UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2010
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission File
No. 001-34794
CKX, INC.
(Exact name of Registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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27-0118168
(I.R.S. Employer
Identification Number)
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650 Madison Avenue
New York, New York 10022
(Address of Principal Executive Offices and Zip Code)
Registrants telephone number, including area code:
(212) 838-3100
Securities Registered Pursuant to Section 12(b) of the
Act: None
Securities Registered Pursuant to Section 12(g) of the
Act:
Common Stock, Par Value $0.01 Per Share
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Exchange
Act. Yes o No þ
Indicate by check mark whether the issuer (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing
requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the voting and non-voting common
equity held by non-affiliates, based on the closing sales price
of the companys common stock as of June 30, 2010, was
$442,420,645.
As of March 4, 2011 there were 93,126,291 shares of the
registrants common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the
issuers definitive proxy statement to be filed in
connection with its 2011 Annual Meeting of Stockholders are
incorporated by reference into Part III.
CKX,
Inc.
Annual
Report on
Form 10-K
December 31,
2010
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FORWARD
LOOKING STATEMENTS
In addition to historical information, this Annual Report
contains forward-looking statements within the meaning of
Section 21E of the Exchange Act. Forward-looking statements
are those that predict or describe future events or trends and
that do not relate solely to historical matters. You can
generally identify forward-looking statements as statements
containing the words believe, expect,
will, anticipate, intend,
estimate, project, assume or
other similar expressions, although not all forward-looking
statements contain these identifying words. All statements in
this Annual Report regarding our future strategy, future
operations, projected financial position, estimated future
revenue, projected costs, future prospects, and results that
might be obtained by pursuing managements current plans
and objectives are forward-looking statements. You should not
place undue reliance on our forward-looking statements because
the matters they describe are subject to known and unknown
risks, uncertainties and other unpredictable factors, many of
which are beyond our control. Our forward-looking statements are
based on the information currently available to us and speak
only as of the date on which this Annual Report was filed with
the SEC. We expressly disclaim any obligation to issue any
updates or revisions to our forward-looking statements, even if
subsequent events cause our expectations to change regarding the
matters discussed in those statements. Over time, our actual
results, performance or achievements will likely differ from the
anticipated results, performance or achievements that are
expressed or implied by our forward-looking statements, and such
difference might be significant and materially adverse to our
stockholders.
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PART I
CKX, Inc., together with its subsidiaries, will be referred to
in this Annual Report on
Form 10-K
(Annual Report) by terms such as we,
us, our, CKX, the
registrant and the Company, unless the
context otherwise requires.
Overview
We are engaged in the ownership, development and commercial
utilization of entertainment content. As more fully described
below, our primary assets and operations include:
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19 Entertainment Limited (19 Entertainment), which
owns proprietary rights to the IDOLS and So You Think
You Can Dance television brands, both of which air in the
United States, and, together with local adaptations of the
format, around the world;
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An 85% ownership interest in Elvis Presley Enterprises, which
owns the rights to the name, image and likeness of Elvis
Presley, certain music and other intellectual property created
by or related to Elvis Presley and the operations of Graceland
and has partnered with Cirque du Soleil for the Viva ELVIS
show in Las Vegas, Nevada; and
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An 80% ownership interest in Muhammad Ali Enterprises, which
owns the rights to the name, image and likeness of, as well as
certain trademarks and other intellectual property related to
Muhammad Ali.
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The former owner of Elvis Presley Enterprises maintains a 15%
interest in the business and is entitled to certain future
distributions and has other contractual rights. The former owner
of Muhammad Ali Enterprises maintains a 20% interest in the
business and is entitled to certain future distributions and has
other contractual rights.
Our existing properties generate recurring revenue across
multiple entertainment platforms, including music and
television; licensing and merchandising; talent management;
themed attractions and touring/live events.
Reorganization
In 2010, we undertook a significant reorganization and
realignment of our business including making significant changes
to our management team and business plan. Our management team
engaged in a thorough review of all aspects of our business in
2010 which resulted in our decision to significantly alter our
business plan for 19 Entertainment to focus principally on our
core IDOLS and So You Think You Can Dance
properties. As a result of the decision to concentrate
primarily on these brands, management exited most of the other
businesses within 19 Entertainment in 2010. We closed our office
in London, sold certain non-core properties and development
projects to an entity affiliated with Simon Fuller, who left his
position as a director of our company and as Chief Executive
Officer of 19 Entertainment in January 2010, and shut down other
development projects, collectively eliminating 155 positions at
19 Entertainment. We expect that the reduction in headcount and
other costs will result in annualized cost savings of
approximately $20 million. The Company incurred cash and
non-cash charges of $19.3 million in 2010 as a result of
this process. Despite the reduction in headcount, we believe
that we have retained the creative and operational personnel
needed to implement this new business plan and that we have
sufficient capability to operate our IDOLS and So You
Think You Can Dance businesses.
As part of managements review, we have also re-examined
our approach to the development of new projects. We have
determined that capital-intensive development projects do not
generally yield an adequate return on investment and thus have
decided to focus on projects which we believe have viability as
television properties and also meet our internal criteria for
having additional non-television revenue opportunities. We
intend to remain in the television business and expect to pursue
new television opportunities through joint ventures or
acquisitions of television development and production companies,
which we believe offer more attractive risk-reward opportunities.
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19
Entertainment
Through our subsidiary, 19 Entertainment Limited, we own
proprietary rights to the IDOLS (including American
Idol) and So You Think You Can Dance television
brands, both of which air in the United States and, together
with local adaptations of the formats, around the world. 19
Entertainments strategy is to create and retain an
ownership interest in entertainment content and to seek to
enhance the value of its content through the control of multiple
complementary revenue streams including, for example,
television, music, sponsorship, merchandising, touring and
artist management.
IDOLS
Brand
19 Entertainments multi-platform approach to the
commercial utilization of its entertainment properties is best
illustrated by the IDOLS brand. In 1998, 19 Entertainment
created what was to become the concept for Pop Idol,
a televised talent contest for musical artists that allowed the
viewing audience to participate in and ultimately select the
winning performer via text messaging and telephone voting. The
audience participation generates a pre-established market for
the winning artists and other finalists who 19 Entertainment
then has the right to represent with respect to artist
management, music, touring and merchandising. 19 Entertainment
enters into exclusive recording agreements with the winning
artists and other finalists. The first television program based
on this concept was Pop Idol, first broadcast in the
United Kingdom in 2001 and in the United States, under the name
American Idol, in 2002. American Idol and/or local
adaptations of the IDOLS television show format now
collectively air in over 100 countries around the world. The
popularity of the IDOLS brand around the world, most
notably the American Idol series in the United States,
has generated substantial revenue across multiple media
platforms, in all of which 19 Entertainment retains a
substantial ownership
and/or
economic interest.
19 Entertainment has a global television production and
distribution agreement with FremantleMedia Limited (together
with its affiliate, FremantleMedia North America, Inc.,
FremantleMedia), the content production arm of the
RTL Group, Europes largest television and radio broadcast
company. Beginning with the season of American Idol
airing in 2011, Universal Music Group is 19
Entertainments record label partner with respect to
IDOLS artists in many major territories around the world.
Through the 2010 season of American Idol, Sony Music
Entertainment had been the companys record label partner.
Throughout this document we use the term partner or
partnership to describe our business relationship
with certain entities, in particular FremantleMedia, Universal
Music Group and Sony Music. These terms are meant only to imply
a cooperative business relationship involving the sharing of
certain responsibilities or revenue streams and are not meant to
imply a legal partnership or joint venture entity unless
otherwise specifically indicated.
Though 19 Entertainment is a party to a variety of commercial
relationships with its television and record label production
and distribution partners to produce, broadcast, distribute and
finance shows based on the IDOLS brand, 19 Entertainment
retains a substantial interest in all aspects of such shows and
their multiple revenue streams through its wholly owned
operating subsidiaries both in the United States and the United
Kingdom. 19 Entertainments principal operational and
ownership interests are structured such that 19 Entertainment:
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owns two-thirds of the IDOLS brand and co-produces the
show in the United States with FremantleMedia, which owns the
other one-third of the IDOLS brand;
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receives certain fees and revenue relating to the sublicensing
of the brand and production and marketing of the shows based on
the IDOLS brand around the world, including licensing and
producer fees;
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shares a percentage of the revenue FremantleMedia derives from
on-air and off-air sponsorships and sales of IDOLS
branded merchandise;
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has the exclusive right to sign recording contracts with the
finalists from the American Idol series in the United
States;
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has the exclusive right to manage the finalists from the
American Idol series in the United States;
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has the exclusive right to produce IDOLS tours; and
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has the exclusive licensing and merchandising rights for the
IDOLS tours in the United States.
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19
Entertainment/FremantleMedia Agreement
19 Entertainment has entered into a worldwide arrangement
with FremantleMedia for the production and distribution of the
IDOLS brand. The arrangement gives FremantleMedia the
exclusive right to produce (or sublicense production) and
distribute IDOLS programs and series throughout the world
except in the United States, where 19 Entertainment co-produces
the American Idol series. In the United States, the
American Idol series airs on the FOX Network under an
agreement between 19 Entertainment, FremantleMedia and Fox
Broadcasting Company (Fox), as more fully described
below under American Idol Fox Agreement.
Under the terms of the 19 Entertainment/FremantleMedia
agreement, the IDOLS brand, together with all domain
names and trademarks relating thereto are owned jointly by the
parties, two-thirds by 19 Entertainment and one-third by
FremantleMedia. In addition to its joint ownership of the
IDOLS brand, 19 Entertainment has the right to receive
certain fees and revenue relating to the sublicensing of the
IDOLS brand and the production of television shows based
on the IDOLS brand and format around the world.
Specifically, 19 Entertainment receives:
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a percentage of the Format Fee, which is a
percentage of the gross fees received by a local production
company from a local broadcaster for production and transmission
of the IDOLS series;
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a percentage of revenue derived from distribution of IDOLS
series and programs after a deduction of a percentage of
gross revenue and other deductions;
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a percentage of the net revenue derived from program sponsorship
and program merchandising; and
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a percentage of the net revenue derived from local merchandising
and management deals (outside the United States). 19
Entertainment and its affiliates retain 100% of artist
management and artist merchandising income from the United
States.
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American
Idol
19 Entertainment, Fox and FremantleMedia have entered into
a series of agreements, the most recent of which was entered
into in November 2005, which together encompass the terms under
which Fox is granted the right to air American Idol in
the United States. Fox has been granted a perpetual and
exclusive license, including the right of first negotiation and
last refusal, to broadcast any non-scripted television programs
featuring the American Idol brand or based on the
American Idol format, or featuring contestants who appear
in their roles as American Idol winners, intended for
broadcast within the United States and its territories. Under
the terms of the 2005 agreement, Fox guaranteed production of
four additional seasons of American Idol through and
including American Idol 8, which aired during the first
and second quarters of 2009, with an automatic renewal for up to
two additional seasons upon the show achieving certain minimum
ratings in 2009 and 2010. Based on ratings for the 2010 season,
the show was automatically renewed for 2011 and began airing in
January 2011. The Company anticipates that we will enter into
discussions with Fox and FremantleMedia during the second
quarter of 2011 for the economic terms of the 2012 season of
American Idol and beyond.
Fox pays FremantleMedia a flat license fee per episodic hour, as
well as a premium license fee for each hour in excess of the
initial season order. These fees are used by FremantleMedia to
fund American Idol series production costs,
excluding the fees of the judges and certain other costs, over
and above the license fees, which are paid directly by Fox.
FremantleMedia retains the balance of the Fox license fees minus
production costs, and pays 50% of the balance directly to 19
Entertainment. Under the terms of the 2005 amendment, Fox pays
an additional contractual license fee directly to 19
Entertainment and FremantleMedia.
In addition to license fees, Fox also pays bonus fees depending
on where the American Idol series is rated and ranked in
the 18-49
age demographic. 19 Entertainment and FremantleMedia each
receive 50% of the ratings/rankings bonus, with 19 Entertainment
receiving its share directly from Fox. 19 Entertainment also
receives an executive producer fee and a format fee per episodic
hour.
On July 7, 2009, the Company entered into two agreements
with Ryan Seacrest, the host of American Idol , and
certain of his affiliates to (i) ensure
Mr. Seacrests availability for three seasons of
American Idol (years 2010, 2011 and 2012) and
acquire Mr. Seacrests prime time television network
exclusivity for future potential projects during the term of the
agreement, and (ii) obtain the right to use
Mr. Seacrests personal goodwill, merchandising
rights,
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rights to his name, voice and image, and rights of publicity and
promotion related to American Idol. Under the terms of
the agreements, the Company paid $22.5 million upon
execution of the agreements on July 7, 2009 and is paying
Mr. Seacrest an additional $22.5 million in monthly
installments during the term, for a total guaranteed amount of
$45.0 million. Upon securing Mr. Seacrests
services, the Company commenced negotiations with Fox related to
a fee to be received by the Company for Mr. Seacrests
services as the host of American Idol. The Company and
Fox ultimately agreed to a fee arrangement of $5.0 million
for Mr. Seacrests services as host of American
Idol for each of the 2010, 2011 and 2012 seasons. The
Company therefore expects to be responsible for a net amount of
$30.0 million of the original $45.0 million guaranteed
amount. The Company received payment for compensation related to
the 2010 season in November 2010 and recognized
$5.0 million as revenue in 2010 over the broadcast in the
first and second quarters of the broadcast season.
So You
Think You Can Dance
19 Entertainment created and co-produces the television
show So You Think You Can Dance, a talent competition for
amateur dancers in a wide range of dance styles, that allows the
viewing audience to participate in and ultimately select the
winning performer via text messaging and telephone voting. The
winner is voted Americas Favorite Dancer and
receives a cash prize. The show was initially broadcast in the
United States on the FOX network in the summer of 2005 and has
thus far aired for six summer seasons through the summer of
2010. In 2009, Fox ordered an additional season which aired in
the third and fourth quarters of 2009. The show has been renewed
for another season which will air in the summer of 2011.
19 Entertainment records all of the television and
sponsorship revenue for So You Think You Can Dance and
all of the operating expenses, including all of the production
costs. Fox has been granted a perpetual and exclusive license,
including the right of first negotiation and last refusal, to
broadcast So You Think You Can Dance. Fox pays 19
Entertainment a variable, non-auditable license fee per episodic
hour. These fees fund the production costs of the show. 19
Entertainment retains the balance of the Fox license fees minus
production costs. 19 Entertainment also receives an executive
producer fee per episode and generates revenue from sales of the
U.S. show and sales of the format to 18 foreign countries.
19 Entertainment pays a contractual profit share to our
production partners, Dick Clark Productions and Nigel Lythgoe,
with Fox also sharing in the profit on foreign sales.
Recorded
Music
In the United States, 19 Entertainment has the recording rights
to the shows contestants and typically options the
recording rights from the finalists of American Idol and
then enters into recording agreements with the winner and
certain of the finalists. 19 Entertainment is currently a party
to long-term recording agreements with Lee DeWyze and Crystal
Bowersox, the winner and
runner-up of
American Idol 9, respectively, as well as numerous
best-selling former IDOLS contestants, including Kelly
Clarkson, Carrie Underwood, Chris Daughtry, David Cook, Kris
Allen and Adam Lambert. In the majority of the rest of the
world, 19 Entertainment has the exclusive right to select the
record company to sign contestants on television shows based on
the IDOLS brand to long-term recording contracts.
As part of a multi-year agreement, Universal Music Group is 19
Entertainments record label partner with respect to
IDOLS-based recorded music in many major territories
around the world including the season of American Idol
airing in 2011. Universal Music Groups Interscope
Geffen A&M will market, promote and distribute American
Idol winner and finalists albums globally across retail and
new media platforms, and local Universal Music Group affiliates
will market, promote and distribute other IDOLS winners
and finalists in the local markets. 19 Entertainment enters into
recording contracts with the finalists and then grants an
optional exclusive license to Universal Music Group to handle
the marketing, manufacturing and distribution of the records
throughout the world.
For the 2010 season of American Idol and prior, Sony
Music Entertainment (Sony Music) was 19
Entertainments record label partner. The agreement with
Sony Music expired following the airing of the 2010 season of
American Idol though the agreement will continue to cover
all artists signed through the 2010 season. In further
consideration for 19 Entertainment designating Sony Music as the
record label for American Idol artists, Fox agreed in
2005 to pay to 19 Entertainment a non-recoupable annual fee of
$5.0 million for each of the fifth through ninth
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seasons of American Idol. Foxs obligation to make
this payment terminated upon the expiration of the agreement
with Sony Music.
In the United States, the record company that licenses the
winning artist
and/or any
of the finalists pays to 19 Entertainment a recoupable
advance, out of which 19 Entertainment funds an advance to the
finalists/artists. Outside the United States, the designated
record company licenses the winning artist
and/or any
of the finalists directly and pays to them advances and
royalties commensurate with the terms of usual exclusive
recording contracts for artists with one platinum selling album
prior to signature in the relevant country. A subsidiary of
19 Entertainment then receives override advances and
royalties with respect to these winning artists
and/or
finalists.
In addition to the aforementioned, 19 Entertainment controls the
exclusive rights to record music from contestants on American
Idol. For the season of American Idol airing in 2011,
we will be recording performances from the top 13 contestants,
licensing this music for use on the show and selling the music.
Internet
and Telephony
19 Entertainment, together with FremantleMedia and Fox, is
working to extend the reach of the American Idol brand
across additional media platforms and distribution channels,
starting with the development of an expanded presence on the
Internet. Under the terms of the 2005 agreement with Fox, Fox
agreed, at its own expense, to build and host
www.americanidol.com, which serves as the shows official
website. 19 Entertainment, FremantleMedia and Fox agreed to work
together to develop content for the website. Fox pays 19
Entertainment/FremantleMedia two-thirds of net Internet revenue
generated by Fox above certain thresholds on the primary site
for each season through the 2011 season of American Idol.
In addition to developing content with Fox for the primary site,
19 Entertainment and FremantleMedia retain their right to
offer premium services on the website and retain 100% of the
income generated from such premium services.
Additionally, 19 Entertainment and FremantleMedia have granted
to Fox certain wireless telephony rights, including show-related
or inspired ringtones, realtones and video footage. Fox is
required to pay 19 Entertainment/FremantleMedia 50% of telephony
revenue generated by Fox above certain thresholds for each
season through the 2011 season of American Idol. To date,
revenue has not exceeded the thresholds above which we would
receive payment from Fox.
Sponsorship
and Merchandising
19 Entertainments sponsorship and merchandising
revenue is driven primarily by the IDOLS brand franchise.
Fox has exclusive responsibility for selling on-air media on
behalf of the American Idol series. However, to the
extent that media buyers seek any off-air promotional tie-ins or
in program identification rights, these rights can only be sold
with the consent of 19 Entertainment/FremantleMedia. With
respect to the American Idol tours,
19 Entertainments staff solicits sponsors directly
and exclusively.
19 Entertainment also options the merchandising rights for
the winner and certain finalists for each American Idol
program and typically signs exclusive merchandising
contracts with the winner and certain finalists. As noted above
and except for tour merchandising which is controlled by 19
Entertainment, all merchandising and licensing associated with
the American Idol television series is controlled by
FremantleMedia on a world-wide basis, though 19 Entertainment
receives 50% of net merchandising revenue.
Touring
With the success of the IDOLS brand, touring has become a
significant source of revenue for 19 Entertainment. As discussed
above, when the number of contestants on American Idol
has been narrowed down to the final ten contestants, 19
Entertainment engages the finalists as talent for an American
Idol branded tour produced by 19 Entertainment. In the
summer of 2010, the American Idol tour, featuring the
finalists from the shows ninth season, played 44 dates in
cities and venues across the United States and Canada.
Similarly, with the success of So You Think You Can
Dance, the annual live tour featuring contestants from the
recently-ended season has become a consistent source of revenue
for the Company. The 2010 tour featuring
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contestants from the shows seventh season played 40 dates
in cities and venues across the United States and Canada.
Disney
Attraction and Agreements
In 2008, 19 Entertainment, together with FremantleMedia, entered
into an agreement with Walt Disney World Co.
(Disney) for the creation of an American Idol
attraction to be located at Disneys Hollywood Studio
theme park in Orlando, Florida. Guests at the attraction have
the opportunity to perform before a live audience, compete for a
chance to appear in a theme park show based on American Idol
and participate as part of the judges panel as other guests
perform. The attraction opened in February 2009. The agreement
with Disney expires in February 2014. Disney has the right to
extend the term for up to ten additional years. Under the
agreement with Disney, 19 Entertainment and FremantleMedia
receive an annual license fee, a clip fee, a percentage of
sponsorships sold by Disney for the attraction and a percentage
of American Idol merchandise sold by Disney.
19 Entertainment has also entered into a talent agreement
with Disney pursuant to which 19 Entertainment receives an
annual performance fee in exchange for making certain
American Idol contestants available for limited
promotional work, personal appearances and a performance for a
Disney-owned property.
Artist
Management
19 Entertainment options the right to manage the final
contestants in each series of the IDOLS brand broadcasts
in the United States. 19 Entertainment currently manages a
number of American Idol winners and finalists, including
David Cook, Kris Allen, Adam Lambert and Lee DeWyze. 19
Entertainment collects management fees from such activities as
the artists performances and personal appearances.
Through our MBST division, we manage more than 30 clients,
representing an array of
Oscar®,
Tony®,
Emmy®
and
Grammy®
winning artists, including Robin Williams, Billy Crystal and
Woody Allen for more than 25 years each. In addition to its
management activities, our MBST division or its senior
executives have acted as executive producers on a fee basis
without significant profit participation for numerous motion
pictures and television productions over the years, including
Arthur, Good Morning Vietnam, The Vanishing, The Greatest
Game Ever Played, Match Point and Vicky Cristina
Barcelona, which won the 2009 Golden Globe award for best
motion picture musical or comedy, and the remake of
Arthur scheduled for release in 2011. Typically, such
fees have not, in the aggregate, contributed a material amount
to our revenue.
Seasonality
19 Entertainments revenue is seasonal in nature,
reflecting the timing of our television shows and tours in
various markets. Historically, 19 Entertainment has generated
higher revenue during the first three quarters of the calendar
year, which corresponds to the dates our American Idol
and So You Think You Can Dance series air on Fox in
the United States and the timing of the annual American Idol
summer tour.
Transactions
with Simon Fuller and Restructuring of 19
Entertainment
On January 13, 2010, the Company entered into a series of
agreements with Simon Fuller (i) securing
Mr. Fullers long-term creative services as a
consultant, (ii) providing the Company with an option to
invest in XIX Entertainment Limited (XIX
Entertainment), a new entertainment company that
Mr. Fuller has launched, and (iii) agreeing to the
termination of Mr. Fullers employment with 19
Entertainment. Upon entering into these agreements,
Mr. Fuller resigned as a director of the Company and as an
officer and director of 19 Entertainment. Pursuant to the
consultancy agreement, the Company has engaged Mr. Fuller
to provide services, including executive producer services, in
respect of the Companys IDOLS and So You Think
You Can Dance programs. In consideration for providing these
services, Mr. Fuller will receive 10% of the Companys
net profits from each of the aforementioned programs for the
life of the programs as long as Mr. Fuller continues to
provide consulting services with respect to such programs. In
2010 and for each year after 2010, subject to certain
conditions, Mr. Fuller will receive an annual advance
against the consulting fee if American Idol and So You
Think You Can Dance remain on the air. The advances are
non-refundable to the Company, but we may recoup the amount of
such
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advances within each year from the consulting fee payable to
Mr. Fuller. For the year ended December 31, 2010, the
Company has recorded $9.1 million of the consulting fee to
cost of sales.
In addition to the aforementioned payment and supplementary
separation payments, Mr. Fuller received additional
consideration for providing creative and strategic advice with
respect to our overall business for the six-month period through
July 13, 2010 and the Company paid Mr. Fuller for an
option to invest in Mr. Fullers new entertainment
company. The Company elected not to exercise the option, which
expired on March 15, 2010.
As noted previously, management undertook a review of each of
the businesses conducted by 19 Entertainment and determined to
focus its efforts principally around its established IDOLS
and So You Think You Can Dance brands. Following this
review, management determined to exit most of the other
businesses conducted by 19 Entertainment by the end of
2010, including the shut-down of its If I Can Dream
project at the end of September 2010.
In pursuit of this plan, on August 11, 2010, certain of the
businesses and assets of 19 Entertainment that the Company
intended to exit were sold to XIX Management Limited (XIX
Management), a company owned and controlled by Simon
Fuller. These businesses and assets, which included the
Companys interest in Beckham Brands Limited, an interest
in a fashion-based partnership and certain U.K. recorded music
and management assets, were sold for the approximate book value
of the transferred business.
Presley
Business
We own an 85% interest in the entities which own
and/or
control the commercial utilization of the name, image and
likeness of Elvis Presley, the operation of the Graceland museum
and related attractions, as well as revenue derived from Elvis
Presleys television specials, films and certain of his
recorded musical works (the Presley Business). The
Presley Business consists primarily of three components: first,
intellectual property, including the licensing of the name,
image, likeness and trademarks associated with Elvis Presley, as
well as other owned
and/or
controlled intellectual property and the collection of royalties
from certain motion pictures, television specials and recorded
musical works and music compositions; second, the operation of
the Graceland museum and related attractions and retail
establishments, including Elvis Presleys Heartbreak Hotel
and other ancillary real estate assets; and third, the
relationship with Cirque du Soleil, including Viva ELVIS, the
theatrical show presented in Las Vegas.
We believe the name, image and likeness of Elvis Presley, as
well as related intellectual property assets, are prime examples
of the type of content that offers opportunities to generate
increased revenue from diverse platforms and distribution
channels. Elvis Presley is the best-selling solo musical
recording artist in U.S. history, having sold more than one
billion albums and singles worldwide and having set records for
the most albums and singles that have been certified
Gold®
and
Platinum®
by the Recording Industry Association of America. Over the past
five years, more than twenty-five million Elvis Presley albums,
including five million of digital downloads, have been sold
worldwide and approximately 519,000 people visited
Graceland in 2010.
While to date the Presley Business has been successful in
accomplishing its primary goal of protecting and preserving the
legacy of Elvis Presley, we believe there is a significant
opportunity to further enhance the image of Elvis Presley and
develop commercial opportunities for the Presley Business.
Together with Cirque du Soleil and MGM MIRAGE, we launched Viva
ELVIS, a permanent live theatrical Vegas-style Cirque du Soleil
show based on the life, times and music of Elvis Presley. The
show, which is being presented at the ARIA Resort and Casino in
CityCenter on the strip in Las Vegas, Nevada, opened in February
2010.
Licensing
and Intellectual Property
Music
Rights
We own co-publishing rights to approximately 650 music
compositions, most of which were recorded by Elvis Presley. BMG
Rights Management administers the majority of the Companys
share of these compositions, along with the shares of our
co-publishers under an administration agreement. More than 48.3%
of our publishing income from these compositions for 2010
originated outside the United States. The public performance
rights for these
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compositions are administered by The American Society of
Composers, Authors and Publishers (ASCAP) and Broadcast Music,
Inc. (BMI), the two largest U.S. based companies which
license and distribute royalties for the non-dramatic public
performances of copyrighted musical works in the United States.
We also own rights to receive royalties from sales of certain
Elvis Presley records. Under Elvis Presleys recording
contract with RCA Corporation (RCA) (now part of
Sony Music), he was entitled to receive an artists royalty
on record sales. In March 1973, Elvis Presley sold his ongoing
record royalty rights on everything he had recorded up to that
time to RCA. We continue to receive royalties on sales of
records Elvis Presley recorded after March 1973 and a marketing
royalty or other fee in exchange for the right to use Elvis
Presleys name, image and likeness in connection with the
sale and marketing of certain newly released compilation records
that include music Elvis Presley recorded before March 1973.
Sony Music (as RCAs successor) generally does not have the
right to license master recordings featuring Elvis
Presleys musical performances for any commercial use other
than the sale of records. We negotiate, together with Sony
Music, when requests are received for the use of these masters
in a commercial setting. In addition, we retain the right to
approve remixes and edits of any of the master recordings. For
example, we receive a share of the artist royalty payments for
the Elvis Presley Christmas Duets album (released in Fall
2008) in exchange for approving certain edits to the master
recordings used on that album.
Name,
Image and Likeness
We own the name, image and likeness of Elvis Presley as well as
trademarks in various names and images associated with Elvis
Presley. We license to others the right to use this intellectual
property for merchandising and other commercial exploitation. In
addition, we enter into licenses for the use of video and audio
clips of Elvis Presley from various motion pictures in which he
starred and the television programs which we own.
Television/Video
We own and have the right to exploit the rights to two of Elvis
Presleys television specials: 68 Special
(1968) and Aloha From Hawaii (1973) and,
as a result of this ownership, we have the right to negotiate
for revenue associated with the use of footage from these
specials in other media and formats. We own the rights to
Elvis by the Presleys (2005), a
two-hour
documentary and
four-hour
DVD based on and including rare archival footage, home movies
and photos, and interviews with Elvis Presley, his friends and
relatives, including Lisa Marie Presley and Priscilla Presley.
We also own the rights to Elvis: Viva Las Vegas
(2007), a
two-hour
television special examining Elvis Presleys influence on
Las Vegas, incorporating rarely seen footage of Elvis Presley
performing in Las Vegas, revealing interviews with those closest
to him, and special performances from some of todays top
recording stars singing Elvis Presleys Las Vegas classics.
Motion
Pictures
Elvis Presley starred in 31 feature films as an actor and two
theatrically released concert documentary films. Elvis Presley
had, and we are entitled to receive, participation royalties in
24 of these films. We have the right to receive royalties, but
do not own the films themselves or control the content or
distribution of such films. In addition, we have the rights to
and negotiate for revenue associated with the use of Elvis
Presleys images as extracted from these films and embodied
in other media and formats.
Licensing
In addition to our own merchandising efforts, our licensing
division is charged with the responsibility of protecting and
preserving the integrity of Elvis Presleys image,
Graceland and other related properties. We seek to accomplish
this through the pursuit of appropriate commercial opportunities
that advance and complement our financial strategies while
maintaining the desired branding and positioning for
Elvis and our other properties.
The Presley Business currently has 247 licensees worldwide for
the Elvis brand selling products in
122 countries with approximately 7,000 active skus or
products in the marketplace. Examples of our licensed products
and services (and the corresponding licensees) include: greeting
cards (American Greetings Corporation);
11
slot machines (IGT); satellite radio (Sirius Satellite Radio,
Inc.); collectibles (The Bradford Exchange and Taylor
Specialties); calendars and stationary (Mead Corporation); and
The Hamilton Ventura Elvis Watch Collection (The Swatch Group).
Graceland
Operations
Graceland
Graceland, the 13.5 acre estate which served as the primary
residence of Elvis Presley from 1957 until his passing in 1977,
is located in Memphis, Tennessee. Graceland was first opened to
public tours in 1982. Over the past five years, Graceland has
averaged approximately 552,000 visitors per year.
We operate Graceland under the terms of a
90-year
lease with The Promenade Trust, which owns a 15% interest in the
Presley Business, under which 84 years remain. We prepaid
approximately $3.0 million of rent at closing of the
acquisition of the Presley Business and will make monthly
payments of $1.00 per month during the term of the lease. We own
all worldwide rights, title and interest in and to the name
Graceland, which name may be used at additional
themed locations as well as in Memphis, Tennessee.
The focal point of the Graceland business is a guided mansion
tour, which includes a walk through the historic residence as
well as an extensive display of Elvis gold records and
awards, career mementos, stage costumes, jewelry, photographs
and more.
In addition to the mansion, the Graceland operations include an
automobile museum featuring vehicles owned and used by Elvis,
the Sincerely Elvis and Everything Elvis
museums, which feature changing exhibits of Elvis Presley
memorabilia, an aviation exhibition featuring the airplanes on
which Elvis traveled while on tour, restaurants, a wedding
chapel, ticketing and parking. We also own and operate retail
stores at Graceland offering Elvis Presley-themed merchandise
and exclusive licensed merchandise for visitors to Graceland.
Adjacent to the Graceland real property, we own 53.4 acres
of vacant land which includes sites that were previously two
apartment complexes. We also own and operate the Graceland RV
Park and Campground, an 18.9 acre site located directly
across from the mansion, which we acquired in 2006 in connection
with our plans to expand the Graceland attraction.
Elvis
Presleys Heartbreak Hotel
Adjacent to the mansion and related attractions, we operate
Elvis Presleys Heartbreak Hotel, which is marketed
primarily to visitors to Graceland. Elvis Presleys
Heartbreak Hotel is a 128-room boutique hotel. The hotel had an
average occupancy rate of approximately 67% during the year
ended December 31, 2010.
Graceland
Improvements
We have previously announced preliminary plans to re-develop our
Graceland attraction to include an expanded visitors center, new
attractions and merchandising shops and potentially a new hotel.
Although we continue to consider the exact scope, cost,
financing plan and timing of such a project, we expect that the
redevelopment of Graceland, if and when pursued, would take
several years and could require a substantial financial
investment by the Company. In addition, our ability to pursue
such a project would be conditioned on a number of factors,
including but not limited to general economic conditions, the
availability of capital and obtaining necessary approvals and
concessions from local and state authorities. The Company
remains committed to the growth and vitality of the Graceland
property and its surroundings and will continue to study the
opportunity for redevelopment on its own or together with third
parties.
Seasonality
Gracelands business has historically been seasonal with
sharply higher numbers of visitors during the late spring and
summer seasons as compared to the fall and winter seasons.
12
Relationship
with Cirque du Soleil
Together with Cirque du Soleil and MGM MIRAGE (MGM),
we launched Viva ELVIS, a permanent live theatrical
Vegas-style Cirque du Soleil show based on the life, times and
music of Elvis Presley. The show, which is being presented at
the ARIA Resort and Casino in CityCenter on the strip in Las
Vegas, Nevada, opened in February 2010.
Under the terms of their joint venture, Elvis Presley
Enterprises and Cirque du Soleil share the costs and expenses
associated with developing and producing Viva ELVIS. In
addition, the Company and its affiliates provide certain
corporate services and license Elvis Presley-related
intellectual property, and Cirque du Soleil and its affiliates
provide creative input, conceptual guidance and related
development experience, to the joint venture, in each case in
return for agreed upon royalties and other consideration.
Under the terms of the agreement between the joint venture and
MGM, MGM funded the development of the theater at the ARIA
Resort and Casino in return for a portion of the ticket sales,
show merchandise and other revenue related to Viva ELVIS.
The portion of ticket sales, show merchandise and other revenue
not allocated to MGM are shared by the joint venture and its
respective affiliates.
The Company incurred cumulative expenditures in the investment
of $26.4 million through 2010. In the first quarter of
2010, the Presley Business began reporting results from the
Cirque du Soleil Viva ELVIS show in Las Vegas.
Ali
Business
We own an 80% interest in the name, image, likeness and all
other rights of publicity of Muhammad Ali, certain trademarks
and copyrights owned by Mr. Ali and his affiliates and the
rights to all existing Muhammad Ali license agreements (the
Ali Business). The Ali Business consists of the
commercial exploitation of the name, image, likeness and
intellectual property of Muhammad Ali, primarily through
endorsement and licensing agreements.
The primary revenue source comes from licensing Muhammad
Alis name and likeness for consumer products, commercials
and other uses. Licensing revenue is primarily derived from
long-term contracts with terms of one to five years. The
intellectual property that is owned by the Company is licensed
to third parties for commercial exploitation under long-term
agreements. The Ali Business also generates revenue from sports
memorabilia signings performed by Mr. Ali.
International
Operations
Approximately $48 million, or 17%, of our revenue for the
year ended December 31, 2010 was attributable to sales
outside the United States.
Segment
Information
The Company currently has four reportable segments: Presley
Business Royalties and Licensing, Presley
Business Graceland Operations, 19 Entertainment and
the Ali Business. These designations have been made as the
discrete operating results of these segments are reviewed by the
Companys chief operating decision makers to assess
performance and make operating decisions. Refer to Item 7,
Managements Discussion and Analysis of Financial Condition
and Results of Operations and note 15 in the accompanying
consolidated financial statements for financial information
about the Companys segments.
Regulation
Our businesses are regulated by governmental authorities in the
jurisdictions in which we operate. Because of our international
operations, we must comply with diverse and evolving
regulations. Regulation relates to, among other things,
management, licensing, foreign investment, use of confidential
customer information and content. Our failure to comply with all
applicable laws and regulations could result in, among other
things, regulatory actions or legal proceedings against us, the
imposition of fines, penalties or judgments against us or
significant limitations on our activities. In addition, the
regulatory environment in which we operate is subject to change.
New or revised
13
requirements imposed by governmental authorities could have
adverse effects on us, including increased costs of compliance.
Changes in the regulation of our operations or changes in
interpretations of existing regulations by courts or regulators
or our inability to comply with current or future regulations
could adversely affect us by reducing our revenue, increasing
our operating expenses and exposing us to significant
liabilities.
Intellectual
Property
Our business involves the ownership, licensing and distribution
of intellectual property. Such intellectual property includes
copyrights, trademarks and service marks in names, domain names,
logos and characters, rights of publicity, patents or patent
applications for inventions related to our products and
services, and licenses of intellectual property rights of
various kinds.
Our intellectual property, including the rights to the names,
images and likenesses of Elvis Presley and Muhammad Ali, and the
names, trademarks and service marks of American Idol and
So You Think You Can Dance, is material to our
operations. If we do not or cannot protect our material
intellectual property rights against infringement or
misappropriation by third parties, (whether for legal reasons or
for business reasons relating, for example, to the cost of
litigation), our revenue may be materially adversely affected.
We attempt to protect our intellectual property rights through a
combination of patent, trademark, copyright, rights of publicity
and other laws, as well as licensing agreements and third party
nondisclosure and assignment agreements. Because of the
differences in foreign trademark, patent, copyright and other
laws concerning proprietary rights, and various foreign and
U.S. state laws concerning publicity rights, our
intellectual property rights may not receive the same degree of
protection in one jurisdiction as in another. Although we
believe that our intellectual property is enforceable in most
jurisdictions, we cannot guarantee such validity or
enforceability. Our failure to obtain or maintain adequate
protection of our intellectual property rights for any reason
could have a material adverse effect on our business, financial
condition and results of operations.
