UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2013
¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission file number: 000-17287
Outdoor Channel Holdings, Inc.
(Exact name of Registrant as specified in its charter)
Delaware | 33-0074499 | |
(State or other Jurisdiction of incorporation or organization) |
(IRS Employer Identification Number) |
43455 Business Park Drive
Temecula, California 92590
(Address and zip code of principal executive offices)
(951) 699-6991
(Issuers telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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). x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ | Smaller Reporting Company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:
Class |
Number of Shares Outstanding at May 7, 2013 | |
Common Stock, $0.001 par value | 25,839,308 |
OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q
For the Period Ended March 31, 2013
Table of Contents
Part I. Financial Information | 3 | |||||
Item 1. | 3 | |||||
Condensed Consolidated Balance Sheets as of March 31, 2013 (unaudited) and December 31, 2012 |
3 | |||||
4 | ||||||
5 | ||||||
Unaudited Condensed Consolidated Statement of Equity for the Three Months Ended March 31, 2013 |
6 | |||||
7 | ||||||
Notes to Unaudited Condensed Consolidated Financial Statements |
8 | |||||
Item 2. | Managements Discussion and Analysis of Results of Operations and Financial Condition |
17 | ||||
Item 3. | 26 | |||||
Item 4. | 26 | |||||
Part II. Other Information | 26 | |||||
Item 1. | 26 | |||||
Item 1A. | 27 | |||||
Item 2. | 27 | |||||
Item 3. | 27 | |||||
Item 4. | 27 | |||||
Item 5. | 27 | |||||
Item 6. | 28 | |||||
Signatures | 28 |
* * *
2
OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
March 31, 2013 |
December 31, 2012 |
|||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 26,294 | $ | 30,476 | ||||
Investments in available-for-sale securities |
24,924 | 22,943 | ||||||
Investments in auction-rate securities |
| 4,551 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $841 and $922 |
11,871 | 15,066 | ||||||
Income taxes |
1,095 | 53 | ||||||
Deferred tax assets, net |
5,926 | 3,136 | ||||||
Programming and production costs |
9,540 | 9,589 | ||||||
Subscriber acquisition fees, current portion |
503 | 608 | ||||||
Other current assets |
2,688 | 4,413 | ||||||
|
|
|
|
|||||
Total current assets |
82,841 | 90,835 | ||||||
|
|
|
|
|||||
Property, plant and equipment, net |
13,883 | 14,121 | ||||||
Amortizable intangible assets, net |
126 | 170 | ||||||
Goodwill |
43,160 | 43,160 | ||||||
Deferred tax assets, net |
453 | 453 | ||||||
Subscriber acquisition fees, net of current portion |
655 | 702 | ||||||
Deposits and other assets |
239 | 251 | ||||||
|
|
|
|
|||||
Totals |
$ | 141,357 | $ | 149,692 | ||||
|
|
|
|
|||||
Liabilities and Equity | ||||||||
Current liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 13,439 | $ | 14,143 | ||||
Deferred revenue |
1,471 | 1,974 | ||||||
Deferred obligations, current portion |
61 | 70 | ||||||
Unfavorable lease, current portion |
182 | 178 | ||||||
Income taxes payable |
| 948 | ||||||
|
|
|
|
|||||
Total current liabilities |
15,153 | 17,313 | ||||||
Deferred obligations |
233 | 246 | ||||||
Unfavorable lease |
456 | 503 | ||||||
|
|
|
|
|||||
Total liabilities |
15,842 | 18,062 | ||||||
|
|
|
|
|||||
Commitments and contingencies |
||||||||
Equity: |
||||||||
Preferred stock, $0.001 par value; 25,000 shares authorized; none issued |
| | ||||||
Common stock, $0.001 par value; 75,000 shares authorized; 25,845 and 25,931 shares issued and outstanding |
26 | 26 | ||||||
Additional paid-in capital |
171,921 | 171,967 | ||||||
Accumulated other comprehensive income (loss) |
| 4 | ||||||
Accumulated deficit |
(46,432 | ) | (40,367 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
125,515 | 131,630 | ||||||
Noncontrolling interest |
| | ||||||
|
|
|
|
|||||
Total equity |
125,515 | 131,630 | ||||||
|
|
|
|
|||||
Totals |
$ | 141,357 | $ | 149,692 | ||||
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
3
OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended March 31, |
||||||||
2013 | 2012 | |||||||
Revenues: |
||||||||
Advertising |
$ | 8,888 | $ | 7, 435 | ||||
Subscriber fees |
5,782 | 5,176 | ||||||
Production services |
2,192 | 1,710 | ||||||
|
|
|
|
|||||
Total revenues |
16,862 | 14,321 | ||||||
|
|
|
|
|||||
Cost of services: |
||||||||
Programming |
4,056 | 1,798 | ||||||
Satellite transmission fees |
438 | 429 | ||||||
Production and operations |
4,486 | 4,141 | ||||||
Other direct costs |
9 | 11 | ||||||
|
|
|
|
|||||
Total cost of services |
8,989 | 6,379 | ||||||
|
|
|
|
|||||
Other expenses: |
||||||||
Advertising |
1,704 | 648 | ||||||
Selling, general and administrative |
7,390 | 8,553 | ||||||
Merger related expenses |
7,641 | | ||||||
Depreciation and amortization |
787 | 732 | ||||||
|
|
|
|
|||||
Total other expenses |
17,522 | 9,933 | ||||||
|
|
|
|
|||||
Loss from operations |
(9,649 | ) | (1,991 | ) | ||||
Interest and other income, net |
15 | 19 | ||||||
|
|
|
|
|||||
Loss before income taxes |
(9,634 | ) | (1,972 | ) | ||||
Income tax benefit |
(3,569 | ) | (814 | ) | ||||
|
|
|
|
|||||
Net loss |
(6,065 | ) | (1,158 | ) | ||||
Net loss attributable to noncontrolling interest |
| | ||||||
|
|
|
|
|||||
Net loss attributable to controlling interest |
$ | (6,065 | ) | $ | (1,158 | ) | ||
|
|
|
|
|||||
Loss per common share data: |
||||||||
Basic |
$ | (0.24 | ) | $ | (0.05 | ) | ||
|
|
|
|
|||||
Diluted |
$ | (0.24 | ) | $ | (0.05 | ) | ||
|
|
|
|
|||||
Weighted average common shares outstanding: |
||||||||
Basic |
25,351 | 25,021 | ||||||
|
|
|
|
|||||
Diluted |
25,351 | 25,021 | ||||||
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
Three Months Ended March 31, |
||||||||
2013 | 2012 | |||||||
Net loss |
$ | (6,065 | ) | $ | (1,158 | ) | ||
Other comprehensive income (loss), net of tax: |
||||||||
Change in fair value of available-for-sale and auction-rate securities |
(4 | ) | 26 | |||||
|
|
|
|
|||||
Comprehensive loss |
$ | (6,069 | ) | $ | (1,132 | ) | ||
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
5
OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statement of Equity
For the Three Months Ended March 31, 2013
(In thousands)
Common Stock | Additional Paid-in |
Accumulated Other Comprehensive |
Accumulated | Total Stockholders |
Non- controlling |
Total | ||||||||||||||||||||||||||
Shares | Amount | Capital | Income (Loss) | Deficit | Equity | Interest | Equity | |||||||||||||||||||||||||
Balance, December 31, 2012 |
25,931 | $ | 26 | $ | 171,967 | $ | 4 | $ | (40,367 | ) | $ | 131,630 | $ | | $ | 131,630 | ||||||||||||||||
Net loss |
| | | | (6,065 | ) | (6,065 | ) | | (6,065 | ) | |||||||||||||||||||||
Change in fair value of available-for-sale securities, net of tax |
| | | (4 | ) | | (4 | ) | | (4 | ) | |||||||||||||||||||||
Issuance of restricted stock to employees for services to be rendered, net of forfeited shares |
(6 | ) | | | | | | | | |||||||||||||||||||||||
Share-based employee and director compensation expense |
| | 573 | | | 573 | | 573 | ||||||||||||||||||||||||
Purchase and retirement of common stock related to employee and director share-based compensation activity |
(80 | ) | | (619 | ) | | | (619 | ) | | (619 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance, March 31, 2013 |
25,845 | $ | 26 | $ | 171,921 | $ | | $ | (46,432 | ) | $ | 125,515 | $ | | $ | 125,515 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
6
OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
Three Months Ended March 31, |
||||||||
2013 | 2012 | |||||||
Operating activities: |
||||||||
Net loss |
$ | (6,065 | ) | $ | (1,158 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
787 | 732 | ||||||
Amortization of subscriber acquisition fees |
152 | 472 | ||||||
Loss on sale of equipment |
1 | 10 | ||||||
Provision for doubtful accounts |
| 15 | ||||||
Share-based employee and director compensation |
573 | 844 | ||||||
Deferred tax benefit, net |
(2,790 | ) | | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
3,195 | 3,644 | ||||||
Income tax receivable and payable, net |
(1,990 | ) | (2,781 | ) | ||||
Programming and production costs |
49 | (1,540 | ) | |||||
Other current assets |
1,725 | 1,487 | ||||||
Deposits and other assets |
(1 | ) | 34 | |||||
Accounts payable and accrued expenses |
(376 | ) | (1,672 | ) | ||||
Deferred revenue |
(503 | ) | 538 | |||||
Deferred obligations |
(22 | ) | 61 | |||||
Unfavorable lease obligations |
(43 | ) | (39 | ) | ||||
|
|
|
|
|||||
Net cash provided by (used in) operating activities |
(5,308 | ) | 647 | |||||
|
|
|
|
|||||
Investing activities: |
||||||||
Purchases of property, plant and equipment |
(821 | ) | (646 | ) | ||||
Proceeds from sale of equipment |
| 87 | ||||||
Purchases of available-for-sale securities |
(11,995 | ) | (24,143 | ) | ||||
Proceeds from sale of available-for-sale and auction-rate securities |
14,561 | 26,037 | ||||||
|
|
|
|
|||||
Net cash provided by investing activities |
1,745 | 1,335 | ||||||
|
|
|
|
|||||
Financing activities: |
||||||||
Purchase of common stock |
(619 | ) | (547 | ) | ||||
|
|
|
|
|||||
Net cash used in financing activities |
(619 | ) | (547 | ) | ||||
|
|
|
|
|||||
Net increase (decrease) in cash and cash equivalents |
(4,182 | ) | 1,435 | |||||
Cash and cash equivalents, beginning of period |
30,476 | 19,498 | ||||||
|
|
|
|
|||||
Cash and cash equivalents, end of period |
$ | 26,294 | $ | 20,933 | ||||
|
|
|
|
|||||
Supplemental disclosure of cash flow information: |
||||||||
Merger related expenses paid |
$ | 6,592 | $ | | ||||
|
|
|
|
|||||
Income taxes paid |
$ | 1,213 | $ | 1,960 | ||||
|
|
|
|
|||||
Supplemental disclosures of non-cash investing and financing activities: |
||||||||
Effect of change in fair value of available-for-sale and auction-rate securities |
$ | (4 | ) | $ | 26 | |||
|
|
|
|
|||||
Property, plant and equipment costs incurred but not paid |
$ | 328 | $ | 178 | ||||
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
7
OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share data)
NOTE 1ORGANIZATION AND BUSINESS
Description of Operations
Outdoor Channel Holdings, Inc. (Outdoor Channel Holdings) is incorporated under the laws of the State of Delaware. Collectively, with its subsidiaries and consolidated affiliate, the terms we, us, our and the Company refer to Outdoor Channel Holdings, Inc. as a consolidated entity, except where noted or where the context makes clear the reference is only to Outdoor Channel Holdings, Inc. or one of our subsidiaries. Outdoor Channel Holdings, Inc. wholly owns OC Corporation which in turn wholly owns The Outdoor Channel, Inc. (TOC). Outdoor Channel Holdings is also the sole member of 43455 BPD, LLC, which is the entity that owns the building that houses our broadcast facility and our corporate offices. TOC operates Outdoor Channel, which is a national television network devoted to traditional outdoor activities, such as hunting, fishing and shooting sports and other related lifestyle programming. Outdoor Channel Holdings also wholly owns Winnercomm, Inc., which is referred to as Production Services. The Production Services business relates to the production, development and marketing of sports programming. Winnercomm, Inc. wholly owns CableCam, LLC and SkyCam, LLC which comprise our Aerial Camera business. The Aerial Camera business is engaged in providing aerial camera services for customer owned telecasts.
