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
For the fiscal year ended December 31, 2009
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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
For the transition period from to
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Commission File
No. 000-17436
CKX,
INC.
(Exact name of Registrant as
specified in its charter)
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Delaware
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27-0118168
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(State or other jurisdiction
of
incorporation or organization)
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(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)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The 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, 2009, was
$412,192,673.
As of March 12, 2010 there were 93,053,207 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 2010 Annual Meeting of Stockholders are
incorporated by reference into Part II, Item 5 and
Part III, Items 9, 10, 11, 12 and 14.
CKX,
Inc.
Annual Report on
Form 10-K
December 31, 2009
PART I
CKX, Inc., together with its subsidiaries, will be referred to
in this Annual Report on
Form 10-K
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, among other properties, 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;
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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, and
certain music and other intellectual property created by or
related to Elvis and the operations of Graceland; and has
partnered with Cirque du Soleil for the creation of Elvis
Presley-themed shows and projects around the world, including
the recently opened Viva ELVIS in Las Vegas, Nevada; and
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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.
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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.
19
Entertainment
Overview
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 and merchandising, touring and
artist management.
In January 2010, we entered into a long-term agreement with
Simon Fuller, the founder and former Chief Executive Officer of
19 Entertainment, pursuant to which Mr. Fuller will
continue to executive produce and provide overall global
executive direction with respect to American Idol and
So You Think You Can Dance and our new multi-platform
property If I Can Dream. The terms of the agreements with
Mr. Fuller are more fully described below under
Transaction with Simon Fuller. In connection with
this transaction, management has initiated a thorough review of
each of the businesses currently conducted by 19 Entertainment
and decided to focus its efforts principally around its
established IDOLS and So You Think You Can Dance
brands and its new multimedia brand If I Can Dream.
As a result of the decision to concentrate primarily on these
three brands, management intends to exit most of the other
businesses within 19 Entertainment by the summer of 2010. These
businesses will either be closed, sold or transferred, including
potentially being sold or transferred to Mr. Fullers
new entertainment venture, XIX Entertainment. These changes are
expected to substantially reduce 19 Entertainments
spending on new development projects and associated selling,
general and administrative expenses. The Company expects to
incur cash and non-cash charges in 2010 as a result of this
process. The amount of such charges will depend on a number of
factors including the final determination of which businesses
the Company will exit, the amount, if any, of sales proceeds
generated or liabilities assumed as part of the sale or transfer
of businesses and the ultimate scope of the reductions in
selling, general and administrative expenses.
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 and merchandising. In the United States and the
United Kingdom, 19 Entertainment also 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
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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. Sony Music is 19 Entertainments record label
partner with respect to IDOLS artists in most major
territories around the world. Throughout this document we use
the term partner or partnership to
describe our business relationship with certain entities, in
particular FremantleMedia 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 revenues 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 revenues 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;
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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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Television
The typical model for a 19 Entertainment television project thus
far, as demonstrated by the roll out of the IDOLS brand,
has been the development of a compelling television show that is
capable of being broadcast
and/or
replicated on a global basis. Through the initial programming,
19 Entertainment is able to generate a significant fan base and,
ultimately, build substantial ancillary revenue streams.
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 Broadcasting Network
under an agreement between 19 Entertainment, FremantleMedia and
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 revenues 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 Fox Agreement
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 amendment, 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 potentially 2010. Based on ratings for the
2009 season, the show was automatically renewed for 2010 and
began airing in January 2010. Based on the early ratings for the
current season, we expect that the automatic renewal for 2011
will be triggered.
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 host 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.
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 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. The Company is in the process of
negotiating with Fox and Fremantle for compensation related to
Mr. Seacrests services on American Idol . The
amounts paid by such parties, if any, will either be paid
directly to the Company or remitted to the Company by
Mr. Seacrest.
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 Broadcasting Network in the summer of
2005 and has thus far aired for five summer seasons through the
summer of 2009. In 2009, Fox ordered an additional sixth season
which aired in the third and fourth quarters of 2009. For 2010,
So You Think You Can Dance will return to one broadcast
season per year, airing this coming summer.
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
19 Entertainment has the exclusive right to select the
record company entitled to sign contestants on television shows
based on the IDOLS brand to long-term recording
contracts. In the United States and the United Kingdom, 19
Entertainment typically options the recording rights to the top
24 finalists of each series of each television show based on the
IDOLS brand, and then enters into recording
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agreements with each of the winners and certain finalists. 19
Entertainment is currently a party to long-term recording
agreements with numerous best-selling former IDOLS
contestants, including:
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Artist
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Idol Season
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Kelly Clarkson
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American Idol 1 - Winner
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Ruben Studdard
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American Idol 2 - Winner
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Clay Aiken
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American Idol 2 -
Runner-Up
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Fantasia Barrino
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American Idol 3 - Winner
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Carrie Underwood
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American Idol 4 - Winner
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Chris Daughtry
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American Idol 5 - Finalist
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Kellie Pickler
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American Idol 5 - Finalist
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Jordin Sparks
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American Idol 6 - Winner
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Blake Lewis
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American Idol 6 -
Runner-Up
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David Cook
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American Idol 7 - Winner
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David Archuleta
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American Idol 7 -
Runner-Up
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Kristy Lee Cook
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American Idol 7 - Finalist
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Kris Allen
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American Idol 8 - Winner
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Adam Lambert
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American Idol 8 -
Runner-Up
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Allison Ihareta
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American Idol 8 - Finalist
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Danny Gokey
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American Idol 8 - Finalist
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Will Young
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Pop Idol 1 - Winner
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The American Idol and Pop Idol winners and
finalists to date collectively have sold more than
47 million albums in the United States and United Kingdom
alone.
Sony Music Entertainment is 19 Entertainments record label
partner with respect to IDOLS-based recorded music in
most major territories around the world. Ronagold Limited, a
subsidiary of Sony Music, is entitled to select the record
company (which must be a Sony Music record company) in
territories outside the United States and the United Kingdom
which will sign the contestant-artists. In the United States and
the United Kingdom, 19 Entertainment enters into recording
contracts with the finalists and then grants an optional
exclusive license to a Sony Music affiliate to select a Sony
Music record company to handle the marketing, manufacturing and
distribution of the records throughout the world. For the first
four series of American Idol in the United States, RCA
was the designated Sony Music affiliate. 19 Entertainments
agreement with Ronagold with respect to American Idol in
the United States expired following American Idol 4,
which completed its run in May 2005.
In November 2005, 19 Entertainment entered into an agreement
with Sony Music, extending its rights to serve as the record
label partner with respect to American Idol artists and
designating Simco Limited, a wholly-owned subsidiary of Sony
Music, as the new record partner for seasons subsequent to
American Idol 4. In the United States, Simco was granted
five successive options to acquire the rights to participate as
19 Entertainments record label partner, after which it can
require 19 Entertainment to select a designated Sony Music
record label in the United States to act as licensee. The
agreement with Sony Music and Simco expires following the
currently airing American Idol 9.
In the United States and the United Kingdom, the Sony Music
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 and the United
Kingdom, the designated Sony Music 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 Sony Musics usual
exclusive recording contracts for artists with one Platinum
selling album prior to signature in the relevant country.
In further consideration for 19 Entertainment designating Sony
Music as the continuing record label for American Idol
artists, Fox agreed to pay to 19 Entertainment a
non-recoupable annual fee for each of the fifth through ninth
seasons of American Idol.
In addition to the aforementioned, pursuant to an agreement
amongst 19 Entertainment, Fox, FremantleMedia and Apple, all of
the American Idol contestant performances in audio and
video are offered for sale exclusively through the iTunes
Store. Music performances starting with the top 24
semifinalists through the seasons final performances are
available to be downloaded the day after the show airs.
iTunes also serves as a sponsor on the television show.
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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 Fox amendment, 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 American Idol 10. 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
revenues generated by Fox above certain thresholds for each
season through American Idol 10. To date, revenues have
not exceeded the thresholds above which we would receive payment
from Fox.
Sponsorship/Merchandising/Marketing
19 Entertainments sponsorship and merchandising
revenues are 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 IDOLS
tours, 19 Entertainments staff solicits sponsors
directly and exclusively.
19 Entertainment also options the merchandising rights for
the top ten contestants for each American Idol program
and typically signs long-term exclusive merchandising contracts
with the winner and certain finalists. As noted above, all
merchandising and licensing associated with the American Idol
series is handled 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 American
Idol branded tours produced by 19 Entertainment. In the
summer of 2009, the American Idol tour, featuring the
finalists from the shows eighth season, played 52 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 2009 tour featuring contestants from the
shows then completed fifth 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 Parks and Resorts for the
creation of an American Idol attraction to be
located at Disneys Hollywood Studio theme park in Orlando,
Florida. Guests at the attraction will 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.
If I
Can Dream
In March 2010, 19 Entertainment launched a new multi-platform
entertainment project titled If I Can Dream. Through 24/7
live streaming on ificandream.com and a weekly half hour
broadcast on Hulu, If I Can Dream documents the story of
five young people pursuing success in Hollywood. The program is
being distributed and marketed to a global audience through a
number of integrated partnerships with well known and blue chip
brands including Hulu, Clear Channel Communications, MySpace,
Pepsi and Ford Motor Company.
Transaction
with Simon Fuller
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 formed
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by Mr. Fuller, and (iii) agreeing to the termination
of Mr. Fullers employment with 19 Entertainment. The
Company elected not to exercise the option to invest in XIX
Entertainment prior to its expiration on March 15, 2010.
Pursuant to a consultancy agreement with Mr. Fuller, we
have engaged Mr. Fuller to provide services, including
executive producer services, in respect of our American
Idol, So You Think You Can Dance and If I Can
Dream programs. In consideration for providing these
services, Mr. Fuller will receive 10% of the net profits of
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 will receive $5.0 million as an advance
against the 10% fee and it is expected that Mr. Fuller may
receive a total of between $8.0 million and
$10.0 million for 2010, inclusive of the advance, pursuant
to the consultancy agreement. For each year after 2010, subject
to certain conditions, Mr. Fuller will receive, as an
annual advance against the 10% fee, $3.0 million if
American Idol remains on network television and
$2.0 million if So You Think You Can Dance remains
on network television. The advances are non-refundable to CKX,
but CKX may recoup the amount of such advances from the 10% fee
payable to Mr. Fuller. In addition to the aforementioned
payment, Mr. Fuller will receive £1.5 million
($2.4 million) in consideration for providing creative and
strategic advice with respect to the overall business of CKX
through July 13, 2010.
Upon entering into these agreements, Mr. Fuller resigned as
a director of CKX and as an officer and director of 19
Entertainment.
Artist
Management
19 Entertainment continues to represent its historical
roster of clients, including David and Victoria Beckham (see
below under Beckham Relationship), Annie Lennox,
Cathy Dennis and the Spice Girls. In addition, 19 Entertainment
options the right to manage the final contestants in each series
of the IDOLS brand broadcasts in the United States,
United Kingdom, France, Germany and Canada. 19 Entertainment
currently manages a number of American Idol winners and
finalists, including Carrie Underwood, Chris Daughtry, David
Cook, Kris Allen, Adam Lambert and Allison Iraheta.
In December 2008, 19 Entertainment entered into a representation
deal with Andy Murray, currently the
No. 3-ranked
tennis player on the ATP World Tour, and his brother Jamie
Murray, currently the
No. 5-ranked
doubles player in the United Kingdom. 19 Entertainment, together
with Creative Artists Agency (CAA), commenced representing the
Murray brothers in all of their on-court and off-court
activities in March 2009.
In addition to the aforementioned, 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, MBST or its senior executives have been
responsible for the production of 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.
Beckham
Relationship
19 Entertainment has developed a number of relationships in
which it retains an ownership position and which it expects to
result in the creation of valuable properties and projects. For
example, 19 Entertainment manages Victoria Beckham, a fashion
and lifestyle personality as well as David Beckham, a globally
recognized soccer player who commenced playing for the Los
Angeles Galaxy of United States-based Major League Soccer in
July 2007 and is currently playing on loan to AC Milan in the
Italian Serie A league. 19 Entertainment represents
Mr. Beckham in all of his commercial activities including
advertising, sponsorship and endorsement activities. In
addition, David and Victoria Beckham have agreed to pursue the
development and exploitation of projects relating to
merchandising, products and skills (that do not, with certain
exceptions, include the name Beckham) exclusively
through a joint venture entity, Beckham Brand Limited
(BBL), which is owned one-third by each of David
Beckham, Victoria Beckham, and a subsidiary of 19 Entertainment.
The exclusive arrangement between the Beckhams and BBL runs
through the end of 2011.
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 American Idol
tour. In 2009, the additional season of So You Think You
Can Dance that aired in the fall accounted for higher
revenues in the fourth quarter of 2009.
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 two 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,
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television specials and recorded musical works and music
compositions; and second, the operation of the Graceland museum
and related attractions and retail establishments, including
Elvis Presleys Heartbreak Hotel and other ancillary real
estate assets.
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 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 fifteen million Elvis albums have been
sold worldwide and more than 540,000 people visited
Graceland in 2009.
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. For
example, we have entered into an exclusive arrangement with
Cirque du Soleil for the creation, development, production and
promotion of Elvis Presley-themed projects, featuring touring
and permanent shows, as well as multimedia interactive
Elvis Experiences, throughout the world. In
addition, together with Cirque du Soleil and MGM MIRAGE, we
recently announced the opening of 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 brand new ARIA Resort and Casino in CityCenter
on the strip in Las Vegas, Nevada, held its gala opening on
February 19, 2010 and opened to the public the following
day.
Licensing
and Intellectual Property
Music
Rights
We own co-publishing rights to approximately 650 music
compositions, most of which were recorded by Elvis Presley.
Cherry Lane Music Publishing Company administers the majority of
the Companys share of these compositions, along with the
shares of our co-publishers under an administration agreement.
More than 49% of our publishing income from these compositions
for 2009 originated outside the United States. The public
performance rights for these 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 records. Under Elvis recording contract with RCA
(now part of Sony Music), he was entitled to receive an
artists royalty on record sales. In March 1973, Elvis 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 recorded after March 1973 and a marketing
royalty in exchange for the right to use Elvis name, image
and likeness in connection with the sale and marketing of
certain newly released compilation records that include music
Elvis recorded before March 1973.
Sony Music (as RCAs successor) generally does not have the
right to license master recordings featuring Elvis 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. 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 from various motion pictures in which he starred
and the television programs which we own.
Television/Video
We own the rights to two of Elvis 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, 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 influence on Las Vegas,
incorporating rarely seen footage of Elvis performing in Las
Vegas, revealing interviews with those closest to him, and
special performances from some of todays top recording
stars singing Elvis Las Vegas classics.
Motion
Pictures
Elvis starred in 31 feature films as an actor and two
theatrically released concert documentary films. Elvis 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
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the content or distribution of such films. In addition, we have
the rights to and negotiate for revenue associated with the use
of Elvis 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. We currently have
235 licensing agreements. Examples of our licensed products and
services (and the corresponding licensees) include: greeting
cards (American Greetings Corporation); slot machines (IGT);
satellite radio (Sirius Satellite Radio, Inc.); limited edition
wines (DFV Wines); collectibles (The Bradford Exchange);
calendars and stationary (Mead Corporation); Elvis collectible
magazines (Deagostini UK Limited); Elvis Limited Edition
Collectors Vault book (Whitman Publishing); lottery games
or tickets (MDI); 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 560,000 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 85 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
access to 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 produce exclusive licensed merchandise for
visitors to Graceland.
Adjacent to the Graceland real property is the Meadow Oaks
Apartments, a
270-unit
apartment complex that we own and operate as a result of our
acquisition of the Presley Business. 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 experience.
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 premised on the
legendary hospitality and personal style for which Elvis Presley
was known. The hotel had an average occupancy rate of
approximately 68% during the year ended December 31, 2009.
Graceland
Expansion
We have held meetings with government officials in Memphis,
Tennessee regarding preliminary plans to redevelop and expand
the Graceland attraction as the centerpiece of the Whitehaven
section of Memphis. The master redevelopment plan is expected to
incorporate up to approximately 104 acres surrounding and
contiguous to the Graceland mansion property that we own
and/or
control and is expected to include a new visitor center,
exhibition space, retail, hotel, convention facilities, public
open space and parking. Although we have not yet determined the
exact scope, cost, financing plan and timing of this project, we
expect that the re-development of Graceland will take several
years and will require a substantial financial investment by the
Company.
Elvis.com
We own and operate the official Elvis Presley website,
www.elvis.com. The website, which currently receives an average
of 420,000 unique visitors each month, includes a detailed
history of Elvis Presley and the Presley Business, including
biographical information, information about Elvis Presleys
awards and achievements, information about Elvis friends
and family and interesting facts about the
9
life and times of Elvis Presley. The website also offers
exclusive downloads such as
e-cards,
games and on-line tours, as well as direct access to
shopelvis.com, our official online store selling Elvis-branded
merchandise. Visitors to the website can also access Elvis
Insiders, the official Presley sponsored affinity group where
fans pay an annual fee for an inside look at Elvis
and Graceland.
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.
Relationship
with Cirque du Soleil
Global
Projects
We have entered into an exclusive arrangement with Cirque du
Soleil for the creation, development, production and promotion
of Elvis Presley Projects, featuring touring and
permanent shows, as well as multimedia interactive Elvis
Experiences, throughout the world. The projects may
include:
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Touring shows that will be produced by Cirque du Soleil and
incorporate the name, image, likeness and music of Elvis Presley;
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Permanent shows at fixed locations that will be produced by
Cirque du Soleil and incorporate the name, image, likeness and
music of Elvis Presley; and
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Multimedia interactive entertainment Elvis
Experiences that incorporate the music, memorabilia,
audiovisual works, and the life and times of Elvis Presley.
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CKX and Cirque du Soleil will each own 50 percent of each
project, sharing equally in the costs of creating, developing,
building and producing each project and in the profits and
losses from each project. CKX will also receive royalty payments
on various aspects of its intellectual property used in the
projects.
Las
Vegas Show
Together with Cirque du Soleil and MGM MIRAGE, we recently
announced the opening of 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 brand new ARIA Resort and Casino in CityCenter on the strip
in Las Vegas, Nevada, held its gala opening on February 19,
2010 and opened to the public the following day. The show
consists of a creative combination of live musicians and
singers, projections, dance and the latest in multimedia sound
and lighting technology intended to offer an emotional bond with
the audience.
Adjacent to the Viva ELVIS theater at the Aria Resort and Casino
is the Viva ELVIS Official Store. The store encompasses
approximately 3,000 square feet of space and offers a
variety of Viva ELVIS and licensed Elvis Presley merchandise.
Together with Cirque du Soleil, we receive a percentage of the
gross receipts generated at the store. Also adjacent to the
theater is the Gold Lounge, a lounge and nightclub inspired in
design by Elvis Presleys Graceland. Together with Cirque
du Soleil, we receive a percentage of gross sales as a license
fee and 50% of the overall net profits generated at the lounge.
Elvis Presley Enterprises and Cirque du Soleil have formed two
joint venture entities, Cirque EPE Partnership and its
wholly-owned subsidiary Cirque EPE Las Vegas, LLC, for the
purpose of developing the show. Under the terms of the joint
venture agreements, the EPE and Cirque joint venture entities
will share the costs and expenses associated with developing and
producing the Elvis show. In addition, the Company and its
affiliates will provide certain corporate services and license
Elvis Presley-related intellectual property, and Cirque du
Soleil and its affiliates will 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 Cirque EPE
Partnership and MGM, MGM agreed to fund the development of the
theater at the ARIA Resort and Casino in return for a portion of
the ticket sales, show merchandise and other revenues related to
the Elvis show. The portion of ticket sales, show merchandise
and other revenues not allocated to MGM will be shared by the
Company and Cirque du Soleil joint venture entities and their
respective affiliates.
The Company expects its portion of the investment to be
approximately $26 million. The Company has incurred
expenditures of $21.5 million as of December 31, 2009
and expects to fund the remaining $4.5 million in early
2010. In the first quarter of 2010, the Presley Business will
begin reporting results from the Cirque du Soleil Viva ELVIS
show in Las Vegas.
The joint venture agreements also provide for the joint
ventures possible commercial exploitation of Viva ELVIS
and associated intellectual property throughout the world.
10
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 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.
We operate the official Muhammad Ali website at www.ali.com. The
website includes a detailed history of Muhammad Ali, including
biographical information, information about Muhammad Alis
awards and achievements, and information about Muhammad
Alis boxing career. The website also offers exclusive
access to our official online store selling authentic
autographed and licensed products.
Terminated
License Agreements with FXRE
In June 2007, EPE entered into a worldwide license agreement
with FX Real Estate and Entertainment, Inc. (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 was $10.0 million, which was paid, together with
interest of $0.4 million, in April 2008.
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. In
consideration for releasing FXRE from any claims related to the
license agreements, EPE and the Ali Business will receive 10% of
any future net proceeds or fees received by FXRE from the sale
and/or
development of certain real estate owned by FXRE in Las Vegas,
Nevada, up to a maximum of $10 million. FXRE has the right
to buy-out this participation right at any time prior to
April 9, 2014 for a payment equal to
(i) $3.3 million, plus (ii) 10% of any proceeds
received from the sale of some or all of the Las Vegas
properties during such buy-out period and for nine months
thereafter, provided that the amount paid under (i) and
(ii) shall not exceed $10 million. Based on
FXREs public disclosures regarding the prospects for the
real estate and the condition of its business in general, we do
not currently expect to receive any payments under this
agreement.
International
Operations
Approximately $51.6 million, or 16%, of our revenue for the
year ended December 31, 2009 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 maker to assess
performance and make operating decisions. In 2009, MBST is
reported in the 19 Entertainment segment due to a change in
management structure; in 2008 and 2007, MBST was reported as
part of Corporate and Other for segment purposes. All amounts
reflected for 2008 and 2007 have been recasted to conform to the
2009 presentation. All inter-segment transactions have been
eliminated in the consolidated financial statements. The results
of FXRE, which were previously reflected in equity of earnings
of affiliates from the date of the Companys investment,
June 1, 2007, through July 5, 2007 and included in
FXREs consolidated results after FXREs purchase of
the remaining 50% interest in the Metroflag Entities on
July 6, 2007 through September 26, 2007, are reflected
as part of discontinued operations, (see note 5 within the
consolidated financial statements). Subsequent to
September 26, 2007, the Company accounted for its 2%
investment in FXRE under the cost method. Refer to
11
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations and note 14
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 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 revenues,
increasing our operating expenses and exposing us to significant
liabilities.