We rely on trademarks, trade names, and brand names to
distinguish our products from those of our competitors, and have
registered or applied to register certain of these trademarks in
jurisdictions around the world. In addition, FremantleMedia has
registered certain of these trademarks, including the trademark
American Idol and its logo, on our joint behalf. With
respect to applications to register trademarks that have not yet
been accepted, we cannot assure you that such applications will
be approved. Third parties may oppose the trademark
applications, seek to cancel existing registrations or otherwise
challenge our use of the trademarks. If they are successful, we
could be forced to re-brand our products and services, which
could result in loss of brand recognition, and could require us
to devote resources to advertising and marketing new brands. We
also grant third parties the right to use our trademarks. In an
effort to preserve trademark rights, we enter into license
agreements with these third parties which govern the use of the
trademarks, and which require our licensees to abide by quality
control standards with respect to the goods and services that
they provide under the trademarks. Although we make efforts to
police the use of the trademarks by our licensees, we cannot
make assurances that these efforts will be sufficient to ensure
that our licensees abide by the terms of their licenses. In the
event that our licensees fail to do so, the trademark rights
could be diluted, or subject to challenge or invalidation.
Although we rely on copyright laws to protect the works of
authorship created by us or transferred to us via assignment or
by operation of law as work made for hire, we do not typically
register our works. Copyrights in works of U.S. origin
authored after January 1, 1978, exist as soon as the works
are authored and fixed in a tangible medium; however, the works
must be registered before the copyright owners may bring an
infringement action in the United States. Furthermore, if a
copyrighted work of U.S. origin is not registered within
three months of publication of the underlying work or before the
act of infringement, the copyright owner cannot recover
statutory damages or attorneys fees in any
U.S. enforcement action; rather, the owner must prove he
suffered actual damages or lost profits. Accordingly, if one of
our unregistered works of U.S. origin is infringed by a
third party, we will need to register the work before we can
file an infringement suit in the United States, and our remedies
in any such infringement suit could be limited. Furthermore,
copyright laws vary from country to country. Although copyrights
that arise under U.S. law will be recognized in most other
countries (as most countries are signatories of the Berne
Convention and the Universal Copyright Convention), we cannot
guarantee that courts in other jurisdictions will afford our
copyrights with the same treatment as courts in the United
States.
14
In addition to copyright and trademark protection, we rely on
the rights of publicity to prevent others from commercially
exploiting each of Elvis Presleys and Muhammad Alis
name, image and likeness. At this time, there is no federal
statute protecting our rights of publicity to Elvis
Presleys and Muhammad Alis names, images and
likenesses. As a result, we must rely on state law to protect
these rights. Although most states have recognized the rights of
publicity to some extent, not all 50 states have expressly
done so through their statutes or their respective common law.
Thus, there is no guarantee that the rights of publicity are
enforceable in every state. Additionally, many countries outside
of the United States do not recognize the rights of publicity at
all or do so in a more limited manner. Thus, there is no
guarantee that we will be able to enforce our rights of
publicity in these countries.
As we seek in the future to acquire owners of content, we will
be required to perform extensive due diligence in numerous
domestic and foreign jurisdictions, both on the content we seek
to acquire, and on the laws of the applicable jurisdiction to
protect such content, which will increase the costs associated
with such acquisitions.
Employees
As of December 31, 2010, the Company had a total of
310 full-time employees, 148 part-time employees and
11 seasonal employees. Management considers its relations
with its employees to be good.
Company
Organization
On March 25, 2005, the Company changed its state of
incorporation from Colorado to Delaware and changed its capital
stock from no par value to $0.01 par value per share.
The principal executive office of the Company is located at 650
Madison Avenue, New York, New York 10022 and our telephone
number is
(212) 838-3100.
Available
Information
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the Exchange
Act), and files reports and other information with
the Securities and Exchange Commission (SEC). Such
reports and other information filed by the Company may be
inspected and copied at the SECs Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549, as
well as in the SECs public reference rooms in New York,
New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330
for further information on the operation of the SECs
public reference rooms. The SEC also maintains an Internet site
that contains reports, proxy statements and other information
about issuers, like us, who file electronically with the SEC.
The address of the SECs website is
http://www.sec.gov.
In addition, the Company makes available free of charge through
its Web site, www.ckx.com, its Annual Reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports filed pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after such
documents are electronically filed with the Securities and
Exchange Commission. This reference to our Internet website does
not constitute incorporation by reference in this report of the
information contained on or hyperlinked from our Internet
website and such information should not be considered part of
this report.
The risks and uncertainties described below are those that we
currently believe are material to our stockholders.
Risks
Related to Our Business
The
continued success of our businesses, including the popularity of
our entertainment properties, is dependent on a variety of
factors.
We rely heavily upon the continued appeal of the IDOLS
and So You Think You Can Dance brands, including the
American Idol series in the United States and, to a
lesser extent, the foreign adaptations of both brands. Our
revenue and income derived from those television programs depend
primarily upon the initial and continued acceptance of
15
that programming by the public. Public acceptance of particular
programming is dependent upon, among other things, the quality
of the programming, the strength of networks on which the
programming is broadcast, the promotion and scheduling of the
programming and the quality and acceptance of competing
television programming and other sources of entertainment and
information. Popularity of programming can also be impacted by
the strength, appeal and continuity of on-air talent. Simon
Cowell left as on-air talent on American Idol at the
conclusion of the 2010 season and will launch X-Factor, a
competing music-based competition program, in the United States
in the fall of 2011. While we believe there has been significant
public acceptance for our IDOLS and So You Think You
Can Dance brands as stand-alone products, the continued
value of the brands could be materially adversely affected if
any of its on-air talent were to lose popularity, be unable or
unwilling to participate in our business or compete with the
brands.
Any one or more of these factors could result in one of the
television series losing its popularity among viewers.
Regardless of the reason, a decline in the number of television
viewers who tune in to the shows and a reduced number of their
foreign adaptations could result in lower advertising revenue
for the networks that broadcast television shows based on the
aforementioned brands and hurt our ability to sell future format
shows based on the brands. This in turn would have a material
adverse effect on our business, operating results and financial
condition.
We also rely upon the continued popularity of Elvis Presley and,
to a lesser degree, Muhammad Ali and the market for products
that exploit their names, images and likenesses. Although we
believe that Elvis Presley fans will continue to visit Graceland
and purchase Elvis Presley-related merchandise, any tarnishing
of the public images of Elvis Presley could materially
negatively impact our business and results of operations.
Moreover, as the life, times and artistic works of Elvis Presley
grow more distant in our past, their popularity may decline. If
the public were to lose interest in Elvis Presley or form a
negative impression of him, our business, operating results and
financial condition would be materially and adversely affected.
In addition, the success of the Muhammad Ali business is
dependent upon our ability to utilize and exploit the brand. If
we are unable to find opportunities to successfully utilize the
brand, our investment in the Muhammad Ali business may be
subject to further impairment.
Our
success depends, to a significant degree, on our relationships
with third parties, including our
co-producers,
television broadcasters and record companies.
Our ability to exploit new entertainment content depends on our
ability to have that content produced and distributed on
favorable terms. Although we have strong relationships in the
entertainment industry, there can be no guarantee that these
relationships will endure or that our production and
distribution partners will honor their obligations to us. For
example, we have historically depended heavily on the companies
that co-produce and broadcast the American Idol series in
the United States, namely Fox and FremantleMedia. Similarly, we
depend on affiliates of Sony Music and, beginning in 2011,
Universal Music, to make and distribute recordings by
IDOLS winners in the United States and other significant
markets and to pay us royalties on record sales and advance us
monies against those royalties. We advance funds to the winners,
after they sign recording contracts, from the monies we receive
from the record companies. We also rely on Sony Music to
distribute recordings featuring Elvis Presley. Any failure of
Fox, FremantleMedia, Sony Music, Universal Music or other third
parties on whom we rely to continue to honor their obligations
to us and adhere to our past course of dealing and conduct would
have a material adverse effect on our ability to realize
continued revenue from the IDOLS platform. Revenue from
Fox, FremantleMedia and Sony Music represented 35%, 10% and 5%,
respectively, of the Companys consolidated revenue for the
year ended December 31, 2010.
Many aspects of the current contractual arrangement with Fox and
Fremantle with respect to the production and broadcast of the
American Idol series expire at the conclusion of the 2011
season. If we are unable to negotiate a new contractual
arrangement on favorable terms or if Fox chooses not to renew
additional seasons of American Idol, our business,
operating results and financial condition would be materially
and adversely affected.
If we
are unable to complete or integrate future acquisitions, our
business strategy and common stock price may be negatively
affected.
Our ability to identify and take advantage of attractive
acquisition opportunities in the future is an important
component in the implementation of our overall business
strategy. We may be unable to identify, finance or
16
complete acquisitions in the future. If the trading price of our
common stock reflects the markets expectation that we will
complete acquisitions in the future, then the price of our
common stock may drop if we are unable to complete such
acquisitions. In addition, to the extent that the trading price
of our common stock reflects a lower multiple than the private
companies we may seek to acquire, we may be unable to use our
common stock as currency in such an acquisition.
Even if we are able to complete future acquisitions, they could
result in our incurrence of unanticipated liabilities or
contingencies from such acquisitions, incurrence of potential
operating losses from such acquisitions, engagement in
competition with a larger universe of companies, incurrence of
costs relating to possible additional regulatory requirements
and compliance costs, issuance of more capital stock, which may
dilute our stockholders percentage ownership in our
company, incurrence of additional amounts of debt
and/or
amortization of additional intangible assets.
The successful integration of any businesses we may acquire in
the future is a key element of our business strategy. We may be
unable to effectively integrate businesses we may acquire in the
future without encountering the difficulties described above.
Failure to effectively integrate such businesses could have a
material adverse effect on our business, prospects, results of
operations or financial condition. In addition, the combined
companies may not benefit as expected from the integration.
Certain
affiliates, noncontrolling interests and third parties have the
right to exploit our intellectual property for commercial
purposes and may exercise those rights in a manner that
negatively affects our business.
Certain third parties with whom we have contractual
relationships have the right to commercially exploit certain of
our intellectual property, including through shared music
publishing rights and film and television production and
distribution agreements. We receive a share of the resulting
revenue. Our revenue share under such agreements depends on the
ability of third parties to successfully market that content. If
such third parties exploit our intellectual property in a manner
that diminishes its value, or adversely affects the goodwill
associated with such intellectual property, there may be a
material adverse effect on our business, prospects, financial
condition, results of operations or cash flow and, ultimately,
the price of our common stock.
Our
intellectual property rights may be inadequate to protect our
business.
Our intellectual property, including the rights to the names,
images and likenesses of Elvis Presley and Muhammad Ali, and the
name, trademark and service mark American Idol, is
material to our operations. If we do not or cannot protect our
material intellectual property rights against infringement or
misappropriation by third parties, (whether for legal reasons or
for business reasons relating, for example, to the cost of
litigation), our revenue may be materially adversely affected.
We attempt to protect our intellectual property rights through a
combination of patent, trademark, copyright, rights of publicity
and other laws, as well as licensing agreements and
confidentiality and assignment agreements. Because of the
differences in foreign trademark, patent, copyright and other
laws concerning proprietary rights and various foreign and
U.S. state laws concerning publicity rights, our
intellectual property rights may not receive the same degree of
protection in one jurisdiction as in another. Although we
believe that our intellectual property is enforceable in most
jurisdictions, we cannot guarantee such validity or
enforceability. Our failure to obtain or maintain adequate
protection of our intellectual property rights for any reason
could have a material adverse effect on our business, financial
condition and results of operations.
We rely on trademarks, trade names, and brand names to
distinguish our products, services and content from those of our
competitors, and have registered or applied to register certain
of these trademarks in jurisdictions around the world. In
addition, FremantleMedia has registered on our behalf certain
trademarks that we co-own with them, including the trademark
American Idol and its logo. With respect to
applications to register trademarks that have not yet been
accepted, we cannot assure you that such applications will be
approved. Third parties may oppose the trademark applications,
seek to cancel existing registrations or otherwise challenge our
use of the trademarks. If they are successful, we could be
forced to re-brand our products, services and content, which
could result in loss of brand recognition, and could require us
to devote resources to advertising and marketing new brands. We
also grant
17
third parties the right to use our trademarks. In an effort to
preserve trademark rights, we enter into license agreements with
these third parties which govern the use of the trademarks, and
which require our licensees to abide by quality control
standards with respect to the goods and services that they
provide under the trademarks. Although we make efforts to police
the use of the trademarks by our licensees, we cannot make
assurances that these efforts will be sufficient to ensure that
our licensees abide by the terms of their licenses. In the event
that our licensees fail to do so, the trademark rights could be
diluted, or subject to challenge or invalidation.
Although we rely on copyright laws to protect the works of
authorship created by us or transferred to us via assignment or
by operation of law as work made for hire, we do not typically
register our works. Copyrights in works of U.S. origin
authored after January 1, 1978 exist as soon as the works
are authored and fixed in a tangible medium; however, the works
must be registered before the copyright owners may bring an
infringement action in the United States. Furthermore, if a
copyrighted work of U.S. origin is not registered within
three months of publication of the underlying work or before the
act of infringement, the copyright owner cannot recover
statutory damages or attorneys fees in any
U.S. enforcement action; rather, the owner must prove he
suffered actual damages or lost profits. Accordingly, if one of
our unregistered works of U.S. origin is infringed by a
third party, we will need to register the work before we can
file an infringement suit in the United States, and our remedies
in any such infringement suit could be limited. Furthermore,
copyright laws vary from country to country. Although copyrights
that arise under U.S. and U.K. law will be recognized in
most other countries (as most countries are signatories of the
Berne Convention and the Universal Copyright Convention), we
cannot guarantee that courts in other jurisdictions will afford
our copyrights with the same treatment as courts in the United
States or the United Kingdom.
In addition to copyright and trademark protection, we rely on
the rights of publicity to prevent others from commercially
exploiting Elvis Presleys and Muhammad Alis names,
images and likenesses. At this time, there is no federal statute
protecting our rights of publicity to Elvis Presleys and
Muhammad Alis names, images and likenesses. As a result,
we must rely on state law to protect these rights. Although most
states have recognized the rights of publicity to some extent,
not all 50 states have expressly done so through their
statutes or their respective common law and certain of those
states which have recognized such rights, have imposed certain
limitations on the enforcement of these rights. Consequently,
there is no guarantee that the rights of publicity are
enforceable in every state. Additionally, many countries outside
of the United States do not recognize the rights of publicity at
all or do so in a more limited manner. Consequently, there is no
guarantee that we will be able to enforce our rights of
publicity in these countries.
We have incurred costs due to increased litigation intended to
protect our intellectual property rights and, to the extent that
we pursue additional litigation in the future, we may incur even
higher costs.
Changes
in U.S., global, or regional economic conditions could have an
adverse effect on the profitability of some or all of our
businesses.
A decline in economic activity in the United States and other
regions of the world in which we do business can adversely
affect demand for any of our businesses, thus reducing our
revenue and earnings. The most recent decline in economic
conditions and continued high unemployment can reduce demand for
our products due to the discretionary nature of many of our
revenue streams, such as music sales, touring attendance,
visitors to Graceland and purchases of licensed product.
Economic conditions can also impair the ability of those with
whom we do business to satisfy their obligations to us.
The
departure or a failure to recruit key personnel could have a
detrimental effect on us.
Our success will depend to a significant extent upon a limited
number of members of senior management and other key employees.
The loss of the services of one or more key managers or other
key creative, marketing or management employees could have a
material adverse effect on our business, operating results and
financial condition. In addition, we believe that our future
success will depend in large part upon our ability to attract
and retain additional management and marketing personnel. There
can be no assurance we will be successful in attracting and
retaining such personnel, and the failure to do so could have a
detrimental effect on our business, financial condition and
results of operations.
18
We may
not be able to obtain additional debt or equity financing on
favorable terms, or at all.
We expect that we will require additional financing over time.
In March 2010 we entered into an amendment to our credit
facility which included, among other changes, a reduction in the
maximum size of the facility to $100.0 million. As a result
of this amendment and the fact that we have previously drawn
down $100.0 million, there are no additional borrowings
available under the credit facility. Our existing revolving
credit facility expires in May 2011. On March 3, 2011, we
entered into a commitment letter with certain of the lenders
party to our existing revolving credit facility to amend and
restate the existing facility. Upon execution, the amended
credit facility will require a paydown and permanent reduction
of commitments in an aggregate principal amount of
$40.0 million, which will reduce the total outstanding
balance to $60.0 million. The amended credit facility would
also extend the maturity date of the loans thereunder such that
we will be required to repay in full all amounts outstanding
under the amended credit facility on or before
September 30, 2012. If we are not able to consummate the
amended credit facility, we would need to repay the existing
revolving credit facility in full in May 2011 out of cash on
hand and/or
proceeds from an alternate debt financing. The availability and
cost of any such alternate debt financing would be dependant
upon a number of factors including current and future
performance of the Company and overall conditions in the debt
markets.
In addition to the foregoing, our access to third party sources
of capital will depend, in part, on the markets perception
of our current performance and growth potential, our current
debt levels, our current and expected future earnings, our cash
flow and the market price per share of our common stock.
Any future debt financing or issuances of preferred stock that
we may make will be senior to the rights of holders of our
common stock, and any future issuances of equity securities will
result in the dilution of the then-existing stockholders
proportionate equity interest.
We
depend upon distributions from our operating subsidiaries to
fund our operations and may be subordinate to the rights of
their existing and future creditors.
We conduct substantially all of our operations through our
subsidiaries. Our subsidiaries must first satisfy their cash
needs and then provide cash to satisfy the needs of our
corporate structure, which includes salaries of our executive
officers, insurance, professional fees and service of
indebtedness that may be outstanding at various times. Financial
covenants under future credit agreements, or provisions of the
laws of Delaware, where we are organized, or Tennessee or
England and Wales, where certain of our subsidiaries are
organized, may limit our subsidiaries ability to make
sufficient dividend, distribution or other payments to us.
Creditors of our subsidiaries (including trade creditors) will
be entitled to payment from the assets of those subsidiaries
before those assets can be distributed to us. By virtue of our
holding company status, our Series B Convertible Preferred
Stock, which is held by The Promenade Trust for the benefit of
Lisa Marie Presley, is structurally junior in right of payment
to all existing and future liabilities of our subsidiaries. The
inability of our operating subsidiaries to make distributions to
us could have a material adverse effect on our business,
financial condition and results of operations.
The
concentration of ownership of our capital stock with a small
number of investors will limit your ability to influence
corporate matters.
In contrast to previous years, our current executive officers
and non-independent directors only own a small percentage of our
outstanding capital stock. As of March 4, 2011, they
together beneficially owned approximately 4.6% of our
outstanding capital stock. Our current managements ability
to implement their strategic plans for the Company may therefore
be impeded by the fact that they do not own a significant amount
of our common stock.
Currently, four outside investors and their affiliates own, in
the aggregate, a majority of our outstanding capital stock. Our
largest stockholder is Robert F.X. Sillerman, our former chief
executive officer and former chairman of the board of directors,
who beneficially owns approximately 21.2% of our outstanding
capital stock. These investors therefore have the ability to
influence the outcome of matters submitted to stockholders for
approval, including the election and removal of directors,
amendments to our charter, approval of any equity-based employee
compensation plan and any merger, consolidation or sale of all
or substantially all of our assets. This concentrated control
may limit your ability to influence corporate matters and, as a
result, we may take actions that our other stockholders do not
view as beneficial. As a result, the market price of our common
stock could be adversely affected.
19
We are
subject to extensive governmental regulation, and our failure to
comply with regulations could adversely affect our results of
operations, financial condition and business.
Our businesses are regulated by governmental authorities in the
jurisdictions in which we operate. Because our operations are
international, we must comply with diverse and evolving
regulations. These regulations relate to, among other things,
management, licensing, foreign investment, use of confidential
customer information and content. Our failure to comply with all
applicable laws and regulations could result in, among other
things, regulatory actions or legal proceedings against us, the
imposition of fines, penalties or judgments against us or
significant limitations on our activities. In addition, the
regulatory environment in which we operate is subject to change.
New or revised requirements imposed by governmental authorities
could have adverse effects on us, including increased costs of
compliance. Changes in the regulation of our operations or
changes in interpretations of existing regulations by courts or
regulators or our inability to comply with current or future
regulations could adversely affect us by reducing our revenue,
increasing our operating expenses and exposing us to significant
liabilities.
Our business involves risks of liability associated with
entertainment content, which could adversely affect our
business, financial condition or results of operations.
As an owner and developer of entertainment content, we may face
potential liability for defamation, invasion of privacy,
copyright infringement, actions for royalties and accountings,
trademark misappropriation, trade secret misappropriation,
breach of contract, negligence
and/or other
claims based on the nature and content of the materials
distributed.
These types of claims have been brought, sometimes successfully,
against broadcasters, publishers, merchandisers, online services
and other developers and distributors of entertainment content.
We could also be exposed to liability in connection with
material available through our Internet sites. Any imposition of
liability that is not covered by insurance or is in excess of
insurance coverage could have a material adverse effect on us.
Risks
Related to Our Common Stock
We do
not anticipate paying cash dividends on our common stock in the
foreseeable future, and the lack of cash dividends may have a
negative effect on our common stock price.
We have never declared or paid any cash dividends or cash
distributions on our common stock. We currently intend to retain
any future earnings to support operations and to finance
expansion and therefore do not anticipate paying any cash
dividends on our common stock in the foreseeable future. In
addition, the terms of our existing credit agreement restrict
the payment of cash dividends on our common stock.
Certain
provisions of our stockholder rights plan, Delaware law and our
charter documents could discourage a takeover that stockholders
may consider favorable.
Our Board of Directors has adopted a stockholder rights plan,
commonly referred to as a poison pill. This plan
entitles existing stockholders to rights, including the right to
purchase shares of our preferred stock, in the event of an
acquisition of 15% or more of our outstanding common stock.
Because our stockholder rights plan could prevent or delay a
change of control of the Company, the plan may prevent our
stockholders from profiting from an increase in the market value
of their shares upon such a change of control.
In addition to our stockholder rights plan, certain provisions
of Delaware law and our certificate of incorporation and by-laws
may have the effect of delaying or preventing a change of
control or changes in our management. These provisions include
the following:
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Our Board of Directors has the right to elect directors to fill
a vacancy created by the expansion of the Board of Directors or
the resignation, death or removal of a director, subject to the
right of the stockholders to elect a successor at the next
annual or special meeting of stockholders, which limits the
ability of stockholders to fill vacancies on our board of
directors.
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20
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Our stockholders may not call a special meeting of stockholders,
which would limit their ability to call a meeting for the
purpose of, among other things, voting on acquisition proposals.
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Our by-laws may be amended by our Board of Directors without
stockholder approval, provided that stockholders may repeal or
amend any such amended by-law at a special or annual meeting of
stockholders.
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Our by-laws also provide that any action required or permitted
to be taken by our stockholders at an annual meeting or special
meeting of stockholders may not be taken by written action in
lieu of a meeting.
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Our certificate of incorporation does not provide for cumulative
voting in the election of directors, which could limit the
ability of noncontrolling stockholders to elect director
candidates.
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Stockholders must provide advance notice to nominate individuals
for election to the board of directors or to propose matters
that can be acted upon at a stockholders meeting. These
provisions may discourage or deter a potential acquirer from
conducting a solicitation of proxies to elect the
acquirers own slate of directors or otherwise attempting
to obtain control of our company.
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Our Board of Directors may authorize and issue, without
stockholder approval, shares of preferred stock with voting or
other rights or preferences that could impede the success of any
attempt to acquire our company.
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As a Delaware corporation, by an express provision in our
certificate of incorporation, we have elected to opt
out of the restrictions under Section 203 of the
Delaware General Corporation Law regulating corporate takeovers.
In general, Section 203 prohibits a publicly-held Delaware
corporation from engaging, under certain circumstances, in a
business combination with an interested stockholder for a period
of three years following the date the person became an
interested stockholder, unless:
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Prior to the date of the transaction, the board of directors of
the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an
interested stockholder;
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Upon completion of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time such transaction commenced,
excluding, for purposes of determining the number of shares
outstanding, (1) shares owned by persons who are directors
and also officers of the corporation and (2) shares owned
by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange
offer; or
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On or subsequent to the date of the transaction, the business
combination is approved by the board of directors of the
corporation and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least
662/3%
of the outstanding voting stock which is not owned by the
interested stockholder.
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In this context, a business combination includes a merger, asset
or stock sale or other transaction resulting in a financial
benefit to the interested stockholder. An interested stockholder
is a person who, together with affiliates and associates, owns
or, within three years prior to the determination of interested
stockholder status owned, 15% or more of a corporations
outstanding voting securities.
A Delaware corporation may opt out of
Section 203 with an express provision in its original
certificate of incorporation or an express provision in its
certificate of incorporation or by-laws resulting from
amendments approved by holders of at least a majority of the
corporations outstanding voting shares. We elected to
opt out of Section 203 by an express provision
in our original certificate of incorporation. However, subject
to certain restrictions, we may elect by an amendment to our
certificate of incorporation to be subject to Section 203.
Such an amendment would not, however, restrict a business
combination between us and an interested stockholder if that
stockholder became an interested stockholder prior to the
effective date of such amendment.
Our certificate of incorporation may only be amended by the
affirmative vote of a majority of the outstanding shares of
common stock at an annual or special meeting of stockholders and
specifically provides that our Board of Directors is expressly
authorized to adopt, amend or repeal our by-laws. The by-laws
additionally provide that they may be amended by action of the
stockholders at an annual or special meeting, except for certain
sections relating to indemnification of directors and officers.
21
The
conversion rights of our Series B Convertible Preferred
Stock may be detrimental to holders of our common
stock.
We have 1,491,817 shares of Series B Convertible
Preferred Stock outstanding. The shares of Series B
Convertible Preferred Stock are convertible by its holder(s)
into shares of common stock at any time at a conversion price
equal to the stated value of $15.30, subject to adjustments in
connection with standard anti-dilution protections for stock
splits, stock dividends and reorganizations. The shares of
Series B Convertible Preferred Stock become convertible at
our option from and after the third anniversary of the date of
issuance, if, at any time, the average closing price of our
common stock over a
thirty-day
trading period equals or exceeds 150% of the conversion price.
During the period beginning August 7, 2012 and ending
August 7, 2013, we can, at our sole discretion, redeem the
outstanding shares of Series B Convertible Preferred Stock,
in whole or in part, for an aggregate price equal to the stated
value plus accrued but unpaid dividends through the date of
redemption. If we do not exercise this redemption right, the
conversion price for all remaining shares of Series B
Convertible Preferred Stock is thereafter reduced to the lower
of (i) the conversion price then in effect and
(ii) the average closing price of our common stock over a
thirty-day
trading period measured as of the last day of the redemption
period.
The conversion of our Series B Convertible Preferred Stock
for our common stock would dilute stockholder ownership in the
Company, could adversely affect the market price of our common
stock and could impair our ability to raise capital through the
sale of additional equity or equity-linked securities. Any
adjustments to the conversion rates of the Series B
Convertible Preferred Stock could exacerbate their dilutive
effect.
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Item 1B.
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Unresolved
Staff Comments
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None.
22
The following table sets forth certain information with respect
to the Companys principal locations as of
December 31, 2010. These properties were leased or owned by
the Company for use in its operations. We believe that our
facilities are suitable for the purposes for which they are
employed, are adequately maintained and are adequate for the
Companys current requirements.
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Location
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Segment
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Name of Property
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Type/Use of Property
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Approximate Size
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Owned or Leased
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New York, NY
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Corporate/Ali Business
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Corporate Headquarters
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Offices
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24,546 square feet
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Lease expires in 2013
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Memphis, TN
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Presley Business
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Graceland
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Museum/Home
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13.53 acres
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Lease expires in 2095
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Memphis, TN
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Presley Business
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Presley Business Headquarters/Retail/ Parking/Ancillary Use
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Parking Lot/ Airplane Museum/Retail/EPE Corporate
Office/Ancillary Use
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38.60 acres
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Owned
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Memphis, TN
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Presley Business
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Presley Business Office and Warehouses
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Office and Warehouses
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75,425 square feet
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Leases expire in 2012
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Memphis, TN
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Presley Business
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Presley Business Offices
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Offices
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3,500 square feet
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Owned
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Los Angeles, CA
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19 Entertainment
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19 Entertainment Headquarters(1)
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Offices
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21,852 square feet
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Lease expires in 2014
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Los Angeles, CA
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MBST and Presley Business
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MBST and Presley Administrative Offices
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Offices
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11,910 square feet
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Lease expires in 2013
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(1) |
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Prior to the restructuring of 19 Entertainment, the 19
Entertainment headquarters were located in London, England, with
other offices in Los Angeles, CA, New York, NY, Nashville, TN
and Paris, France. In connection with the restructuring, the
Company relocated the 19 Entertainment headquarters to its Los
Angeles office in 2010. The Company negotiated a sublease
arrangement of a portion of the space in Los Angeles through
mid-2011. The Company negotiated sublease arrangements of the
entire 19 Entertainment New York administrative offices through
the lease expiration in 2013 and the London offices through the
lease expiration in 2012. We closed the Nashville office in 2010
and we plan to close the Paris office in early 2011. The Company
has recorded provisions to restructuring for the estimated
remaining liabilities for each of these properties. |
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Item 3.
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Legal
Proceedings
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We are subject to certain claims and litigation in the ordinary
course of business. It is the opinion of management that the
outcome of such matters will not have a material adverse effect
on our consolidated financial position, results of operations or
cash flows.
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Item 4.
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(Removed
And Reserved)
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23
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
Since March 1, 2005, our common stock, par value $.01 per
share (the Common Stock) has been listed on The
NASDAQ Global
Market®
under the ticker symbol CKXE. The following table
sets forth the high and low closing sale prices of our Common
Stock as reported on The NASDAQ Global
Market®
for each of the periods listed. The high and low closing sales
prices for 2010 and 2009 were as follows:
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2010
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High
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Low
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The NASDAQ Global
Market®
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Quarters Ended
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December 31, 2010
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$
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5.30
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$
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3.89
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September 30, 2010
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$
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5.60
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$
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4.63
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June 30, 2010
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$
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6.30
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$
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4.02
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March 31, 2010
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$
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6.12
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$
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3.94
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2009
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High
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Low
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Quarters Ended
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December 31, 2009
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$
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7.32
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$
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5.26
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September 30, 2009
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$
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7.41
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$
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5.87
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June 30, 2009
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$
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8.05
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$
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4.10
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March 31, 2009
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$
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4.82
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$
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3.12
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From January 1, 2011 through March 7, 2011, the high
closing sales price for our Common Stock was $4.15, the low
closing sales price was $2.91 and the last closing sales price
on March 7, 2011 was $3.54. As of March 4, 2011, there
were 1,026 holders of record of our Common Stock.
Dividend
Policy
We have not paid and have no present intentions to pay cash
dividends on our Common Stock. In addition, the terms of our
existing credit agreement restrict the payment of cash dividends
on our common stock.
Our Series B Convertible Preferred Stock requires payment
of a cash dividend of 8% per annum in quarterly installments. On
an annual basis, the total dividend payment on the Series B
Convertible Preferred Stock will be $1.8 million. If we
fail to make a quarterly dividend payment to the holder(s) of
the Series B Convertible Preferred Stock on a timely basis,
the dividend rate increases to 12% per annum and all amounts
owing must be paid within three business days in shares of
common stock valued at the average closing price over the
previous 30 consecutive trading days. After such payment is
made, the dividend rate returns to 8% per annum. All such
dividend payments have been made on a timely basis.
Securities
Authorized for Issuance Under Equity Compensation
Plans
The table below shows information with respect to our equity
compensation plans and individual compensation arrangements as
of December 31, 2010. Additional information regarding
stock-based compensation plans is presented in
Note 13 Share-Based Payments in the notes to
consolidated financial statements included in Item 8.
Financial Statements and Supplementary Data located elsewhere in
this report.
24
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Number of
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Securities to be
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Weighted-Average
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Issued Upon
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Exercise Price of
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Number of
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Exercise of
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Outstanding
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Securities
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Outstanding
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Options,
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Remaining
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Options, Warrants
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Warrants and
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Available for
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Plan Category
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and Rights
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Rights
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Future Issuance
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(#)
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($)
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(#)
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Equity compensation plans approved by security holders
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2,679,600
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$
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6.18
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726,878
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Equity compensation plans not approved by security holders
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25
Performance
Graph
The graph below compares CKX Inc.s cumulative
5-year total
shareholder return on common stock with the cumulative total
returns of the S&P 500 index and the S&P SuperCap
Media index. The graph assumes that the value of the investment
in the companys common stock and in each of the indexes
(including reinvestment of dividends) was $100 on
December 31, 2005 and tracks it through December 31,
2010.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among
CKX Inc., the S&P 500 Index
and S&P SuperCap Media Index
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*
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$100 invested on
12/31/05 in
stock or index, including reinvestment of dividends.
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Fiscal year ending December 31.
Copyright©
2011 S&P, a division of The McGraw-Hill Companies Inc. All
rights reserved.
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12/05
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12/06
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12/07
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12/08
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12/09
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12/10
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CKX Inc.
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100.00
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90.23
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92.31
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29.48
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42.33
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32.37
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S&P 500
|
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100.00
|
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115.80
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122.16
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76.96
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97.33
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|
|
|
111.99
|
|
S&P SuperCap Media Index
|
|
|
|
100.00
|
|
|
|
|
129.36
|
|
|
|
|
109.59
|
|
|
|
|
66.98
|
|
|
|
|
95.81
|
|
|
|
|
119.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The stock price performance included in this graph is not
necessarily indicative of future stock price performance.
Recent
Sales of Unregistered Securities
None.
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
None.
26
|
|
Item 6.
|
Selected
Financial Data
|
The selected consolidated financial data was derived from the
audited consolidated financial statements of the Company as of
December 31, 2010, 2009, 2008, 2007 and 2006 and for the
years ended December 31, 2010, 2009, 2008, 2007, and 2006.
The data should be read in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements and the related notes thereto included
elsewhere herein.
Our selected statement of operations data for the years ended
December 31, 2010, 2009, 2008, 2007 and 2006 includes the
results of the Ali Business for the period following its
acquisition on April 10, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
(Amounts in thousands, except per share and share
information)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
273,724
|
|
|
$
|
328,353
|
|
|
$
|
288,128
|
|
|
$
|
266,777
|
|
|
$
|
210,153
|
|
Operating expenses(1)
|
|
|
222,876
|
|
|
|
260,991
|
|
|
|
194,366
|
|
|
|
201,468
|
|
|
|
169,717
|
|
Provision for severance and other restructuring-related costs
|
|
|
19,291
|
|
|
|
1,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges
|
|
|
24,637
|
|
|
|
2,526
|
|
|
|
35,661
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
18,687
|
|
|
|
19,241
|
|
|
|
21,161
|
|
|
|
22,551
|
|
|
|
20,541
|
|
Operating income (loss)
|
|
|
(11,767
|
)
|
|
|
44,177
|
|
|
|
36,940
|
|
|
|
42,758
|
|
|
|
19,895
|
|
Interest income (expense), net
|
|
|
(2,478
|
)
|
|
|
(3,027
|
)
|
|
|
(3,823
|
)
|
|
|
(3,946
|
)
|
|
|
240
|
|
Income (loss) before income taxes and equity in earnings of
affiliates
|
|
|
(14,245
|
)
|
|
|
41,150
|
|
|
|
33,117
|
|
|
|
40,993
|
|
|
|
16,812
|
|
Income tax expense (benefit)
|
|
|
(1,043
|
)
|
|
|
15,358
|
|
|
|
14,430
|
|
|
|
19,432
|
|
|
|
6,178
|
|
Equity in earnings of affiliates
|
|
|
676
|
|
|
|
576
|
|
|
|
2,521
|
|
|
|
1,566
|
|
|
|
686
|
|
Income (loss) from continuing operations
|
|
|
(12,526
|
)
|
|
|
26,368
|
|
|
|
21,208
|
|
|
|
23,127
|
|
|
|
11,320
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,430
|
)
|
|
|
|
|
Net income (loss)
|
|
|
(12,526
|
)
|
|
|
26,368
|
|
|
|
21,208
|
|
|
|
14,697
|
|
|
|
11,320
|
|
Dividends on preferred stock
|
|
|
(1,824
|
)
|
|
|
(1,824
|
)
|
|
|
(1,824
|
)
|
|
|
(1,824
|
)
|
|
|
(1,824
|
)
|
Net income (loss) available to CKX, Inc.
|
|
|
(14,350
|
)
|
|
|
24,544
|
|
|
|
19,384
|
|
|
|
12,873
|
|
|
|
9,496
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
(1,366
|
)
|
|
|
(1,782
|
)
|
|
|
(2,257
|
)
|
|
|
(2,553
|
)
|
|
|
(2,127
|
)
|
Net income (loss) attributable to CKX, Inc.
|
|
$
|
(15,716
|
)
|
|
$
|
22,762
|
|
|
$
|
17,127
|
|
|
$
|
10,320
|
|
|
$
|
7,369
|
|
Basic income (loss) per common share
|
|
$
|
(0.17
|
)
|
|
$
|
0.24
|
|
|
$
|
0.18
|
|
|
$
|
0.11
|
|
|
$
|
0.08
|
|
Diluted income (loss) per common share
|
|
$
|
(0.17
|
)
|
|
$
|
0.24
|
|
|
$
|
0.18
|
|
|
$
|
0.11
|
|
|
$
|
0.08
|
|
Average number of basic common shares outstanding
|
|
|
92,907,981
|
|
|
|
93,298,778
|
|
|
|
96,674,706
|
|
|
|
96,901,172
|
|
|
|
92,529,152
|
|
Average number of diluted common shares outstanding
|
|
|
92,907,981
|
|
|
|
93,337,683
|
|
|
|
96,684,377
|
|
|
|
96,991,441
|
|
|
|
93,555,201
|
|
|
|
|
(1) |
|
Operating expenses exclude provision for severance and other
restructuring-related costs, impairment charges and depreciation
and amortization. |
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
(Amounts in thousands)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
109,457
|
|
|
$
|
66,587
|
|
|
$
|
101,895
|
|
|
$
|
50,947
|
|
|
$
|
36,610
|
|
Other current assets
|
|
|
61,783
|
|
|
|
86,249
|
|
|
|
52,407
|
|
|
|
58,127
|
|
|
|
36,088
|
|
Total assets
|
|
|
460,833
|
|
|
|
499,214
|
|
|
|
476,061
|
|
|
|
525,455
|
|
|
|
489,117
|
|
Current liabilities (excluding current portion of debt)
|
|
|
61,668
|
|
|
|
77,718
|
|
|
|
78,292
|
|
|
|
59,845
|
|
|
|
39,432
|
|
Current portion of debt
|
|
|
100,515
|
|
|
|
482
|
|
|
|
489
|
|
|
|
652
|
|
|
|
631
|
|
Total debt
|
|
|
100,646
|
|
|
|
101,129
|
|
|
|
101,918
|
|
|
|
103,070
|
|
|
|
3,701
|
|
Total liabilities
|
|
|
180,734
|
|
|
|
206,892
|
|
|
|
210,319
|
|
|
|
207,992
|
|
|
|
91,153
|
|
Redeemable restricted common stock
|
|
|
7,347
|
|
|
|
7,347
|
|
|
|
23,002
|
|
|
|
23,002
|
|
|
|
23,002
|
|
Total CKX, Inc. stockholders equity
|
|
|
266,863
|
|
|
|
278,734
|
|
|
|
237,461
|
|
|
|
289,704
|
|
|
|
371,009
|
|
28
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following managements discussion and analysis of
financial condition and results of operations of the Company
should be read in conjunction with the Companys historical
consolidated financial statements and notes thereto included
elsewhere in this Annual Report. Our future results of
operations may change materially from the historical results of
operations reflected in our historical financial statements.
