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Outdoor Channel Holdings 10-Q 2007
UNITED
STATES Washington, D.C. 20549 FORM 10-Q/A (Amendment No. 1)
For the transition period from to Commission file number: 000-17287 Outdoor Channel Holdings, Inc. (Exact name of Registrant as specified in its charter)
43445 Business Park Drive, Suite 113 Temecula, California 92590 (Address and zip code of principal executive offices) (951) 699-4749 (Issuer’s 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 o 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):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
EXPLANATORY NOTE This amendment on Form 10-Q/A reflects the restatement of the unaudited condensed consolidated financial statements of Outdoor Channel Holdings, Inc. and Subsidiaries as of March 31, 2006 and December 31, 2005 and for the three months ended March 31, 2006 and 2005, as discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 2) and Note 11 to the unaudited condensed consolidated financial statements to reflect the effects of a revised estimate of the useful life of intangible assets attributable to MSO relationships recorded in connection with the September 8, 2004 acquisition of all of the outstanding shares of The Outdoor Channel, Inc. by Outdoor Channel Holdings, Inc. that it did not previously own. In addition, to provide more detail about our operating results and to more fully comply with the Securities and Exchange Commission’s (the “SEC”) Regulation S-X, we have modified our presentation of the unaudited condensed consolidated statements of operations , as discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 1 to the unaudited condensed consolidated financial statements, by reclassifying the amounts originally included under “expenses” in line items under either “cost of services” or “other expenses”. Further, to better match the other intangible assets with the segment to which they pertain, we have reclassified the amortizable intangible assets and the goodwill which were recorded in connection with the acquisition on September 8, 2004 along with the related amortization expense from “Corporate” to the “TOC” segment. Also, in accordance with SFAS 123R, we have presented on a prospective basis the tax benefits from exercise of stock options in excess of recognized expense as a cash flow from financing activities in the accompanying unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2006, rather than as a cash flow from operating activities. Certain other changes have been made in the historical unaudited condensed consolidated financial statements to conform with current presentations. All of the information in this Form 10-Q/A is as of May 10, 2006, the filing date of the original Form 10-Q for the quarter ended March 31, 2006, and has not been updated for events subsequent to that date other than for the effects of the matter discussed above. Unless otherwise indicated, the exhibits previously filed with the Form 10-Q are not filed herewith but are incorporated herein by reference. 2 OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES Quarterly Report on Form 10-Q/A Table of Contents
* * * 3 OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands, except per share data)
See Notes to Unaudited Condensed Consolidated Financial Statements. 4 OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Operations (In thousands, except per share data)
See Notes to Unaudited Condensed Consolidated Financial Statements. 5 OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES Unaudited Condensed Consolidated Statement of Stockholders’ Equity For the Three Months Ended March 31, 2006 (In thousands)
See notes to unaudited condensed consolidated financial statements. 6 OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Cash Flows (In thousands)
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 per share data) NOTE 1—ORGANIZATION AND BUSINESS Description of Operations Outdoor Channel Holdings, Inc. or “Outdoor Channel Holdings,” is incorporated under the laws of the State of Delaware. Collectively, with its subsidiaries, the terms “we,” “us,” “our” and the “Company” refer to Outdoor Channel Holdings, Inc. as a combined entity, except where noted or where the context makes clear the reference is only to Outdoor Channel Holdings, Inc. or one of our subsidiaries. The Company acquired the remaining 17.6% minority interest in our subsidiary, The Outdoor Channel, Inc. (“TOC”), which it did not previously hold, on September 8, 2004. TOC operates The Outdoor Channel, which is a national television network devoted to traditional outdoor activities, such as hunting, fishing and shooting sports, as well as off-road motor sports and other related lifestyle programming. TOC also operates Outdoor Channel 2 HD, which also is a national television network with similar programming as TOC’s but is produced and aired utilizing high definition technology. Our revenues include advertising fees from advertisements aired on The Outdoor Channel, including fees paid by outside producers to purchase advertising time in connection with the airing of their programs on The Outdoor Channel, and from advertisements in “Gold Prospectors & Treasure Hunters in the Great Outdoors” magazine; subscriber fees paid by cable and satellite service providers that air The Outdoor Channel; membership fees from members in both