Intellectual
Property
Our business involves the ownership 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 revenues 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 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 some of these trademarks in
jurisdictions around the world. In addition, FremantleMedia has
registered some of these trademarks, including the trademark
American Idol and its logo, on our 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.
12
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, 2009, the Company had a total of
428 full-time employees, 167 part-time employees and
26 seasonal employees. Management considers its relations with
its employees to be good.
Company
Organization
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 and files reports and other information
with the Securities and Exchange Commission. Such reports and
other information filed by the Company may be inspected and
copied at the Securities and Exchange Commissions Public
Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549, as well as in the Securities and
Exchange Commissions public reference rooms in New York,
New York and Chicago, Illinois. Please call the Securities and
Exchange Commission at
1-800-SEC-0330
for further information on the operation of the Securities and
Exchange Commissions public reference rooms. The
Securities and Exchange Commission also maintains an Internet
site that contains reports, proxy statements and other
information about issuers, like us, who file electronically with
the Securities and Exchange Commission. The address of the
Securities and Exchange Commissions 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.
13
The risks and uncertainties described below are those that we
currently believe are material to our stockholders.
Risks
Related to Our Business
Current
economic conditions and the global financial crisis may have an
impact on our business and financial condition in ways that we
currently cannot predict.
The global economy recently experienced a significant
contraction resulting in an almost unprecedented lack of
availability of business and consumer credit. Continued and
potentially increased volatility, instability and economic
weakness and a resulting decrease in discretionary consumer and
business spending may result in a reduction in our revenues,
including from sponsorship sales, licensing, Graceland and tour
attendance and music sales. We currently cannot predict the
extent to which our revenues may be impacted.
As a result of the increased cost of borrowing resulting from
the recent global credit crisis, our existing credit facility,
which does not come due until May 2011, bears interest at rates
which are substantially below the market for newly issued senior
debt. If we were to pursue any business activity which requires
the consent of our lenders under the terms of the credit
facility, it is possible that the lenders would seek as
compensation for approving such activities an increase in our
interest rate to an amount consistent with current market rates.
Therefore, a decision by the Company to pursue any such
activities could result in a significant increase in our cost of
borrowing.
The company maintains operating bank accounts at a number of
financial institutions in the United States and United Kingdom.
A significant amount of the Companys cash balances in the
United States are in excess of the governments Federal
Deposit Insurance Corporation (FDIC) insurance limits. The FDIC
insures deposits in most banks and savings associations located
in the United States. The FDIC protects depositors against the
loss of their deposits if an FDIC-insured bank or savings
association fails. The FDIC is also providing unlimited coverage
on non-interest bearing transaction accounts through
June 30, 2010 for banks participating in the FDIC Temporary
Liquidity Guarantee Program. The balances held in the United
Kingdom are not insured or guaranteed by the FDIC or any other
governmental agency. We could incur substantial losses if the
underlying financial institutions fail or are otherwise unable
to return our deposits.
The
continued success of our product offerings, including the
popularity of our entertainment properties, are 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 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. As has
been publicly announced, Simon Cowell will be leaving
American Idol at the conclusion of the current season and
is expected to 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 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
Muhammad Ali and the market for products that exploit their
names, images and likenesses. Although we believe that Elvis
fans will continue to visit Graceland and purchase Elvis-related
merchandise, any tarnishing of the public image of Elvis Presley
could materially negatively impact our business and results of
operations. Moreover, as the life, times and artistic works of
Elvis grow more distant in our past, his popularity may decline.
If the public were to lose interest in Elvis or form a negative
impression of him, our business, operating results and financial
condition would be materially and adversely affected.
14
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 depend 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, to make and distribute recordings by
IDOLS winners in the United States, the United Kingdom
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 Sony Music. We also rely on Sony
Music to distribute recordings featuring Elvis Presley. Any
failure of Fox, FremantleMedia, Sony 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 revenues from the IDOLS platform. Revenue from
Fox, FremantleMedia and Sony Music represented 37%, 8% and 9%,
respectively, of the Companys consolidated revenue for the
year ended December 31, 2009.
If we
are unable to complete or integrate future acquisitions, our
business strategy and 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 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.
Even if we are able to complete future acquisitions, they could
result in our:
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incurrence of unanticipated liabilities or contingencies from
such acquisitions;
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incurrence of potential operating losses from such acquisitions;
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engagement in competition with a larger universe of companies;
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incurrence of costs relating to possible additional regulatory
requirements and compliance costs;
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issuance of more capital stock, which may dilute our
stockholders percentage ownership in our company;
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incurrence of additional amounts of debt; and/or
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amortization of additional intangible assets.
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The successful integration of any businesses we may acquire in
the future is a key element of our business strategy. The
acquisition and integration of additional businesses involve
risks, including:
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the diversion of managements time and attention away from
operating our business to acquisition and integration challenges;
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our entry into markets and geographic areas where we have
limited or no experience;
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the potential loss of key employees, artists or customers of the
acquired businesses;
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the potential need to implement or remediate controls,
procedures and policies appropriate for a public company at
businesses that prior to the acquisition lacked these controls,
procedures and policies;
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the integration of culturally diverse employees; and
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the need to integrate each business accounting,
information management, human resources, contract and
intellectual property management and other administrative
systems to permit effective management.
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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.
We may
not be able to manage our expected growth, which could adversely
affect our operating results.
We intend to continue to significantly grow our companys
business. Our anticipated growth could place a strain on our
management, employees and operations. Our ability to compete and
to manage our future growth effectively will depend on our
ability to implement and improve financial and management
information systems on a timely basis and to effect changes in
our business, such as implementing internal controls to handle
the increased size of our operations and hiring, training,
developing and managing an
15
increasing number of experienced management-level and other
employees. Unexpected difficulties during expansion, the failure
to attract and retain qualified employees or our inability to
respond effectively to recent growth or plan for future
expansion, could adversely affect our operating results.
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 some of
these trademarks in jurisdictions around the world. In addition,
FremantleMedia has registered on our behalf some 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
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
16
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.
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,
particularly Robert F.X. Sillerman, our Chairman and Chief
Executive Officer. The loss of the services of
Mr. Sillerman, or one or more key managers or other key
creative, marketing or management employees could have a
material adverse effect on our business, operating results or
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 would have a
detrimental effect on our business, financial condition and
results of operations.
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. In addition, our existing
revolving credit facility expires by its terms in May 2011. The
terms of any additional or replacement financing we may be able
to procure are unknown at this time.
As referenced elsewhere herein, the credit markets and the
general economy recently experienced a period of large-scale
turmoil and upheaval. As a result, debt financing from the
capital markets may not be available on acceptable terms and may
not be available for some time. Based on the current debt
market, we expect that any new debt financing, if available,
will be at interest rates in excess of the interest rates
currently available under our existing credit facility.
In addition to the foregoing, our access to third party sources
of capital will depend, in part, on:
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the markets perception of our then-current performance and
growth potential;
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our then-current debt levels;
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our then-current and expected future earnings;
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our cash flow; and
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the market price per share of our common stock.
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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.
To the
extent we maintain international operations and generate revenue
in foreign currencies, and currency exchange rates become
unfavorable, our results of operations may be adversely
affected.
As we expand our international operations, more of our customers
may pay us in foreign currencies. Currently, we maintain
significant operations in the United Kingdom and receive
payments from FremantleMedia with respect to our IDOLS
agreement in U.S. dollars and U.K. pounds sterling.
Conducting business in currencies other than U.S. dollars
subjects us to fluctuations in currency exchange rates. If the
currency exchange rates were to change unfavorably, the value of
revenue we generate in foreign currencies could decrease when
converted to U.S. dollars and the amount of expenses we
incur in foreign currencies could increase when converted to
U.S. dollars. This could have a negative impact on our
reported operating results. While the Company does not currently
utilize hedging strategies, such as forward contracts, options
and foreign exchange swaps related to transaction exposures, we
may choose to implement them in the future to mitigate this
risk. The use of hedging strategies may not eliminate our
exposure to foreign exchange fluctuations. Additionally, hedging
programs expose us to risks that could adversely affect our
operating results, including the following:
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Hedging programs are inherently risky and we could lose money as
a result of poor trades; and
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We may be unable to hedge currency risk for some transactions
because of a high level of uncertainty or the inability to
reasonably estimate our foreign exchange exposures.
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17
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, which may include 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 our
executive officers and non-independent directors and their
affiliates will limit your ability to influence corporate
matters.
As of March 12, 2010, our executive officers and
non-independent directors together beneficially own
approximately 25% of our outstanding capital stock. In
particular, Mr. Sillerman, our chief executive officer and
chairman of our board of directors, beneficially owns
approximately 20.6% of our outstanding capital stock.
Mr. Sillerman therefore has the ability to influence our
management and affairs and 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
stockholders do not view as beneficial. As a result, the market
price of our common stock could be adversely affected.
Mr. Sillerman has previously disclosed that approximately
80% of his shares of common stock have been pledged, together
with certain other collateral, to secure a personal loan
extended by a financial institution.
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 revenues,
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 any of:
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defamation;
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invasion of privacy;
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copyright infringement;
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actions for royalties and accountings;
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trademark misappropriation;
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trade secret misappropriation;
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breach of contract;
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negligence; and/or
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other claims based on the nature and content of the materials
distributed.
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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 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 Delaware law and our charter documents could
discourage a takeover that stockholders may consider
favorable.
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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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.
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.
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The following table sets forth certain information with respect
to the Companys principal locations as of
December 31, 2009. 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 will be adequate for
current requirements and projected growth.
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Location
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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
|
|
Memphis, TN
|
|
Graceland
|
|
Museum/Home
|
|
13.53 acres
|
|
Lease expires in 2095
|
Memphis, TN
|
|
Presley Business Headquarters/Retail/ Parking/Ancillary Use
|
|
Parking Lot/ Airplane Museum/Retail/EPE Corporate
Office/Ancillary Use
|
|
38.60 acres
|
|
Owned
|
Memphis, TN
|
|
Heartbreak Hotel
|
|
Hotel
|
|
2.66 acres
|
|
Owned
|
Memphis, TN
|
|
Meadow Oaks Apartments
|
|
Apartment Complex
|
|
10.70 acres
|
|
Owned
|
Memphis, TN
|
|
Memphis-Graceland RV Park & Campground
|
|
RV Park
|
|
18.9 acres
|
|
Owned
|
Memphis, TN
|
|
Commercial Property
|
|
Land and Building
|
|
3.23 acres
|
|
Owned
|
Memphis, TN
|
|
Commercial Property
|
|
Land and Building
|
|
0.80 acres
|
|
Owned
|
Memphis, TN
|
|
Residential Property
|
|
Land
|
|
9.50 acres
|
|
Owned
|
Memphis, TN
|
|
Craft Manor
|
|
Land/former Apartment Complex
|
|
16.1 acres
|
|
Owned
|
Memphis, TN
|
|
Commercial Property
|
|
Land
|
|
5.17 acres
|
|
Owned
|
Memphis, TN
|
|
Boulevard Souvenirs
|
|
Land/leased retail space
|
|
0.34 acres
|
|
Owned
|
Memphis, TN
|
|
Memphis Restaurant Property (1)
|
|
Restaurant/Nightclub
|
|
0.83 acres
|
|
Lease expires in 2017
|
Memphis, TN
|
|
Presley Business Office and Warehouses
|
|
Office and Warehouses
|
|
70,762 square feet
|
|
Leases expire in 2012
|
Memphis, TN
|
|
Presley Business Offices
|
|
Offices
|
|
3,500 square feet
|
|
Lease expires in 2023
|
New York, NY
|
|
Corporate Headquarters
|
|
Offices
|
|
24,546 square feet
|
|
Lease expires in 2013
|
New York, NY
|
|
19 Entertainment Administrative Offices
|
|
Offices
|
|
3,000 square feet
|
|
Lease expires in 2012
|
London, England
|
|
19 Entertainment Headquarters
|
|
Offices
|
|
22,768 square feet
|
|
Lease expires in 2010
|
Los Angeles, CA
|
|
19 Entertainment Administrative Offices
|
|
Offices
|
|
21,852 square feet
|
|
Lease expires in 2014
|
Paris, France
|
|
19 Entertainment Administrative Offices
|
|
Offices
|
|
900 square feet
|
|
Lease expires in 2010
|
Nashville, TN
|
|
19 Entertainment Administrative Offices
|
|
Offices
|
|
5,693 square feet
|
|
Lease expires in 2014
|
Los Angeles, CA
|
|
MBST Executive and Administrative Offices
|
|
Offices
|
|
11,910 square feet
|
|
Lease expires in 2010
|
|
|
|
(1) |
|
We closed the restaurant effective September 2003 and in 2006
negotiated a sublease of the entire space through 2017. In 2008,
there was an early termination of the sublease and in 2009 we
negotiated a new sublease of the entire space through mid-2011. |
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
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.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
Two proposals were submitted to a vote of, and approved by, the
stockholders of the Company at an annual meeting of stockholders
held on December 18, 2009. The first proposal was for the
election of nine directors to the Companys board of
directors and the second proposal was for the ratification of
the appointment of Deloitte & Touche LLP to serve as
the Companys independent registered public accounting firm
for its fiscal year ended December 31, 2009. Additional
information about the proposals can be found in the
Companys definitive proxy statement dated November 3,
2009.
Of the 93,039,593 shares of stock issued and outstanding
and entitled to vote at the annual meeting,
86,210,467 shares were represented in person or by proxy,
which constitutes approximately 92.7% of the total votes
entitled to be cast at the meeting. Each share of common stock
outstanding is entitled to one vote. Each share of the
Companys Series B Convertible Preferred Stock and
Series C Convertible Preferred Sock is entitled to vote on
an as converted basis, with each share entitled to one vote.
21
The votes for each proposal were cast as follows:
Proposal 1
Election of Directors
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
Shares Voted for
|
|
|
Shares Withheld
|
|
|
Robert F.X. Sillerman
|
|
|
70,831,852
|
|
|
|
15,378,615
|
|
Simon Fuller (1)
|
|
|
71,699,199
|
|
|
|
14,511,268
|
|
Howard J. Tytel
|
|
|
68,658,780
|
|
|
|
17,551,687
|
|
Edwin M. Banks
|
|
|
60,410,483
|
|
|
|
25,799,984
|
|
Edward Bleier
|
|
|
66,143,938
|
|
|
|
20,066,529
|
|
Bryan Bloom
|
|
|
80,249,918
|
|
|
|
5,960,549
|
|
Jerry L. Cohen
|
|
|
72,039,051
|
|
|
|
14,171,416
|
|
Carl D. Harnick
|
|
|
72,039,051
|
|
|
|
14,171,416
|
|
Jack Langer
|
|
|
58,552,677
|
|
|
|
27,657,790
|
|
|
|
|
(1) |
|
Mr. Fuller resigned from the Board of Directors effective
January 13, 2010. |
Proposal 2
Ratification of the Appointment of Deloitte & Touche
LLP to serve as the Companys Independent Registered Public
Accounting Firm for its fiscal year ending December 31,
2009
|
|
|
For
86,127,982
|
Against
77,890
|
Abstain
4,595
|
In addition, the holder of the Companys Series C
Convertible Preferred Stock is entitled to elect one member to
the Companys board of directors. The holder of the
Series C Convertible Preferred stock confirmed its election
of Ms. Priscilla Presley to continue to serve on the
Companys board of directors as the Series C Director
until the next annual meeting of the Companys stockholders
or earlier removal by the holder of the Series C
Convertible Preferred Stock, in accordance with the
Companys Certificate of Incorporation.
22
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
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 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
High
|
|
|
Low
|
|
|
The NASDAQ Global
Market®
|
|
|
|
|
|
|
|
|
Quarters Ended
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
$
|
7.32
|
|
|
$
|
5.26
|
|
September 30, 2009
|
|
$
|
7.41
|
|
|
$
|
5.87
|
|
June 30, 2009
|
|
$
|
8.05
|
|
|
$
|
4.10
|
|
March 31, 2009
|
|
$
|
4.82
|
|
|
$
|
3.12
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
High
|
|
|
Low
|
|
|
Quarters Ended
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
$
|
5.95
|
|
|
$
|
2.49
|
|
September 30, 2008
|
|
$
|
8.64
|
|
|
$
|
5.72
|
|
June 30, 2008
|
|
$
|
10.57
|
|
|
$
|
8.30
|
|
March 31, 2008
|
|
$
|
11.32
|
|
|
$
|
8.21
|
|
From January 1, 2010 through March 12, 2010, the high
closing sales price for our Common Stock was $5.76, the low
closing sales price was $3.94 and the last closing sales price
on March 12, 2010 was $4.72. As of March 12, 2010,
there were 1,035 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
Information required by this item with respect to equity
compensation plans of the Company will be contained in our
definitive proxy statement issued in connection with the 2010
annual meeting of stockholders filed with the SEC within
120 days after December 31, 2009 and is incorporated
herein by reference. If we do not file a definitive proxy
statement in connection with the 2010 annual meeting of
stockholders with the SEC within 120 days after
December 31, 2009, we will file such information with the
SEC pursuant to an amendment to this
Form 10-K
within 120 days after December 31, 2009.
Except for the purchase by the Company of 1,138,088 shares
of its Common Stock in connection with the exercise of the
Companys call option under the amended Put and Call Option
Agreement described elsewhere herein (see Exercise of
Amended Call Option), there were no purchases by the
Company or any affiliated purchaser of the Companys equity
securities during 2009, 2008 or 2007.
23
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
Prior to February 7, 2005, CKX was a publicly traded
company with no operations. As a result the Presley Business is
considered to be the Predecessor company (the
Predecessor). To assist in the understanding of the
results of operations and balance sheet data of the Company, we
have presented the historical results of the Predecessor. The
selected consolidated financial data was derived from the
audited consolidated financial statements of the Company as of
December 31, 2009, 2008, 2007, 2006, and 2005 and for the
years ended December 31, 2009, 2008, 2007, 2006 and 2005.
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.
The selected statement of operations data for the period
January 1, 2005 February 7, 2005
represents the pre-acquisition operating results of the Presley
Business (as Predecessor) in 2005.
Our selected statement of operations data for the years ended
December 31, 2009, 2008, 2007, 2006 and 2005 includes the
results of the Presley Business for the period following its
acquisition on February 7, 2005, the results of 19
Entertainment for the period following its acquisition on
March 17, 2005, the results of MBST for the period
following its acquisition on August 9, 2005 and the results
of the Ali Business for the period following its acquisition on
April 10, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Company
|
|
|
CKX, Inc.
|
|
January 1-
|
(Amounts in thousands,
|
|
Year Ended December 31,
|
|
February 7,
|
except per share and share information)
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2005
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
328,353
|
|
|
$
|
288,128
|
|
|
$
|
266,777
|
|
|
$
|
210,153
|
|
|
$
|
120,605
|
|
|
$
|
3,442
|
|
Operating expenses (excluding depreciation and amortization) (1)
|
|
|
264,935
|
|
|
|
230,027
|
|
|
|
201,468
|
|
|
|
169,717
|
|
|
|
108,547
|
|
|
|
2,854
|
|
Impairment charges
|
|
|
2,526
|
|
|
|
35,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
19,241
|
|
|
|
21,161
|
|
|
|
22,551
|
|
|
|
20,541
|
|
|
|
14,910
|
|
|
|
126
|
|
Operating income (loss)
|
|
|
44,177
|
|
|
|
36,940
|
|
|
|
42,758
|
|
|
|
19,895
|
|
|
|
(2,852
|
)
|
|
|
462
|
|
Interest income (expense), net
|
|
|
(3,027
|
)
|
|
|
(3,823
|
)
|
|
|
(3,946
|
)
|
|
|
240
|
|
|
|
(2,820
|
)
|
|
|
(115
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
2,181
|
|
|
|
(3,323
|
)
|
|
|
2,970
|
|
|
|
|
|
Income (loss) before income taxes and equity in earnings of
affiliates
|
|
|
41,150
|
|
|
|
33,117
|
|
|
|
40,993
|
|
|
|
16,812
|
|
|
|
(4,596
|
)
|
|
|
347
|
|
Income tax expense
|
|
|
15,358
|
|
|
|
14,430
|
|
|
|
19,432
|
|
|
|
6,178
|
|
|
|
855
|
|
|
|
152
|
|
Equity in earnings of affiliates
|
|
|
576
|
|
|
|
2,521
|
|
|
|
1,566
|
|
|
|
686
|
|
|
|
843
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
26,368
|
|
|
|
21,208
|
|
|
|
23,127
|
|
|
|
11,320
|
|
|
|
(4,608
|
)
|
|
|
195
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(8,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
26,368
|
|
|
|
21,208
|
|
|
|
14,697
|
|
|
|
11,320
|
|
|
|
(4,608
|
)
|
|
|
195
|
|
Dividends on preferred stock
|
|
|
(1,824
|
)
|
|
|
(1,824
|
)
|
|
|
(1,824
|
)
|
|
|
(1,824
|
)
|
|
|
(1,632
|
)
|
|
|
|
|
Accretion of beneficial conversion feature
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,762
|
)
|
|
|
|
|
Net income (loss) available to CKX, Inc.
|
|
|
24,544
|
|
|
|
19,384
|
|
|
|
12,873
|
|
|
|
9,496
|
|
|
|
(24,002
|
)
|
|
|
195
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
(1,782
|
)
|
|
|
(2,257
|
)
|
|
|
(2,553
|
)
|
|
|
(2,127
|
)
|
|
|
(1,296
|
)
|
|
|
|
|
Net income (loss) attributable to CKX, Inc.
|
|
$
|
22,762
|
|
|
$
|
17,127
|
|
|
$
|
10,320
|
|
|
$
|
7,369
|
|
|
$
|
(25,298
|
)
|
|
$
|
195
|
|
Basic income (loss) per common share
|
|
$
|
0.24
|
|
|
$
|
0.18
|
|
|
$
|
0.11
|
|
|
$
|
0.08
|
|
|
$
|
(0.35
|
)
|
|
|
|
|
Diluted income (loss) per common share
|
|
$
|
0.24
|
|
|
$
|
0.18
|
|
|
$
|
0.11
|
|
|
$
|
0.08
|
|
|
$
|
(0.35
|
)
|
|
|
|
|
Average number of basic common shares outstanding
|
|
|
93,298,778
|
|
|
|
96,674,706
|
|
|
|
96,901,172
|
|
|
|
92,529,152
|
|
|
|
71,429,858
|
|
|
|
|
|
Average number of diluted common shares outstanding
|
|
|
93,337,683
|
|
|
|
96,684,377
|
|
|
|
96,991,441
|
|
|
|
93,555,201
|
|
|
|
71,429,858
|
|
|
|
|
|
|
|
|
(1) |
|
Operating expenses in 2009, 2008 and 2007 include
$0.7 million, $(5.8) million and $5.3 million,
respectively, of merger and distribution-related costs
(recoveries), net. Operating expenses include $4.1 million,
$(15.9) million, $0.3 million and $2.7 million of
foreign exchange (gains) and losses resulting from the strength
of the U.S. dollar compared to the U.K. pound for the years
ending December 31, 2009, 2008, 2007 and 2006, respectively. |
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CKX, Inc,
|
|
|
As of December 31,
|
(Amounts in thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
66,587
|
|
|
$
|
101,895
|
|
|
$
|
50,947
|
|
|
$
|
36,610
|
|
|
$
|
36,979
|
|
Marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,625
|
|
Other current assets
|
|
|
88,482
|
|
|
|
52,407
|
|
|
|
58,127
|
|
|
|
36,088
|
|
|
|
26,495
|
|
Total assets
|
|
|
499,682
|
|
|
|
476,061
|
|
|
|
525,455
|
|
|
|
489,117
|
|
|
|
444,600
|
|
Current liabilities (excluding current portion of debt)
|
|
|
77,718
|
|
|
|
78,292
|
|
|
|
59,845
|
|
|
|
39,432
|
|
|
|
33,937
|
|
Debt
|
|
|
101,129
|
|
|
|
101,918
|
|
|
|
103,070
|
|
|
|
3,701
|
|
|
|
3,500
|
|
Total liabilities
|
|
|
207,360
|
|
|
|
210,319
|
|
|
|
207,992
|
|
|
|
91,153
|
|
|
|
94,365
|
|
Redeemable restricted common stock
|
|
|
7,347
|
|
|
|
23,002
|
|
|
|
23,002
|
|
|
|
23,002
|
|
|
|
23,002
|
|
Total CKX, Inc. stockholders equity
|
|
|
278,734
|
|
|
|
237,461
|
|
|
|
289,704
|
|
|
|
371,009
|
|
|
|
323,432
|
|
FORWARD
LOOKING STATEMENTS
In addition to historical information, this
Form 10-K
(this Annual Report) contains forward-looking
statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. 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 Securities and Exchange Commission (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.