Overview
We are engaged in the ownership, development and commercial
utilization of entertainment content. As more fully described
below, our primary assets and operations include:
|
|
|
|
|
19 Entertainment, which owns proprietary rights to the IDOLS
and So You Think You Can Dance television brands,
both of which air in the United States, and, together with local
adaptations of the format, around the world;
|
|
|
|
An 85% ownership interest in Elvis Presley Enterprises, which
owns the rights to the name, image and likeness of Elvis
Presley, certain music and other intellectual property created
by or related to Elvis Presley and the operations of Graceland
and has partnered with Cirque du Soleil for Viva ELVIS in Las
Vegas, Nevada; and
|
|
|
|
An 80% ownership interest in Muhammad Ali Enterprises, which
owns the rights to the name, image and likeness of, as well as
certain trademarks and other intellectual property related to
Muhammad Ali.
|
The former owners of Elvis Presley Enterprises and the Muhammad
Ali Enterprises maintain a 15% and 20% interest in those
businesses, respectively, and are each entitled to certain
future distributions and have other contractual rights with
respect thereto.
Our existing properties generate recurring revenue across
multiple entertainment platforms, including music and
television; licensing and merchandising; talent management;
themed attractions and touring/live events.
Reorganization
In 2010, we undertook a significant reorganization and
realignment of our businesses including making significant
changes to our management team and business plan. Our review of
all aspects of our business in 2010 resulted in our decision to
significantly alter our business plan for 19 Entertainment to
focus principally on our core IDOLS and So You Think
You Can Dance properties. As a result of the decision to
concentrate primarily on these brands, management exited most of
the other businesses within 19 Entertainment in 2010. We closed
our office in London, sold certain non-core properties and
development projects to an entity affiliated with Simon Fuller,
who left his position as a director of our company and as Chief
Executive Officer of 19 Entertainment in January 2010, and shut
down other development projects, collectively eliminating 155
positions at 19 Entertainment.
19
Entertainment
19 Entertainment generates revenue from the creation and
production of entertainment properties. Our primary revenue
sources include production and license fees and related ratings
and rankings bonuses from television programs, and royalties
from the sale of recorded music by artists signed to our record
label. We also derive revenue from the sale of merchandise,
sponsorships and tours based on our television programs and
recorded music artists, and fee income from management clients.
The majority of our revenue is derived from production and
license fees and related performance bonuses from producing and
licensing the IDOLS television show format in various
countries and ancillary revenue streams from the IDOLS
brand. Ancillary revenue from the IDOLS brand is
generated through agreements which provide us with the option to
sign finalists on the IDOLS television shows to long-term
recording contracts, concert tours we produce featuring
IDOLS finalists and the sale of sponsorships and
merchandise involving the IDOLS brand.
The majority of our IDOLS related revenue is generated
through our global television production and
29
distribution agreement with FremantleMedia, and through
agreements with our principal former global record label
partners Ronagold Limited, for seasons American Idol 1
through American Idol 4, and, Simco Limited, for
seasons American Idol 4 through American Idol 9,
and with our current global record label partner Universal
Music Group commencing with the 2011 season of American
Idol. Therefore, we are highly dependent upon the continued
ability of these entities to successfully maintain the IDOLS
brand and promote our recording artists.
Other than American Idol, which is discussed below, the
IDOLS television shows are generally produced or licensed
under one year contracts under which each local television
network has the right, but not the obligation, to renew the
agreement for additional years. Our recording artists are
generally signed to long-term recording contracts under which we
and our record label partner have the right, but not the
obligation, to have the artist release a specified number of
albums.
Our revenue from the IDOLS brand is also highly dependent
upon the continued success of the American Idol series
which currently airs on the Fox network in the United States,
and local adaptations of the IDOLS television show which
air around the world. Our revenue is also dependent upon the
continued success and productivity of our recording artists and
management clients. A portion of our revenue from the
American Idol series is dependent upon the number of
hours of programming we deliver. The Fox network aired
56.0 hours in 2010 and 50.0 hours in 2009. On
November 28, 2005, 19 Entertainment entered into a series
of agreements with Fox, FremantleMedia and Sony Music/Simco,
related to the American Idol television program. Under
the terms of the agreements, Fox has guaranteed production
through the 2011 season of American Idol. Additional
terms of the agreements call for Fox to order a minimum of
37 hours and a maximum of 45 hours of American Idol
programming each season (though 19 Entertainment and
FremantleMedia can agree to produce additional hours) and to pay
19 Entertainment and FremantleMedia an increased license fee per
season. The Company anticipates that we will enter into
discussions with Fox and FremantleMedia during the second
quarter of 2011 for the economic terms of the 2012 season of
American Idol and beyond.
On July 7, 2009, the Company entered into two agreements
with Ryan Seacrest, the host of American Idol, and
certain of his affiliates to (i) ensure
Mr. Seacrests availability for three future seasons
of American Idol (years 2010, 2011 and 2012) and
acquire Mr. Seacrests prime time television network
exclusivity for future potential projects during the term of the
agreement, and (ii) obtain the right to use
Mr. Seacrests personal goodwill, merchandising
rights, rights to his name, voice and image, and rights of
publicity and promotion related to American Idol. Under
the terms of the agreements, the Company paid $22.5 million
upon execution of the agreements on July 7, 2009 and will
pay Mr. Seacrest an additional $22.5 million in
monthly installments during the term, for a total guaranteed
amount of $45 million. Upon securing
Mr. Seacrests services, the Company commenced
negotiations with Fox related to a fee to be received by the
Company for Mr. Seacrests services as the host of
American Idol. The Company and Fox ultimately agreed to a
fee arrangement of $5.0 million for
Mr. Seacrests services as host of American Idol
for each of the 2010, 2011 and 2012 seasons. The Company
therefore expects to be responsible for a net amount of
$30.0 million of the original $45.0 million guaranteed
amount. The Company received payment for compensation related to
the 2010 season in November 2010 and recognized
$5.0 million as revenue in 2010 over the broadcast in the
first and second quarters of the broadcast season. The Company
is amortizing the aggregate payments of $45 million to cost
of sales over the three-year term of the arrangement as the
American Idol series airs, which is in accordance with
our accounting policy as described below in Application of
Critical Accounting Policies Television
Production Costs.
19 Entertainments revenue is seasonal in nature,
reflecting the timing of our television shows and tours in
various markets. Historically, 19 Entertainment generated higher
revenue during the first three quarters of the calendar year,
which corresponds to the dates on Fox in the United States our
American Idol show is broadcast (the first and second
quarters) and the dates our So You Think You Can Dance
series airs (the second and third quarters). In 2009, Fox
ordered additional broadcast hours of So You Think You Can
Dance which aired in the third and fourth quarters of 2009.
We also aired Superstars of Dance, a special series, on
NBC in the first quarter of 2009. As a result of the additional
season of So You Think You Can Dance, our revenue in the
fourth quarter of 2009 was significantly higher than in 2008 and
2010.
Our significant costs to operate 19 Entertainment include
salaries and other compensation, royalties, tour
30
expenses, rents and general overhead costs. Our discretionary
costs include salary and overhead costs incurred in the
development of new entertainment content.
Presley
Business
The Presley Business consists of entities that own
and/or
control the commercial utilization of the name, image and
likeness of Elvis Presley, the operation of the Graceland museum
and related attractions, as well as revenue derived from Elvis
Presleys television specials, films and certain of his
recorded musical works. The Presley Business consists of two
reportable segments: Royalties and Licensing
intellectual property, including the licensing of the name,
image, likeness and trademarks associated with Elvis Presley, as
well as other owned
and/or
controlled intellectual property and the collection of royalties
from certain motion pictures, television specials and recorded
musical works and music compositions; and Graceland
Operations the operation of the Graceland museum and
related attractions and retail establishments, including Elvis
Presleys Heartbreak Hotel and other ancillary real estate
assets.
The Royalties and Licensing segment generates revenue from the
exploitation of the name, image and likeness of Elvis Presley,
including physical and intellectual property owned or created by
Elvis Presley during his life. The primary revenue source of
this segment comes from licensing Elvis Presleys name and
likeness for consumer products, commercials and other uses and
royalties and other income derived from intellectual property
created by Elvis Presley including records, movies, videos and
music publishing. Licensing revenue is primarily derived from
long-term agreements with terms of one to five years. Although
we seek to obtain significant minimum guarantees, our licensing
revenue varies based on the actual product sales generated by
licensees. The intellectual property created by Elvis Presley
during his lifetime which we own has generally been assigned to
third parties for commercial exploitation under long-term
agreements.
Although we maintain certain controls over the use of this
content and, in certain cases, have rights to terminate these
agreements if the third party fails to perform, our revenue from
this intellectual property is highly dependent upon the ability
of third parties to successfully market the content. The Presley
Business began reporting results from the Cirque du Soleil
Viva ELVIS show in Las Vegas in the first quarter of 2010.
The Graceland Operations segment generates its primary revenue
from ticket and merchandise sales and related income from public
tours of Graceland as well as from the operation of Elvis
Presleys Heartbreak Hotel and the other ancillary real
estate assets. Revenue from Graceland has historically been
seasonal with sharply higher numbers of visitors during the late
spring and summer seasons as compared to the fall and winter
seasons.
Most of the Presley Business revenue sources are dependent
upon the publics continued interest in Elvis Presley and
the intellectual property he created.
Our significant costs to operate the Presley Business include
salaries, rent and other general overhead costs. Most of our
costs do not vary significantly with our revenue. Our
discretionary costs are generally in our marketing and
promotions department which we primarily incur to maintain
and/or
increase the number of visitors to Graceland. We also incur
expenses in exploring additional opportunities to bring Elvis
Presley-related attractions to Las Vegas and other strategic
locations throughout the world.
Ali
Business
The Ali Business consists of the commercial exploitation of the
name, image, likeness and intellectual property of Muhammad Ali,
primarily through endorsement and licensing arrangements.
The primary revenue source comes from licensing Muhammad
Alis name and likeness for consumer products, commercials
and other uses. Licensing revenue is primarily derived from
long-term agreements with terms of one to five years. Although
we seek to obtain significant minimum guarantees, our licensing
revenue varies based on the actual product sales generated by
licensees. The intellectual property that is owned by the
Company is licensed to third parties for commercial exploitation
under long-term agreements. Although we maintain certain
controls over the use of this content and, in certain cases,
have rights to terminate these agreements if the third party
fails to perform, our revenue from this intellectual property is
highly dependent upon the ability of third parties to
successfully market the content. Most of our revenue sources are
dependent upon the publics continued interest in
31
Muhammad Ali and associated intellectual property. The Ali
Business also generates revenue from sports memorabilia signings
performed by Muhammad Ali.
Our significant costs to operate the Ali Business include
commissions, salaries and other general overhead costs. With the
exception of commissions, most of our costs do not vary
significantly with our revenue.
Transactions
with Simon Fuller and Restructuring of 19
Entertainment
On January 13, 2010, Simon Fuller left his position as a
director of our company and Chief Executive Officer of our 19
Entertainment business and the Company entered into a series of
agreements with Mr. Fuller (i) securing
Mr. Fullers long-term creative services as a
consultant, (ii) providing the Company with an option to
invest in XIX Entertainment, a new entertainment company that
Mr. Fuller has launched, and (iii) agreeing to the
termination of Mr. Fullers employment with 19
Entertainment. Upon entering into these agreements,
Mr. Fuller resigned as a director of the Company and as an
officer and director of 19 Entertainment. Pursuant to the
consultancy agreement, the Company has engaged Mr. Fuller
to provide services, including executive producer services, in
respect of the Companys IDOLS and So You Think
You Can Dance programs. In consideration for providing these
services, Mr. Fuller will receive 10% of the Companys
net profits from each of the aforementioned programs for the
life of the programs as long as Mr. Fuller continues to
provide consulting services with respect to such programs. For
calendar year 2010, Mr. Fuller has received
$5.0 million as an advance against the consulting fee,
which was paid in the year ended December 31, 2010. For
each year after 2010, subject to certain conditions,
Mr. Fuller will receive, as an annual advance against the
consulting fee, $3.0 million if American Idol
remains on the air and $2.0 million if So You Think
You Can Dance remains on the air. The advances are
non-refundable to the Company, but we may recoup the amount of
such advances within each year from the consulting fee payable
to Mr. Fuller. For the year ended December 31, 2010,
the Company has recorded $9.1 million of the consulting fee
to cost of sales.
In addition to the aforementioned payment, Mr. Fuller
received an incremental $2.3 million in consideration for
providing creative and strategic advice with respect to the
overall business of the Company for the six-month period through
July 13, 2010. The Company also paid Mr. Fuller
$0.8 million in January 2010, representing consideration
for the Companys option to invest in
Mr. Fullers new entertainment company. The Company
elected not to exercise the option, which expired on
March 15, 2010. Mr. Fuller also received
$2.0 million in separation payments. The Company recorded
$0.6 million of share-based compensation expense in the
year ended December 31, 2010 due to the acceleration of the
vesting of stock options held by Mr. Fuller upon the
termination of his employment agreement. The Company recorded
$5.6 million to the provision for severance and other
restructuring-related costs in the year ended December 31,
2010 related to these agreements with Mr. Fuller.
In pursuit of the Companys business plan, on
August 11, 2010, certain of the businesses and assets of
19 Entertainment that the Company chose to exit were sold
to XIX Management, a company owned and controlled by Simon
Fuller. These businesses and assets, which included the
Companys interest in Beckham Brands Limited, an interest
in a fashion-based partnership and certain U.K. recorded music
and management assets, were sold for the approximate book value
of the transferred business. For the year ended
December 31, 2010, these businesses generated
$6.7 million of revenue, had an operating loss of
$1.4 million and had equity in earnings of unconsolidated
subsidiaries of $0.6 million. For the 2009 fiscal year, the
businesses had revenue of $10.0 million, operating income
of $0.5 million and equity in earnings of affiliates of
$0.6 million. The impact of these divested businesses was
not deemed significant to warrant disclosure as discontinued
operations. As part of this transaction, 60 of the
Companys employees whose functions were dedicated to the
transferred businesses became direct employees of XIX Management
and/or
affiliates thereof and XIX Management
and/or its
affiliates assumed certain lease obligations from the Company.
Because XIX Management is owned and controlled by Simon Fuller,
the above described transaction was deemed a related party
transaction. The terms of the agreement with XIX Management were
reached following extensive arms-length negotiation between the
parties. The Board of Directors, acting upon the unanimous
approval and recommendation of our independent directors,
approved the transaction.
In addition to the transaction described above, during the year
ended December 31, 2010, the Company terminated or exited
certain other business activities at 19 Entertainment. As a
result of this and the transaction with XIX Management, the
Company has substantially reduced 19 Entertainments
spending on programming and new
32
development projects and the associated selling, general and
administrative expenses. As of December 31, 2010, the
Company has reduced 19 Entertainments headcount (including
MBST and Storm) from 245 to 90 employees. The Company
expects that the reduction in headcount and certain other costs
will result in annualized cost savings of approximately
$20 million at 19 Entertainment, of which approximately
$10 million was realized in 2010.
In connection with the actions described above, for the year
ended December 31, 2010, the Company incurred severance and
other restructuring-related costs, including charges related to
the closure of several offices, of $19.3 million. Certain
management, legal and accounting functions at 19 Entertainment
were absorbed by the Companys corporate staff.
In addition to the costs described above, 19 Entertainment
recognized a non-cash impairment charge of $2.5 million in
2009 to reduce the carrying amount of the assets of Storm Model
Management (Storm), a U.K.-based modeling agency, as
a result of Mr. Fullers resignation from 19
Entertainment and the resulting reduction in his role in the
management, oversight and direction of that business. The
Company acquired a 51% interest in Storm in the third quarter of
2009, with the expectation that Simon Fuller would be a key
contributor to its growth and operations.
Executive
Separation Costs
Robert F.X. Sillerman resigned as Chairman and Chief Executive
Officer of the Company and from the Companys Board of
Directors, effective as of May 7, 2010. In connection with
his resignation, Mr. Sillerman and the Company entered into
a separation and consulting agreement, pursuant to which the
Company agreed to treat Mr. Sillermans resignation as
a constructive termination without cause for
purposes of Mr. Sillermans pre-existing employment
agreement with the Company. As a result, Mr. Sillerman
received a cash severance payment of $3.4 million, which
amount became payable six months following the date of
Mr. Sillermans separation from the Company. The
Company has also agreed to provide Mr. Sillerman with
$25,000 in each of 2010, 2011 and 2012, and $10,000 each year
thereafter, to cover certain of Mr. Sillermans health
insurance costs. All Company stock options held by
Mr. Sillerman under the Companys 2005 Omnibus
Long-Term Incentive Compensation Plan became immediately
exercisable in connection with his termination and, subject to
Mr. Sillermans compliance with certain terms of the
separation and consulting agreement, will remain exercisable for
the remainder of their original term. The Company recorded
$1.3 million of share-based compensation expense in the
year ended December 31, 2010 related to this accelerated
vesting.
Mr. Sillerman and the Company also entered into a
non-exclusive consulting arrangement whereby Mr. Sillerman
is receiving a consulting fee of $1.0 million in
consideration for his continued availability to promote the best
interests of the Company and its subsidiaries on a monthly basis
for a one-year period ending on May 30, 2011. In addition
to the consulting fee, Mr. Sillerman is being reimbursed
for the monthly cost of certain business expenses through
December 31, 2011, at a monthly amount of $25,000.
In consideration for the severance payment and the consulting
fee, Mr. Sillerman released the Company from all claims
arising out of his employment, shareholder
and/or other
relationship with the Company and the termination of such
relationships. The indemnification and confidentiality
provisions in Mr. Sillermans pre-existing employment
agreement are to remain in full force and effect and the Company
and Mr. Sillerman agreed to enter into a mutual
non-disparagement provision.
The Company recorded severance costs of $0.3 million
related to the termination of two employees who reported to
Mr. Sillerman, professional fees of $0.1 million
related to the separation with Mr. Sillerman and
$0.9 million related to a consulting agreement with a
former executive as the Company has determined that it will not
require any services in the future under the agreement.
Change in
Functional Currency
The resignation of Simon Fuller as Chief Executive Officer of 19
Entertainment in January 2010, as previously noted, represented
a significant change in circumstances for the 19 Entertainment
operating segment. This underlying event caused management to
undertake an assessment of the strategic and structural needs of
19 Entertainments creative development projects and
market focus. These changes represent a significant change
33
in facts and circumstances in the context of ASC 830,
Foreign Currency Matters, such that management has
reassessed the functional currency of the 19 Entertainment
operating segment. The Company concluded that it was appropriate
to change the functional currency of substantially all of the
subsidiaries comprising the 19 Entertainment operating segment
from U.K. pound to U.S. dollars. The Company effected this
change as of January 1, 2010. The change in functional
currency had no impact on the Companys historical
financial information.
The impact of this change is that the 19 Entertainment operating
segment is measured in U.S. dollars effective
January 1, 2010. Historically, 19 Entertainment has
generated foreign currency gains and losses as transactions
denominated in U.S. dollars were re- measured into U.K.
pound at the balance sheet date. As a result of the change, 19
Entertainments operating results reflect less foreign
currency-related volatility in 2010 and the 2010 operating
results of 19 Entertainment may not be directly comparable to
prior years.
Other
Corporate Activities
Exercise
of Amended Call Option
In March 2005, in connection with the acquisition of 19
Entertainment, certain sellers of 19 Entertainment, primarily
Simon Fuller, entered into a Put and Call Option Agreement that
provided them with certain rights whereby, during a period of 20
business days beginning March 17, 2011, the Company could
exercise a call right to purchase the common stock of such
stockholders at a price equal to $24.72 per share and these
sellers could exercise a put right to sell the common stock to
the Company at a price equal to $13.18 per share. Of the
1,672,170 shares of common stock covered by the Put and
Call Option Agreement, 1,507,135 were held by Mr. Fuller.
On June 8, 2009, the Company entered into an amendment to
the Put and Call Option Agreement with Mr. Fuller. Pursuant
to the amendment, the call price with respect to 1,138,088 of
Mr. Fullers shares (the Interim Shares)
was reduced to $13.18 per share and the exercise periods for the
put and call of such shares were accelerated to allow for the
their exercise at any time commencing on the date of the amended
agreement. The terms of the original Put and Call Option
Agreement remain in place with respect to Mr. Fullers
remaining 369,047 shares of common stock.
Immediately following execution of the amendment to the Put and
Call Option Agreement, the Company exercised its call option
with respect to the Interim Shares and paid to Mr. Fuller a
gross purchase price of $15.0 million. The Interim Shares
purchased by the Company have been recorded as treasury shares.
Terminated
Merger Agreement
On June 1, 2007, the Company entered into an Agreement and
Plan of Merger (as amended on August 1, 2007,
September 27, 2007, January 23, 2008 and May 27,
2008, the Merger Agreement) with 19X, Inc., a
Delaware corporation (19X), and 19X Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of
19X. Robert F.X. Sillerman, former Chairman and Chief Executive
Officer of CKX, and Simon R. Fuller, then a director of CKX and
the Chief Executive Officer of 19 Entertainment, were the sole
stockholders of 19X.
On November 1, 2008, 19X delivered a letter to the Board of
Directors of the Company terminating the Merger Agreement.
Pursuant to the terms of the Merger Agreement, 19X was required
to pay a termination fee of $37.5 million. Subsequently,
19X paid $37.0 million of the termination fee by delivery
of 3,339,350 shares of CKX common stock, at the
contractually agreed to assumed valuation provided for in the
Merger Agreement of $11.08 per share, with the remainder of the
termination fee ($0.5 million) paid in cash.
Transactions
Involving FX Real Estate and Entertainment Inc.
CKX acquired an aggregate approximate 50% interest in FX Real
Estate and Entertainment Inc. (FXRE) in 2007. As
described below, on January 10, 2008, CKX distributed 100%
of its interests in FXRE to CKXs stockholders. The
following information about FXRE is provided solely as
background for the description of the historical transactions
between the Company and FXRE. The Company does not own any
interest in FXRE, has not guaranteed any obligations of FXRE,
nor is it a party to any continuing material transactions with
FXRE.
Simultaneous with our investment in FXRE, Elvis Presley
Enterprises, Inc. entered into a worldwide license
34
agreement with FXRE, granting FXRE the exclusive right to
utilize Elvis Presley-related intellectual property in
connection with the development, ownership and operation of
Elvis Presley-themed hotels, casinos and certain other real
estate-based projects and attractions around the world. FXRE
also entered into a worldwide license agreement with the Ali
Business, granting FXRE the right to utilize Muhammad
Ali-related intellectual property in connection with Muhammad
Ali-themed hotels and certain other real estate-based projects
and attractions.
As a result of the termination of the license agreements in
March 2009, the Company recognized $10.0 million in
licensing revenue that had previously been deferred related to
the 2007 license payment received in April 2008. Per the
Companys revenue recognition policy, revenue from multiple
element licensing arrangements is only recognized when all the
conditions of the arrangements tied to the licensing payments to
CKX are met. The termination of the license agreements resulted
in the elimination of all remaining conditions to the
arrangement and thus the revenue which had previously been
deferred was recognized.
Use of
OIBDAN
We evaluate our operating performance based on several factors,
including a financial measure of operating income (loss) before
non-cash depreciation of tangible assets and non-cash
amortization of intangible assets and non-cash compensation and
other non-cash charges, such as charges for impairment of
intangible assets (which we refer to as OIBDAN). The
Company considers OIBDAN to be an important indicator of the
operational strengths and performance of our businesses and the
critical measure the chief operating decision maker (CEO) uses
to manage and evaluate our businesses, including the ability to
provide cash flows to service debt. However, a limitation of the
use of OIBDAN as a performance measure is that it does not
reflect the periodic costs of certain capitalized tangible and
intangible assets used in generating revenue in our businesses
or stock-based compensation expense. Accordingly, OIBDAN should
be considered in addition to, not as a substitute for, operating
income (loss), net income (loss) and other measures of financial
performance reported in accordance with United States Generally
Accepted Accounting Principles (US GAAP), as OIBDAN
is not a U.S. GAAP equivalent measurement.
We have reconciled OIBDAN to operating income in the following
consolidated operating results table for the Company for the
years ended December 31, 2010 and 2009.
Consolidated
Operating Results Year Ended December 31, 2010
Compared to Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
|
(Amounts in thousands)
|
|
|
Revenue
|
|
$
|
273,724
|
|
|
$
|
328,353
|
|
|
$
|
(54,629
|
)
|
Operating expenses
|
|
|
285,491
|
|
|
|
284,176
|
|
|
|
1,315
|
|
Provision for severance and other restructuring-related costs
|
|
|
19,291
|
|
|
|
1,418
|
|
|
|
17,873
|
|
Executive separation costs
|
|
|
7,655
|
|
|
|
|
|
|
|
7,655
|
|
Operating income (loss)
|
|
|
(11,767
|
)
|
|
|
44,177
|
|
|
|
(55,944
|
)
|
Income tax expense (benefit)
|
|
|
(1,043
|
)
|
|
|
15,358
|
|
|
|
(16,401
|
)
|
Net income (loss) attributable to CKX, Inc.
|
|
|
(15,716
|
)
|
|
|
22,762
|
|
|
|
(38,478
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(11,767
|
)
|
|
$
|
44,177
|
|
|
$
|
(55,944
|
)
|
Impairment charges
|
|
|
24,637
|
|
|
|
2,526
|
|
|
|
22,111
|
|
Depreciation and amortization
|
|
|
18,687
|
|
|
|
19,241
|
|
|
|
(554
|
)
|
Non-cash provision for severance and other restructuring-related
costs and executive separation costs
|
|
|
1,849
|
|
|
|
|
|
|
|
1,849
|
|
Non-cash compensation
|
|
|
1,578
|
|
|
|
1,563
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$
|
34,984
|
|
|
$
|
67,507
|
|
|
$
|
(32,523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
The decline in revenue of $54.6 million in 2010 was driven
primarily by a decrease of $50.3 million at
19 Entertainment, which had higher revenue in 2009 from a
second broadcast series of So You Think You Can Dance,
and a non-recurring television program, Superstars of Dance,
which was partially offset by higher American Idol
revenue in 2010. Revenue decreased at the Presley Business
primarily due to the recognition of $9.0 million of revenue
related to the terminated FXRE license agreement in 2009, which
was partially offset by increased royalty and licensing revenue,
including revenue from Viva ELVIS. Operating costs in
2010 included non-cash impairment charges of $24.6 million,
severance and other restructuring-related costs at 19
Entertainment of $19.3 million, executive separation costs
of $7.7 million and costs at 19 Entertainment associated
with Ryan Seacrests services and Simon Fullers
services. These operating costs were offset by a decrease in
costs related to So You Think You Can Dance.
19
Entertainment
The revenue decrease of $50.3 million in 2010 is due
primarily to Superstars of Dance, a non-recurring
television program which had a limited run in 2009, and the
additional broadcast season of So You Think You Can Dance
in 2009. Cost of sales declined $29.7 million in 2010
as the decline in broadcast hours for So You Think You Can
Dance, the costs for Superstars of Dance and lower
selling, general and administrative expenses were partially
offset by $15.0 million of costs arising from Ryan
Seacrests services agreement and the Simon Fuller
consulting fee of $9.1 million. Overall weakness in the
concert industry in 2010 resulted in fewer tour dates for the
American Idol and So You Think You Can Dance tours.
The following tables provide a breakdown of 19
Entertainments revenue, cost of sales, selling, general
and administrative expenses and other costs, OIBDAN and
operating income for the years ended December 31, 2010 and
2009 (amounts reflected for 2009 have been recast to conform to
the 2010 presentation):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
Revenue
|
|
|
Cost of Sales
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
|
|
|
|
American Idol (including television production, foreign
syndication, sponsorship, merchandise and touring)
|
|
$
|
91,092
|
|
|
$
|
(32,483
|
)
|
|
$
|
58,609
|
|
Other IDOLS television programs (including license fees
and sponsorship)
|
|
|
15,069
|
|
|
|
(1,810
|
)
|
|
|
13,259
|
|
So You Think You Can Dance
|
|
|
61,475
|
|
|
|
(50,729
|
)
|
|
|
10,746
|
|
Music and artist management
|
|
|
32,677
|
|
|
|
(16,866
|
)
|
|
|
15,811
|
|
Other television productions
|
|
|
1,012
|
|
|
|
(2,699
|
)
|
|
|
(1,687
|
)
|
Businesses divested or shut down
|
|
|
11,877
|
|
|
|
(17,562
|
)
|
|
|
(5,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
213,202
|
|
|
$
|
(122,149
|
)
|
|
$
|
91,053
|
|
Selling, general and administrative expenses, excluding non-cash
compensation
|
|
|
|
|
|
|
|
|
|
|
(28,659
|
)
|
Provision for severance and other restructuring-related costs
(excluding non-cash compensation for accelerated vesting)
|
|
|
|
|
|
|
|
|
|
|
(18,739
|
)
|
Other expense
|
|
|
|
|
|
|
|
|
|
|
(1,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
|
|
|
|
|
|
|
|
$
|
42,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
|
|
|
|
|
|
|
|
$
|
42,429
|
|
Impairment charges
|
|
|
|
|
|
|
|
|
|
|
(4,389
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
(13,685
|
)
|
Non-cash provision for severance and other restructuring-related
costs
|
|
|
|
|
|
|
|
|
|
|
(552
|
)
|
Non-cash compensation
|
|
|
|
|
|
|
|
|
|
|
(388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
|
|
|
|
$
|
23,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
Revenue
|
|
|
Cost of Sales
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
|
|
|
|
American Idol (including television production, foreign
syndication, sponsorship, merchandise and touring)
|
|
$
|
79,185
|
|
|
$
|
(18,548
|
)
|
|
$
|
60,637
|
|
Other IDOLS television programs (including license fees
and sponsorship)
|
|
|
13,461
|
|
|
|
(445
|
)
|
|
|
13,016
|
|
So You Think You Can Dance
|
|
|
108,381
|
|
|
|
(86,724
|
)
|
|
|
21,657
|
|
Music and artist management
|
|
|
33,846
|
|
|
|
(13,342
|
)
|
|
|
20,504
|
|
Other television productions
|
|
|
15,577
|
|
|
|
(14,505
|
)
|
|
|
1,072
|
|
Businesses divested or shut down
|
|
|
13,073
|
|
|
|
(18,274
|
)
|
|
|
(5,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
263,523
|
|
|
$
|
(151,838
|
)
|
|
$
|
111,685
|
|
Selling, general and administrative expenses, excluding non-cash
compensation
|
|
|
|
|
|
|
|
|
|
|
(44,318
|
)
|
Other operating expense
|
|
|
|
|
|
|
|
|
|
|
(4,079
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
|
|
|
|
|
|
|
|
$
|
63,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
|
|
|
|
|
|
|
|
$
|
63,288
|
|
Impairment charge
|
|
|
|
|
|
|
|
|
|
|
(2,526
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
(13,792
|
)
|
Non-cash compensation
|
|
|
|
|
|
|
|
|
|
|
(514
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
|
|
|
|
$
|
46,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Idol 9 aired 56 series hours in the U.S. in
the year ended December 31, 2010 while American Idol 8
aired 50 series hours in the U.S. in the comparable
2009 season. American Idol revenue increased by
$11.9 million as the increase of 6.0 hours of
programming, an increase in guaranteed license fees and revenue
from compensation related to Ryan Seacrests services on
the program was partially offset by a reduction in the ratings
bonus, a reduced producer fee and reduced revenue from
sponsorship deals. Television ratings for American Idol
declined in 2010 by approximately 10%. Cost of sales for
American Idol increased $13.9 million due to
$15.0 million of costs arising from Ryan Seacrests
services agreement and Simon Fullers consulting fee,
partially offset by lower touring costs due to fewer tour dates.
Other IDOLS revenue increased $1.6 million due to
increased television and ancillary revenue. Cost of sales
increased due to the Simon Fuller consulting fee.
So You Think You Can Dance revenue declined
$46.9 million primarily due to fewer broadcast hours in
2010 due to the additional broadcast season in 2009 and a
Canadian tour in 2009 which was partially offset by an increase
in foreign tapes sales. Cost of sales declined
$36.0 million due to the fewer broadcast hours and the
prior year tour costs, which were partially offset by the 2010
Simon Fuller consulting fee.
Other television productions revenue decreased
$14.6 million in 2010. $10.2 million of this decrease
represents Superstars of Dance, a limited run program
which aired 9.0 series hours on the NBC network in January 2009.
Revenue in 2009 also included a Carrie Underwood Christmas
special. Cost of sales declined $11.8 million due to the
prior year broadcast of Superstars of Dance.
Music and artist management revenue declined $1.2 million
from the prior year due to a decline in music downloads from the
2010 season of American Idol and reduced sales by former
American Idol contestants partly due to the cyclical
recording schedule of the artist group partially offset by an
increase in revenue at Storm. Cost of sales increased
$3.5 million due to the inclusion of Storm for a full year
and Simon Fullers consulting fee, offset by reduced
royalties paid to artists.
37
Selling, general and administrative expenses declined
$15.7 million from the prior year as a result of savings
from restructuring initiatives. Other expense of
$1.2 million and $4.1 million for the years ended
December 31, 2010 and 2009, respectively, represent foreign
exchange losses generated at 19 Entertainment. In 2010, due to
the change in 19 Entertainments functional currency from
U.K. pound to U.S. dollar, the loss results from
transactions in currencies other than U.S. dollars,
primarily U.K. pounds. In 2009, the loss resulted from
transactions recorded in currencies other than the U.K. pound
functional currency, primarily the U.S. dollar.
Severance and other restructuring-related costs recorded by 19
Entertainment were $19.3 million in 2010, including
$0.6 million of non-cash compensation for accelerated
vesting.
19 Entertainment recorded an impairment charge of
$2.2 million in 2010 to fully reduce the carrying amount of
goodwill of one of its subsidiaries as the Company has closed
the business and an impairment charge of $2.2 million to
reduce the goodwill of MBST as a result of the Companys
annual impairment assessment. In 2009, 19 Entertainment recorded
an impairment charge of $2.5 million to reduce the carrying
amount of goodwill of Storm.
Presley
Business Royalties and Licensing
The following table provides a breakdown of Presley
Business Royalties and Licensing revenue, cost of
sales, selling, general and administrative expenses and OIBDAN
for the years ended December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
|
(Amounts in thousands)
|
|
|
Revenue
|
|
$
|
21,312
|
|
|
$
|
24,473
|
|
|
$
|
(3,161
|
)
|
Cost of sales
|
|
|
(3,844
|
)
|
|
|
(764
|
)
|
|
|
(3,080
|
)
|
Selling, general and administrative expense, excluding non-cash
compensation
|
|
|
(5,207
|
)
|
|
|
(4,314
|
)
|
|
|
(893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$
|
12,261
|
|
|
$
|
19,395
|
|
|
$
|
(7,134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$
|
12,261
|
|
|
$
|
19,395
|
|
|
$
|
(7,134
|
)
|
Depreciation and amortization
|
|
|
(2,569
|
)
|
|
|
(2,582
|
)
|
|
|
13
|
|
Non-cash compensation
|
|
|
(52
|
)
|
|
|
(42
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
9,640
|
|
|
$
|
16,771
|
|
|
$
|
(7,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in royalties and licensing revenue of
$3.2 million for the year ended December 31, 2010 was
primarily due to the recognition of $9.0 million of revenue
in 2009 related to the terminated FXRE license agreement. The
decrease was partially offset by $6.4 million of revenue
related to the Viva ELVIS Cirque du Soleil show in Las
Vegas. Royalties and licensing cost of sales increased
$3.1 million primarily due to $3.6 million of third
party royalties for the Viva ELVIS show offset by lower
production costs for current year projects and lower DVD box set
sales in 2010. Selling, general and administrative expenses
increased by $0.9 million in 2010 primarily due to higher
legal and professional fees.
38
Presley
Business Graceland Operations
The following table provides a breakdown of the Presley
Business Graceland Operations revenue, cost of
sales, selling, general and administrative expenses and OIBDAN
for the years ended December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
|
(Amounts in thousands)
|
|
|
Revenue
|
|
$
|
35,992
|
|
|
$
|
36,124
|
|
|
$
|
(132
|
)
|
Cost of sales
|
|
|
(5,557
|
)
|
|
|
(5,267
|
)
|
|
|
(290
|
)
|
Selling, general and administrative expense, excluding non-cash
compensation
|
|
|
(24,715
|
)
|
|
|
(23,495
|
)
|
|
|
(1,220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$
|
5,720
|
|
|
$
|
7,362
|
|
|
$
|
(1,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$
|
5,720
|
|
|
$
|
7,362
|
|
|
$
|
(1,642
|
)
|
Impairment charge
|
|
|
(2,639
|
)
|
|
|
|
|
|
|
(2,639
|
)
|
Depreciation and amortization
|
|
|
(2,402
|
)
|
|
|
(2,369
|
)
|
|
|
(33
|
)
|
Non-cash compensation
|
|
|
(89
|
)
|
|
|
(97
|
)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
590
|
|
|
$
|
4,896
|
|
|
$
|
(4,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in Graceland Operations revenue of
$0.1 million for the year ended December 31, 2010 was
primarily due to decreases in tour and exhibit revenue and
ancillary revenue offset by favorable results from retail
operations. Tour and exhibit revenue of $14.5 million for
the year ended December 31, 2010 decreased
$0.2 million over the prior year. This decrease resulted
from a 4.4% decrease in attendance to 518,940 in 2010 from
542,728 in 2009 partially offset by a 2.9% increase in per
visitor spending. Lower tourist traffic in Memphis, partly due
to the oil spill in the Gulf of Mexico, affected attendance in
2010. Retail operations revenue of $14.3 million for the
year ended December 31, 2010 increased $0.9 million
compared to the prior year, due primarily to merchandise sales
from an Elvis the Concert series of performances in Europe and
higher Graceland sales. Other revenue, primarily hotel room
revenue and ancillary real estate income, of $7.2 million
for year ended December 31, 2010 was down $0.8 million
compared to the prior year. The decline was primarily due to
lower rental income from ancillary real estate as a result of a
former rental property being prepared for an alternative use in
the future and lower rates and occupancy at the Heartbreak Hotel.
Graceland Operations cost of sales increased by
$0.3 million for the year ended December 31, 2010
compared to the prior year primarily due to costs for
merchandise for the Elvis the Concert series.
