Exhibit 99.1
Report of Independent Auditors
The Stockholders of
HOB Entertainment, Inc.
We have audited the accompanying consolidated balance sheet of HOB Entertainment, Inc. (a Delaware
corporation) and subsidiaries as of July 2, 2006, and the related consolidated statement of
income, common stockholders equity (deficit) and cash flows for the year then ended. These
financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. We were not engaged to
perform an audit of the Companys internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of HOB Entertainment, Inc. and subsidiaries as of July 2, 2006,
and the results of their operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Los
Angeles, California
October 30, 2006
1
HOB Entertainment, Inc. and Subsidiaries
Consolidated Balance Sheets
(Amounts in thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
July 2, |
|
|
October 1, |
|
|
|
2006 |
|
|
2006 |
|
|
|
|
|
|
|
(Unaudited) |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
37,106 |
|
|
$ |
20,930 |
|
Accounts receivable, net of allowance for doubtful accounts
of $303 at July 2, 2006 and $223 at October 1, 2006 |
|
|
16,216 |
|
|
|
16,713 |
|
Due from affiliates and employees |
|
|
2,458 |
|
|
|
1,781 |
|
Inventories |
|
|
2,333 |
|
|
|
2,411 |
|
Prepaid expenses and other current assets |
|
|
5,770 |
|
|
|
8,056 |
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
63,883 |
|
|
|
49,891 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
104,746 |
|
|
|
105,530 |
|
Investments in unconsolidated affiliates |
|
|
19,957 |
|
|
|
21,545 |
|
Goodwill |
|
|
81,838 |
|
|
|
81,838 |
|
Other
assets, net of accumulated amortization of $2,512 at July 2,
2006 and $2,711 at October 1, 2006 |
|
|
10,201 |
|
|
|
9,414 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
280,625 |
|
|
$ |
268,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
13,457 |
|
|
$ |
15,026 |
|
Accrued expenses and other current liabilities |
|
|
29,265 |
|
|
|
27,804 |
|
Current portion of long-term debt |
|
|
42 |
|
|
|
42 |
|
Deferred revenue |
|
|
43,063 |
|
|
|
25,915 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
85,827 |
|
|
|
68,787 |
|
|
|
|
|
|
|
|
|
|
Deferred revenue, net of current portion |
|
|
10,695 |
|
|
|
9,654 |
|
Long-term debt, net of current portion |
|
|
40,168 |
|
|
|
40,168 |
|
Deferred tax liabilities |
|
|
8,045 |
|
|
|
8,787 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
144,735 |
|
|
|
127,396 |
|
|
|
|
|
|
|
|
|
|
Commitment and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
3,149 |
|
|
|
3,297 |
|
|
|
|
|
|
|
|
|
|
Preferred stock, at cumulative liquidation preference |
|
|
45,703 |
|
|
|
47,085 |
|
|
|
|
|
|
|
|
|
|
Common stockholders equity: |
|
|
|
|
|
|
|
|
Common stock, $.001 par value; 200,000 shares authorized;
110,556 shares issued and outstanding |
|
|
111 |
|
|
|
111 |
|
Additional paid-in capital |
|
|
497,106 |
|
|
|
497,106 |
|
Accumulated deficit attributable to common stockholders |
|
|
(410,179 |
) |
|
|
(406,777 |
) |
|
|
|
|
|
|
|
Total common stockholders equity |
|
|
87,038 |
|
|
|
90,440 |
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
280,625 |
|
|
$ |
268,218 |
|
|
|
|
|
|
|
|
See accompanying notes.