In August 2011, the Company entered into an agreement with Professional Bass Tour (PBT) to establish Major League Fishing LLC (MLF), a joint venture created to produce a new style of professional competitive bass fishing tournaments to air exclusively on the Outdoor Channel. The Company is a 50% owner in MLF, controls the ventures board of managers and will fund 100% of the costs of the venture via preferred capital contributions bearing a priority return which must be redeemed before MLF can make profit distributions. Accordingly, we are deemed the primary beneficiary and MLF is being treated as a variable interest entity, as defined by Accounting Standards Codification (ASC) ASC 810, and MLF has been consolidated in our accompanying consolidated financial statements. Profits shall be allocated pro rata in proportion to the number of membership interests of MLF and losses shall be allocated in a similar proportionate manner but only while a members capital account is positive. Losses in excess of members capital are not allocated to members but will be only allocated to us. As of March 31, 2013, we have contributed approximately $2.4 million to MLF and no amounts have been contributed by PBT. MLF recorded a loss for the three months ended March 31, 2013.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of the Company as of March 31, 2013 and its results of operations and cash flows for the three months ended March 31, 2013 and 2012. Pursuant to the rules and regulations of the Securities and Exchange Commission, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from these financial statements. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission on March 18, 2013 (the 2012 Annual Report).
Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities as of the dates of the condensed consolidated balance sheets and reported amounts of revenues and expenses for the periods presented. Accordingly, actual results could materially differ from those estimates.
Our revenues include advertising fees from advertisements aired on Outdoor Channel, including fees paid by outside producers to purchase advertising time in connection with the airing of their programs on Outdoor Channel and subscriber fees paid by cable, telephone companies and satellite service providers that air Outdoor Channel. Production services revenue includes revenue from advertising fees, revenue from production services for customer-owned telecasts, revenue from camera services for customer-owned telecasts and revenue from website design, management, marketing and hosting services.
Proposed Merger Transaction
On March 13, 2013, the Company entered into a definitive merger agreement with Kroenke Sports & Entertainment, LLC (KSE). The merger agreement with KSE was amended on May 2 and again on May 8, 2013 - see Note 13. The Company expects the KSE transaction, which is subject to stockholder approval, to be completed in the second quarter of 2013.
8
NOTE 2STOCK INCENTIVE PLANS
The measurement and recognition of compensation expense is recognized in the financial statements over the service period for the fair value of all awards granted after January 1, 2006. Our stock incentive plans provide for the granting of qualified and nonqualified options, restricted stock, restricted stock units (RSUs), stock appreciation rights (SARs) and performance units to our officers, directors and employees. We satisfy the exercise of options and awards of restricted stock by issuing previously unissued common shares. Currently we have not awarded any SARs but have awarded options, performance units, restricted stock and RSUs.
We have two stock incentive plans: our 2004 Long-Term Incentive Plan (LTIP Plan) and our Non-Employee Director Stock Option Plan (NEDSOP). No more options will be issued under the NEDSOP Plan. All awards issued under our plans are subject to terms and conditions as determined by our Board of Directors.
Our Board of Directors has discretion to allow our employees and directors to forego shares in lieu of paying requisite withholding taxes on vested restricted shares. In turn, we remit to the appropriate taxing authorities the U.S. Federal and state withholding taxes on the total compensation the employees have realized as a result of the vesting of these shares. During the three months ended March 31, 2013 and 2012, approximately 80,000 and 73,000 shares were repurchased with a market value of approximately $619 and $547, respectively.
2004 Long-Term Incentive Plan (LTIP Plan). During 2005 through March 31, 2013, all options to purchase common stock, restricted stock awards, restricted stock units and performance units to our employees and Board of Directors were issued under the LTIP Plan. Options granted under the LTIP Plan expire five years from the date of grant and typically vest equally over four years. Restricted stock awards granted under the LTIP Plan do not expire, but are surrendered upon termination of employment to the extent unvested. These awards generally vest quarterly over two to four years, however, some awards vest annually. RSUs vest over one year and, upon satisfaction of the service vesting requirement, the holder is entitled to the issuance of the underlying shares provided the holder has not elected to defer settlement, and will have compensation income equal to that value. Performance units vest based upon criteria established at the time of grant. Options or awards that are surrendered or cease to be exercisable continue to be available for future grant under the LTIP Plan. There are 4,050,000 shares of common stock reserved for issuance under the LTIP Plan. As of March 31, 2013, there were 453,208 restricted shares and 127,442 RSUs outstanding and there were no performance unit shares or options to purchase shares of common stock outstanding. There were 995,649 shares of common stock available for future grant as of March 31, 2013.
Non-Employee Director Stock Option Plan (NEDSOP). Under the NEDSOP, nonqualified stock options to purchase common stock were granted to two of our current non-employee directors. Options granted under the NEDSOP expire 10 years from the date of grant. These grants are generally exercisable 40% after the first 3 months of service and 20% on the first anniversary of appointment and each anniversary thereafter until 100% vested. The NEDSOP has 1,000,000 shares of common stock reserved for issuance. As of March 31, 2013, options to purchase 250,000 shares of common stock were outstanding and no further option grants can be issued under this plan.
The fair value of the shares and options, adjusted for a forfeiture assumption, at the respective dates of grant (which represents deferred compensation not required to be recorded initially in the consolidated balance sheet) is amortized to share-based compensation expense as the rights to the restricted stock and options vest with an equivalent amount added to additional paid-in capital. Changes to forfeiture assumptions are based on actual experience and are recorded in accordance with the rules related to accounting for changes in estimates. The fair value of nonvested shares for grants is determined based on the closing trading price of our shares on the grant date.
The following tables summarize share-based compensation expense for the three months ended March 31, 2013 and 2012:
Three Months Ended March 31, |
||||||||
2013 | 2012 | |||||||
Nature of Award: |
||||||||
Restricted stock |
$ | 425 | $ | 695 | ||||
RSUs |
148 | 149 | ||||||
|
|
|
|
|||||
Total share-based compensation expense |
$ | 573 | $ | 844 | ||||
|
|
|
|
9
Three Months Ended March 31, |
||||||||
2013 | 2012 | |||||||
Classification of Compensation Expense: |
||||||||
Cost of services: |
||||||||
Production and operations |
$ | 58 | $ | 55 | ||||
Other expenses: |
||||||||
Selling, general and administrative |
515 | 789 | ||||||
|
|
|
|
|||||
Total share-based compensation expense |
$ | 573 | $ | 844 | ||||
|
|
|
|
Stock Options
A summary of the status of the options granted under our stock incentive plans as of March 31, 2013 and the changes in options outstanding during the three months then ended is as follows:
Options |
Shares | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term (Yrs.) |
Aggregate Intrinsic Value |
||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Outstanding at beginning of period |
250 | $ | 12.65 | |||||||||||||
Granted |
| | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited |
| | ||||||||||||||
Expired |
| | ||||||||||||||
|
|
|
|
|||||||||||||
Outstanding at end of period |
250 | $ | 12.65 | 0.76 | $ | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Vested or expected to vest at end of period |
250 | $ | 12.65 | 0.76 | $ | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Exercisable at end of period |
250 | $ | 12.65 | 0.76 | $ | | ||||||||||
|
|
|
|
|
|
|
|
Additional information regarding options outstanding for all plans as of March 31, 2013 is as follows:
Options Outstanding | Options Exercisable | |||||||||||||||||||
Weighted | ||||||||||||||||||||
Average | Weighted | Weighted | ||||||||||||||||||
Remaining | Average | Average | ||||||||||||||||||
Number | Contractual | Exercise | Number | Exercise | ||||||||||||||||
Range of Exercise Prices |
Outstanding | Term (Yrs.) | Price | Exercisable | Price | |||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||
$12.50 $12.50 |
125 | 0.72 | $ | 12.50 | 125 | $ | 12.50 | |||||||||||||
$12.80 $12.80 |
125 | 0.80 | 12.80 | 125 | 12.80 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
250 | 0.76 | $ | 12.65 | 250 | $ | 12.65 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
There were no options granted during the three months ended March 31, 2013 or 2012.
10
Restricted Stock
A summary of the status of our nonvested restricted shares as of March 31, 2013 and the changes in restricted shares outstanding during the three months then ended is as follows:
Three Months Ended March 31, 2013 |
||||||||
Shares | Weighted Average Grant-Date Fair Value |
|||||||
(in thousands) | ||||||||
Nonvested at beginning of period |
672 | $ | 7.01 | |||||
Granted |
| | ||||||
Vested |
(213 | ) | 7.26 | |||||
Forfeited |
(6 | ) | 7.66 | |||||
|
|
|
|
|||||
Nonvested at end of period |
453 | $ | 6.90 | |||||
|
|
|
|
During the three months ended March 31, 2013 and 2012, no shares and 412,000 shares were issued, respectively, of restricted stock to employees while 6,000 and 16,000 shares, respectively, of restricted stock were forfeited due to employee turnover.
Restricted Stock Units
A summary of the status of our RSUs as of March 31, 2013 and the changes in RSUs outstanding during the three months then ended is as follows:
Number
of Restricted Stock Units |
Weighted Average Grant-Date Fair Value |
|||||||
(in thousands) | ||||||||
RSUs outstanding at beginning of period |
127 | $ | 5.76 | |||||
Granted |
| | ||||||
Vested |
| | ||||||
Forfeited |
| | ||||||
|
|
|
|
|||||
Nonvested at end of period |
127 | $ | 5.76 | |||||
|
|
|
|
As of March 31, 2013, the settlement of two grants totaling 34,418 RSUs were deferred at the election of its holder.
Expense to be Recognized
Expense associated with our share-based compensation plans yet to be recognized as compensation expense over the employees remaining requisite service periods as of March 31, 2013 are as follows:
Expense Yet to be Recognized |
Weighted
Average Remaining Requisite Service Periods | |||||
Restricted stock |
$ | 2,636 | 1.9 years | |||
RSUs |
99 | 0.2 year | ||||
|
|
| ||||
Total |
$ | 2,735 | 1.8 years | |||
|
|
|
11
NOTE 3EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during each period, excluding unvested restricted stock. Diluted earnings (loss) per common share reflects the potential dilution of securities by including common stock equivalents, such as unvested restricted stock and stock units in the weighted average number of common shares outstanding for a period, if dilutive.
The following table sets forth a reconciliation of the basic and diluted number of weighted average shares outstanding used in the calculation of loss per share for the three months ended March 31 (in thousands):
2013 | 2012 | |||||||
Weighted average shares used to calculate basic loss per share |
25,351 | 25,021 | ||||||
Dilutive effect of potentially issuable common shares upon exercise of dilutive stock options, unvested restricted stock and stock units |
| | ||||||
|
|
|
|
|||||
Weighted average shares used to calculate diluted loss per share |
25,351 | 25,021 | ||||||
|
|
|
|
For both the three months ended March 31, 2013 and 2012, outstanding options to purchase a total of approximately 250,000 shares of common stock were not included in the calculation of diluted loss per share because their effect was antidilutive.