LDMA-AU, Inc. (“Lost Dutchman’s”) and Gold Prospector’s Association of America, LLC (“GPAA”) and other income including products and services related to gold prospecting, gold expositions, expeditions and outings. Other business activities consist of the promotion and sale of a gold prospecting expedition to our Cripple River property located near Nome, Alaska, and the sale of memberships in Lost Dutchman’s that entitle members to engage in gold prospecting on our Arizona, California, Colorado, Georgia, Michigan, North Carolina, Oregon, and South Carolina properties. We have signed an agreement with another organization for the mutual use of these and other properties. Outdoor Channel Holdings also wholly owns 43455 BPD, LLC that owns the building housing our broadcast facility. Restatement of 2006 and 2005 Financial Statements The accompanying unaudited condensed consolidated financial statements as of March 31, 2006 and December 31, 2005 and for the three months ended March 31, 2006 and 2005 and the related notes have been restated as further explained in Note 11. Reclassifications Certain amounts in the 2006 and 2005 unaudited condensed consolidated financial statements have been reclassified either to conform to the 2006 presentations or to provide additional detail about our operating results and more fully comply with the Securities and Exchange Commission’s Regulation S-X. In particular certain amounts included under “expenses” in the 2006 and 2005 unaudited condensed consolidated statements of operations we originally issued have been reclassified in line items under either “cost of services” or “other expenses”. Cost of services includes programming, satellite transmission fees, production and operations and other direct costs. Other expenses include advertising, selling, general and administrative and depreciation and amortization. Further, to better match intangible assets with the segment to which they pertain, we have reclassified the amortizable intangible assets and the goodwill which we recorded in connection with the acquisition on September 8, 2004 along with the related amortization expense from “Corporate” to the “TOC” segment. Also, in accordance with SFAS 123R, we have presented on a prospective basis the tax benefits from exercise of stock options in excess of recognized expense of $651 as a cash flow from financing activities in the accompanying unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2006, rather than as a cash flow from operating activities. Certain other changes have been made in the historical unaudited condensed consolidated financial statements to conform to current presentations. NOTE 2—UNAUDITED INTERIM FINANCIAL STATEMENTS 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, 2006 and its results of operations and cash flows for the three months ended March 31, 2006 and 2005. Information included in the consolidated balance sheet as of December 31, 2005 has been derived from, and certain terms used herein are defined in, the audited financial statements of the Company as of December 31, 2005 (the “Audited Financial Statements”) included in the Company’s Annual Report on Form 10-K (the “10-K”) for the year ended December 31, 2005 that was previously filed with the Securities and Exchange Commission (the “SEC”). Pursuant to the rules and regulations of the SEC, 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 8 financial statements unless significant changes have taken place since the end of the most recent fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Audited Financial Statements and the other information also included in the 10-K. The results of the Company’s operations for the three months ended March 31, 2006 are not necessarily indicative of the results of operations for the full year ending December 31, 2006. 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 amount of revenues and expenses for the periods presented. Accordingly, actual results could materially differ from those estimates. NOTE 3—STOCK INCENTIVE PLANS Effective January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”). We have elected to use the modified prospective transition method. This method requires compensation cost to be recognized in the financial statements over the service period for the fair value of all awards (including awards to employees) granted after the date of adoption as well as for existing awards for which the requisite service had not been rendered as of the date of adoption and requires that prior periods not be restated. Our stock incentive plans provide for the granting of qualified and nonqualified options, restricted stock and stock appreciation rights (“SARs”) to our officers, directors and employees. Outstanding options are generally exercisable from 90 days to four years after the date of the grant and expire no more than ten years after the grant. We satisfy the exercise of options and awards of restricted stock by issuing previously unissued common shares. Currently we have not awarded any SARs. Prior to the adoption of SFAS 123R, we used the intrinsic value method to account for stock options granted to employees and made no charges against earnings with respect to those options at the date of grant since our employee options had exercise prices that were equal to the market price, however, as explained in the 10-K, we did recognize a charge in the third