|
|
(1,459,479
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
|
|
|
|
134
|
|
|
|
7
|
|
|
|
|
|
|
|
1,459,078
|
|
|
|
|
|
|
|
(825,956
|
)
|
|
|
(7,953
|
)
|
|
|
625,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
40
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
December 31,
2008, 2007 and 2006
|
|
(1)
|
Basis of
Presentation
|
For periods prior to the September 17, 2008 consummation of
the spin off transaction (Ascent Media Spin Off)
described in note 2, the accompanying consolidated
financial statements of Ascent Media Corporation (Ascent
Media or the Company) represent a combination
of the historical financial information of (1) Ascent Media
Group, LLC (AMG), a wholly-owned subsidiary of
Discovery Holding Company (DHC), (2) Ascent
Media CANS, LLC (dba AccentHealth) (AccentHealth), a
wholly-owned subsidiary of DHC until its sale on
September 4, 2008 (see note 8) and (3) cash
and investment assets of DHC. For the period following
September 17, 2008, the accompanying consolidated financial
statements of Ascent Media represent Ascent Media and its
consolidated subsidiaries. The Ascent Media Spin Off has been
accounted for at historical cost due to the pro rata nature of
the distribution.
Ascent Media is comprised of two reportable segments: Content
Services and Creative Services. The Content Services group
provides a full complement of facilities and services necessary
to optimize, archive, manage, and reformat and repurpose
completed media assets for global distribution via freight,
satellite, fiber and the Internet, as well as the facilities,
technical infrastructure, and operating staff necessary to
assemble programming content for cable and broadcast networks
and to distribute media signals via satellite and terrestrial
networks. The Creative Services group provides various technical
and creative services necessary to complete principal
photography into final products, such as feature films, movie
trailers and TV spots, documentaries, independent films,
scripted and reality television, TV movies and mini-series,
television commercials, internet and new media advertising,
music videos, interactive games and new digital media,
promotional and identity campaigns and corporate communications.
These services are referred to generally in the entertainment
industry as post-production services.
AccentHealth operated an advertising-supported captive audience
television network in doctor office waiting rooms nationwide,
and was included as part of the Content Services group for
financial reporting purposes until its sale on September 4,
2008.
|
|
(2)
|
Ascent
Media Spin-Off Transaction
|
During the fourth quarter of 2007, the Board of Directors of DHC
approved a resolution to spin off the capital stock of Ascent
Media to the holders of DHC Series A and Series B
common stock. The Ascent Media Spin Off was approved in
connection with a transaction between DHC and Advance/Newhouse
Programming Partnership (Advance/Newhouse) pursuant
to which DHC and Advance/Newhouse combined their respective
indirect interests in Discovery Communications, LLC
(Discovery).
The Ascent Media Spin Off was completed on September 17,
2008 (the Spin Off Date) and was effected as a
distribution by DHC to holders of its Series A and
Series B common stock of shares of Ascent Media
Series A and Series B common stock, respectively.
Holders of DHC common stock on September 17, 2008 received
0.05 of a share of Ascent Media Series A common stock for
each share of DHC Series A common stock owned and 0.05 of a
share of Ascent Media Series B common stock for each share
of DHC Series B common stock owned. In the Ascent Media
Spin Off, 13,401,886 shares of Ascent Media Series A
common stock and 659,732 shares of Ascent Media
Series B common stock were issued. The Ascent Media Spin
Off did not involve the payment of any consideration by the
holders of DHC common stock and is intended to qualify as a
transaction under Sections 368(a) and 355 of the Internal
Revenue Code of 1986, as amended, for United States federal
income tax purposes.
Following the Ascent Media Spin Off, Ascent Media and DHC
operate independently, and neither has any stock ownership,
beneficial or otherwise, in the other. In connection with the
Ascent Media Spin Off, Ascent Media and DHC entered into certain
agreements in order to govern certain of the ongoing
relationships between Ascent Media and DHC after the Ascent
Media Spin Off and to provide mechanisms for an orderly
transition. These agreements include a Reorganization Agreement,
a Services Agreement and a Tax Sharing Agreement.
41
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The Reorganization Agreement provides for, among other things,
the principal corporate transactions required to effect the
Ascent Media Spin Off and cross indemnities as well as the
assumption by Ascent Media of certain obligations of DHC
relating to the Ascent Media Spin Off and periods prior to the
effectiveness of the Ascent Media Spin Off and the transfer by
DHC to Ascent Media of approximately $150 million in cash.
Pursuant to the Services Agreement, Ascent Media will provide a
subsidiary of DHC with certain general and administrative
services for a one-year period beginning on the date of the
Ascent Media Spin Off, including accounting, finance, human
resources, information technology, payroll and real estate
management services. In consideration for such services,
DHCs subsidiary will pay Ascent Media a fee of $1,000,000.
DHCs subsidiary will also reimburse Ascent Media for any
out-of-pocket expenses incurred by Ascent Media in providing
these services. In addition, during the term of the Services
Agreement, Ascent Media 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 Ascent Media Spin Off and will bear interest
at the prime rate, calculated on an average daily balance basis.
Under the Tax Sharing Agreement, Ascent Media will be
responsible for all taxes attributable to it or one of its
subsidiaries, whether accruing before, on or after the Ascent
Media Spin Off (other than any such taxes for which DHC is
responsible under the Tax Sharing Agreement). Ascent Media 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 Ascent Media Spin Off (and for any
tax period that begins on or before and ends after the date of
the Ascent Media Spin Off, for the portion of that period on or
before the date of the Ascent Media Spin Off), other than such
taxes arising as a result of the Ascent Media Spin Off and
related internal restructuring of DHC and (ii) all taxes
arising as a result of the Ascent Media Spin Off or the internal
restructuring of DHC to the extent such taxes are not the
responsibility of DHC under the Tax Sharing Agreement. DHC will
be responsible for (i) all United States federal, state,
local and foreign income taxes attributable to DHC or any of its
subsidiaries for any tax period that begins after the date of
the Ascent Media Spin Off (and for any tax period that begins on
or before and ends after the date of the Ascent Media Spin Off,
for the portion of that period after the date of the Ascent
Media Spin Off), other than such taxes arising as a result of
the Ascent Media Spin Off and related internal restructuring of
DHC, (ii) all taxes arising as a result of the Ascent Media
Spin Off to the extent such taxes arise as a result of any
breach on or after the date of the Ascent Media Spin Off of any
representation, warranty, covenant or other obligation of DHC or
of a subsidiary or shareholder of DHC made in connection with
the issuance of the tax opinion relating to the Ascent Media
Spin Off or in the Tax Sharing Agreement, and (iii) all
taxes arising as a result of such internal restructuring of DHC
to the extent such taxes arise as a result of any action
undertaken after the date of the Ascent Media Spin Off by DHC or
a subsidiary or shareholder of DHC.
Pursuant to a Services Agreement between Liberty Media
Corporation (Liberty) and Ascent Media, Liberty will
provide certain general and administrative services including
legal, tax, accounting, treasury and investor relations support.
Ascent Media will reimburse Liberty for direct, out-of-pocket
expenses incurred by Liberty in providing these services and for
Ascent Medias allocable portion of costs associated with
any shared services or personnel. Liberty and Ascent Media have
agreed that they will review cost allocations every six months
and adjust such charges, if appropriate.
|
|
(3)
|
Summary
of Significant Accounting Policies
|
Cash
and Cash Equivalents
The Company considers investments with original purchased
maturities of three months or less to be cash equivalents.
42
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Trade
Receivables
Trade receivables are shown net of an allowance based on
historical collection trends and managements judgment
regarding the collectability of these accounts. These collection
trends, as well as prevailing and anticipated economic
conditions, are routinely monitored by management, and any
adjustments required are reflected in current operations. The
allowance for doubtful accounts as of December 31, 2008 and
2007 was $9,200,000 and $8,359,000, respectively.
A summary of activity in the allowance for doubtful accounts is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
Charged
|
|
|
|
|
|
Balance
|
|
|
|
Beginning
|
|
|
(Credited)
|
|
|
Write-Offs
|
|
|
End of
|
|
|
|
of Year
|
|
|
to Expense
|
|
|
and Other
|
|
|
Year
|
|
|
|
Amounts in thousands
|
|
|
2008
|
|
$
|
8,359
|
|
|
|
3,568
|
|
|
|
(2,727
|
)
|
|
|
9,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
8,491
|
|
|
|
2,417
|
|
|
|
(2,549
|
)
|
|
|
8,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
$
|
6,395
|
|
|
|
3,283
|
|
|
|
(1,187
|
)
|
|
|
8,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentration
of Credit Risk and Significant Customers
For the year ended December 31, 2008, $77,088,000 or 12.8%
of Ascent Medias consolidated revenue was generated by one
customer, Motorola, Inc., under system integration services
contracts which expire in July 2009. For the years ended
December 31, 2007 and 2006, no single customer accounted
for more than 10% of consolidated revenue.
Fair
Value of Financial Instruments
Fair values of cash equivalents, current accounts receivable and
current accounts payable approximate the carrying amounts
because of their short-term nature.
Property
and Equipment
Property and equipment are carried at cost and depreciated using
the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized over the shorter of
their estimated useful lives or the term of the underlying
lease. Estimated useful lives by class of asset are as follows:
|
|
|
Buildings
|
|
20 years
|
Leasehold improvements
|
|
15 years or lease term, if shorter
|
Machinery and equipment
|
|
5 - 7 years
|
Computer software (included in Machinery and Equipment in
Note 5)
|
|
3 years
|
Depreciation expense for property and equipment was $59,622,000,
$62,437,000 and $61,664,000 for the years ended
December 31, 2008, 2007 and 2006, respectively.