2
HOB Entertainment, Inc. and Subsidiaries
Consolidated
Statements of Income
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Year Ended |
|
|
Ended |
|
|
Ended |
|
|
|
July 2, 2006 |
|
|
October 1, 2006 |
|
|
October 2, 2005 |
|
|
|
|
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Revenues |
|
$ |
368,775 |
|
|
$ |
119,151 |
|
|
$ |
120,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
335,576 |
|
|
|
105,875 |
|
|
|
112,395 |
|
General and administrative |
|
|
22,063 |
|
|
|
5,505 |
|
|
|
4,889 |
|
Depreciation and amortization |
|
|
9,669 |
|
|
|
2,197 |
|
|
|
2,234 |
|
Venue preopening costs |
|
|
83 |
|
|
|
7 |
|
|
|
226 |
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
1,384 |
|
|
|
5,567 |
|
|
|
1,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
506 |
|
|
|
316 |
|
|
|
175 |
|
Interest expense |
|
|
(6,063 |
) |
|
|
(1,421 |
) |
|
|
(1,360 |
) |
Gain on sale of fixed assets by unconsolidated
affiliate |
|
|
7,174 |
|
|
|
|
|
|
|
|
|
Equity in net income of unconsolidated
affiliates |
|
|
3,946 |
|
|
|
1,550 |
|
|
|
2,342 |
|
Minority interest in consolidated affiliates |
|
|
612 |
|
|
|
(210 |
) |
|
|
144 |
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
|
7,559 |
|
|
|
5,802 |
|
|
|
2,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
(3,277 |
) |
|
|
(1,018 |
) |
|
|
(839 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,282 |
|
|
$ |
4,784 |
|
|
$ |
1,617 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
3
HOB Entertainment, Inc. and Subsidiaries
Consolidated Statements of Common Stockholders Equity (Deficit)
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Common |
|
|
Number |
|
Par |
|
Paid-in |
|
Accumulated |
|
Stockholders |
|
|
Of Shares |
|
Value |
|
Capital |
|
Deficit |
|
Equity |
|
|
|
Balance, July 3, 2005 |
|
|
110,600 |
|
|
$ |
111 |
|
|
$ |
497,150 |
|
|
$ |
(409,365 |
) |
|
$ |
87,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
5 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common
stock |
|
|
(58 |
) |
|
|
|
|
|
|
(58 |
) |
|
|
|
|
|
|
(58 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Class B
convertible preferred
stock into common |
|
|
9 |
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of preferred
stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,096 |
) |
|
|
(5,096 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,282 |
|
|
|
4,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 2, 2006 |
|
|
110,556 |
|
|
|
111 |
|
|
|
497,106 |
|
|
|
(410,179 |
) |
|
|
87,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of
preferred stock (unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,382 |
) |
|
|
(1,382 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,784 |
|
|
|
4,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 1, 2006
(unaudited) |
|
|
110,556 |
|
|
$ |
111 |
|
|
$ |
497,106 |
|
|
$ |
(406,777 |
) |
|
$ |
90,440 |
|
|
|
|
See accompanying notes.
4
HOB Entertainment, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Year Ended |
|
|
Ended |
|
|
Ended |
|
|
|
July 2, 2006 |
|
|
October 1, 2006 |
|
|
October 2, 2005 |
|
|
|
|
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,282 |
|
|
$ |
4,784 |
|
|
$ |
1,617 |
|
Adjustments to reconcile net income to net cash
provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
9,669 |
|
|
|
2,197 |
|
|
|
2,234 |
|
Amortization of debt issuance costs |
|
|
653 |
|
|
|
163 |
|
|
|
163 |
|
Gain on disposal of fixed assets by
unconsolidated affiliate |
|
|
(7,174 |
) |
|
|
|
|
|
|
|
|
Minority interest in consolidated affiliates |
|
|
(612 |
) |
|
|
210 |
|
|
|
(144 |
) |
Equity in net income of unconsolidated affiliates |
|
|
(3,946 |
) |
|
|
(1,550 |
) |
|
|
(2,342 |
) |
Deferred tax liabilities |
|
|
3,008 |
|
|
|
742 |
|
|
|
772 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable |
|
|
773 |
|
|
|
(535 |
) |
|
|
2,899 |
|
Decrease (increase) in due from affiliates and
employees |
|
|
(1,913 |
) |
|
|
676 |
|