NOTE 4INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES
Assets recorded at fair value in the balance sheet as of March 31, 2013 are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and are as follows:
Level 1 | Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are directly or indirectly observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and |
Level 3 | Unobservable inputs developed using estimates and assumptions developed by management, which reflect those that a market participant would use. |
We measure the following financial assets at fair value on a recurring basis. The fair value of these financial assets was determined using the following inputs at March 31, 2013:
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
Cash and cash equivalents (1) |
$ | 26,294 | $ | 23,294 | $ | 3,000 | $ | | ||||||||
Investments in available-for-sale securities (2) |
24,924 | 5,999 | 18,925 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 51,218 | $ | 29,293 | $ | 21,925 | $ | | ||||||||
|
|
|
|
|
|
|
|
(1) | Cash and cash equivalents consist primarily of treasury bills, commercial paper and money market funds with original maturity dates of three months or less. For treasury bills and money market funds, we determine fair value through publicly available quoted market prices. For commercial paper, we determine fair value through third-party pricing sources using proprietary valuation models and other techniques that utilize market observable inputs. |
(2) | Investments in available-for-sale securities consist of treasury bills, commercial paper and tax-exempt government securities with original maturity dates in excess of three months, for which we determine fair value through quoted market prices (Level 1) or through observable inputs, such as quoted prices for similar assets in markets that are not active or other inputs that are directly or indirectly observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. For commercial paper with original maturity dates in excess of three months, we determine fair value through third-party pricing sources using proprietary valuation models and other techniques that utilize market observable inputs. |
At December 31, 2012, our investment portfolio included auction-rate securities classified as Level 3 investments, of $4.6 million which were sold in March 2013 at their December 31, 2012 carrying value. The Companys tax-exempt government securities which totaled $932 at March 31, 2013, are valued by outside professionals using proprietary valuation models and analytical tools in which all significant inputs related to similar instruments are observable or can be derived from or corroborated by publicly available observable market data for substantially the full term of the asset, and are therefore classified as Level 2 investments. Management is responsible for estimating the fair value of these investments, and in doing so, considers valuations provided by a large, independent pricing firm who maintains regular contact with market makers, brokers, dealers, and analysts to gather information on market movement, direction, trends, and other specific data. This information is used to structure yield curves for various types of securities and arrive at the daily valuations.
12
We consider the yields we recognize from cash held in our treasury bills, commercial paper, tax-exempt government securities and money market accounts to be interest income which are recorded in interest and other income, net for the three months ended March 31, 2013 and 2012 as follows:
Three Months Ended March 31, |
||||||||
2013 | 2012 | |||||||
Interest income |
$ | 30 | $ | 38 | ||||
Interest expense |
(15 | ) | (19 | ) | ||||
|
|
|
|
|||||
Total interest and other income, net |
$ | 15 | $ | 19 | ||||
|
|
|
|
NOTE 5GOODWILL AND INTANGIBLE ASSETS
We currently have three reporting units, TOC, Production Services and Aerial Cameras. The Production Services reporting unit consists solely of our Winnercomm business and the Aerial Cameras reporting unit consists of our CableCam and SkyCam businesses which were acquired on January 12, 2009. All of our goodwill is attributed to our TOC reporting unit.
We review goodwill for impairment on an annual basis during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Current accounting guidance permits entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a two-step goodwill impairment test. Our annual goodwill impairment test was conducted in the fourth quarter of 2012 and we concluded that there was no impairment of our goodwill as of October 1, 2012. After reaching this conclusion, no further testing was performed. The qualitative factors we considered included, but were not limited to, the proposed merger discussed in Note 13, general economic conditions, the industry outlook, our recent and forecasted financial performance and the price of our common stock.
Intangible assets that are subject to amortization consist of the following as of March 31, 2013:
Gross | Accumulated Amortization |
Net | ||||||||||
Trademark |
$ | 219 | $ | 219 | $ | | ||||||
Internet domain names |
172 | 172 | | |||||||||
Customer relationships |
980 | 866 | 114 | |||||||||
Patents |
90 | 78 | 12 | |||||||||
|
|
|
|
|
|
|||||||
Total amortizable intangible assets |
$ | 1,461 | $ | 1,335 | $ | 126 | ||||||
|
|
|
|
|
|
As of March 31, 2013, the weighted average amortization period for the above intangibles is 0.8 years. Based on our most recent analysis, we believe that no impairment exists at March 31, 2013 with respect to our goodwill and other intangible assets. For the three months ended March 31, 2013 and 2012, we recognized amortization expense related to the intangible assets of $44 and $55, respectively.
Estimated future amortization expense related to intangible assets at March 31, 2013 is as follows:
Years Ending December 31, |
Amount | |||
2013 (remaining 9 months) |
$ | 121 | ||
2014 |
5 | |||
|
|
|||
Total |
$ | 126 | ||
|
|
13
NOTE 6LINES OF CREDIT
On September 5, 2012, the Company renewed its revolving line of credit agreement (the Revolver) with U.S. Bank N.A., extending the maturity date to September 5, 2013 and renewing the total amount which can be drawn upon under the Revolver to $10,000. The Revolver provides that the interest rate per annum as selected by us shall be prime rate (3.25% as of March 31, 2013 and 2012) plus 0.25% or LIBOR (0.25% as of March 31, 2013 and 2012) plus 2.25%. The Revolver is unsecured. This credit facility contains customary financial and other covenants and restrictions, as amended, including a change of control provision and minimum liquidity metrics. As of March 31, 2013, we did not have any amounts outstanding under this credit facility. This Revolver is guaranteed by TOC. On May 8, 2013, the Revolver was amended to exclude merger related costs incurred in the three months ended March 31, 2013 from its covenant calculations and, based on this amendment, as of March 31, 2013 we were in full compliance with all the covenants of the Revolver.
NOTE 7ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses as of March 31, 2013 and December 31, 2012 consist of the following:
March 31, 2013 | December 31, 2012 | |||||||
Trade accounts payable |
$ | 3,103 | $ | 2,476 | ||||
Accrued compensation and related expenses |
2,352 | 3,769 | ||||||
Estimated make-good accrual |
650 | 797 | ||||||
Estimated most-favored nation accrual |
2,003 | 2,003 | ||||||
Accrued expenses |
5,331 | 5,098 | ||||||
|
|
|
|
|||||
Total |
$ | 13,439 | $ | 14,143 | ||||
|
|
|
|
NOTE 8INCOME TAX PROVISION
The income tax provision reflected in the accompanying unaudited condensed consolidated statement of operations for the three months ended March 31, 2013 and 2012 is different than that computed based on the applicable statutory Federal income tax rate of 34% primarily due to state taxes and the limitations on the deductibility of executive compensation as provided for in Internal Revenue Code Section 162(m).
The income tax benefit of $3.6 million for the three month period ended March 31, 2013 includes a $2.8 million deferred tax benefit related to the $7.6 million in merger related expenses incurred in the quarter. If the merger with KSE occurs, a portion of the merger expenses incurred to date might not be deductible for tax purposes. In such an event, upon closing the Company would incur a tax expense related to the non-deductible merger related expenses.
We file income tax returns in the United States and various state and local tax jurisdictions. We have state net operating losses and credit carryforwards that will be subject to examination beyond the year in which they are ultimately utilized. Our policy is to record interest and penalties on uncertain tax positions as income tax expense.
NOTE 9RELATED PARTY TRANSACTIONS
Through January 31, 2013, the date our lease expired, we leased our administrative facilities from Musk Ox Properties, LP, which in turn is owned by Thomas H. Massie, who is a principal stockholder and director of the Company. We paid Musk Ox Properties, LP, and recognized rent expense related to this lease, approximately $19 and $57 in the three months ended March 31, 2013 and 2012, respectively.
We continue to lease our former SkyCam facility from Case and Associates Properties, Inc., which in turn is partially owned by James E. Wilburn, Chairman of Winnercomm. The lease agreement has a ten year term expiring in May 2016. Monthly rent payments under this lease agreement were $41. We paid Case and Associates Properties, Inc., approximately $125 and $125 in the three months ended March 31, 2013 and 2012, respectively. We recognized rent expense related to this lease of $73 and $62 in the three months ended March 31, 2013 and 2012, respectively. We no longer occupy this facility and sub-leased this facility in April 2012.
In October 2010 we engaged WATV, LLC to produce one off-road motorsport series for a total contract value of $390. Roger L. Werner, our former Chief Executive Officer and current Co-Chairman, is a partner in WATV. In May 2012, we engaged WATV to produce a comedic series relating to outrageous outdoor stunts and pranks. During the three months ended March 31, 2013 and 2012, we paid WATV $0 and $9, respectively, related to the production of these series.
We license a program on a barter basis that is produced by Gold Prospectors Association of America, LLC (Gold Prospectors), an entity owned by Thomas H. Massie, who is a principal stockholder and director of the Company. The program airs during off-peak hours and the license period expires in December 2013. Under this license agreement we agreed to pay $50 in 2013 in exchange for increased commercial air time to be sold and retained by the Company. During the three months ended March 31, 2013 and 2012, we paid Gold Prospectors $0 and $25, respectively. The value of this barter arrangement is not considered material to our consolidated financial statements.
14
NOTE 10COMMITMENTS AND CONTINGENCIES
From time to time we are involved in litigation as both plaintiff and defendant arising in the ordinary course of business. In the opinion of management, the results of any pending litigation should not have a material adverse effect on our consolidated financial position or operating results.
We lease facilities and equipment, including access to satellites for television transmission, under non-cancelable operating leases. Generally, the most significant lease is our satellite lease. We also have operating leases for general office and production facilities in Tulsa, OK, New York City, Chicago, IL, Fort Worth, TX, Greenwich, CT and Santa Monica, CA. These leases expire at various dates through 2022.
Rental expenses, including satellite and transponder expense, equipment and facilities rent expense, aggregated to approximately $687 and $703 for the three months ended March 31, 2013 and 2012, respectively.
NOTE 11SEGMENT INFORMATION
We report segment information in the same format as reviewed by our chief operating decision maker in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our chief executive officer. In 2011, based on changes in how we monitor and measure our various businesses, we separated our aerial camera units, SkyCam and CableCam, into a separate segment. Previously, our aerial camera units were included in our Production Services segment. Accordingly, we now operate in three reporting segments: TOC, Production Services (which is comprised solely of Winnercomm) and our Aerial Cameras segment. TOC is a separate business activity that broadcasts television programming on the Outdoor Channel twenty-four hours a day, seven days a week. TOC generates revenue primarily from advertising fees (which include fees paid by outside producers to purchase advertising time in connection with the airing of their programs on Outdoor Channel) and subscriber fees. Production Services is a separate business activity that relates to the production, development and marketing of sports programming and providing website services. Production Services generates revenue from advertising fees, production services for customer-owned telecasts, and from website design, management, marketing and hosting services. Aerial Cameras generates revenue from aerial camera services for customer-owned telecasts and events.
Intersegment revenues were generated by Production Services of approximately $2,666 and $412 respectively, for the three months ended March 31, 2013 and 2012, and intersegment cost of services were generated by Production Services of approximately $2,549 and $382, respectively, for the three months ended March 31, 2013 and 2012. Our Aerial Cameras segment had no intersegment revenues or intersegment cost of services for the three months ended March 31, 2013 and 2012.