Graceland Operations selling, general and administrative
expenses increased $1.2 million for the year ended
December 31, 2010 due to an increase in professional and
legal fees of $1.6 million primarily related to a master
plan initiative in 2010 that has been postponed and a
$0.5 million provision for the estimated losses due to the
early termination of a sublease of a property leased by the
Presley Business in downtown Memphis, offset by the write-off of
$0.9 million of deferred costs related to preliminary
design work for the Graceland redevelopment initiative in 2009
and lower real estate taxes and other Graceland operating
expenses in 2010. Graceland Operations recognized a non-cash
impairment of $2.6 million to reduce the carrying amount of
buildings for a former rental property owned by the Presley
Business which is currently being prepared for an alternative
use in the future.
Ali
Business
The Ali Business contributed $3.2 million and
$4.2 million of revenue in the years ended
December 31, 2010 and 2009, respectively. The decrease in
revenue was primarily due to the recognition of
$1.0 million of revenue in 2009 related to the terminated
FXRE licensing agreement. An increase in licensing fees in 2010
over the prior year period was offset by lower revenue related
to memorabilia signings by Muhammad Ali in 2010. Operating
expenses increased to $19.1 million for the year ended
December 31, 2010 from $3.2 million in the prior year
period. Operating expenses in 2010 include a non-cash impairment
charge of $17.6 million to reduce the carrying amount of
trademarks and goodwill. Excluding the impairment charge,
operating expenses decreased $1.7 million in 2010
39
primarily due to severance costs of $1.4 million incurred
in early 2009 due to the restructuring of the business and
reduced commissions of $0.3 million in the current period.
OIBDAN increased to $1.7 million from $1.1 million in
the prior year period.
Corporate
and Other
Corporate
Expenses and Other Costs
The Company incurred corporate overhead expenses of
$20.1 million and $21.2 million for the years ended
December 31, 2010 and 2009, respectively. The decrease of
$1.1 million primarily reflects lower employee compensation
costs and development expenses of $1.0 million in 2010 and
payroll-related taxes of $0.8 million incurred due to the
redemption of redeemable restricted common stock in 2009, offset
by increases in consulting costs and office-related costs and a
provision to reflect the amendment of a loan to fair market
value in 2010.
During the year ended December 31, 2010, the Company
incurred $7.7 million of executive separation costs
primarily related to the separation from the Company of Robert
F.X. Sillerman, the Companys former Chairman and Chief
Executive Officer.
During the year ended December 31, 2010, the Company
incurred $1.7 million of third party advisory fees related
to evaluating potential offers to buy the Company. During the
year ended December 31, 2009, the Company incurred costs
related to the terminated merger agreement of $0.7 million,
due to the settlement of stockholder litigation.
During the year ended December 31, 2009, the Company
incurred $2.6 million of acquisition-related costs,
consisting of third party due diligence costs for potential
acquisitions that were under evaluation and costs for the
acquisition of the 51% interest in Storm.
Impairment
Charges
The Company performed its annual impairment assessment of the
carrying values of long-lived assets, including intangible
assets and goodwill, as of October 1, 2010 in accordance
with the methods outlined below in Application of Critical
Accounting Policies. As a result the Company recorded
non-cash impairment charges of $19.8 million
($13.8 million, net of tax) to reduce the carrying amount
of the Ali Business trademark by $16.5 million, the Ali
Business goodwill by $1.1 million and MBST goodwill by
$2.2 million. These impairment charges recognized in the
fourth quarter of 2010 were triggered by the 2011 budget process
performed in the fourth quarter of 2010 which highlighted the
likelihood that these businesses performance will not
perform to prior expectations. Additionally, the Company
recorded a non-cash impairment charge of $2.2 million in
the year ended December 31, 2010 at 19 Entertainment to
fully reduce the carrying amount of goodwill of one of its
subsidiaries that the Company closed during the year.
In the year ended December 31, 2010, the Company recognized
a non-cash impairment of $2.6 million at the Graceland
Operations segment of the Presley Business to reduce the
carrying amount of buildings as the Company has ceased
operations of a rental property that is currently being prepared
for an alternative future use.
Based on the annual impairment test performed on October 1,
2009, no impairment charges were recorded as the carrying value
of all of the Companys long-lived assets did not exceed
estimated future cash flows. The Company recorded a non-cash
impairment charge of $2.5 million in 2009 to reduce the
carrying amount of the assets of Storm as a result of Simon
Fullers resignation from the Company in January 2010 and
his resulting reduced role in the oversight, management and
direction of the business.
Interest
Income/Expense, net
The Company had interest expense of $2.7 million and
$3.3 million in the years ended December 31, 2010 and
2009, respectively. The decrease in interest expense is
primarily due to a reduction in the average borrowing rate on
the Companys credit facility from 2.31% in the year ended
December 31, 2009 to 1.85% in the year ended
December 31, 2010. The Company had interest income of
$0.2 million and $0.3 million in the years ended
December 31, 2010 and 2009, respectively.
40
Income
Taxes
For the year ended December 31, 2010, the Company recorded
a benefit for income taxes of $1.0 million. The benefit
reflects an effective tax rate of 7.3%. The tax benefit is
comprised of a federal income tax benefit of $6.5 million
and a foreign income tax expense (primarily relating to the
United Kingdom) of $5.5 million. The effective tax rate
differs from the statutory rate primarily due to: a portion of
impairment charges which are not deductible; the sale of assets
to XIX Management which had no tax basis; and foreign taxes paid
relating to the IDOLS and So You Think You Can
Dance intellectual property, offset in part by the use of
foreign tax credits and income taxed directly to noncontrolling
owners.
For the year ended December 31, 2009, the Company recorded
a provision for income taxes of $15.4 million. The
provision reflects an effective tax rate of 37.3%. The tax
provision is comprised of a federal income tax expense of
$7.0 million, a state and local income tax expense of
$2.1 million and a foreign income tax expense
(predominantly relating to the United Kingdom) of
$6.3 million. The effective rate is higher than the federal
statutory rate of 35% primarily due to: state and local taxes;
the impairment charge related to Storm and other permanent
items, offset in part by transaction costs; income taxed
directly to noncontrolling owners; and a net benefit from the
Companys foreign activity.
Despite the 19 Entertainment restructuring and shutdown of U.K.
operations, the Company expects to continue to be a U.K.
taxpayer due to the IDOLS and So You Think You Can
Dance intellectual property which was developed and
continues to be owned by certain of our foreign subsidiaries in
the U.K.
The Companys uncertain tax positions relate primarily to
state, local and foreign tax issues, as well as accounting
method issues. The Companys uncertain tax positions,
including interest and penalties, are reflected in net income
taxes payable. The Company does not expect any reasonably
possible material changes to the estimated amount of liability
associated with its uncertain tax positions through
December 31, 2011. If all the uncertain tax positions were
settled favorably with the taxing authorities, there would be a
27.6% adjustment to the effective tax rate.
The Company generally recognizes accrued interest and penalties
related to uncertain tax positions through income tax expense.
As of December 31, 2010, the Company had approximately
$1.2 million accrued for interest and penalties. For the
year ended December 31, 2010, the Company accrued interest
and penalties of approximately $0.7 million.
Open tax years related to federal, state and local filings are
for the years ended December 31, 2007 through 2010. The
Internal Revenue Service is in the process of auditing the
Companys tax year ended December 31, 2007. France is
in the process of auditing the business activities of 19
Entertainment for the years ending December 31, 2003
through December 31, 2008. The United Kingdoms
Revenue & Customs (HMRC) is in the process
of reviewing the 19 Entertainment Ltd. UK groups tax year
ended December 31, 2008.
Equity
in Earnings of Affiliates
The Company recorded $0.7 million and $0.6 million of
earnings in unconsolidated affiliates for the years ended
December 31, 2010 and 2009, respectively. The equity in
earnings of affiliates in 2010 is due primarily to the earnings
of Beckham Brands Limited prior to divestiture.
The earnings from the Viva ELVIS investment of
$0.1 million reflect weaker than expected ticket sales.
Ticket sales improved somewhat in the second half of 2010 as
marketing programs for the show were improved somewhat and hotel
occupancy rates rose as CityCenter fully ramped up its
operations.
Noncontrolling
Interests
Net income attributable to noncontrolling interests was
$1.4 million and $1.8 million for the years ended
December 31, 2010 and 2009, respectively. Both periods
reflect shares in the net income of the Presley Business, the
Ali Business and Storm related to the equity interests retained
by the former owners.
41
Consolidated
Operating Results Year Ended December 31, 2009
Compared to Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Variance
|
|
|
|
(Amounts in thousands)
|
|
|
Revenue
|
|
$
|
328,353
|
|
|
$
|
288,128
|
|
|
$
|
40,225
|
|
Operating expenses
|
|
|
284,176
|
|
|
|
251,188
|
|
|
|
32,988
|
|
Other operating income (expense)
|
|
|
(4,079
|
)
|
|
|
15,910
|
|
|
|
(19,989
|
)
|
Operating income
|
|
|
44,177
|
|
|
|
36,940
|
|
|
|
7,237
|
|
Income tax expense
|
|
|
15,358
|
|
|
|
14,430
|
|
|
|
928
|
|
Net income attributable to CKX, Inc.
|
|
|
22,762
|
|
|
|
17,127
|
|
|
|
5,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
44,177
|
|
|
$
|
36,940
|
|
|
$
|
7,237
|
|
Impairment charges
|
|
|
2,526
|
|
|
|
35,661
|
|
|
|
(33,135
|
)
|
Depreciation and amortization
|
|
|
19,241
|
|
|
|
21,161
|
|
|
|
(1,920
|
)
|
Non-cash compensation
|
|
|
1,563
|
|
|
|
2,954
|
|
|
|
(1,391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$
|
67,507
|
|
|
$
|
96,716
|
|
|
$
|
(29,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue growth of $40.2 million in 2009 was driven
primarily by 19 Entertainment, which had higher television
production revenue due to an increase in the broadcast hours for
So You Think You Can Dance, and higher revenue for the
Presley Business. Higher operating expenses of
$33.0 million were driven by the additional broadcast hours
of So You Think You Can Dance and merger and
distribution-related costs of $0.7 million in 2009 whereas
2008 had merger and distribution related recoveries of
$5.8 million, offset by higher non-cash impairment charges
in 2008. Excluding the impairment charges and merger and
distribution-related gains and losses, operating expenses
increased $59.7 million as higher expenses at 19
Entertainment to support revenue growth, new projects and the
increased broadcast hours for So You Think You Can Dance
and higher corporate expenses were partially offset by
decreased expenses at the Presley Business. Other operating
expense of $4.1 million in 2009 reflects foreign exchange
losses resulting from a weakening of the U.S. dollar
compared to the U.K. pound as 19 Entertainment has significant
U.S. dollar denominated revenue. Other operating income of
$15.9 million in the 2008 period reflects foreign exchange
gains.
19
Entertainment
Revenue for 19 Entertainment was $263.5 million in 2009, an
increase of $34.3 million over the prior year. Operating
expenses for 19 Entertainment, including amortization expense of
intangible assets of $11.7 million and excluding other
operating expense of $4.1 million and the Storm impairment
charge of $2.5 million were $210.5 million, an
increase of $40.0 million over the prior period.
42
The following tables provide a breakdown of 19
Entertainments revenue, cost of sales, selling, general
and administrative expenses and other costs, OIBDAN and
operating income for the years ended December 31, 2009 and
2008 (amounts reflected for 2009 and 2008 have been recast to
conform to the 2010 presentation):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
Revenue
|
|
|
Cost of Sales
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
|
|
|
|
American Idol (including television production, foreign
syndication, sponsorship, merchandise and touring)
|
|
$
|
79,185
|
|
|
$
|
(18,548
|
)
|
|
$
|
60,637
|
|
Other IDOLS television programs (including license fees
and sponsorship)
|
|
|
13,461
|
|
|
|
(445
|
)
|
|
|
13,016
|
|
So You Think You Can Dance
|
|
|
108,381
|
|
|
|
(86,724
|
)
|
|
|
21,657
|
|
Music and artist management
|
|
|
33,846
|
|
|
|
(13,342
|
)
|
|
|
20,504
|
|
Other television productions
|
|
|
15,577
|
|
|
|
(14,505
|
)
|
|
|
1,072
|
|
Businesses divested or shut down
|
|
|
13,073
|
|
|
|
(18,274
|
)
|
|
|
(5,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
263,523
|
|
|
$
|
(151,838
|
)
|
|
$
|
111,685
|
|
Selling, general and administrative expenses, excluding non-cash
compensation
|
|
|
|
|
|
|
|
|
|
|
(44,318
|
)
|
Other operating expense
|
|
|
|
|
|
|
|
|
|
|
(4,079
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
|
|
|
|
|
|
|
|
$
|
63,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
|
|
|
|
|
|
|
|
$
|
63,288
|
|
Impairment charge on Storm
|
|
|
|
|
|
|
|
|
|
|
(2,526
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
(13,792
|
)
|
Non-cash compensation
|
|
|
|
|
|
|
|
|
|
|
(514
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
|
|
|
|
$
|
46,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
Revenue
|
|
|
Cost of Sales
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
|
|
|
|
American Idol (including television production, foreign
syndication, sponsorship, merchandise and touring)
|
|
$
|
96,028
|
|
|
$
|
(22,455
|
)
|
|
$
|
73,573
|
|
Other IDOLS television programs (including license fees
and sponsorship)
|
|
|
15,349
|
|
|
|
(482
|
)
|
|
|
14,867
|
|
So You Think You Can Dance
|
|
|
59,802
|
|
|
|
(47,015
|
)
|
|
|
12,787
|
|
Music and artist management
|
|
|
36,295
|
|
|
|
(15,351
|
)
|
|
|
20,944
|
|
Other television productions
|
|
|
|
|
|
|
|
|
|
|
|
|
Businesses divested or shut down
|
|
|
21,727
|
|
|
|
(22,647
|
)
|
|
|
(920
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
229,201
|
|
|
$
|
(107,950
|
)
|
|
$
|
121,251
|
|
Selling, general and administrative expenses, excluding non-cash
compensation
|
|
|
|
|
|
|
|
|
|
|
(44,362
|
)
|
Other operating income
|
|
|
|
|
|
|
|
|
|
|
15,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
|
|
|
|
|
|
|
|
$
|
92,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
|
|
|
|
|
|
|
|
$
|
92,799
|
|
Impairment charge on MBST
|
|
|
|
|
|
|
|
|
|
|
(7,922
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
(16,165
|
)
|
Non-cash compensation
|
|
|
|
|
|
|
|
|
|
|
(2,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
|
|
|
|
$
|
66,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
American Idol 8 aired 50 series hours in the U.S. in
2009 while American Idol 7 aired 52.5 series hours in the
U.S. in the comparable 2008 season. American Idol
revenue declined by $16.8 million due to the decrease
of 2.5 hours of programming, reduced revenue from foreign
syndication and reduced on-air and off-air sponsorship deals,
partially offset by an increase in guaranteed license fees. The
decline in foreign syndication revenue reflects the renewal of
an agreement under less favorable terms to broadcast American
Idol in the U.K. and the impact of foreign exchange. The
decline in sponsorship revenue reflects the unfavorable impact
of the global recession. Television ratings for American Idol
declined in 2009 by approximately 10%, reflecting an overall
decline in network television viewing. Cost of sales declined
$3.9 million due to reduced tour costs and commissions on
sponsorship deals.
Other IDOLS revenue declined $1.9 million due
primarily to reduced sponsorship and television revenue in
international markets.
Revenue from So You Think You Can Dance increased
$48.6 million in 2009 as compared to 2008.
$43.9 million of the increase was due to 33 hours of
an additional broadcast series in the fall season from September
to December 2009, which did not take place in 2008 and will not
recur in 2010. The summer season that concluded in August 2009
broadcast 37 hours, the same as in 2008. The So You
Think You Can Dance tour contributed $3.9 million of
the revenue increase due to the introduction of a Canadian tour
in 2009, which partially offset fewer U.S. tour dates in
2009. Commercial revenue increased $0.7 million due to an
additional sponsor and higher tour merchandise sales.
Other television revenue was $15.6 million in 2009,
primarily representing revenue of $10.2 million from
Superstars of Dance, a special series aired on NBC in the
first quarter of 2009, and a Carrie Underwood Christmas special.
Cost of sales was $14.5 million related to the production
costs for Superstars of Dance and the Carrie Underwood
Christmas special.
Music and artist management revenue declined $2.5 million
due to lower record sales, reduced touring schedules in 2009 for
several artists as they worked on new album releases and reduced
management fees at MBST, offset by revenue from Storm. Cost of
sales declined $2.0 million as lower music royalties and
expenses were partially offset by prior year artist tour costs.
Revenue from businesses divested and shut down in 2010, declined
$8.7 million primarily due to management fees from the
Spice Girls reunion tour and non-recurring projects in 2008.
Cost of sales declined $4.4 million primarily due to
non-recurring projects in 2008.
Selling, general and administrative expenses were flat with the
prior year due primarily to more costs being allocated to
specific projects offsetting the unfavorable foreign exchange
impact on U.K. pound denominated costs and increased
compensation costs. Other operating expense of $4.1 million
in 2009 and other operating income of $15.9 million in 2008
represents foreign exchange gains and losses generated at 19
Entertainment for transactions recorded in currencies other than
the U.K. pound functional currency. The 2009 expense was due to
strengthening of the U.K. pound compared to the U.S. dollar
while the 2008 gain was due to the weakening of the U.K. pound
compared to the U.S. dollar.
44
Presley
Business Royalties and Licensing
The following table provides a breakdown of Presley
Business Royalties and Licensing revenue, cost of
sales, selling, general and administrative expenses and OIBDAN
for the years ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Variance
|
|
|
|
(Amounts in thousands)
|
|
|
Revenue
|
|
$
|
24,473
|
|
|
$
|
18,186
|
|
|
$
|
6,287
|
|
Cost of sales
|
|
|
(764
|
)
|
|
|
(2,364
|
)
|
|
|
1,600
|
|
Selling, general and administrative expense, excluding non-cash
compensation
|
|
|
(4,314
|
)
|
|
|
(5,330
|
)
|
|
|
1,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$
|
19,395
|
|
|
$
|
10,492
|
|
|
$
|
8,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$
|
19,395
|
|
|
$
|
10,492
|
|
|
$
|
8,903
|
|
Depreciation and amortization
|
|
|
(2,582
|
)
|
|
|
(2,582
|
)
|
|
|
|
|
Non-cash compensation
|
|
|
(42
|
)
|
|
|
(39
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
16,771
|
|
|
$
|
7,871
|
|
|
$
|
8,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in royalties and licensing revenue of
$6.3 million for the year ended December 31, 2009 was
due to the recognition of $9.0 million of revenue, which
had previously been deferred, related to the terminated FXRE
license agreement and increased record royalties of
$1.8 million, principally due to a settlement with Sony
Music on historical audits and higher digital royalties. The
increase was offset by 2008 revenue from the distribution of
Elvis Viva DVD documentary of $1.8 million, lower
merchandise licensing royalties of $1.3 million in the
current period due to the unfavorable impact of the global
recession and the strong carryover effect in 2008 from the prior
anniversary year and by lower sales in the current period of a
limited edition collectible DVD box set of Elvis Presley movies
launched in 2007 of $1.1 million. Other royalties decreased
by a net $0.3 million for the year ended December 31,
2009 with higher revenue from the sales of television and video
rights offsetting lower publishing and film royalties. Royalties
and licensing cost of sales decreased $1.6 million due to
lower cost of production and commissions of $1.1 million
related to the distribution of the 2008 Elvis Viva DVD and lower
cost of sales of the DVD box set. Selling, general and
administrative expenses decreased by $1.0 million in the
current period primarily due to lower advertising and marketing
costs for the DVD box set of $0.4 million,
$0.3 million of lower costs related to the Elvis Viva DVD
and lower legal expenses.
Presley
Business Graceland Operations
The following table provides a breakdown of the Presley
Business Graceland Operations revenue, cost of
sales, selling, general and administrative expenses and OIBDAN
for the years ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Variance
|
|
|
|
(Amounts in thousands)
|
|
|
Revenue
|
|
$
|
36,124
|
|
|
$
|
36,713
|
|
|
$
|
(589
|
)
|
Cost of sales
|
|
|
(5,267
|
)
|
|
|
(5,674
|
)
|
|
|
407
|
|
Selling, general and administrative expense, excluding non-cash
compensation
|
|
|
(23,495
|
)
|
|
|
(24,835
|
)
|
|
|
1,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$
|
7,362
|
|
|
$
|
6,204
|
|
|
$
|
1,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$
|
7,362
|
|
|
$
|
6,204
|
|
|
$
|
1,158
|
|
Depreciation and amortization
|
|
|
(2,369
|
)
|
|
|
(2,251
|
)
|
|
|
(118
|
)
|
Non-cash compensation
|
|
|
(97
|
)
|
|
|
(79
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
4,896
|
|
|
$
|
3,874
|
|
|
$
|
1,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
Graceland Operations revenue decreased $0.6 million for the
year ended December 31, 2009 compared to 2008 due to lower
ancillary revenue, which was partially offset by favorable
results from tours and exhibits. Tour and exhibit revenue of
$14.7 million for the year ended December 31, 2009
increased $0.5 million over the prior year. This increase
resulted from a 2.4% increase in visitor spending and a 1.2%
increase in attendance to 542,728 in 2009 from 536,196 in 2008.
Retail operations revenue of $13.4 million for the year
ended December 31, 2009 decreased $0.4 million
compared to the prior year due to lower
e-commerce
revenue and a slight decrease in per-visitor spending offset by
the increase in attendance. Other revenue, primarily hotel room
revenue and ancillary real estate income of $8.0 million
for the year ended December 31, 2009, was down
$0.7 million compared to the prior year. The decline was
due to 13% lower hotel occupancy resulting from fewer foreign
travelers, and the loss of rental income from ancillary real
estate primarily due to the closure of one property.
Graceland Operations cost of sales decreased by
$0.4 million for the year ended December 31, 2009
compared to the prior year due to cost improvements in
merchandise.
Graceland Operations selling, general and administrative
expenses decreased $1.3 million for the year ended
December 31, 2009 primarily due to a $1.1 million
provision recorded in 2008 for estimated losses due to the early
termination of the sublease of a property leased by the Presley
Business in downtown Memphis, decreases in salaries and benefits
of $0.2 million, professional and legal costs primarily
related to master plan initiatives of $0.5 million and
insurance of $0.1 million and other operating expense
declines, including lower costs related to special events of
$0.1 million. These declines were offset by the write-off
of $0.9 million of deferred costs related to preliminary
design work for the Graceland redevelopment initiative. The
Company has determined that there is a strong likelihood that
the original preliminary design plans may require significant
modifications or abandonment for a redesign due to current
economic conditions and a lack of certainty as to exact scope,
cost, financing plan and timing of this project. The lack of
certainty and likely need for significant modifications
and/or
redesign was amplified by the termination of the FXRE license
agreement, which had granted FXRE the rights to the development
of one or more hotel(s) at Graceland as a component of the
redevelopment initiative. Therefore, the Company determined that
these cost should be written off in March 2009. The Company
remains committed to the Graceland re-development and will
continue to pursue opportunities on its own or with third
parties.
Ali
Business
The Ali Business contributed $4.2 million and
$4.0 million of revenue in the years ended
December 31, 2009 and 2008, respectively. Revenue increased
by $0.2 million primarily due to the recognition of
$1.0 million of revenue related to the terminated FXRE
licensing agreement which had previously been deferred and an
increase in licensing fees offset by a decline in revenue from
fewer memorabilia signings by Muhammad Ali in 2009 compared to
the prior year period. Operating expenses decreased to
$3.2 million for the year ended December 31, 2009 from
$30.8 million in the prior year period. Operating expenses
in 2008 include a non-cash impairment charge of
$27.7 million to reduce the carrying amount of trademarks
by $24.4 million and goodwill by $3.4 million.
Excluding the impairment charge, operating expenses increased
$0.1 million primarily due to severance costs of
$1.4 million due to the restructuring of the business in
early 2009 offset by lower personnel costs as a result of the
restructuring and by reduced commissions of $0.7 million.
OIBDAN increased to $1.1 million from $1.0 million in
the prior year period.
Corporate
and Other
Corporate
Expenses and Other Costs
The Company incurred corporate overhead expenses of
$21.2 million and $18.1 million for the years ended
December 31, 2009 and 2008, respectively. The increase of
$3.1 million primarily reflects development expenses of
$1.0 million, $0.8 million in payroll-related taxes
incurred due to the redemption of redeemable restricted common
stock in June 2009, a $1.4 million reduction in the
allocation of expenses to FXRE under the shared services
agreement terminated as of June 30, 2009, $0.6 million
in professional fees and a $0.7 million increase in travel
and entertainment costs offset by a $1.4 million reduction
in employee-related costs.
46
During the year ended December 31, 2009, the Company
incurred $2.6 million of acquisition-related costs,
consisting of third party due diligence costs for potential
acquisitions that were under evaluation and costs for the
acquisition of the 51% interest in Storm. During the year ended
December 31, 2008, the Company incurred $2.3 million
of acquisition-related costs, consisting of third party due
diligence costs for potential acquisitions that were under
evaluation.
During the year ended December 31, 2009, the Company
incurred costs related to the terminated merger agreement of
$0.7 million, due to the settlement of the stockholder
litigation described elsewhere herein. During the year ended
December 31, 2008, the Company recognized a gain on the
break-up fee
of the terminated merger agreement of $8.1 million
consisting of the $0.5 million fee received in cash plus
$7.6 million, the value of the 3,339,350 shares of the
Companys common stock. The Company incurred merger and
distribution-related costs of $2.3 million in 2008. These
costs primarily include the costs of the Special Committee of
the Board of Directors formed to review the Merger and other
merger-related costs, including legal and accounting costs.
Impairment
Charges
The Company performed its annual impairment assessment of the
carrying values of long-lived assets, including intangible
assets and goodwill, on October 1, 2009 in accordance with
the methods outlined in Application of Critical Accounting
Policies. As a result of this assessment, no impairment charges
were recorded as the carrying value of all of the Companys
long-lived assets do not exceed estimated future cash flows. The
Company has recorded a non-cash impairment charge of
$2.5 million as of December 31, 2009 to reduce the
carrying amount of the assets of Storm Model Management as a
result of Mr. Fullers resignation from the Company in
January 2010 and his resulting reduced role in the oversight,
management and direction of this business.
Based on the annual impairment test performed on October 1,
2008, the Company recorded non-cash impairment charges of
$35.7 million ($25.5 million, net of tax) to reduce
the carrying amount of the Ali Business trademark by
$24.4 million, the Ali Business goodwill by
$3.4 million and MBST goodwill by $7.9 million. The
impairment charges recognized in the fourth quarter of 2008 were
triggered by the 2009 budget process performed in the fourth
quarter of 2008 which highlighted the severity and duration of
the economic downturn on these businesses and the likelihood
that these businesses performance will not fully recover
to prior expectations.
Interest
Income/Expense, net
The Company had interest expense of $3.3 million and
$5.6 million in the year ended December 31, 2009 and
2008, respectively. The decrease in interest expense is
primarily due to a reduction in the average borrowing rate on
the revolving credit facility from 4.49% to 2.31%. The Company
had interest income of $0.3 million and $1.8 million
in the year ended December 31, 2009 and 2008, respectively.
Interest income in 2008 included $0.5 million in interest
income from FXRE on the 2007 license payments and the FXRE loan.
The decline in interest income also reflects the Company
shifting its U.S. cash balances to non-interest bearing
accounts in late 2008 to qualify for unlimited insurance
coverage offered under the FDIC Temporary Guarantee Program,
which was extended through December 31, 2012.
Income
Taxes
For the year ended December 31, 2009, the Company recorded
a provision for income taxes of $15.4 million. The
provision reflects an effective tax rate of 37.3%. The tax
provision is comprised of a federal income tax expense of
$7.0 million, a state and local income tax expense of
$2.1 million, and a foreign income tax expense
(predominantly relating to the United Kingdom) of
$6.3 million. The effective rate is higher than the federal
statutory rate of 35% primarily due to: state and local taxes;
the impairment charge related to Storm and other permanent
items, offset in part by transaction costs; income taxed
directly to noncontrolling owners; and a net benefit from the
Companys foreign activity.
For the year ended December 31, 2008, the Company recorded
a provision for income taxes of $14.4 million. The
provision reflects an effective tax rate of 43.6%. The tax
provision is comprised of a federal benefit of
$0.9 million, a state and local income tax expense of
$1.7 million, and a foreign income tax expense
(predominantly relating to the United Kingdom) of
$13.6 million. The effective rate is higher than the
federal statutory rate of 35%
47
primarily due to: state and local taxes; the MBST impairment
charge; and disallowed executive compensation, offset in part by
transaction costs,; recognition of a tax benefit on the
repatriation of cash from our UK subsidiary; and other permanent
items.
The decrease in the 2009 effective tax rate as compared with the
2008 effective tax rate relates primarily to lower non-recurring
adjustments, such as disallowed executive compensation and
impairment charges.
Beginning in 2009, a change in ASC 805, formerly SFAS No.
141(R), Business Combinations, impacted our the
accounting for prior acquisitions. Starting in 2009, the
reversal of existing income tax valuation allowances and tax
uncertainty accruals resulting from acquisitions must be
recorded as adjustments to income tax expense and not goodwill.
As a result of this change, a $2.1 million decrease in the
valuation allowance in 2009 was recorded to income tax expense
instead of goodwill. In 2008, a $7.3 million decrease in
the valuation allowance was recorded as an adjustment to
goodwill.
The Companys uncertain tax positions relate primarily to
state, local and foreign tax issues, as well as accounting
method issues. The Companys uncertain tax positions,
including interest and penalties, are reflected in net prepaid
income taxes. The Company does not expect any reasonably
possible material changes to the estimated amount of liability
associated with its uncertain tax positions through
December 31, 2010. If all the uncertain tax positions were
settled with the taxing authorities there would have been less
than a 6% effect on the effective tax rate.
The Company generally recognizes accrued interest and penalties
related to uncertain tax positions through income tax expense.
As of December 31, 2009, the Company had approximately
$0.6 million accrued for interest and penalties. For the
year ended December 31, 2009, the Company accrued interest
and penalties of approximately $0.1 million.
Open tax years related to federal, state and local filings are
for the years ended December 31, 2006, through 2009. The
Internal Revenue Service is in the process of auditing the
Companys tax year ended December 31, 2006. Two
foreign tax jurisdictions have commenced audits of the business
activities of 19 Entertainment Limited and Elvis Presley
Enterprises in their respective countries. New York State
completed its audit for the tax years ended July 1, 2003,
July 1, 2004 and March 17, 2005 for 19 Entertainment
Inc. which resulted in no material liability. New York
State completed its tax audit of the Companys tax years
ended December 31, 2005, 2006 and 2007 which resulted in no
material liability.
The United Kingdoms Revenue & Customs
(HMRC) has reviewed the historic 19 Entertainment
Ltd. UK group through December 2007 with the exception of a few
entities where their review deadlines have been routinely
extended into 2010. HMRC usually has 24 months from the end
of the accounting period to review and query each return.
Equity
in Earnings of Affiliates
The Company recorded $0.6 million and $2.5 million of
earnings in unconsolidated affiliates for the years ended
December 31, 2009 and 2008, respectively, primarily
reflecting the Companys investment in Beckham Brand
Limited. The decrease is due primarily to David Beckhams
services being loaned to AC Milan in 2009 which resulted in a
reduction of payments from the LA Galaxy in 2009.
Noncontrolling
Interests
Net income attributable to noncontrolling interests was
$1.8 million and $2.3 million for the years ended
December 31, 2009 and 2008, respectively, primarily reflect
shares in the net income of the Presley Business, the Ali
Business and Storm related to the equity interests retained by
the former owners.
Liquidity
and Capital Resources
Credit Facility The Company is party to a credit
agreement (the Credit Facility) with various
lenders. Loans under the Credit Facility are guaranteed by all
of the Companys wholly-owned domestic subsidiaries and
certain of its wholly-owned foreign subsidiaries. The loans are
secured by a pledge of certain assets of the Company
48
and its subsidiary guarantors, including ownership interests in
all wholly-owned domestic subsidiaries, substantially all
wholly-owned foreign subsidiaries and certain subsidiaries that
are not wholly-owned. The total availability under the Credit
Facility was reduced from $150.0 million to
$141.7 million in September 2008 due to the bankruptcy of
one of the lenders, Lehman Commercial Paper, Inc., a subsidiary
of Lehman Brothers, Inc. As of December 31, 2010, the
Company had drawn down $100.0 million on the Credit
Facility. In March 2010, we entered into an amendment to the
Credit Facility which included, among other changes, a reduction
in the maximum size of the Credit Facility to
$100.0 million. As a result of this amendment and the fact
that we have previously drawn down $100.0 million, there
are no additional borrowings available under the Credit
Facility. In addition to the reduction in the size of the
facility described above, the lenders agreed to remove a
provision which tied an event of default under the Credit
Facility to a reduction in the percentage of stock owned by
Robert F.X. Sillerman, our former Chairman and Chief Executive
Officer, below a certain level and the Company agreed to the
removal of the Incremental Facilities provision,
which had provided the Company with an option to seek additional
term loan commitments from the lenders in excess of the amount
available under the Credit Facility.
Base rate loans under the Credit Facility bear interest at a
rate equal to the greater of (i) the prime rate or
(ii) the federal funds rate, plus 50 basis points plus
margins of
50-125 basis
points depending upon the Companys ratio of debt to EBITDA
(Leverage Ratio). Eurodollar loans under the Credit
Facility bear interest at a rate determined by a formula based
on a published Telerate rate, adjusted for the reserve
requirements prescribed for eurocurrency funding by a member
bank of the Federal Reserve, plus margins of
150-225 basis
points depending upon the Companys Leverage Ratio. A
commitment fee of 0.375%-0.50% on any daily unused portion of
the Credit Facility is payable monthly in arrears. The effective
interest rate on these borrowings under the revolving credit
agreement as of December 31, 2010 was 1.79%. The Credit
Facility requires the Company and its subsidiaries to maintain
certain financial covenants, including (a) a maximum
Leverage Ratio of 4.5 to 1.0 and (b) a minimum EBITDA to
interest expense ratio. Under the terms of the Credit Facility,
EBITDA is defined as consolidated net income plus income tax
expense, interest expense, depreciation and amortization
expense, extraordinary charges and non-cash charges and minus
interest income, extraordinary gains and any other non-cash
income. The Credit Facility also contains covenants that
regulate the Companys and its subsidiaries
incurrence of debt, disposition of property, ability to fund
acquisitions and joint ventures and make capital expenditures.
The Company was in compliance with all loan covenants as of
December 31, 2010.
We are required to repay the Credit Facility in full on or
before May 24, 2011. Based on the remaining term of the
Credit Facility, the outstanding principal amount has been
classified as a current liability in the accompanying
consolidated balance sheet at December 31, 2010. We intend
to repay the $100.0 million out of a combination of cash on
hand and proceeds from a new credit facility or other debt
instrument which we expect to complete prior to the expiration
date of the Credit Facility. Management believes that entering
into a new smaller credit facility or other debt instrument
which is pre-payable at the Companys option will help
minimize the Companys overall borrowing cost while
providing flexibility in the event the Company identifies a
suitable future acquisition or other use of proceeds which may
require additional debt financing.
On March 3, 2011, the Company entered into a commitment
letter with certain of the lenders party to its existing Credit
Facility to amend and restate such facility (the Amended
Credit Facility). Upon execution, the Amended Credit
Facility will require a paydown and permanent reduction of
commitments in an aggregate principal amount of
$40.0 million, which will reduce the total outstanding
balance to $60.0 million. The Amended Credit Facility will
also extend the maturity date of the loans thereunder such that
the Company will be required to repay in full all amounts
outstanding under the Amended Credit Facility on or before
September 30, 2012. Under the terms of the Amended Credit
Facility, the Company will be required to make quarterly
principal payments of $2.0 million beginning on
June 30, 2011 and the loans will accrue interest at a
higher interest rate than the current interest rate under the
existing Credit Facility. The Amended Credit Facility will
contain financial covenants that are more restrictive than those
under the existing Credit Facility, and will contain affirmative
and negative covenants applicable to the Company and its
subsidiaries, including but not limited to restrictions on
incurrence of debt, liens, assets sales and other dispositions,
acquisitions, investments and joint ventures, payments of cash
dividends and capital expenditures. The closing of the Amended
Credit Facility is subject to certain diligence requirements of
the lenders and other conditions. Although the Company has
received a commitment letter from the respective lenders, no
assurance can be provided that the Company will be able to
consummate the transactions contemplated by the
49
Amended Credit Facility on the terms described above or
alternate terms. In the event that the Amended Credit Facility
is not consummated, the Company believes that it will be able to
repay the Credit Facility in full with cash on hand and expected
proceeds from an alternate debt financing which the Company
expects to be able to complete prior to the maturity date of the
Credit Facility. The availability and cost of any alternate debt
financing would be dependant upon a number of factors, including
current and future performance of the Company and overall
conditions in the debt markets.
Cash Flow
for the Years Ended December 31, 2010, 2009 and
2008
Operating
Activities
Net cash provided by operating activities was $49.7 million
for the year ended December 31, 2010, reflecting the net
loss of $12.5 million, including depreciation and
amortization of $18.7 million, impairment charges of
$24.6 million and normal seasonal patterns in cash
collections and payments related to American Idol and
So You Think You Can Dance.
Net cash provided by operating activities was $14.4 million
for the year ended December 31, 2009. This primarily
reflects net income of $26.4 million, including
depreciation and amortization of $19.2 million, impairment
charges of $2.5 million, payments to Ryan Seacrest of
$25.2 million, recognition of $10.0 million of revenue
from the FXRE license payments in 2009 for which the cash was
received in 2008 and normal seasonal patterns in cash
collections and payments on certain American Idol and
So You Think You Can Dance revenue and expenses as well
as non-recurring projects, such as Superstars of Dance, a
special series aired on NBC in the first quarter of 2009.
Net cash provided by operating activities was $60.2 million
for the year ended December 31, 2008, reflecting net income
of $21.2 million, which includes depreciation and
amortization expenses of $21.2 million, impairment charges
of $35.7 million and the impact of changes in working
capital levels.
Investing
Activities
Net cash used in investing activities was $2.6 million for
the year ended December 31, 2010, reflecting capital
expenditures related to the purchase of a building at Graceland
and other purchases of property and equipment totaling
$3.6 million and investments in the Cirque du Soleil
partnership of $4.9 million and proceeds received by the
Company of $1.9 million related to the sale of businesses
and assets of 19 Entertainment to XIX Management Limited and the
return of capital from the Cirque du Soleil partnership of
$4.0 million.