|
|
187 |
|
Decrease (increase) in inventories |
|
|
42 |
|
|
|
(78 |
) |
|
|
(181 |
) |
Decrease (increase) in prepaid expenses and
other assets |
|
|
3,464 |
|
|
|
(1,864 |
) |
|
|
2,139 |
|
Increase (decrease) in accounts payable |
|
|
(2,140 |
) |
|
|
1,569 |
|
|
|
(1,972 |
) |
Increase (decrease) in accrued expenses and
other current liabilities |
|
|
(3,330 |
) |
|
|
(1,460 |
) |
|
|
426 |
|
Decrease in deferred revenue |
|
|
(2,052 |
) |
|
|
(18,172 |
) |
|
|
(19,265 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
724 |
|
|
|
(13,318 |
) |
|
|
(13,467 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from disposal of fixed assets by
unconsolidated affiliate, net |
|
|
10,291 |
|
|
|
|
|
|
|
|
|
Additions to property and equipment |
|
|
(12,255 |
) |
|
|
(2,796 |
) |
|
|
(1,829 |
) |
Cash received from unconsolidated affiliates |
|
|
3,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
1,562 |
|
|
|
(2,796 |
) |
|
|
(1,829 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock |
|
|
5 |
|
|
|
|
|
|
|
|
|
Repurchase of common stock |
|
|
(58 |
) |
|
|
|
|
|
|
|
|
Distributions to minority interests |
|
|
(183 |
) |
|
|
(62 |
) |
|
|
(62 |
) |
Debt repayments |
|
|
(75 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(311 |
) |
|
|
(62 |
) |
|
|
(62 |
) |
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
1,975 |
|
|
|
(16,176 |
) |
|
|
(15,358 |
) |
Cash and cash equivalents, beginning of period |
|
|
35,131 |
|
|
|
37,106 |
|
|
|
35,131 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
37,106 |
|
|
$ |
20,930 |
|
|
$ |
19,773 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
5
HOB Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
July 2, 2006
(Information as of October 1, 2006 and for the three months ended October 1, 2006 and October 2,
2005 is unaudited)
(Amounts in thousands except per share data)
1. Business, Organization and Business Risks
Business and Organization
HOB Entertainment, Inc. (the Company), a Delaware corporation, is a leading live music
entertainment company which operates ten House of Blues® clubs, eight amphitheatre concert venues
and one theatre concert venue, has booking arrangements with 12 other amphitheatre, arena, theatre
and club concert venues, and operates certain other complementary businesses.
The Company opened House of Blues® clubs which integrate a live music hall, restaurant, bar and
specialty retail store in Cambridge (1992), New Orleans (1994), Los Angeles (1994), Chicago (1996),
Myrtle Beach (1997), Orlando (1997), Las Vegas (1999), Anaheim (2001), Cleveland (November 2004),
San Diego (May 2005) and Atlantic City (July 2005). The Cambridge club was sold in October 2003.
On September 10, 1999, the Company acquired Universal Concerts Inc. (UCI) from Universal Studios,
Inc. UCI changed its name to House of Blues Concerts, Inc. (Concerts) following its acquisition.
Concerts is a leading venue operator, venue developer, promoter and producer of live music
entertainment. It owns, operates or has exclusive booking arrangements with over 20 premier music
venues in the United States and Canada, either solely or with a partner, and promotes live music
entertainment in third-party venues throughout North America.
Business Risks
The Company has incurred net losses in each year since its inception, other than its most recent
fiscal year. The Companys ability to conduct and expand its operations had been dependent on the
continued issuance of preferred and common stock and debt financing.
Fiscal Year
The Company operates on a 52/53-week accounting year, ending on the Sunday nearest to June 30 of
each year. The year ended July 2, 2006, was a 52-week fiscal year.
6
Principles of Consolidation
The consolidated financial statements include the accounts of all wholly owned, majority-owned and
controlled subsidiary companies and affiliates (see Note 3). All significant intercompany accounts
and transactions have been eliminated.