25
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ITEM 7.
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MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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The following 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:
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19 Entertainment Limited, which owns, among other properties,
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 creation of
Elvis Presley-themed shows and projects around the world,
including the recently opened Viva ELVIS 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.
|
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.
As noted above, the Company owns an 85% interest in the Presley
Business and an 80% interest in the Ali Business. The former
owners of the Presley Business and the Ali Business 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.
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.
The Company recorded a cost of $0.8 million for
payroll-related taxes associated with the exercise of the call
option.
In order to comply with the Companys internal corporate
governance policies as well as NASDAQ Listing Rule 5630
regarding approval of related party transactions, the
independent directors of the Companys Board of Directors
unanimously approved the amendment to the Put and Call Option
Agreement and exercise of the call option with respect to the
Interim Shares. The Companys Board of Directors, acting
upon such recommendation of the independent directors of the
Board of Directors, also unanimously approved (except for
Mr. Fuller, who abstained) the amendment and the immediate
exercise with respect to the Interim 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. Under the terms of the Merger Agreement, 19X had agreed to
acquire CKX at a price of $12.00 per share in cash. 19X was
initially formed for an unrelated purpose and has had no
operations or
26
business other than as contemplated by the Merger Agreement,
including the related financings. Robert F.X. Sillerman,
Chairman and Chief Executive Officer of CKX, and Simon R.
Fuller, then a director of CKX and the Chief Executive Officer
of 19 Entertainment Limited, a wholly-owned subsidiary of CKX,
are the sole current 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.
About
FXRE
CKX acquired an aggregate approximate 50% interest in FX Real
Estate and Entertainment Inc. (FXRE) in June and
September of 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. Information about FXRE can be found at www.sec.gov or
ir.fxree.com.
FXRE
Distribution
As referenced above, prior and as a condition to the proposed
merger with 19X, on January 10, 2008, CKX distributed to
its stockholders two shares of common stock of FXRE for every
ten shares of CKX common stock or preferred stock owned on the
record date for the distribution. The distributed shares
represented 100% of the interests in FXRE acquired by CKX in
2007. The total number of shares of FXRE common stock
distributed to CKX stockholders was 19,743,349.
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 was $10.0 million, which was paid, together with
interest of $0.4 million, in April 2008.
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. In
consideration for releasing FXRE from any claims related to the
license agreements, EPE and the Ali Business will receive 10% of
any future net proceeds or fees received by FXRE from the sale
and/or
development of the Las Vegas properties, up to a maximum of
$10 million. FXRE has the right to buy-out this
participation right at any time prior to April 9, 2014 for
a payment equal to (i) $3.3 million, plus
(ii) 10% of any proceeds received from the sale of some or
all of the Las Vegas properties during such buy-out period and
for nine months thereafter, provided that the amount paid under
(i) and (ii) shall not exceed $10 million. Based on
FXREs public disclosures regarding the prospects for the
real estate and the condition of its business in general, we do
not currently expect to receive any payments under this
agreement.
As a result of the termination of the license agreements on
March 9, 2009, during the three months ended March 31,
2009, the Company recognized $10.0 million in licensing
revenue that had previously been deferred related to the 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.
27
Shared
Services Agreement
Prior to June 30, 2009, CKX was party to a shared services
agreement with FXRE, pursuant to which certain of our employees,
including members of senior management, provided services for
FXRE, and certain of FXREs employees, including members of
senior management, were available to provide services for CKX.
The services provided pursuant to the shared services agreement
included management, legal, accounting and administrative. The
agreement was terminated by mutual agreement of the parties
effective as of June 30, 2009.
Charges under the shared services agreement were made on a
quarterly basis and were determined by taking into account a
number of factors, including but not limited to, the overall
type and volume of services provided, the individuals involved,
the amount of time spent by such individuals and their current
compensation rate with the company with which they are employed.
Each quarter, representatives of the parties met to
(i) determine the net payment due from one party to the
other for provided services performed by the parties during the
prior calendar quarter, and (ii) prepare a report in
reasonable detail with respect to the provided services so
performed, including the value of such services and the net
payment due. The parties were required to use their reasonable,
good-faith efforts to determine the net payments due in
accordance with the factors described in above. Charges under
the shared services agreement were reviewed by the Audit
Committee.
Prior to the termination of the agreement effective as of
June 30, 2009, for the year ended December 31, 2009,
CKX billed FXRE $0.2 million for professional services,
primarily accounting and legal services, performed under the
shared services agreement prior to its termination; these
amounts were paid to the Company in 2009. For the year ended
December 31, 2008, CKX billed FXRE $1.6 million for
professional services, primarily accounting and legal services,
performed under the shared services agreement. These amounts
were paid to the Company in 2008.
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
labels. 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 distribution
agreement with FremantleMedia, and through agreements with our
principal global record label partners Ronagold for seasons
American Idol 1 through American Idol 4 and Simco
for all seasons subsequent to American Idol 4. 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 Sony Music have the right, but not the obligation, to
require the artist to 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 television 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 eighth broadcast season
aired 50.0 hours in 2009. In 2008 we aired 52.5 hours.
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
the 2010 season of American Idol, with an automatic
renewal for the 2011 season upon the show achieving certain
minimum ratings. 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. Fox also agreed to make an
annual payment to 19 Entertainment tied to the most recent
recording agreement with Sony Music.
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
28
and will pay Mr. Seacrest an additional $22.5 million
in monthly installments during the term, for a total guaranteed
amount of $45 million. The Company is in the process of
negotiating with Fox and Fremantle for compensation related to
Mr. Seacrests services on American Idol. The
amounts paid by such parties, if any, will either be paid
directly to the Company or remitted to the Company by
Mr. Seacrest. The Company will amortize 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, Television Production Costs, as described below
in Application of Critical Accounting Policies.
On January 13, 2010, we 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 formed by Mr. Fuller, and
(iii) agreeing to the termination of Mr. Fullers
employment with 19 Entertainment. The Company elected not to
exercise the option to invest in XIX Entertainment prior to its
expiration on March 15, 2010. Pursuant to a consultancy
agreement with Mr. Fuller, we have engaged Mr. Fuller
to provide services, including executive producer services, in
respect of our American Idol, So You Think You Can
Dance and If I Can Dream programs. In consideration
for providing these services, Mr. Fuller will receive 10%
of the net profits of 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 will receive
$5.0 million as an advance against the 10% fee it is
currently estimated that Mr. Fuller may receive a total of
between $8.0 million and $10.0 million for 2010,
inclusive of the advance, pursuant to the consultancy agreement.
For each year after 2010, subject to certain conditions,
Mr. Fuller will receive, as an annual advance against the
10% fee, $3.0 million if American Idol remains on
network television and $2.0 million if So You Think You
Can Dance remains on network television. The advances are
non-refundable to CKX, but CKX may recoup the amount of such
advances from the 10% fee payable to Mr. Fuller. In
addition to the aforementioned payment, Mr. Fuller will
receive £1.5 million ($2.4 million) in
consideration for providing creative and strategic advice with
respect to the overall business of CKX through July 13,
2010.
The Company will incur approximately $4.3 million in
consulting and other costs to Mr. Fuller resulting from the
above referenced transactions over the first two quarters of
2010, which includes the £1.5 million
($2.4 million) consulting fee referenced above. The Company
also paid Mr. Fuller £0.5 million
($0.8 million) in January 2010, representing consideration
for CKXs option to invest in XIX Entertainment,
Mr. Fullers new entertainment company, which expired
on March 15, 2010. The Company was not required to exercise
any portion of the option at any time and as it elected not to
exercise by the March 15 expiration date, the payment will
be expensed during the first quarter of 2010. The Company will
also recognize a non-cash charge of $0.4 million related to
the accelerated vesting of Mr. Fullers stock options.
In addition to the costs described above, 19 Entertainment
recognized a non-cash impairment charge of $2.5 million to
reduce the carrying amount of the assets of Storm Model
Management (Storm) 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, a U.K.-based modeling agency in the third quarter of
2009, with the expectation that Simon Fuller would be a key
contributor to its growth and operations.
Upon entering into these agreements, Mr. Fuller resigned as
a director of CKX and as an officer and director of 19
Entertainment.
In connection with this transaction, management has initiated a
thorough review of each of the businesses currently conducted by
19 Entertainment and decided to focus its efforts principally
around its established IDOLS and So You Think You Can
Dance brands and its new multimedia brand If I Can
Dream. As a result of the decision to concentrate primarily
on these three brands, management intends to exit most of the
other businesses within 19 Entertainment by the summer of 2010.
These businesses will either be closed, sold or transferred,
including potentially being sold or transferred to
Mr. Fullers new entertainment venture, XIX
Entertainment. These changes are expected to substantially
reduce 19 Entertainments spending on new development
projects and associated selling, general and administrative
expenses. The Company expects to incur cash and non-cash charges
in 2010 as a result of this process. The amount of such charges
will depend on a number of factors including the final
determination of which businesses the Company will exit, the
amount, if any, of sales proceeds generated or liabilities
assumed as part of the sale or transfer of businesses and the
ultimate scope of the reductions in selling, general and
administrative expenses.
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 the prior
year.
Our significant costs to operate 19 Entertainment include
salaries and other compensation, royalties, tour expenses, rents
and general overhead costs. Our discretionary costs include
salary and overhead costs incurred in the development of new
entertainment content. The
29
Company is undertaking a review of projects at 19 Entertainment
and may incur restructuring charges in 2010 based on the results
of that review.
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 name and likeness
for consumer products, commercials and other uses and royalties
and other income derived from intellectual property created by
Elvis 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 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. In the
first quarter of 2010, the Presley Business will begin reporting
results from the Cirque du Soleil Viva ELVIS show in Las Vegas.
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-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 Muhammad
Ali and associated intellectual property. The Ali Business also
generates revenue from sports memorabilia signings performed by
Mr. 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.
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
30
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 US GAAP as OIBDAN is not
a 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, 2009 and 2008.
Consolidated
Operating Results Year Ended December 31, 2009
Compared to Year Ended December 31, 2008
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|
|
|
|
|
|
|
|
|
|
|
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Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
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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.
31
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and other television
productions
|
|
|
124,167
|
|
|
|
(104,847
|
)
|
|
|
19,320
|
|
Recorded music, management clients and other
|
|
|
46,710
|
|
|
|
(27,998
|
)
|
|
|
18,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
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 and other television
productions
|
|
|
63,690
|
|
|
|
(55,403
|
)
|
|
|
8,287
|
|
Recorded music, management clients and other
|
|
|
54,134
|
|
|
|
(29,610
|
)
|
|
|
24,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 increased $10.9 million representing a
contribution from Superstars of Dance, a special series
aired on NBC in the first quarter of 2009, and a Carrie
Underwood Christmas special, partially offset by non-recurring
projects in 2008. Cost of sales increased $49.4 million due
to the production costs for Superstars of Dance and
additional broadcast hours for So You Think You Can
Dance, partially offset by costs for the non-recurring
projects in the prior year.
32
Music revenue declined $1.8 million due to lower record
sales. Management revenue decreased $6.9 million primarily
due to management fees from the Spice Girls reunion tour
in 2008 and reduced touring schedules in 2009 for several
artists as they worked on new album releases and reduced
management fees at MBST. The Storm acquisition, completed on
August 6, 2009, contributed $1.3 million in revenue.
Cost of sales declined $1.6 million as lower music
royalties and expenses were partially offset by Storm costs and
prior year artist tour costs.
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. Sterling 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 sterling 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.
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 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 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.
33
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Graceland Operations revenue decreased $0.6 million for the
year ended December 31, 2009 compared to 2008 due to
favorable results from tours and exhibits offset by lower
ancillary revenue. 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 Mr. 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.
34
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.
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 rebound
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 June 30, 2010.
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: 1) state and local
taxes, 2) the impairment charge related to Storm and other
permanent items, offset in part by 1) transaction costs,
2) income taxed directly to noncontrolling owners and
3) 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% primarily due to: 1) state
and local taxes, 2) the MBST impairment charge and
3) disallowed
35
executive compensation, offset in part by 1) transaction
costs, 2) recognition of a tax benefit on the repatriation
of cash from our UK subsidiary and 3) 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 impacts
the accounting for prior acquisitions. Starting in 2009,
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.
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, 2007, 2008 and 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
Mr. 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 of
$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.
36
Consolidated
Operating Results Year Ended December 31, 2008
Compared to Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Variance
|
|
|
|
(Amounts in thousands)
|
|
|
Revenue
|
|
$
|
288,128
|
|
|
$
|
266,777
|
|
|
$
|
21,351
|
|
Operating expenses
|
|
|
251,188
|
|
|
|
224,019
|
|
|
|
27,169
|
|
Other operating income (expense)
|
|
|
15,910
|
|
|
|
(308
|
)
|
|
|
16,218
|
|
Operating income
|
|
|
36,940
|
|
|
|
42,758
|
|
|
|
(5,818
|
)
|
Income tax expense
|
|
|
14,430
|
|
|
|
19,432
|
|
|
|
(5,002
|
)
|
Net income attributable to CKX, Inc.
|
|
|
17,127
|
|
|
|
10,320
|
|
|
|
6,807
|
|
Operating income
|
|
$
|
36,940
|
|
|
$
|
42,758
|
|
|
$
|
(5,818
|
)
|
Impairment charges
|
|
|
35,661
|
|
|
|
|
|
|
|
35,661
|
|
Depreciation and amortization
|
|
|
21,161
|
|
|
|
22,551
|
|
|
|
(1,390
|
)
|
Non-cash compensation
|
|
|
2,954
|
|
|
|
1,325
|
|
|
|
1,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$
|
96,716
|
|
|
$
|
66,634
|
|
|
$
|
30,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue growth of $21.4 million in 2008 was driven
primarily by 19 Entertainment, which had higher television
production and sponsorship revenue for American Idol, an
increase in the broadcast hours from So You Think You Can
Dance and increases in music and management revenue, which
offset lower revenue for the Presley Business and the Ali
Business. Higher operating expenses of $27.2 million
resulted from non-cash impairment charges of $35.7 million
to reduce the carrying amount of the Ali Business trademark by
$24.4 million, Ali Business goodwill by $3.4 million
and MBST goodwill by $7.9 million. Excluding the impairment
charges, operating expenses declined $8.5 million as higher
expenses at 19 Entertainment to support revenue growth and new
projects and the increased broadcast hours for So You Think
You Can Dance were partially offset by decreased expenses at
the Presley Business and lower corporate expenses and merger and
distribution related costs. Other operating income of
$15.9 million reflects foreign exchange gains resulting
from a significant strengthening of the U.S. dollar
compared to the U.K. pound as 19 Entertainment has significant
U.S. dollar denominated revenues. Other operating expense
of $0.3 million in the prior year period reflects foreign
exchange losses.
19
Entertainment
Revenue for 19 Entertainment was $229.2 million in 2008, an
increase of $31.3 million over the prior year. Operating
expenses for 19 Entertainment, including amortization expense of
intangible assets of $14.7 million and excluding other
operating income of $15.9 million and the MBST impairment
charge of $7.9 million, were $170.5 million, an
increase of $21.8 million over the prior period.
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, 2008 and
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and other television
productions
|
|
|
63,690
|
|
|
|
(55,403
|
)
|
|
|
8,287
|
|
Recorded music, management clients and other
|
|
|
54,134
|
|
|
|
(29,610
|
)
|
|
|
24,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
Revenue
|
|
|
Cost of Sales
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
|
|
|
|
American Idol (including television production, foreign
syndication, sponsorship, merchandise and touring)
|
|
$
|
83,859
|
|
|
$
|
(20,647
|
)
|
|
$
|
63,212
|
|
Other IDOLS television programs (including license fees
and sponsorship)
|
|
|
15,837
|
|
|
|
(385
|
)
|
|
|
15,452
|
|
So You Think You Can Dance and other television
productions
|
|
|
54,154
|
|
|
|
(45,352
|
)
|
|
|
8,802
|
|
Recorded music, management clients and other
|
|
|
44,014
|
|
|
|
(12,372
|
)
|
|
|
31,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
197,864
|
|
|
$
|
(78,756
|
)
|
|
$
|
119,108
|
|
Selling, general and administrative expenses, excluding non-cash
compensation
|
|
|
|
|
|
|
|
|
|
|
(51,610
|
)
|
Other operating expense
|
|
|
|
|
|
|
|
|
|
|
(308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
|
|
|
|
|
|
|
|
$
|
67,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
|
|
|
|
|
|
|
|
$
|
67,190
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
(17,727
|
)
|
Non-cash compensation
|
|
|
|
|
|
|
|
|
|
|
(289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
|
|
|
|
$
|
49,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Idol 7 aired 52.5 series hours in the
U.S. in 2008 while American Idol 6 aired 49 series
hours in the U.S. in 2007. The additional hours of
programming along with an increase in guaranteed license fees
accounted for $6.7 million in additional revenue. New
sponsorship and licensing deals contributed $7.2 million in
additional revenue. U.S. television ratings for American
Idol declined in 2008 reflecting an overall decline in
network television viewing and an increase in the number of
broadcast hours. Touring revenue declined $1.7 million due
to fewer dates. Other IDOLS revenue decreased
$0.5 million due to reduced music sales by international
IDOLS artists.
MBST contributed $5.6 million and $4.9 million in
management revenue in 2008 and 2007. 2008 includes revenue of
$1.0 million from the HBO series Little Britain USA
, which MBST co-produced with 19 Entertainment, which offset
revenue declines due to the timing and number of other client
projects.
Revenue from So You Think You Can Dance increased
$10.0 million in 2008 due largely to 37 hours
broadcast in 2008 as compared to 31.5 hours in 2007;
increased sponsorship revenue accounted for $2.2 million of
this increase. Revenue from other television programming,
including the new series Little Britain USA on HBO,
which was co-produced with MBST, contributed an incremental
$1.0 million over the prior year, offsetting a
non-recurring television project in 2007.
Music revenue increased $4.9 million due to strong sales by
former American Idol contestants and download revenue of
performances from American Idol. Management revenue
increased $4.6 million due to increased sponsorship
revenues and management fees from the Spice Girls reunion
tour.
Operating expenses, excluding MBST, including cost of sales,
selling, general and administrative expenses, depreciation and
amortization and non-cash compensation, increased by
$22.2 million in 2008 over the prior year. Cost of sales
increased $29.3 million due to the additional hours for
So You Think You Can Dance, other television development
costs including Little Britain USA, higher music
royalties to artists and costs to support the iTunes
download program. Selling, general and administrative
expenses decreased $7.3 million due primarily to headcount
reductions, additional costs directed to projects and favorable
foreign exchange impact on U.K. Sterling denominated costs.
Other operating income of $16.1 million in 2008 reflects
foreign exchange gains resulting from a significant
strengthening of the U.S. dollar compared to the U.K. pound
as 19 Entertainment has significant U.S. dollar denominated
revenue. Other operating expense of $0.3 million in the
prior year period reflects foreign exchange losses.
MBST operating expenses for 2008 and 2007, including
acquisition-related amortization expenses of $0.8 million
for each year, were $14.0 million and $6.0 million,
respectively. 2008 operating expenses include a non-cash
impairment charge of $7.9 million to reduce the carrying
value of goodwill. Excluding the impairment charge, expenses
increased $0.1 million.