Information with respect to these reportable segments as of and for the three months ended March 31, 2013 and 2012 is as follows:
Revenues | Three Months
Ended March 31, |
|||||||
2013 | 2012 | |||||||
TOC |
$ | 14,670 | $ | 12,611 | ||||
Production Services |
3,369 | 1,017 | ||||||
Aerial Cameras |
1,489 | 1,105 | ||||||
Eliminations |
(2,666 | ) | (412 | ) | ||||
|
|
|
|
|||||
Total revenues |
$ | 16,862 | $ | 14,321 | ||||
|
|
|
|
Income (Loss) from Operations | Three Months Ended March 31, |
|||||||
2013 | 2012 | |||||||
TOC* |
$ | (8,860 | ) | $ | (931 | ) | ||
Production Services* |
79 | (381 | ) | |||||
Aerial Cameras* |
(751 | ) | (649 | ) | ||||
Eliminations |
(117 | ) | (30 | ) | ||||
|
|
|
|
|||||
Total loss from operations |
$ | (9,649 | ) | $ | (1,991 | ) | ||
|
|
|
|
15
Total Assets | March 31, 2013 |
December 31, 2012 |
||||||
TOC |
$ | 87,648 | $ | 82,451 | ||||
Production Services |
2,984 | 5,195 | ||||||
Aerial Cameras |
5,424 | 8,890 | ||||||
Corporate assets* |
45,785 | 53,522 | ||||||
Eliminations |
(484 | ) | (366 | ) | ||||
|
|
|
|
|||||
Total assets |
$ | 141,357 | $ | 149,692 | ||||
|
|
|
|
Three Months Ended March 31, |
||||||||
Depreciation and Amortization | 2013 | 2012 | ||||||
TOC |
$ | 337 | $ | 363 | ||||
Production Services |
120 | 132 | ||||||
Aerial Cameras |
330 | 237 | ||||||
|
|
|
|
|||||
Total depreciation and amortization |
$ | 787 | $ | 732 | ||||
|
|
|
|
* | Corporate overhead expenses consist primarily of executive, legal and administrative functions not associated directly with TOC, Production Services or Aerial Cameras. We allocate a portion of these expenses to our Production Services and Aerial Cameras segment, but the majority is captured in our TOC segment. Corporate assets consist primarily of cash not held in our operating accounts and available-for-sale securities. |
NOTE 12RECENT ACCOUNTING PRONOUNCEMENTS
In February 2013, the Financial Accounting Standards Board (FASB) issued an accounting standard update which requires disclosure of significant amounts reclassified out of accumulated other comprehensive income by component and their corresponding effect on the respective line items of net income when applicable or to cross-reference the reclassifications with other disclosures that provide additional detail about the reclassification made when the reclassifications are not made to net income. This guidance is effective for reporting periods beginning after December 15, 2012. During the three months ended March 31, 2013, the Company adopted this guidance and the adoption did not have a material impact on its consolidated financial statements since the Company did not have material reclassifications in any periods presented.
NOTE 13SUBSEQUENT EVENTS
On May 2, 2013, the Company amended its definitive merger agreement with KSE to increase the all-cash consideration for the Companys outstanding shares from $8.75 per share to $9.35 per share. On May 3, 2013 the Company received an all-cash offer from InterMedia Outdoors Holdings, LLC (InterMedia) for $9.75 per share under essentially the same terms and conditions as the proposed KSE merger. On May 8, 2013, the Company and KSE further amended the merger agreement to increase the all-cash consideration to $10.25 per share, to increase the break-up fee to $7.5 million and to amend the support agreement to require the directors and certain executive officers to vote in favor of the KSE merger, even if the Board determines an alternative proposal is superior. The merger transaction is subject to stockholder and other customary approvals.
Upon the consummation of the merger each of our shares of common stock issued and outstanding and any outstanding or unsettled restricted stock units immediately prior to the effective time of the KSE merger will be automatically converted into and thereafter represent the right to receive $10.25 in cash, without interest. The Company expects the KSE transaction, which is subject to stockholder approval, to be completed in the second quarter of 2013.
* * *
16
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
Safe Harbor Statement
We make statements in this report that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are necessarily based upon assumptions with respect to the future, involve risks and uncertainties, and are not guarantees of performance. These forward-looking statements represent our estimates and assumptions only as of the filing date of this report. We assume no obligation to update or revise any forward-looking statement as a result of new information, future events or other factors.
In this report, when we use words such as believes, expects, anticipates, intends, plans, estimates, may, will, would, could, should, potential, target, outlook, depends, pursue or similar expressions, or when we discuss our guidance, strategies, plans, goals, initiatives, objectives or intentions, we are making forward-looking statements.
These statements involve significant risks and uncertainties and are qualified by important factors that could cause our actual results and future actions to differ materially from those reflected in the forward-looking statements. Such factors include, but are not limited to, risks and uncertainties which are included in Item 1A. Risk Factors found in our latest Form 10-K and other risks and uncertainties discussed elsewhere in this report. We caution you not to rely unduly on any forward-looking statements. You should review and consider carefully the risks, uncertainties and other factors that affect our business as described in this report and in our Annual Report on Form 10-K and other reports that we file with the Securities and Exchange Commission.
Managements discussion and analysis of result of operations and financial condition is provided as a supplement to and should be read in conjunction with the unaudited condensed consolidated financial statements and related notes to enhance the understanding of our results of operations, financial condition and cash flows. Additional context can also be found in our 2012 Annual Report.
Significant components of managements discussion and analysis of results of operations and financial condition include:
| Overview and Strategy. The overview section provides a summary of our business. |
| Consolidated Results of Operations. The consolidated results of operations section provides an analysis of our results on a consolidated basis for the quarter ended March 31, 2013 compared to the quarter ended March 31, 2012. |
| Segment Results of Operations. The segment results of operations section provides an analysis of our results on a reportable operating segment basis for the quarter ended March 31, 2013 compared to the quarter ended March 31, 2012. |
| Liquidity and Capital Resources. The liquidity and capital resources section provides a discussion of our cash flows for the three months ended March 31, 2013 compared to the three months ended March 31, 2012. |
OVERVIEW AND STRATEGY
We operate in three reporting segments: TOC, Production Services and Aerial Cameras. Each of these operating segments has unique characteristics and faces different opportunities and challenges. An overview of our three operating segments follows.
Our core business, TOC, is engaged in the development, production and broadcast of traditional outdoor programming such as hunting, fishing and shooting sports. With hunting season being predominantly in the second half of the calendar year, the success of our hunting programming during this same time has been the main driver of our stronger financial performance in the second half of the year. We continue to broaden our programming offerings in the first half of the year in an attempt to improve our financial performance during that same period. Our fishing programming includes notable programs like Major League Fishing, which debuted on TOC in April 2012, Bassmasters, Madfin Shark Series, Spanish Fly and Zona. In January 2013, we launched Elite Tactical Unit, an elimination competition featuring real SWAT and law enforcement officers from across the county. The program garnered significant advertiser support. Overall, in addition to increasing revenue opportunities in the first half of the year, we believe this strategy will generate growth in our revenue from improving our program viewership ratings and increasing our distribution.
Our Production Services segment, which is made up entirely of our Winnercomm production entity, is closely aligned with our core focus on outdoor programming, but also produces scripted and live event sports television and provides website services to other third parties.
17
Our Aerial Cameras segment, which we acquired along with the purchase of Winnercomm in 2009, is the dominant U.S. provider of sports-related aerial filming services. In April 2012, we secured our first ever government project which we believe has the possibility to become an important new customer group that could help the segment become less seasonal. As we believe our Aerial Cameras segment is not strategically essential to our core outdoor business and will likely require significant capital investments to accelerate its growth, we continue to explore strategic alternatives for this business.
Recent Developments
On May 2, 2013, we entered into an amendment to the previously announced KSE merger agreement with Kroenke Sports & Entertainment, LLC, (KSE). The amendment increased the consideration payable to our stockholders under the merger agreement to $9.35 per share, in cash. Other than this increase in price, all other terms of the merger agreement with KSE remained the same.
On May 3, 2013, the Company received an all-cash offer from InterMedia Outdoors Holdings, LLC (InterMedia) for $9.75 per share under essentially the same terms and conditions as the proposed KSE merger.
On May 8, 2013, the Company and KSE further amended the merger agreement. This amendment supersedes the first amendment in its entirety. The amendment increased the all-cash consideration to $10.25 per share, increased the break-up fee to $7.5 million and required amending the support agreement to require the directors and certain executive officers to vote in favor of the KSE merger, even if the Board determines an alternative proposal is superior. The merger transaction is subject to stockholder approval and is expected to be completed in the second quarter of 2013.
Upon the consummation of the KSE merger, subject to the terms of the merger agreement, which has been unanimously approved by our Board of Directors, each of our shares of common stock issued and outstanding immediately prior to the effective time of the KSE merger will be automatically converted into and thereafter represent the right to receive $10.25 in cash, without interest. Upon completion of the merger, Outdoor Channel Holdings, Inc. will become an indirect wholly owned subsidiary of KSE and our shares will no longer be listed for trading on NASDAQ.
Outdoor Channel
Outdoor Channel is a national television network devoted primarily to traditional outdoor activities, such as hunting, fishing and shooting sports and other outdoor related lifestyle programming. TOC revenues consist primarily of advertising fees, including those from advertisements aired on Outdoor Channel and fees paid by third-party producers to purchase advertising time in connection with the airing of their programs on Outdoor Channel, and subscriber fees paid by cable, satellite and telephone company service providers that air Outdoor Channel.
Our advertising revenue for TOC consists of advertising bought on our cable network and advertising revenue related to ads placed on our website, outdoorchannel.com. Advertising revenues are generally driven by audience delivery, which in turn are determined by our subscriber base and the ratings our programs achieve in those homes. A portion of TOCs advertising contracts, primarily those with national non-endemic advertisers, typically guarantee the advertiser a minimum audience for its advertisements over the term of the contracts. This requires us to make estimates of the audience size that will be delivered throughout the terms of the contracts at the time we enter into such contracts. We base our estimate of audience size on our Nielsen ratings from prior years. If after running the advertising we determine we did not deliver the guaranteed audience, an accrual for make-good advertisements is recorded as a reduction of revenue, and we then provide the advertiser with additional advertising time to reach the aggregate minimum audience that we guaranteed and then recognize such revenue at that time. Any estimated make-good accrual is adjusted throughout the terms of the advertising contracts. The continued growth of our advertising revenues will, to a certain extent, be dependent on the growth of our audience viewing and subscriber base, as well as the general health of the advertising marketplace.
For March 2013, Nielsen estimated that Outdoor Channel had 39.1 million subscriber homes compared to 37.1 million for the same period a year ago, a 5% year-over-year increase. Nielsen revises its estimate of the number of subscribers to our channel each month and there is usually a lag of 2-3 months before Nielsen captures any new launches or tier migrations. For May 2013 Nielsens estimate increased to 39.8 million subscribers. Nielsen is the leading provider of television audience measurement and advertising information services worldwide, and its estimates and methodology are generally accepted and used in the advertising industry. Our May 2013 Nielsen estimate of 39.8 million subscribers is the highest Outdoor Channel has ever achieved. The estimate regarding Outdoor Channels subscriber base is made by Nielsen and is theirs alone, and does not represent our opinions, forecasts or predictions. It should not be implied that we endorse nor necessarily concur with such information, simply due to our reference to or distribution of their estimate. There can be no assurances that there will be any correlation between the actual growth or decline in our paying subscribers compared to Nielsens estimate of such growth or decline.
We continue to pursue subscriber growth by utilizing various incentives, including offering lower per-subscriber fees for broader distribution, payment of subscriber acquisition or launch support fees and TOC marketing dollars among other tactics. Any subscriber acquisition or launch support fees are capitalized and amortized over the period that the pay television distributor is required to carry the newly acquired TOC subscriber. To the extent revenue is associated with the incremental subscribers, the amortization is charged to offset the related revenue. Any excess of launch support amortization over the related subscriber fee revenue is charged to expense as other direct costs.
18
While we are 100% programmed in high-definition format (HD), our HD signal is only carried on a subset of our overall subscriber base. We currently have approximately 15.2 million HD subscriber homes, all of which are on cable or telephone systems. We are continuing our efforts to increase the carriage of our HD signal as we deem this to be an important competitive feature.
We have increased our programming expenditures in 2013 as we believe we need to invest in our programming brand given the increased viewing alternatives, including competitors with similar outdoor themed programming. Our advertising and marketing expense increased significantly in 2012 and we continue to increase these expenses during the first quarter of 2013 to support our increased programming investment and our recent and expected continued growth in subscribers. While we believe these investments in programming and marketing will help assure our long term growth, they may have a dampening effect on TOCs operating income in the near term.
Production Services
Production Services is comprised solely of our wholly owned subsidiary, Winnercomm, Inc., which is involved in the production, development and marketing of sports programming. Production Services revenues include revenues from sponsorship, sales representation fees on television advertising sold on behalf of client advertisers, revenues from production services for customer-owned telecasts, and revenue from website design, management, marketing and hosting fees.