Goodwill
The Company accounts for its goodwill pursuant to the provisions
of SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142). In accordance
with SFAS No. 142, goodwill is not amortized, but is
tested for impairment annually and whenever events or changes in
circumstances indicate that the carrying value may not be
recoverable. See further discussion of goodwill impairment in
Note 6.
43
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Other
Intangible Assets
In accordance with SFAS No. 142, amortizable other
intangible assets are amortized on a straight-line basis over
their estimated useful lives of four to five years, and are
reviewed for impairment in accordance with
SFAS No. 144, Accounting for Impairment or Disposal
of Long-Lived Assets (SFAS No. 144).
Long-Lived
Assets
In accordance with SFAS No. 144, management reviews
the realizability of its long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. In evaluating the value and future
benefits of long-term assets, their carrying value is compared
to managements best estimate of undiscounted future cash
flows over the remaining economic life. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying value of the assets
exceeds the estimated fair value of the assets.
Foreign
Currency Translation
The functional currencies of the Companys foreign
subsidiaries are their respective local currencies. Assets and
liabilities of foreign operations are translated into United
States dollars using exchange rates on the balance sheet date,
and revenue and expenses are translated into United States
dollars using average exchange rates for the period. The effects
of the foreign currency translation adjustments are deferred and
are included in parents investment as a component of
accumulated other comprehensive earnings (loss).
Revenue
Recognition
Revenue from post-production services to customers producing
television programs, feature films and commercial advertising is
recognized when services are provided, based on contracted
hourly rates. Revenue from system integration services is
recognized on the basis of the estimated percentage of
completion of individual contracts. Percentage of completion is
calculated based upon actual labor and equipment costs incurred
compared to total forecasted costs for the contract. Estimated
losses on long-term service contracts are recognized in the
period in which a loss becomes evident. Revenue from content
distribution contracts, which may include multiple elements, is
recognized ratably over the term of the contract as services are
provided. Under such contracts, any services which are not
performed ratably are not material to the contract as a whole.
Prepayments received for services to be performed at a later
date are reflected in the balance sheets as deferred revenue
until such services are provided.
Income
Taxes
The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, Accounting for
Income Taxes (SFAS No. 109).
SFAS No. 109 prescribes an asset and liability
approach that requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of
events that have been recognized in the Companys
consolidated financial statements or tax returns. In estimating
future tax consequences, SFAS No. 109 generally
considers all expected future events other than proposed changes
in the tax law or rates. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable
or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
Effective January 1, 2007, the Company adopted FASB
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement
No. 109 (FIN 48). FIN 48
clarifies the accounting for uncertainty in income taxes
recognized in a companys financial statements and
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. In
instances where the Company has taken or expects to take a tax
position in its
44
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
tax return and the Company believes it is more likely than not
that such tax position will be upheld by the relevant taxing
authority, the Company records the benefits of such tax position
in its consolidated financial statements.
Advertising
Costs
Advertising costs generally are expensed as incurred.
Advertising expense aggregated $3,538,000, $2,970,000 and
$3,047,000 for the years ended December 31, 2008, 2007 and
2006, respectively.
Stock-Based
Compensation
The Company accounts for stock-based awards pursuant to
Statement of Financial Accounting Standards No. 123
(revised 2004), Share-Based Payment
(Statement 123R). Statement 123R generally requires
companies to measure the cost of employee services received in
exchange for an award of equity instruments (such as stock
options and restricted stock) based on the grant-date fair value
of the award, and to recognize that cost over the period during
which the employee is required to provide service (usually the
vesting period of the award).
The Company calculated the grant-date fair value for all of its
stock options using the Black-Scholes Model. Ascent Media
calculated the expected term of the awards using the methodology
included in SEC Staff Accounting Bulletin No. 107. The
volatility used in the calculation is based on the historical
volatility of peer companies. The Company used the risk-free
rate for Treasury Bonds with a term similar to that of the
subject options and has assumed a dividend rate of zero.
Basic
and Diluted Earnings (Loss) Per Common Share
Series A and Series B
Basic earnings (loss) per common share (EPS) is
computed by dividing net 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 14,061,618 shares, which is the
number of shares that were issued on the Spin 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 or at the date of grant,
whichever is later. As of December 31, 2008, the options to
purchase Ascent Media common stock had a dilutive effect of
2,561 shares and there where 215,472 options that were
anti-dilutive.
Estimates
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles in the
United States of America (GAAP) requires management
to make estimates and assumptions that affect the reported
amounts of revenue and expenses for each reporting period. The
significant estimates made in preparation of the Companys
consolidated financial statements primarily relate to valuation
of goodwill, other intangible assets, long-lived assets,
deferred tax assets, and the amount of the allowance for
doubtful accounts. These estimates are based on
managements best estimates and judgment. Management
evaluates its estimates and assumptions on an ongoing basis
using historical experience and other factors and adjusts them
when facts and circumstances change. As the effects of future
events cannot be determined with any certainty, actual results
could differ from the estimates upon which the carrying values
were based.
Recent
Accounting Pronouncements
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141(R), Business
Combinations (SFAS No. 141(R)).
The statement significantly changes the accounting for business
combinations, and under this statement, an acquiring entity will
be required to recognize the assets acquired and liabilities
assumed in a transaction at the acquisition-date fair value.
SFAS No. 141 (R) will change the accounting treatment
for certain items, including acquisition costs, noncontrolling
interests, acquired contingent liabilities, in-process research
and development, restructuring costs and changes in deferred tax
asset valuation allowances and income
45
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
tax uncertainties after the acquisition date. The adoption of
the requirements of SFAS No. 141 (R) applies
prospectively to business combinations for which the acquisition
date is on or after fiscal years beginning after
December 15, 2008. Beginning January 1, 2009, the
Company will account for its business combinations in accordance
with SFAS No. 141(R).
|
|
(4)
|
Supplemental
Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Amounts in thousands
|
|
|
Cash paid for acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired
|
|
$
|
7,937
|
|
|
$
|
|
|
|
|
48,264
|
|
Net liabilities assumed
|
|
|
(4,078
|
)
|
|
|
|
|
|
|
(1,471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisition, net of cash acquired
|
|
$
|
3,859
|
|
|
$
|
|
|
|
|
46,793
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for income taxes
|
|
$
|
20,921
|
|
|
$
|
1,321
|
|
|
|
1,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease
|
|
|
|
|
|
$
|
5,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amount relates to AccentHealth acquisition, which is included in
discontinued operations. |
|
|
(5)
|
Property
and Equipment
|
Property and equipment at December 31, 2008 and 2007
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Amounts in thousands
|
|
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
36,654
|
|
|
$
|
42,525
|
|
Buildings
|
|
|
176,599
|
|
|
|
203,767
|
|
Machinery and equipment
|
|
|
177,155
|
|
|
|
202,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390,408
|
|
|
|
448,861
|
|
Accumulated depreciation
|
|
|
(166,480
|
)
|
|
|
(189,835
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
223,928
|
|
|
$
|
259,026
|
|
|
|
|
|
|
|
|
|
|
|
|
(6)
|
Goodwill
and Other Intangible Assets
|
The following table provides the activity and balances of
goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Creative
|
|
|
Content
|
|
|
|
|
|
|
Services
|
|
|
Services
|
|
|
|
|
|
|
Group
|
|
|
Group
|
|
|
Total
|
|
|
|
Amounts in thousands
|
|
|
Balance at January 1, 2007
|
|
$
|
95,069
|
|
|
|
164,967
|
|
|
|
260,036
|
|
Goodwill impairment
|
|
|
|
|
|
|
(165,347
|
)
|
|
|
(165,347
|
)
|
Foreign exchange and other
|
|
|
|
|
|
|
380
|
|
|
|
380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
95,069
|
|
|
|
|
|
|
|
95,069
|
|
Goodwill impairment
|
|
|
(95,069
|
)
|
|
|
|
|
|
|
(95,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
In connection with the 2008 annual evaluation of the
recoverability of goodwill, the Company estimated the value of
the commercial TV reporting unit using a discounted cash flow
analysis. The result of this valuation indicated that the fair
value of the commercial TV reporting unit, which is included in
the Creative Services group, was less than its carrying value.
The commercial TV reporting unit fair value was then used to
calculate an implied value of the goodwill related to this
reporting unit. The $95,069,000 excess of the carrying amount of
the Creative Services goodwill over its implied value was
recorded as an impairment charge in the fourth quarter of 2008.
In connection with the 2007 annual evaluation of the
recoverability of our goodwill, the Company estimated the value
of its reporting units using a discounted cash flow analysis.
The result of this valuation indicated that the fair value of
the former Network Services group, which is now included in the
Content Services group, was less than its carrying value. The
Network Services reporting unit fair value was then used to
calculate an implied value of the goodwill related to this
reporting unit. The $165,347,000 excess of the carrying amount
of the Content Services goodwill over its implied value was
recorded as an impairment charge in the fourth quarter of 2007.
In 2006, the former Media Management Services group, which is
now included in Content Services, was tested for goodwill
impairment in the third quarter, prior to the annual goodwill
valuation assessment. It was tested prior to the annual
assessment due to its restructuring activities and the declining
financial performance of the former Media Management Services
group, including ongoing operating losses driven by technology
and customer requirement changes in the industry. The Company
estimated the fair value of that reporting unit principally by
using trading multiples of revenue and operating cash flows of
similar companies in the industry. This test resulted in a
goodwill impairment loss for the former Media Management
Services group of $93,402,000, which represents the excess of
the carrying value over the implied fair value of such goodwill.
Included in other assets at December 31, 2008 and 2007 are
amortizable intangibles with a net book value of zero and
$143,000, respectively, and tradename intangibles (which are not
subject to amortization) of $1,848,000 for both years.