38
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, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Variance
|
|
|
|
(Amounts in thousands)
|
|
|
Revenue
|
|
$
|
18,186
|
|
|
$
|
21,883
|
|
|
$
|
(3,697
|
)
|
Cost of sales
|
|
|
(2,364
|
)
|
|
|
(2,211
|
)
|
|
|
(153
|
)
|
Selling, general and administrative expense, excluding non-cash
compensation
|
|
|
(5,330
|
)
|
|
|
(7,691
|
)
|
|
|
2,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$
|
10,492
|
|
|
$
|
11,981
|
|
|
$
|
(1,489
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$
|
10,492
|
|
|
$
|
11,981
|
|
|
$
|
(1,489
|
)
|
Depreciation and amortization
|
|
|
(2,582
|
)
|
|
|
(2,582
|
)
|
|
|
|
|
Non-cash compensation
|
|
|
(39
|
)
|
|
|
(35
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
7,871
|
|
|
$
|
9,364
|
|
|
$
|
(1,493
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties and license revenue was $18.2 million in 2008, a
decrease of $3.7 million compared to the prior year. The
decrease in royalties and licensing revenue was due to lower
sales of a limited edition collectible DVD box set of Elvis
movies of $3.0 million and lower royalties from the release
of digitally enhanced videos and DVDs of 68
Special and Aloha from Hawaii of
$0.9 million, offset primarily by a net increase in revenue
from other TV & Video projects of $0.2 million,
due to the distribution of Elvis: VIVA Las Vegas DVD
documentary of $1.5 million in 2008 in place of other
TV & Video projects of $1.3 million in the prior
year. An increase in publishing and film revenue was offset by
declines in name, image and likeness and merchandise revenue,
principally due to the increased activity surrounding the
commemoration of the 30th anniversary of Elvis
Presleys death in 2007. Royalties and licensing cost of
sales increased $0.2 million due to production costs for
the Elvis: Viva Las Vegas DVD documentary of
$0.9 million offset by reduced cost of sales of the limited
edition DVD box set of $0.7 million. Royalties and
licensing selling, general and administrative expenses decreased
by $2.4 million in 2008 primarily due to a decrease for
advertising and marketing of the DVD box set, including upfront
costs to produce an infomercial of $2.4 million which
incurred in 2007.
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, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Variance
|
|
|
|
(Amounts in thousands)
|
|
|
Revenue
|
|
$
|
36,713
|
|
|
$
|
40,879
|
|
|
$
|
(4,166
|
)
|
Cost of sales
|
|
|
(5,674
|
)
|
|
|
(7,487
|
)
|
|
|
1,813
|
|
Selling, general and administrative expense, excluding non-cash
compensation
|
|
|
(24,835
|
)
|
|
|
(26,220
|
)
|
|
|
1,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$
|
6,204
|
|
|
$
|
7,172
|
|
|
$
|
(968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$
|
6,204
|
|
|
$
|
7,172
|
|
|
$
|
(968
|
)
|
Depreciation and amortization
|
|
|
(2,251
|
)
|
|
|
(2,089
|
)
|
|
|
(162
|
)
|
Non-cash compensation
|
|
|
(79
|
)
|
|
|
(64
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
3,874
|
|
|
$
|
5,019
|
|
|
$
|
(1,145
|
)
|
|
|
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Graceland Operations revenue was $36.7 million in 2008, a
decrease of $4.2 million compared to the prior year,
primarily due to a $1.7 million decrease in retail
operations revenue to $13.8 million. $0.3 million of
the decline was due to a change in mail order retail sales to a
commission-based operation in the second quarter of 2007. The
remaining $1.4 million decline was due to lower retail
sales for special events during anniversary week and at
Graceland retail stores resulting from a 12.5% decrease in
attendance. Per- visitor spending in 2008 was up 5.3% compared
with prior year, although historically an anniversary year such
as 2007 has significantly higher per-visitor spending than
non-anniversary years. Tour and exhibit revenue of
$14.2 million in 2008 decreased $0.6 million compared
to the prior year. This decrease resulted from a 12.5% decrease
in attendance to 536,196 in 2008 from 612,541 in 2007, partially
offset by a 9.5% increase in per visitor spending. The
attendance decline is due to significantly higher number of
visitors in 2007 for the commemoration of the
30th anniversary of Elvis Presleys death and due to
the impact of higher gas prices and weak economic conditions on
discretionary consumer travel in the peak travel seasons of
2008. In 2006, Graceland had 554,193 visitors. The increase in
per visitor spending was due to price increases and an increase
in the number of visitors choosing premium package tours.
39
Other revenue, primarily hotel room revenue, event revenue and
ancillary real estate income, was $8.7 million in 2008, a
decrease of $1.9 million compared to the prior year. The
decrease was principally due to lower event revenue of
$1.4 million related to the prior year events, including
the Elvis 30th anniversary concert. The remainder was due
to lower ancillary real estate revenue.
Graceland Operations cost of sales declined $1.8 million in
2008 compared to 2007 with $1.0 million related to the
prior year anniversary events, $0.3 million due to the
change in mail order retail sales to a commission-based
operation and $0.5 million due to lower Graceland retail
sales. Graceland Operations selling, general and administrative
expenses decreased $1.4 million primarily due to a
$1.1 million reduction in professional services and other
costs incurred in the prior year related primarily to
development costs associated with the Elvis Presley Cirque du
Soleil show in Las Vegas, a $0.7 million net decrease in
other variable expenses due to lower attendance,
$0.3 million of lower fulfillment and distribution costs
for the mail order retail sales business, $0.2 million of
lower costs related to prior year anniversary events, and
$0.2 million in lower advertising expense. These declines
were partially offset by a provision of $1.1 million
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.
Ali
Business
The Ali Business contributed $4.0 million and
$6.2 million in revenue in 2008 and 2007, respectively. The
decrease in revenue is primarily due to fewer licensing deals in
2008 as compared to the prior year. Operating expenses for the
same years were $30.8 million and $3.4 million,
respectively. 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 declined $0.3 million. OIBDAN declined to
$1.0 million from $2.8 million in the prior period.
Corporate
Expenses and Other Costs
The Company incurred corporate overhead expenses of
$18.1 million and $18.2 million in the years ended
December 31, 2008 and 2007, respectively. The decrease of
$0.1 million reflects higher incentive compensation costs
in 2008, offset by reduced legal costs and higher shared service
costs charged to FXRE.
The Company recognized a gain 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 at the average trading price
of the Companys stock on NASDAQ on November 21, 2008
of $2.29. The Company incurred merger and
distribution-related
costs of $2.3 million in 2008 and $5.3 million in 2007,
respectively; these costs are primarily 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. The gain and
related costs are classified on the statement of operations as
merger and
distribution-related
costs (recoveries), net.
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 have not yet been consummated.
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, 2008 in accordance with
the methods outlined in Application of Critical Accounting
Policies. Based on the annual impairment test, 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 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 rebound to prior expectations.
Interest
Income/Expense, net
The Company had interest expense of $5.6 million in 2008
and 2007. Interest expense in 2008 primarily reflects a full
year of interest on the Companys drawdown from the
revolving credit facility on June 1, 2007 to fund the
investment in FXRE, offset by a reduction in the average
borrowing rate from 7.04% to 4.49%. The Company had interest
income of $1.8 million and $1.6 million in 2008 and
2007, respectively; interest income in 2008 includes
$0.5 million in interest income from FXRE on the 2007
license payments and the FXRE loan.
40
Other
Income
Other income of $2.2 million in 2007 is primarily a gain
recorded on the distribution of the final 2% ownership interest
in FXRE to the Companys shareholders. The gain represents
the difference between the Companys cost basis in the
shares and the trading price of FXRE on January 10, 2008,
the first day of trading in FXRE stock.
Income
Taxes
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% primarily due to: 1) state
and local taxes, 2) the MBST impairment charge and
3) disallowed executive compensation, offset in part by
1) transaction costs, 2) recognition of a tax benefit
on the repatriation of cash from our UK subsidiary and
3) other permanent items.
For the year ended December 31, 2007, the Company recorded
a provision for income taxes of $19.4 million. The
provision reflects an effective tax rate of 47.4%. The tax
provision is comprised of $5.9 million federal income tax,
$2.6 million state and local income tax, and
$10.9 million of foreign income tax (predominantly relating
to the United Kingdom). The effective tax rate differs from the
federal statutory rate of 35% primarily due to state and local
taxes, the capitalizing of certain deal costs, and recognition
of income on the repatriation of cash from our UK subsidiary and
other permanent items.
The decrease in the 2008 effective tax rate as compared with the
2007 effective tax rate of the same period relates primarily to:
1) the deductibility of transaction costs that were
capitalized in 2007, 2) a tax loss on the repatriation of
cash from our UK subsidiary and 3) a greater use of the
foreign tax credit, partially offset by 1) the disallowance
of the MBST impairment charge and 2) the disallowance of
certain executive compensation.
The Companys deferred tax liabilities decreased by
$10.2 million in 2008 due to the impairment charge related
to the Ali Business.
A portion of the Companys long-term deferred tax asset
reversed during 2008. As this was related to the purchase of 19
Entertainment, there was a decrease in the valuation allowance
offset by a decrease in goodwill of approximately
$3.4 million. In addition, the Company evaluated the future
utilization of the future foreign tax credit carryforwards and
has reduced the valuation allowance by an additional
$3.9 million related to an increased level of certainty
regarding the use of a portion of the remaining future foreign
tax credit carryforwards. Since this decrease also related to
the purchase of 19 Entertainment, the decrease in the valuation
allowance was offset by a decrease to goodwill. A change in ASC
805 (formerly SFAS No. 141(R), Business
Combinations) that will impact the accounting for prior
acquisitions is that beginning in 2009, changes to existing
income tax valuation allowances and tax uncertainty accruals
resulting from acquisitions will be recorded as adjustments to
income tax expense.
A portion of the Companys long-term deferred tax asset
reversed during 2007. As this was related to the purchase of 19
Entertainment Group, there was a decrease in the valuation
allowance, offset by a decrease in goodwill of
$5.0 million. In addition, the change in the New York,
Michigan and United Kingdom tax laws resulted in a reduction to
the effective tax rate applied to the deferred tax items. This
resulted in a decrease to the net deferred amount.
The Company adopted the provisions of ASC
740-10,
formerly Financial Accounting Standards Board (FASB)
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes (FIN 48), an interpretation of
FASB Statement No. 109 (SFAS 109), on
January 1, 2007. As a result of the implementation of
FIN 48, the Company reviewed its uncertain tax positions in
accordance with the recognition standards established by
FIN 48. As a result of this review, the Company made an
initial adjustment to its estimate of its uncertain tax
positions by recognizing an additional liability (including
interest and penalties) of approximately $0.2 million
through a charge to goodwill and an additional liability
(including interest and penalties) of approximately
$0.1 million through a charge to retained earnings. The
liability is recorded in 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, 2009. If all the uncertain
tax positions were settled with the taxing authorities, there
would be no material effect on the effective tax rate.
The Company generally recognizes accrued interest and penalties
related to uncertain tax positions through income tax expense.
CKX has cumulatively accrued $0.5 million in interest and
penalties. For the year ended December 31, 2008, the
Company accrued interest and penalties of less than
$0.1 million.
New York State is in the process of auditing 19 Entertainment,
Inc. for the period July 1, 2003 through March 17,
2005. New York State has notified the Company that it will
commence audits of the Companys tax years ended
December 31, 2005, 2006 and 2007. The Internal Revenue
Service has commenced an audit of the Companys tax year
ended December 31, 2006. Open tax years related to federal
41
filings are for the years ended December 31, 2005, 2006 and
2007. Open tax years for state and local jurisdictions are not
expected to have a material impact on the financial statements
in the event of an examination.
The United Kingdoms Revenue & Customs
(HMRC) has reviewed the historic 19 Entertainment
Ltd. UK group through December 31, 2006.
Equity
in Earnings of Affiliates
The Company recorded $2.5 million and $1.6 million of
earnings in unconsolidated affiliates for the years ended
December 31, 2008 and 2007, respectively, primarily
reflecting the Companys investment in Beckham Brand
Limited. The increase is a result of higher Beckham Brand
Limited income, principally related to David Beckhams
marketing contract with the Los Angeles Galaxy and an increase
in licensing activity.
Noncontrolling
Interests
Net income attributable to noncontrolling interests of
$2.3 million and $2.6 million for the years ended
December 31, 2008 and 2007, respectively, reflect shares in
the net income of the Presley Business and the Ali Business
related to the equity interests retained by the former owners.
Liquidity
and Capital Resources
Revolving Credit Facility The Company is party to a
revolving 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 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,
2009, 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. 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. Any
loans under the Credit Facility must be repaid by May 24,
2011. 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, 2009 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 existing revolving credit facility expires by its terms in
May 2011. The terms of any additional or replacement financing
we may be able to procure are unknown at this time.
As noted above, in March 2010, we entered into an amendment to
our 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 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.
As has been publicly disclosed, Mr. Sillerman has
previously pledged approximately 80% of his CKX stock to secure
a personal loan from a financial institution. In addition, the
Board of Directors is aware, as it is a matter of public record,
that Mr. Sillerman has been involved in litigations
concerning certain troubled real estate investments which
litigations have, in certain instances, resulted in presently
outstanding judgments against Mr. Sillerman. Based on the
aforementioned information, the Companys Board of
Directors determined that it was in the best interest of the
Company to seek a modification of the Credit Facility removing
the requirement that Mr. Sillerman maintain a minimum
equity ownership in the Company. By seeking and obtaining the
amendment described above, the Company has eliminated the
possibility of a default under the Credit Facility should Mr.
Sillermans personal CKX stock ownership be
42
reduced for any reason. The Company has no involvement with
respect to any of Mr. Sillermans real estate ventures
and is not a party to any of these litigations. Additionally,
the Board of Directors has no access to information with respect
to such litigations other than that information which is
publicly available concerning these situations and information
it received in connection with its review of
Mr. Sillermans pledge agreement.
The Company was in compliance with all loan covenants as of
December 31, 2009.
Cash Flow
for the Years Ended December 31, 2009, 2008 and
2007
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, which will be expensed in future periods,
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.
Net cash provided by operating activities was $40.7 million
for the year ended December 31, 2007, reflecting net income
of $14.7 million, which includes depreciation and
amortization expenses of $22.6 million, discontinued
operations of $8.4 million and the impact of changes in
working capital levels.
Investing
Activities
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.
Net cash used in investing activities was $122.8 million
for the year ended December 31, 2007 primarily reflecting
the amount, including transaction costs, paid for the investment
in FXRE of $103.7 million, the loan to FXRE of
$6.0 million and capital expenditures of $11.4 million
related primarily to the purchase of additional land adjacent to
Graceland.
In 2007, the Company entered into a $1.8 million loan
agreement with a vendor that provides marketing and branding
services to the Company. This vendor is owned by several
individuals who collectively own less than one percent of our
outstanding common stock. The loan bears interest, payable
monthly, at 10% per annum, which has been paid currently through
December 31, 2009. The borrowers are required to make
principal payments, beginning in February 2009 in an amount
equal to 50% of the vendors cash flow, as defined; the
maturity date of the loan is August 2012. The loan is personally
guaranteed by the four principals of the vendor.
$1.8 million was outstanding under the loan agreement at
December 31, 2009 and 2008. The Company also entered into a
consulting agreement with the vendor in 2007 that terminates in
December 2010 and provides for the Company to pay monthly
consulting fees that would total $1.8 million over the term
of the agreement; $0.5 million, $0.5 million and
$0.2 million was expensed under the agreement in 2009, 2008
and 2007, respectively. The consulting agreement may be
terminated by either party upon sixty days notice.
Financing
Activities
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
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.
43
Cash provided by financing activities was $95.9 million for
the year ended December 31, 2007. The Company borrowed
$100.0 million under its revolving credit facility to fund
the investment in FXRE and received $0.2 million of net
proceeds from warrant exercises. The Company made distributions
to noncontrolling interest shareholders of $1.8 million,
principal payments on notes payable of $0.6 million and
dividend payments of $1.8 million to the holder of the
Series B Convertible Preferred Stock. During the year ended
December 31, 2007, the Company made payments of
$0.1 million for costs associated with amending the
revolving credit facility.
Uses of
Capital
At December 31, 2009, the Company had $101.1 million
of debt outstanding and $66.6 million in cash and cash
equivalents.
We believe that our current cash on hand together with cash flow
from operations will be sufficient to fund our current
operations, including payments of interest and principal due on
the Companys debt, dividends on our Series B
Convertible Preferred Stock, mandatory minimum distributions to
the noncontrolling shareholder in each of the Presley Business
and Ali Business and capital expenditures.
Capital
Expenditures
We presently anticipate that our capital expenditures for 2010
will total approximately $3.0 million. We also expect to
incur additional costs for the development of the Elvis Presley
show in Las Vegas with Cirque du Soleil and MGM Mirage. We
incurred $18.4 million and $3.1 million in the years
ended December 31, 2009 and 2008, respectively, and expect
to incur an additional $4.5 million in early 2010 for a
total investment of $26.0 million.
We announced preliminary plans to re-develop our Graceland
attraction including an expanded visitors center, developing new
attractions and merchandising shops and building a new boutique
convention hotel. This project is conditioned on a number of
factors, including obtaining necessary approvals and concessions
from local and state authorities. Although we have not yet
determined the exact scope, cost, financing plan and timing of
this project, we expect that the redevelopment of Graceland will
take several years and could require a substantial financial
investment by the Company. The Company remains committed to the
Graceland redevelopment and will continue to pursue
opportunities on its own or 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.
On December 14, 2007 and February 1, 2008, two
shareholder derivative actions were instituted, and later
consolidated (the Action), against the Company, its
directors, 19X and 19X Acquisition Corp. in connection with the
proposed merger described in Terminated Merger Agreement above.
The Action challenged the Boards approval of the Merger,
alleging among other things, that the proposed transaction
favored Mr. Sillerman over CKXs public stockholders.
On May 27, 2008, the parties to the litigation agreed to
settle the Action on terms that were subsequently reflected in
an amendment to the Merger Agreement. The Merger was thereafter
terminated on November 1, 2008.
On July 31, 2009, the parties to the Action entered into a
stipulation agreeing that the claims asserted in the litigation
had become moot. In that connection, CKX has agreed to pay the
fees and expenses incurred by plaintiffs counsel in
litigating the Action in an aggregate amount of
$0.7 million. On September 30, 2009, the Court entered
a final order dismissing the Action with prejudice as to
plaintiffs and their counsel. In the three months ended
December 31, 2009, the Company paid the settlement amount
of $0.7 million.
44
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, 2009
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Debt principal
|
|
$
|
482
|
|
|
$
|
100,515
|
|
|
$
|
132
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
101,129
|
|
Interest on debt
|
|
|
1,858
|
|
|
|
751
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,616
|
|
Non-cancelable operating leases
|
|
|
4,172
|
|
|
|
3,512
|
|
|
|
3,378
|
|
|
|
2,355
|
|
|
|
1,633
|
|
|
|
2,004
|
|
|
|
17,054
|
|
Employment contracts and consulting agreements
|
|
|
4,088
|
|
|
|
1,462
|
|
|
|
560
|
|
|
|
560
|
|
|
|
560
|
|
|
|
47
|
|
|
|
7,277
|
|
Guaranteed minimum distributions (a)
|
|
|
1,700
|
|
|
|
1,700
|
|
|
|
1,700
|
|
|
|
1,700
|
|
|
|
1,700
|
|
|
|
|
|
|
|
8,500
|
|
19 Entertainment put right
|
|
|
|
|
|
|
7,039
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,039
|
|
Series B convertible preferred stock dividend (c)
|
|
|
1,826
|
|
|
|
1,826
|
|
|
|
1,826
|
|
|
|
1,826
|
|
|
|
1,826
|
|
|
|
|
|
|
|
9,130
|
|
EPE Put Right (d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MAE contingent consideration (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uncertain tax positions (f)
|
|
|
2,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,380
|
|
Ryan Seacrest agreement
|
|
|
7,500
|
|
|
|
7,500
|
|
|
|
3,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
24,006
|
|
|
$
|
124,305
|
|
|
$
|
11,353
|
|
|
$
|
6,441
|
|
|
$
|
5,719
|
|
|
$
|
2,051
|
|
|
$
|
173,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 Ali Trust has the right to receive an additional 5%
membership interest in the Ali Business effective as of the end
of the calendar year in which the total compound internal rate
of return to the Company on its initial $50 million
investment equals or exceeds (i) 30% on a cumulative basis
during the period ending April 10, 2011 or (ii) 25% on
a cumulative basis for any period commencing on the acquisition
date and ending at any time after April 10, 2011. The Ali
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 $564,000. |
The chart above does not include the ongoing payment obligations
to Simon Fuller under the terms of his Consulting Agreement
described elsewhere herein. For calendar year 2010,
Mr. Fuller will receive $5.0 million as an advance against
the 10% fee it is currently estimated that Mr. Fuller may
receive a total of between $8.0 million and
$10.0 million for 2010, inclusive of the advance, pursuant
to the agreement.
Elvis
Cirque du Soleil Show
Together with Cirque du Soleil and MGM MIRAGE, we recently
announced the opening of 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 brand new ARIA Resort and Casino in CityCenter on the strip
in Las Vegas, Nevada, held its gala opening on February 19,
2010 and opened to the general public the following day. The
show is being developed and will operate in a partnership
jointly owned by Cirque du Soleil and the Company and has been
determined by the Company to be a variable interest entity. The
Company is not the primary beneficiary of the partnership and
does not control its main operating functions 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,
45
which is its investment in the partnership. The Company and
Cirque du Soleil have each agreed to pay one-half of the
creative development and production costs of the show. The
Company expects its portion of the investment to be
approximately $26 million. The Company incurred
expenditures for the development of the show of
$3.1 million in 2008 and $18.4 million in 2009. The
Company expects to fund the remaining $4.5 million in early
2010. The amount incurred as of December 31, 2009 of
$21.5 million is recorded within other assets on the
accompanying consolidated balance sheet as of December 31,
2009.
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 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. The Company is in the process of
negotiating with Fox and Fremantle for compensation related to
Mr. Seacrests services on American Idol. The
amounts paid by such parties, if any, will either be paid
directly to the Company or remitted to the Company by
Mr. Seacrest.