Since our acquisition of Winnercomm in January 2009, we have been focused on eliminating Winnercomms low margin production and non-strategic business and returning the segment to profitability. This has resulted in a material reduction of the segments third-party revenues and gross profits. Our Winnercomm unit is increasingly being used to produce high quality programming for TOC, including Major League Fishing (MLF) and Elite Tactical Unit (ETU), the latter a new program that launched on TOC in January 2013.
Aerial Cameras
Our Aerial Cameras segment is comprised of our SkyCam and CableCam entities, which were acquired in connection with our Winnercomm acquisition in January 2009. These entities are engaged in providing aerial camera services for customer owned telecasts. Most of the segments revenues relate to professional and college football, but we also provide services, although to a much lesser extent, for other sports such as baseball, soccer and hockey and for special events such as concerts. We also hope to expand our business to other areas outside of football and sports in general, and in April 2012 we signed our first ever contract with a U.S. government prime contractor related to a U.S. military project, which we hope will become a new and growing customer group for us.
During 2011 our Aerial Cameras segment received a favorable jury verdict on our legal actions against ActionCam and its founder, a competitor to our aerial camera business which we initiated suit against in 2009 for misappropriation of trade secrets, breach of separation agreement and unfair competition. In late September 2012, the Court issued final orders in the matter upholding the jury award to SkyCam and further awarding SkyCam a royalty per each event covered by ActionCam from September 3, 2011 until February 28, 2013. On October 29, 2012, ActionCam and the former employee of SkyCam filed a motion for a new trial with the US District Court for the Northern District of Oklahoma. The judge has not yet issued a ruling with respect to the motion for a new trial. As of March 31, 2013 no amounts have been recorded related to this judgment.
As we believe our Aerial Cameras segment is not strategically essential to our core outdoor business and will likely require significant capital investments to accelerate its growth, we announced in June 2012 that we are exploring strategic alternatives for this business and that process is still ongoing.
Seasonality
All of our segments generate a higher proportion of their revenue and operating income in the second half of our fiscal year due to higher viewed hunting programming which coincides with the fall hunting season at TOC, hunting and sports related programming at our Production Services segment and to football driven revenues at our Aerial Cameras segment.
19
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us 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 materially differ from those estimates.
For further information regarding our critical accounting policies, judgments and estimates, please see Critical Accounting Policies and Estimates in Item 7 of our 2012 Annual Report.
CONSOLIDATED RESULTS OF OPERATIONS
Our consolidated results of operations are presented below for the quarter ended March 31, 2013 and 2012.
Comparison of Consolidated Operating Results for the Three Months Ended March 31, 2013 and March 31, 2012
The following table discloses certain financial information for the periods presented, expressed in terms of dollars, dollar change, percentage change and as a percent of total revenue (all dollar amounts are in thousands):
Change | % of Total Revenue | |||||||||||||||||||||||
2013 | 2012 | $ | % | 2013 | 2012 | |||||||||||||||||||
Revenues: |
||||||||||||||||||||||||
Advertising |
$ | 8,888 | $ | 7,435 | $ | 1,453 | 20 | % | 53 | % | 52 | % | ||||||||||||
Subscriber fees |
5,782 | 5,176 | 606 | 12 | 34 | 36 | ||||||||||||||||||
Production services |
2,192 | 1,710 | 482 | 28 | 13 | 12 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total revenues |
16,862 | 14,321 | 2,541 | 18 | 100 | 100 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cost of services: |
||||||||||||||||||||||||
Programming |
4,056 | 1,798 | 2,258 | 126 | 24 | 13 | ||||||||||||||||||
Satellite transmission fees |
438 | 429 | 9 | 2 | 3 | 3 | ||||||||||||||||||
Production and operations |
4,486 | 4,141 | 345 | 8 | 27 | 29 | ||||||||||||||||||
Other direct costs |
9 | 11 | (2 | ) | (18 | ) | | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total cost of services |
8,989 | 6,379 | 2,610 | 41 | 53 | 45 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other expenses: |
||||||||||||||||||||||||
Advertising |
1,704 | 648 | 1,056 | 163 | 10 | 5 | ||||||||||||||||||
Selling, general and administrative |
7,390 | 8,553 | (1,163 | ) | (14 | ) | 44 | 60 | ||||||||||||||||
Merger related expenses |
7,641 | | 7,641 | N/A | 45 | | ||||||||||||||||||
Depreciation and amortization |
787 | 732 | 55 | 8 | 5 | 5 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total other expenses |
17,522 | 9,933 | 7,589 | 76 | 104 | 69 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss from operations |
(9,649 | ) | (1,991 | ) | (7,658 | ) | 385 | (57 | ) | (14 | ) | |||||||||||||
Interest and other income, net |
15 | 19 | (4 | ) | (21 | ) | | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss before income taxes |
(9,634 | ) | (1,972 | ) | (7,662 | ) | 389 | (57 | ) | (14 | ) | |||||||||||||
Income tax benefit |
(3,569 | ) | (814 | ) | (2,755 | ) | 338 | (21 | ) | (6 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
$ | (6,065 | ) | $ | (1,158 | ) | $ | (4,907 | ) | 424 | % | (36 | )% | (8 | )% | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(percentages may not add due to rounding)
Revenues
Total revenues for the three months ended March 31, 2013 were $16.9 million, an increase of $2.5 million, or 18%, compared to revenues of $14.3 million for the three months ended March 31, 2012. The increase was due primarily to increases in our advertising revenue due to TOCs launch of Elite Tactical Unit (ETU) and a new season of Major League Fishing (MLF), which debuted in the second quarter 2012, an increase in TOCs subscriber fees revenue and higher revenue at our Aerial Cameras unit related to our government project which commenced in April 2012, all as discussed further in our segment results of operations below.
20
Cost of Services
Total cost of services for the three months ended March 31, 2013 were $9.0 million, an increase of $2.6 million, or 41%, compared to cost of services of $6.4 million for the three months ended March 31, 2012. The increase was primarily driven by higher production costs related to our ETU and MLF program launches at TOC and to costs associated with our government project at our Aerial Cameras unit, as further discussed in the segment results of operations below.
Other Expenses
Advertising expenses for the three months ended March 31, 2013 were $1.7 million, a 163% increase compared to $648,000 for the three months ended March 31, 2012, and were primarily due to increased cross channel advertising and promotional campaigns at TOC to support new subscriber and program launches, including ETU and MLF.
Selling, general and administrative (SG&A) expenses for the three months ended March 31, 2013 were $7.4 million, a 14% decrease compared to SG&A expenses of $8.6 million for the three months ended March 31, 2012. The decrease in SG&A was primarily due to prior year succession related expenses which did not reoccur in the current year at TOC, reduced payroll and compensation expense at our Production Services unit, as further discussed in the segment results of operations below.
Merger related expenses for the three months ended March 31, 2013 were $7.6 million and include a $6.5 million termination fee incurred and paid to InterMedia, for terminating the proposed merger on March 13, 2013, and to the subsequent merger with KSE.
Depreciation and amortization expense for the three months ended March 31, 2013 was $787,000, an 8% increase compared to depreciation and amortization expense of $732,000 for the three months ended March 31, 2012. The increase primarily relates to increased depreciation of new assets, as further discussed in the segment results of operations below.
Loss from Operations
Loss from operations for the three months ended March 31, 2013 was $9.6 million, an increased loss of $7.7 million compared to an operating loss of $2.0 million for the three months ended March 31, 2012. As discussed above and below in our segment results of operations, the increase in loss from operations was driven primarily by merger related expenses, increases in programming and advertising at TOC, an increased loss at our Aerial Cameras unit, net of a decreased Winnercomm loss.
Interest and Other Income, Net
Interest and other income, net for the three months ended March 31, 2013 was income of $15,000, a decrease of $4,000 compared to income of $19,000 for the three months ended March 31, 2012. The decrease was primarily due to lower cash and investment balances.
Loss Before Income Taxes
Resulting loss before income taxes was $9.6 million, a 389% increase compared to a loss before income taxes of $2.0 million for the three months ended March 31, 2012.
Income Tax Benefit
Income tax benefit for the three months ended March 31, 2013 was $3.6 million compared to $814,000 for the three months ended March 31, 2012. The income tax benefit reflected in the accompanying unaudited condensed consolidated statements of operations for the three months ended March 31, 2013 and 2012 is different than that computed income tax benefit based on the applicable statutory Federal income tax rate of 34% primarily due to state taxes and the limitations on the deductibility of executive compensation as provided for in Internal Revenue Code Section 162(m).
Net Loss
Net loss for the three months ended March 31, 2013 was $6.1 million, an increase of $4.9 million compared to a net loss of $1.2 million for the three months ended March 31, 2012.
21
SEGMENT RESULTS OF OPERATIONS
Transactions between reportable segments are accounted for as third-party arrangements for the purposes of presenting reporting segment results of operations below. Typical intersegment transactions include the purchase by our TOC segment of programs to air on Outdoor Channel and website design, management and maintenance services from our Production Services segment. Our Aerial Cameras segment has no intersegment transactions between our TOC or Production Services segments.
TOC
Comparison of Operating Results for the Three Months Ended March 31, 2013 and March 31, 2012
The following table discloses certain financial information for the periods presented, expressed in terms of dollars, dollar change and percentage change (all dollar amounts are in thousands):
Three Months Ended March 31, | ||||||||||||||||
Change | ||||||||||||||||
2013 | 2012 | $ | % | |||||||||||||
Revenues: |
||||||||||||||||
Advertising |
$ | 8,888 | $ | 7,435 | $ | 1,453 | 20 | % | ||||||||
Subscriber fees |
5,782 | 5,176 | 606 | 12 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
14,670 | 12,611 | 2,059 | 16 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cost of services: |
||||||||||||||||
Programming |
4,339 | 1,872 | 2,467 | 132 | ||||||||||||
Satellite transmission fees |
438 | 429 | 9 | 2 | ||||||||||||
Production and operations |
2,363 | 2,501 | (138 | ) | (6 | ) | ||||||||||
Other direct costs |
9 | 11 | (2 | ) | (18 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cost of services |
7,149 | 4,813 | 2,336 | 49 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other expenses: |
||||||||||||||||
Advertising |
1,704 | 648 | 1,056 | 163 | ||||||||||||
Selling, general and administrative |
6,699 | 7,718 | (1,019 | ) | (13 | ) | ||||||||||
Merger related expenses |
7,641 | | 7,641 | N/A | ||||||||||||
Depreciation and amortization |
337 | 363 | (26 | ) | (7 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other expenses |
16,381 | 8,729 | 7,652 | 88 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from operations |
$ | (8,860 | ) | $ | (931 | ) | $ | (7,929 | ) | 852 | % | |||||
|
|
|
|
|
|
|
|
(percentages may not add due to rounding)
Revenues
Advertising revenue for the three months ended March 31, 2013 was $8.9 million, an increase of $1.5 million, or 20%, compared to $7.4 million for the three months ended March 31, 2012. The increase in advertising revenue was due primarily to an increase in advertising and sponsorship revenues associated with the debut of our new ETU program and the airing of our MLF which did not air in the prior year period.
Subscriber fees for the three months ended March 31, 2013 were $5.8 million, an increase of $606,000, or 12%, compared to $5.2 million for the three months ended March 31, 2012. This increase in subscriber fees was primarily due to an increase in our subscribers and our annual rate increase in the per subscriber fees.
Cost of Services
Programming expenses for the three months ended March 31, 2013 were $4.3 million, an increase of $2.5 million, or 132%, compared to $1.9 million for the three months ended March 31, 2012. The increase was due primarily to the costs of our MLF and ETU programs, which are significantly more expensive than the 2012 time period programming they replaced and, to a lesser extent, due to approximately $125,000 in program write-downs during the quarter.
Satellite transmission fees for the three months ended March 31, 2013 were $438,000, essentially in line as compared to $429,000 for the three months ended March 31, 2012.