For the years ended December 31, 2008, 2007 and 2006, the
Company recorded $143,000, $431,000 and $431,000, respectively,
of amortization expense for other intangible assets.
|
|
(7)
|
Restructuring
Charges
|
During 2008, 2007 and 2006, the Company completed certain
restructuring activities designed to improve operating
efficiencies and to strengthen its competitive position in the
marketplace primarily through cost and expense reductions. In
connection with these integration and consolidation initiatives,
the Company recorded charges of $8,801,000, $761,000,
$10,832,000, respectively. The 2008 restructuring charge related
to certain severance and facility costs in conjunction with
ongoing structural changes being implemented to align our
organization with our strategic goals and with how we operate,
manage and sell our services. Such changes include the
consolidation of certain facilities in the United States and the
United Kingdom, the closing of our operations in Mexico and
reduction in headcount to realign with the new reporting
structure. Approximately $4.8 million of the 2008
restructuring charges related to the Creative Services group in
the United States and United Kingdom while the remaining amount
related mainly to the Content Services group. Any additional
future restructuring costs for the ongoing structural changes
being implemented is not currently determinable. The 2007
restructuring charge related primarily to severance in the
Creative Services group in the United Kingdom. The 2006
restructuring charge related primarily to severance at the
corporate offices in the United States and United Kingdom and to
the closure of facilities in the United Kingdom.
47
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The following table provides the activity and balances of the
restructuring reserve. At December 31, 2008, approximately
$4.4 million of the ending liability balance is included in
other accrued liabilities with the remaining amount recorded in
other long-term liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Additions
|
|
|
Deductions(a)
|
|
|
Balance
|
|
|
|
|
|
|
Amounts in thousands
|
|
|
|
|
|
Severance
|
|
$
|
|
|
|
|
8,645
|
|
|
|
(2,694
|
)
|
|
|
5,951
|
|
Excess facility costs
|
|
|
3,828
|
|
|
|
2,187
|
|
|
|
(2,251
|
)
|
|
|
3,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
$
|
3,828
|
|
|
|
10,832
|
|
|
|
(4,945
|
)
|
|
|
9,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
5,951
|
|
|
|
761
|
|
|
|
(5,355
|
)
|
|
|
1,357
|
|
Excess facility costs
|
|
|
3,764
|
|
|
|
|
|
|
|
(2,142
|
)
|
|
|
1,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
$
|
9,715
|
|
|
|
761
|
|
|
|
(7,497
|
)
|
|
|
2,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
1,357
|
|
|
|
5,183
|
|
|
|
(4,014
|
)
|
|
|
2,526
|
(b)
|
Excess facility costs
|
|
|
1,622
|
|
|
|
3,618
|
|
|
|
(1,946
|
)
|
|
|
3,294
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
$
|
2,979
|
|
|
|
8,801
|
|
|
|
(5,960
|
)
|
|
|
5,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Primarily represents cash payments. |
|
(b) |
|
Substantially all of this amount is expected to be paid in 2009. |
|
(c) |
|
Substantially all of this amount is expected to be paid by 2012. |
In January 2006, one of the Companys subsidiaries acquired
substantially all of the assets of AccentHealths
healthcare media business for cash consideration of $46,793,000.
AccentHealth operates an advertising-supported captive audience
television network in doctor office waiting rooms nationwide.
The Company recorded goodwill of $32,224,000 and other
intangible assets of $9,800,000 in connection with this
acquisition. The excess purchase price over the fair value of
assets acquired was attributable to the growth potential of
AccentHealth. In September 2008, AccentHealth was sold. See
Note 9 for more information.
The consolidated financial statements and accompanying notes of
Ascent Media 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, Ascent Media completed the sale of
100% of its ownership interests in AccentHealth, which was part
of the Content Services group, to an unaffiliated third party
for net cash proceeds of $118,641,000. Ascent Media recognized a
pre-tax gain on the sale of $63,929,000, subject to customary
post-closing adjustments, and $25,566,000 of income tax expense
resulting from 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, Ascent Media sold 100% of the
outstanding membership interests in Ascent Media
Systems & Technology Services, LLC, which was part of
the Content Services group, located in Palm Bay, Florida
(Palm Bay), to an unaffiliated third party for net
cash proceeds of $7,040,000. Ascent Media recognized a pre-tax
gain on the sale of $3,370,000 and recorded income tax expense
resulting from the gain of $1,348,000. Such gain and related
income tax expense are included in earnings from discontinued
operations in the accompanying condensed consolidated statement
of operations.
48
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
On September 30, 2008, Ascent Media sold 100% of its
ownership interest in Visiontext Limited
(Visiontext), which was part of the Creative
Services group, to an unaffiliated third party for net cash
proceeds of $2,150,000. Ascent Media recognized a pre-tax gain
on the sale of $1,777,000 and recorded income tax expense
resulting from the gain of $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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 30,
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
Amounts in thousands
|
|
Revenue
|
|
$
|
30,394
|
|
|
|
42,030
|
|
|
|
37,030
|
|
Earnings before income taxes(a)
|
|
$
|
77,236
|
|
|
|
10,530
|
|
|
|
7,563
|
|
|
|
|
(a) |
|
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. |
The Companys income tax benefit (expense) from continuing
operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Amounts in thousands
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,459
|
|
|
|
(5,847
|
)
|
|
|
(1,170
|
)
|
State
|
|
|
(29
|
)
|
|
|
(712
|
)
|
|
|
(1,002
|
)
|
Foreign
|
|
|
(1,263
|
)
|
|
|
(145
|
)
|
|
|
528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167
|
|
|
|
(6,704
|
)
|
|
|
(1,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
2,410
|
|
|
|
16,496
|
|
|
|
7,072
|
|
State
|
|
|
(6,141
|
)
|
|
|
4,294
|
|
|
|
10,500
|
|
Foreign
|
|
|
1,193
|
|
|
|
(349
|
)
|
|
|
(1,154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,538
|
)
|
|
|
20,441
|
|
|
|
16,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax benefit (expense)
|
|
$
|
(2,371
|
)
|
|
|
13,737
|
|
|
|
14,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of pretax income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Amounts in thousands
|
|
|
Domestic
|
|
$
|
(99,917
|
)
|
|
|
(142,023
|
)
|
|
|
(83,809
|
)
|
Foreign
|
|
|
(8,893
|
)
|
|
|
(19,271
|
)
|
|
|
(18,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(108,810
|
)
|
|
|
(161,294
|
)
|
|
|
(102,638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Income tax benefit (expense) differs from the amounts computed
by applying the United States federal income tax rate of 35% as
a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Amounts in thousands
|
|
|
Computed expected tax benefit
|
|
$
|
38,084
|
|
|
|
56,453
|
|
|
|
35,923
|
|
State and local income taxes, net of federal income taxes
|
|
|
482
|
|
|
|
3,823
|
|
|
|
613
|
|
Change in valuation allowance affecting tax expense
|
|
|
(10,052
|
)
|
|
|
(3,188
|
)
|
|
|
7,663
|
|
Goodwill impairment not deductible for tax purposes
|
|
|
(32,290
|
)
|
|
|
(35,231
|
)
|
|
|
(26,655
|
)
|
U.S. taxes on foreign income
|
|
|
(1,512
|
)
|
|
|
(3,055
|
)
|
|
|
776
|
|
Non-deductible expenses
|
|
|
(1,277
|
)
|
|
|
(991
|
)
|
|
|
(1,803
|
)
|
Dividend
|
|
|
|
|
|
|
(1,202
|
)
|
|
|
|
|
Foreign tax credit
|
|
|
2,501
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
1,693
|
|
|
|
(2,872
|
)
|
|
|
(1,743
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
$
|
(2,371
|
)
|
|
|
13,737
|
|
|
|
14,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of deferred tax assets and liabilities as of December
31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Amounts in thousands
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Accounts receivable reserves
|
|
$
|
1,653
|
|
|
|
2,936
|
|
Accrued liabilities
|
|
|
17,840
|
|
|
|
11,875
|
|
|
|
|
|
|
|
|
|
|
Total current deferred tax assets
|
|
|
19,493
|
|
|
|
14,811
|
|
Valuation allowance
|
|
|
(8,059
|
)
|
|
|
(3,401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
11,434
|
|
|
|
11,410
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
|
20,002
|
|
|
|
29,371
|
|
Property, plant and equipment
|
|
|
2,843
|
|
|
|
|
|
Intangible assets
|
|
|
16,765
|
|
|
|
18,404
|
|
Other
|
|
|
60
|
|
|
|
1,918
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent deferred tax assets
|
|
|
39,670
|
|
|
|
49,693
|
|
Valuation allowance
|
|
|
(16,402
|
)
|
|
|
(14,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
23,268
|
|
|
|
35,624
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net
|
|
|
34,702
|
|
|
|
47,034
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Other
|
|
|
(608
|
)
|
|
|
(660
|
)
|
Noncurrent liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
|
|
|
|
(5,571
|
)
|
Other
|
|
|
(723
|
)
|
|
|
(820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(723
|
)
|
|
|
(6,391
|
)
|
Total deferred tax liabilities
|
|
|
(1,331
|
)
|
|
|
(7,051
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
33,371
|
|
|
|
39,983
|
|
|
|
|
|
|
|
|
|
|
50
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
The Companys deferred tax assets and liabilities are
reported in the accompanying consolidated balance sheets as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Amounts in thousands
|
|
|
Current deferred tax assets, net
|
|
$
|
10,826
|
|
|
|
10,750
|
|
Long-term deferred tax assets, net
|
|
|
22,545
|
|
|
|
29,233
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
33,371
|
|
|
|
39,983
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008, the Company has $260,600,000 and
$10,608,000 in net operating loss carryforwards for state and
foreign tax purposes, respectively. The state net operating
losses expire at various times from 2011 through 2018, and the
foreign net operating losses may be carried forward
indefinitely. The Company has $1,334,000 of state income tax
credits which will expire at various times through 2011.