Net cash used in investing activities was $30.2 million for
the year ended December 31, 2009, primarily reflecting the
investment in the Cirque du Soleil partnership of
$18.4 million, the acquisition of a 51% interest in Storm
for $4.3 million, net of cash acquired, capital
expenditures of $7.1 million, including the purchase of a
fractional interest in a corporate airplane, and a loan of
$0.5 million to a noncontrolling interest shareholder that
was repaid in the first quarter of 2010.
Net cash used in investing activities was $1.5 million for
the year ended December 31, 2008, reflecting capital
expenditures related primarily to the purchase of additional
land adjacent to Graceland and other purchases of property and
equipment of $7.8 million and the repayment to the Company
of a loan to FXRE of $6.3 million.
Financing
Activities
Cash used in financing activities was $4.0 million for the
year ended December 31, 2010. The Company made
distributions of $1.7 million to noncontrolling interest
shareholders, principal payments on notes payable of
$0.5 million and dividend payments of $1.8 million to
the holder of the Series B Convertible Preferred Stock.
Cash used in financing activities was $20.2 million for the
year ended December 31, 2009. The Company made payments of
$15.0 million related to the purchase of restricted
redeemable common stock. The Company also made distributions of
$2.6 million to noncontrolling interest shareholders,
principal payments on notes payable of $0.8 million and
dividend payments of $1.8 million to the holder of the
Series B Convertible Preferred Stock.
Cash used in financing activities was $4.7 million for the
year ended December 31, 2008. The Company made
50
distributions of $1.7 million to noncontrolling interest
shareholders, principal payments on notes payable of
$1.2 million and dividend payments of $1.8 million to
the holder of the Series B Convertible Preferred Stock.
Uses
of Capital
At December 31, 2010, the Company had $100.6 million
of debt outstanding and $109.5 million in cash and cash
equivalents.
We believe that our current cash on hand together with cash flow
from operations and proceeds from a new credit facility or other
debt financing will be sufficient to fund our current
operations, including payments of interest and principal on our
debt, dividends on our Series B Convertible Preferred
Stock, mandatory minimum distributions to the non-controlling
shareholders in the Presley Business and the Ali business and
capital expenditures and the redemption of the Companys
redeemable restricted common stock.
Capital
Expenditures
We presently anticipate that our capital expenditures for 2011
will total approximately $3.0 million.
We have previously announced preliminary plans to re-develop our
Graceland attraction to include an expanded visitors center, new
attractions and merchandising shops and potentially a new
boutique convention hotel. Although we continue to consider the
exact scope, cost, financing plan and timing of such a project,
we expect that the redevelopment of Graceland, if and when
pursued, would take several years and could require a
substantial financial investment by the Company. In addition,
our ability to pursue such a project would be conditioned on a
number of factors, including but not limited to general economic
conditions, the availability of capital and obtaining necessary
approvals and concessions from local and state authorities. The
Company remains committed to the growth and vitality of the
Graceland property and its surroundings and will continue to
study the opportunity for redevelopment on its own or together
with third parties.
Dividends
Our Series B Convertible Preferred Stock requires payment
of a cash dividend of 8% per annum in quarterly installments. On
an annual basis, our total dividend payment on the Series B
Convertible Preferred Stock is $1.8 million. If we fail to
make our quarterly dividend payments to the holder(s) of the
Series B Convertible Preferred Stock on a timely basis, the
dividend rate increases to 12% and all amounts owing must be
paid within three business days in shares of Common Stock valued
at the average closing price over the previous 30 consecutive
trading days. After such payment is made, the dividend rate
returns to 8%. All such dividend payments were made on a timely
basis.
We have no intention of paying any cash dividends on our Common
Stock for the foreseeable future. In addition, the terms of our
existing credit agreement restrict the payment of cash dividends
on our Common Stock.
Commitments
and Contingencies
There are various lawsuits and claims pending against us and
which we have initiated against others. We believe that any
ultimate liability resulting from these actions or claims will
not have a material adverse effect on our results of operations,
financial condition or liquidity.
51
The Company has a number of contracts that include future cash
obligations. The scheduled maturities of the Companys
material contractual obligations as of December 31, 2010
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Debt principal
|
|
$
|
100,515
|
|
|
$
|
131
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
100,646
|
|
Interest on debt
|
|
|
751
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
758
|
|
Non-cancelable operating leases
|
|
|
3,385
|
|
|
|
3,082
|
|
|
|
2,143
|
|
|
|
1,476
|
|
|
|
267
|
|
|
|
763
|
|
|
|
11,116
|
|
Employment contracts and consulting agreements
|
|
|
16,060
|
|
|
|
12,085
|
|
|
|
3,067
|
|
|
|
1,567
|
|
|
|
83
|
|
|
|
|
|
|
|
32,862
|
|
Guaranteed minimum distributions(a)
|
|
|
1,700
|
|
|
|
1,700
|
|
|
|
1,700
|
|
|
|
1,700
|
|
|
|
1,700
|
|
|
|
|
|
|
|
8,500
|
|
19 Entertainment put right(b)
|
|
|
7,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,039
|
|
Series B convertible preferred stock dividend(c)
|
|
|
1,826
|
|
|
|
1,826
|
|
|
|
1,826
|
|
|
|
1,826
|
|
|
|
1,826
|
|
|
|
|
|
|
|
9,130
|
|
Ryan Seacrest agreement
|
|
|
6,585
|
|
|
|
6,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,170
|
|
Television development agreement
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
EPE Put Right(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MAE contingent consideration(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uncertain tax positions(f)
|
|
|
3,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
143,795
|
|
|
$
|
27,416
|
|
|
$
|
8,736
|
|
|
$
|
6,569
|
|
|
$
|
3,876
|
|
|
$
|
763
|
|
|
$
|
191,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
We are required to make guaranteed minimum distributions to the
noncontrolling interest shareholder of at least
$1.2 million annually for as long as the noncontrolling
interest shareholder continues to own 15% of the Presley
Business. We are also required to make guaranteed minimum
distributions to the noncontrolling interest shareholder of at
least $0.5 million annually for as long as the
noncontrolling interest shareholder continues to own 20% of the
Ali Business. |
|
(b) |
|
We have granted to the former holders of capital stock of 19
Entertainment the right, during a period of 20 business
days beginning March 17, 2011, to cause us to purchase up
to 0.5 million shares of common stock from them at a price
of $13.18 per share, which is reflected in the table above.
These shares represent the remaining shares subsequent to the
Companys exercise of its call option under the amended Put
and Call Option Agreement described elsewhere herein. |
|
(c) |
|
We are required to pay an annual dividend of $1.8 million
per year in quarterly installments on our outstanding
Series B Convertible Preferred Stock issued in the
acquisition of the Presley Business. |
|
(d) |
|
The Promenade Trust has the right to require us to purchase up
to all of its remaining ownership interest in the Presley
Business at a price based on the fair market value of the
business. |
|
(e) |
|
The Muhammad Ali Family Trust also has the right to require the
Company to purchase all of its remaining ownership interest in
the Ali Business beginning on April 10, 2011 at a price
based on the then current fair market value. |
|
(f) |
|
By definition, the uncertain tax positions may or may not be
paid. Due to such uncertainty, the Company is unable to estimate
the timing of such potential payments. The amount includes
interest and penalties of $1.2 million. |
The chart above does not include the ongoing consulting fee
obligations to Simon Fuller under the terms of his Consulting
Agreement described elsewhere herein. The obligation to
Mr. Fuller for 2010 was $9.1 million, inclusive of the
advances, pursuant to the agreement.
52
Ryan
Seacrest Agreement
On July 7, 2009, the Company entered into two agreements
with Ryan Seacrest, the host of American Idol, and
certain of his affiliates. Under the terms of the agreements,
the Company paid $22.5 million upon execution of the
agreements on July 7, 2009 and is paying Mr. Seacrest
an additional $22.5 million in monthly installments during
the term, for a total guaranteed amount of $45.0 million.
Upon securing Mr. Seacrests services, the Company
commenced negotiations with Fox related to a fee to be received
by the Company for Mr. Seacrests services as the host
of American Idol. The Company and Fox ultimately agreed
to a fee arrangement of $5.0 million for
Mr. Seacrests services as host of American Idol
for each of the 2010, 2011 and 2012 seasons. The Company
therefore expects to be responsible for a net amount of
$30.0 million of the original $45.0 million guaranteed
amount. The Company received payment for compensation related to
the 2010 season in November 2010 and has recognized
$5.0 million as revenue during the first six months of 2010.
As of December 31, 2010, the Company has paid
$31.9 million of the total amount due to Mr. Seacrest
with the remaining $13.1 million to be paid in equal
monthly installments through December 2012. The
$10.0 million difference between the amount of expense
related to the arrangement between the Company and
Mr. Seacrest and the arrangement between the Company and
Fox related to Mr. Seacrests services as host was
recognized as incremental expense. We also expect to record
$10.0 million of incremental expense during each of the
first six months of 2011 and 2012, which coincides with the
anticipated broadcast periods for American Idol.
Simon
Fuller Transaction
Pursuant to the consultancy agreement with Mr. Fuller, we
have engaged Mr. Fuller to provide services, including
executive producer services, in respect of our American Idol
and So You Think You Can Dance programs. In
consideration for providing these services, Mr. Fuller will
receive the consulting fee as described above. For calendar year
2010, Mr. Fuller received $5.0 million as an advance
against the consulting fee, with an additional $4.1 million
due to Mr. Fuller for the 2010 consulting fee is payable on
March 31, 2011. For each year after 2010, subject to
certain conditions, Mr. Fuller will receive, as an annual
advance against the consulting fee, $3.0 million if
American Idol remains on the air and $2.0 million if
So You Think You Can Dance remains on the air.
Television
Development Agreement
In March 2010, the Company entered into a three-year development
agreement with a current 19 Entertainment television executive
producer partner whereby the Company will pay advances of future
profits of $2.0 million per year; the 2010 advance was paid
in March 2010. After the Company recoups its investment, profits
will be split evenly with the producer. The agreement expires on
December 31, 2012. The Company also funds certain operating
costs.
Future
Acquisitions
We intend to acquire additional businesses that fit our
strategic goals. We expect to finance our future acquisitions of
entertainment related businesses from cash on hand, new credit
facilities, additional debt and equity offerings, issuance of
our equity directly to sellers of businesses and cash flow from
operations. However, no assurance can be given that we will be
able to obtain adequate financing to complete any potential
future acquisitions we might identify.
Inflation
Inflation has affected the historical performances of the
businesses primarily in terms of higher operating costs for
salaries and other administrative expenses. Although the exact
impact of inflation is indeterminable, we believe that the
Presley Business has offset these higher costs by increasing
prices at Graceland and for intellectual property licenses and
that 19 Entertainment has offset these higher costs by
increasing fees charged for its production services and higher
royalty and sponsorship rates.
53
Application
of Critical Accounting Policies
The preparation of our financial statements in accordance with
US GAAP requires management to make estimates, judgments and
assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amount of
revenue and expenses during the reporting period. Management
considers an accounting estimate to be critical if it requires
assumptions to be made about matters that were highly uncertain
at the time the estimate was made and changes in the estimate or
different estimates could have a material effect on the
Companys results of operations. On an ongoing basis, we
evaluate our estimates and assumptions, including those related
to television production costs, artist advances and recoupable
recording costs, goodwill and other intangible assets, income
taxes and share based payments. The Company bases its estimates
on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances. The
result of these evaluations forms the basis for making judgments
about the carrying values of assets and liabilities and the
reported amount of revenue and expenses that are not readily
available from other sources. Actual results may differ from
these estimates under different assumptions. We have discussed
the development, selection and disclosure of our critical
accounting policies with the Audit Committee of the
Companys Board of Directors.
The Company continuously monitors its estimates and assumptions
to ensure any business or economic changes impacting these
estimates and assumptions are reflected in the Companys
financial statements on a timely basis, including the
sensitivity to change the Companys critical accounting
policies.
The following accounting policies require significant management
judgments and estimates.
Television
Production Costs
In accounting for television projects in development, third
party costs incurred in producing television programs for which
we have secured distribution agreements are capitalized and
remain unamortized until the project is distributed or are
written off at the time they are determined not to be
recoverable. Third party costs incurred in developing concepts
for new television programs are expensed as incurred until such
time as we have secured distribution agreements.
The capitalized costs of producing television programs are
expensed in accordance with the individual film forecast method,
pursuant to which the Company estimates the ratio that revenue
which is earned for such programming in the current period bears
to its estimate at the beginning of the current year of total
revenue to be realized from all media and markets for such
programming. Amortization commences in the period in which
revenue recognition commences. Management regularly reviews and
revises its total revenue estimates for each project, which may
result in modifications to the rate of amortization. If a net
loss is projected for a particular project, the related
capitalized costs are written down to estimated realizable value.
Artist
Advances and Recoupable Recording Costs
Recoupable recording costs and artist advances, as adjusted for
anticipated returns, are charged to expense in the period in
which the sale of the record takes place. Recoupable recording
costs and artist advances are only capitalized based on
managements judgment that past performance and current
popularity of the artist for whom the recording costs are
incurred or to whom the advance is made provide a sound basis
for estimating that the amount capitalized will be recoverable
from future royalties to be earned by the artist. Our management
determines the recoverability of artist advances and recoupable
recording costs on an
artist-by-artist
basis based on the success of prior records and projects and
costs are only capitalized if the artist has developed a track
record of success. Any portion of recoupable recording costs or
artists advances that subsequently appear not to be fully
recoverable from future royalties to be earned by the artist are
charged to expense during the period in which the loss becomes
evident.
Goodwill
and Other Intangible Assets
Significant estimates and assumptions are made by management in
the allocation of fair values to assets acquired and liabilities
assumed in business combinations. The excess of the purchase
price over the fair values of assets acquired and liabilities
assumed are allocated to goodwill. Elements of the purchase
price that meet certain requirements are valued as intangible
assets upon acquisition. The significant assumptions used in
these valuations include the duration or useful life of the
assets, growth rates and amounts of future cash flows for each
income
54
stream. To determine these factors, management specifically
makes assumptions regarding the future economic outlook for the
industry, risks involved in the business and the impact of
competition and technological changes.
Goodwill represents the excess of purchase price and related
costs over the value assigned to the net tangible and
identifiable intangible assets of businesses acquired. Goodwill
and other intangible assets with indefinite lives are not
amortized, but instead are tested for impairment annually or if
certain circumstances indicate a possible impairment may exist.
The Company performs its annual impairment assessment on
goodwill and indefinite lived intangible assets in accordance
with the methods prescribed below on the first day of its fiscal
fourth quarter.
The Company has evaluated the recoverability of goodwill using a
two-step impairment test approach at the reporting unit level.
In the first step the fair value for the reporting unit is
compared to its book value including goodwill. The estimates of
fair value of a reporting unit are determined primarily using a
discounted cash flow analysis. A discounted cash flow analysis
requires the Company to make various judgmental assumptions
including assumptions about future cash flows, growth rates and
discount rates. The assumptions about future cash flows and
growth rates are based on the Companys internal budget and
business plans. Discount rate assumptions are based on an
assessment of the risk inherent in the respective reporting
units. In the case that the fair value of the reporting unit is
less than the book value, a second step is performed which
compares the implied fair value of the reporting units
goodwill to the book value of the goodwill. The fair value for
the goodwill is determined based on the difference between the
fair values of the reporting units and the net fair values of
the identifiable assets and liabilities of such reporting units.
If the fair value of the goodwill is less than the book value,
the difference is recognized as an impairment.
The Company has also performed the impairment test for its
intangible assets with indefinite lives, which consists of a
comparison of the fair value of the intangible asset with its
carrying value. Significant assumptions inherent in this test
include estimates of royalty rates and discount rates. Discount
rate assumptions are based on an assessment of the risk inherent
in the respective intangible assets. Assumptions about royalty
rates are based on the rates at which similar brands and
trademarks are being licensed in the marketplace.
Income
Taxes
In accounting for income taxes, the Company recognizes deferred
tax assets and liabilities, using enacted tax rates, for the
effect of temporary differences between the book and tax basis
of recorded assets and liabilities. Deferred tax assets are
reduced by a valuation allowance if it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. In determining the future tax consequences of events
that have been recognized in our financial statements or tax
returns, judgment is required. In determining the need for a
valuation allowance, the historical and projected financial
performance of the operation that is recording a net deferred
tax asset is considered along with any other pertinent
information.
At year end, the actual effective tax rate is calculated based
upon the actual results for the full fiscal year, taking into
consideration facts and circumstances known at year end.
In the future, certain events could occur that would materially
affect the Companys estimates and assumptions regarding
deferred taxes. Changes in current tax laws and applicable
enacted tax rates could affect the valuation of deferred tax
assets and liabilities, thereby impacting the Companys
income tax provision.
Share-Based
Payments
In accounting for share-based payments, the fair value of stock
options is estimated as of the grant date based on a
Black-Scholes option pricing model. Judgment is required in
determining certain of the inputs to the model, specifically the
expected life of options and volatility. As a result of the
Companys short operating history, limited reliable
historical data is available for expected lives and forfeitures.
We estimated the expected lives of the options granted using an
estimate of anticipated future employee exercise behavior, which
is partly based on the vesting schedule. We estimated
forfeitures based on managements experience. The expected
volatility is based on the Companys historical share price
volatility, and an analysis of comparable public companies
operating in our industry.
55
Impact
of Recently Issued Accounting Standards
In June 2009, the FASB issued SFAS No. 166,
Accounting for Transfers of Financial Assets an
amendment of FASB No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities, which was later superseded by the FASB
Codification and included in ASC 860. This standard amended the
criteria for a transfer of a financial asset to be accounted for
as a sale, redefined a participating interest for transfers of
portions of financial assets, eliminated the qualifying
special-purpose entity concept and provided for new disclosures.
This standard was effective for the Company beginning in 2010
and did not have a material impact on the Companys
financial statements.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R), which
was later superseded by the FASB Codification and included in
ASC 810. The provisions of ASC 810 amended the
consolidation guidance for variable interest entities
(VIE) by requiring an on-going qualitative
assessment of which entity has the power to direct matters that
most significantly impact the activities of a VIE and has the
obligation to absorb losses or benefits that could be
potentially significant to the VIE. This standard was effective
for the Company beginning in 2010 and did not have a material
impact on the Companys financial statements.
In October 2009 the FASB issued Accounting Standards Update
(ASU)
2009-13 on
multiple-deliverable revenue arrangements. ASU
2009-13
addresses the unit of accounting for arrangements involving
multiple deliverables and addresses how arrangement
consideration should be allocated to the separate units of
accounting. The ASU is effective for fiscal years beginning on
or after June 15, 2010; early adoption is permitted.
Entities can elect to apply the ASU prospectively to new or
materially modified arrangements after its effective date or
retrospectively for all periods presented. The Company does not
expect the adoption to have a material impact on the
Companys financial statements.
Off
Balance Sheet Arrangements
As of December 31, 2010, we did not have any off balance
sheet arrangements as defined in Item 303 (a)(4)(ii) of SEC
Regulation S-K.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
We are exposed to market risk arising from changes in market
rates and prices, including movements in foreign currency
exchange rates, interest rates and the market price of our
common stock. To mitigate these risks, we may utilize derivative
financial instruments, among other strategies. We do not use
derivative financial instruments for speculative purposes.
Interest
Rate Risk
We had $100.6 million of total debt outstanding at
December 31, 2010, of which $100.0 million was
variable rate debt.
Assuming a hypothetical increase in the Companys variable
interest rate under the Credit Facility of 100 basis
points, our net loss for the year ended December 31, 2010
would have increased by approximately $0.7 million. For the
year ended December 31, 2009, our net income would have
decreased by approximately $0.6 million.
Foreign
Exchange Risk
Following our restructuring of 19 Entertainment in 2010, we have
no significant operations outside the United States. Prior
to the completion of the 19 Entertainment restructuring, we had
significant operations in the United Kingdom which conducted
business in the local currency.
Assuming a hypothetical weakening of the U.S. dollar
exchange rate with the U.K. pound of 10%, our net loss for the
year ended December 31, 2010 would have increased by
approximately $1.6 million and our net income for the year
ended December 31, 2009 would have decreased by
approximately $3.0 million. This reflects our formerly
extensive operations in the United Kingdom prior to our recently
completed restructuring. Prospectively, we expect that a 10%
change in the U.K. exchange rate would have an immaterial effect
on our net income.
56
Historically, we have not entered into any foreign currency
option contracts on other financial instruments intended to
hedge our exposure to changes in foreign exchange rates.
19
Entertainment Put Option
In connection with the acquisition of 19 Entertainment, certain
sellers of 19 Entertainment entered into a Put and Call Option
Agreement, as amended on June 8, 2009, that provided them
with certain rights whereby, during a period of 20 business days
beginning March 17, 2011, the Company may exercise a call
right to purchase the common stock of such stockholders at a
price equal to $24.72 per share and these sellers may exercise a
put right to sell the common stock to the Company at a price
equal to $13.18 per share. The put and call rights applied to
1,627,170 of the shares issued in connection with the 19
Entertainment acquisition, 1,507,135 of which were owned by
Simon Fuller. As described in Item 7
Other Corporate Activities Exercise of Amended Call
Option above, 534,082 shares remain subject to the
Put and Call Option Agreement.
57
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Table of
Contents to Consolidated Financial Statements
|
|
|
|
|
|
|
Page
|
|
CKX, Inc.
|
|
|
|
|
|
|
|
59
|
|
|
|
|
62
|
|
|
|
|
63
|
|
|
|
|
64
|
|
|
|
|
66
|
|
|
|
|
67
|
|
58
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
CKX, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of
CKX, Inc. and subsidiaries (the Company) as of
December 31, 2010 and 2009, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended
December 31, 2010. Our audits also included the financial
statement schedule listed in the Index at Item 15. These
consolidated financial statements and financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on the
consolidated financial statements and financial statement
schedule 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 consolidated
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of CKX,
Inc. and subsidiaries as of December 31, 2010 and 2009, and
the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2010, in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth
therein.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2010, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 8, 2011, expressed an
adverse opinion on the Companys internal control over
financial reporting because of a material weakness.
/s/ DELOITTE &
TOUCHE LLP
New York, New York
March 8, 2011
59
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
CKX, Inc.
New York, New York
We have audited the internal control over financial reporting of
CKX, Inc. and subsidiaries (the Company) as of
December 31, 2010, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Annual Report on Internal Controls Over
Financial Reporting. Our responsibility is to express an opinion
on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
that risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of the companys annual or interim
consolidated financial statements will not be prevented or
detected on a timely basis. The following material weakness has
been identified and included in managements assessment:
The Company identified a material weakness in its process of
accounting for income taxes. Specifically, the Company did not
maintain an adequate review process of accounting for income
taxes during the year ended December 31, 2010 that would
have identified material misstatements in the underlying
calculations during the Companys income tax closing
process.
This material weakness was considered in determining the nature,
timing, and extent of audit tests applied in our audit of the
consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2010, of
the Company and this report does not affect our report on such
consolidated financial statements and financial statement
schedule.
60
In our opinion, because of the effect of the material weakness
identified above on the achievement of the objectives of the
control criteria, the Company has not maintained effective
internal control over financial reporting as of
December 31, 2010, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2010, of
the Company and our report dated March 8, 2011 expressed an
unqualified opinion on those consolidated financial statements
and financial statement schedule.
/s/ DELOITTE &
TOUCHE LLP
New York, New York
March 8, 2011
61
CKX,
INC.
(amounts
in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
109,457
|
|
|
$
|
66,587
|
|
Receivables, net of allowance for doubtful accounts of $798 at
December 31, 2010 and $742 at December 31, 2009
|
|
|
32,335
|
|
|
|
52,252
|
|
Inventories, net of allowance for obsolescence of $590 at
December 31, 2010 and $661 at December 31, 2009
|
|
|
1,689
|
|
|
|
1,977
|
|
Prepaid expenses and other current assets
|
|
|
25,282
|
|
|
|
26,092
|
|
Prepaid income taxes
|
|
|
|
|
|
|
4,610
|
|
Deferred tax assets
|
|
|
2,477
|
|
|
|
1,318
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
171,240
|
|
|
|
152,836
|
|
Property and equipment net
|
|
|
45,035
|
|
|
|
49,590
|
|
Receivables
|
|
|
1,720
|
|
|
|
2,693
|
|
Loans to related parties
|
|
|
354
|
|
|
|
2,221
|
|
Other assets
|
|
|
37,881
|
|
|
|
49,453
|
|
Goodwill
|
|
|
111,374
|
|
|
|
116,873
|
|
Other intangible assets net
|
|
|
88,136
|
|
|
|
119,809
|
|
Deferred tax assets
|
|
|
5,093
|
|
|
|
5,739
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
460,833
|
|
|
$
|
499,214
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
22,174
|
|
|
$
|
39,144
|
|
Accrued expenses
|
|
|
25,615
|
|
|
|
25,689
|
|
Current portion of long-term debt
|
|
|
100,515
|
|
|
|
482
|
|
Income tax payable
|
|
|
741
|
|
|
|
|
|
Deferred revenue
|
|
|
13,138
|
|
|
|
12,885
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
162,183
|
|
|
|
78,200
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
131
|
|
|
|
100,647
|
|
Deferred revenue
|
|
|
2,062
|
|
|
|
2,850
|
|
Other long-term liabilities
|
|
|
2,502
|
|
|
|
2,828
|
|
Deferred tax liabilities
|
|
|
13,856
|
|
|
|
22,367
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
180,734
|
|
|
|
206,892
|
|
|
|
|
|
|
|
|
|
|
Redeemable restricted common stock
534,082 shares outstanding at December 31, 2010 and
2009
|
|
|
7,347
|
|
|
|
7,347
|
|
CKX, Inc. stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value, authorized
75,000,000 shares:
|
|
|
|
|
|
|
|
|
Series B 1,491,817 shares outstanding at
December 31, 2010 and 2009
|
|
|
22,825
|
|
|
|
22,825
|
|
Series C 1 share outstanding at
December 31, 2010 and 2009
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value: authorized
200,000,000 shares, 96,898,206 shares issued at
December 31, 2010 and 96,831,149 issued at
December 31, 2009
|
|
|
969
|
|
|
|
968
|
|
Additional
paid-in-capital
|
|
|
398,257
|
|
|
|
394,839
|
|
Accumulated deficit
|
|
|
(99,573
|
)
|
|
|
(83,857
|
)
|
Common stock in treasury 4,477,438 shares at
December 31, 2010 and 2009
|
|
|
(22,647
|
)
|
|
|
(22,647
|
)
|
Accumulated other comprehensive loss
|
|
|
(32,968
|
)
|
|
|
(33,394
|
)
|
|
|
|
|
|
|
|
|
|
Total CKX, Inc. stockholders equity
|
|
|
266,863
|
|
|
|
278,734
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
5,889
|
|
|
|
6,241
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
272,752
|
|
|
|
284,975
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
460,833
|
|
|
$
|
499,214
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
62
CKX,
INC.
(amounts
in thousands, except share and per share
information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenue
|
|
$
|
273,724
|
|
|
$
|
328,353
|
|
|
$
|
288,128
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
132,005
|
|
|
|
158,569
|
|
|
|
117,358
|
|
Selling, general and administrative expenses
|
|
|
60,109
|
|
|
|
73,817
|
|
|
|
78,354
|
|
Corporate expenses
|
|
|
20,132
|
|
|
|
21,214
|
|
|
|
18,065
|
|
Impairment charges
|
|
|
24,637
|
|
|
|
2,526
|
|
|
|
35,661
|
|
Depreciation and amortization
|
|
|
18,687
|
|
|
|
19,241
|
|
|
|
21,161
|
|
Provision for severance and other restructuring-related costs
|
|
|
19,291
|
|
|
|
1,418
|
|
|
|
|
|
Executive separation costs
|
|
|
7,655
|
|
|
|
|
|
|
|
|
|
Merger-related and advisory costs
|
|
|
1,730
|
|
|
|
675
|
|
|
|
(5,768
|
)
|
Acquisition-related costs
|
|
|
|
|
|
|
2,637
|
|
|
|
2,267
|
|
Other expense (income)
|
|
|
1,245
|
|
|
|
4,079
|
|
|
|
(15,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
285,491
|
|
|
|
284,176
|
|
|
|
251,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(11,767
|
)
|
|
|
44,177
|
|
|
|
36,940
|
|
Interest income
|
|
|
202
|
|
|
|
308
|
|
|
|
1,778
|
|
Interest expense
|
|
|
(2,680
|
)
|
|
|
(3,335
|
)
|
|
|
(5,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and equity in earnings of
affiliates
|
|
|
(14,245
|
)
|
|
|
41,150
|
|
|
|
33,117
|
|
Income tax expense (benefit)
|
|
|
(1,043
|
)
|
|
|
15,358
|
|
|
|
14,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in earnings of affiliates
|
|
|
(13,202
|
)
|
|
|
25,792
|
|
|
|
18,687
|
|
Equity in earnings of affiliates
|
|
|
676
|
|
|
|
576
|
|
|
|
2,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(12,526
|
)
|
|
|
26,368
|
|
|
|
21,208
|
|
Dividends on preferred stock
|
|
|
(1,824
|
)
|
|
|
(1,824
|
)
|
|
|
(1,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to CKX, Inc.
|
|
|
(14,350
|
)
|
|
|
24,544
|
|
|
|
19,384
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
(1,366
|
)
|
|
|
(1,782
|
)
|
|
|
(2,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to CKX, Inc.
|
|
$
|
(15,716
|
)
|
|
$
|
22,762
|
|
|
$
|
17,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to CKX, Inc. before preferred
dividends
|
|
$
|
(0.15
|
)
|
|
$
|
0.26
|
|
|
$
|
0.20
|
|
Dividends on preferred stock
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
|
$
|
(0.17
|
)
|
|
$
|
0.24
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to CKX, Inc. before preferred
dividends
|
|
$
|
(0.15
|
)
|
|
$
|
0.26
|
|
|
$
|
0.20
|
|
Dividends on preferred stock
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share
|
|
$
|
(0.17
|
)
|
|
$
|
0.24
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
92,907,981
|
|
|
|
93,298,778
|
|
|
|
96,674,706
|
|
Diluted
|
|
|
92,907,981
|
|
|
|
93,337,683
|
|
|
|
96,684,377
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
63
CKX,
INC.
(amounts
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(12,526
|
)
|
|
$
|
26,368
|
|
|
$
|
21,208
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
18,687
|
|
|
|
19,241
|
|
|
|
21,161
|
|
Write-off of deferred costs
|
|
|
|
|
|
|
874
|
|
|
|
|
|
Impairment charges
|
|
|
24,637
|
|
|
|
2,526
|
|
|
|
35,661
|
|
Non-cash provision for severance and other restructuring-related
costs and executive separation costs
|
|
|
1,849
|
|
|
|
|
|
|
|
|
|
Write-off of loan to related party
|
|
|
1,410
|
|
|
|
|
|
|
|
|
|
Unrealized foreign currency gains and losses
|
|
|
945
|
|
|
|
3,114
|
|
|
|
(11,833
|
)
|
Share-based payments
|
|
|
1,578
|
|
|
|
1,563
|
|
|
|
2,954
|
|
Equity in earnings (losses) of affiliates, net of cash received
|
|
|
(676
|
)
|
|
|
(576
|
)
|
|
|
264
|
|
Merger termination recoveries, net of cash received
|
|
|
|
|
|
|
|
|
|
|
(7,647
|
)
|
Deferred income taxes
|
|
|
(8,590
|
)
|
|
|
3,670
|
|
|
|
(15,923
|
)
|
Amortization of deferred financing costs
|
|
|
678
|
|
|
|
686
|
|
|
|
666
|
|
Provision for accounts receivable allowance
|
|
|
448
|
|
|
|
259
|
|
|
|
814
|
|
Provision for inventory allowance
|
|
|
38
|
|
|
|
101
|
|
|
|
114
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
22,463
|
|
|
|
(12,112
|
)
|
|
|
83
|
|
Prepaid expenses and other current assets
|
|
|
2,496
|
|
|
|
(21,663
|
)
|
|
|
(9,926
|
)
|
Other assets
|
|
|
10,482
|
|
|
|
|
|
|
|
|
|
Prepaid income taxes
|
|
|
4,610
|
|
|
|
(4,610
|
)
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
(17,044
|
)
|
|
|
18,734
|
|
|
|
5,215
|
|
Deferred revenue
|
|
|
(535
|
)
|
|
|
(18,362
|
)
|
|
|
19,473
|
|
Income taxes payable
|
|
|
741
|
|
|
|
(5,526
|
)
|
|
|
(700
|
)
|
Other
|
|
|
(1,968
|
)
|
|
|
162
|
|
|
|
(1,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
49,723
|
|
|
|
14,449
|
|
|
|
60,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Cirque du Soleil partnership
|
|
|
(4,915
|
)
|
|
|
(18,357
|
)
|
|
|
|
|
Return of capital from Cirque du Soleil partnership
|
|
|
3,984
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of businesses and assets
|
|
|
1,921
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment
|
|
|
(3,571
|
)
|
|
|
(7,062
|
)
|
|
|
(7,838
|
)
|
Purchase of 51% interest in business, net of cash acquired of
$936
|
|
|
|
|
|
|
(4,314
|
)
|
|
|
|
|
Loan repayment from FXRE
|
|
|
|
|
|
|
|
|
|
|
6,345
|
|
Loan to noncontrolling interests
|
|
|
|
|
|
|
(455
|
)
|
|
|
(500
|
)
|
Repayment of loan from noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,581
|
)
|
|
|
(30,188
|
)
|
|
|
(1,493
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of redeemable restricted common stock
|
|
|
|
|
|
|
(15,000
|
)
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
(1,700
|
)
|
|
|
(2,600
|
)
|
|
|
(1,700
|
)
|
Principal payments on debt
|
|
|
(483
|
)
|
|
|
(774
|
)
|
|
|
(1,152
|
)
|
Dividends paid on preferred stock
|
|
|
(1,824
|
)
|
|
|
(1,824
|
)
|
|
|
(1,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(4,007
|
)
|
|
|
(20,198
|
)
|
|
|
(4,676
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(265
|
)
|
|
|
629
|
|
|
|
(3,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and equivalents
|
|
|
42,870
|
|
|
|
(35,308
|
)
|
|
|
50,948
|
|
Cash and cash equivalents, beginning of period
|
|
|
66,587
|
|
|
|
101,895
|
|
|
|
50,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
109,457
|
|
|
$
|
66,587
|
|
|
$
|
101,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,941
|
|
|
$
|
2,560
|
|
|
$
|
5,266
|
|
Income taxes
|
|
|
10,633
|
|
|
|
21,869
|
|
|
|
30,106
|
|
64
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
The Company had the following non-cash investing and financing
activities in the year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
Accrued but unpaid Series B Convertible Preferred Stock
Dividends
|
|
$
|
456
|
|
|
|
|
|
|
Note receivable for sale of businesses and assets
|
|
|
1,456
|
|
|
|
|
|
|
Write-off of related party loan
|
|
|
1,410
|
|
|
|
|
|
|
Pay-down of related party loan
|
|
|
60
|
|
|
|
|
|
|
The Company had the following non-cash operating, investing and
financing activities in the year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
Accrued but unpaid Series B Convertible Preferred Stock
Dividends
|
|
$
|
456
|
|
|
|
|
|
|
The Company had the following non-cash operating, investing and
financing activities in the year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
Shares received in merger termination
|
|
$
|
7,647
|
|
|
|
|
|
|
Distribution of final 2% ownership interest in FXRE
|
|
|
6,175
|
|
|
|
|
|
|
Accrued but unpaid Series B Convertible Preferred Stock
Dividends
|
|
|
456
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
65
CKX,
INC.
(in
thousands, except share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Common Stock
|
|
|
Comprehensive
|
|
|
|
|
|
|
Series B
|
|
|
Series C
|
|
|
Shares
|
|
|
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
in Treasury
|
|
|
Income
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Shares
|
|
|
Amount
|
|
|
(Loss)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2008
|
|
|
1,491,817
|
|
|
$
|
22,825
|
|
|
|
1
|
|
|
$
|
|
|
|
|
95,402,757
|
|
|
$
|
954
|
|
|
$
|
374,665
|
|
|
$
|
(123,746
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
15,006
|
|
|
$
|
289,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to independent directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,628
|
|
|
|
|
|
|
|
475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares issued to employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
2
|
|
|
|
1,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares forfeited by employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares received upon merger termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,339,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,339,350
|
|
|
|
(7,647
|
)
|
|
|
|
|
|
|
(7,647
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B preferred dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,677
|
)
|
|
|
(64,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
1,491,817
|
|
|
$
|
22,825
|
|
|
|
1
|
|
|
$
|
|
|
|
|
92,295,335
|
|
|
$
|
956
|
|
|
$
|
377,617
|
|
|
$
|
(106,619
|
)
|
|
|
3,339,350
|
|
|
$
|
(7,647
|
)
|
|
$
|
(49,671
|
)
|
|
$
|
237,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares received upon exercise of call option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
15,580
|
|
|
|
|
|
|
|
1,138,088
|
|
|
|
(15,000
|
)
|
|
|
|
|
|
|
591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to independent directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,076
|
|
|
|
1
|
|
|
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares issued to employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares forfeited by employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B preferred dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,277
|
|
|
|
16,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
1,491,817
|
|
|
$
|
22,825
|
|
|
|
1
|
|
|
$
|
|
|
|
|
92,353,711
|
|
|
$
|
968
|
|
|
$
|
394,839
|
|
|
$
|
(83,857
|
)
|
|
|
4,477,438
|
|
|
$
|
(22,647
|
)
|
|
$
|
(33,394
|
)
|
|
$
|
278,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to independent directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,657
|
|
|
|
1
|
|
|
|
171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares issued to employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares forfeited by employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,800
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B preferred dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
426
|
|
|
|
426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
1,491,817
|
|
|
$
|
22,825
|
|
|
|
1
|
|
|
$
|
|
|
|
|
92,420,768
|
|
|
$
|
969
|
|
|
$
|
398,257
|
|
|
$
|
(99,573
|
)
|
|
|
4,477,438
|
|
|
$
|
(22,647
|
)
|
|
$
|
(32,968
|
)
|
|
$
|
266,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
66
CKX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
General
CKX, Inc. (the Company or CKX) is
engaged in the ownership, development and commercial utilization
of entertainment content. As more fully described below, our
primary assets and operations include:
|
|
|
|
|
19 Entertainment Limited (19 Entertainment), which
owns proprietary rights to the IDOLS and So You Think
You Can Dance television brands, both of which air in the
United States and, together with local adaptations of the
formats, around the world;
|
|
|
|
An 85% ownership interest in Elvis Presley Enterprises (the
Presley Business or EPE), which owns the
rights to the name, image and likeness of Elvis Presley, certain
music and other intellectual property created by or related to
Elvis Presley, and the operations of Graceland; and has
partnered with Cirque du Soleil for Viva ELVIS show in
Las Vegas, Nevada; and
|
|
|
|
An 80% ownership interest in Muhammad Ali Enterprises (the
Ali Business), which owns the rights to the name,
image and likeness of, as well as certain trademarks and other
intellectual property related to Muhammad Ali.
|
The Companys existing properties generate recurring
revenue across multiple entertainment platforms, including music
and television; licensing and merchandising; talent management;
themed attractions and touring/live events.
|
|
2.
|
Summary
of Significant Accounting Policies and Basis of
Presentation
|
Principles
of Consolidation
The consolidated financial statements include the accounts of
all subsidiaries and the Companys share of earnings or
losses of joint ventures and affiliated companies under the
equity method of accounting. The interests held by our
noncontrolling shareholders in the Presley Business and the Ali
Business are reported as noncontrolling interests in the
consolidated financial statements. All intercompany accounts and
transactions have been eliminated.