22
Production and operations costs for the three months ended March 31, 2013 were $2.4 million, a decrease of $138,000, or 6%, compared to $2.5 million for the three months ended March 31, 2012. The decrease in costs was driven primarily by succession related termination costs incurred in the first quarter 2012, partially offset by increased costs associated with our annual program awards event.
Other direct costs for the three months ended March 31, 2013 were $9,000, a decrease of $2,000, or 18%, compared to $11,000 for the three months ended March 31, 2012. This decrease was due primarily to a decrease in subscriber acquisition fees amortization.
Other Expenses
Advertising expenses for the three months ended March 31, 2013 were $1.7 million, an increase of $1.1 million, or 163%, compared to $648,000 for the three months ended March 31, 2012 due primarily to increased cross channel advertising and promotional campaigns to support recent new subscriber and new program launches, including ETU and MLF.
SG&A expenses for the three months ended March 31, 2013 were $6.7 million, a decrease of $1.0 million, or 13%, compared to $7.7 million for the three months ended March 31, 2012. The decrease relates primarily to compensation and related expenses associated with prior year succession related expenses which did not reoccur in the current year period partially offset by higher expenses associated with our annual marketing event and to reductions in one of our ratings service cost.
Merger related expenses for the three months ended March 31, 2013 were $7.6 million and consist primarily of the $6.5 million breakup fee paid to InterMedia for terminating that proposed merger on March 13, 2013 and legal expenses pursuing the InterMedia and, subsequently, the KSE merger.
Depreciation and amortization for the three months ended March 31, 2013 was $337,000, a decrease of $26,000, or 7%, compared to $363,000 for the three months ended March 31, 2012. The decrease in depreciation and amortization primarily relates to more assets becoming fully depreciated than new assets placed into service during the past twelve months.
Loss from Operations
Our resulting loss from operations for the three months ended March 31, 2013 was $8.9 million compared to an operating loss of $931,000 for the three months ended March 31, 2012. As discussed above, the increase in our loss from operations was driven primarily by merger related expenses, increased programming costs and advertising expenses partially offset by reduced SG&A expenses and increased advertising and subscriber fee revenue.
Production Services
Comparison of Operating Results for the Three Months Ended March 31, 2013 and March 31, 2012
The following table discloses certain financial information for the periods presented, expressed in terms of dollars, dollar change and percentage change (all dollar amounts are in thousands and are before intercompany eliminations):
Three Months Ended March 31, | ||||||||||||||||
Change | ||||||||||||||||
2013 | 2012 | $ | % | |||||||||||||
Revenues: |
||||||||||||||||
Production services |
$ | 3,369 | $ | 1,017 | $ | 2,352 | 231 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
3,369 | 1,017 | 2,352 | 231 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cost of services: |
||||||||||||||||
Production and operations |
2,960 | 967 | 1,993 | 206 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cost of services |
2,960 | 967 | 1,993 | 206 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other expenses: |
||||||||||||||||
Selling, general and administrative |
210 | 299 | (89 | ) | (30 | ) | ||||||||||
Depreciation and amortization |
120 | 132 | (12 | ) | (9 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other expenses |
330 | 431 | (101 | ) | (23 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from operations |
$ | 79 | $ | (381 | ) | $ | 460 | (121 | )% | |||||||
|
|
|
|
|
|
|
|
(percentages may not add due to rounding)
23
Revenues
Production services revenue for the three months ended March 31, 2013 was $3.4 million, an increase of $2.4 million, or 231%, as compared to $1.0 million for the three months ended March 31, 2012. The increase in revenue was due primarily to the completion and delivery of the new ETU program to TOC.
Cost of Services
Production and operations costs for the three months ended March 31, 2013 were $3.0 million, an increase of $2.0 million, or 206%, compared to $967,000 for the three months ended March 31, 2012. The increase in costs relates primarily to production costs associated with our new ETU program.
Other Expenses
SG&A expenses for the three months ended March 31, 2013 were $210,000, a decrease of $89,000, or 30%, compared to $299,000 for the three months ended March 31, 2012. The decrease relates primarily to a loss on disposal of fixed assets recognized in the prior year period that did not reoccur in the current year period and to reduced payroll and related compensation costs associated with changes in the allocation and reassignment of personnel in the current quarter as compared to the prior year quarter.
Depreciation and amortization for the three months ended March 31, 2013 was $120,000, a decrease of $12,000, or 9%, compared to $132,000 for the three months ended March 31, 2012. The decrease in depreciation and amortization primarily relates to fewer assets and more fixed assets becoming fully depreciated over the past year than depreciation on assets acquired in that same period.
Income (Loss) from Operations
Income (loss) from operations for the three months ended March 31, 2013 was an operating income of $79,000, an increase of $460,000 compared to an operating loss of $381,000 for the three months ended March 31, 2012. As discussed above, the increase in income from operations was due primarily to the delivery of the new ETU program combined with lower SG&A expenses.
Aerial Cameras
Comparison of Operating Results for the Three Months Ended March 31, 2013 and March 31, 2012
The following table discloses certain financial information for the periods presented, expressed in terms of dollars, dollar change and percentage change (all dollar amounts are in thousands):
Three Months Ended March 31, | ||||||||||||||||
Change | ||||||||||||||||
2013 | 2012 | $ | % | |||||||||||||
Revenues: |
||||||||||||||||
Production services |
$ | 1,489 | $ | 1,105 | $ | 384 | 35 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
1,489 | 1,105 | 384 | 35 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cost of services: |
||||||||||||||||
Production and operations |
1,429 | 981 | 448 | 46 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cost of services |
1,429 | 981 | 448 | 46 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other expenses: |
||||||||||||||||
Selling, general and administrative |
481 | 536 | (55 | ) | (10 | ) | ||||||||||
Depreciation and amortization |
330 | 237 | 93 | 39 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other expenses |
811 | 773 | 38 | 5 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from operations |
$ | (751 | ) | $ | (649 | ) | $ | (102 | ) | 16 | % | |||||
|
|
|
|
|
|
|
|
(percentages may not add due to rounding)
24
Revenues
Production services revenue from our aerial camera unit for the three months ended March 31, 2013 was $1.5 million, an increase of $384,000, or 35%, as compared to $1.1 million for the three months ended March 31, 2012. The increase was due primarily to increased revenues from our U.S. government project, which we commenced in April 2012, offset slightly by a reduction in the number of professional and collegiate sporting and other production events compared to the prior years quarter.
Cost of Services
Production and operations costs for the three months ended March 31, 2013 were $1.4 million, an increase of $448,000, or 46%, compared to $981,000 for the three months ended March 31, 2012. The increase in costs relates primarily to our U.S government development project.
Other Expenses
SG&A expenses for the three months ended March 31, 2013 were $481,000, a decrease of $55,000, or 10%, compared to $536,000 for the three months ended March 31, 2012. This decrease relates primarily to reduced legal fees related to the ActionCam litigation.
Depreciation and amortization for the three months ended March 31, 2013 was $330,000, an increase of $93,000, or 39%, compared to $237,000 for the three months ended March 31, 2012. The increase in depreciation and amortization primarily relates to depreciation of new camera systems acquired in the latter half of 2012.
Loss from Operations
Loss from operations for the three months ended March 31, 2013 was $751,000, an increase of $102,000 compared to an operating loss of $649,000 for the three months ended March 31, 2012. As discussed above, the increase in loss from operations was due primarily to increased depreciation as referenced above.
LIQUIDITY AND CAPITAL RESOURCES
We used $5.3 million of cash in our operating activities in the three months ended March 31, 2013, a decrease of $6.0 million compared to cash generated from operating activities of $647,000 in the three months ended March 31, 2012. The decrease was due primarily to merger related payments, including a $6.5 million termination fee to InterMedia, partially offset by lower income tax payments during the current year period.
Net cash provided by investing activities was $1.7 million in the three months ended March 31, 2013 compared to cash provided by investing activities of $1.3 million for the three months ended March 31, 2012. The increase in cash provided by investing activities related principally to net proceeds (sales, net of purchases) of short-term available-for-sale securities and our auction rate securities in the current quarter of $2.6 million compared to net proceeds (sales, net of purchases) of $1.9 million, partially offset by an increase in capital expenditures for fixed assets.
Cash used by financing activities was $619,000 in the three months ended March 31, 2013 compared to cash used of $547,000 in the three months ended March 31, 2012. The increase was related to the increase in cash used for the purchase and retirement of common stock as recipients of stock awards used stock to satisfy withholding taxes related to vesting of restricted shares.
On September 5, 2012, the Company renewed its revolving line of credit agreement (the Revolver) with U.S. Bank N.A., extending the maturity date to September 5, 2013 and renewing the total amount which can be drawn upon under the Revolver to $10,000. The Revolver provides that the interest rate per annum as selected by us shall be prime rate (3.25% as of March 31, 2013 and 2012) plus 0.25% or LIBOR (0.25% as of March 31, 2013 and 2012) plus 2.25%. The Revolver is unsecured. This credit facility contains customary financial and other covenants and restrictions, as amended, including a change of control provision and minimum liquidity metrics. As of March 31, 2013, we did not have any amounts outstanding under this credit facility. This Revolver is guaranteed by TOC. On May 8, 2013, the Revolver was amended to exclude merger related costs incurred during the first quarter of 2013 from its covenant calculations and, based on this amendment, as of March 31, 2013 we were in full compliance with all the covenants of the Revolver.
Our combined cash and cash equivalent and investment in available-for-sale securities balance was $51.2 million at March 31, 2013, a decrease of $2.2 million from the combined balance of $53.4 million at December 31, 2012. Net working capital decreased to $67.7 million at March 31, 2013, compared to $73.5 million at December 31, 2012. We believe that our combined cash and available-for-sale securities and our expected cash flow from operations will meet our short-term cash flow requirements and be sufficient to fund our operations at current levels and anticipated capital requirements through at least the next twelve months. To the extent that such amounts are insufficient to finance our working capital requirements or we desire to expand operations beyond current levels, we could draw on our Revolver or seek additional financing. There can be no assurance that equity or debt financing will be available if needed or, if available, will be on terms favorable to us.
25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
At December 31, 2012, our investment portfolio included auction-rate securities of $4.6 million which were sold in March 2013 at their December 31, 2012 carrying value. Due to the amount of our investment portfolio, an immediate 10% change in interest rates would have no material impact on our financial condition, operating results or cash flows.
We currently do not have significant transactions denominated in currencies other than U.S. dollars and as a result we currently have little to no foreign currency exchange rate risk. The effect of an immediate 10% change in foreign exchange rates would have no material impact on our financial condition, operating results or cash flows.
As of March 31, 2013 and as of the date of this report, we did not have any outstanding borrowings. The rate of interest on our line-of-credit is variable, but we currently have no outstanding balance under this credit facility. Because of these reasons, an immediate 10% change in interest rates would have no material, immediate impact on our financial condition, operating results or cash flows.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of disclosure controls and procedures. We maintain disclosure controls and procedures designed to provide reasonable assurance of achieving the objective that information in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified and pursuant to the regulations of the Securities and Exchange Commission. Disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act, include controls and procedures designed to ensure the information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. It should be noted that our system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2013, the end of the period covered by this report. Based on this evaluation, we have concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this report, to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported, completely and accurately, within the time periods specified in Securities and Exchange Commission rules and forms.
Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 1. | Legal Proceedings. |
Item 3. Legal Proceedings of our Form 10-K includes a discussion of our legal proceedings. Except as described below, there have been no material changes from the legal proceedings described in our 2012 Annual Report.