Although Ascent Media was included in the DHC consolidated tax
returns while it was a subsidiary of DHC, Ascent Media has
accounted for income taxes on a separate company return basis in
the accompanying condensed consolidated financial statements.
Such methodology resulted in Ascent Media recording income taxes
payable prior to the Ascent Media Spin Off. Because DHC had net
operating losses to offset $23,141,000 of the tax payable in its
consolidated tax return, Ascent Media reduced its income tax
payable by this amount with an offsetting increase to equity.
Prior to July 2005, Ascent Media was a subsidiary of Liberty and
was included in their consolidated tax returns.
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 the Companys 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 a first quarter 2008 tax expense of
$1,880,000 (35% of $5,370,000). The Company had no expectation
that it would be able 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. During the fourth quarter of 2008,
Liberty closed its IRS audit for tax years through 2005, with no
further adjustments affecting the Company. At December 31,
2008, Ascent Media has fully utilized its federal net operating
losses against its continuing and discontinued operations.
During the current year, management has determined that it is
more likely than not that the Company will not realize the tax
benefits associated with certain cumulative state and foreign
net operating loss carryforwards and other deferred tax assets.
As such, the Company continues to maintain a valuation allowance
of $24,461,000. The total valuation allowance increased
$6,991,000 during the year ended December 31, 2008 as a
result of an increase of $10,052,000 which affected tax expense,
foreign exchange rate changes of ($3,343,000) and an increase of
$282,000, which affected other comprehensive income.
The Company believes that the net deferred income tax assets
will be realized based upon its budgeted pre-tax earnings,
adjusted for significant items such as non-recurring charges,
and the recognition of taxable income for the reversal of
deferred tax liabilities in the same future period.
As of December 31, 2008, the Companys income tax
returns for the period September 18, 2008 through
December 31, 2008 as well as the periods July 21, 2005
through September 17, 2008, while the Company was included
in the consolidated income tax returns of DHC, remain subject to
examination by the IRS.
Upon adoption of FIN 48 on January 1, 2007, the
Company reversed $255,000 of tax liabilities included in its
December 31, 2006 consolidated balance sheet with a
corresponding decrease to accumulated deficit. A
51
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
reconciliation of the beginning and ending amount of
unrecognized tax benefits, which is recorded in income taxes
receivable, for the year ended December 31, 2008 is as
follows:
|
|
|
|
|
|
|
2008
|
|
|
|
Amounts in
|
|
|
|
thousands
|
|
|
Balance at January 1, 2008
|
|
$
|
932
|
|
Reductions for tax positions of prior years
|
|
|
(456
|
)
|
Foreign currency exchange adjustments
|
|
|
(63
|
)
|
Other
|
|
|
(21
|
)
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
392
|
|
|
|
|
|
|
The Company expects to settle approximately $300,000 of the
uncertain tax position during 2009, which will not materially
impact its effective tax rate.
In connection with its adoption of FIN 48, Liberty recorded
reserves for tax positions related to periods in which the
Company filed as part of Libertys consolidated federal
income tax return. As a result, the amount of net operating
losses allocated to the Company by Liberty was reduced and the
Company recorded a decrease to its deferred tax assets at
December 31, 2006 of $551,000 with a corresponding increase
to accumulated deficit. During 2008, Liberty finalized its
examination with the IRS with no further adjustments to the
allocated net operating loss. Accordingly, the Company has
adjusted its deferred tax assets to reflect the final net
operating loss allocation.
When the tax law requires interest to be paid on an underpayment
of income taxes, the Company recognizes interest expense from
the first period the interest would begin accruing according to
the relevant tax law. Such interest expense is included in other
income, net in the accompanying consolidated statements of
operations. Any accrual of penalties related to underpayment of
income taxes on uncertain tax positions is included in Other
income, net in the accompanying consolidated statements of
operations. As of December 31, 2008, accrued interest and
penalties related to uncertain tax positions were not
significant.
During 2008, 2007 and 2006, the Company provided $1,512,000,
$3,055,000 and ($776,000), respectively, of United States tax
expense (benefit) for future repatriation of cash from its
Singapore operations. This charge represents undistributed
earnings from Singapore not previously taxed in the United
States that is anticipated to be repatriated. In addition,
Ascent Media has received a benefit of $2,501,000 of foreign tax
credits from its Singapore operations, now available for use in
2008 and future years by Ascent Media.
The Company permanently reinvests excess cash from its United
Kingdom operations. However, there were no undistributed
earnings from the United Kingdom operations as of
December 31, 2008.
|
|
(11)
|
Stock-based
and Long-Term Compensation
|
2006
Ascent Media Group Long-Term Incentive Plan
AMG has made awards to certain employees under its 2006
Long-Term Incentive Plan, as amended, (the 2006
Plan). The 2006 Plan provides the terms and conditions for
the grant of, and payment with respect to, Phantom Appreciation
Rights (PARs) granted to certain officers and other
key personnel of AMG and its subsidiaries. The value of a single
PAR (PAR Value) is equal to the positive amount
(if any) by which (a) the sum of (i) 6% of cumulative
free cash flow (as defined in the 2006 Plan) over a period of up
to six years, divided by 500,000; plus (ii) the calculated
value of AMG, based on a formula set forth in the 2006 Plan,
divided by 10,000,000; exceeds (b) a baseline value
determined at the time of grant. The 2006 Plan is administered
by a committee whose members are designated by 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 388,500 PARs granted as of December 31, 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-
52
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
month anniversary of a grantees termination of employment
for any reason other than cause) in either cash or stock at the
committees discretion. AMG records a liability and a
charge to expense based on the PAR Value and percent vested
at each reporting period.
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, AMG or one
of its subsidiaries 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. AMG recorded a liability and a
charge to selling, general and administrative expense of
$3,523,000 for such distribution.
Ascent
Media Corporation 2008 Incentive Plan
The Ascent Media Corporation 2008 Incentive Plan (the 2008
incentive plan) was adopted by the Board of Directors of
the Company on September 15, 2008. The 2008 incentive plan
is designed to provide additional compensation to certain
employees and independent contractors for services rendered, to
encourage their investment in Ascent Medias capital stock
and to attract persons of exceptional ability to become officers
and employees. The number of individuals who receive awards
under the 2008 incentive plan will vary from year to year and is
not predictable. Awards may be granted as non-qualified stock
options, stock appreciation rights, restricted shares, stock
units, cash awards, performance awards or any combination of the
foregoing (collectively, awards). The maximum number
of shares of Ascent Medias common stock with respect to
which awards may be granted under the 2008 incentive plan is
2,000,000, subject to anti-dilution and other adjustment
provisions of the incentive plan. The base or exercise price of
a stock option or stock appreciation right may not be less than
fair market value on the day it is granted.
Ascent
Media Corporation 2008 Non-Employee Director Incentive
Plan
The Ascent Media Corporation 2008 Non-Employee Director
Incentive Plan (the 2008 director incentive
plan) was adopted by the Board of Directors of the Company
on September 15, 2008. The 2008 director incentive
plan is designed to provide additional compensation to the
non-employee Board of Director members for services rendered and
to encourage their investment in Ascent Medias capital
stock. Awards may be granted as non-qualified stock options,
stock appreciation rights, restricted shares, stock units, cash
awards, performance awards or any combination of the foregoing
(collectively, awards). The maximum number of shares
of Ascent Medias common stock with respect to which awards
may be granted under the 2008 director incentive plan is
500,000, subject to anti-dilution and other adjustment
provisions of the incentive plan. The base or exercise price of
a stock option or stock appreciation right may not be less than
fair market value on the day it is granted.
Other
As of the Spin Off Date, DHC stock options held by an officer
and director of DHC, who is currently a director of DHCs
successor, were converted into options to purchase shares of the
applicable series of Ascent Media common stock and options to
purchase shares of the applicable series of common stock of
DHCs successor. In accordance with the conversion
calculation, the holder received 11,722 Ascent Media
Series A options with exercise prices ranging from $15.21
to $29.42 and 76,210 Ascent Media Series B options with an
exercise price of $25.29. In accordance with the terms of the
original DHC option and the conversion, the holder 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 Ascent Media
Series B options (and the Ascent Media Series A
options into which such Series B options may be converted)
expire in 3 years. The remainder of the Ascent Media
Series A options expire in 5 to 9 years.
53
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Stock-based
Awards
Under the terms of the 2008 director incentive plan
discussed above, in November 2008 each of the non-employee
directors of Ascent Media was granted 11,030 options to purchase
Ascent Media Series A common stock with an exercise price
of $21.81. Such options vest quarterly over two years from the
date of grant, terminate 10 years from the date of grant
and had a grant-date fair value of $10.50 per share, as
determined using the Black-Scholes Model. In addition, the
non-employee directors were each granted 1,146 restricted stock
awards that also vest quarterly over two years. The restricted
stock had a fair value of $21.81 which was the closing price of
the Ascent Media Series A common stock on the date of grant.
Under the terms of the 2008 incentive plan discussed above,
during the fourth quarter, two employee officers were granted a
total of 468,858 options to purchase Ascent Media Series A
common stock with a weighted average exercise price of $22.16
per share. Such options vest quarterly over five years from the
date of the Ascent Media Spin Off, terminate 10 years from
the date of the Ascent Media Spin Off and had a weighted-average
grant date fair value of $11.14, as determined using the
Black-Scholes Model. In addition, the officers were granted a
total of 126,243 restricted stock awards that vest quarterly
over four years. The restricted stock had a weighted-average
fair value of $22.16 which was equal to the closing price of the
Ascent Media Series A common stock on the dates of grant.
For the 2008 stock grants, the weighted average grant date
assumptions used for the Black-Scholes Model were a volatility
factor of 50%, a risk-free interest rate of 2.44%, an expected
life of 5.9 years and a dividend yield of zero.