quarter of 2004 when we issued fully-vested options to purchase shares in Outdoor Channel Holdings in exchange for fully-vested options held by employees of TOC on September 8, 2004. SFAS 123R requires that we elect an approved method to calculate the historical pool of windfall tax benefits upon adoption of SFAS 123R within one year of its adoption. As of March 31, 2006, we have not made that election. For the three months ended March 31, 2006, the adoption of SFAS 123R reduced income (loss) from operations by $713, reduced net income (loss) by $490 and reduced earnings (loss) per basic and diluted share by $0.02 and $0.02, respectively. Also, in accordance with SFAS 123R, we have presented on a prospective basis the tax benefits from exercise of stock options in excess of recognized expense of $651 as a cash flow from financing activities in the accompanying unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2006, rather than as a cash flow from operating activities, as was prescribed under accounting rules applicable through December 31, 2005. This requirement reduced the amount reflected as net cash provided by operating activities and net cash provided by financing activities for that period. Total cash flows remained unchanged from that which would have been reported under prior accounting rules. We recognize such benefits only if they have been realized which we determine by following the tax law method, which provides that current deductions are recognized before realizing the benefits of our net operating loss carry forwards. Tax benefits from the exercise of stock options in excess of recognized expense of $636 has been presented as a cash flow from operating activities for the three months ended March 31, 2005. The weighted average fair value of employee stock options granted by us in the three months ended March 31, 2006 was estimated to be $4.48 per share using the Black-Scholes option pricing model with the following assumptions:
Expected volatilities are based on historical volatility of the Company’s stock, and other factors. The Company uses historical experience with exercise and post-vesting employment termination behavior to determine the options’ expected life. The expected life represents the period of time that options granted are expected to be outstanding. The risk-free rate is based on the U.S. Treasury rate with a maturity date corresponding to the options’ expected life. 9 Our historical net income and earnings per common share and pro forma net income (loss) and earnings (loss) per common share assuming compensation cost had been determined for the three months ended March 31, 2005 based on the fair value instead of the intrinsic value at the grant date for all awards by us to our employees, using the Black-Scholes option pricing model consistent with the provisions of SFAS 123R, and amortized ratably over the vesting period, are set forth below:
The fair value of each option granted by us in the three months ended March 31, 2005 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
In accordance with the provisions of SFAS 123R, all other issuances of common stock, stock options, warrants or other equity instruments to employees and non-employees as the consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued (unless the fair value of the consideration received can be more reliably measured). Generally, the fair value of any options, warrants or similar equity instruments issued is estimated based on the Black-Scholes option-pricing model. NOTE 4—EARNINGS (LOSS) PER COMMON SHARE We have presented “basic” and “diluted” earnings (loss) per common share in the accompanying condensed consolidated statements of operations in accordance with the provisions of Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS 128”). 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. The calculation of diluted earnings (loss) per common share is similar to that of basic earnings per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares of the Company were issued during the period if any such issuances would have had a dilutive effect. For the three months ended March 31, 2006, the computation of diluted loss per common share does not take into account any of our outstanding stock options because the effect of their assumed exercise would be anti-dilutive. For the three months ended March 31, 2005, the computation of diluted earnings per common share takes into account the effects on the weighted average number of common shares outstanding of the assumed exercise of the outstanding stock options of the Company, adjusted for the application of the treasury stock method. The number of shares potentially issuable by the Company at March 31, 2006 and 2005 upon the exercise of stock options that were not included in the computation of net earnings (loss) per common share because they were anti-dilutive totaled 3,437 and 25, respectively. 10 The following table summarizes the calculation of net income (loss) and the weighted average common shares outstanding for basic and diluted earnings (loss) per common share for the three months ended March 31, 2006 and 2005:
NOTE 5—EQUITY TRANSACTIONS Issuances of Common Stock by the Company During the three months ended March 31, 2006 and 2005, we received cash proceeds of approximately $183 and $170 from the exercise of options for the purchase of 174 and 125 shares of common stock, respectively. During the three months ended March 31, 2006, a total of 6 shares of restricted stock have been cancelled due to employee turnover. As of March 31, 2006, we have 121 shares of restricted stock outstanding and $1,418 of expense, with respect to non-vested restricted stock awards, has yet to be recognized and will be amortized as compensation expense over the employees’ remaining requisite service periods. Outdoor Channel Holdings, Inc. Stock Option Plans Descriptions of Outdoor Channel Holdings’ stock option plans are included in Note 11 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. A summary of the status of the options granted under Outdoor Channel Holdings’ stock option plans and outside of those plans as of March 31, 2006 and the changes in options outstanding during the three months then ended is presented in the table that follows:
The weighted-average grant-date fair value of options granted during the three months ended March 31, 2006 was $4.48. The total intrinsic value of stock options exercised during the three months ended March 31, 2006 was $1,754. A summary of the status of Outdoor Channel Holdings’ non-vested restricted shares as of March 31, 2006 and the changes in restricted shares outstanding during the three months then ended is presented in the table that follows:
11 As of March 31, 2006, $7,589 of expense with respect to non-vested share-based arrangements has yet to be recognized which is expected to be recognized over a weighted average period of 1.9 years. NOTE 6—RELATED PARTY TRANSACTIONS We lease our administrative facilities from Musk Ox Properties, LP, which in turn is owned by Messrs. Perry T. Massie and Thomas H. Massie, principal stockholders, directors and officers of the Company. In December 2005, the lease agreements were consolidated into one lease. The new lease agreement has a five-year term, expiring on December 31, 2010, with 2 five-year renewal options at our discretion. Monthly rent payments are $29 with a 3% per year escalator clause. Rent expense paid to Musk Ox Properties, LP totaled approximately $87 and $63 in the three months ended March 31, 2006 and 2005, respectively. NOTE 7—SEGMENT INFORMATION Pursuant to the Provisions of Statement of Financial Accounting Standards No. 131, “Disclosures About Segments of an Enterprise and Related Information” (“SFAS 131”), we report segment information in the same format as reviewed by our Chief Operating Decision Maker (the “CODM”). We segregate our business activities into TOC and the Membership Division. TOC is a separate business activity that broadcasts television programming on The Outdoor Channel 24 hours a day, seven days a week. TOC generates revenue from advertising fees (which include fees paid by outside producers to purchase advertising time in connection with the airing of their programs on The Outdoor Channel) and subscriber fees. Lost Dutchman’s and GPAA membership sales and related activities are reported in the Membership Division. The Membership Division also includes magazine sales, the sale of products and services related to gold prospecting, gold expositions, expeditions and outings. Intersegment sales amounted to $149 in each of the three months ended March 31, 2006 and 2005. Information with respect to these reportable segments as of and for the three months ended March 31, 2006 and 2005 is as follows:
*We capture corporate overhead that is applicable to both segments, but not directly related to operations in a separate business unit, as “Corporate.” The expenses allocated to Corporate consisted primarily of: professional fees including public relations, accounting and legal fees, taxes associated with being incorporated in Delaware, board fees, and other corporate fees not associated directly with either TOC or the Membership division. Corporate assets consist primarily of cash not held in our operating accounts, available-for-sale securities, deferred tax assets, net and income tax refund receivable. In prior periods, essentially all of the amortizable intangible assets and goodwill were classified as Corporate. These amounts relate to, and have been reclassified as part of, the TOC segment. NOTE 8—INVESTMENT IN AVAILABLE-FOR-SALE SECURITIES The Company’s short term investments in marketable debt and equity securities are classified as available-for-sale and are recorded at fair value at the end of each period. Gross realized gains and losses on sales of these securities during the three months ended March 31, 2006 and 2005 and all amounts related to such investments prior to the three months ended March 12 31, 2006 and the year ended December 31, 2005 were not material. Also included in investments in available-for-sale securities at March 31, 2006 and December 31, 2005 are investments in commercial paper and auction rate securities with short-term interest rates that generally can be reset every 28 days. The auction rate securities have long-term maturity dates and provide us with enhanced yields. However, we believe we have the ability to quickly liquidate them at their original cost, although there is no guaranty, and, accordingly, they are carried at cost, which approximates fair value, and classified as current assets. All income generated from these investments is recorded as interest income. We had unrealized net holding gains on marketable equity securities at March 31, 2006 and December 31, 2005 of $48 and $36, respectively, that are in “accumulated other comprehensive income”. The investment in available-for-sale securities is as follows:
NOTE 9—INCOME TAX PROVISION The income tax provision reflected in the accompanying unaudited condensed consolidated statement of operations for the three months ended March 31, 2006 is different than that computed based on the applicable statutory Federal income tax rate of 34%. That portion of the current year SFAS 123R compensation expense relating to qualified incentive stock options, or ISOs, is recognized for financial statement purposes but is generally not deductible for tax purposes and thus is treated as a permanent difference between the two. We recognized a charge of $151,000 related to ISOs under SFAS 123R compensation expense. Because of this, and along with the effects of certain other income tax adjustments, we recorded positive taxable income resulting in income tax expense despite the financial statement loss. NOTE 10—SUBSEQUENT EVENTS We have two long-term loans and a line of credit with U.S. Bank N.A. (the “Bank”). Aggregate outstanding borrowings as of March 31, 2006 under the long-term loans were $4,717. We did not have any borrowings under the line of credit. These loans and the line of credit contain customary covenants including certain minimum profitability metrics measured at each quarter end including quarter profitability and trailing twelve months profitability. As of March 31, 2006, we did not meet some of these covenants and were in violation thereof. On May 9, we received notice from the Bank giving us a waiver of the covenant violation and a permanent amendment of the covenant to exclude non-cash stock based employee compensation expense in the profitability metrics. NOTE 11—RESTATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This Form 10-Q/A amends our previously filed Form 10-Q for the quarter ended March 31, 2006 to reflect adjustments to the unaudited condensed consolidated financial statements as of March 31, 2006 and December 31, 2005 and for the three months ended March 31, 2006 and 2005 arising from the effects of a reclassification of all of the amounts originally allocated to the cost of multi-system cable operator (“MSO”) relationships from other non-amortizable intangible assets to amortizable intangible assets and the determination that they have an estimated useful life of 21 years and 4 months. In addition, certain amounts included under “expenses” in the 2006 and 2005 unaudited condensed consolidated statements of operations we originally issued have been reclassified in line items under either “cost of services” or “other expenses” and certain intangible assets and the related amortization expense have been reclassified from “Corporate” to the “TOC” segment as explained in Note 1. Also, in accordance with SFAS 123R, we have presented on a prospective basis the tax benefits from exercise of stock options in excess of recognized expense of $651 as a cash flow from financing activities in the accompanying unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2006, rather than as a cash flow from operating activities. The adjustments to the 2006 and 2005 unaudited condensed consolidated financial statements are a result of a correction of the accounting treatment for the portion of the excess of the cost of the minority interest over the fair value of the underlying interest in the net identifiable assets acquired related to the acquisition of the remaining minority interest in The Outdoor Channel, Inc. (“TOC”) that we did not previously own on September 8, 2004 that was allocated to the MSO relationships. The adjustments were based on a review in the third quarter of 2006 of the facts and circumstances, the nature of our business, our experience with the MSOs and the proclivities of our industry as of September 8, 2004. The accompanying unaudited condensed consolidated financial statements and related notes thereto have been restated in comparison to those in our previously filed Form 10-Q for the quarter ended March 31, 2006 to reflect the effects of those adjustments as explained below: 13 THE EFFECTS ON THE CONDENSED CONSOLIDATED BALANCE SHEETS As a result of the restatement, our unaudited condensed consolidated balance sheet as of March 31, 2006 changed as follows:
As a result of the restatement, our condensed consolidated balance sheet as of December 31, 2005 changed as follows:
THE EFFECTS ON THE UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS As a result of the restatement, the unaudited condensed consolidated statements of operations for three months ended March 31, 2006 changed as follows:
As a result of the restatement, the unaudited condensed consolidated statements of operations for three months ended March 31, 2005 changed as follows:
14 THE EFFECTS ON THE UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY As a result of the restatement, the balance of the accumulated deficit as of January 1, 2006 was increased by $400 to $15,364 from $14,964 and the balance as of March 31, 2006 was increased by $475 to $15,521 from $15,046. THE EFFECTS ON THE UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS As a result of the restatement, the unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2006 changed as follows:
As a result of the restatement, the unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2005 changed as follows:
THE EFFECTS ON NOTE 3 — STOCK INCENTIVE PLANS The effects of the restatements on the historical and pro forma information in Note 3 are set forth below:
THE EFFECTS ON NOTE 4 — EARNINGS (LOSS) PER COMMON SHARE As a result of the restatement, net loss - basic for the three months ended March 31, 2006 was increased by $75 to ($157) from ($82) and net income-basic for the three months ended March 31, 2005 was decreased by $75 to $377 from $452. 15 THE EFFECTS ON NOTE 7 — SEGMENT INFORMATION As a result of the restatement, segment information for the three months ended March 31, 2006 changed as follows:
The changes in these balances were as follows:
As a result of the restatement, segment information for the three months ended March 31, 2005 changed as follows:
16 The changes in these balances were as follows:
* * * 17 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Safe Harbor Statement The information contained in this report may include forward-looking statements. Our actual results could differ materially from those discussed in any forward-looking statements. The statements contained in this report that are not historical are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements, without limitation, regarding our expectations, beliefs, intentions or strategies regarding the future. We intend that such forward-looking statements be subject to the safe-harbor provisions contained in those sections. Such forward-looking statements relate to, among other things: (1) increased subscriber growth; (2) expected revenue and earnings growth and changes in mix; (3) anticipated expenses including advertising, programming, personnel and others; (4) Nielsen Media Research, which we refer to as Nielsen, estimates regarding total households and cable and satellite homes subscribing to and viewers (ratings) of The Outdoor Channel; and (5) more control over our programming. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These statements involve significant risks and uncertainties and are qualified by important factors that could cause our actual results to differ materially from those reflected by the forward-looking statements. Such factors include but are not limited to risks and uncertainties which are included in Part II, Item 1A Risk Factors below and other risks and uncertainties discussed elsewhere in this report. In assessing forward-looking statements contained herein, readers are urged to read carefully all cautionary statements contained in this Form 10-Q/A and in our other filings with the Securities and Exchange Commission. For these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements in Section 27A of the Securities Act and Section 21E of the Exchange Act. Effects of Restatement This Form 10-Q/A amends our previously filed Form 10-Q for the quarter ended March 31, 2006 to reflect adjustments to the unaudited condensed consolidated financial statements as of March 31, 2006 and December 31, 2005 and for the three months ended March 31, 2006 and 2005, arising from the effects of a reclassification of all of the amounts originally allocated to the cost of MSO relationships from other non-amortizable intangible assets to amortizable intangible assets and the determination that they have an estimated useful life of 21 years and 4 months. In addition, certain amounts included under “expenses” in the 2006 and 2005 unaudited condensed consolidated financial statements we originally issued have been reclassified to either “cost of services” or “other expenses” to provide additional detail about our operating results and more fully comply with the Securities and Exchange Commission’s Regulation S-X Cost of services includes programming, satellite transmission fees, production and operations and other direct costs. Other expenses include advertising, selling, general and administrative and depreciation and amortization. Also, in accordance with SFAS 123R, we have presented on a prospective basis the tax benefits from exercise of stock options in excess of recognized expense of $651,000 as a cash flow from financing activities in the accompanying unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2006, rather than as a cash flow from operating activities. Further, to better match intangible assets with the segment to which they pertain, we have reclassified the amortizable intangible assets and the goodwill which we recorded in connection with the acquisition on September 8, 2004 along with the related amortization expense from “Corporate” to the “TOC” segment. Certain other changes have been made in the historical condensed consolidated financial statements to conform with current presentations. The adjustments to the 2006 and 2005 unaudited condensed consolidated financial statements are a result of a correction of the accounting treatment for the portion of the excess of the cost of the minority interest over the fair value of the underlying interest in the net identifiable assets acquired related to the acquisition of the remaining minority interest in The Outdoor Channel, Inc. (“TOC”) that we did not previously own on September 8, 2004 that was allocated to the MSO relationships. The adjustments were based on a review in the third quarter of 2006 of the facts and circumstances, the nature of our business, our expe | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||