Simon
Fuller Transaction
On January 13, 2010, we 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 participate in XIX Entertainment Limited, a
new entertainment company formed by Mr. Fuller, and
(iii) agreeing to the termination of Mr. Fullers
employment with 19 Entertainment. The Company elected not to
exercise the option to invest in XIX Entertainment prior to its
expiration on March 15, 2010. Pursuant to a consultancy
agreement with Mr. Fuller, we have engaged Mr. Fuller
to provide services, including executive producer services, in
respect of our American Idol, So You Think You Can
Dance and If I Can Dream programs. In consideration
for providing these services, Mr. Fuller will receive 10%
of the net profits of 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 will receive
$5.0 million as an advance against the 10% fee and it is
estimated that Mr. Fuller may receive a total of between
$8.0 million and $10.0 million for 2010, inclusive of
the advance, pursuant to the consultancy agreement. For each
year after 2010, subject to certain conditions, Mr. Fuller
will receive, as an annual advance against the 10% 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 from the 10% fee payable to
Mr. Fuller. In addition to the aforementioned payment,
Mr. Fuller will receive £1.5 million
($2.4 million) in consideration for providing creative and
strategic advice with respect to the overall business of CKX
through July 13, 2010.
The Company will incur approximately $4.3 million in
consulting and other costs to Mr. Fuller as a result of the
transactions described above over the first two quarters of
2010, which includes the £1.5 million
($2.4 million) consulting fee referenced above. The Company
also paid Mr. Fuller £0.5 million
($0.8 million) in January 2010, representing consideration
for CKXs option to invest in Mr. Fullers new
entertainment company, which expired on March 15, 2010. The
Company was not required to exercise any portion of the option
at any time and as it elected not to exercise by the
March 15 expiration date, the payment will be expensed
during the first quarter of 2010. The Company will also
recognize a non-cash charge of $0.4 million related to the
accelerated vesting of Mr. Fullers stock options.
In addition to the costs described above, 19 Entertainment
recognized a non-cash impairment charge of $2.5 million to
reduce the carrying amount of assets of Storm Model Management
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, a U.K.-based modeling
agency in the third quarter of 2009, with the expectation that
Simon Fuller would be a key contributor to the its growth and
operations.
In connection with this transaction, management has initiated a
thorough review of each of the businesses currently conducted by
19 Entertainment and decided to focus its efforts principally
around its established IDOLS and So You Think You Can
Dance brands and its new multimedia brand If I Can
Dream. As a result of the decision to concentrate primarily
on these three brands, management intends to exit most of the
other businesses within 19 Entertainment by the summer of 2010.
These businesses will either be closed, sold or transferred,
including potentially being sold or transferred to
Mr. Fullers new entertainment venture, XIX
Entertainment. These changes are expected to substantially
reduce 19 Entertainments spending on new development
projects and associated selling, general and administrative
expenses. The Company expects to incur cash and non-cash charges
in 2010 as a result of this process. The amount of such charges
will depend on a number of factors including the final
determination of which businesses the Company will exit, the
amount, if any, of sales proceeds generated or liabilities
assumed as part of the sale or transfer of businesses and the
ultimate scope of the reductions in selling, general and
administrative expenses.
46
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.
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
revenues 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 revenues 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 cost of producing television programs are
recognized as expense in accordance with the individual film
forecast method, pursuant to which we estimate 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. The estimate of revenue is based upon the
Companys contractual rights with respect to certain
television projects and is calculated on an individual
production basis for these programs. Amortization commences in
the period in which revenue recognition commences. Our
management regularly reviews and revises our total revenue
estimates for each project, which may result in modifications to
the rate of amortization as estimates of total revenue can
change due to a variety of factors, including a change in the
number of hours of programming and foreign distribution
opportunities for its programs. 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
47
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 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.
The Company performed its annual impairment assessments of the
carrying values of long-lived assets, including intangible
assets and goodwill, on October 1, 2009 and 2008. As a
result of the test performed on October 1, 2009, the
Company did not record any impairments for the year ended
December 31, 2009. As a result of Mr. Fullers
resignation of employment at 19 Entertainment discussed above,
the Company did record a non-cash impairment charge of
$2.5 million as of December 31, 2009 to reduce the
carrying amount of assets of Storm. 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 were triggered by the Companys 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 rebound to prior
expectations. See notes 9 and 13 to the consolidated
financial statements.
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.
48
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.
Impact of
Recently Issued Accounting Standards
In June 2009, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles, a replacement of FASB Statement
No. 162, which was later superseded by the FASB
Codification and included in Accounting Standards Codification
(ASC)
105-10,
which is effective for the Company July 1, 2009. This
standard does not alter current U.S. GAAP, but rather
integrates existing accounting standards with other
authoritative guidance. Under this standard, there will be a
single source of authoritative U.S. GAAP for
nongovernmental entities and will supersede all other previously
issued non-SEC accounting and reporting guidance. The impact of
this standard on the Companys financial statements is
limited to presentation and disclosure.
Effective January 1, 2009, the Company adopted the
provisions of ASC 805 (formerly SFAS No. 141(R),
Business Combinations) and ASC
810-10-65
(formerly SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB
No. 51). The adoption of these standards changes the
Companys accounting treatment for business combinations on
a prospective basis; the more significant changes are: 100% of
fair values will be recognized when less than a 100% controlling
interest is acquired that reflects a change in control of the
acquired entity; contingent consideration arrangements are
recorded at the estimated acquisition fair values and subsequent
changes in fair values are reflected in earnings; and costs
associated with merger and acquisition activities are expensed
as incurred. Another change that impacted the accounting for
prior acquisitions is that, beginning in 2009, changes to
existing income tax valuation allowances and tax uncertainty
accruals resulting from acquisitions will be recorded as
adjustments to income tax expense. Under prior practice, these
adjustments were recorded as adjustments to goodwill. Prior
periods have been restated to conform to the 2009 presentation
for noncontrolling interests.
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events, which was later superseded by the
FASB Codification and included in ASC
855-10,
which was effective for the Company on July 1, 2009. This
standard provides guidance for disclosing events that occur
after the balance sheet date, but before financial statements
are issued or available to be issued. The adoption of this
standard did not have a significant impact on the Companys
financial statements.
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 amends the
criteria for a transfer of a financial asset to be accounted for
as a sale, redefines a participating interest for transfers of
portions of financial assets, eliminates the qualifying
special-purpose entity concept and provides for new disclosures.
This standard is effective for the Company beginning in 2010.
The Company does not expect the adoption to 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 amends 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 is effective for the Company beginning in 2010. The
Company does not expect the adoption to 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.
49
Off
Balance Sheet Arrangements
As of December 31, 2009, 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 $101.1 million of total debt outstanding at
December 31, 2009, 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 income for the years ended December 31,
2009 and 2008 would have decreased by approximately
$0.6 million.
Foreign
Exchange Risk
We have significant operations outside the United States,
principally in the United Kingdom. Some of our foreign
operations are measured in local currencies. As a result, our
financial results could be affected by factors such as changes
in foreign currency exchange rates or weak economic conditions
in foreign markets in which we operate.
Assuming a hypothetical weakening of the U.S. dollar
exchange rate with the U.K. pound sterling of 10%, our net
income for the years ended December 31, 2009 and 2008 would
have decreased by approximately $3.0 million and
$2.4 million, respectively, reflecting an excess of U.K.
pound sterling denominated operating expenses over U.K. pound
sterling denominated revenue.
As of December 31, 2009, 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. We intend to continue to monitor our operations outside
the United States and in the future may seek to reduce our
exposure to such fluctuations by entering into foreign currency
option contracts or other hedging arrangements.
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 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. As described in Exercise of Amended Call Option
above, 534,082 shares remain subject to the Put and Call
Option Agreement.
50
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Table of
Contents to Consolidated Financial Statements
|
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Page
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CKX, Inc.
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52
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54
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55
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56
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58
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59
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51
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, 2009 and 2008, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended
December 31, 2009. Our audits also included the financial
statement schedule listed in the Index at Item 15. These
financial statements and the financial statement schedule are
the responsibility of the Companys management. Our
responsibility is to express an opinion on the financial
statements and the 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 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, 2009 and 2008, and
the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2009, 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, 2009, 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 15, 2010, expressed
an unqualified opinion on the Companys internal control
over financial reporting.
/s/ Deloitte &
Touche LLP
New York, New York
March 15, 2010
52
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, 2009, 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
the assessed 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.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, 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 the financial statement
schedule as of and for the year ended December 31, 2009, of
the Company and our report dated March 15, 2010 expressed
an unqualified opinion on those financial statements and the
financial statement schedule.
/s/ Deloitte &
Touche LLP
New York, New York
March 15, 2010
53
CKX,
INC.
(amounts
in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
66,587
|
|
|
$
|
101,895
|
|
Receivables, net of allowance for doubtful accounts of $742 at
December 31, 2009 and $803 at December 31, 2008
|
|
|
52,252
|
|
|
|
37,085
|
|
Due from related party
|
|
|
|
|
|
|
274
|
|
Inventories, net of allowance for obsolescence of $661 at
December 31, 2009 and $649 at December 31, 2008
|
|
|
1,977
|
|
|
|
1,988
|
|
Prepaid expenses and other current assets
|
|
|
26,092
|
|
|
|
8,119
|
|
Prepaid income taxes
|
|
|
4,610
|
|
|
|
|
|
Deferred tax assets
|
|
|
3,551
|
|
|
|
4,941
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
155,069
|
|
|
|
154,302
|
|
Property and equipment net
|
|
|
49,590
|
|
|
|
47,818
|
|
Receivables
|
|
|
2,693
|
|
|
|
3,267
|
|
Loans to related parties
|
|
|
2,221
|
|
|
|
1,765
|
|
Other assets
|
|
|
49,453
|
|
|
|
26,797
|
|
Goodwill
|
|
|
116,873
|
|
|
|
108,771
|
|
Other intangible assets net
|
|
|
119,809
|
|
|
|
127,403
|
|
Deferred tax assets
|
|
|
3,974
|
|
|
|
5,938
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
499,682
|
|
|
$
|
476,061
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
39,144
|
|
|
$
|
19,648
|
|
Accrued expenses
|
|
|
25,689
|
|
|
|
22,373
|
|
Current portion of long-term debt
|
|
|
482
|
|
|
|
489
|
|
Income taxes payable
|
|
|
|
|
|
|
5,526
|
|
Deferred revenue
|
|
|
12,885
|
|
|
|
30,745
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
78,200
|
|
|
|
78,781
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
100,647
|
|
|
|
101,429
|
|
Deferred revenue
|
|
|
2,850
|
|
|
|
3,515
|
|
Other long-term liabilities
|
|
|
2,828
|
|
|
|
2,850
|
|
Deferred tax liabilities
|
|
|
22,835
|
|
|
|
23,744
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
207,360
|
|
|
|
210,319
|
|
|
|
|
|
|
|
|
|
|
Redeemable restricted common stock
534,082 shares outstanding at December 31, 2009 and
1,672,170 shares outstanding at December 31, 2008
|
|
|
7,347
|
|
|
|
23,002
|
|
CKX, Inc. stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value, authorized
75,000,000 shares:
|
|
|
|
|
|
|
|
|
Series B - 1,491,817 shares outstanding at
December 31, 2009 and 2008
|
|
|
22,825
|
|
|
|
22,825
|
|
Series C - 1 share outstanding at
December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value: authorized
200,000,000 shares, 96,831,149 shares issued at
December 31, 2009 and 95,634,685 issued at
December 31, 2008
|
|
|
968
|
|
|
|
956
|
|
Additional
paid-in-capital
|
|
|
394,839
|
|
|
|
377,617
|
|
Accumulated deficit
|
|
|
(83,857
|
)
|
|
|
(106,619
|
)
|
Common stock in treasury 4,477,438 at
December 31, 2009 and 3,339,350 shares at
December 31, 2008
|
|
|
(22,647
|
)
|
|
|
(7,647
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(33,394
|
)
|
|
|
(49,671
|
)
|
|
|
|
|
|
|
|
|
|
Total CKX, Inc. stockholders equity
|
|
|
278,734
|
|
|
|
237,461
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
6,241
|
|
|
|
5,279
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
284,975
|
|
|
|
242,740
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
499,682
|
|
|
$
|
476,061
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
54
CKX,
INC.
(amounts
in thousands, except share and per share
information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
$
|
328,353
|
|
|
$
|
288,128
|
|
|
$
|
266,777
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
158,569
|
|
|
|
117,358
|
|
|
|
90,073
|
|
Selling, general and administrative expenses
|
|
|
75,235
|
|
|
|
78,354
|
|
|
|
87,672
|
|
Corporate expenses
|
|
|
21,214
|
|
|
|
18,065
|
|
|
|
18,156
|
|
Impairment charges
|
|
|
2,526
|
|
|
|
35,661
|
|
|
|
|
|
Depreciation and amortization
|
|
|
19,241
|
|
|
|
21,161
|
|
|
|
22,551
|
|
Merger and distribution-related costs (recoveries), net
|
|
|
675
|
|
|
|
(5,768
|
)
|
|
|
5,259
|
|
Acquisition-related costs
|
|
|
2,637
|
|
|
|
2,267
|
|
|
|
|
|
Other expense (income)
|
|
|
4,079
|
|
|
|
(15,910
|
)
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
284,176
|
|
|
|
251,188
|
|
|
|
224,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
44,177
|
|
|
|
36,940
|
|
|
|
42,758
|
|
Interest income
|
|
|
308
|
|
|
|
1,778
|
|
|
|
1,644
|
|
Interest expense
|
|
|
(3,335
|
)
|
|
|
(5,601
|
)
|
|
|
(5,590
|
)
|
Other income
|
|
|
|
|
|
|
|
|
|
|
2,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and equity in earnings of affiliates
|
|
|
41,150
|
|
|
|
33,117
|
|
|
|
40,993
|
|
Income tax expense
|
|
|
15,358
|
|
|
|
14,430
|
|
|
|
19,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of affiliates
|
|
|
25,792
|
|
|
|
18,687
|
|
|
|
21,561
|
|
Equity in earnings of affiliates
|
|
|
576
|
|
|
|
2,521
|
|
|
|
1,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
26,368
|
|
|
|
21,208
|
|
|
|
23,127
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(8,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
26,368
|
|
|
|
21,208
|
|
|
|
14,697
|
|
Dividends on preferred stock
|
|
|
(1,824
|
)
|
|
|
(1,824
|
)
|
|
|
(1,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to CKX, Inc.
|
|
|
24,544
|
|
|
|
19,384
|
|
|
|
12,873
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
(1,782
|
)
|
|
|
(2,257
|
)
|
|
|
(2,553
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to CKX, Inc.
|
|
$
|
22,762
|
|
|
$
|
17,127
|
|
|
$
|
10,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.26
|
|
|
$
|
0.20
|
|
|
$
|
0.21
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.08
|
)
|
Dividends on preferred stock
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
$
|
0.24
|
|
|
$
|
0.18
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.26
|
|
|
$
|
0.20
|
|
|
$
|
0.21
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.08
|
)
|
Dividends on preferred stock
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share
|
|
$
|
0.24
|
|
|
$
|
0.18
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
93,298,778
|
|
|
|
96,674,706
|
|
|
|
96,901,172
|
|
Diluted
|
|
|
93,337,683
|
|
|
|
96,684,377
|
|
|
|
96,991,441
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
26,368
|
|
|
$
|
21,208
|
|
|
$
|
14,697
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
19,241
|
|
|
|
21,161
|
|
|
|
22,551
|
|
Write-off of deferred costs
|
|
|
874
|
|
|
|
|
|
|
|
|
|
Impairment charges
|
|
|
2,526
|
|
|
|
35,661
|
|
|
|
|
|
Impact on cash of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
8,430
|
|
Unrealized foreign currency gains and losses
|
|
|
3,114
|
|
|
|
(11,833
|
)
|
|
|
308
|
|
Share-based payments
|
|
|
1,563
|
|
|
|
2,954
|
|
|
|
1,325
|
|
Equity in earnings of affiliates, net of cash received
|
|
|
(576
|
)
|
|
|
264
|
|
|
|
482
|
|
Merger termination recoveries, net of cash received
|
|
|
|
|
|
|
(7,647
|
)
|
|
|
|
|
Gain on distribution
|
|
|
|
|
|
|
|
|
|
|
(2,225
|
)
|
Deferred income taxes
|
|
|
3,670
|
|
|
|
(15,923
|
)
|
|
|
(1,802
|
)
|
Non-cash interest expense
|
|
|
686
|
|
|
|
666
|
|
|
|
654
|
|
Provision for accounts receivable allowance
|
|
|
259
|
|
|
|
814
|
|
|
|
588
|
|
Provision for inventory allowance
|
|
|
101
|
|
|
|
114
|
|
|
|
32
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(12,112
|
)
|
|
|
83
|
|
|
|
(21,005
|
)
|
Inventory
|
|
|
(90
|
)
|
|
|
(10
|
)
|
|
|
68
|
|
Prepaid expenses and other current assets
|
|
|
(21,663
|
)
|
|
|
(9,926
|
)
|
|
|
(2,215
|
)
|
Prepaid income taxes
|
|
|
(4,610
|
)
|
|
|
|
|
|
|
7,014
|
|
Accounts payable and accrued expenses
|
|
|
18,734
|
|
|
|
5,215
|
|
|
|
7,456
|
|
Deferred revenue
|
|
|
(18,362
|
)
|
|
|
19,473
|
|
|
|
(271
|
)
|
Income taxes payable
|
|
|
(5,526
|
)
|
|
|
(700
|
)
|
|
|
4,736
|
|
Other
|
|
|
252
|
|
|
|
(1,347
|
)
|
|
|
(143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
14,449
|
|
|
|
60,227
|
|
|
|
40,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Cirque du Soleil partnership
|
|
|
(18,357
|
)
|
|
|
|
|
|
|
|
|
Additions to property and equipment
|
|
|
(7,062
|
)
|
|
|
(7,838
|
)
|
|
|
(11,354
|
)
|
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
|
|
|
|
|
|
Investment in and loan to FXRE
|
|
|
|
|
|
|
|
|
|
|
(109,691
|
)
|
Loan to related party
|
|
|
|
|
|
|
|
|
|
|
(1,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(30,188
|
)
|
|
|
(1,493
|
)
|
|
|
(122,795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of redeemable restricted common stock
|
|
|
(15,000
|
)
|
|
|
|
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
(2,600
|
)
|
|
|
(1,700
|
)
|
|
|
(1,750
|
)
|
Principal payments on debt
|
|
|
(774
|
)
|
|
|
(1,152
|
)
|
|
|
(631
|
)
|
Borrowing under revolving credit facility
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
Proceeds from exercise of warrants
|
|
|
|
|
|
|
|
|
|
|
244
|
|
Debt issuance costs
|
|
|
|
|
|
|
|
|
|
|
(94
|
)
|
Dividends paid on preferred stock
|
|
|
(1,824
|
)
|
|
|
(1,824
|
)
|
|
|
(1,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(20,198
|
)
|
|
|
(4,676
|
)
|
|
|
95,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
629
|
|
|
|
(3,110
|
)
|
|
|
507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and equivalents
|
|
|
(35,308
|
)
|
|
|
50,948
|
|
|
|
14,337
|
|
Cash and cash equivalents, beginning of period
|
|
|
101,895
|
|
|
|
50,947
|
|
|
|
36,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
66,587
|
|
|
$
|
101,895
|
|
|
$
|
50,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Supplemental cash flow data (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
2,560
|
|
|
$
|
5,266
|
|
|
$
|
4,535
|
|
Income taxes
|
|
|
21,869
|
|
|
|
30,106
|
|
|
|
11,033
|
|
Supplemental
Cash Flow Information:
The Company had the following non-cash operating, investing and
financing activities in the year ended December 31, 2009
(in thousands):
|
|
|
|
|
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
(in thousands):
|
|
|
|
|
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 Company had the following non-cash investing and financing
activities in the year ended December 31, 2007 (in
thousands):
|
|
|
|
|
Dividend of CKXs interests in FXRE to the Distribution
Trusts (as defined)
|
|
$
|
91,259
|
|
Accrued dividend of CKXs interests in FXRE to the
Distribution Trusts (as defined)
|
|
|
6,175
|
|
Accrued but unpaid Series B Convertible Preferred Stock
Dividends
|
|
|
456
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
57
CKX,
INC.
(IN
THOUSANDS, EXCEPT SHARE INFORMATION)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Common Stock
|
|
|
Comprehensive
|
|
|
|
|
|
|
Series B
|
|
|
Series C
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
in Treasury
|
|
|
Income
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Shares
|
|
|
Amount
|
|
|
(Loss)
|
|
|
Total
|
|
|
Balance at January 1, 2007
|
|
|
1,491,817
|
|
|
$
|
22,825
|
|
|
|
1
|
|
|
$
|
|
|
|
|
94,237,075
|
|
|
$
|
942
|
|
|
$
|
373,115
|
|
|
$
|
(36,562
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
10,689
|
|
|
$
|
371,009
|
|
Fin 48 adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70
|
)
|
Warrant exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,081,889
|
|
|
|
11
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244
|
|
Shares issued to independent directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,293
|
|
|
|
|
|
|
|
656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
656
|
|
Restricted shares issued to employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,500
|
|
|
|
1
|
|
|
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
472
|
|
Series B preferred dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,824
|
)
|
Distribution of FXRE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(97,434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(97,434
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,144
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,317
|
|
|
|
4,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
58
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, among other properties, 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 and, the operations of Graceland; and has partnered with
Cirque du Soleil for the creation of Elvis Presley-themed shows
and projects around the world, including the recently opened
Viva ELVIS 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.
|
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 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.
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.
|
|
3.
|
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.
59
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.
Investment
in FXRE
The Company evaluated its investment to acquire a 50% interest
in FXRE in accordance with the guidance in Accounting Standards
Codification (ASC) 810. The Company completed an
analysis and determined that FXRE does not meet the criteria to
be a variable interest entity because FXRE shareholders absorb
FXREs risks and returns in proportion to their ownership
interests. The Company consolidated FXRE from the date of the
Companys investment (June 1, 2007) through the
date of the September dividend (September 27, 2007) as
it controlled FXRE though its direct 25% ownership interest and
the separate indirect ownership of affiliates, primarily the
Companys Chairman, Robert F.X. Sillerman, in the
Distribution Trusts and in Flag, which each own direct interests
in FXRE. Therefore, the Company consolidated FXRE based on its
control through voting interests. The Company recorded
noncontrolling interest for the 75% of the shares that it does
not own through the date of the September dividend. As a result
of the distribution of the Second Dividend Shares into trust on
September 27, 2007, the Companys ownership interest
was reduced to 2% of the outstanding equity of FXRE. From
September 26, 2007 to December 31, 2007, the record
date of the distribution, the Company accounted for its 2%
investment in FXRE under the cost method because the Company had
no significant continuing involvement.