The following table presents the number and weighted average
exercise price (WAEP) of options to purchase Ascent
Media Series A and Series B common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
|
|
|
|
Series B
|
|
|
|
|
|
|
Common Stock
|
|
|
WAEP
|
|
|
Common Stock
|
|
|
WAEP
|
|
|
Outstanding at January 1, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grants
|
|
|
513,670
|
|
|
$
|
22.01
|
|
|
|
76,210
|
|
|
$
|
25.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
513,670
|
|
|
$
|
22.01
|
|
|
|
76,210
|
|
|
$
|
25.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2008
|
|
|
41,026
|
|
|
$
|
20.57
|
|
|
|
76,210
|
|
|
$
|
25.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, the total compensation cost
related to unvested equity awards was approximately $8,099,000.
Such amount will be recognized in the consolidated statements of
operations over a weighted average period of approximately
4.75 years. The intrinsic value of outstanding and
exercisable stock options awards at December 31, 2008 was
not material and the weighted average remaining contractual life
of both exercisable and outstanding awards at December 31,
2008 was 9.75 years.
|
|
(12)
|
Stockholders
Equity
|
Preferred
Stock
The Companys preferred stock is issuable, from time to
time, with such designations, preferences and relative
participating, optional or other rights, qualifications,
limitations or restrictions thereof, as shall be stated and
expressed in a resolution or resolutions providing for the issue
of such preferred stock adopted by Ascent Medias Board of
Directors. As of December 31, 2008, no shares of preferred
stock were issued.
Common
Stock
Holders of Ascent Media Series A common stock are entitled
to one vote for each share held, and holders of Ascent Media
Series B common stock are entitled to 10 votes for each
share held. Holders of Ascent Media Series C
54
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
common stock are not entitled to any voting powers, except as
required by Delaware law. As of December 31, 2008,
13,409,776 shares of Series A common stock was
outstanding, which was comprised of 13,401,886 shares
issued as part of the Ascent Media Spin Off and
7,890 shares of restricted stock that was vested during the
year. As of December 31, 2008, 659,732 shares of
Series B common stock was outstanding, which was all issued
as part of the Ascent Media Spin Off. Each share of the
Series B common stock is convertible, at the option of the
holder, into one share of Series A common stock. As of
December 31, 2008, no shares of Ascent Media Series C
common stock were issued.
As of December 31, 2008, there were 513,670 shares of
Ascent Media Series A common stock and 76,210 shares
of Ascent Media Series B common stock reserved for issuance
under exercise privileges of outstanding stock options. The
holder of the Series B options may elect to instead
exercise his options for 93,115 shares of Ascent Media
Series A common stock, which shares are not included in the
Series A reserve described above.
Other
Comprehensive Earnings (Loss)
Accumulated other comprehensive earnings (loss) included in the
consolidated balance sheets and consolidated statement of
stockholders equity reflect the aggregate of foreign
currency translation adjustments and pension adjustments.
The change in the components of accumulated other comprehensive
earnings (loss), net of taxes, is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
Foreign
|
|
|
|
|
|
Other
|
|
|
|
Currency
|
|
|
|
|
|
Comprehensive
|
|
|
|
Translation
|
|
|
Pension
|
|
|
Earnings (Loss),
|
|
|
|
Adjustments(a)
|
|
|
Adjustments(b)
|
|
|
Net of Taxes
|
|
|
|
Amounts in thousands
|
|
|
Balance at December 31, 2005
|
|
$
|
(3,161
|
)
|
|
|
(1,656
|
)
|
|
|
(4,817
|
)
|
Other comprehensive earnings
|
|
|
13,448
|
|
|
|
|
|
|
|
13,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
10,287
|
|
|
|
(1,656
|
)
|
|
|
8,631
|
|
Other comprehensive earnings
|
|
|
2,337
|
|
|
|
(255
|
)
|
|
|
2,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
12,624
|
|
|
|
(1,911
|
)
|
|
|
10,713
|
|
Other comprehensive loss
|
|
|
(18,603
|
)
|
|
|
(63
|
)
|
|
|
(18,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
(5,979
|
)
|
|
|
(1,974
|
)
|
|
|
(7,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
No income taxes were recorded on foreign currency translation
amounts for 2008, 2007 and 2006. |
|
(b) |
|
No income taxes were recorded on the pension adjustment amounts
for 2008, 2007 and 2006. |
|
|
(13)
|
Employee
Benefit Plans
|
Defined
Contribution Plan
AMG offers a 401(k) defined contribution plan covering most of
its full-time domestic employees. AMG also sponsors a pension
plan for eligible employees of its foreign subsidiaries.
Employer contributions, which are discretionary, are determined
by Ascent Medias board of directors. The plans are funded
by employee and employer contributions. Total combined 401(k)
plan and pension plan expenses for the years ended
December 31, 2008, 2007 and 2006 were $4,328,000,
$4,645,000 and $4,203,000, respectively.
55
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Management
Incentive Plan
AMG offers a Management Incentive Plan (MIP) which
provides for annual cash incentive awards based on company and
individual performance. Certain executive officers and certain
employees with a title of divisional managing director,
corporate director or higher are eligible to receive awards
under the MIP, as determined by a management incentive plan
compensation committee. To the extent an award is earned, it is
payable no later than two and one-half months following the end
of the applicable plan year. Participants must be employed by
AMG through the payment date to be eligible to receive the
award. The forecasted award liability is accrued on a monthly
basis throughout the plan year. For the years ended
December 31, 2008, 2007 and 2006, total MIP expense was
$2,567,000, $2,650,000 and $1,633,000, respectively. The MIP
liability at December 31, 2008 and 2007 was equivalent to
the expense for the respective year.
Defined
Benefit Plans
AMG has two defined benefit plans in the United Kingdom.
Participation in the defined benefit plans is limited with
approximately 143 participants, including retired employees.
AMG uses a measurement date of December 31 for its defined
benefit pension plans.
The obligations and funded status of the defined benefit plans
for the years ended December 31, 2008 and 2007 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Amounts in thousands
|
|
|
Change in Benefit Obligation:
|
|
|
|
|
|
|
|
|
Benefit Obligation beginning of year
|
|
$
|
11,385
|
|
|
|
10,648
|
|
Service cost
|
|
|
91
|
|
|
|
106
|
|
Interest cost
|
|
|
475
|
|
|
|
545
|
|
Actuarial (gain) loss
|
|
|
(802
|
)
|
|
|
519
|
|
Plan amendments
|
|
|
114
|
|
|
|
|
|
Settlements
|
|
|
(272
|
)
|
|
|
(80
|
)
|
Benefits paid
|
|
|
(421
|
)
|
|
|
(591
|
)
|
Member contributions
|
|
|
22
|
|
|
|
30
|
|
Foreign currency exchange rate changes
|
|
|
(3,132
|
)
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
Benefit Obligation end of year
|
|
|
7,460
|
|
|
|
11,385
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
Fair Value of plan assets beginning of year
|
|
|
9,124
|
|
|
|
8,673
|
|
Actual return on assets
|
|
|
(466
|
)
|
|
|
360
|
|
Settlements
|
|
|
(314
|
)
|
|
|
(144
|
)
|
Employer contributions
|
|
|
780
|
|
|
|
627
|
|
Member contributions
|
|
|
22
|
|
|
|
30
|
|
Benefits paid
|
|
|
(421
|
)
|
|
|
(591
|
)
|
Foreign currency exchange rate changes
|
|
|
(2,510
|
)
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
Fair Value of plan assets end of year
|
|
|
6,215
|
|
|
|
9,124
|
|
|
|
|
|
|
|
|
|
|
Unfunded Status
|
|
$
|
(1,245
|
)
|
|
|
(2,261
|
)
|
|
|
|
|
|
|
|
|
|
56
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
AMG had recorded the entire unfunded balance in the table above
for each year in the other liability account on the consolidated
balance sheet. The projected benefit obligation and accumulated
benefit obligation at December 31, 2008 and 2007 are equal
to the Benefit obligation end of year
amount in the table above. The accumulated other comprehensive
income balance at December 31, 2008 and 2007, included
pension adjustments of $(1,974,000) and $(1,911,000),
respectively.
The following table sets forth the average assumptions and the
asset category allocations of the defined benefit plans for the
years ended December 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.25
|
%
|
|
|
5.85
|
%
|
Long-term return on plan assets
|
|
|
4.83
|
%
|
|
|
5.34
|
%
|
Price inflation
|
|
|
3.00
|
%
|
|
|
3.45
|
%
|
Asset Category Allocations:
|
|
|
|
|
|
|
|
|
Debt securities
|
|
|
49
|
%
|
|
|
51
|
%
|
Equity securities
|
|
|
29
|
%
|
|
|
29
|
%
|
Other
|
|
|
22
|
%
|
|
|
20
|
%
|
The amount of pension cost recognized for the years ended
December 31, 2008, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Amounts in thousands
|
|
|
Service cost
|
|
$
|
104
|
|
|
|
107
|
|
|
|
108
|
|
Interest cost
|
|
|
540
|
|
|
|
551
|
|
|
|
527
|
|
Expected return on plan assets
|
|
|
(419
|
)
|
|
|
(474
|
)
|
|
|
(443
|
)
|
Amortization of net loss
|
|
|
130
|
|
|
|
75
|
|
|
|
145
|
|
Recognized transitional liability
|
|
|
|
|
|
|
133
|
|
|
|
129
|
|
Settlement loss
|
|
|
|
|
|
|
65
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
355
|
|
|
|
457
|
|
|
|
486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated future benefit payments as of December 31,
2008 are as follows:
|
|
|
|
|
Year Ended December 31:
|
|
|
|
|
2009
|
|
$
|
191
|
|
2010
|
|
$
|
340
|
|
2011
|
|
$
|
375
|
|
2012
|
|
$
|
142
|
|
2013
|
|
$
|
502
|
|
Thereafter
|
|
$
|
1,480
|
|
57
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
|
|
(14)
|
Commitments
and Contingencies
|
Future minimum lease payments under scheduled operating leases,
which are primarily for buildings, equipment and real estate,
having initial or remaining noncancelable terms in excess of one
year are as follows (in thousands):
|
|
|
|
|
Year Ended December 31:
|
|
|
|
|
2009
|
|
$
|
25,063
|
|
2010
|
|
$
|
24,263
|
|
2011
|
|
$
|
20,104
|
|
2012
|
|
$
|
15,633
|
|
2013
|
|
$
|
11,135
|
|
Thereafter
|
|
$
|
47,577
|
|
Rent expense for noncancelable operating leases for real
property and equipment was $25,975,000, $22,988,000 and
$21,812,000 for the years ended December 31, 2008, 2007 and
2006, respectively. Various lease arrangements contain options
to extend terms and are subject to escalation clauses.