Any variable interest entities for which the Company is the
primary beneficiary are consolidated.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted within the United
States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual
results could differ materially from those estimates.
Cash
and Cash Equivalents
All highly liquid investments with original maturities of three
months or less are classified as cash and cash equivalents. The
fair value of cash and cash equivalents approximates the amounts
shown on the financial statements. Cash and cash equivalents
consist of unrestricted cash in accounts maintained with major
financial institutions.
Inventory
Inventory, all of which is finished goods, is valued at the
lower of cost or market. Cost is determined using the
67
first-in,
first out method. Allowances are provided for slow-moving or
obsolete inventory items based on managements review of
historical and projected sales data.
Property
and Equipment
Property and equipment, net, are stated at cost and depreciated
using the straight-line method over the estimated useful lives
of the assets. Expenditures for additions, major renewals, and
improvements are capitalized. Maintenance and repairs not
representing betterments are expensed as incurred. Depreciation
and amortization expenses were $3.5 million,
$4.2 million, and $3.3 million for the years ended
December 31, 2010, 2009 and 2008, respectively.
Property and equipment, net, consisted of the following as of
December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
Useful Lives
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
|
|
|
Land
|
|
$
|
30,718
|
|
|
$
|
29,543
|
|
|
|
n/a
|
|
Buildings and improvements
|
|
|
12,752
|
|
|
|
21,244
|
|
|
|
5-20
|
|
Equipment, furniture and fixtures
|
|
|
7,897
|
|
|
|
10,200
|
|
|
|
3-7
|
|
Airplane
|
|
|
2,632
|
|
|
|
2,632
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,999
|
|
|
|
63,619
|
|
|
|
|
|
Less: accumulated depreciation and amortization
|
|
|
(8,964
|
)
|
|
|
(14,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
45,035
|
|
|
$
|
49,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Presley Business recognized a non-cash impairment of
$2.6 million in the first quarter of 2010 to reduce the
carrying amount of buildings for a rental property that it owns
which is being prepared for an alternative future use. The
charge is recorded in the Presley Business Graceland
Operations operating segment.
Revenue
Recognition
Merchandising/Name,
Image and Likeness Licensing Revenue:
A portion of the Companys revenue is derived from
licensing rights to third parties to sell merchandise based on
intellectual property, including name, image and likeness rights
and related marks. Revenue from these activities is recognized
when all of the following conditions are met:
(i) persuasive evidence of an arrangement exists;
(ii) delivery has occurred or services have been rendered;
(iii) the price to the licensee or buyer is fixed or
determinable; and (iv) collectibility is reasonably
assured. Licensing advances are deferred until earned under the
licensing agreement. Licensing contracts normally provide for
quarterly reporting from the licensee of sales made and
royalties due. Guaranteed minimum royalties are recognized
ratably over the term of the license or are based on sales of
the related products, if greater.
Royalty
Income:
Royalty income from music and film contracts is derived from the
sale of records and DVDs or from the licensing of film/music
rights to third parties. Revenue from recordings is recognized
when all of the following conditions are met:
(i) persuasive evidence of an arrangement exists;
(ii) the rights have been delivered to the licensee who is
free to exercise them; (iii) the Company has no remaining
significant obligations to furnish music or records; and
(iv) when collectibility of the full fee is reasonably
assured. A significant portion of royalty income is paid to the
Company based on the timetable associated with royalty
statements generated by third party processors, and is not
typically known or estimable by the Company on a timely basis.
This revenue is consequently not recognized until the amount is
either known or reasonably estimable or until receipt of the
statements from the third parties. The Company contracts with
various agencies to facilitate collection of royalty income.
68
When the Company is entitled to royalties based on gross
receipts, revenue is recognized before deduction of agency fees,
which are included as a component of cost of sales.
Television
Revenue:
The following conditions must be met in order for the Company to
recognize revenue from television productions:
(i) persuasive evidence of a sale or licensing arrangement
exists; (ii) the program is complete and has been delivered
or is available for immediate and unconditional delivery;
(iii) the license period of the arrangement has begun and
the customer can begin its exploitation, exhibition or sale;
(iv) the arrangement fee is fixed or determinable; and
(v) collection of the arrangement fee is reasonably
assured. Advance payments received from buyers or licensees are
included in the financial statements as a component of deferred
revenue.
Sponsorship
Revenue:
The Company derives revenue from sponsorships associated with
certain of its television productions and tours. Sponsorship
fees relate to either (a) a one-time event, or (b) a
period of time. Revenue from a one-time event is recognized
when: (i) persuasive evidence of an arrangement exists;
(ii) the event has occurred; (iii) the price is fixed
or determinable; and (iv) collectibility is reasonably
assured. Non-refundable advance payments associated with
sponsorships over a period of time are recognized on a straight
line basis over the term of the contract. Sponsorship advances
are deferred until earned pursuant to the sponsorship agreement.
Management
and Production Services Revenue:
The Company recognizes revenue from management and production
services at the time the services are provided. Revenue earned
based on clients performances is earned when documentation
that the client has performed the service is received; this
revenue is typically based on a contractual percentage of the
clients earnings. Revenue from the clients
participation and residuals are recognized at the time such
amounts can be reasonably determined, which is generally upon
receipt of a statement from a third party.
Other
Revenue:
Ticket sales for tours and exhibits at Graceland, as well as
merchandise sales and food and beverage sales are recognized at
point of sale. Advance ticket sales are recorded as deferred
revenue pending the event date on the ticket.
Revenue resulting from hotel room rentals is recognized
concurrent with room usage. Revenue from concerts and other
tours is recognized when the tour date is completed. The Company
also derives a small portion of its revenue from other sources
related to its principal business activities, such as subscriber
fees related to the official Elvis Presley website and revenue
from Internet and telephony rights granted. Management considers
these revenue streams to be immaterial to the financial
statements as a whole.
Television
Production Costs
In accounting for television projects in development, third
party costs incurred in producing television programs for which
the Company has secured distribution agreements are capitalized
and remain unamortized until the project is distributed or are
written off at the time they are determined not to be
recoverable. Third party costs incurred in developing concepts
for new television programs are expensed as incurred until such
time as the Company has secured distribution agreements.
The capitalized costs of producing television programs are
expensed in accordance with the individual film forecast method,
pursuant to which the Company estimates the ratio that revenue
which is earned for such programming in the current period bears
to its estimate at the beginning of the current year of total
revenue to be realized from all media and markets for such
programming. Amortization commences in the period in which
revenue recognition commences. Management regularly reviews and
revises its total revenue estimates for each project, which may
result in modifications to the rate of amortization. If a net
loss is projected for a particular project, the related
capitalized costs are written down to estimated realizable value.
69
Artist
Advances and Recoupable Recording Costs
Recoupable recording costs and artist advances are charged to
expense in the period in which the sale of the record takes
place. Recoupable recording costs and artist advances are only
capitalized if the past performance and current popularity of
the artist for whom the recording costs are incurred or to whom
the advance is made provide a sound basis for estimating that
the amount capitalized will be recoverable from future royalties
to be earned by the artist. Any portion of recoupable recording
costs or artists advances that subsequently appear not to be
fully recoverable from future royalties to be earned by the
artist are charged to expense during the period in which the
loss becomes evident. The Company had capitalized artist
advances of $1.4 million and $1.3 million as of
December 31, 2010 and 2009, respectively.
Advertising
Expense
Advertising costs are expensed as incurred. Advertising costs
charged to expense were $1.6 million, $1.7 million and
$1.9 million for the years ended December 31, 2010,
2009 and 2008. There were no advertising costs deferred as of
December 31, 2010, 2009 and 2008.
Income
Taxes
Income taxes are provided using the asset and liability method.
Under this method, income taxes (i.e., deferred tax assets,
deferred tax liabilities, taxes currently payable/refunds
receivable and tax expense) are recorded based on amounts
refundable or payable in the current year and include the
results of any difference between U.S. generally accepted
accounting principles (GAAP) and tax reporting.
Deferred income taxes reflect the tax effect of net operating
loss, capital loss and general business credit carryforwards and
the net tax effects of temporary differences between the
carrying amount of assets and liabilities for financial
statement and income tax reporting purposes, as determined under
enacted tax laws and rates. Valuation allowances are established
when management determines that it is more likely than not that
some portion or all of the deferred tax asset will not be
realized. The financial effect of changes in tax laws or rates
is accounted for in the period of enactment.
Foreign
Currency
As fully described in Note 8, the Company determined that
it was appropriate to change the functional currency of
substantially all of the subsidiaries comprising the 19
Entertainment operating segment from U.K. pound to
U.S. dollars. The Company effected this change as of
January 1, 2010. Following the restructuring of
19 Entertainment, the Company maintains limited operations
outside the United States. In the year ended December 31,
2010, foreign currency adjustments resulted from foreign
currency movements related to subsidiaries at 19 Entertainment
that did not change functional currency from U.K. pound to
U.S. dollars. Prior to 2010, foreign currency translation
adjustments resulted from the conversion of 19
Entertainments financial statements from U.K. pounds to
U.S. dollars.
Gains and losses from transactions denominated in foreign
currencies are included as operating expenses in the
consolidated statements of operations. For the years ended
December 31, 2010, 2009, and 2008, respectively, the
Company, primarily at 19 Entertainment, had $1.2 million,
$4.1 million, and ($15.9) million, respectively, of
foreign exchange (gains) and losses.
Goodwill
and Other Intangible Assets
Goodwill represents the excess of purchase price and related
costs over the value assigned to the net tangible and
identifiable intangible assets of businesses acquired. Goodwill
and other intangible assets with indefinite lives are not
amortized, but are tested for impairment annually on the first
day of the Companys fiscal fourth quarter or if certain
circumstances indicate a possible impairment may exist.
Intangible assets with estimable useful lives are amortized over
their respective estimated useful lives to the estimated
residual values.
The Company evaluates long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Upon such an
occurrence, recoverability of assets to be held and used is
measured by comparing the carrying amount of an asset to
forecasted undiscounted future net cash flows expected to be
generated by the asset. If the carrying amount of the asset
exceeds its estimated future cash
70
flows, an impairment charge would be recognized by the amount by
which the carrying amount of the asset exceeds the fair value of
the asset.
Equity
Investments
Investments in which the Company has the ability to exercise
significant influence over the business and policies of the
investee, but contain less than a controlling voting interest,
are accounted for using the equity method.
Under the equity method, only the Companys investment in
and amounts due to and from the equity investee are included in
the consolidated balance sheet; only the Companys share of
the investees earnings (losses) is included in the
consolidated statement of operations.
At December 31, 2010, the Company had equity investments of
$20.7 million, representing the Companys 50%
ownership in the Elvis Presley Cirque du Soleil show
partnership. At December 31, 2009, the Company had equity
investments of $23.2 million, representing the
Companys one-third ownership of Beckham Brands Limited and
the Companys 50% ownership in the Elvis Presley Cirque du
Soleil show partnership (see Note 7). Equity investments
are included in other assets in the accompanying consolidated
balance sheets.
Share-Based
Payments
In conjunction with the stock-based compensation plan that is
more fully described in note 13, the Company records
compensation expense for all share-based payments (including
employee stock options) based on their fair value over the
requisite service period. The Company uses the Black-Scholes
pricing model at the date of option grants to estimate the fair
value of options granted. Grants with graded vesting are
expensed evenly over the total vesting period.
Impact
of Recently Issued Accounting Standards
In June 2009, the FASB issued SFAS No. 166,
Accounting for Transfers of Financial Assets an
amendment of FASB No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities, which was later superseded by the FASB
Codification and included in ASC 860. This standard amended the
criteria for a transfer of a financial asset to be accounted for
as a sale, redefined a participating interest for transfers of
portions of financial assets, eliminated the qualifying
special-purpose entity concept and provided for new disclosures.
This standard was effective for the Company beginning in 2010
and did not have a material impact on the Companys
financial statements.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R), which
was later superseded by the FASB Codification and included in
ASC 810. The provisions of ASC 810 amended the
consolidation guidance for variable interest entities
(VIE) by requiring an on-going qualitative
assessment of which entity has the power to direct matters that
most significantly impact the activities of a VIE and has the
obligation to absorb losses or benefits that could be
potentially significant to the VIE. This standard was effective
for the Company beginning in 2010 and did not have a material
impact on the Companys financial statements.
In October 2009 the FASB issued Accounting Standards Update
(ASU)
2009-13 on
multiple-deliverable revenue arrangements. ASU
2009-13
addresses the unit of accounting for arrangements involving
multiple deliverables and addresses how arrangement
consideration should be allocated to the separate units of
accounting. The ASU is effective for fiscal years beginning on
or after June 15, 2010; early adoption is permitted.
Entities can elect to apply the ASU prospectively to new or
materially modified arrangements after its effective date or
retrospectively for all periods presented. The Company does not
expect the adoption to have a material impact on the
Companys financial statements.
|
|
3.
|
Transactions
with Simon Fuller and Restructuring of 19
Entertainment
|
On January 13, 2010, the Company entered into a series of
agreements with Simon Fuller (i) securing
Mr. Fullers long-term creative services as a
consultant, (ii) providing CKX with an option to invest in
XIX Entertainment Limited, a new entertainment company that
Mr. Fuller has launched, and (iii) agreeing to the
71
termination of Mr. Fullers employment with 19
Entertainment. Upon entering into these agreements,
Mr. Fuller resigned as a director of CKX and as Chief
Executive Officer of 19 Entertainment. Pursuant to the
consultancy agreement, the Company has engaged Mr. Fuller
to provide services, including executive producer services, in
respect of the Companys IDOLS and So You Think
You Can Dance programs. In consideration for providing these
services, Mr. Fuller received 10% of the Companys net
profits from each of the aforementioned programs for the life of
the programs as long as Mr. Fuller continues to provide
consulting services with respect to such programs. For calendar
year 2010, Mr. Fuller received $5.0 million as an
advance against the consulting fee, which was paid in the year
ended December 31, 2010. For each year after 2010, subject
to certain conditions, Mr. Fuller will receive, as an
annual advance against the consulting fee, $3.0 million if
American Idol remains on the air and $2.0 million if
So You Think You Can Dance remains on the air. The
advances are non-refundable to CKX, but CKX may recoup the
amount of such advances within each year from the consulting fee
payable to Mr. Fuller. For the year ended December 31,
2010, the Company has recorded $9.1 million of the
consulting fee to cost of sales.
In addition to the aforementioned payment, Mr. Fuller
received an incremental $2.3 million in consideration for
providing creative and strategic advice with respect to the
overall business of CKX for the six-month period through
July 13, 2010. The Company also paid Mr. Fuller
$0.8 million in January 2010, representing consideration
for CKXs option to invest in Mr. Fullers new
entertainment company. The Company elected not to exercise the
option, which expired on March 15, 2010.. Mr. Fuller
also received $2.0 million in separation payments. The
Company recorded $0.6 million of share-based compensation
expense in the year ended December 31, 2010 due to the
acceleration of the vesting of stock options held by
Mr. Fuller upon the termination of his employment agreement
(see Note 12). The Company recorded $5.6 million to
the provision for severance and other restructuring-related
costs in the year ended December 31, 2010 related to these
agreements with Mr. Fuller.
In connection with the transaction with Simon Fuller described
above, management undertook a review of each of the businesses
conducted by 19 Entertainment and determined to focus its
efforts principally around its established IDOLS and
So You Think You Can Dance brands. Following this review,
management exited most of the other businesses within 19
Entertainment in 2010.
In pursuit of the Companys business plan, on
August 11, 2010, certain of the businesses and assets of
19 Entertainment that the Company chose to exit were sold
to XIX Management Limited, a company owned and controlled by
Simon Fuller. These businesses and assets, which included the
Companys interest in Beckham Brands Limited, an interest
in a fashion-based partnership and certain U.K. recorded music
and management assets, were sold for the approximate book value
of the transferred business. For the year ended
December 31, 2010, these businesses generated
$6.7 million of revenue, had an operating loss of
$1.4 million and had equity in earnings of unconsolidated
subsidiaries of $0.6 million. For the 2009 fiscal year, the
businesses had revenue of $10.0 million, operating income
of $0.5 million and equity in earnings of affiliates of
$0.6 million. The impact of these divested businesses was
not deemed significant to warrant disclosure as discontinued
operations. As part of this transaction, 60 of the
Companys employees whose functions were dedicated to the
transferred businesses became direct employees of XIX Management
and/or
affiliates thereof and XIX Management
and/or its
affiliates assumed certain lease obligations from the Company.
Because XIX Management Limited is owned and controlled by Simon
Fuller, the above described transaction was deemed a related
party transaction. The terms of the agreement with XIX
Management were reached following extensive arms-length
negotiation between the parties. The Board of Directors, acting
upon the unanimous approval and recommendation of our
independent directors, approved the transaction.
In addition to the transaction described above, during the year
ended December 31, 2010, the Company terminated or exited
certain other business activities at 19 Entertainment. As a
result of this and the transaction with XIX Management, the
Company has substantially reduced 19 Entertainments
spending on programming and new development projects and the
associated selling, general and administrative expenses. As of
December 31, 2010, the Company has reduced 19
Entertainments headcount from 245 to 90. The Company
expects that the reduction in headcount and certain other costs
will result in annualized cost savings of approximately
$20 million at 19 Entertainment, of which
approximately $10 million were realized in 2010.
In connection with the actions described above, for the year
ended December 31, 2010, the Company incurred severance and
other restructuring-related costs, including charges related to
the closure of several offices, of
72
$19.3 million. Certain management, legal and accounting
functions at 19 Entertainment were absorbed by the
Companys corporate staff.
The following table outlines the details of the components of
the restructuring charges, including costs for the transaction
with Simon Fuller, and the payments made in the year ended
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for the
|
|
|
Payments/Writeoffs/Vesting
|
|
|
|
|
|
|
Year Ended
|
|
|
During the Year Ended
|
|
|
Liability as of
|
|
|
|
December 31, 2010
|
|
|
December 31, 2010
|
|
|
December 31, 2010
|
|
|
Severance and other employee-related termination costs
|
|
$
|
7,300
|
|
|
$
|
(6,894
|
)
|
|
$
|
406
|
|
Costs associated with transaction with Simon Fuller
|
|
|
5,564
|
|
|
|
(5,564
|
)
|
|
|
|
|
Costs associated with termination of leases related to office
closures
|
|
|
3,318
|
|
|
|
(1,796
|
)
|
|
|
1,522
|
|
Costs associated with termination of projects and ventures
|
|
|
1,776
|
|
|
|
(1,625
|
)
|
|
|
151
|
|
Other
|
|
|
1,333
|
|
|
|
(1,236
|
)
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,291
|
|
|
$
|
(17,115
|
)
|
|
$
|
2,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the year ended December 31, 2009, the Company recorded a
provision for severance costs of $1.4 million at the Ali
Business, which was reclassified to the provision for severance
and other restructuring-related costs from selling, general and
administrative expenses to conform to the 2010 presentation.
|
|
4.
|
Executive
Separation Costs
|
Robert F.X. Sillerman resigned as Chairman and Chief Executive
Officer of the Company and from the Companys Board of
Directors, effective as of May 7, 2010. In connection with
his resignation, Mr. Sillerman and the Company entered into
a separation and consulting agreement, pursuant to which the
Company agreed to treat Mr. Sillermans resignation as
a constructive termination without cause for
purposes of Mr. Sillermans pre-existing employment
agreement with the Company. As a result, Mr. Sillerman
received a cash severance payment of $3.4 million, which
amount became payable six months following the date of
Mr. Sillermans separation from the Company. The
Company has also agreed to provide Mr. Sillerman with
$25,000 in each of 2010, 2011 and 2012, and $10,000 each year
thereafter, to cover certain of Mr. Sillermans health
insurance costs. All Company stock options held by
Mr. Sillerman under the Companys 2005 Omnibus
Long-Term Incentive Compensation Plan became immediately
exercisable in connection with his termination and, subject to
Mr. Sillermans compliance with certain terms of the
separation and consulting agreement, will remain exercisable for
the remainder of their original term. The Company recorded
$1.3 million of share-based compensation expense in the
year ended December 31, 2010 related to this accelerated
vesting (see Note 13).
Mr. Sillerman and the Company also entered into a
non-exclusive consulting arrangement whereby Mr. Sillerman
is receiving a consulting fee of $1.0 million in
consideration for his continued availability to promote the best
interests of the Company and its subsidiaries on a monthly basis
for a one-year period ending on May 30, 2011. In addition
to the consulting fee, Mr. Sillerman is being reimbursed
for the monthly cost of certain business expenses through
December 31, 2011, at a monthly amount of $25,000. The
Company also recorded severance costs of $0.3 million
related to the termination of two employees who reported to
Mr. Sillerman , professional fees of $0.1 million
related to the separation with Mr. Sillerman and
$0.9 million related to a consulting agreement with a
former executive as the Company has determined that it will not
require any services in the future under this agreement.
In consideration for the severance payment and the consulting
fee, Mr. Sillerman released the Company from all claims
arising out of his employment, shareholder
and/or other
relationship with the Company and the termination of such
relationships. The indemnification and confidentiality
provisions in Mr. Sillermans pre-existing employment
agreement are to remain in full force and effect and the Company
and Mr. Sillerman agreed to enter into a mutual
non-disparagement provision.
73
The following table outlines the details of the executive
separation costs and the payments made in the year ended
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for the
|
|
|
Payments/Vesting
|
|
|
|
|
|
|
Year Ended
|
|
|
During the Year Ended
|
|
|
Liability as of
|
|
|
|
December 31, 2010
|
|
|
December 31, 2010
|
|
|
December 31, 2010
|
|
|
Severance and other one-time costs
|
|
$
|
3,812
|
|
|
$
|
(3,812
|
)
|
|
$
|
|
|
Consulting costs
|
|
|
1,824
|
|
|
|
(671
|
)
|
|
|
1,153
|
|
Share-based compensation costs due to acceleration of stock
options
|
|
|
1,297
|
|
|
|
(1,297
|
)
|
|
|
|
|
Office and other administrative costs
|
|
|
500
|
|
|
|
(200
|
)
|
|
|
300
|
|
Health insurance costs
|
|
|
222
|
|
|
|
(36
|
)
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,655
|
|
|
$
|
(6,016
|
)
|
|
$
|
1,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Transactions
Involving FX Real Estate and Entertainment Inc.
|
About
FXRE
CKX acquired an aggregate approximate 50% interest in FX Real
Estate and Entertainment Inc. (FXRE) in June and
September of 2007. On January 10, 2008, CKX distributed
100% of its interests in FXRE to CKXs stockholders. The
following information about FXRE is provided solely as selected
background for the description of the historical transactions
between the Company and FXRE. The Company does not own any
interest in FXRE, has not guaranteed any obligations of FXRE,
nor is it a party to any continuing material transactions with
FXRE.
Terminated
License Agreements
Simultaneous with our investment in FXRE, EPE entered into a
worldwide license agreement with FXRE, granting FXRE the
exclusive right to utilize Elvis Presley-related intellectual
property in connection with the development, ownership and
operation of Elvis Presley-themed hotels, casinos and certain
other real estate-based projects and attractions around the
world. FXRE also entered into a worldwide license agreement with
the Ali Business, granting FXRE the right to utilize Muhammad
Ali-related intellectual property in connection with Muhammad
Ali-themed hotels and certain other real estate-based projects
and attractions.
Under the terms of the license agreements, FXRE was required to
pay to EPE and the Ali Business a specified percentage of the
gross revenue generated at the properties that incorporate the
Elvis Presley and Muhammad Ali intellectual property, as
applicable. FXRE was required to pay a guaranteed annual minimum
royalty during each year of the agreements, which amount was to
be recoupable against royalties paid during such year as
described above. The aggregate guaranteed minimum royalty due
for 2007 of $10.0 million, together with interest of
$0.4 million, was paid to the Company in April 2008 and was
deferred under the Companys revenue recognition policy.
As a result of the termination of the license agreements on
March 9, 2009, following FXREs failure to make the
$10 million annual guaranteed minimum royalty payments for
2008 when due, EPE and the Ali Business entered into a
Termination, Settlement and Release agreement with FXRE,
pursuant to which the parties agreed to terminate the EPE and
Ali Business license agreements and to release each other from
all claims related to or arising from such agreements. The
$10.0 million in 2007 license revenue was recognized in
March 2009 upon termination of the license agreement.
Redeemable
Restricted Common Stock
As of December 31, 2010, 534,082 shares remain subject
to the Put and Call Option Agreement entered into in connection
with the acquisition of 19 Entertainment and can be put to the
Company beginning March 17, 2011 (see Note 17). The
Companys total obligation in the event all of the shares
are put to the Company is $7.0 million. These
74
shares represent a single equity instrument. As the stock is
puttable to the Company at the option of these sellers, these
shares are presented in the accompanying consolidated balance
sheet as temporary equity under the heading Redeemable
Restricted Common Stock at an estimated fair value inclusive of
the put/call rights; the fair value of the remaining
534,082 shares is $7.3 million.
Series B
Convertible Preferred Stock
Each share of Series B Convertible Preferred Stock has a
stated value of $15.30 and entitles the holder to receive an
annual dividend calculated at a rate of 8% of the stated value.
The Series B Convertible Preferred Stock is valued for
accounting purposes at its stated value of $15.30 per share,
which approximated its fair value on issuance.
The shares of Series B Convertible Preferred Stock are
convertible by their holders into shares of common stock at any
time at a conversion price equal to the stated value, subject to
adjustments in connection with standard anti-dilution
protections for stock splits, stock dividends and
reorganizations. The shares of Series B Convertible
Preferred Stock become convertible at the Companys option
from and after the third anniversary of the date of issuance,
if, at any time, the average closing price of the Companys
common stock over a thirty day trading period equals or exceeds
150% of the conversion price.
The holders of the Series B Preferred Stock vote with the
holders of Common Stock on all matters on an as converted basis
and vote separately as a class with respect to authorizing any
of the following: (i) an increase in the authorized number
of shares of Series B Preferred Stock, (ii) the
issuance of additional shares of Series B Preferred Stock,
(iii) the creation or issuance of any equity securities
having rights, preferences or privileges senior to or on parity
with the Series B Preferred Stock, (iv) amending the
Companys Certificate of Incorporation or By-Laws in a
manner that is adverse to the Series B Preferred Stock,
(v) the declaration or payment of dividends on equity
securities ranking on a parity with or junior to the
Series B Preferred Stock, and (vi) the repurchase or
redemption of any of the Companys outstanding equity
securities other than shares of the Series B Preferred
Stock.
During the period beginning August 7, 2012 and ending
August 7, 2013, the Company can, at its sole discretion,
redeem the outstanding shares of Series B Convertible
Preferred Stock, in whole or in part, for an aggregate price
equal to the stated value plus accrued but unpaid dividends
through the date of redemption. If the Company does not exercise
this redemption right, the conversion price for all remaining
shares of Series B Convertible Preferred Stock is
thereafter reduced to the lower of (i) the conversion price
then in effect and (ii) the average closing price of the
Companys common stock over a thirty day trading period
measured as of the last day of the redemption period.
Upon a liquidation of the Company, the holders of the
Series B Preferred Stock are entitled to receive in
preference to the holders of any other class or series of the
Companys equity securities, a cash amount per share equal
to the greater of (x) the stated value plus accrued but
unpaid dividends, or (y) the amount to which they would be
entitled to receive had they converted into Common Stock.
The Series B Convertible Preferred Stock has been
classified as permanent equity in the accompanying financial
statements as the security is redeemable in cash solely at the
option of the Company.
Series C
Convertible Preferred Stock
The Series C Convertible Preferred Stock is convertible
into one share of common stock and is pari passu with the
common stock with respect to dividends and distributions upon
liquidation. The Series C Convertible Preferred Stock is
not transferable and automatically converts into one share of
common stock at such time as The Promenade Trust, which owns a
15% interest in the Presley Business, ceases to own at least 50%
of the aggregate sum of the outstanding shares of Series B
Convertible Preferred Stock plus the shares of common stock
received upon conversion of the Series B Convertible
Preferred Stock. The holder of the Series C Convertible
Preferred Stock has the right to elect a designee to serve on
the Companys board of directors for no additional
compensation or expense.
Common
Stock
The Companys Credit Facility prohibits the Company from
paying cash dividends on its Common Stock.
75
Stockholder
Rights Plan
On June 23, 2010, the Company announced that the Board of
Directors had adopted a Stockholder Rights Plan (the
Rights Plan), also known as a poison
pill, to protect stockholders from potentially coercive
takeover tactics and to provide fair and equal treatment for all
of the Companys stockholders. Pursuant to the Rights Plan,
each outstanding share of common stock as of the record date
received a dividend of one preferred share purchase right (a
Right). Prior to exercise, the Rights do not give
its holders any dividend, voting or liquidation rights.
In the event that a person or group has obtained beneficial
ownership at least 15% of the Companys outstanding Common
Stock, the Rights become exercisable 10 days after the
public announcement of such an event. The holder of a Right
would then be entitled to purchase from the Company one
one-hundredth of a share of Series A Junior Participating
Preferred Stock for $20. This will give the stockholder
approximately the same dividend, voting and liquidation rights
as would one share of common stock. Stockholders who currently
hold 15% or more of the outstanding shares of Common Stock will
not trigger the exercisability of the Rights unless they acquire
beneficial ownership of an additional 1% or more of the
outstanding Common Stock. The terms of the Rights Plan may be
amended by the Board of Directors without the consent of the
holders of the Rights, provided that the Board of Directors may
not lower the threshold at which a person or group triggers the
Rights to below 10% of the outstanding common stock of the
Company. In addition, the Board of Directors may redeem the
Rights for $.01 per Right at any time before any person or group
triggers the Rights.
The Rights will expire upon the earlier to occur of the close of
business on June 22, 2020 and the time at which these
rights are redeemed or exchanged under the Rights Plan.
|
|
7.
|
Elvis
Presley Cirque du Soleil Show
|
Together with Cirque du Soleil and MGM MIRAGE, the Company
launched Viva ELVIS, a permanent live theatrical Cirque
du Soleil show based on the life and music of Elvis Presley. The
show, which is being presented at the ARIA Resort and Casino in
CityCenter on the strip in Las Vegas, Nevada, opened in February
2010. The show was developed and is operated in a partnership
jointly owned by Cirque du Soleil and the Company which has been
determined by the Company to be a variable interest entity. The
Company is not, for accounting purposes, the primary beneficiary
of the partnership because it does not have the power to direct
the activities of the partnership that most significantly impact
its economic performance and therefore accounts for its
investment under the equity method of accounting. The
Companys maximum exposure to loss as a result of its
involvement with the partnership is its funding for the show,
which is its investment in the partnership. The Company and
Cirque du Soleil each paid one-half ($26.4 million) of the
creative development and production costs of the show. These
development costs are being amortized over five years by the
partnership.
Additionally, another entity was created by Cirque du Soleil and
the Company to hold the intellectual property related to the
show, to collect royalty-related revenue based on the
profitability of the show and to distribute royalty payments to
the various rights holders of the shows intellectual
property. The Company licenses the Elvis Presley intellectual
property to this partnership. This entity also holds the rights
to intellectual property created during the creation of the show
and pays a royalty to other third party creators of the show. As
this partnership generates a distinct royalty stream, the
Company records the royalties earned related to intellectual
property it owns and it acquires through third parties as
revenue. Costs incurred to third parties by the Company are
recorded as expenses. The Company also recognized as revenue a
management fee it receives from the operating partnership to
cover any operational expenses incurred to support the
partnership.
The Company recorded revenue of $6.4 million and cost of
sales of $3.6 million in the year ended December 31,
2010 related to royalties on the Companys intellectual
property from the partnership with Cirque du Soleil for Viva
ELVIS. The Company recorded income of $0.1 million from
unconsolidated affiliates for the year ended December 31,
2010 related to the Companys investment in the Cirque du
Soleil operating partnership. The income is primarily due to an
operating profit on the show offset by certain one-time costs
associated with the gala opening of the show in February 2010.
Additionally, the Company recorded a return of production
capital of $5.8 million in the year ended December 31,
2010, including $1.8 million receivable at
December 31, 2010. The Companys net investment in the
partnership with Cirque du Soleil of $20.7 million at
December 31, 2010 is
76
recorded in the Presley Business Royalties and
Licensing segment within other assets on the accompanying
consolidated balance sheet.
|
|
8.
|
Comprehensive
Income (Loss)
|
The following table is a reconciliation of the Companys
net income to comprehensive income (loss) for the years ended
December 31, 2010, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net income (loss)
|
|
$
|
(12,526
|
)
|
|
$
|
26,368
|
|
|
$
|
21,208
|
|
Foreign currency translation adjustments
|
|
|
426
|
|
|
|
16,277
|
|
|
|
(64,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,100
|
)
|
|
|
42,645
|
|
|
|
(43,469
|
)
|
Net income attributable to noncontrolling interests
|
|
|
(1,366
|
)
|
|
|
(1,782
|
)
|
|
|
(2,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(13,466
|
)
|
|
$
|
40,863
|
|
|
$
|
(45,726
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in Functional Currency
As described in Note 3, Simon Fuller resigned as Chief
Executive Officer of 19 Entertainment and a director of the
Company in January 2010. This departure represented a
significant change in circumstances for the
19 Entertainment operating segment. This underlying event
caused management to undertake an assessment of the strategic
and structural needs of 19 Entertainments creative
development projects and market focus. These changes represent a
significant change in facts and circumstances in the context of
ASC 830, Foreign Currency Matters, such that
management reassessed the functional currency of the 19
Entertainment operating segment. The Company concluded that it
is appropriate to change the functional currency of
substantially all of the subsidiaries comprising the
19 Entertainment operating segment from U.K. pounds to
U.S. dollars. The Company effected this change as of
January 1, 2010. The change in functional currency had no
impact on the December 31, 2009 and 2008 financial
information previously included in the Companys 2009 and
2008
Form 10-Ks.
The impact of this change is that the 19 Entertainment operating
segment is measured in U.S. dollars effective
January 1, 2010. Historically, 19 Entertainment has
generated foreign currency gains and losses as transactions
denominated in U.S. dollars were re-measured into U.K.
pounds at the balance sheet date. As a result of the change, 19
Entertainments operating results reflect less foreign
currency-related volatility in 2010 and the 2010 operating
results of 19 Entertainment may not be directly comparable to
2009.
|
|
9.
|
Earnings
Per Share/Common Shares Outstanding
|
Basic earnings per share is calculated by dividing net income
attributable to CKX, Inc. before dividends on preferred stock by
the weighted-average number of shares outstanding during the
period. For the year ended December 31, 2010, diluted
earnings per share is the same as basic earnings per share as a
result of the Companys net loss in the current period.
Diluted earnings per share includes the determinants of basic
earnings per share and, in addition, gives effect to potentially
dilutive common shares, including one incremental share for the
assumed exercise of the Companys Series C preferred
stock. The diluted earnings per share calculations exclude the
impact of the conversion of 1,491,817 shares of
Series B Convertible Preferred shares and the impact of
employee stock plan awards that would be anti-dilutive. In
addition, for the years ended December 31, 2009 and 2008,
2,097,750 and 916,100 shares, respectively, were excluded
from the calculation of diluted earnings per share due to stock
plan awards that were anti-dilutive.
77
The following table shows the reconciliation of the
Companys basic common shares outstanding to the
Companys diluted common shares outstanding for the years
ended December 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Weighted average basic common shares outstanding (including
redeemable restricted common stock)
|
|
|
92,907,981
|
|
|
|
93,298,778
|
|
|
|
96,674,706
|
|
Incremental shares for assumed exercise of Series C
preferred stock, restricted stock, warrants and stock options
|
|
|
|
|
|
|
38,905
|
|
|
|
9,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted common shares outstanding (including
redeemable restricted common stock)
|
|
|
92,907,981
|
|
|
|
93,337,683
|
|
|
|
96,684,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
Intangible
Assets and Goodwill
|
The Company is required to perform a fair value-based impairment
test of goodwill and other intangible assets with indefinite
lives at least annually. The Company performed annual impairment
assessments of the carrying values of long-lived assets,
including indefinite-lived intangible assets and goodwill, on
October 1, 2010 and October 1, 2009 in accordance with
the methods outlined in Note 2.
The Company evaluated the recoverability of goodwill and
intangible assets with indefinite lives using a two-step
impairment test approach at the reporting unit level. In step
one, the fair values of the Companys reporting units were
estimated using the present values of cash flows, using
assumptions about expected future cash flows, growth rates and
discount rates. The assumptions about future cash flows and
growth rates were based on the Companys internal budget
and business plans. Discount rate assumptions were based on an
assessment of the risk inherent in the respective reporting
units. The results of step one in 2010 indicated that the book
values of the Ali Business and MBST reporting units exceeded the
fair value of the respective businesses. Therefore, step two was
performed which compared the implied fair value of each
reporting units goodwill to the book value of the goodwill
and other intangible assets with indefinite lives. As a result
of the assessment on October 1, 2010, non-cash impairment
charges of $17.6 million ($11.6 million, net of tax)
were recognized to reduce the carrying amount of the Ali
Business trademarks by $16.5 million and goodwill by
$1.1 million and of $2.2 million to write-off
MBSTs remaining goodwill in the year ended
December 31, 2010. These impairment charges recorded in the
fourth quarter of 2010 for the Ali Business resulted from the
decision not to pursue certain potential projects in 2010 and
the additional impairment charges recorded in the fourth quarter
of 2010 for MBST resulted from less work expected to be
performed by certain clients.
Additionally, as noted in Note 3, management completed a
review of each of the businesses conducted by
19 Entertainment. Following this review, the Company
determined to focus its efforts principally around its
established IDOLS and So You Think You Can Dance
brands and to exit most of the other businesses within 19
Entertainment. These actions were a triggering event and the
Company therefore evaluated the 19 Entertainment goodwill and
intangible assets for impairment. As a result of this review, a
non-cash impairment charge of $2.2 million was recognized
in the year ended December 31, 2010 to fully reduce the
carrying amount of goodwill of one of its subsidiaries that was
closed. No other 19 Entertainment goodwill and intangible assets
were impaired.