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.
Cash and cash equivalents are primarily deposited with major
financial institutions in the United States and the United
Kingdom and, at times, such balances with any one United States
financial institution may be in excess of the FDIC-insured
limit. In September 2008, the FDIC-insured limit was temporarily
increased from $100,000 to $250,000. The limit reverted back to
$100,000 on January 1, 2010. The FDIC is also providing
unlimited coverage on non-interest bearing transaction accounts
through June 30, 2010 for banks participating in the FDIC
Temporary Liquidity Guarantee Program. At December 31,
2009, $26.3 million of cash was in uninsured accounts,
representing cash in foreign bank accounts. These accounts are
in a financial institution in which the British government has a
controlling ownership interest.
Inventory
Inventory, all of which is finished goods, is valued at the
lower of cost or market. Cost is determined using the
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 $4.2 million,
$3.3 million and $2.7 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
Property and equipment, net consisted of the following as of
December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
December 31, 2009
|
|
|
2008
|
|
|
Useful Lives
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
|
|
|
Land
|
|
$
|
29,543
|
|
|
$
|
27,681
|
|
|
|
n/a
|
|
Buildings and improvements
|
|
|
21,244
|
|
|
|
21,082
|
|
|
|
5-20
|
|
Equipment, furniture and fixtures
|
|
|
10,200
|
|
|
|
7,859
|
|
|
|
3-7
|
|
Airplane
|
|
|
2,632
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,619
|
|
|
|
56,622
|
|
|
|
|
|
Less: accumulated depreciation and amortization
|
|
|
(14,029
|
)
|
|
|
(8,804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,590
|
|
|
$
|
47,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
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 the Company: (i) persuasive evidence of an arrangement
exists; (ii) has delivered the rights to the licensee who
is free to exercise them; (iii) 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.
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. Apartment rental revenue is
recognized over the term of the rental lease. 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 website and revenue from Internet and telephony rights
granted. Management considers these revenue streams to be
immaterial to the financial statements as a whole.
61
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.
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 $1.3 million and $3.0 million as of
December 31, 2009 and 2008, respectively.
Advertising
Expense
Advertising costs are expensed as incurred except for production
costs, which are deferred and expensed when advertisements run
for the first time. Advertising costs charged to expense were
$1.7 million, $1.9 million and $4.1 million for
the years ended December 31, 2009, 2008 and 2007. There
were no advertising costs deferred as of December 31, 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
The Company has operations in several foreign countries,
primarily the United Kingdom. In the normal course of business
these operations are exposed to fluctuations in currency values.
Balance sheets of international operations are translated into
U.S. dollars at period-end exchange rates while the
statements of operations are translated at average exchange
rates. Adjustments resulting from financial statement
translations are included as cumulative translation adjustments
in accumulated other comprehensive loss. Translation gains and
losses related to long-term and permanently invested
intercompany balances are recorded in accumulated other
comprehensive loss.
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, 2009, 2008 and 2007, respectively, the
Company, primarily at 19 Entertainment, had $4.1 million,
($15.9) million and $0.3 million, respectively, of
foreign exchange (gains) and losses, resulting from the strength
of the U.S. dollar compared to the U.K. pound sterling.
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
62
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 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.
As a result of the 2009 annual impairment test conducted on
October 1, 2009, the Company did not record any impairment
charges. The Company recognized a non-cash impairment charge of
$2.5 million as of December 31, 2009 to reduce the
carrying amount of assets of Storm Model Management
(Storm) as a result of Simon 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, a
U.K.-based modeling agency in the third quarter of 2009, with
the expectation that Mr. Fuller would be a key contributor
to the operations of Storm. As a result of the 2008 annual
impairment test, the Company recorded non-cash impairment
charges of $35.7 million ($25.5 million, net of tax).
See notes 9 and 13.
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, 2009, the Company had equity investments of
$23.2 million, representing $1.7 million related to
the Companys one-third ownership of Beckham Brand Limited
and $21.5 million representing the Companys 50%
ownership in the partnership that is developing the Elvis
Presley Cirque du Soleil show (see note 15). At
December 31, 2008, the Company had equity investments of
$4.2 million, representing $1.1 million related to the
Companys one-third ownership of Beckham Brand Limited and
$3.1 million representing the Companys 50% ownership
in the partnership that is developing the Elvis Presley Cirque
du Soleil show. These 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 12, 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 Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles, a replacement of FASB Statement
No. 162, which was later superseded by the FASB
Codification and included in Accounting Standards Codification
(ASC)
105-10,
which was effective for the Company beginning July 1, 2009.
This standard does not alter current U.S. GAAP, but rather
integrates existing accounting standards with other
authoritative guidance. Under this standard, there will be a
single source of authoritative U.S. GAAP for
nongovernmental entities and will supersede all other previously
issued non-SEC accounting and reporting guidance. The impact of
this standard on the Companys financial statements is
limited to presentation and disclosure.
Effective January 1, 2009, the Company adopted the
provisions of ASC 805 (formerly SFAS No. 141(R),
Business Combinations) and ASC
810-10-65
(formerly SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB
No. 51). The adoption of these standards changes the
Companys accounting treatment for business combinations on
a prospective basis; the more significant changes are: 100% of
fair values will be recognized when less than a 100% controlling
interest is acquired that reflects a change in control of the
acquired entity; contingent consideration arrangements are
recorded at the estimated acquisition fair values and subsequent
changes in fair values are reflected in earnings; and costs
associated with merger and acquisition activities are expensed
as incurred. Another change that impacted the accounting for
prior acquisitions is that, beginning in 2009, changes to
existing income tax valuation allowances and tax uncertainty
accruals resulting from acquisitions will be recorded as
adjustments to income tax expense.
63
Under prior practice, these adjustments were recorded as
adjustments to goodwill. Prior periods have been restated to
conform to the 2009 presentation for noncontrolling interests.
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events, which was later superseded by the FASB
Codification and included in ASC
855-10,
which was effective for the Company on July 1, 2009. This
standard provides guidance for disclosing events that occur
after the balance sheet date, but before financial statements
are issued or available to be issued. The adoption of this
standard did not have a significant impact on the Companys
financial statements.
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 amends the
criteria for a transfer of a financial asset to be accounted for
as a sale, redefines a participating interest for transfers of
portions of financial assets, eliminates the qualifying
special-purpose entity concept and provides for new disclosures.
This standard is effective for the Company beginning in 2010.
The Company does not expect the adoption to 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 amends 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 is effective for the Company beginning in 2010. The
Company does not expect the adoption to 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.
|
|
4.
|
Terminated
Merger Agreement
|
On June 1, 2007, we 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. Under
the terms of the Merger Agreement, 19X had agreed to acquire CKX
at a price of $12.00 per share in cash. 19X was initially formed
for an unrelated purpose and has had no operations or business
other than as contemplated by the Merger Agreement, including
the related financings. Robert F.X. Sillerman, Chairman and
Chief Executive Officer of CKX, and Simon R. Fuller, then a
director of CKX and the Chief Executive Officer of 19
Entertainment Limited, a wholly owned subsidiary of CKX, are the
sole current stockholders of 19X.
On November 1, 2008, 19X, Inc. 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. 19X
notified the Company that, as permitted under the Merger
Agreement, it elected to pay $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.
|
|
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. 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. Information about FXRE can be found at www.sec.gov or
ir.fxree.com.
FXRE
Distribution
As referenced above, prior to and a condition to the proposed
merger with 19X, on January 10, 2008, CKX distributed to
its stockholders two shares of common stock of FXRE for every
ten shares of CKX common stock or preferred stock owned on the
record
64
date for the distribution. The distributed shares represented
100% of the interests in FXRE acquired by CKX in 2007. The total
number of shares of FXRE common stock distributed to CKX
stockholders was 19,743,349.
Terminated
License Agreements
Simultaneous with our investment in FXRE in June 2007, 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 agreement, which amount was to
be recoupable against royalties paid during such year as
described above. The aggregate guaranteed minimum royalty due
for 2007 was $10.0 million, which was paid, together with
interest of $0.4 million, in April 2008.
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. In
consideration for releasing FXRE from any claims related to the
license agreements, EPE and the Ali Business will receive 10% of
any future net proceeds or fees received by FXRE from the sale
and/or
development of the Las Vegas properties, up to a maximum of
$10 million. FXRE has the right to buy-out this
participation right at any time prior to April 9, 2014 for
a payment equal to (i) $3.3 million, plus
(ii) 10% of any proceeds received from the sale of some or
all of the Las Vegas properties during such buy-out period and
for six months thereafter, provided that the amount paid under
(i) and (ii) shall not exceed $10 million. Based
on FXREs public disclosures regarding the prospects for
the real estate and the condition of its business in general, we
do not currently expect to receive any payments under this
agreement.
As a result of the termination of the license agreements on
March 9, 2009, during the three months ended March 31,
2009, the Company recognized $10.0 million in licensing
revenue that had previously been deferred related to the 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.
During the three months ended March 31, 2009, the Company
recorded a write-off of $0.9 million of deferred costs
related to preliminary design work for a 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 redevelopment and will
continue to pursue opportunities on its own or with third
parties.
Discontinued
Operations
The Company has consolidated FXRE from the date of the
Companys investment (June 1, 2007) through
September 26, 2007 (date of the second distribution to
trust, as noted above). Subsequent to September 26, 2007
and through the distribution of its 2% ownership interest on
January 10, 2008, the Company accounted for its 2%
ownership interest under the cost method of accounting because
the Company had no significant continuing involvement. The
operating results of FXRE are reflected as discontinued
operations in the accompanying financial statements because the
distribution of the FXRE shares to the CKX shareholders
qualifies as a spin-off under the applicable accounting
guidance. The results of operations presented as discontinued
operations for the period from June 1, 2007 to
September 26, 2007 are summarized below (in thousands):
|
|
|
|
|
Revenue
|
|
$
|
1,346
|
|
Total costs and expenses, net of noncontrolling interest share
|
|
|
(6,802
|
)
|
Equity in losses of unconsolidated subsidiaries
|
|
|
(2,974
|
)
|
Income taxes
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of income taxes
|
|
$
|
(8,430
|
)
|
|
|
|
|
|
65
Shared
Services Agreement
Prior to June 30, 2009 CKX was party to a shared services
agreement with FXRE, pursuant to which certain of our employees,
including members of senior management, provided services for
FXRE, and certain of FXREs employees, including members of
senior management, were available to provide services for CKX.
The services provided pursuant to the shared services agreement
include management, legal, accounting and administrative. The
agreement was terminated by mutual agreement of the parties
effective as of June 30, 2009.
Charges under the shared services agreement were made on a
quarterly basis and were determined by taking into account a
number of factors, including but not limited to, the overall
type and volume of services provided, the individuals involved,
the amount of time spent by such individuals and their current
compensation rate with the Company with which they are employed.
Each quarter, representatives of the parties met to
(i) determine the net payment due from one party to the
other for provided services performed by the parties during the
prior calendar quarter, and (ii) prepare a report in
reasonable detail with respect to the provided services so
performed, including the value of such services and the net
payment due. The parties used their reasonable, good-faith
efforts to determine the net payments due in accordance with the
factors described in above. Charges under the shared services
agreement were reviewed by the Audit Committee.
Prior to the termination of the agreement, for the year ended
December 31, 2009, CKX billed FXRE $0.2 million for
professional services, primarily accounting and legal services,
performed under the shared services agreement prior to its
termination; these amounts have been paid to the Company in
2009. For the year ended December 31, 2008, CKX billed FXRE
$1.6 million for professional services, primarily
accounting and legal services, performed under the shared
services agreement. FXRE paid $1.3 million of the
2008 shared service costs prior to year-end. The
$0.3 million outstanding at December 31, 2008 was paid
to the Company in February 2009. For the year ended
December 31, 2007, CKX billed FXRE $1.0 million for
professional services, primarily accounting and legal services.
These amounts were paid in 2008. These expenses for the CKX
billings were eliminated in consolidation for the period that
CKX consolidated FXRE.
Redeemable
Restricted Common Stock
As of December 31, 2009, 534,082 shares remain subject
to the Put and Call Option Agreement. 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.
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.
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 holder(s) 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
66
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, 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 Revolving Credit Facility prohibits the
Company from paying cash dividends on its common stock.
|
|
7.
|
Comprehensive
Income (Loss)
|
The following table is a reconciliation of the Companys
net income to comprehensive income (loss) for the years ended
December 31, 2009, 2008 and 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net income
|
|
$
|
26,368
|
|
|
$
|
21,208
|
|
|
$
|
14,697
|
|
Foreign currency translation adjustments
|
|
|
16,277
|
|
|
|
(64,677
|
)
|
|
|
4,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,645
|
|
|
|
(43,469
|
)
|
|
|
19,014
|
|
Net income attributable to noncontrolling interests
|
|
|
(1,782
|
)
|
|
|
(2,257
|
)
|
|
|
(2,553
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
40,863
|
|
|
$
|
(45,726
|
)
|
|
$
|
16,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments result from the
conversion of 19 Entertainments financial statements from
U.K. pound sterling to U.S. dollars.
|
|
8.
|
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. Diluted earnings per share includes the determinants of
basic earnings per share and, in addition, gives effect to
potentially dilutive common shares. 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 all employee share-based stock plan
awards because the effect would be anti-dilutive. In addition,
for the years ended December 31, 2009, 2008 and 2007,
2,097,750, 916,100 and 515,000 shares, respectively, were
excluded from the calculation of diluted earnings per share due
to stock options that were anti-dilutive.
67
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, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Weighted average basic common shares outstanding (including
redeemable restricted common stock)
|
|
|
93,298,778
|
|
|
|
96,674,706
|
|
|
|
96,901,172
|
|
Incremental shares for assumed exercise of Series C
preferred stock, restricted stock, warrants and stock options
|
|
|
38,905
|
|
|
|
9,671
|
|
|
|
90,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted common shares outstanding (including
redeemable restricted common stock)
|
|
|
93,337,683
|
|
|
|
96,684,377
|
|
|
|
96,991,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
|
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 intangible assets and goodwill, on October 1,
2009 and October 1, 2008 in accordance with the methods
outlined in note 3.
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. 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. 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 do not exceed estimated future cash flows. As
a result of Simon Fullers termination of employment at 19
Entertainment discussed in note 19, the Company did record
a non-cash impairment charge of $2.5 million as of
December 31, 2009 to reduce the carrying amount of assets
($1.4 million of goodwill) of Storm.
The results of the test in 2008 indicated that the book values
of the Ali Business and MBST reporting units exceeded the fair
values of the businesses. Therefore, a second step was performed
which compared the implied fair value of the reporting
units goodwill to the book value of the goodwill and other
intangible assets with indefinite lives. Based on the annual
impairment test in 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 in the
year ended December 31, 2008. The impairment charges
recognized in the fourth quarter were triggered by the
Companys 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 rebound
to prior expectations.
The utilization of a portion of the Companys long-term
deferred tax asset resulted in a decrease in goodwill and the
valuation allowance of $7.3 million in 2008.
Indefinite lived intangible assets as of December 31, 2009
and 2008 consist of (in thousands):
|
|
|
|
|
Presley and Ali trademarks, publicity rights and other
intellectual property
|
|
$
|
66,365
|
|
|
|
|
|
|
Definite lived intangible assets as of December 31, 2009
consist of (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Remaining
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Useful Life
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Presley record, music publishing, film and video rights
|
|
|
10.1 years
|
|
|
$
|
28,900
|
|
|
$
|
(9,298
|
)
|
|
$
|
19,602
|
|
Other Presley intangible assets
|
|
|
12.2 years
|
|
|
|
13,622
|
|
|
|
(6,538
|
)
|
|
|
7,084
|
|
19 Entertainment IDOLS television programming, merchandising and
sponsorship relationships
|
|
|
2.3 years
|
|
|
|
64,517
|
|
|
|
(43,423
|
)
|
|
|
21,094
|
|
19 Entertainment other artist management, recording,
merchandising, sponsorship and model relationships
|
|
|
2.4 years
|
|
|
|
18,087
|
|
|
|
(13,387
|
)
|
|
|
4,700
|
|
MBST artist contracts, profit participation rights and other
intangible assets
|
|
|
1.9 years
|
|
|
|
4,270
|
|
|
|
(3,306
|
)
|
|
|
964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
129,396
|
|
|
$
|
(75,952
|
)
|
|
$
|
53,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross carrying amount of intangible assets of
$129.4 million as of December 31, 2009 in the table
above differs from the amount of $117.7 million as of
December 31, 2008 in the table below due to foreign
currency movements of $6.8 million and intangible assets of
68
$4.9 million recorded related to the acquisition of a 51%
interest in Storm, a U.K.-based modeling agency, in exchange for
$4.3 million in cash paid at closing, which is net of cash
acquired of $0.9 million. The Company consolidated the
results of operations of Storm since the date of acquisition
(August 6, 2009) in the 19 Entertainment operating
segment.
Definite lived intangible assets as of December 31, 2008
consist of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Presley record, music publishing, film and video rights
|
|
$
|
28,900
|
|
|
$
|
(7,353
|
)
|
|
$
|
21,547
|
|
Other Presley intangible assets
|
|
|
13,622
|
|
|
|
(5,265
|
)
|
|
|
8,357
|
|
19 Entertainment IDOLS television programming, merchandising and
sponsorship relationships
|
|
|
58,644
|
|
|
|
(30,948
|
)
|
|
|
27,696
|
|
19 Entertainment other artist management, recording,
merchandising, and sponsorship relationships
|
|
|
12,252
|
|
|
|
(10,538
|
)
|
|
|
1,714
|
|
MBST artist contracts, profit participation rights and other
intangible assets
|
|
|
4,270
|
|
|
|
(2,546
|
)
|
|
|
1,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
117,688
|
|
|
$
|
(56,650
|
)
|
|
$
|
61,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for definite lived intangible assets was
$15.0 million, $17.9 million, and $19.8 million
for the years ended December 31, 2009, 2008 and 2007,
respectively. At December 31, 2009, the projected annual
amortization expense for definite lived intangible assets for
the next five years, assuming no further acquisitions or
dispositions, is as follows (in thousands):
|
|
|
|
|
Years Ending December 31,
|
|
|
|
|
2010
|
|
$
|
14,900
|
|
2011
|
|
|
13,600
|
|
2012
|
|
|
5,700
|
|
2013
|
|
|
3,100
|
|
2014
|
|
|
3,000
|
|
Goodwill as of December 31, 2009 consists of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
Balance at
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
Adjustments
|
|
|
2009
|
|
|
Presley royalties and licensing
|
|
$
|
14,413
|
|
|
$
|
|
|
|
$
|
14,413
|
|
Presley Graceland operations
|
|
|
10,166
|
|
|
|
|
|
|
|
10,166
|
|
19 Entertainment
|
|
|
80,907
|
|
|
|
8,102
|
|
|
|
89,009
|
|
MBST
|
|
|
2,175
|
|
|
|
|
|
|
|
2,175
|
|
Ali Business
|
|
|
1,110
|
|
|
|
|
|
|
|
1,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
108,771
|
|
|
$
|
8,102
|
|
|
$
|
116,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The balance of goodwill at the beginning of the period reflects
the cumulative goodwill impairment of $11.3 million
recorded as of December 31, 2008. The increase in goodwill
from December 31, 2008 to December 31, 2009 reflects
foreign currency movements of $8.1 million and goodwill of
$1.4 million recorded related to the acquisition of the 51%
interest in Storm, offset by the impairment charge of
$1.4 million for Storm. Total cumulative goodwill
impairment as of December 31, 2009 is $12.7 million.
At December 31, 2009, the Company had $1.1 million
outstanding under a subordinated promissory note issued in
connection with the acquisition of the Presley Business, which
bears interest at the rate of 5.385% per annum. The principal
and interest under the note are payable in equal annual
installments of principal and interest of $550,000 each, with
the final installment of principal and interest due and payable
on February 7, 2012. On July 13, 2009, the Company
prepaid $300,000 of a principal payment otherwise due in
February 2012 under this note.
The Company is party to a revolving credit agreement (the
Credit Facility) with various lenders. The total
availability under the Credit Facility was reduced from
$150.0 million to $141.7 million in October 2008 due
to the bankruptcy of one of the lenders, Lehman Commercial
Paper, Inc., a subsidiary of Lehman Brothers, Inc. As of
December 31, 2009, the Company had drawn down
$100.0 million on the Credit Facility, the proceeds of
which were used in June 2007 to make the investment in FXRE
described elsewhere herein.
In March 2010, the Company entered into an amendment to its
Credit Facility. As a result of the amendment: (i) the
maximum size of the Credit Facility was reduced to
$100.0 million, (ii) the lenders agreed to remove a
provision which tied an event of default under the
69
Credit Facility to a reduction in the percentage of stock owned
by Robert F.X. Sillerman, our 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.
A commitment fee of 0.375%-0.50% on any daily unused portion of
the Credit Facility is payable monthly in arrears. Under the
Credit Facility, the Company may make Eurodollar borrowings or
base rate borrowings. The $100.0 million outstanding at
December 31, 2009 bears interest at the Eurodollar rate
resulting in an effective annual interest rate at
December 31, 2009 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 loan
covenants as of December 31, 2009.
The fair value of the Companys debt has been calculated
using a present value model and an observable market rate at
$94.1 million as of December 31, 2009,
reflecting to the favorable interest rates on the Companys
debt instruments.
The scheduled repayments of debt outstanding as of
December 31, 2009, are as follows:
|
|
|
|
|
Years Ending December 31,
|
|
(In thousands)
|
|
|
2010
|
|
$
|
482
|
|
2011
|
|
|
100,515
|
|
2012
|
|
|
132
|
|
2013
|
|
|
|
|
2014
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
$
|
101,129
|
|
|
|
|
|
|
Changes in stockholders equity attributable to CKX, Inc.
and non-controlling interests for the year ended
December 31, 2009 and 2008 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Other
|
|
|
2,234
|
|
|
|
(33
|
)
|
|
|
2,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
278,734
|
|
|
$
|
6,241
|
|
|
$
|
284,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling
|
|
|
|
|
|
|
CKX, Inc.
|
|
|
Interests
|
|
|
Total
|
|
|
Balance at January 1, 2008
|
|
$
|
289,704
|
|
|
$
|
4,757
|
|
|
$
|
294,461
|
|
Net income
|
|
|
18,951
|
|
|
|
2,257
|
|
|
|
21,208
|
|
Distributions to noncontrolling interest shareholders
|
|
|
|
|
|
|
(1,700
|
)
|
|
|
(1,700
|
)
|
Series B preferred dividends
|
|
|
(1,824
|
)
|
|
|
|
|
|
|
(1,824
|
)
|
Other comprehensive income
|
|
|
(64,677
|
)
|
|
|
|
|
|
|
(64,677
|
)
|
Other
|
|
|
(4,693
|
)
|
|
|
(35
|
)
|
|
|
(4,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
237,461
|
|
|
$
|
5,279
|
|
|
$
|
242,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2007, 1,096,377 warrants with an exercise price of $2.00
per share were exercised. Of these, warrants representing
121,314 shares of common stock were exercised for cash
resulting in cash proceeds to the Company of $0.2 million,
and warrants representing 975,063 shares of common stock
were exercised pursuant to a net cash settlement feature which
resulted in the issuance of 813,227 shares of common stock.