On December 31, 2003, Ascent Media acquired the operations
of Sony Electronics systems integration center business
and related assets, which is referred 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
Ascent Medias 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, Ascent Media and Sony
Electronics entered in to an amended agreement which required
Ascent Media to immediately pay $1,874,000 to Sony Electronics
as a partial payment of the 20% of value, but delayed 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 consolidated balance sheet. The combined
business of AF Associates and SIC is included in the Content
Services group.
The Company is involved in litigation and similar claims
incidental to the conduct of its business. In managements
opinion, none of the pending actions is likely to have a
material adverse impact on the Companys financial position
or results of operations.
|
|
(15)
|
Related
Party Transactions
|
Ascent Media provides services, such as satellite uplink,
systems integration, origination, and post-production, to
Discovery, an affiliate of DHC. Ascent Media, previously a
wholly-owned subsidiary of DHC, and Discovery, previously an
equity investment of DHC, were related parties through the Spin
Off Date. Revenue recorded by Ascent Media for these services in
2008 through the Spin Off Date and for the years ended
December 31, 2007 and 2006 aggregated $24,727,000,
$41,216,000 and $33,741,000, respectively. Ascent Media
continues to provide services to Discovery subsequent to the
Spin Off Date that are believed to be at arms-length rates.
|
|
(16)
|
Information
About Reportable Segments
|
Ascent Medias chief operating decision maker, or his
designee (the CODM), has identified Ascent
Medias reportable segments based on (i) financial
information reviewed by the CODM and (ii) those operating
segments that represent more than 10% of the Ascent Medias
consolidated revenue or earnings before taxes. Based on the
foregoing criteria, Ascent Medias business units have been
aggregated into two reportable segments: the Content Services
group and the Creative Services group.
In the quarter ended December 31, 2008, Ascent Media
changed its alignment of reportable segments. As a result,
Ascent Media is organized into two operating groups: businesses
that provide content services and
58
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
businesses that provide creative services. The content services
businesses will provide fully integrated content delivery
solutions and services to its customers. The creative services
businesses will focus on providing post-production services to
the television and movie industry. Segment information for prior
periods has been revised to retrospectively reflect Ascent
Medias current segment reporting structure. The change to
segment reporting has no effect on reported net income.
The Content services group provides a full complement of
facilities and services necessary to optimize, archive, manage,
and reformat and repurpose completed media assets for global
distribution via freight, satellite, fiber and the Internet, as
well as the facilities, technical infrastructure, and operating
staff necessary to assemble programming content for cable and
broadcast networks and distributed media signals via satellite
and terrestrial networks. The Creative Services group provides
various technical and creative services necessary to complete
principal photography into final products, such as feature
films, movie trailers and TV spots, documentaries, independent
films, scripted and reality television, TV movies and
mini-series, television commercials, internet and new media
advertising, music videos, interactive games and new digital
media, promotional and identity campaigns and corporate
communications. These services are referred to generally in the
entertainment industry as post-production services.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies and
are consistent with GAAP.
Ascent Media evaluates the performance of these operating
segments based on financial measures such as revenue and
adjusted operating income before depreciation and amortization
(adjusted OIBDA). Ascent Media defines adjusted
OIBDA as revenue less cost of services and selling, general and
administrative expenses (excluding stock and other equity-based
compensation and accretion expense on asset retirement
obligations) determined in each case for the relevant operating
segment only. Ascent Media believes this is an important
indicator of the operational strength and performance of its
businesses, including the businesses ability to service
debt and capital expenditures. In addition, this measure is used
by management to evaluate operating results and perform
analytical comparisons and identify strategies to improve
performance. This measure of performance excludes depreciation
and amortization, stock and other equity-based compensation,
accretion expense on asset retirement obligations and
restructuring and impairment charges, gains on sale of operating
assets and other income that are included in the measurement of
earnings (loss) before income taxes pursuant to GAAP.
Accordingly, adjusted OIBDA should be considered in addition to,
but not as a substitute for, earnings (loss) before income
taxes, cash flow provided by operating activities and other
measures of financial performance prepared in accordance with
GAAP. Because segment adjusted OIBDA excludes corporate and
other SG&A (as defined below), and does not include an
allocation for corporate overhead, segment adjusted OIBDA should
not be used as an indication of the operating results that could
be expected if either operating segment were operated on a
stand-alone basis.
Ascent Medias reportable segments are strategic business
units that offer different products and services. They are
managed separately because each segment requires different
technologies, distribution channels and marketing strategies.
59
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Summarized financial information concerning the reportable
segments is presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
Content
|
|
|
Creative
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Group
|
|
|
Group
|
|
|
Total
|
|
|
Other(1)
|
|
|
Total
|
|
|
|
Amounts in thousands
|
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
430,648
|
|
|
|
169,965
|
|
|
|
600,613
|
|
|
|
|
|
|
|
600,613
|
|
Adjusted OIBDA
|
|
$
|
47,169
|
|
|
|
22,480
|
|
|
|
69,649
|
|
|
|
(27,617
|
)
|
|
|
42,032
|
|
Capital expenditures
|
|
$
|
24,420
|
|
|
|
9,903
|
|
|
|
34,323
|
|
|
|
4,749
|
|
|
|
39,072
|
|
Depreciation and amortization
|
|
$
|
41,819
|
|
|
|
12,226
|
|
|
|
54,045
|
|
|
|
5,721
|
|
|
|
59,766
|
|
Total assets
|
|
$
|
236,452
|
|
|
|
98,587
|
|
|
|
335,039
|
|
|
|
410,265
|
|
|
|
745,304
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
404,043
|
|
|
|
185,352
|
|
|
|
589,395
|
|
|
|
|
|
|
|
589,395
|
|
Adjusted OIBDA
|
|
$
|
45,560
|
|
|
|
35,529
|
|
|
|
81,089
|
|
|
|
(22,565
|
)
|
|
|
58,524
|
|
Capital expenditures
|
|
$
|
30,101
|
|
|
|
8,965
|
|
|
|
39,066
|
|
|
|
3,832
|
|
|
|
42,898
|
|
Depreciation and amortization
|
|
$
|
41,988
|
|
|
|
14,873
|
|
|
|
56,861
|
|
|
|
6,007
|
|
|
|
62,868
|
|
Total assets
|
|
$
|
331,931
|
|
|
|
207,707
|
|
|
|
539,638
|
|
|
|
291,348
|
|
|
|
830,986
|
|
Year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
386,984
|
|
|
|
184,139
|
|
|
|
571,123
|
|
|
|
|
|
|
|
571,123
|
|
Adjusted OIBDA
|
|
$
|
39,066
|
|
|
|
40,830
|
|
|
|
79,896
|
|
|
|
(26,420
|
)
|
|
|
53,476
|
|
Capital expenditures
|
|
$
|
52,948
|
|
|
|
12,864
|
|
|
|
65,812
|
|
|
|
6,084
|
|
|
|
71,896
|
|
Depreciation and amortization
|
|
$
|
35,726
|
|
|
|
20,010
|
|
|
|
55,736
|
|
|
|
6,359
|
|
|
|
62,095
|
|
Total assets
|
|
$
|
480,225
|
|
|
|
233,412
|
|
|
|
713,637
|
|
|
|
239,282
|
|
|
|
952,919
|
|
|
|
|
(1) |
|
Amounts shown in Other provide a reconciliation of total
reportable segments to the Companys consolidated total.