The Company uses the equity basis of accounting for investments in which it has an ownership
interest between 20% and 50%, and where the Company has the ability to exercise significant
influence but not control.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Preparation of Interim Financial Statements
The accompanying interim balance sheet as
of October 1, 2006, the statements of income and
statements of cash flows for the three months ended October 1, 2006 and October 2, 2005, and the
statement of common stockholders equity (deficit) for the three months ended October 1, 2006 are
unaudited. These unaudited interim financial statements have been prepared in accordance with
accounting principles generally accepted in the United States for interim information and, in the
opinion of management, include all adjustments (consisting of normal recurring accruals and
adjustments necessary for adoption of new accounting standards) necessary to present fairly the
results of the interim periods shown. Management believes that the disclosures made are adequate
to make the information presented not misleading. Due to seasonality and other factors, the
results for the interim periods are not necessarily indicative of results for the full year.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with original maturity dates of
three months or less and investments in money market funds to be cash equivalents. The fair market
value of the Companys cash equivalents approximated cost at July 2, 2006 and October 1, 2006.
7
Inventories
Inventories consist primarily of retail merchandise, food and beverages, and are stated at the
lower of cost determined on a first-in, first-out (FIFO) basis or market.
Prepaid Expenses
Prepaid expenses consist primarily of artist advances and other costs directly related to future
events. Such costs are charged to operations upon the occurrence of the related event.
Property and Equipment
Except for purchase accounting adjustments, property and equipment are stated at cost less
accumulated depreciation. Property and equipment acquired as part of an acquisition are
stated at estimated fair market value at the date of acquisition. Depreciation is
computed using the straight-line method over the estimated useful lives of the assets of 15 to 39
years for amphitheaters, buildings and art, and three to ten years for furniture, artifacts and
office and computer equipment. Leasehold improvements are amortized on a straight-line basis over
the lesser of the estimated useful lives of the improvements or the expected life of the lease.
Major renewals and betterments are capitalized, while maintenance and repairs, which do not
significantly improve or extend the lives of the respective assets, are expensed as incurred.
The cost and accumulated depreciation and amortization for property and equipment sold, retired or
otherwise disposed of are relieved from the accounts and resulting gains and losses are reflected
in the consolidated statements of income.
Goodwill and Other Assets
Goodwill represents the excess of the cost of the acquisition of UCI over the fair market value of
the identifiable net assets acquired. According to Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets, goodwill and intangible assets with
indefinite lives are not subject to amortization, but rather an annual assessment of impairment by
applying a fair-value-based test. Based on the Companys assessment, no impairment was recorded
during fiscal 2006 or during the three months ended October 1, 2006.
Trademarks are amortized over five years using the straight-line method. Other assets include debt
issuance costs, which are amortized using the effective-interest method over the term of the debt.
Long-Lived Assets
The Company accounts for long-lived assets under SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which requires that impaired long-lived assets be carried at the
lower of carrying amount or fair value and that an evaluation of an individual
8
property for possible impairment be performed whenever events or changes in circumstances indicate
that an impairment may have occurred.
The Company recorded a noncash charge of approximately $598 for the year ended July 2, 2006 related
to impairment charges for property and equipment relating to existing venues and construction in
progress incurred for potential future venue developments. These amounts are included in
depreciation and amortization expense. There were no similar charges for the three months ended
October 1, 2006 and October 2, 2005.
Preferred Stock Issued with Warrants or Common Stock
When the Company issues preferred stock with warrants or with common stock, it allocates the
proceeds from issuance between the securities based on the fair value of the warrants or common
stock on the date of issuance as determined by the Board of Directors.
Stock Options
Through
July 2, 2006, the Company accounted for the option plans under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, under which compensation cost is not recognized for
options issued at the market value of the common stock at the date of
the grant. Had compensation cost for the option plans been determined
consistent with SFAS No. 123R, Share-Based Payment
(SFAS No. 123R), the Companys net income or loss would have been decreased or increased
to the following pro forma amounts for the year ended July 2, 2006 and three months ended October 1, 2005:
|
|
|
|
|
|
|
|
|
|
|
July 2 |
|
October 2 |
|
|
2006 |
|
2005 |
|
|
|
|
|
|
|
(unaudited) |
Net income as reported |
|
$ |
4,282 |
|
|
$ |
1,617 |
|
Net income pro forma |
|
$ |
2,728 |
|
|
$ |
1,228 |
|
The
Company adopted SFAS No. 123R as of the fiscal year beginning July 3,
2006 and the adoption had no impact on the Companys results for
the three months ended October 1, 2006 as there were no new stock
option grants during that period.