A complaint was filed on July 27, 2011, and amended on May 14, 2012, in the U.S. District Court, Northern District of Texas, by Plaintiff Ewell E. Parker, Jr. against Defendants Outdoor Channel Holdings, Inc., The Outdoor Channel, Inc. and a third party production company known as Reel In The Outdoors, Ltd. The complaint alleges contributory copyright infringement against Outdoor Channel Holdings, Inc. and The Outdoor Channel, Inc. and seeks aggregate general damages in excess of the jurisdictional limits including general, special, actual and statutory damages, in an amount indeterminable at this time plus fees, interest and expenses. Discovery in this matter is closed. The Court has ordered all parties to meet for the purpose of discussing settlement and to file a joint settlement conference status report by May 31, 2013. Thereafter, the parties will have until June 14, 2013 to complete a mediation conference with the selected mediator. The Court has ordered all parties to appear and meet in person. The Court has not set a trial date for this matter.
26
On January 2, 2013, a putative class action, entitled Hueneke v. Massie et al., No. MCC 130001, was filed against Outdoor Channel, the members of the Outdoor Channel Board, InterMedia Outdoor Holdings, LLC, InterMedia Outdoor Holdings, Inc., Outdoor Channel Sub and InterMedia Sub in the Superior Court of Riverside County, State of California. On February 4, 2013, a second putative class action, entitled Crockett v. Outdoor Channel Holdings, Inc., et al., No. MCC 1300140, was filed against the same defendants in the same court. Both actions challenged the InterMedia merger. The complaints allege that the board members engaged in an unfair process, agreed to unfair deal terms, and agreed to a price that allegedly fails to maximize value for stockholders. The complaints further allege that the other named defendants aided and abetted the purported breach of those fiduciary duties. The complaints seek various forms of relief, including injunctive relief that would, if granted, prevent the completion of the merger and an award of attorneys fees and expenses. Given the Companys announcement of the KSE merger agreement and the termination of the InterMedia merger agreement, we believe these specific lawsuits have, for all intents and purposes, been rendered moot. It is possible, however, that plaintiffs may seek to amend their complaints, or file new complaints.
On March 18, 2013, a third putative class action, entitled Feinstein v. Outdoor Channel Holdings, Inc., et al.,No. 8412, was filed against Outdoor Channel, the members the Outdoor Channel Board, KSE and Merger Sub in the Court of Chancery of the State of Delaware. That complaint was amended on March 28, 2013. The amended complaint purports to be brought on behalf of all the Outdoor Channel stockholders (excluding the defendants and their affiliates). The complaint alleges that the consideration in the merger agreement with KSE is inadequate and that the Outdoor Channel Board members breached their fiduciary duties by failing to undertake an adequate sales process and agreeing to preclusive deal protection devices. The amended complaint also asserts a breach of fiduciary duty claim based on alleged material omissions in Outdoor Channels proxy statement describing the KSE transaction. This action further alleges that the other named defendants aided and abetted the Outdoor Channel directors in their purported breach of those fiduciary duties. The amended complaint seeks various forms of relief, including injunctive relief to prevent the completion of the merger, and alternatively seeks damages arising from the alleged breach of fiduciary duties.
ITEM 1A. | Risk Factors. |
Item 1A. Risk Factors of our Form 10-K includes a discussion of our risk factors. There have been no material changes from the risk factors described in our 2012 Annual Report.
ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
None.
ITEM 3. | Defaults Upon Senior Securities. |
None.
ITEM 4. | Mine Safety Disclosures. |
None.
ITEM 5. | Other Information. |
None.
27
ITEM 6. | Exhibits. |
Exhibit Number |
Description | |
2.1 | Amendment No. 2 dated May 8, 2013 (filed as Exhibit 2.1 to the Companys Current Report on Form 8-K on May 9, 2013 and incorporated herein by reference) to that Agreement and Plan of Merger by and among Kroenke Sports & Entertainment, LLC, KSE Merger Sub, Inc., and Outdoor Channel Holdings, Inc. dated as of March 13, 2013 (filed as Exhibit 2.1 to the Companys Current Report on Form 8-K filed on March 13, 2013 and incorporated herein by reference). | |
2.2 | Amendment No. 1 dated May 2, 2013 (filed as Exhibit 2.1 to the Companys Current Report on Form 8-K on May 3, 2013 and incorporated herein by reference) to that Agreement and Plan of Merger by and among Kroenke Sports & Entertainment, LLC, KSE Merger Sub, Inc., and Outdoor Channel Holdings, Inc. dated as of March 13, 2013 (filed as Exhibit 2.1 to the Companys Current Report on Form 8-K filed on March 13, 2013 and incorporated herein by reference). | |
3.1 | Certificate of Incorporation of Outdoor Channel Holdings, Inc, a Delaware corporation (filed as Exhibit 3.1 to the Companys Current Report on Form 8-K filed on September 20, 2004 and incorporated herein by reference) | |
3.2 | By-Laws of Outdoor Channel Holdings, Inc., a Delaware corporation (filed as Exhibit 3.2 to the Companys Current Report on Form 8-K filed on September 20, 2004 and incorporated herein by reference) | |
4.1 | Instruments defining the rights of security holders, including debentures (see Exhibits 3.1 and 3.2 above and Exhibit 4.1 to the Companys Form 10-Q for the period ended June 30, 2005) | |
10.1 | Amendment No. 1 dated May 8, 2013 (filed as Exhibit 99.1 to the Companys Current Report on Form 8-K on May 9, 2013 and incorporated herein by reference) to Support Agreement dated as of March 13, 2013, by and among KSE, the Massie Parties and each of the directors and executive officers of Outdoor Channel (filed as Exhibit 99.1 to the Companys Current Report on Form 8-K filed on March 13, 2013 and incorporated herein by reference). | |
10.2 | Support Agreement dated as of March 13, 2013, by and among KSE, the Massie Parties and each of the directors and executive officers of Outdoor Channel (filed as Exhibit 99.1 to the Companys Current Report on Form 8-K filed on March 13, 2013 and incorporated herein by reference). | |
10.3 | Amendment to Revolving Credit Agreement and Note and related agreements by and between the Company and U.S. Bank N.A. dated as of May 8, 2013. | |
31.1 | Certification by Chief Executive Officer | |
31.2 | Certification by Chief Financial Officer | |
32.1* | Section 1350 Certification by Chief Executive Officer | |
32.2* | Section 1350 Certification by Chief Financial Officer | |
101** | The following financial information from the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at March 31, 2013 and December 31, 2012; (ii) Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2013 and 2012; (iii) Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2013 and 2012; (iv) Unaudited Condensed Consolidated Statement of Equity for the three months ended March 31, 2013; (v) Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012; and (vi) Notes to Unaudited Condensed Consolidated Financial Statements, tagged as blocks of text. |
* | Pursuant to Commission Release No. 33-8238, this certification will be treated as accompanying this Quarterly Report on Form 10-Q and not filed as part of such report for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of Section 18 of the Securities Exchange Act of 1934, as amended, and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference. |
** | Users of this data are advised that pursuant to Rule 406T of Regulation S-T, this XBRL information is being furnished and not filed herewith for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and Sections 11 or 12 of the Securities Act of 1933, as amended, and is not to be incorporated by reference into any filing, or part of any registration statement or prospectus, of Outdoor Channel Holdings, Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
OUTDOOR CHANNEL HOLDINGS, INC. |
/s/ Thomas D. Allen |
Thomas D. Allen |
Authorized Officer, Chief Financial Officer and Principal Accounting Officer |
Date: May 10, 2013 |
28
Exhibit 10.3
AMENDMENT TO REVOLVING CREDIT AGREEMENT AND NOTE
This AMENDMENT TO REVOLVING CREDIT AGREEMENT AND NOTE (this Amendment) is made as of May 8, 2013, by and between OUTDOOR CHANNEL HOLDINGS, INC., a Delaware corporation (Borrower) and U.S. BANK NATIONAL ASSOCIATION, a national banking association (Bank) with reference to the following facts:
RECITALS
A. Pursuant to a Revolving Credit Agreement and Revolving Credit Note (with Interest Rate Rider) each dated as of September 21, 2007, as amended by an Amendment to Loan Agreement and Note (with Interest Rate Rider) and an Addendum (the Addendum) to Amendment to Loan Agreement and Note, each dated as of September 14, 2009, and as further amended by an Amendment to Loan Agreement and Note dated as of September 1, 2010, and as further amended by an Amendment to Loan Agreement and Note dated as of August 29, 2012 (as such agreement may have been further amended, modified, supplemented, extended, restated, or replaced previously, collectively the Existing Agreement) by and between Bank and Borrower, Bank agreed to make extensions of credit to Borrower in the maximum original principal amount of $10,000,000.00 (the Loan).
B. Borrower and Bank desire to modify certain of the provisions of the Existing Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises contained in this Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Recitals and Definitions. The Recitals are hereby incorporated into this Amendment by this reference as if fully set forth herein. Capitalized terms not defined herein shall have the meanings given them in the Existing Agreement.
2. Modification of Fixed Charge Coverage Ratio Covenant. The definition of Fixed Charge Coverage Ratio in the Addendum is hereby amended and restated as follows:
Fixed Charge Coverage Ratio shall mean (a) net income, plus interest expense, plus rent expense, plus income tax expense, plus depreciation, plus amortization, plus charges related to non-cash stock-based compensation per the SFAS 123R requirement, plus a one-time expense of up to $7,640,959.00 of merger related expenses during the quarter ended March 31, 2013, minus cash taxes, cash dividends and Maintenance Capital Expenditures divided by (b) the sum of all required principal payments (on short and long term debt and capital leases), interest expense and rental or lease expense.
The remainder of the Fixed Charge Coverage Ratio Covenant as set forth in the Addendum shall remain the same.
3. Conditions Precedent. This Amendment shall become effective upon its execution by Borrower and Bank and the delivery by Borrower to Bank of such fully-executed Amendment.
AMENDMENT TO TERM LOAN AGREEMENT AND NOTE | page 2 |
4. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be an original with the same effect as if the signatures thereto and hereto were upon the same instrument.
5. Transferable Record. The Existing Agreement, as amended, is a transferable record as defined in applicable law relating to electronic transactions. Therefore, the holder of the Existing Agreement, as amended, may, on behalf of Borrower, create a microfilm or optical disk or other electronic image of the Existing Agreement, as amended, that is an authoritative copy as defined in such law. The holder of the Existing Agreement, as amended, may store the authoritative copy of such Existing Agreement, as amended, in its electronic form and then destroy the paper original as part of the holders normal business practices. The holder, on its own behalf, may control and transfer such authoritative copy as permitted by such law.
6. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of California.
7. Further Acts. Each party to this Amendment shall perform any further acts and sign and deliver any further documents and/or instruments that are reasonably necessary to carry out the provisions of this Amendment.
8. Effect of Modification. Except as expressly modified herein, the Existing Agreement and the other Loan Documents remain unmodified and in full force and effect. In the event of any conflict between the terms, conditions, and other provisions of the Existing Agreement and the other Loan Documents, on the one hand, and the terms, conditions, and other provisions of this Amendment, on the other hand, the terms, conditions, and other provisions of this Amendment shall prevail and control. All warranties and representations contained in the Existing Agreement and the other Loan Documents are hereby re-confirmed as of the date hereof. This is an amendment not a novation.
9. Successors and Assigns. This Amendment shall apply to, inure to the benefit of, and bind all parties hereto and their respective heirs, legatees, devisees, administrators, executors, successors, and assigns; provided, however, that Borrower may not assign or transfer its obligations hereunder without the prior written consent of Bank.
10. Headings. Section and subsection headings in this amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect.
11. Acknowledgments. Borrower hereby acknowledges and agrees: (a) that Banks execution and performance of this Amendment does not constitute a waiver or forgiveness of any default, event of default not now known to Bank, or which may hereafter arise under the Loan Documents: (b) that any course of dealing, !aches, estoppel, or waiver established by past forbearance or acquiescence shall not extend to any future defaults, events of default, and specifically that time is hereby reestablished as being of the essence with regard to all provisions of the Loan Documents; (c) that, except as expressly set forth herein or otherwise agreed to in writing by Bank, Banks execution and performance of this Amendment is not and shall not be construed as a waiver, release, amendment, or modification of or to any rights, remedies, or causes of action which Bank currently has or may hereafter acquire with respect to any obligations owed to Bank by Borrower under the Loan Documents, nor shall it be deemed an agreement to forbear from exercising any rights or remedies which Bank currently has or may hereafter acquire under the Loan Documents; (d) that no defenses, offsets, or counterclaims currently exist to the enforcement of any of the Loan Documents; (e) consent by
AMENDMENT TO TERM LOAN AGREEMENT AND NOTE | page 3 |
Bank to this Amendment does not waive Banks right to require strict performance of any and all of the Loan Documents; and (f) consent by Bank to this Amendment does not obligate Bank to make any future modifications to any of the Loan Documents.