Included in other is (i) corporate SG&A expenses and
capital expenditures incurred at a corporate level and
(ii) assets held at a corporate level mainly comprised of
all cash and cash equivalents, investments in marketable
securities and deferred income tax assets. |
The following table provides a reconciliation of consolidated
segment adjusted OIBDA to loss from continuing operations before
income taxes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Amounts in thousands
|
|
|
Total segment adjusted OIBDA
|
|
$
|
69,649
|
|
|
|
81,089
|
|
|
|
79,896
|
|
Corporate selling, general and administrative expenses
|
|
|
(27,617
|
)
|
|
|
(22,565
|
)
|
|
|
(26,420
|
)
|
Stock-based and long-term incentive compensation
|
|
|
(3,531
|
)
|
|
|
(262
|
)
|
|
|
(934
|
)
|
Accretion expense on asset retirement obligations
|
|
|
(296
|
)
|
|
|
(296
|
)
|
|
|
(673
|
)
|
Restructuring and other charges
|
|
|
(8,801
|
)
|
|
|
(761
|
)
|
|
|
(10,832
|
)
|
Depreciation and amortization
|
|
|
(59,766
|
)
|
|
|
(62,868
|
)
|
|
|
(62,095
|
)
|
Gain on sale of operating assets, net
|
|
|
9,038
|
|
|
|
463
|
|
|
|
2,007
|
|
Impairment of goodwill
|
|
|
(95,069
|
)
|
|
|
(165,347
|
)
|
|
|
(93,402
|
)
|
Other income, net
|
|
|
7,583
|
|
|
|
9,253
|
|
|
|
9,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
$
|
(108,810
|
)
|
|
|
(161,294
|
)
|
|
|
(102,638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
ASCENT
MEDIA CORPORATION AND SUBSIDIARIES
Notes to
Consolidated Financial
Statements (Continued)
Information as to the operations in different geographic areas
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Amounts in thousands
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
454,456
|
|
|
|
443,775
|
|
|
|
418,828
|
|
United Kingdom
|
|
|
123,477
|
|
|
|
120,821
|
|
|
|
129,540
|
|
Other countries
|
|
|
22,680
|
|
|
|
24,799
|
|
|
|
22,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
600,613
|
|
|
|
589,395
|
|
|
|
571,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
165,008
|
|
|
|
167,583
|
|
|
|
|
|
United Kingdom
|
|
|
41,227
|
|
|
|
68,548
|
|
|
|
|
|
Other countries
|
|
|
17,693
|
|
|
|
22,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
223,928
|
|
|
|
259,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17) Quarterly
Financial Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
Amounts in thousands, except
|
|
|
|
per share amounts
|
|
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
163,035
|
|
|
|
163,421
|
|
|
|
146,146
|
|
|
|
128,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(4,711
|
)
|
|
|
(2,457
|
)
|
|
|
(4,412
|
)
|
|
|
(104,813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(4,515
|
)
|
|
|
(1,543
|
)
|
|
|
39,328
|
|
|
|
(97,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net earnings (loss) per common share
|
|
$
|
(0.32
|
)
|
|
|
(0.11
|
)
|
|
|
2.80
|
|
|
|
(6.96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
142,923
|
|
|
|
145,255
|
|
|
|
152,287
|
|
|
|
148,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(2,669
|
)
|
|
|
(5,298
|
)
|
|
|
(613
|
)
|
|
|
(161,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(978
|
)
|
|
|
(5,007
|
)
|
|
|
1,643
|
|
|
|
(127,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net earnings (loss) per common share
|
|
$
|
(0.07
|
)
|
|
|
(0.36
|
)
|
|
|
0.12
|
|
|
|
(9.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
PART III.
The following required information is incorporated by reference
to our definitive proxy statement for our 2009 Annual Meeting of
Stockholders presently scheduled to be held in the second
quarter of 2009:
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
We will file our definitive proxy statement for our 2009 Annual
Meeting of stockholders with the Securities and Exchange
Commission on or before April 30, 2009.
PART IV.
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) (1) Financial Statements
Included in Part II of this Annual Report:
Ascent Media Corporation:
|
|
|
|
|
|
|
Page
|
|
|
No.
|
|
|
|
|
36
|
|
|
|
|
37
|
|
|
|
|
38
|
|
|
|
|
39
|
|
|
|
|
40
|
|
|
|
|
41
|
|
(a) (2) Financial Statement Schedules
(i) All schedules have been omitted because they are not
applicable, not material or the required information is set
forth in the financial statements or notes thereto.
(a) (3) Exhibits
Listed below are the exhibits which are filed as a part of this
Report (according to the number assigned to them in
Item 601 of
Regulation S-K):
|
|
|
|
|
|
2
|
.1
|
|
Reorganization Agreement, dated as of June 4, 2008, among
Discovery Holding Company, Discovery Communications, Inc.,
Ascent Media Corporation, Ascent Media Group, LLC, and Ascent
Media Creative Sound Services, Inc. (incorporated by reference
to Exhibit 2.1 to Ascent Media Corporations
Registration Statement on Form 10 (File
No. 000-53280),
filed with the Commission on June 13, 2008).
|
|
2
|
.2
|
|
Purchase Agreement, dated as of August 8, 2008, by and
among Ascent Media Corporation, Ascent Media CANS, LLC and
AccentHealth Holdings, LLC (incorporated by reference to
Exhibit 2.2 to Amendment No. 3 to Ascent Media
Corporations Registration Statement on Form 10 (File
No. 000-53280),
filed with the Commission on August 12, 2008).
|
62
|
|
|
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Ascent
Media Corporation (incorporated by reference to Exhibit 3.1
to Ascent Media Corporations Registration Statement on
Form 10
(File No. 000-53280),
filed with the Commission on June 13, 2008).
|
|
3
|
.2
|
|
Bylaws of Ascent Media Corporation (incorporated by reference to
Exhibit 3.2 to Ascent Media Corporations Registration
Statement on Form 10 (File
No. 000-53280),
filed with the Commission on June 13, 2008).
|
|
4
|
.1
|
|
Specimen Certificate for shares of Series A common stock,
par value $.01 per share, of Ascent Media Corporation
(incorporated by reference to Exhibit 4.1 to Ascent Media
Corporations Registration Statement on Form 10 (File
No. 000-53280),
filed with the Commission on June 13, 2008).
|
|
4
|
.2
|
|
Specimen Certificate for shares of Series B common stock,
par value $.01 per share, of Ascent Media Corporation
(incorporated by reference to Exhibit 4.2 to Ascent Media
Corporations Registration Statement on Form 10 (File
No. 000-53280),
filed with the Commission on June 13, 2008).
|
|
4
|
.3
|
|
Rights Agreement between Ascent Media Corporation and
Computershare Trust Company, N.A. (incorporated by
reference to Exhibit 4.3 to Amendment No. 1 to Ascent
Media Corporations Registration Statement on Form 10
(File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
10
|
.1
|
|
Services Agreement, dated September 16, 2008, between
Ascent Media Group, LLC and CSS Studios, LLC (incorporated by
reference to Exhibit 10.1 to Amendment No. 8 to Ascent
Media Corporations Registration Statement on Form 10
(File
No. 001-34176),
filed with the Commission on September 17, 2008).
|
|
10
|
.2
|
|
Tax Sharing Agreement, dated as of September 17, 2008, by
and among Discovery Holding Company, Discovery Communications,
Inc., Ascent Media Corporation, Ascent Media Group, LLC and CSS
Studios, LLC (incorporated by reference to Exhibit 10.2 to
Amendment No. 8 to Ascent Media Corporations
Registration Statement on Form 10 (File
No. 001-34176),
filed with the Commission on September 17, 2008).
|
|
10
|
.3
|
|
Ascent Media Group, LLC 2006 Long-Term Incentive Plan (As
Amended and Restated Effective September 9, 2008)
(incorporated by reference to Exhibit 10.3 to Amendment
No. 7 to Ascent Media Corporations Registration
Statement on Form 10 (File
No. 000-53280),
filed with the Commission on September 10, 2008).
|
|
10
|
.4
|
|
Ascent Media Group, LLC 2007 Management Incentive Plan
(incorporated by reference to Exhibit 10.4 to Amendment
No. 1 to Ascent Media Corporations Registration
Statement on Form 10
(File No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
10
|
.5
|
|
Ascent Media Corporation 2008 Incentive Plan (incorporated by
reference to Exhibit 4.4 to Ascent Media Corporations
Registration Statement on
Form S-8
(File
No. 333-156231),
filed with the Commission on December 17, 2008).
|
|
10
|
.6
|
|
Services Agreement, dated as of July 21, 2005, by and
between Discovery Holding Company and Liberty Media Corporation
(incorporated by reference to Exhibit 10 to the Quarterly
Report on
Form 10-Q
of Discovery Holding Company filed on August 10, 2005).
|
|
10
|
.7
|
|
Form of Indemnification Agreement between the Registrant and its
Directors and Executive Officers (incorporated by reference to
Exhibit 10.7 to Amendment No. 1 to Ascent Media
Corporations Registration Statement on Form 10 (File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
10
|
.8
|
|
Employment Agreement, dated as of September 1, 2006, by and
between Ascent Media Group, LLC and William E. Niles
(incorporated by reference to Exhibit 10.8 to Amendment
No. 1 to Ascent Media Corporations Registration
Statement on Form 10 (File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
10
|
.9
|
|
Employment Agreement, dated as of September 1, 2006, by and
between Ascent Media Group, LLC and George C. Platisa
(incorporated by reference to Exhibit 10.9 to Amendment
No. 1 to Ascent Media Corporations Registration
Statement on Form 10 (File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
10
|
.10
|
|
Employment Agreement, dated as of September 1, 2006, by and
between Ascent Media Group, LLC and Jose A. Royo (incorporated
by reference to Exhibit 10.10 to Amendment No. 1 to
Ascent Media Corporations Registration Statement on
Form 10 (File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
63
|
|
|
|
|
|
10
|
.11
|
|
Amendment, dated as of July 17, 2007, to Employment
Agreement, dated as of September 1, 2006, by and between
Ascent Media Group, LLC and Jose A. Royo (incorporated by
reference to Exhibit 10.11 to Amendment No. 1 to
Ascent Media Corporations Registration Statement on
Form 10
(File No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
10
|
.12
|
|
Employment Agreement, dated as of February 11, 2008, by and
between Ascent Media Group, LLC and Jose A. Royo (incorporated
by reference to Exhibit 10.12 to Amendment No. 1 to
Ascent Media Corporations Registration Statement on
Form 10 (File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
10
|
.13
|
|
Ascent Media Corporation 2008 Non-Employee Director Incentive
Plan (incorporated by reference to Exhibit 10.13 to
Amendment No. 8 to Ascent Media Corporations
Registration Statement on Form 10
(File No. 001-34176),
filed with the Commission on September 17, 2008).
|
|
10
|
.14
|
|
Amendment, dated December 31, 2008, to Employment
Agreement, dated as of September 1, 2006, by and between
Ascent Media Group, LLC and William E. Niles.*
|
|
10
|
.15
|
|
Amendment, dated December 31, 2008, to Employment
Agreement, dated as of September 1, 2006, by and between
Ascent Media Group, LLC and George C. Platisa.*
|
|
10
|
.16
|
|
Employment Agreement, dated February 9, 2009, by and
between Ascent Media Corporation and William R. Fitzgerald.*
|
|
21
|
|
|
List of Subsidiaries of Ascent Media Corporation (incorporated
by reference to Exhibit 21 to Amendment No. 3 to
Ascent Media Corporations Registration Statement on
Form 10 (File
No. 000-53280),
filed with the Commission on August 12, 2008).