During 2007, 500,000 warrants with an exercise price of $10.00
per share were exercised pursuant to a net cash settlement
feature which resulted in the issuance of 147,348 shares of
common stock.
The Company has no outstanding warrants as of December 31,
2009 and 2008.
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 1,390,485
at December 31, 2009. The Companys policy for issuing
share-based awards is to utilize shares eligible under the 2005
Plan.
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
as 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, 2009, 25,500 of restricted shares
granted to employees with a weighted average grant date fair
value of $12.06 remain unvested. As of December 31, 2008,
40,984 of restricted shares granted to employees with a weighted
average grant date fair value of $12.19 were unvested. A
cumulative total of 8,900 restricted shares have been forfeited
as of December 31, 2009 and therefore will not vest, of
which 1,800 with a weighted average grant date fair value of
$12.03 were forfeited during 2009. No restricted shares were
issued or expired in 2009.
Stock
Option Grants
The Company granted 1,412,000, 223,500 and 124,500 stock options
to employees in 2009, 2008 and 2007, respectively. These options
vest 20% on each anniversary from the dates of grant. All stock
options expire 10 years from the date of grant and were
granted with an exercise price equal to the market price on the
date of grant.
Compensation expense for stock option grants is being recognized
ratably over the vesting period, assuming a weighted average of
85% of the options granted in 2009 will ultimately vest.
The following assumptions were used in valuing stock options
granted during the years ended December 31, 2009, 2008 and
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Risk-free average interest rate
|
|
|
2.4
|
%
|
|
|
3.1
|
%
|
|
|
4.5
|
%
|
Volatility
|
|
|
44.8
|
%
|
|
|
37.0
|
%
|
|
|
39.0
|
%
|
Expected life (years)
|
|
|
6.5
|
|
|
|
6.5
|
|
|
|
6.5
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Weighted average grant date fair value
|
|
$
|
1.99
|
|
|
$
|
3.54
|
|
|
$
|
5.71
|
|
The Company estimated forfeitures based on managements
experience. Due to the Companys short operating history,
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
71
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.
A summary of the status of the Companys stock options as
of December 31, 2009 and 2008 and changes during the years
then ended are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Balance outstanding at beginning of year
|
|
|
712,100
|
|
|
$
|
11.42
|
|
|
|
515,000
|
|
|
$
|
12.75
|
|
|
|
440,000
|
|
|
$
|
12.97
|
|
Granted
|
|
|
1,412,000
|
|
|
$
|
4.19
|
|
|
|
223,500
|
|
|
$
|
8.28
|
|
|
|
124,500
|
|
|
$
|
12.02
|
|
Exercised
|
|
|
(1,500
|
)
|
|
$
|
4.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(50,350
|
)
|
|
$
|
10.59
|
|
|
|
(26,400
|
)
|
|
$
|
10.92
|
|
|
|
(49,500
|
)
|
|
$
|
12.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding at end of year
|
|
|
2,072,250
|
|
|
$
|
6.52
|
|
|
|
712,100
|
|
|
$
|
11.42
|
|
|
|
515,000
|
|
|
$
|
12.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance exercisable at end of year
|
|
|
257,665
|
|
|
$
|
11.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance expected to vest in future years
|
|
|
1,522,785
|
|
|
$
|
5.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation cost not yet recognized for stock options as
of December 31, 2009 is $3.0 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 8.4 years which approximates
the weighted average remaining contractual term. Total
compensation cost not yet recognized for all restricted stock
grants as of December 31, 2009 is $0.4 million and the
weighted average remaining vesting period is 1.6 years.
Compensation expense for all stock plan awards to employees for
the years ended December 31, 2009, 2008 and 2007 were
$1.3 million, $2.5 million and $1.2 million,
respectively. The Company issued 59,076, 38,628 and
28,293 shares to independent directors as compensation in
the years ended December 31, 2009, 2008, and 2007,
respectively. Related compensation expense for stock issuances
to independent directors in the years ended December 31,
2009, 2008 and 2007 were $0.3 million, $0.3 million
and $0.4 million.
Domestic and foreign income (loss) from continuing operations
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Domestic operations
|
|
$
|
(7,039
|
)
|
|
$
|
(4,785
|
)
|
|
$
|
(394
|
)
|
Foreign operations
|
|
|
48,189
|
|
|
|
37,902
|
|
|
|
41,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and equity in earnings of affiliates
|
|
$
|
41,150
|
|
|
$
|
33,117
|
|
|
$
|
40,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Current provision (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
423
|
|
|
$
|
9,369
|
|
|
$
|
3,448
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
9,636
|
|
|
|
17,509
|
|
|
|
15,134
|
|
|
|
|
|
|
|
|
|
State
|
|
|
1,276
|
|
|
|
3,475
|
|
|
|
2,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,335
|
|
|
|
30,353
|
|
|
|
21,234
|
|
|
|
|
|
|
|
|
|
Deferred provision (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
6,584
|
|
|
|
(10,226
|
)
|
|
|
2,474
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
(3,376
|
)
|
|
|
(3,951
|
)
|
|
|
(4,253
|
)
|
|
|
|
|
|
|
|
|
State
|
|
|
815
|
|
|
|
(1,746
|
)
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,023
|
|
|
|
(15,923
|
)
|
|
|
(1,802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
15,358
|
|
|
$
|
14,430
|
|
|
$
|
19,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
Income tax expense as reported is different than income tax
expense computed by applying the statutory federal rate of 35%
in 2009, 2008 and 2007. The differences are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Income tax expense at statutory federal rate
|
|
$
|
14,402
|
|
|
$
|
11,591
|
|
|
$
|
14,346
|
|
|
|
|
|
|
|
|
|
Effect of state and local income taxes
|
|
|
1,360
|
|
|
|
1,124
|
|
|
|
1,350
|
|
|
|
|
|
|
|
|
|
Foreign earnings
|
|
|
(1,336
|
)
|
|
|
(1,226
|
)
|
|
|
932
|
|
|
|
|
|
|
|
|
|
Income taxed directly to noncontrolling interests
|
|
|
(414
|
)
|
|
|
(314
|
)
|
|
|
(558
|
)
|
|
|
|
|
|
|
|
|
Transaction related costs
|
|
|
(794
|
)
|
|
|
(792
|
)
|
|
|
1,586
|
|
|
|
|
|
|
|
|
|
MBST impairment charge
|
|
|
|
|
|
|
2,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Storm impairment charge
|
|
|
884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other permanently non-deductible related items
|
|
|
1,256
|
|
|
|
1,274
|
|
|
|
1,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
15,358
|
|
|
$
|
14,430
|
|
|
$
|
19,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2009 provision includes a $0.9 million tax expense
related to the Storm impairment charge. The impairment charge is
a permanent difference as the Company has no tax basis in the
Storm assets written down. The 2008 provision includes a
$2.8 million tax detriment related to the MBST impairment
charge as the Company has no tax basis in the MBST goodwill and
therefore the impairment charge is a permanent book-tax
difference. The impairment charge at the Ali Business flows
through deferred taxes.
Significant components of the Companys net deferred tax
assets (liabilities) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
338
|
|
|
$
|
340
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
903
|
|
|
|
779
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
|
|
|
|
3,822
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
1,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current deferred income tax assets
|
|
|
3,551
|
|
|
|
4,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign tax credits
|
|
|
23,827
|
|
|
|
19,707
|
|
|
|
|
|
|
|
|
|
Unremitted earnings
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
275
|
|
|
|
723
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
441
|
|
|
|
1,349
|
|
|
|
|
|
|
|
|
|
Less: valuation allowance
|
|
|
(20,569
|
)
|
|
|
(15,809
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred income tax assets
|
|
|
3,974
|
|
|
|
5,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets, net
|
|
|
7,525
|
|
|
|
10,879
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset basis difference
|
|
|
(22,727
|
)
|
|
|
(23,735
|
)
|
|
|
|
|
|
|
|
|
Unremitted earnings
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax liabilities
|
|
|
(22,835
|
)
|
|
|
(23,744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets (liabilities), net
|
|
$
|
(15,310
|
)
|
|
$
|
(12,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The deferred income tax assets at December 31, 2009 and
December 31, 2008 were reduced by a valuation allowance of
$20.6 million and $15.8 million, respectively. The
valuation allowance relates to uncertainty regarding the future
realizability of tax benefits related to future foreign tax
credit carryforwards. Beginning in 2009, changes to existing
income tax valuation allowances and tax uncertainty accruals
which resulted from acquisitions have been recorded as
adjustments to income tax expense. As a result of this change, a
$2.1 million decrease in the valuation allowance in 2009
was recorded as a benefit to income tax expense instead of
goodwill. A valuation allowance is not needed against any of the
other deferred tax assets.
The foreign tax credits will start to expire as of
December 31, 2017.
73
Deferred income taxes of less than $0.1 million for each of
the tax years ended December 31, 2009 and 2008 have been
provided on the undistributed earnings of foreign affiliates
accounted for under the equity method, because the Company does
not plan to permanently reinvest those earnings.
The Companys net tax asset is reflected in prepaid income
taxes. 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
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 be less than a 6% effect on the
effective tax rate. A reconciliation of the beginning and ending
amount of unrecognized benefit is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance at January 1
|
|
$
|
193
|
|
|
$
|
193
|
|
|
$
|
|
|
Increases/(decreases) related to prior period positions
|
|
|
1,624
|
|
|
|
|
|
|
|
120
|
|
Increases/(decreases) related to current period positions
|
|
|
|
|
|
|
|
|
|
|
73
|
|
Decreases due to settlements with taxing authorities
|
|
|
|
|
|
|
|
|
|
|
|
|
Decreases due to lapse of statute of limitations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
1,817
|
|
|
$
|
193
|
|
|
$
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2007, 2008 and 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.
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
and 2007 have been recasted to conform to the 2009 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 results
of FXRE are reflected as part of discontinued operations, along
with the Companys 2% share of the net losses under the
cost method of accounting of FXRE from September 27, 2007
through December 31, 2007 (see note 5).
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 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.
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Presley Business
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Royalties and
|
|
|
Graceland
|
|
|
19
|
|
|
Ali
|
|
|
and
|
|
|
|
|
Segment Information
|
|
Licensing
|
|
|
Operations
|
|
|
Entertainment (1)(2)
|
|
|
Business (2)
|
|
|
Other (1)
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
21,883
|
|
|
$
|
40,879
|
|
|
$
|
197,864
|
|
|
$
|
6,151
|
|
|
$
|
|
|
|
$
|
266,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
9,364
|
|
|
$
|
5,019
|
|
|
$
|
49,174
|
|
|
$
|
2,718
|
|
|
$
|
(23,517
|
)
|
|
$
|
42,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
2,582
|
|
|
$
|
2,089
|
|
|
$
|
17,727
|
|
|
$
|
51
|
|
|
$
|
102
|
|
|
$
|
22,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$
|
11,981
|
|
|
$
|
7,172
|
|
|
$
|
67,190
|
|
|
$
|
2,784
|
|
|
$
|
(22,493
|
)
|
|
$
|
66,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The operating losses in 2009, 2008 and 2007 include $0.7,
$(5.8) million and $5.3 million, respectively, of
merger and distribution-related costs (recoveries), net. The
operating losses in 2009 and 2008 include $2.6 and
$2.3 million of acquisition-related costs. The operating
losses in 2009, 2008 and 2007 include $4.1 million,
$(15.9) million and $0.3 million of foreign exchange
(gains) and losses resulting from the strength of the U.S.
dollar compared to the U.K. pound sterling. |
|
(2) |
|
The 2009 operating income for the 19 Entertainment segment
includes $2.5 million of goodwill and other asset
impairment charges. The 2008 operating income (losses) for the
Ali Business and 19 Entertainment segments include
$27.8 million and $7.9 million, respectively, of
goodwill and intangible asset impairment charges. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2009
|
|
$
|
98,662
|
|
|
$
|
73,379
|
|
|
$
|
211,911
|
|
|
$
|
31,262
|
|
|
$
|
84,468
|
|
|
$
|
499,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets at December 31, 2008
|
|
$
|
84,437
|
|
|
$
|
74,359
|
|
|
$
|
153,083
|
|
|
$
|
31,362
|
|
|
$
|
132,820
|
|
|
$
|
476,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in affiliates at December 31, 2009
|
|
$
|
21,470
|
|
|
$
|
|
|
|
$
|
1,699
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
23,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in affiliates at December 31, 2008
|
|
$
|
3,113
|
|
|
$
|
|
|
|
$
|
1,047
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment for year ended
December 31, 2007
|
|
$
|
|
|
|
$
|
9,776
|
|
|
$
|
1,537
|
|
|
$
|
5
|
|
|
$
|
36
|
|
|
$
|
11,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
Below is a reconciliation of the Companys OIBDAN to net
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
(Amounts in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
OIBDAN
|
|
$
|
67,507
|
|
|
$
|
96,716
|
|
|
$
|
66,634
|
|
Impairment charges
|
|
|
(2,526
|
)
|
|
|
(35,661
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
(19,241
|
)
|
|
|
(21,161
|
)
|
|
|
(22,551
|
)
|
Non-cash compensation
|
|
|
(1,563
|
)
|
|
|
(2,954
|
)
|
|
|
(1,325
|
)
|
Interest income
|
|
|
308
|
|
|
|
1,778
|
|
|
|
1,644
|
|
Interest expense
|
|
|
(3,335
|
)
|
|
|
(5,601
|
)
|
|
|
(5,590
|
)
|
Equity in earnings of affiliates
|
|
|
576
|
|
|
|
2,521
|
|
|
|
1,566
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
2,181
|
|
Income tax expense
|
|
|
(15,358
|
)
|
|
|
(14,430
|
)
|
|
|
(19,432
|
)
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(8,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
26,368
|
|
|
$
|
21,208
|
|
|
$
|
14,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based upon the location of customers, 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 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 Royalties and Licensing segment, and $43.4 million
was attributable to the 19 Entertainment segment. For the year
ended December 31, 2007, the Company had revenue from
international markets totaling $31.7 million, of which
$3.6 million was attributable to the Royalties and
Licensing segment and $28.1 million was attributable to the
19 Entertainment segment.
International revenue from the United Kingdom was
$13.7 million in 2009. Assets based in the United Kingdom
are $166.4 million. In 2009, the Company had revenue from
one customer that represented greater than 10% of the
Companys total revenue. This customer accounted for
$120.4 million of the 19 Entertainment segments total
revenue.
|
|
15.
|
Commitments
and Contingencies
|
Commitments
Total rent expense for the Company under operating leases was
$4.5 million, $4.3 million and $3.9 million for
the years ended December 31, 2009, 2008, and 2007,
respectively. Minimum rental commitments under noncancelable
operating leases are as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Year Ending December 31,
|
|
|
|
|
2010
|
|
$
|
4,172
|
|
2011
|
|
|
3,512
|
|
2012
|
|
|
3,378
|
|
2013
|
|
|
2,355
|
|
2014
|
|
|
1,633
|
|
Thereafter
|
|
|
2,004
|
|
|
|
|
|
|
|
|
$
|
17,054
|
|
|
|
|
|
|
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 $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.
76
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, 2009 are as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Year Ending December 31,
|
|
|
|
|
2010
|
|
$
|
4,088
|
|
2011
|
|
|
1,462
|
|
2012
|
|
|
560
|
|
2013
|
|
|
560
|
|
2014
|
|
|
560
|
|
Thereafter
|
|
|
47
|
|
|
|
|
|
|
|
|
$
|
7,277
|
|
|
|
|
|
|
Elvis
Cirque du Soleil Show
Together with Cirque du Soleil and MGM MIRAGE, the Company
recently announced the opening of 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 brand new ARIA Resort and Casino in CityCenter
on the strip in Las Vegas, Nevada., held its gala opening on
February 19, 2010 and opened to the public the following
day. The show was developed and is operate in a partnership
jointly owned by Cirque du Soleil and the Company and has been
determined by the Company to be a variable interest entity. The
Company is not the primary beneficiary of the partnership and
does not control its main operating functions 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 have each agreed to pay one-half of
the creative development and production costs of the show. The
Company expects its portion of the investment to be
approximately $26 million. The Company incurred
expenditures for the development of the show of
$3.1 million in 2008 and $18.4 million in 2009. The
Company expects to fund the remaining $4.5 million in early
2010. The amount incurred as of December 31, 2009 of
$21.5 million is recorded within other assets on the
accompanying consolidated balance sheets as of December 31,
2009.
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 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 1,672,170 of the shares issued in
connection with the 19 Entertainment acquisition, 1,507,135 of
which were owned by Simon Fuller. Following the exercise of the
amended call option described in note 2 above,
534,082 shares remain subject to the Put and Call Option
Agreement. The fair value of the remaining 534,082 shares
is $7.3 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 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. The Company is in the process of
negotiating with Fox and Fremantle for compensation related to
Mr. Seacrests services on American Idol. The
amounts paid by such parties, if any, will either be paid
directly to the Company or remitted to the Company by
Mr. Seacrest. The Company paid $25.2 million to
Mr. Seacrest in 2009, which will be expensed in future
periods. Of the total amount paid to date of $25.2 million
as of December 31, 2009, $15.0 million is recorded
within prepaid expenses and other current assets on the
accompanying consolidated balance sheet, representing the amount
to be expensed in 2010, with the balance of $10.2 million
recorded in other assets, representing the amount to be expensed
in periods after 2010.
77
MBST
In connection with the acquisition of MBST, the sellers may
receive up to an additional 150,000 shares of common stock
upon satisfaction of certain performance thresholds over the
five-year period following the closing. The receipt by the
sellers of any such shares will be accounted for as additional
purchase price at the time such performance thresholds are met.
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.
On December 14, 2007 and February 1, 2008, two
shareholder derivative actions were instituted, and later
consolidated (the Action), against the Company, its
directors, 19X and 19X Acquisition Corp. in connection with the
proposed merger described in note 4 above. The Action
challenged the Boards approval of the Merger, alleging
among other things, that the proposed transaction favored
Mr. Sillerman over CKXs public stockholders.
On May 27, 2008, the parties to the litigation agreed to
settle the Action on terms that were subsequently reflected in
an amendment to the Merger Agreement. The terms of the
settlement included, among others: (i) that holders of not
less than 73% of CKXs outstanding capital stock entitled
to vote on the Merger had to vote in favor of the transaction in
order for it to be consummated, rather than 50%, as provided in
the original Merger Agreement; (ii) that under any
circumstance in which 19X had to pay CKX a termination fee, that
fee would be increased to $37.5 million from
$37 million; (iii) that not less than $500,000 of the
termination fee had to be paid in cash (whereas the original
Merger Agreement had no cash requirement); and (iv) the
stock, if any, used to pay the balance of the termination fee
would be valued at $11.08 per share rather than $12 per share,
as provided in the original Merger Agreement.
The Merger was thereafter terminated and, on November 21,
2008, Mr. Sillerman, (on behalf of 19X) paid the
$37.5 million termination fee by delivering
3,339,350 shares of CKX stock and $500,000 in cash to CKX.
The $500,000 in cash and 256,016 of those shares were paid
pursuant to the settlement agreement terms described above.
On July 31, 2009, the parties to the Action entered into a
stipulation agreeing that the claims asserted in the litigation
had become moot. In that connection, CKX has agreed to pay the
fees and expenses incurred by plaintiffs counsel in
litigating the Action in an aggregate amount of
$0.7 million. On September 30, 2009, the Court entered
a final order dismissing the Action with prejudice as to
plaintiffs and their counsel. In the three months ended
December 31, 2009, the Company paid the settlement amount
of $0.7 million.
|
|
16.
|
Related
Party Transactions
|
Please see Note 2, Exercise of Amended Call Option.
Please see Note 4, Terminated Merger Agreement.
Please see Note 5, Transactions Involving FX Real Estate
and Entertainment Inc.
Please see Note 19 for a description of the transactions
with Simon Fuller.
On July 13, 2009, the Company prepaid a $300,000 principal
payment due in February 2012 under the Companys
subordinated promissory note that was issued in connection with
the acquisition of the Presley Business.
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 February 8,
2010 quarterly dividend on the preferred stock.
The Company subleases from a third party 16,810 square
feet, comprising the entire 16th and a portion of the
15th floors at 650 Madison Avenue, for its principal
corporate offices in New York, New York. The remainder of the
15th floor at 650 Madison Avenue was subleased from the
same sublessor by Flag Anguilla Management (Flag
Anguilla), a company in which Robert F.X. Sillerman is the
majority shareholder. Both the CKX and Flag Anguilla subleases
had cross default provisions, so that a default by Flag Anguilla
under its sublease could have resulted in the sublessor calling
a default under the CKX sublease, thereby forcing CKX to vacate
its office space. For administrative convenience and to protect
CKX from any cross default risk, CKX has historically paid the
rent for the full space directly to the sublessor, and Flag
Anguilla has then immediately reimbursed CKX for its portion of
the monthly rent ($42,000). Starting with October 2008, Flag
Anguilla stopped reimbursing CKX for its portion of the monthly
rent. In order to avoid a potential cross default as referenced
above, CKX elected to continue to make payment on the full space
and seek payment after the fact from Flag Anguilla. Through
January 31, 2009, CKX had made unreimbursed rental and
related payments (including landlord real estate taxes and
operating expenses) for the benefit of Flag Anguilla in the
amount of $212,626. All amounts paid by the Company on behalf of
Flag Anguilla were reimbursed to the Company in March 2009.