12. Entire Agreement. This Amendment contains the entire agreement and understanding concerning the subject matter herein, and supersedes and replaces all prior negotiations and agreements among the parties hereto, or any of them, whether oral or written, and may not be modified or amended without the written consent of all the parties hereto.
IN WITNESS WHEREOF, the parties hereto have entered into this Amendment effective as of the date first written above.
Borrower: | OUTDOOR CHANNEL HOLDINGS, INC., | |||||
a Delaware corporation | ||||||
By: | /s/ Thomas D. Allen | |||||
Name: Thomas D. Allen | ||||||
Title: Executive V.P. COO/CFO | ||||||
Bank: | U.S. BANK NATIONAL ASSOCIATION, | |||||
a national banking association | ||||||
By: | /s/ Andrew P. Reed | |||||
Andrew P. Reed, Vice President |
CALIFORNIA JUDICIAL REFERENCE AGREEMENT
This California Judicial Reference Agreement (Agreement) is entered into in connection with any existing financing (other than consumer purpose financing) (Financing) provided by U.S. BANK NATIONAL ASSOCIATION, a national banking association (Bank) to OUTDOOR CHANNEL HOLDINGS, INC., a Delaware corporation (Borrower), evidenced, secured, and/or supported by one or more promissory notes, loan agreements, security agreements, mortgages/deeds of trust, guaranties, and/or other documents signed by the undersigned parties (said promissory note and such other agreements, together with amendments, modifications, substitutions, and replacements thereto, are hereinafter referred to as the Loan Documents.
For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto (collectively, the Parties) agree as follows:
1. Any and all disputes, claims, and controversies arising out of the Loan Documents or the transactions contemplated thereby (including, but not limited to, actions arising in contract or tort and any claims by a Party against Bank related in any way to the Financing) (individually, a Dispute) that are brought before a forum in which pre-dispute waivers of the right to trial by jury are invalid under applicable law shall be subject to the terms of this Agreement in lieu of the jury trial waivers otherwise provided in the Loan Documents.
2. Any and all Disputes shall be heard by a referee and resolved by judicial reference pursuant to California Code of Civil Procedure Sections 638 et seq.
3. The referee shall be a retired California state court judge or an attorney licensed to practice law in the State of California with at least ten (10) years experience practicing commercial law. The Parties shall not seek to appoint a referee that may be disqualified pursuant to California Code of Civil Procedure Section 641 or 641.2 without the prior written consent of all Parties.
4. If the Parties are unable to agree upon a referee within ten (10) calendar days after one Party serves a written notice of intent for judicial reference upon the other Party or Parties, then the referee will be selected by the court in accordance with California Code of Civil Procedure Section 640(b).
5. The referee shall render a written statement of decision and shall conduct the proceedings in accordance with the California Code of Civil Procedure, the Rules of Court, and California Evidence Code, except as otherwise specifically agreed by the Parties and approved by the referee. The referees statement of decision shall set forth findings of fact and conclusions of law. The decision of the referee shall be entered as a judgment in the court in accordance with the provisions of California Code of Civil Procedure Sections 644 and 645. The decision of the referee shall be appealable to the same extent and in the same manner that such decision would be appealable if rendered by a judge of the superior court.
6. Nothing in this Agreement shall be deemed to apply to or limit the right of Bank (a) to exercise self help remedies such as (but not limited to) setoff, or (b) to foreclose judicially or nonjudicially against any real or personal property collateral, or to exercise judicial or nonjudicial power of sale rights, (c) to obtain from a court provisions or ancillary remedies (including, but not limited to, injunctive relief, a writ of possession, prejudgment attachment, a protective order, or the appointment of a receiver), or (d) to pursue rights against a Party in a third-party proceeding in any action brought against Bank (including actions in bankruptcy court). Bank may exercise the rights set forth in the foregoing clauses (a) through (d), inclusive, before, during, or after the pendency of any judicial reference proceeding. Neither the exercise of self help remedies nor the institution or maintenance of an action for foreclosure or provisional or ancillary remedies or the opposition to any such provisional remedies shall constitute a waiver of the right of any Party, including, but not limited to, the claimant in any such action, to require submission to judicial reference the merits of the Dispute occasioning resort to such remedies. No provision in the Loan Documents regarding submission to jurisdiction and/or venue in any court is intended or shall be construed to be in derogation of the provisions in any Loan Document for judicial reference of any of Dispute.
7. If a Dispute includes multiple claims, some of which are found not subject to this Agreement, the Parties shall stay the proceedings or the Disputes or part or parts thereof not subject to this Agreement
CALIFORNIA JUDICIAL REFERENCE AGREEMENT
page 2
until all other Disputes or parts thereof are resolved in accordance with this Agreement. If there are Disputes by or against multiple parties, some of which are not subject to this agreement, the Parties shall sever the Disputes subject to this Agreement and resolve them in accordance with this Agreement.
8. During the pendency of any Dispute which is submitted to judicial reference in accordance with this Agreement, each of the Parties to such Dispute shall bear equal shares of the fees charged and costs incurred by the referee in performing the services described in this Agreement. The compensation of the referee shall not exceed the prevailing rate for like services. The prevailing Party shall be entitled to reasonable court costs and legal fees, including customary attorney fees, expert witness fees, paralegal fees, the fees of the referee, and other reasonable costs and disbursements charged to the Party by its counsel, in such amount as is determined by the referee.
9. In the event of any challenge to the legality or enforceability of this Agreement, the prevailing Party shall be entitled to recover the costs and expenses from the non-prevailing Party, including reasonable attorneys fees, incurred by it in connection therewith.
10. THIS AGREEMENT CONSTITUTES A REFERENCE AGREEMENT BETWEEN OR AMONG THE PARTIES WITHIN THE MEANING OF AND FOR PURPOSES OF CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 638.
Dated: May 8, 2013
BANK: | U.S. BANK NATIONAL ASSOCIATION, | |||||
a national banking association | ||||||
By: | /s/ Andrew P. Reed | |||||
Andrew P. Reed, Vice President | ||||||
BORROWER: | OUTDOOR CHANNEL HOLDINGS, INC., | |||||
a Delaware corporation | ||||||
By: | /s/ Thomas D. Allen | |||||
Name: Thomas D. Allen | ||||||
Title: Executive V.P. COO/CFO |
Exhibit 31.1
CERTIFICATION
I, Thomas E. Hornish, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Outdoor Channel Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 10, 2013 | /s/ Thomas E. Hornish | |||||
Thomas E. Hornish, Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Thomas D. Allen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Outdoor Channel Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 10, 2013 | /s/ Thomas D. Allen | |||||
Thomas D. Allen, Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Outdoor Channel Holdings, Inc. (the Company) on Form 10-Q for the quarter ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Thomas E. Hornish, Chief Executive Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Thomas E. Hornish |
Thomas E. Hornish |
Chief Executive Officer |
May 10, 2013 |
A signed original of this written statement required by Section 906 has been provided to Outdoor Channel Holdings, Inc. and will be retained by Outdoor Channel Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Outdoor Channel Holdings, Inc. (the Company) on Form 10-Q for the quarter ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Thomas D. Allen, Chief Financial Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Thomas D. Allen |
Thomas D. Allen |
Chief Financial Officer |
May 10, 2013 |
A signed original of this written statement required by Section 906 has been provided to Outdoor Channel Holdings, Inc. and will be retained by Outdoor Channel Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Investments in Available-for-Sale Securities (Details Textual) (USD $)
|
3 Months Ended |
---|---|
Mar. 31, 2013
|
|
Investments in Available-for-Sale Securities (Textual) [Abstract] | |
Short term investment maturity period | three months or less |
Available for sale securities maturity period | excess of three months |
Company's tax exempt government securities | $ 932,000 |
Auction Rate Securities [Member]
|
|
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] | |
Auction -rate securities, carrying value | $ 4,600,000 |
Stock Incentive Plans (Details 5) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended |
---|---|
Mar. 31, 2013
|
|
Expense associated with our share-based compensation plans yet to be recognized | |
Expense Yet to be Recognized | $ 2,735 |
Weighted Average Remaining Requisite Service Periods | 1 year 9 months 18 days |
Restricted stock [Member]
|
|
Expense associated with our share-based compensation plans yet to be recognized | |
Expense Yet to be Recognized | 2,636 |
Weighted Average Remaining Requisite Service Periods | 1 year 10 months 24 days |
RSUs [Member]
|
|
Expense associated with our share-based compensation plans yet to be recognized | |
Expense Yet to be Recognized | $ 99 |
Weighted Average Remaining Requisite Service Periods | 2 months 12 days |
GUS]:#Y\MXQE#4P,G^ED3
M943)6'<4;4H)O]_V+?[6)T6C_O&>_<1?!;Y2/[[CF>?OYP_GP=J?-/,GH\+-
M^>"\I@!G"4_PX/M6[MC&).E&X'FBF<'L_]CQJUUP,""?3>G?(TRU%U-Q%Q;\
MQ_2O/?4!QF5^4^LUT'%\Z-WR#][-NG8PKG`Y5I[=),VO?3?=.>9F;6*0D7 4X
M#P5>@+$2$I([&QBM<&*MX!J5_Q799Q@GE_\U?OM[H;$V5!Q)O-0KC!J>-$'<
MAQ@R SM3"5%[?9[*R!$5]D#AG0246]W]@"`%5;Q.'OIQGP"I??377PF6R/]_6JC
M5L!L0Y3)M&X(S.V`A(!>EKA_-S&I&=02[E/P7.^C7Z?ZCN?6=ZZL;4-P-`('
M@[DC[.G-KL8?\#2\DY?E_ BR+[74C.#>V5Z6S3ADHE;%;726U=,#5W*PLKTH)F./M8--EXW.$F[^H5=
MS62,XWE0UEW'>]F51DUP<6V_IXU/G]N?OAMG4=97, V1PZH>_=.::+)[7L`LDQ>E^1T2N?[*A^
M`+H
WH%?+A15.!L[P',!4XO5:,)QT/#KYX9AE`9YL7?!]\
MA453[43NJ5]?Y'`@LKSSMG4$:,=C'258,Y[N-'T,T#U=:`O=@<^)Q@!WU7[D
M'HE;3=)E2(ZFV[B%&+UY#39BGNQ"J&_AOR4;IN4[U,*&^N6,P0SL1&Z/XFBZ3_
MXX7Q>_KWUJ-[-??.'9G/*G'H;DZ^_0%;L'#$XU!Q^>@(K`F,X$8:RE9DL44'
M?K/IN?J*QVP2Z,+Y"S#EGAD3;"TU&,95TMG`($=;.D#L8IHAX[[`M"^XNN/4
M4!M,Q'Q:F2&ZC_G-[K5FGG->F>=(.MB.9C9OWL7F_`8+/N^3Q\C^`P%^?$:*
MSK99G?G]4\)(UG?/]=[>5[/Q&_$2S,['9^AMX%?DATM%)ZVB]TVV%*ZU:9,Y
M-];=<^<]YY5YCZS3;W^FT[BGRYTJ[+:UV^V,0>: .>G?J=@1*=Q(:NAP.3"-#M#G4B2@I."2),KO6);30:(P&HTEJ
M[WO(3CM3?_[`=AKV;W=2Y/LT^@/CL3>9$#1Q(W2#::3%7:YG?:%N;X9CGE>]
MX5!/_SGF9G&]N,&_L$F9P0@#WO(^IK/F>[EF#?T"$QHVP7%.Y^`4