As a result of the assessment on October 1, 2009, no
impairment charges were recorded as the carrying value of all of
the Companys long-lived assets did not exceed estimated
future cash flows. As a result of Simon Fullers
termination of employment at 19 Entertainment as discussed in
Note 3, the Company recorded a non-cash impairment charge
of $2.5 million in 2009 to reduce the carrying amount of
assets of Storm.
78
Indefinite lived intangible assets as of December 31, 2010
consist of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
Balance at
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
Impairment
|
|
|
2010
|
|
|
Presley trademarks, publicity rights and other intellectual
property
|
|
$
|
38,165
|
|
|
$
|
|
|
|
$
|
38,165
|
|
Ali trademarks, publicity rights and other intellectual property
|
|
|
28,200
|
|
|
|
(16,500
|
)
|
|
|
11,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
66,365
|
|
|
$
|
(16,500
|
)
|
|
$
|
49,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Definite lived intangible assets as of December 31, 2010
consist of (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Useful Life
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
(In years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Presley record, music publishing, film and video rights
|
|
|
9.1
|
|
|
$
|
28,900
|
|
|
$
|
(11,242
|
)
|
|
$
|
17,658
|
|
Other Presley intangible assets
|
|
|
11.2
|
|
|
|
13,622
|
|
|
|
(7,812
|
)
|
|
|
5,810
|
|
19 Entertainment IDOLS television programming, merchandising and
sponsorship relationships
|
|
|
1.3
|
|
|
|
64,517
|
|
|
|
(52,798
|
)
|
|
|
11,719
|
|
19 Entertainment other artist management, recording,
merchandising, sponsorship and model relationships
|
|
|
1.6
|
|
|
|
17,954
|
|
|
|
(15,313
|
)
|
|
|
2,641
|
|
MBST artist contracts, profit participation rights and other
intangible assets
|
|
|
2.7
|
|
|
|
4,270
|
|
|
|
(3,827
|
)
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
129,263
|
|
|
$
|
(90,992
|
)
|
|
$
|
38,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross carrying amount of intangible assets of
$129.3 million as of December 31, 2010 in the table
above differs from the amount of $129.4 million as of
December 31, 2009 in the table below due to foreign
currency movements of $0.1 million.
Definite lived intangible assets as of December 31, 2009
consist of (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Presley record, music publishing, film and video rights
|
|
$
|
28,900
|
|
|
$
|
(9,298
|
)
|
|
$
|
19,602
|
|
Other Presley intangible assets
|
|
|
13,622
|
|
|
|
(6,538
|
)
|
|
|
7,084
|
|
19 Entertainment IDOLS television programming, merchandising and
sponsorship relationships
|
|
|
64,517
|
|
|
|
(43,423
|
)
|
|
|
21,094
|
|
19 Entertainment other artist management, recording,
merchandising, sponsorship and model relationships
|
|
|
18,087
|
|
|
|
(13,387
|
)
|
|
|
4,700
|
|
MBST artist contracts, profit participation rights and other
intangible assets
|
|
|
4,270
|
|
|
|
(3,306
|
)
|
|
|
964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
129,396
|
|
|
$
|
(75,952
|
)
|
|
$
|
53,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for definite lived intangible assets was
$15.1 million, $15.0 million and $17.9 million
for the years ended December 31, 2010, 2009 and 2008,
respectively. At December 31, 2010, the projected annual
79
amortization expense for definite lived intangible assets for
the next five years, assuming no further acquisitions or
dispositions, is as follows (in thousands):
|
|
|
|
|
Year Ending December 31,
|
|
|
|
|
2011
|
|
$
|
13,800
|
|
2012
|
|
|
5,800
|
|
2013
|
|
|
3,100
|
|
2014
|
|
|
2,900
|
|
2015
|
|
|
2,100
|
|
Goodwill as of December 31, 2010 consists of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
Balance at
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
Impairments
|
|
|
2010
|
|
|
Presley royalties and licensing
|
|
$
|
14,413
|
|
|
$
|
|
|
|
$
|
14,413
|
|
Presley Graceland operations
|
|
|
10,166
|
|
|
|
|
|
|
|
10,166
|
|
19 Entertainment
|
|
|
89,009
|
|
|
|
(2,214
|
)
|
|
|
86,795
|
|
MBST
|
|
|
2,175
|
|
|
|
(2,175
|
)
|
|
|
|
|
Ali Business
|
|
|
1,110
|
|
|
|
(1,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
116,873
|
|
|
$
|
(5,499
|
)
|
|
$
|
111,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On March 12, 2010, the Company entered into an amendment to
its revolving credit agreement with various lenders (the
Credit Facility). As a result of the amendment:
(i) the maximum size of the Credit Facility was reduced
from $141.7 million to $100.0 million, (ii) the
lenders agreed to remove a provision which tied an event of
default under the Credit Facility to a reduction in the
percentage of stock owned by Robert F.X. Sillerman, our former
Chairman and Chief Executive Officer, below a certain level and
(iii) the Company agreed to the removal of the
Incremental Facilities provision, which had provided
the Company with an option to seek additional term loan
commitments from the lenders in excess of the amount available
under the Credit Facility. As a result of this amendment and the
previous borrowings by the Company, there are no additional
borrowings available under the Credit Facility. The Company has
written off $0.2 million of deferred financing fees to
interest expense in the year ended December 31, 2010 for
the reduction in the size of the Credit Facility.
A commitment fee of 0.375%-0.50% on any daily unused portion of
the Credit Facility was payable monthly in arrears through the
date of the amendment entered into by the Company as described
above (March 12, 2010). Under the Credit Facility, the
Company may make Eurodollar borrowings or base rate borrowings.
The $100.0 million outstanding at December 31, 2010
bears interest at the Eurodollar rate resulting in an effective
annual interest rate at December 31, 2010 of 1.79% based
upon a margin of 150 basis points. Deferred financing fees
are included in other assets on the consolidated balance sheet
and are amortized over the remaining term of the agreement,
which ends on May 24, 2011.
The Credit Facility contains covenants that regulate the
Companys and its subsidiaries incurrence of debt,
disposition of property, acquisitions and joint ventures,
payment of cash dividends and capital expenditures. The Company
and its subsidiaries were in compliance with all financial and
non-financial loan covenants as of December 31, 2010.
The Company is required to repay the Credit Facility in full on
or before May 24, 2011. Based on the remaining term of the
Credit Facility the outstanding principal amount has been
classified as a current liability in the accompanying
consolidated balance sheet at December 31, 2010. The
Company intends to repay the $100.0 million outstanding
balance on the Credit Facility from a combination of cash on
hand and expected proceeds from a new credit facility or other
debt financing which we expect to complete prior to the maturity
date of the Credit Facility. Although the Company believes that
it will be able to secure such financing prior to the expiration
of the Credit Facility, the availability and terms of such debt
will be dependent upon a number of factors including the
Companys
80
current and future performance and overall conditions in the
credit markets. The Company expects that the interest rate on
any new debt financing will be higher than the rate is currently
paid on the existing Credit Facility. See Note 20 for a
description of the Companys commitment letter to amend and
restate the Credit Facility.
The fair value of the Companys debt has been calculated
using a present value model and an observable market rate is
$99.0 million as of December 31, 2010, reflecting the
favorable interest rates on the Companys debt instruments.
The scheduled repayments of debt outstanding as of
December 31, 2010, are as follows (in thousands):
|
|
|
|
|
|
Years Ending December 31,
|
|
|
|
|
2011
|
|
$
|
100,515
|
|
2012
|
|
|
131
|
|
|
|
|
|
|
|
|
$
|
100,646
|
|
|
|
|
|
|
Changes in stockholders equity attributable to CKX, Inc.
and non-controlling interests for the year ended
December 31, 2010 and 2009 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling
|
|
|
|
|
|
|
CKX, Inc.
|
|
|
Interests
|
|
|
Total
|
|
|
Balance at January 1, 2010
|
|
$
|
278,734
|
|
|
$
|
6,241
|
|
|
$
|
284,975
|
|
Net income (loss)
|
|
|
(13,892
|
)
|
|
|
1,366
|
|
|
|
(12,526
|
)
|
Distributions/distributions payable to noncontrolling interest
shareholders
|
|
|
|
|
|
|
(1,700
|
)
|
|
|
(1,700
|
)
|
Series B preferred dividends
|
|
|
(1,824
|
)
|
|
|
|
|
|
|
(1,824
|
)
|
Other comprehensive income (loss)
|
|
|
426
|
|
|
|
|
|
|
|
426
|
|
Non-cash compensation and other
|
|
|
3,419
|
|
|
|
(18
|
)
|
|
|
3,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
266,863
|
|
|
$
|
5,889
|
|
|
$
|
272,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling
|
|
|
|
|
|
|
CKX, Inc.
|
|
|
Interests
|
|
|
Total
|
|
|
Balance at January 1, 2009
|
|
$
|
237,461
|
|
|
$
|
5,279
|
|
|
$
|
242,740
|
|
Net income
|
|
|
24,586
|
|
|
|
1,782
|
|
|
|
26,368
|
|
Distributions/distributions payable to noncontrolling interest
shareholders
|
|
|
|
|
|
|
(2,600
|
)
|
|
|
(2,600
|
)
|
Series B preferred dividends
|
|
|
(1,824
|
)
|
|
|
|
|
|
|
(1,824
|
)
|
Other comprehensive income
|
|
|
16,277
|
|
|
|
|
|
|
|
16,277
|
|
Purchase of 51% interest in business
|
|
|
|
|
|
|
1,813
|
|
|
|
1,813
|
|
Non-cash compensation and other
|
|
|
2,234
|
|
|
|
(33
|
)
|
|
|
2,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
278,734
|
|
|
$
|
6,241
|
|
|
$
|
284,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys 2005 Omnibus Long-Term Incentive Compensation
Plan (the 2005 Plan) was approved by shareholders in
March 2005. Under the 2005 Plan, the maximum number of shares of
common stock that may be subject to stock options, stock awards,
deferred shares, or performance shares is 4,000,000. Shares
available for future grants under the 2005 Plan were 726,878 at
December 31, 2010. The Companys policy for issuing
share-based awards is to utilize shares eligible under the 2005
Plan.
81
Restricted
Stock Grants
The Company issued 200,000 restricted shares to an executive in
2008. These restricted shares were valued at $1.7 million
and were subject to various vesting requirements. For the year
ended December 31, 2008, the full value of the grant was
charged to non-cash compensation as the grant was fully vested
because performance targets were met. The Company issued 55,500
restricted shares to employees valued at $0.7 million in
2007. These shares are subject to various vesting requirements
and the grants are charged to non-cash compensation expense
ratably over the vesting periods, which do not exceed five
years. As of December 31, 2010, 13,600 of restricted shares
granted to employees with a weighted average grant date fair
value of $12.07 remain unvested. As of December 31, 2009,
25,500 restricted shares granted to employees with a weighted
average grant date fair value of $12.06 were unvested. A
cumulative total of 12,300 restricted shares have been forfeited
as of December 31, 2010 and therefore will not vest, of
which 3,400 with a weighted average grant date fair value of
$12.03 were forfeited during 2010. No restricted shares were
issued in 2009 or 2010.
Stock
Option Grants
The Company granted 1,296,500, 1,412,000 and 223,500 stock
options to employees in 2010, 2009 and 2008, respectively. These
options vest 20% on each anniversary of the respective dates of
grant. Excluding options which were vested on an accelerated
basis during 2010 as discussed in Notes 3 and 4, options
vest 20% on each of the first five anniversaries of the date of
grant. The options expire 10 years from the date of grant
and were granted with an exercise price equal to the weighted
average fair market value of the underlying common stock on the
date of grant. Compensation expense is recognized ratably over
the vesting period, assuming 10%-40% of the options granted will
not vest. The vesting assumption depends on the specific
employee or group of employees granted options.
As noted in Notes 3 and 4, respectively, the Company also
recorded $1.3 million of additional expense to executive
separation costs in the year ended December 31, 2010 due to
the acceleration of stock options held by Robert F.X. Sillerman
upon his separation from the Company and $0.6 million of
additional expense to provision for severance and other
restructuring-related costs in the year ended December 31,
2010 due to the acceleration of the vesting of stock options
held by Simon Fuller upon the termination of his employment
agreement.
Compensation expense for stock option grants is being recognized
ratably over the vesting period, assuming a weighted average of
83% of the options granted in 2010 will ultimately vest.
The following assumptions were used in valuing stock options
granted during the years ended December 31, 2010, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Risk-free average interest rate
|
|
|
3.1
|
%
|
|
|
2.4
|
%
|
|
|
3.1
|
%
|
Volatility
|
|
|
41.9
|
%
|
|
|
44.8
|
%
|
|
|
37.0
|
%
|
Expected life (years)
|
|
|
6.5
|
|
|
|
6.5
|
|
|
|
6.5
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Weighted average grant date fair value
|
|
$
|
2.61
|
|
|
$
|
1.99
|
|
|
$
|
3.54
|
|
The Company estimated forfeitures based on its experience of
management and employee forfeitures. Due to the Companys
short operating history of approximately six years, the expected
volatility is based on the Companys historical share price
volatility and an analysis of comparable public companies
operating in our industry. Also due to the Companys short
operating history, the Company estimates the expected life of
each option granted by taking the average of the minimum and
maximum life for each vesting tranche. The Company calculated a
risk-free rate based upon the rates on five and ten year
treasury notes at the dates of grant.
82
A summary of the status of the Companys stock options as
of December 31, 2010 and 2009 and changes during the years
then ended are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Balance outstanding at beginning of year
|
|
|
2,072,250
|
|
|
$
|
6.52
|
|
|
|
712,100
|
|
|
$
|
11.42
|
|
|
|
515,000
|
|
|
$
|
12.75
|
|
Granted
|
|
|
1,296,500
|
|
|
$
|
5.61
|
|
|
|
1,412,000
|
|
|
$
|
4.19
|
|
|
|
223,500
|
|
|
$
|
8.28
|
|
Exercised
|
|
|
(10,800
|
)
|
|
$
|
4.19
|
|
|
|
(1,500
|
)
|
|
$
|
4.19
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(678,350
|
)
|
|
$
|
6.16
|
|
|
|
(50,350
|
)
|
|
$
|
10.59
|
|
|
|
(26,400
|
)
|
|
$
|
10.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding at end of year
|
|
|
2,679,600
|
|
|
$
|
6.18
|
|
|
|
2,072,250
|
|
|
$
|
6.52
|
|
|
|
712,100
|
|
|
$
|
11.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance exercisable at end of year
|
|
|
1,423,100
|
|
|
$
|
6.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance expected to vest in future years
|
|
|
1,150,566
|
|
|
$
|
5.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expected compensation cost not yet recognized for stock
options as of December 31, 2010 is $2.5 million and
the weighted average future period for recognizing this cost is
3.5 years. The weighted average remaining life of
outstanding stock options is 8.1 years which approximates
the weighted average remaining contractual term. Total
compensation cost not yet recognized for all restricted stock
grants as of December 31, 2010 is $0.2 million and the
weighted average remaining vesting period is 1.2 years.
Compensation expense for all stock plan awards to employees for
the years ended December 31, 2010, 2009 and 2008 were
$3.0 million, $1.3 million and $2.5 million,
respectively. The Company issued 59,657, 59,076 and
38,628 shares to independent directors as compensation in
the years ended December 31, 2010, 2009 and 2008,
respectively. Related compensation expense for all stock
issuances to independent directors in the years ended
December 31, 2010, 2009 and 2008 were $0.4 million,
$0.3 million and $0.3 million, respectively.
Domestic and foreign income (loss) from continuing operations
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Domestic operations
|
|
$
|
(39,017
|
)
|
|
$
|
(7,039
|
)
|
|
$
|
(4,785
|
)
|
Foreign operations
|
|
|
24,772
|
|
|
|
48,189
|
|
|
|
37,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and equity in earnings of
affiliates
|
|
$
|
(14,245
|
)
|
|
$
|
41,150
|
|
|
$
|
33,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
The provision (benefit) for income taxes consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Current provision
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(1,727
|
)
|
|
$
|
423
|
|
|
$
|
9,369
|
|
Foreign
|
|
|
8,555
|
|
|
|
9,636
|
|
|
|
17,509
|
|
State
|
|
|
690
|
|
|
|
1,276
|
|
|
|
3,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,518
|
|
|
|
11,335
|
|
|
|
30,353
|
|
Deferred provision (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(4,801
|
)
|
|
|
6,584
|
|
|
|
(10,226
|
)
|
Foreign
|
|
|
(3,095
|
)
|
|
|
(3,376
|
)
|
|
|
(3,951
|
)
|
State
|
|
|
(665
|
)
|
|
|
815
|
|
|
|
(1,746
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,561
|
)
|
|
|
4,023
|
|
|
|
(15,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
(1,043
|
)
|
|
$
|
15,358
|
|
|
$
|
14,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) as reported is different than
income tax expense (benefit) computed by applying the statutory
federal rate of 35% in 2010, 2009 and 2008. The differences are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Income tax expense (benefit) at statutory federal rate
|
|
$
|
(4,986
|
)
|
|
$
|
14,402
|
|
|
$
|
11,591
|
|
Effect of state and local income taxes
|
|
|
540
|
|
|
|
1,360
|
|
|
|
1,124
|
|
Foreign earnings
|
|
|
5,627
|
|
|
|
6,261
|
|
|
|
13,558
|
|
Foreign tax credits
|
|
|
(6,564
|
)
|
|
|
(7,597
|
)
|
|
|
(14,784
|
)
|
Income taxed directly to noncontrolling interests
|
|
|
(470
|
)
|
|
|
(414
|
)
|
|
|
(314
|
)
|
Transaction related costs
|
|
|
|
|
|
|
(794
|
)
|
|
|
(792
|
)
|
Impairment charge
|
|
|
2,848
|
|
|
|
884
|
|
|
|
2,773
|
|
Sale of business
|
|
|
805
|
|
|
|
|
|
|
|
|
|
Other permanently non-deductible related items
|
|
|
1,157
|
|
|
|
1,256
|
|
|
|
1,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
(1,043
|
)
|
|
$
|
15,358
|
|
|
$
|
14,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2010 impact of the impairment charge of $2.8 million
relates to a Presley Business former rental property, 19
Entertainment goodwill, Ali Business goodwill and MBST goodwill.
The 2009 impairment impact is related to Storm. The 2008
impairment impact is related to MBST.
In preparing the 2010 tax provision, the Company identified $1.1
million of additional tax expense relating to prior fiscal
years. The impact of these adjustments was determined not to
have a material impact on the current year and prior years
reported consolidated financial statements.
84
Significant components of the Companys net deferred tax
assets (liabilities) are as follows (the 2009 current deferred
tax assets were reclassified to conform with the 2010
presentation):.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
298
|
|
|
$
|
338
|
|
Accounts receivable
|
|
|
735
|
|
|
|
451
|
|
Accrued expenses
|
|
|
1,343
|
|
|
|
304
|
|
Other
|
|
|
101
|
|
|
|
225
|
|
|
|
|
|
|
|
|
|
|
Current deferred income tax assets
|
|
|
2,477
|
|
|
|
1,318
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
Foreign tax credits
|
|
|
22,944
|
|
|
|
23,827
|
|
Property and equipment
|
|
|
2,549
|
|
|
|
1,012
|
|
Deferred revenue
|
|
|
313
|
|
|
|
256
|
|
Non-cash compensation
|
|
|
2,118
|
|
|
|
1,213
|
|
Less: valuation allowance
|
|
|
(22,831
|
)
|
|
|
(20,569
|
)
|
|
|
|
|
|
|
|
|
|
Non-current deferred income tax assets
|
|
|
5,093
|
|
|
|
5,739
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets, net
|
|
|
7,570
|
|
|
|
7,057
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
(9,817
|
)
|
|
|
(18,775
|
)
|
Investment
|
|
|
(4,039
|
)
|
|
|
(3,484
|
)
|
Unremitted earnings
|
|
|
|
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred income tax liabilities
|
|
|
(13,856
|
)
|
|
|
(22,367
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets (liabilities), net
|
|
$
|
(6,286
|
)
|
|
$
|
(15,310
|
)
|
|
|
|
|
|
|
|
|
|
The deferred income tax assets at December 31, 2010 and
December 31, 2009 were reduced by a valuation allowance of
$22.8 million and $20.6 million, respectively. The
valuation allowance is primarily due to uncertainty regarding
the future realizability of tax benefits related to future
foreign tax credit carryforwards.
The deferred tax liability for intangible assets decreased
primarily because of the impairment to the Ali business, the
timing of amortization for the Ryan Seacrest deal and
amortization of the 19 Entertainment intangible assets.
The foreign tax credits will start to expire as of
December 31, 2017.
The Companys uncertain tax positions relate primarily to
state, local and foreign tax issues, as well as accounting
method issues. The Companys uncertain tax positions,
including interest and penalties, are reflected in the tax
payable account. The Company does not expect any material
changes to the estimated amount of liability associated with its
uncertain tax positions through December 31, 2011. If all
the uncertain tax positions were settled
85
favorably with the taxing authorities, there would be a 27.6%
adjustment to the effective tax rate. A reconciliation of the
beginning and ending amount of unrecognized benefit is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Balance at January 1
|
|
$
|
1,817
|
|
|
$
|
193
|
|
|
$
|
193
|
|
Increases/(decreases) related to prior period positions
|
|
|
1,223
|
|
|
|
1,624
|
|
|
|
|
|
Increases/(decreases) related to current period positions
|
|
|
|
|
|
|
|
|
|
|
|
|
Decreases due to settlements with taxing authorities
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
Decreases due to lapse of statute of limitations
|
|
|
(291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
2,712
|
|
|
$
|
1,817
|
|
|
$
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company generally recognizes accrued interest and penalties
related to uncertain tax positions through income tax expense.
As of December 31, 2010, the Company had approximately
$1.2 million accrued for interest and penalties. For the
year ended December 31, 2010, the Company accrued interest
and penalties of approximately $0.7 million.
Open tax years related to federal, state and local filings are
for the years ended December 31, 2007, through 2010. The
Internal Revenue Service is in the process of auditing the
Companys tax year ended December 31, 2007. France is
in the process of auditing the business activities of 19
Entertainment Limited for the years ending December 31,
2003 through December 31, 2008. The United Kingdoms
Revenue & Customs (HMRC) is in the process
of reviewing the 19 Entertainment Ltd. UK groups tax year
ended December 31, 2008.
The Company has four reportable segments: Presley
Business Royalties and Licensing, Presley
Business Graceland Operations, 19 Entertainment and
the Ali Business. In 2009, the Company began to report MBST in
the 19 Entertainment segment due to a change in management
structure; prior to 2009, MBST was reported as part of Corporate
and Other for segment purposes. All amounts reflected for 2008
have been recast to conform to the current presentation. These
designations have been made as the discrete operating results of
these segments are reviewed by the Companys chief
operating decision maker to assess performance and make
operating decisions. All inter-segment transactions have been
eliminated in the consolidated financial statements.
The Company evaluates its operating performance based on several
factors, including a financial measure of operating income
(loss) before non-cash depreciation of tangible assets and
non-cash amortization of intangible assets and non-cash
compensation and other non-cash charges, such as charges for
impairment of intangible assets (which we refer to as
OIBDAN).
The Company considers OIBDAN to be an important indicator of the
operational strengths and performance of our businesses and the
critical measure the chief operating decision maker (CEO) uses
to manage and evaluate our businesses, including the ability to
provide cash flows to service debt. However, a limitation of the
use of OIBDAN as a performance measure is that it does not
reflect the periodic costs of certain capitalized tangible and
intangible assets used in generating revenue in our businesses
or stock-based compensation expense. Accordingly, OIBDAN should
be
86
considered in addition to, not as a substitute for, operating
income (loss), net income (loss) and other measures of financial
performance reported in accordance with US GAAP as OIBDAN is not
a GAAP equivalent measurement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Presley Business
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Royalties and
|
|
|
Graceland
|
|
|
19
|
|
|
Ali
|
|
|
and
|
|
|
|
|
Segment Information
|
|
Licensing
|
|
|
Operations
|
|
|
Entertainment
|
|
|
Business
|
|
|
Other
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
21,312
|
|
|
$
|
35,992
|
|
|
$
|
213,202
|
|
|
$
|
3,218
|
|
|
$
|
|
|
|
$
|
273,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
9,640
|
|
|
$
|
590
|
|
|
$
|
23,415
|
|
|
$
|
(15,900
|
)
|
|
$
|
(29,512
|
)
|
|
$
|
(11,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
2,569
|
|
|
$
|
2,402
|
|
|
$
|
13,685
|
|
|
$
|
36
|
|
|
$
|
(5
|
)
|
|
$
|
18,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$
|
12,261
|
|
|
$
|
5,720
|
|
|
$
|
42,429
|
|
|
$
|
1,745
|
|
|
$
|
(27,171
|
)
|
|
$
|
34,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
24,473
|
|
|
$
|
36,124
|
|
|
$
|
263,523
|
|
|
$
|
4,233
|
|
|
$
|
|
|
|
$
|
328,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
16,771
|
|
|
$
|
4,896
|
|
|
$
|
46,456
|
|
|
$
|
1,031
|
|
|
$
|
(24,977
|
)
|
|
$
|
44,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
2,582
|
|
|
$
|
2,369
|
|
|
$
|
13,792
|
|
|
$
|
47
|
|
|
$
|
451
|
|
|
$
|
19,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$
|
19,395
|
|
|
$
|
7,362
|
|
|
$
|
63,288
|
|
|
$
|
1,083
|
|
|
$
|
(23,621
|
)
|
|
$
|
67,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
18,186
|
|
|
$
|
36,713
|
|
|
$
|
229,201
|
|
|
$
|
4,028
|
|
|
$
|
|
|
|
$
|
288,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
7,870
|
|
|
$
|
3,875
|
|
|
$
|
66,668
|
|
|
$
|
(26,805
|
)
|
|
$
|
(14,668
|
)
|
|
$
|
36,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
2,582
|
|
|
$
|
2,251
|
|
|
$
|
16,165
|
|
|
$
|
59
|
|
|
$
|
104
|
|
|
$
|
21,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$
|
10,491
|
|
|
$
|
6,205
|
|
|
$
|
92,799
|
|
|
$
|
1,008
|
|
|
$
|
(13,787
|
)
|
|
$
|
96,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Presley Business
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Royalties and
|
|
|
Graceland
|
|
|
19
|
|
|
Ali
|
|
|
and
|
|
|
|
|
|
|
Licensing
|
|
|
Operations
|
|
|
Entertainment
|
|
|
Business
|
|
|
Other
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Asset Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets at December 31, 2010
|
|
$
|
96,703
|
|
|
$
|
71,295
|
|
|
$
|
158,727
|
|
|
$
|
13,739
|
|
|
$
|
120,369
|
|
|
$
|
460,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets at December 31, 2009
|
|
$
|
98,662
|
|
|
$
|
73,379
|
|
|
$
|
211,911
|
|
|
$
|
31,262
|
|
|
$
|
84,000
|
|
|
$
|
499,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in affiliates at December 31, 2010
|
|
$
|
20,677
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in affiliates at December 31, 2009
|
|
$
|
21,470
|
|
|
$
|
|
|
|
$
|
1,699
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
23,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment for year ended
December 31, 2010
|
|
$
|
|
|
|
$
|
2,702
|
|
|
$
|
832
|
|
|
$
|
5
|
|
|
$
|
32
|
|
|
$
|
3,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment for year ended
December 31, 2009
|
|
$
|
1,915
|
|
|
$
|
|
|
|
$
|
2,430
|
|
|
$
|
|
|
|
$
|
2,717
|
|
|
$
|
7,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment for year ended
December 31, 2008
|
|
$
|
|
|
|
$
|
4,562
|
|
|
$
|
3,223
|
|
|
$
|
4
|
|
|
$
|
49
|
|
|
$
|
7,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
Below is a reconciliation of the Companys OIBDAN to net
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Amounts in thousands)
|
|
|
OIBDAN
|
|
$
|
34,984
|
|
|
$
|
67,507
|
|
|
$
|
96,716
|
|
Impairment charges
|
|
|
(24,637
|
)
|
|
|
(2,526
|
)
|
|
|
(35,661
|
)
|
Depreciation and amortization
|
|
|
(18,687
|
)
|
|
|
(19,241
|
)
|
|
|
(21,161
|
)
|
Non-cash compensation included in severance and other
restructuring-related costs and executive separation costs
|
|
|
(1,849
|
)
|
|
|
|
|
|
|
|
|
Non-cash compensation
|
|
|
(1,578
|
)
|
|
|
(1,563
|
)
|
|
|
(2,954
|
)
|
Interest income
|
|
|
202
|
|
|
|
308
|
|
|
|
1,778
|
|
Interest expense
|
|
|
(2,680
|
)
|
|
|
(3,335
|
)
|
|
|
(5,601
|
)
|
Equity in earnings of affiliates
|
|
|
676
|
|
|
|
576
|
|
|
|
2,521
|
|
Income tax benefit (expense)
|
|
|
1,043
|
|
|
|
(15,358
|
)
|
|
|
(14,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(12,526
|
)
|
|
$
|
26,368
|
|
|
$
|
21,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based upon the location of customers, for the year ended
December 31, 2010, the Company had revenue from
international markets totaling $47.7 million, of which
$5.5 million was attributable to the Presley
Business Royalties and Licensing segment and
$42.2 million was attributable to the 19 Entertainment
segment. The Company had revenue from international markets
totaling $51.6 million for the year ended December 31,
2009, of which $4.9 million was attributable to the Presley
Business Royalties and Licensing segment, and
$46.7 million was attributable to the 19 Entertainment
segment. For the year ended December 31, 2008, the Company
had revenue from international markets totaling
$48.2 million, of which $4.8 million was attributable
to the Presley Business Royalties and Licensing
segment, and $43.4 million was attributable to the 19
Entertainment segment.
International revenue from the United Kingdom was
$12.8 million in 2010. Assets based in the United Kingdom,
primarily goodwill and intangible assets, are
$130.7 million as of December 31, 2010. In 2010, the
Company had revenue from one customer that represented greater
than 10% of the Companys total revenue. This customer
accounted for $95.8 million of the 19 Entertainment
segments total revenue.
|
|
16.
|
Commitments
and Contingencies
|
Commitments
Total rent expense for the Company under operating leases was
$3.8 million, $4.5 million, and $4.3 million for
the years ended December 31, 2010, 2009, and 2008,
respectively. Minimum rental commitments under noncancelable
operating leases are as follows (in thousands):
|
|
|
|
|
|
Year Ending December 31,
|
|
|
|
|
2011
|
|
$
|
3,385
|
|
2012
|
|
|
3,082
|
|
2013
|
|
|
2,143
|
|
2014
|
|
|
1,476
|
|
2015
|
|
|
267
|
|
Thereafter
|
|
|
763
|
|
|
|
|
|
|
|
|
$
|
11,116
|
|
|
|
|
|
|
The Company is required to make guaranteed minimum distributions
to The Promenade Trust of at least $1.2 million annually
for as long as The Promenade Trust continues to own 15% in the
Presley Business. The Company is required to make guaranteed
minimum distributions to The Muhammad Ali Family Trust of at
least
88
$0.5 million annually for as long as The Muhammad Ali
Family Trust continues to own 20% in the Ali Business. These
distributions are a component of noncontrolling interests on the
consolidated balance sheets.
The Company has entered into employment contracts with certain
key executives and employees, which include provisions for
severance payments and benefits payable in the event of
specified terminations of employment. Expected payments under
employment contracts as of December 31, 2010 are as follows
(in thousands):
|
|
|
|
|
|
Year Ending December 31,
|
|
|
|
|
2011
|
|
$
|
16,060
|
|
2012
|
|
|
12,085
|
|
2013
|
|
|
3,067
|
|
2014
|
|
|
1,567
|
|
2015
|
|
|
83
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,862
|
|
|
|
|
|
|
Redeemable
Restricted Common Stock
In connection with the acquisition of 19 Entertainment, certain
sellers of 19 Entertainment entered into a Put and Call Option
Agreement (as amended on June 8, 2009) that provided
them with certain rights whereby, during a period of
20 business days beginning March 17, 2011, the Company
could exercise a call right to purchase the common stock of such
stockholders at a price equal to $24.72 per share and these
sellers could exercise a put right to sell the common stock to
the Company at a price equal to $13.18 per share. The put and
call rights applied to 1,627,170 of the shares issued in
connection with the 19 Entertainment acquisition, 1,507,135 of
which were owned by Simon Fuller.
Immediately following execution of the amendment to the Put and
Call Option Agreement, the Company exercised its call option
with respect to 1,138,088 shares and paid to
Mr. Fuller a gross purchase price of $15.0 million.
Following this transaction, 534,082 shares remain subject
to the Put and Call Option Agreement and can be put to the
Company beginning March 17, 2011. The Companys total
obligation in the event all of the shares are put to the Company
is $7.0 million.
Ryan
Seacrest Agreement
On July 7, 2009, the Company entered into two agreements
with Ryan Seacrest, the host of American Idol, and
certain of his affiliates. Under the terms of the agreements,
the Company paid $22.5 million upon execution of the
agreements on July 7, 2009 and is paying Mr. Seacrest
an additional $22.5 million in monthly installments during
the term, for a total guaranteed amount of $45.0 million.
Upon securing Mr. Seacrests services, the Company
commenced negotiations with Fox related to a fee to be received
by the Company for Mr. Seacrests services as the host
of American Idol. The Company and Fox ultimately agreed
to a fee arrangement of $5.0 million for
Mr. Seacrests services as host of American Idol
for each of the 2010, 2011 and 2012 seasons. The Company
therefore expects to be responsible for a net amount of
$30.0 million of the original $45.0 million guaranteed
amount. The Company received payment of $5.0 million for
compensation related to the 2010 season in November 2010 and has
recognized that amount as revenue in 2010 over the broadcast in
the first and second quarters of the broadcast season.
As of December 31, 2010, the Company has paid
$31.9 million of the total amount due to Mr. Seacrest
with the remaining $13.1 million to be paid in equal
monthly installments through December 2012. The
$10.0 million difference between the amount of expense
related to the arrangement between the Company and
Mr. Seacrest and the arrangement between the Company and
Fox related to Mr. Seacrests services as host, was
recognized as incremental expense. We also expect to record
$10.0 million of incremental expense during each of the
first six months of 2011 and 2012, which coincides with the
anticipated broadcast periods for American Idol.
Simon
Fuller Transaction
See Note 3 for a description of commitments related to the
Simon Fuller transaction.
89
Executive
Separation Costs
See Note 4 for a description of commitments related to the
agreements with Robert F.X. Sillerman.
Television
Development Agreement
In March 2010, the Company entered into a three-year development
agreement with a current 19 Entertainment television executive
producer partner whereby the Company will pay advances of future
profits of $2.0 million per year; the 2010 advance was paid
in March 2010 and expensed in 2010. After the Company recoups
its investment, profits will be split evenly between the
producer and the Company. The agreement expires on
December 31, 2012. The Company also pays certain operating
costs.
MBST
In connection with the acquisition of MBST, the sellers were
entitled to receive an additional 150,000 shares of common
stock upon satisfaction of certain performance thresholds over
the five-year period ending August 9, 2010 which the
business did not meet. In connection with an extension of the
employment agreements of the sellers/principals of MBST in the
third quarter of 2010, the terms of the escrow of such shares
were amended to provide that from August 10, 2010 through
August 9, 2013, such shares may be released upon a
change of control of the Company or upon a
termination without cause of one of the
principals/sellers.
Contingencies
There are various lawsuits and claims pending against the
Company. The Company believes that any ultimate liability
resulting from these actions or claims will not have a material
adverse effect on the Companys results of operations,
financial condition or liquidity.
|
|
17.
|
Related
Party Transactions
|
In March 2005, in connection with the acquisition of 19
Entertainment, certain sellers of 19 Entertainment entered into
a Put and Call Option Agreement that provided them with certain
rights whereby, during a period of 20 business days
beginning March 17, 2011, the Company could exercise a call
right to purchase the common stock of such stockholders at a
price equal to $24.72 per share and these sellers could exercise
a put right to sell the common stock to the Company at a price
equal to $13.18 per share. Of the 1,672,170 shares of
common stock covered by the Put and Call Option Agreement,
1,507,135 were held by Simon Fuller.
On June 8, 2009, the Company entered into an amendment to
the Put and Call Option Agreement with Mr. Fuller. Pursuant
to the amendment, the call price with respect to 1,138,088 of
Mr. Fullers shares of the Companys common stock
(the Interim Shares) was reduced to $13.18 per share
and the exercise periods for the put and call of such shares
were accelerated to allow for their exercise at any time
commencing on the date of the amended agreement. The terms of
the original Put and Call Option Agreement remain in place with
respect to Mr. Fullers remaining 369,047 shares
of our common stock.
Immediately following execution of the amendment to the Put and
Call Option Agreement, the Company exercised its call option
with respect to the Interim Shares and paid to Mr. Fuller a
gross purchase price of $15.0 million. The Interim Shares
purchased by the Company were recorded as treasury shares. The
Company recorded a cost of $0.8 million for payroll-related
taxes associated with the exercise of the call option in the
second quarter of 2009.
The remaining redeemable restricted common stock under the put
and call option is a single equity instrument. As the stock is
puttable to the Company at the option of these sellers, these
shares are presented in the accompanying consolidated balance
sheet as temporary equity under the heading Redeemable
Restricted Common Stock at an estimated fair value inclusive of
the put/call rights; the fair value of the remaining
534,082 shares is $7.3 million.
Please see Note 3, Transactions with Simon Fuller and
Restructuring of 19 Entertainment.
Please see Note 4, Executive Separation Costs.
90
Please see Note 5, Transactions Involving FX Real Estate
and Entertainment Inc.
On December 8, 2009, the Company made a loan in the amount
of $455,115 to the holder of our Series B Convertible
Preferred Stock. The principal amount of the loan along with
interest was repaid from the proceeds of the quarterly dividend
on the preferred stock on February 8, 2010. On July 1,
2010, the Company made a loan of $455,615 to the holder of our
Series B Convertible Preferred Stock. The principal amount
of the loan along with interest was repaid from the proceeds of
the quarterly dividend on the preferred stock on August 8,
2010. On August 19, 2010, the Company made a loan of
$446,356 to the holder of our Series B Convertible
Preferred Stock. The principal amount of the loan along with
interest was repaid from the proceeds of the quarterly dividend
on the preferred stock on November 8, 2010.