78
Upon payment of the outstanding amounts referenced above, the
Company reached an agreement with Flag Anguilla, Flag Luxury
Properties, a company in which Robert F.X. Sillerman owns
approximately 33% of the outstanding equity, and FXRE, pursuant
to which (i) Flag Anguilla assigned its sublease for the
15th floor to CKX and vacated the space, and (ii) CKX
sublicensed a portion of such space to each of Flag Anguilla,
Flag Luxury Properties and FXRE. The terms of the agreements run
concurrent with the term of CKXs sublease for the space
(expiring in 2013). CKX is responsible for payment of the full
rental amount each month to the sublandlord, and each of Flag
Anguilla, Flag Luxury Properties and FXRE pay its pro rata share
of the rent for the space it occupies to CKX, with such payments
made on the first day of every month during the term. Each
agreement is terminable at the option of Flag Anguilla, FXRE or
Flag Luxury Properties, as the case may be, on 90 days
written notice, and is terminable at the option of CKX upon the
failure of Flag Anguilla, FXRE or Flag Luxury Properties, as the
case may be, to make a single rental payment when due, subject
to a five (5) day cure period. As of December 31, 2009
and through March 2010, Flag Anguilla, FXRE and Flag Luxury
Partners were each current on all rent payments,
On May 1, 2009, the Company made a payment of $100,000 in
the form of a convertible promissory note to a venture-stage
music-oriented technology company that is affiliated with a
former director of the Company. The Company expensed the full
amount of this payment as and when the funds were used. On
August 31, 2009, the Company entered into a letter of
intent with this same company setting forth terms for a proposed
technology license and development services agreement. Upon
execution of the letter of intent, the Company paid $100,000 as
an advance license fee, with an additional $50,000 advance
license fee paid on October 13, 2009. The Company paid an
additional $750,000 in November 2009 upon execution and delivery
of a long form development service agreement. As with the
initial May payment, these amounts have been recorded as
development expense.
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 due monthly, which has been paid currently through
December 31, 2009. Principal payments are due in each
February during the years 2009 through 2012 based on a rate of
50% of the vendors cash flow, as defined. All amounts
outstanding under the loan come due in August 2012. No principal
payments were due or have been made through February 2010 as the
vendor had negative cash flow. The loan is personally guaranteed
by the four principals of the vendor. $1.8 million was
outstanding under the loan agreement at December 31, 2009.
The Company entered into a consulting agreement with the vendor
in 2007 that terminates in December 2010 and provides for the
Company to pay monthly consulting fees that would total
$1.8 million over the term of the agreement;
$0.5 million, $0.5 million and $0.2 million were
expensed under the agreement in the years ended
December 31, 2009, 2008 and 2007, respectively. 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 eligibility requirements. The
Company matches 100% on the first 3% and 50% on the next 2% of
what an employee contributes to the plan. The Companys
matching contribution for the years ended December 31,
2009, 2008 and 2007 was $0.5 million.
|
|
18.
|
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
properties, and impairment charges recorded in the fourth
quarter of 2008, 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.
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
December 31, 2008
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Total
|
|
Revenue
|
|
$
|
65,237
|
|
|
$
|
88,510
|
|
|
$
|
96,977
|
|
|
$
|
37,404
|
|
|
$
|
288,128
|
|
Depreciation and amortization
|
|
|
5,632
|
|
|
|
5,457
|
|
|
|
5,322
|
|
|
|
4,750
|
|
|
|
21,161
|
|
Impairment charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,661
|
|
|
|
35,661
|
|
Other operating (income) expense
|
|
|
(217
|
)
|
|
|
58
|
|
|
|
(5,631
|
)
|
|
|
(10,120
|
)
|
|
|
(15,910
|
)
|
Operating income (loss)
|
|
|
20,059
|
|
|
|
25,233
|
|
|
|
22,708
|
|
|
|
(31,060
|
)
|
|
|
36,940
|
|
Income tax expense (benefit)
|
|
|
8,365
|
|
|
|
11,515
|
|
|
|
12,152
|
|
|
|
(17,602
|
)
|
|
|
14,430
|
|
Equity in earnings of affiliates
|
|
|
1,212
|
|
|
|
445
|
|
|
|
299
|
|
|
|
565
|
|
|
|
2,521
|
|
Net income (loss)
|
|
|
12,067
|
|
|
|
13,066
|
|
|
|
9,832
|
|
|
|
(13,757
|
)
|
|
|
21,208
|
|
Dividends on preferred stock
|
|
|
(456
|
)
|
|
|
(456
|
)
|
|
|
(456
|
)
|
|
|
(456
|
)
|
|
|
(1,824
|
)
|
Net income (loss) available to CKX, Inc.
|
|
|
11,611
|
|
|
|
12,610
|
|
|
|
9,376
|
|
|
|
(14,213
|
)
|
|
|
19,384
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
(397
|
)
|
|
|
(678
|
)
|
|
|
(688
|
)
|
|
|
(494
|
)
|
|
|
(2,257
|
)
|
Net income attributable to CKX, Inc.
|
|
|
11,214
|
|
|
|
11,932
|
|
|
|
8,688
|
|
|
|
(14,707
|
)
|
|
|
17,127
|
|
Basic income (loss) per common share
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
$
|
0.09
|
|
|
$
|
(0.15
|
)
|
|
$
|
0.18
|
|
Diluted income (loss) per common share
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
$
|
0.09
|
|
|
$
|
(0.15
|
)
|
|
$
|
0.18
|
|
Weighted average basic common shares outstanding
|
|
|
97,080,778
|
|
|
|
97,045,279
|
|
|
|
97,054,680
|
|
|
|
95,579,940
|
|
|
|
96,674,706
|
|
Weighted average diluted common shares outstanding
|
|
|
97,083,350
|
|
|
|
97,090,538
|
|
|
|
97,060,937
|
|
|
|
95,579,940
|
|
|
|
96,684,377
|
|
The Company evaluated subsequent events through March 15,
2010.
Transaction
with Simon Fuller
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
termination of Mr. Fullers employment with 19
Entertainment. The Company elected not to exercise the option to
invest in XIX Entertainment prior to its expiration on
March 15, 2010. Pursuant to the Consultancy Agreement, the
Company has engaged Mr. Fuller to provide services,
including executive producer services, in respect of the
Companys American Idol, So You Think You Can
Dance and If I Can Dream programs. In consideration
for providing these services, Mr. Fuller will receive 10%
of the net profits of 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 will receive
$5.0 million as an advance against the 10% fee and it is
estimated that Mr. Fuller may receive a total of between
$8.0 million and $10.0 million for 2010, inclusive of
80
the advance, pursuant to the Consultancy Agreement. For each
year after 2010, subject to certain conditions, Mr. Fuller
will receive, as an annual advance against the 10% 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 from the 10% fee payable to
Mr. Fuller. In addition to the aforementioned payment,
Mr. Fuller will receive £1.5 million
($2.4 million) in consideration for providing creative and
strategic advice with respect to the overall business of CKX
through July 13, 2010.
The Company will incur approximately $4.3 million in
separation and consulting costs to Mr. Fuller over the
first two quarters of 2010, which includes the
£1.5 million ($2.4 million) consulting fee
referenced above. The Company also paid Mr. Fuller
£0.5 million ($0.8 million) in January 2010,
representing consideration for CKXs option to invest in
Mr. Fullers new entertainment company, which expired
on March 15, 2010; the Company elected not to exercise the
option and the payment will therefore be expensed in the first
quarter of 2010.
In addition to the costs described above, 19 Entertainment
recognized a non-cash impairment charge of $2.5 million as
of December 31, 2009 to reduce the carrying amount of
assets of Storm as a result of Simon 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, a U.K.-based modeling
agency in the third quarter of 2009, with the expectation that
Mr. Fuller would be a key contributor to its growth and
operations.
Upon entering into these agreements, Mr. Fuller resigned as
a director of CKX and as an officer and director of 19
Entertainment.
In connection with this transaction, management has initiated a
thorough review of each of the businesses currently conducted by
19 Entertainment and decided to focus its efforts principally
around its established IDOLS and So You Think You Can
Dance brands and its new multimedia brand If I Can
Dream. As a result of the decision to concentrate primarily
on these three brands, management intends to exit most of the
other businesses within 19 Entertainment by the summer of 2010.
These businesses will either be closed, sold or transferred,
including potentially being sold or transferred to
Mr. Fullers new entertainment venture, XIX
Entertainment. These changes are expected to substantially
reduce 19 Entertainments spending on new development
projects and associated selling, general and administrative
expenses. The Company expects to incur cash and non-cash charges
in 2010 as a result of this process. The amount of such charges
will depend on a number of factors including the final
determination of which businesses the Company will exit, the
amount, if any, of sales proceeds generated or liabilities
assumed as part of the sale or transfer of businesses and the
ultimate scope of the reductions in selling, general and
administrative expenses.
Change in
Functional Currency
As noted above, Simon Fuller, the CEO and founder of 19
Entertainment, separated from the Company. This departure
represents 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 has
reassessed the functional currency of the 19 Entertainment
operating segment. The Company has concluded that it would be
appropriate to change the functional currency of substantially
all of the subsidiaries comprising the 19 Entertainment
operating segment from U.K. pound sterling to U.S. dollars.
The Company will effect this change as of January 1, 2010.
The impact of this change is that the 19 Entertainment operating
segment will be 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 sterling at the balance sheet date. As a result of the
change, 19 Entertainments operating results are expected
to have less foreign currency-related volatility beginning in
2010.
Amendment
to Credit Facility
In March 2010, the Company entered into an amendment to its
Credit Facility. As a result of the amendment: (i) the
maximum size of the Credit Facility was reduced 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 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 disclosed
elsewhere herein (see Note 10, Debt), there are no
additional borrowings available under the Credit Facility.
Prior to the aforementioned amendment, it was an event of
default under the Credit Facility if Mr. Sillermans
stock ownership fell below a certain percentage. As has been
publicly disclosed, Mr. Sillerman has previously pledged
approximately 80% of his CKX stock to secure a personal loan
from a financial institution. In addition, the Board of
Directors is aware, as it is a matter of public record, that
81
Mr. Sillerman has been involved in litigations concerning
certain troubled real estate investments which litigations have,
in certain instances, resulted in presently outstanding
judgments against Mr. Sillerman. Based on the
aforementioned information, the Companys Board of
Directors determined that it was in the best interest of the
Company to seek a modification of the Credit Facility removing
the requirement that Mr. Sillerman maintain a minimum
equity ownership in the Company. By seeking and obtaining the
amendment described above, the Company has eliminated the
possibility of a default under the Credit Facility should Mr.
Sillermans personal CKX stock ownership be reduced for any
reason. The Company has no involvement with respect to any of
Mr. Sillermans real estate ventures and is not a
party to any of these litigations. Additionally, the Board of
Directors has no access to information with respect to such
litigations other than that information which is publicly
available concerning these situations and information it
received in connection with its review of
Mr. Sillermans pledge agreement.
|
|
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, 2009, 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 U.S. Securities Exchange Act of 1934). 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,
2009.
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 effective as of December 31, 2009.
4. There has 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, 2009. This report is
located on page 53 of this
Form 10-K.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
82
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 2009
annual meeting of stockholders filed with the Securities and
Exchange Commission (SEC) within 120 days after
December 31, 2009 and is incorporated herein by reference.
If we do not file a definitive proxy statement in connection
with the 2009 annual meeting of stockholders with the SEC within
120 days after December 31, 2009, we will file such
information with the SEC pursuant to an amendment to this
Form 10-K
within 120 days after December 31, 2009.
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 2009
annual meeting of stockholders filed with the SEC within
120 days after December 31, 2009 and is incorporated
herein by reference. If we do not file a definitive proxy
statement in connection with the 2009 annual meeting of
stockholders with the SEC within 120 days after
December 31, 2009, we will file such information with the
SEC pursuant to an amendment to this
Form 10-K
within 120 days after December 31, 2009.
|
|
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 2009
annual meeting of stockholders filed with the SEC within
120 days after December 31, 2009 and is incorporated
herein by reference. If we do not file a definitive proxy
statement in connection with the 2009 annual meeting of
stockholders with the SEC within 120 days after
December 31, 2009, we will file such information with the
SEC pursuant to an amendment to this
Form 10-K
within 120 days after December 31, 2009.
|
|
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 2009
annual meeting of stockholders filed with the SEC within
120 days after December 31, 2009 and is incorporated
herein by reference. If we do not file a definitive proxy
statement in connection with the 2009 annual meeting of
stockholders with the SEC within 120 days after
December 31, 2009, we will file such information with the
SEC pursuant to an amendment to this
Form 10-K
within 120 days after December 31, 2009.
|
|
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 2009
annual meeting of stockholders filed with the SEC within
120 days after December 31, 2009 and is incorporated
herein by reference. If we do not file a definitive proxy
statement in connection with the 2009 annual meeting of
stockholders with the SEC within 120 days after
December 31, 2009, we will file such information with the
SEC pursuant to an amendment to this
Form 10-K
within 120 days after December 31, 2009.
83
PART IV
|
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENTS AND SCHEDULE
|
Financial
Statements
See Table of Contents to Consolidated Financial Statements at
page 51.
Financial
Statement Schedule
Schedule II Valuation and Qualifying Accounts
for the years ended December 31, 2009, 2008 and 2007.
84
Financial
Statement Schedule
SCHEDULE II
CKX,
Inc.
VALUATION
AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(DOLLARS IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
457
|
|
|
$
|
588
|
|
|
$
|
|
|
|
$
|
(213
|
)
|
|
$
|
832
|
|
Inventory allowance for obsolescence
|
|
|
636
|
|
|
|
32
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
627
|
|
Deferred taxes valuation allowance
|
|
|
28,583
|
|
|
|
(479
|
)
|
|
|
(4,988
|
)
|
|
|
|
|
|
|
23,116
|
|
85
Exhibits
The documents set forth below are filed herewith or incorporated
herein by reference to the location indicated.
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger, dated as of June 1, 2007, by
and among 19X, Inc., 19 Acquisition Corp. and CKX, Inc.
(Previously filed as Exhibit 2.1 to the
Form 8-K
filed June 1, 2007, and incorporated herein by reference)
(Pursuant to Item 601(b)(2) of
Regulation S-K,
the Company agrees to furnish, supplementally, a copy of any
exhibit or schedule omitted from the Merger Agreement to the SEC
upon request.)
|
|
2
|
.2
|
|
Amendment No. 1, dated as of August 1, 2007, to the
Agreement and Plan of Merger, dated as of June 1, 2007, by
and among 19X, Inc., 19X Acquisition Corp. and CKX, Inc.
(Previously filed as Exhibit 2.1 to the
Form 8-K
filed August 1, 2007, and incorporated herein by reference.)
|
|
2
|
.3
|
|
Amendment No. 2, dated as of September 27, 2007, to
the Agreement and Plan of Merger, dated as of June 1, 2007
and amended as of August 1, 2007, by and among 19X, Inc.,
19 Acquisition Corp. and CKX, Inc. (Previously filed as
Exhibit 2.1 to the
Form 8-K
filed September 28, 2007, and incorporated herein by
reference.)
|
|
2
|
.4
|
|
Amendment No. 3, dated as of January 23, 2008, to the
Agreement and Plan of Merger, dated as of June 1, 2007 and
amended as of September 27, 2007 and August 1, 2007,
by and among 19X, Inc., 19 Acquisition Corp. and CKX, Inc.
(Previously filed as Exhibit 2.1 to the
Form 8-K
filed January 24, 2008, and incorporated herein by
reference.)
|
|
2
|
.5
|
|
Amendment No. 4, dated as of May 27, 2008, to the
Agreement and Plan of Merger, dated as of June 1, 2007 and
amended as of January 23, 2008, September 27, 2007 and
August 1, 2007, by and among 19X, Inc., 19 Acquisition
Corp. and CKX, Inc. (Previously filed as Exhibit 2.1 to the
Form 8-K
filed May 29, 2008, and incorporated herein by reference.)
|
|
2
|
.6
|
|
Management Cooperation Agreement, dated as of June 1, 2007,
by and among CKX, Inc. and each of the stockholders set forth on
Schedule I thereto (Previously filed as Exhibit 2.2 to
the
Form 8-K
filed June 1, 2007, and incorporated herein by reference.)
|
|
2
|
.7
|
|
Amendment, dated July 18, 2007, to the Management
Cooperation Agreement, dated June 1, 2007, by and among
CKX, Inc. and each of the stockholders set forth on
Schedule I to the Management Cooperation Agreement
(Previously filed as Exhibit 2.3 to the
Form 10-Q
for the quarterly period ended June 30, 2007, and
incorporated herein by reference.)
|
|
2
|
.8
|
|
Amendment No. 2, dated as of September 27, 2007, to
the Management Cooperation Agreement dated as of June 1,
2007 and amended as of July 18, 2007 (Previously filed as
Exhibit 2.2 to the
form 8-K
filed September 28, 2007, and incorporated herein by
reference.)
|
|
2
|
.9
|
|
Amendment No. 3, dated as of May 27, 2008, to the
Management Cooperation Agreement dated as of June 1, 2007
and amended as of July 18, 2007 and September 27, 2007
(Previously filed as Exhibit 2.2 to the
Form 8-K
filed May 29, 2007, and incorporated herein by reference.)
|
|
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
|
|
Form of Promissory Term Note made on December 15, 2008,
payable to Priscilla Presley (Previously filed as
Exhibit 4.5 to the
Form 10-K
filed March 10, 2009, and incorporated herein by
reference).
|
86
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
4
|
.5
|
|
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
|
.6
|
|
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).
|
|
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).
|
|
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
|
|
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
|
.11
|
|
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
|
.12
|
|
Amended and Restated Employment Agreement between the Company
and Howard J. Tytel (Previously filed as Exhibit 10.3 to
the
Form 8-K
filed January 7, 2009, and incorporated herein by
reference).
|
|
10
|
.13
|
|
Amended and Restated Employment Agreement between the Company
and Thomas P. Benson (Previously filed as Exhibit 10;4 to
the
Form 8-K
filed January 7, 2009, and incorporated herein by
reference).
|
|
10
|
.14
|
|
Employment Agreement between the Company and Michael G. Ferrel
(Previously filed as Exhibit 10.27 to Amendment No. 1
to
Form S-1/A
(Registration Statement
No. 333-123995)
filed May 19, 2005, and incorporated herein by reference).
|
|
10
|
.15
|
|
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).
|
87
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.16
|
|
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
|
.17
|
|
Shareholders Agreement dated June 22, 2004 between 19
Merchandising Limited, David Beckham, Victoria Beckham and
Beckham Brand Limited (Previously filed as Exhibit 10.28 to
Amendment No. 1 to
Form S-1/A
(Registration Statement
No. 333-123995)
filed May 19, 2005, and incorporated herein by reference).
|
|
10
|
.18
|
|
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
|
.19
|
|
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
|
.20
|
|
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
|
.21
|
|
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
|
.22
|
|
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
|
.23
|
|
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.).
|
|
10
|
.24
|
|
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
|
.25
|
|
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
|
.26
|
|
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
|
.27
|
|
License Agreement between Elvis Presley Enterprises, Inc. and FX
Luxury Realty, LLC, dated as of June 1, 2007 (Previously
filed as Exhibit 10.1 to the
Form 10-Q
for the quarterly period ended June 30, 2007, and
incorporated herein by reference).
|
|
10
|
.28
|
|
Amendment No. 1, dated November 16, 2007, to the
License Agreement between Elvis Presley Enterprises, Inc. and FX
Luxury Realty, LLC, dated as of June 1, 2007 (Previously
filed as Exhibit 10.29 to the
Form 10-K
filed March 4, 2008, and incorporated herein by reference.)
|
|
10
|
.29
|
|
License Agreement between Muhammad Ali Enterprises LLC and FX
Luxury Realty, LLC, dated as of June 1, 2007 (Previously
filed as Exhibit 10.2 to the
Form 10-Q
for the quarterly period ended June 30, 2007, and
incorporated herein by reference).
|
|
10
|
.30
|
|
Amendment No. 1, dated November 16, 2007, to the
License Agreement between Muhammad Ali Enterprises LLC and FX
Luxury Realty, LLC, dated as of June 1, 2007 (Previously
filed as Exhibit 10.31 to the
Form 10-K
filed March 4, 2008, and incorporated herein by reference.)
|
88
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.31
|
|
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
|
.32
|
|
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
|
.33
|
|
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
|
.34
|
|
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
|
.35
|
|
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
|
.36
|
|
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
|
.37
|
|
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
|
.38
|
|
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
|
.39
|
|
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.
|
|
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).
|
89
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.
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ ROBERT
F.X. SILLERMAN
Robert
F.X. Sillerman
Chief Executive Officer and Chairman of the Board
|
|
March 15, 2010
|
|
|
|
|
|
By:
|
|
/s/ THOMAS
P. BENSON
Thomas
P. Benson
Chief Financial Officer, Executive Vice President and
Treasurer
|
|
March 15, 2010
|
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/ ROBERT
F.X. SILLERMAN
Robert
F.X. Sillerman, Chairman of the Board
|
|
March 15, 2010
|
|
|
|
|
|
By:
|
|
/s/ HOWARD
J. TYTEL
Howard
J. Tytel, Director
|
|
March 15, 2010
|
|
|
|
|
|
By:
|
|
/s/ EDWIN
M. BANKS
Edwin
M. Banks, Director
|
|
March 15, 2010
|
|
|
|
|
|
By:
|
|
/s/ EDWARD
BLEIER
Edward
Bleier, Director
|
|
March 15, 2010
|
|
|
|
|
|
By:
|
|
/s/ BRYAN
BLOOM
Bryan
Bloom, Director
|
|
March 15, 2010
|
|
|
|
|
|
By:
|
|
/s/ JERRY
L. COHEN
Jerry
L. Cohen, Director
|
|
March 15, 2010
|
|
|
|
|
|
By:
|
|
/s/ CARL
D. HARNICK
Carl
D. Harnick, Director
|
|
March 15, 2010
|
|
|
|
|
|
By:
|
|
/s/ JACK
LANGER
Jack
Langer, Director
|
|
March 15, 2010
|
|
|
|
|
|
By:
|
|
/s/ PRISCILLA
PRESLEY
Priscilla
Presley, Director
|
|
March 15, 2010
|
90
INDEX TO
EXHIBITS
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
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
|
91