|
|
23
|
|
|
Consent of KPMG LLP.*
|
|
24
|
|
|
Power of Attorney dated March 31, 2009.*
|
|
31
|
.1
|
|
Rule 13a-14(a)/15d-14(a)
Certification.*
|
|
31
|
.2
|
|
Rule 13a-14(a)/15d-14(a)
Certification.*
|
|
31
|
.3
|
|
Rule 13a-14(a)/15d-14(a)
Certification.*
|
|
32
|
|
|
Section 1350 Certification.*
|
64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ASCENT MEDIA CORPORATION
|
|
|
|
By
|
/s/ William
R. Fitzgerald
|
William R. Fitzgerald
Chief Executive Officer
Dated: March 31, 2009
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
date indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ William
R. Fitzgerald
William
R. Fitzgerald
|
|
Chairman of the Board, Director
and Chief Executive Officer
|
|
March 31, 2009
|
|
|
|
|
|
/s/ Jose
A. Royo
Jose
A. Royo
|
|
Director, President and
Chief Operating Officer
|
|
March 31, 2009
|
|
|
|
|
|
/s/ Philip
J. Holthouse
Philip
J. Holthouse
|
|
Director
|
|
March 31, 2009
|
|
|
|
|
|
/s/ Brian
C. Mulligan
Brian
C. Mulligan
|
|
Director
|
|
March 31, 2009
|
|
|
|
|
|
/s/ Michael
J. Pohl
Michael
J. Pohl
|
|
Director
|
|
March 31, 2009
|
|
|
|
|
|
/s/ George
C. Platisa
George
C. Platisa
|
|
Executive Vice President, Chief Financial Officer and
Treasurer
(Principal Accounting Officer)
|
|
March 31, 2009
|
65
EXHIBIT INDEX
Listed below are the exhibits which are filed as a part of this
Report (according to the number assigned to them in
Item 601 of
Regulation S-K):
|
|
|
|
|
|
2
|
.3
|
|
Reorganization Agreement, dated as of June 4, 2008, among
Discovery Holding Company, Discovery Communications, Inc.,
Ascent Media Corporation, Ascent Media Group, LLC, and Ascent
Media Creative Sound Services, Inc. (incorporated by reference
to Exhibit 2.1 to Ascent Media Corporations
Registration Statement on Form 10 (File
No. 000-53280),
filed with the Commission on June 13, 2008).
|
|
2
|
.4
|
|
Purchase Agreement, dated as of August 8, 2008, by and
among Ascent Media Corporation, Ascent Media CANS, LLC and
AccentHealth Holdings, LLC (incorporated by reference to
Exhibit 2.2 to Amendment No. 3 to Ascent Media
Corporations Registration Statement on Form 10 (File
No. 000-53280),
filed with the Commission on August 12, 2008).
|
|
3
|
.3
|
|
Amended and Restated Certificate of Incorporation of Ascent
Media Corporation (incorporated by reference to Exhibit 3.1
to Ascent Media Corporations Registration Statement on
Form 10 (File
No. 000-53280),
filed with the Commission on June 13, 2008).
|
|
3
|
.4
|
|
Bylaws of Ascent Media Corporation (incorporated by reference to
Exhibit 3.2 to Ascent Media Corporations Registration
Statement on Form 10 (File
No. 000-53280),
filed with the Commission on June 13, 2008).
|
|
4
|
.4
|
|
Specimen Certificate for shares of Series A common stock,
par value $.01 per share, of Ascent Media Corporation
(incorporated by reference to Exhibit 4.1 to Ascent Media
Corporations Registration Statement on Form 10 (File
No. 000-53280),
filed with the Commission on June 13, 2008).
|
|
4
|
.5
|
|
Specimen Certificate for shares of Series B common stock,
par value $.01 per share, of Ascent Media Corporation
(incorporated by reference to Exhibit 4.2 to Ascent Media
Corporations Registration Statement on Form 10 (File
No. 000-53280),
filed with the Commission on June 13, 2008).
|
|
4
|
.6
|
|
Rights Agreement between Ascent Media Corporation and
Computershare Trust Company, N.A. (incorporated by
reference to Exhibit 4.3 to Amendment No. 1 to Ascent
Media Corporations Registration Statement on Form 10
(File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
10
|
.17
|
|
Services Agreement, dated September 16, 2008, between
Ascent Media Group, LLC and CSS Studios, LLC (incorporated by
reference to Exhibit 10.1 to Amendment No. 8 to Ascent
Media Corporations Registration Statement on Form 10
(File
No. 001-34176),
filed with the Commission on September 17, 2008).
|
|
10
|
.18
|
|
Tax Sharing Agreement, dated as of September 17, 2008, by
and among Discovery Holding Company, Discovery Communications,
Inc., Ascent Media Corporation, Ascent Media Group, LLC and CSS
Studios, LLC (incorporated by reference to Exhibit 10.2 to
Amendment No. 8 to Ascent Media Corporations
Registration Statement on Form 10 (File
No. 001-34176),
filed with the Commission on September 17, 2008).
|
|
10
|
.19
|
|
Ascent Media Group, LLC 2006 Long-Term Incentive Plan (As
Amended and Restated Effective September 9, 2008)
(incorporated by reference to Exhibit 10.3 to Amendment
No. 7 to Ascent Media Corporations Registration
Statement on Form 10 (File
No. 000-53280),
filed with the Commission on September 10, 2008).
|
|
10
|
.20
|
|
Ascent Media Group, LLC 2007 Management Incentive Plan
(incorporated by reference to Exhibit 10.4 to Amendment
No. 1 to Ascent Media Corporations Registration
Statement on Form 10 (File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
10
|
.21
|
|
Ascent Media Corporation 2008 Incentive Plan (incorporated by
reference to Exhibit 4.4 to Ascent Media Corporations
Registration Statement on
Form S-8
(File
No. 333-156231),
filed with the Commission on December 17, 2008).
|
|
10
|
.22
|
|
Services Agreement, dated as of July 21, 2005, by and
between Discovery Holding Company and Liberty Media Corporation
(incorporated by reference to Exhibit 10 to the Quarterly
Report on
Form 10-Q
of Discovery Holding Company filed on August 10, 2005).
|
|
10
|
.23
|
|
Form of Indemnification Agreement between the Registrant and its
Directors and Executive Officers (incorporated by reference to
Exhibit 10.7 to Amendment No. 1 to Ascent Media
Corporations Registration Statement on Form 10 (File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
10
|
.24
|
|
Employment Agreement, dated as of September 1, 2006, by and
between Ascent Media Group, LLC and William E. Niles
(incorporated by reference to Exhibit 10.8 to Amendment
No. 1 to Ascent Media Corporations Registration
Statement on Form 10 (File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
|
|
|
|
|
10
|
.25
|
|
Employment Agreement, dated as of September 1, 2006, by and
between Ascent Media Group, LLC and George C. Platisa
(incorporated by reference to Exhibit 10.9 to Amendment
No. 1 to Ascent Media Corporations Registration
Statement on Form 10 (File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
10
|
.26
|
|
Employment Agreement, dated as of September 1, 2006, by and
between Ascent Media Group, LLC and Jose A. Royo (incorporated
by reference to Exhibit 10.10 to Amendment No. 1 to
Ascent Media Corporations Registration Statement on
Form 10 (File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
10
|
.27
|
|
Amendment, dated as of July 17, 2007, to Employment
Agreement, dated as of September 1, 2006, by and between
Ascent Media Group, LLC and Jose A. Royo (incorporated by
reference to Exhibit 10.11 to Amendment No. 1 to
Ascent Media Corporations Registration Statement on
Form 10 (File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
10
|
.28
|
|
Employment Agreement, dated as of February 11, 2008, by and
between Ascent Media Group, LLC and Jose A. Royo (incorporated
by reference to Exhibit 10.12 to Amendment No. 1 to
Ascent Media Corporations Registration Statement on
Form 10 (File
No. 000-53280),
filed with the Commission on July 23, 2008).
|
|
10
|
.29
|
|
Ascent Media Corporation 2008 Non-Employee Director Incentive
Plan (incorporated by reference to Exhibit 10.13 to
Amendment No. 8 to Ascent Media Corporations
Registration Statement on Form 10 (File
No. 001-34176),
filed with the Commission on September 17, 2008).
|
|
10
|
.30
|
|
Amendment, dated December 31, 2008, to Employment
Agreement, dated as of September 1, 2006, by and between
Ascent Media Group, LLC and William E. Niles.*
|
|
10
|
.31
|
|
Amendment, dated December 31, 2008, to Employment
Agreement, dated as of September 1, 2006, by and between
Ascent Media Group, LLC and George C. Platisa.*
|
|
10
|
.32
|
|
Employment Agreement, dated February 9, 2009, by and
between Ascent Media Corporation and William R. Fitzgerald.*
|
|
21
|
|
|
List of Subsidiaries of Ascent Media Corporation (incorporated
by reference to Exhibit 21 to Amendment No. 3 to
Ascent Media Corporations Registration Statement on
Form 10 (File
No. 000-53280),
filed with the Commission on August 12, 2008).
|
|
23
|
|
|
Consent of KPMG LLP.*
|
|
24
|
|
|
Power of Attorney dated March 31, 2009.*
|
|
31
|
.1
|
|
Rule 13a-14(a)/15d-14(a)
Certification.*
|
|
31
|
.2
|
|
Rule 13a-14(a)/15d-14(a)
Certification.*
|
|
31
|
.3
|
|
Rule 13a-14(a)/15d-14(a)
Certification.*
|
|
32
|
|
|
Section 1350 Certification.*
|