On February 7, 2005, EPE and EPE Holding Corporation, a
wholly-owned subsidiary of the Company, entered into a
consulting agreement with Priscilla Presley securing
Ms. Presleys consulting services in connection with
promotion of EPEs business. Pursuant to the terms of the
consulting agreement, Ms. Presley was paid $560,000 in
2009. On July 12, 2010, the consulting agreement was
amended, effective as of the date of the amendment, to increase
Ms. Presleys annual consulting fee to $800,000. Upon
the execution of this amendment, Ms. Presley also received
a $250,000 bonus.
The Company subleases from a third party 24,546 square
feet, comprising the entire 15th and 16th floors at
650 Madison Avenue, for its principal corporate offices in New
York, New York. CKX sublicensed a portion of the 15th floor
to each of Flag Anguilla Management (Flag Anguilla),
Flag Luxury Properties and FXRE, companies which are affiliated
with Robert F.X. Sillerman, the Companys former Chairman
and Chief Executive Officer. CKX is responsible for payment of
the full rental amount each month to the sublandlord, and each
of Flag Anguilla, Flag Luxury Properties an FXRE pay its pro
rata share of the rent for the space it occupies to CKX. As of
December 31, 2010 and through March 2011, Flag Anguilla,
FXRE and Flag Luxury Partners were each current on all rent
payments.
In 2007, the Company entered into a $1.8 million loan
agreement with a vendor that provides marketing and branding
consulting services to the Company. This vendor is owned by
several individuals who collectively own less than a one percent
interest in the Company. The loan bears interest at 10% per
annum and is due monthly; interest payments were current as of
March 2011. On January 14, 2011, the Company amended the
loan agreement, effective July 1, 2010 to extend the maturity
date from August 2012 to April 2013. Principal payments are due
each February during the years 2009 through 2013 based on a rate
of 50% of the vendors annual cash flow, as defined. No
principal payments were due or have been made through February
2011 as the vendor had negative cash flow. The Company also
amended a consulting agreement with the vendor that commenced in
2007 to extend the expiration date from December 31, 2010
to April 30, 2013. The Company paid monthly consulting fees
totaling $1.5 million in the years 2007 through 2010 under
the agreement. Commencing July 1, 2010, in lieu of payment
of the monthly consulting fee in cash, the monthly consulting
fee is deemed paid by reducing the outstanding balance of the
loan. Based on the provision for the settlement of the loan
balance through non-cash consulting fees, the fair value of the
loan was determined to be $0.3 million at December 31,
2010, resulting in a write-down of $1.5 million which was
recorded to corporate expenses. The consulting agreement may be
terminated by either party upon sixty days notice.
The Company has a defined contribution plan covering
U.S. employees who have met certain eligibility
requirements. The Company matches 100% on the first 3% and 50%
on the next 2% of an employees salary that an employee
elects to contribute to the plan. The Companys matching
contribution for each of the years ended December 31, 2010,
2009 and 2008 was $0.5 million.
|
|
19.
|
Unaudited
Quarterly Financial Information
|
In the opinion of the Companys management, all
adjustments, consisting of normal recurring accruals considered
necessary for a fair presentation, have been included on a
quarterly basis.
As a result of the seasonality of the Companys businesses,
including the timing of the airing of its principal television
91
properties, the Company has historically generated lower
revenue, a loss from operations and a net loss in its fourth
quarter. In the fourth quarter of 2009, the broadcast of an
additional season of So You Think You Can Dance partially
offset the seasonal factors noted above. All amounts for all
periods shown are in thousands, except share information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
For the Year Ended December 31, 2010
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Total
|
|
|
Revenue
|
|
$
|
66,647
|
|
|
$
|
89,439
|
|
|
$
|
80,137
|
|
|
$
|
37,501
|
|
|
$
|
273,724
|
|
Depreciation and amortization
|
|
|
5,143
|
|
|
|
5,172
|
|
|
|
4,068
|
|
|
|
4,304
|
|
|
|
18,687
|
|
Impairment charges
|
|
|
4,853
|
|
|
|
|
|
|
|
|
|
|
|
19,784
|
|
|
|
24,637
|
|
Provision for severance and other restructuring-related costs
|
|
|
6,118
|
|
|
|
3,794
|
|
|
|
8,253
|
|
|
|
1,126
|
|
|
|
19,291
|
|
Executive separation costs
|
|
|
|
|
|
|
6,781
|
|
|
|
874
|
|
|
|
|
|
|
|
7,655
|
|
Operating income (loss)
|
|
|
(3,290
|
)
|
|
|
9,095
|
|
|
|
1,530
|
|
|
|
(19,102
|
)
|
|
|
(11,767
|
)
|
Income tax expense (benefit)(1)
|
|
|
636
|
|
|
|
884
|
|
|
|
2,654
|
|
|
|
(5,217
|
)
|
|
|
(1,043
|
)
|
Equity in earnings of affiliates
|
|
|
(12
|
)
|
|
|
(62
|
)
|
|
|
339
|
|
|
|
411
|
|
|
|
676
|
|
Net income (loss)
|
|
|
(4,755
|
)
|
|
|
7,619
|
|
|
|
(1,358
|
)
|
|
|
(14,032
|
)
|
|
|
(12,526
|
)
|
Dividends on preferred stock
|
|
|
(456
|
)
|
|
|
(456
|
)
|
|
|
(456
|
)
|
|
|
(456
|
)
|
|
|
(1,824
|
)
|
Net income (loss) available to CKX, Inc.
|
|
|
(5,211
|
)
|
|
|
7,163
|
|
|
|
(1,814
|
)
|
|
|
(14,488
|
)
|
|
|
(14,350
|
)
|
Less: Net income attributable to noncontrolling interests
|
|
|
178
|
|
|
|
(592
|
)
|
|
|
(582
|
)
|
|
|
(370
|
)
|
|
|
(1,366
|
)
|
Net income attributable to CKX, Inc.
|
|
|
(5,033
|
)
|
|
|
6,571
|
|
|
|
(2,396
|
)
|
|
|
(14,858
|
)
|
|
|
(15,716
|
)
|
Basic income (loss) per common share
|
|
$
|
(0.05
|
)
|
|
$
|
0.07
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.17
|
)
|
Diluted income (loss) per common share
|
|
$
|
(0.05
|
)
|
|
$
|
0.07
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.17
|
)
|
Weighted average basic common shares outstanding
|
|
|
92,882,596
|
|
|
|
92,897,048
|
|
|
|
92,915,518
|
|
|
|
92,933,991
|
|
|
|
92,907,981
|
|
Weighted average diluted common shares outstanding
|
|
|
92,882,596
|
|
|
|
92,901,151
|
|
|
|
92,915,518
|
|
|
|
92,933,991
|
|
|
|
92,907,981
|
|
|
|
|
(1) |
|
In preparing the 2010 tax provision, the Company identified $1.1
million of additional tax expense relating to prior fiscal years
that was recorded in the fourth quarter of 2010. The impact of
these adjustments was determined not to have a material impact
on the current year fourth quarter, the current year and prior
years reported consolidated financial statements. |
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
For the Year Ended December 31, 2009
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Total
|
|
|
Revenue
|
|
$
|
81,506
|
|
|
$
|
79,533
|
|
|
$
|
87,395
|
|
|
$
|
79,919
|
|
|
$
|
328,353
|
|
Depreciation and amortization
|
|
|
4,438
|
|
|
|
4,560
|
|
|
|
5,033
|
|
|
|
5,210
|
|
|
|
19,241
|
|
Impairment charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,526
|
|
|
|
2,526
|
|
Other operating (income) expense
|
|
|
128
|
|
|
|
5,712
|
|
|
|
(1,697
|
)
|
|
|
(64
|
)
|
|
|
4,079
|
|
Operating income (loss)
|
|
|
23,576
|
|
|
|
11,192
|
|
|
|
11,006
|
|
|
|
(1,597
|
)
|
|
|
44,177
|
|
Income tax expense (benefit)
|
|
|
9,294
|
|
|
|
5,035
|
|
|
|
(1,781
|
)
|
|
|
2,810
|
|
|
|
15,358
|
|
Equity in earnings of affiliates
|
|
|
62
|
|
|
|
(321
|
)
|
|
|
97
|
|
|
|
738
|
|
|
|
576
|
|
Net income (loss)
|
|
|
13,397
|
|
|
|
5,030
|
|
|
|
12,240
|
|
|
|
(4,299
|
)
|
|
|
26,368
|
|
Dividends on preferred stock
|
|
|
(456
|
)
|
|
|
(456
|
)
|
|
|
(456
|
)
|
|
|
(456
|
)
|
|
|
(1,824
|
)
|
Net income (loss) available to CKX, Inc.
|
|
|
12,941
|
|
|
|
4,574
|
|
|
|
11,784
|
|
|
|
(4,755
|
)
|
|
|
24,544
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
(878
|
)
|
|
|
(566
|
)
|
|
|
(591
|
)
|
|
|
253
|
|
|
|
(1,782
|
)
|
Net income attributable to CKX, Inc.
|
|
|
12,063
|
|
|
|
4,008
|
|
|
|
11,193
|
|
|
|
(4,502
|
)
|
|
|
22,762
|
|
Basic income (loss) per common share
|
|
$
|
0.13
|
|
|
$
|
0.05
|
|
|
$
|
0.12
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.24
|
|
Diluted income (loss) per common share
|
|
$
|
0.13
|
|
|
$
|
0.05
|
|
|
$
|
0.12
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.24
|
|
Weighted average basic common shares outstanding
|
|
|
93,798,843
|
|
|
|
93,702,530
|
|
|
|
97,054,680
|
|
|
|
92,860,927
|
|
|
|
93,298,778
|
|
Weighted average diluted common shares outstanding
|
|
|
93,954,400
|
|
|
|
93,702,531
|
|
|
|
97,060,937
|
|
|
|
92,926,738
|
|
|
|
93,337,683
|
|
The Company evaluated subsequent events through the date of this
filing.
On March 3, 2011, the Company entered into a commitment
letter with certain of the lenders party to its existing Credit
Facility to amend and restate such facility (the Amended
Credit Facility). Upon execution, the Amended Credit
Facility will require a paydown and permanent reduction of
commitments in an aggregate principal amount of
$40.0 million, which will reduce the total outstanding
balance to $60.0 million. The Amended Credit Facility will
also extend the maturity date of the loans thereunder such that
the Company will be required to repay in full all amounts
outstanding under the Amended Credit Facility on or before
September 30, 2012. Under the terms of the Amended Credit
Facility, the Company will be required to make quarterly
principal payments of $2.0 million beginning on
June 30, 2011 and the loans will accrue interest at a
higher interest rate than the current interest rate under the
existing Credit Facility. The Amended Credit Facility will
contain financial covenants that are more restrictive than those
under the existing Credit Facility, and will contain affirmative
and negative covenants applicable to the Company and its
subsidiaries, including but not limited to restrictions on
incurrence of debt, liens, assets sales and other dispositions,
acquisitions, investments and joint ventures, payments of cash
dividends and capital expenditures. The closing of the Amended
Credit Facility is subject to certain diligence requirements of
the lenders and other conditions. Although the Company has
received a commitment letter from the respective lenders, no
assurance can be provided that the Company will be able to
consummate the transactions contemplated by the Amended Credit
Facility on the terms described above or alternate terms. In the
event that the Amended Credit Facility is not consummated, the
Company believes that it will be able to repay the Credit
Facility in full with cash on hand and expected proceeds from an
alternate debt financing which the Company expects to be able to
complete prior to the maturity date of the Credit Facility. The
availability and cost of any alternate debt financing would be
dependant upon a number of factors, including current and future
performance of the Company and overall conditions in the debt
markets.
93
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Disclosure
Controls
The Company maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed
in the Companys reports filed with the Securities and
Exchange Commission (SEC) is recorded, processed, summarized and
reported within the time periods specified in the SECs
rules and forms, and that such information is accumulated and
communicated to the Companys management, including its
Chief Executive Officer (CEO) and Chief Financial Officer (CFO),
as appropriate, to allow timely decisions regarding required
disclosure.
As of December 31, 2010, an evaluation was performed under
the supervision and with the participation of the Companys
management, including the CEO and CFO, of the effectiveness of
the design and operation of the Companys disclosure
controls and procedures (as defined in
Rules 13a-15(e)
under the Exchange Act). Based on that evaluation, the
Companys management, including the CEO and CFO, concluded
that the Companys disclosure controls and procedures were
effective as of December 31, 2010.
Managements
Annual Report on Internal Controls Over Financial
Reporting
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
(Section 404) and as defined in
Rules 13a-15(f)
under the U.S. Securities Exchange Act of 1934, management
is required to provide the following report on the
Companys internal control over financial reporting:
1. The Companys management is responsible for
establishing and maintaining adequate internal control over
financial reporting for the Company.
2. The Companys management has evaluated the system
of internal control using the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) framework.
Management has selected the COSO framework for its evaluation as
it is a control framework recognized by the SEC and the Public
Company Accounting Oversight Board that is free from bias,
permits reasonably consistent qualitative and quantitative
measurement of the Companys internal controls, is
sufficiently complete so that relevant controls are not omitted
and is relevant to an evaluation of internal controls over
financial reporting.
3. Based on managements evaluation under this
framework, the Company determined that its internal control over
financial reporting was not effective as of December 31,
2010.
A material weakness is a deficiency, or combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of the Companys financial statements will not
be prevented or detected on a timely basis. The Company
identified a material weakness in its process of accounting for
income taxes. Specifically, the Company did not maintain an
adequate review process of accounting for income taxes during
the year ended December 31, 2010 that would have identified
material mistatements in the underlying calculations during the
Companys income tax closing process.
In light of the material weakness, the Company is undertaking
several remedial steps to enhance controls including expanding
technical resources in the income tax accounting function and
implementing income tax accounting software solutions.
Additionally, the Company performed additional analyses and
post-closing procedures related to its income tax accounts to
conclude that reasonable assurance exists regarding the
reliability of financial reporting and the preparation of the
consolidated financial statements included in this Annual Report
on
Form 10-K.
94
4. There have not been any changes in the Companys
internal control over financial reporting (as such term is
defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) during the Companys fiscal fourth
quarter that have materially affected, or are reasonably likely
to materially affect, the Companys internal control over
financial reporting.
5. The Companys independent registered public
accounting firm, Deloitte & Touche LLP, has issued
their report on the Companys internal control over
financial reporting as of December 31, 2010. This report is
located on page 60 of this
Form 10-K.
Changes
in Internal Controls over Financial Reporting
No changes in internal control over financial reporting have
occurred during the three months ended December 31, 2010
that have materially affected CKXs internal controls over
financial reporting.
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this Item will be contained in our
definitive proxy statement issued in connection with the 2011
annual meeting of stockholders filed with the Securities and
Exchange Commission (SEC) within 120 days after
December 31, 2010 and is incorporated herein by reference.
If we do not file a definitive proxy statement in connection
with the 2011 annual meeting of stockholders with the SEC within
120 days after December 31, 2010, we will file such
information with the SEC pursuant to an amendment to this
Form 10-K
within 120 days after December 31, 2010.
The Company has adopted a Code of Business Conduct and Ethics,
which is applicable to all our employees and directors,
including our principal executive officer, principal financial
officer and principal accounting officer. The Company has also
adopted a separate Code of Ethics for Senior Financial
Management that applies to our Chief Executive Officer, Chief
Financial Officer, Director of Legal and Governmental Affairs
and other officers in our finance and accounting department. The
codes of conduct and ethics are posted on our website located at
www.ckx.com.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this Item will be contained in our
definitive proxy statement issued in connection with the 2011
annual meeting of stockholders filed with the SEC within
120 days after December 31, 2010 and is incorporated
herein by reference. If we do not file a definitive proxy
statement in connection with the 2011 annual meeting of
stockholders with the SEC within 120 days after
December 31, 2010, we will file such information with the
SEC pursuant to an amendment to this
Form 10-K
within 120 days after December 31, 2010.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this Item will be contained in our
definitive proxy statement issued in connection with the 2011
annual meeting of stockholders filed with the SEC within
120 days after December 31, 2010 and is incorporated
herein by reference. If we do not file a definitive proxy
statement in connection with the 2011 annual meeting of
stockholders with the SEC within 120 days after
December 31, 2010, we will file such information with the
SEC pursuant to an amendment to this
Form 10-K
within 120 days after December 31, 2010.
|
|
Item 13.
|
Certain
Relationships, Related Transactions, and Director
Independence
|
The information required by this Item will be contained in our
definitive proxy statement issued in connection with the 2011
annual meeting of stockholders filed with the SEC within
120 days after December 31, 2010 and is
95
incorporated herein by reference. If we do not file a definitive
proxy statement in connection with the 2011 annual meeting of
stockholders with the SEC within 120 days after
December 31, 2010, we will file such information with the
SEC pursuant to an amendment to this
Form 10-K
within 120 days after December 31, 2010.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information required by this Item will be contained in our
definitive proxy statement issued in connection with the 2011
annual meeting of stockholders filed with the SEC within
120 days after December 31, 2010 and is incorporated
herein by reference. If we do not file a definitive proxy
statement in connection with the 2011 annual meeting of
stockholders with the SEC within 120 days after
December 31, 2010, we will file such information with the
SEC pursuant to an amendment to this
Form 10-K
within 120 days after December 31, 2010.
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statements and Schedule
|
Financial
Statements
See Table of Contents to Consolidated Financial Statements on
page 58.
Financial
Statement Schedule
Schedule II Valuation and Qualifying Accounts
for the years ended December 31, 2010, 2009 and 2008. This
schedule appears on page 97.
96
Financial
Statement Schedule
SCHEDULE II
CKX,
Inc.
VALUATION
AND QUALIFYING ACCOUNTS
YEARS
ENDED DECEMBER 31, 2010, 2009, AND 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Additions Charged
|
|
|
Additions Charged
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
(Credited) to Costs
|
|
|
(Credited) to
|
|
|
|
|
|
Balance at
|
|
Description
|
|
Period
|
|
|
and Expenses
|
|
|
Other Accounts
|
|
|
Deductions
|
|
|
End of Period
|
|
|
|
(Dollars in thousands)
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
742
|
|
|
$
|
448
|
|
|
$
|
|
|
|
$
|
(392
|
)
|
|
$
|
798
|
|
Inventory allowance for obsolescence
|
|
|
661
|
|
|
|
38
|
|
|
|
|
|
|
|
(109
|
)
|
|
|
590
|
|
Deferred taxes valuation allowance
|
|
|
20,569
|
|
|
|
809
|
|
|
|
1,453
|
|
|
|
|
|
|
|
22,831
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
803
|
|
|
$
|
259
|
|
|
$
|
|
|
|
$
|
(320
|
)
|
|
$
|
742
|
|
Inventory allowance for obsolescence
|
|
|
649
|
|
|
|
101
|
|
|
|
|
|
|
|
(89
|
)
|
|
|
661
|
|
Deferred taxes valuation allowance
|
|
|
15,809
|
|
|
|
2,251
|
|
|
|
2,509
|
|
|
|
|
|
|
|
20,569
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
832
|
|
|
$
|
814
|
|
|
$
|
|
|
|
$
|
(843
|
)
|
|
$
|
803
|
|
Inventory allowance for obsolescence
|
|
|
627
|
|
|
|
114
|
|
|
|
|
|
|
|
(92
|
)
|
|
|
649
|
|
Deferred taxes valuation allowance
|
|
|
23,116
|
|
|
|
|
|
|
|
(7,307
|
)
|
|
|
|
|
|
|
15,809
|
|
97
Exhibits
The documents set forth below are filed herewith or incorporated
herein by reference to the location indicated.
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
3
|
.1
|
|
Certificate of Incorporation (Previously filed as
Exhibit 3.1 to the
Form 10-KSB
filed March 31, 2005, and incorporated herein by reference).
|
|
3
|
.2
|
|
Amended and Restated Bylaws (Previously filed as
Exhibit 3.2 to the
Form 10-Q
for the quarterly period ended June 30, 2009, and
incorporated herein by reference).
|
|
4
|
.1
|
|
Registration Rights Agreement, dated February 7, 2005,
between the Company and The Huff Alternative Fund, L.P. and the
Huff Alternative Parallel Fund, L.P. (Previously filed as
Exhibit 4.4 to the
Form 8-K/A
filed February 11, 2005, and incorporated herein by
reference).
|
|
4
|
.2
|
|
Registration Rights Agreement, dated February 7, 2005,
between the Company and The Promenade Trust (Previously filed as
Exhibit 4.5 to the
Form 8-K/A
filed February 11, 2005, and incorporated herein by
reference).
|
|
4
|
.3
|
|
Registration Rights Agreement, dated March 17, 2005, by and
among the Company, Simon Robert Fuller and Fuller Nominees
Limited (Previously filed as Exhibit 4.2 to the
Form 10-QSB
for the quarterly period ended March 31, 2005, and
incorporated herein by reference).
|
|
4
|
.4
|
|
Letter Agreement, dated June 6, 2005, among the Company,
The Huff Alternative Fund, L.P. and The Huff Alternative
Parallel Fund, L.P. (Previously filed as Exhibit 4.9 to
Amendment No. 3 to
Form S-1/A
(Registration Statement
No. 333-123995)
filed June 21, 2005, and incorporated herein by reference).
|
|
4
|
.5
|
|
Form of Promissory Term Note made on July 13, 2009, payable
to Priscilla Presley (Previously filed as Exhibit 4.1 to
the
Form 10-Q
for the quarterly period ended September 30, 2009, and
incorporated herein by reference).
|
|
4
|
.6
|
|
Rights Agreement, dated as of June 24, 2010,, between CKX,
Inc. and Mellon Investor Services LLC, which includes the form
of Right Certificate as Exhibit B and the Summary of Rights
to Purchase Preferred Shares as Exhibit C (Previously filed
as Exhibit 4.1 to the
Form 8-K
filed June 24, 2010, and incorporated herein by reference).
|
|
4
|
.7
|
|
Amendment No. 1, dated as July 13, 2010, to the Rights
Agreement, dated as of June 24, 2010, between CKX, Inc. and
Mellon Investor Services LLC (Previously filed as
Exhibit 4.1 to the
Form 8-K
filed July 13, 2010, and incorporated herein by reference).
|
|
10
|
.1
|
|
Lease Agreement, dated as of February 7, 2005, by and
between The Promenade Trust and the Company with respect to the
Graceland property (Previously filed as Exhibit 10.9 to the
Form 8-K/A
filed February 11, 2005, and incorporated herein by
reference).
|
|
10
|
.2
|
|
Elvis Presley Enterprises, Inc. Shareholders Agreement, dated as
of February 7, 2005 (Previously filed as Exhibit 10.10
to the
Form 8-K/A
filed February 11, 2005, and incorporated herein by
reference).
|
|
10
|
.3
|
|
Amended and Restated Operating Agreement of Elvis Presley
Enterprises, LLC, dated as of February 7, 2005 (Previously
filed as Exhibit 10.11 to the
Form 8-K/A
filed February 11, 2005, and incorporated herein by
reference).
|
|
10
|
.4
|
|
Agreement for the sale and purchase of the entire issued share
capital of 19 Entertainment Limited, dated March 17,
2005, among Simon Robert Fuller, Fuller Nominees LTD, Ingenious
Ventures LTD, the Company and CKX UK Holdings Limited
(Previously filed as Exhibit 10.21 to the
Form 10-QSB
for the quarterly period ended March 31, 2005, and
incorporated herein by reference).
|
98
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.5
|
|
Agreement (the Fox Letter Agreement) between 19 TV
Limited, FremantleMedia North America, Inc. and Fox Broadcasting
Company, dated as of April 22, 2002 (Previously filed as
Exhibit 10.15 to Amendment No. 3 to
Form S-1/A
(Registration Statement
No. 333-123995)
filed June 21, 2005, and incorporated herein by reference).
|
|
10
|
.6
|
|
Letter Agreement, between Pearson Television Operations BV,
(predecessor in interest to FremantleMedia North America, Inc.)
and 19 TV Limited, dated July 6, 2001 (Previously filed as
Exhibit 10.16 to Amendment No. 3 to
Form S-1/A
(Registration Statement
No. 333-123995)
filed June 21, 2005, and incorporated herein by reference).
|
|
10
|
.7
|
|
Agreement (the SonyBMG Agreement), between 19
Recordings Limited and Ronagold Limited, dated February 8,
2002, as amended (Previously filed as Exhibit 10.17 to
Amendment No. 3 to
Form S-1/A
(Registration Statement
No. 333-123995)
filed June 21, 2005, and incorporated herein by reference).
|
|
10
|
.8
|
|
Agreement, between 19 TV Limited, FremantleMedia North America,
Inc. and Fox Broadcasting Company, amending the Fox Letter
Agreement, dated as of May 15, 2003 (Previously filed as
Exhibit 10.23 to Amendment No. 3 to
Form S-1/A
(Registration Statement
No. 333-123995)
filed June 21, 2005, and incorporated herein by reference).
|
|
10
|
.9
|
|
Letter Agreement between 19 Recordings Limited and Ronagold
Limited, amending the SonyBMG Agreement, dated October 14,
2004 (Previously filed as Exhibit 10.24 to Amendment
No. 3 to
Form S-1/A
(Registration Statement
No. 333-123995)
filed June 21, 2005, and incorporated herein by reference).
|
|
10
|
.10
|
|
Agreement among 19 Recordings Limited, 19 TV Limited, Simco
Limited, CKX UK Holdings Limited, 19 Entertainment Limited and
Sony BMG Music Entertainment (UK) Limited, dated
November 28, 2005 (Previously filed as Exhibit 10.31
to the
Form 10-K
filed March 14, 2006, and incorporated herein by reference).
|
|
10
|
.11
|
|
Agreement between 19 Recordings Limited and Ronagold Limited,
dated November 28, 2005, amending the terms of the SonyBMG
Agreement (Previously filed as Exhibit 10.32 to the
Form 10-K
filed March 14, 2006, and incorporated herein by reference).
|
|
10
|
.12
|
|
Binding Heads of Terms among Fox Broadcasting Company,
FremantleMedia North America Inc. and 19 TV Limited
regarding the American Idol television series (Previously
filed as Exhibit 10.33 to the
Form 10-K
filed March 14, 2006, and incorporated herein by reference).
|
|
10
|
.13
|
|
Amended and Restated Employment Agreement between the Company
and Robert F.X. Sillerman (Previously filed as Exhibit 10.1
to the
Form 8-K
filed January 7, 2009, and incorporated herein by
reference).*
|
|
10
|
.14
|
|
Separation and Consulting Agreement, dated as of May 22,
2010, between the Company and Robert F.X. Sillerman (Previously
filed as Exhibit 10.2 to the
Form 8-K
filed May 24, 2010, and incorporated herein by reference).*
|
|
10
|
.15
|
|
Amended and Restated Employment Agreement between the Company
and Mitchell J. Slater (Previously filed as Exhibit 10.2 to
the
Form 8-K
filed January 7, 2009, and incorporated herein by
reference).*
|
|
10
|
.16
|
|
Consulting Agreement, dated as of February 8, 2010, between
the Company and Mitchell J. Slater (Previously filed as
Exhibit 10.3 to the
Form 8-K
filed March 15, 2010, and incorporated herein by
reference).*
|
|
10
|
.17
|
|
Employment Agreement, dated as of February 1, 2010, between
the Company and Howard J. Tytel (Previously filed as
Exhibit 10.1 to the
Form 8-K
filed March 15, 2010, and incorporated herein by
reference).*
|
99
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.18
|
|
Employment Agreement, dated as of February 1, 2010, between
the Company and Thomas P. Benson (Previously filed as
Exhibit 10.2 to the
Form 8-K
filed March 15, 2010, and incorporated herein by
reference).*
|
|
10
|
.19
|
|
Employment Agreement, dated as of May 6, 2010, between the
Company and Michael G. Ferrel (Previously filed as
Exhibit 10.1 to the
Form 8-K
filed June 16, 2010, and incorporated herein by reference).*
|
|
10
|
.20
|
|
Amended and Restated Employment Agreement, dated as of
October 13, 2010, by and between the Company and Kraig G.
Fox (Previously filed as Exhibit 10.1 to the
Form 8-K
filed October 13, 2010, and incorporated herein by
reference).*
|
|
10
|
.21
|
|
Directors Service Agreement, dated March 17, 2005,
between 19 Entertainment Limited and Simon Robert Fuller
(Previously filed as Exhibit 10.19 to the
Form 10-QSB
for the quarterly period ended March 31, 2005, and
incorporated herein by reference).*
|
|
10
|
.22
|
|
Confidentiality, Non-Competition, Non-Solicitation, and
Non-Recruitment Agreement, dated as of March 17, 2005, by
and between Simon Robert Fuller, the Company and CKX UK Holdings
Limited (Previously filed as Exhibit 10.20 to the
Form 10-QSB
for the quarterly period ended March 31, 2005, and
incorporated herein by reference).*
|
|
10
|
.23
|
|
Consultancy Deed, dated January 13, 2010, by and between 19
Entertainment Limited and Simon R. Fuller (Previously filed as
Exhibit 10.1 to the
Form 8-K
filed January 15, 2010, and incorporated herein by
reference).*
|
|
10
|
.24
|
|
Option Agreement, dated January 13, 2010, by and between
CKX, Inc., Simon R. Fuller, and XIX Entertainment Limited
(Previously filed as Exhibit 10.2 to the
Form 8-K
filed January 15, 2010, and incorporated herein by
reference).*
|
|
10
|
.25
|
|
Compromise Agreement, dated January 13, 2010, by and
between CKX, Inc., 19 Entertainment Limited, and Simon R.
Fuller (Previously filed as Exhibit 10.3 to the
Form 8-K
filed January 15, 2010, and incorporated herein by
reference).*
|
|
10
|
.26
|
|
Service Agreement, dated as of August 31, 2006, between 19
Entertainment Limited and Robert Dodds (Previously filed as
Exhibit 10.1 to the
Form 8-K
filed February 2, 2010, and incorporated herein by
reference).*
|
|
10
|
.27
|
|
Amendment to Service Agreement, dated as of January 29,
2010, between 19 Entertainment Limited and Robert Dodds
(Previously filed as Exhibit 10.2 to the
Form 8-K
filed February 2, 2010, and incorporated herein by
reference).*
|
|
10
|
.28
|
|
Compromise Agreement, dated September 29, 2010, by and
between CKX, Inc., 19 Entertainment Limited, and Robert
Dodds (Previously filed as Exhibit 10.1 to the
Form 8-K
filed October 5, 2010, and incorporated herein by
reference).*
|
|
10
|
.29
|
|
Revolving Credit Facility Commitment Letter, dated June 2,
2005, among the Company, Bear, Stearns & Co. Inc.,
Bear Stearns Corporate Lending Inc., Credit Suisse, Lehman
Commercial Paper Inc. and The Bank of New York (Previously filed
as Exhibit 10.29 to Amendment No. 2 to
Form S-1/A
(Registration Statement
No. 333-123995)
filed June 6, 2005, and incorporated herein by reference.
|
|
10
|
.30
|
|
Revolving Credit Agreement, dated as of May 24, 2006, among
the Company, the several banks and other financial institutions
or entities from time to time parties thereto, Bear,
Stearns & Co. Inc., as exclusive advisor, sole lead
arranger and sole bookrunner, UBS Securities LLC and The Bank of
New York, as co-syndication agents, Lehman Commercial Paper,
Inc. and Credit Suisse, as codocumentation agents and Bear
Stearns Corporate Lending Inc., as administrative agent
(Previously filed as Exhibit 10.1 to the
Form 10-Q
for the quarterly period ended June 30, 2006, and
incorporated herein by reference).
|
|
10
|
.31
|
|
First Amendment and Waiver dated as of February 20, 2007 to
the Credit Agreement, dated as of May 24, 2006 (Previously
filed as Exhibit 10.3 to the
form 10-Q
for the quarterly period ended September 30, 2007 and
incorporated herein by reference.).
|
100
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.32
|
|
Second Amendment dated as of June 1, 2007 to the Credit
Agreement, dated as of May 24, 2006 as amended
February 20, 2007 (Previously filed as Exhibit 10.2 to
the
Form 10-Q
for the quarterly period September 30, 2007 and
incorporated herein by reference.)
|
|
10
|
.33
|
|
Third Amendment dated as of September 27, 2007 to the
Credit Agreement, dated as of May 24, 2006 as amended
February 20, 2007 and June 1, 2007. (Previously filed
as Exhibit 10.1 to the
Form 10-Q
for the quarterly period ended September 30, 2007 and
incorporated herein by reference.)
|
|
10
|
.34
|
|
Fourth Amendment dated as of March 12, 2010 to the Credit
Agreement, dated as of May 24, 2006 as amended
February 20, 2007, June 1, 2007 and September 27,
2007 (Previously filed as Exhibit 10.1 to the
Form 8-K
filed March 16, 2010, and incorporated herein by reference).
|
|
10
|
.35
|
|
Letter Agreement, dated April 10, 2006, among the Company,
CKX G.O.A.T. Holding Corp. (formerly GOAT Acquisition, Inc.)
Muhammad Ali Enterprises LLC (formerly G.O.A.T. LLC), G.O.A.T.,
Inc. and Muhammad Ali and Yolanda E. Ali, each individually and
as trustees of the Muhammad Ali Family Trust, and Yolanda E. Ali
as trustee of the Yolanda E. Ali Family Trust, dated
October 22, 2002 (Previously filed at Exhibit 10.2 to
the
Form 10-Q
for the quarterly period ended June 30, 2006, and
incorporated herein by reference).
|
|
10
|
.36
|
|
Termination, Settlement and Release Agreement, dated
March 9, 2009, by and among FX Luxury, LLC, FX Real Estate
and Entertainment Inc., Elvis Presley Enterprises, Inc. and
Muhammad Ali Enterprises LLC (Previously filed as
Exhibit 10.32 to the
Form 10-K
filed March 10, 2009, and incorporated herein by reference).
|
|
10
|
.37
|
|
Letter Agreement, dated July 7, 2009, by and between
CKX,Inc. and Ryan Seacrest Enterprises, Inc. (Previously filed
as Exhibit 10.1 to the
Form 8-K
filed July 13, 2009, and incorporated herein by reference).
|
|
10
|
.38
|
|
Letter Agreement, dated July 7, 2009, by and between CKX,
Inc. and The Ryan Seacrest Revocable Trust UDT dated
June 13, 2003 (Previously filed as Exhibit 10.1 to the
Form 8-K
filed July 13, 2009, and incorporated herein by reference).
|
|
10
|
.39
|
|
Consulting Agreement, dated as of February 7, 2005, by and
between EPE Holding Corporation, Priscilla Presley and Elvis
Presley Enterprises, Inc. (Filed herewith).*
|
|
10
|
.40
|
|
Amendment to Consulting Agreement, dated as of July 12,
2010, by and between EPE Holding Corporation, Priscilla Presley
and Elvis Presley Enterprises, Inc. (Filed herewith).*
|
|
14
|
.1
|
|
Code of Ethics (Previously filed as Exhibit 14.1 to the
Form 8-K/A
filed February 11, 2005, and incorporated herein by
reference).
|
|
21
|
.1
|
|
List of Subsidiaries (Filed herewith).
|
|
23
|
.1
|
|
Consent of Deloitte & Touche LLP (Filed herewith).
|
|
31
|
.1
|
|
Certification of Principal Executive Officer (Filed herewith).
|
|
31
|
.2
|
|
Certification of Principal Financial Officer (Filed herewith).
|
|
32
|
.1
|
|
Section 1350 Certification of Principal Executive Officer
(Filed herewith).
|
|
32
|
.2
|
|
Section 1350 Certification of Principal Financial Officer
(Filed herewith).
|
|
|
|
* |
|
Indicates management contracts, compensatory plans or
arrangements of the company required to be filed as an exhibit |
101
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the registrant has duly
caused this Report to be signed on its behalf of the undersigned
thereunto duly authorized.
CKX, Inc. (Registrant)
|
|
|
|
BY:
|
/s/ MICHAEL
G. FERREL
|
Chief Executive Officer and
Chairman of the Board
March 9, 2011
Each person whose individual signature appears below hereby
authorizes and appoints Michael G. Ferrel and Thomas P. Benson,
and each of them, with full power of substitution and
resubstitution and full power to act without the other, as his
or her true and lawful attorney-in-fact and agent to act in his
or her name, place and stead and to execute in the name and on
behalf of each person, individually and in each capacity stated
below, and to file any and all amendments to this annual report
on
Form 10-K
and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform each and every act and thing, ratifying and confirming
all that said attorneys-in-fact and agents or any of them or
their or his substitute or substitutes may lawfully do or cause
to be done by virtue thereof.
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
dates indicated.
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ MICHAEL
G. FERREL
Michael
G. Ferrel
Chief Executive Officer and Chairman of the Board (Principal
Executive Officer)
|
|
March 9, 2011
|
|
|
|
|
|
By:
|
|
/s/ THOMAS
P. BENSON
Thomas
P. Benson
Chief Financial Officer, Executive Vice President and
Treasurer
(Principal Financial and Accounting Officer)
|
|
March 9, 2011
|
|
|
|
|
|
By:
|
|
/s/ HOWARD
J. TYTEL
Howard
J. Tytel, Director
|
|
March 9, 2011
|
|
|
|
|
|
By:
|
|
/s/ EDWIN
M. BANKS
Edwin
M. Banks, Director
|
|
March 9, 2011
|
|
|
|
|
|
By:
|
|
/s/ BRYAN
BLOOM
Bryan
Bloom, Director
|
|
March 9, 2011
|
|
|
|
|
|
By:
|
|
/s/ KATHLEEN
DORE
Kathleen
Dore, Director
|
|
March 9, 2011
|
|
|
|
|
|
By:
|
|
/s/ JACQUES
D. KERREST
Jacques
D. Kerrest, Director
|
|
March 9, 2011
|
|
|
|
|
|
By:
|
|
/s/ JACK
LANGER
Jack
Langer, Director
|
|
March 9, 2011
|
|
|
|
|
|
By:
|
|
/s/ PRISCILLA
PRESLEY
Priscilla
Presley, Director
|
|
March 9, 2011
|
102
INDEX TO
EXHIBITS
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.39
|
|
Consulting Agreement, dated as of February 7, 2005, by and
between EPE Holding Corporation, Priscilla Presley and Elvis
Presley Enterprises, Inc.
|
|
10
|
.40
|
|
Amendment to Consulting Agreement, dated as of July 12,
2010, by and between EPE Holding Corporation, Priscilla Presley
and Elvis Presley Enterprises, Inc.
|
|
21
|
.1
|
|
List of Subsidiaries
|
|
23
|
.1
|
|
Consent of Deloitte & Touche LLP
|
|
31
|
.1
|
|
Certification of Principal Executive Officer
|
|
31
|
.2
|
|
Certification of Principal Financial Officer
|
|
32
|
.1
|
|
Section 1350 Certification of Principal Executive Officer
|
|
32
|
.2
|
|
Section 1350 Certification of Principal Financial Officer
|
103