The fair value of each option granted was estimated on the date of grant using the minimum-value
method with the following weighted-average assumptions for grants: risk-free interest rates of
approximately 4 6%, no volatility, expected lives of five years and no dividend payments. See
further discussion of stock options in Note 11.
Revenue Recognition
Admission revenue is recognized on the date of the performance. Cash received for advance ticket
sales is recorded as deferred revenue until the related event occurs. Revenue from food and
beverage operations at the venues is recognized upon delivery of goods and services to customers.
Merchandise revenue is recognized when goods are sold. Membership revenue is recognized on a
straight-line basis over the term of the membership.
The Company outsources certain admission ticket processing functions. The Company receives certain
advances or upfront payments upon entering into such agreements, which are initially
9
recorded as deferred revenue and are then recognized as revenue as they are earned over the terms
of the agreements.
Concerts outsources its food and beverage and merchandise operations to third-party concessionaires
and receives a percentage of the revenue generated.
In consideration for exclusive publicity rights granted at certain venues or events, the Company
receives sponsorship fees. Sponsorship fees that are not related to any single event are classified
as deferred revenue and are amortized on a straight-line basis over the term of the related
contract.
The Company recognizes barter revenue based on the fair value of goods exchanged. Barter revenue
was $1,459 for the year ended July 2, 2006 and $731 and $503 for the three months ended October 1,
2006 and October 2, 2005, respectively.
Advertising
Advertising costs are expensed as incurred. Advertising expenses included in operating expenses
were $16,209 for the year ended July 2, 2006 and $4,637 and $3,875 for the three months ended
October 1, 2006 and October 2, 2005, respectively.
Capitalized Interest
The Company capitalizes interest expense on construction expenses incurred during the construction
of new club venues. Interest costs of $0, $95 and $0 were capitalized out of total interest expense
of $6,063, $1,516 and $1,360 for the year ended July 2, 2006, the three months ended October 1,
2006 and the three months ended October 2, 2005, respectively.
Income Tax
The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes.
SFAS No. 109 specifies an asset and liability approach, which requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events, which have been
recognized in the Companys financial statements. In addition, SFAS No. 109 requires that deferred
tax assets be reduced by a valuation allowance if, based on the weight of available evidence, it is
more likely than not that some or all of the deferred tax asset will not be realized.
Deferred income taxes reflect the tax consequences on future years of temporary differences between
the tax basis of assets and liabilities and their financial reporting basis and the potential
benefits of certain tax carryforwards.
10
Comprehensive Income
Comprehensive income consists of two components, net income and other comprehensive income. Other
comprehensive income refers to revenue, expenses, gains and losses that, under generally accepted
accounting principles, are recorded as an element of stockholders equity but are excluded from net
income. For the year ended July 2, 2006 and the three months ended October 1, 2006 and October 2,
2005, and as of those dates, the Company had no items that were classified as other comprehensive
income.
Concentration and Seasonality
For the year ended July 2, 2006, and three months ended October 1, 2006 and October 2, 2005, one
vendor processed approximately 60%, 67% and 63%, respectively, of the Companys ticket sales
revenue. Management does not believe that this concentration poses a risk, as other vendors would
be available to provide this service on comparable terms.
Concerts operations and revenues are seasonal in nature, with higher revenue generated in the
second and third calendar quarters, as Concerts outdoor venues are primarily utilized during the
warmer months and generally do not generate significant revenue during the winter.
Business Interruption Insurance Recovery
The
consolidated statements of income include a $1,642 reduction in operating expenses for the
year ending July 2, 2006 from business interruption insurance recoveries related to Hurricane
Katrinas impact on the New Orleans club. The Company has filed a lawsuit against its insurance
company claiming additional amounts due, which are not accrued as of July 2, 2006 or October 1,
2006.
New Accounting Pronouncements
In December 2004, SFAS No. 123R, Share-Based Payment, was issued which sets accounting requirements
for share-based compensation to employees and requires companies to recognize in the income
statement the grant-date fair value of stock options and other equity-based compensation. The
Company adopted SFAS No. 123R as of the fiscal year beginning July 3, 2006, and adoption had no
impact on the Companys results of operations or financial
condition as the Company granted no new
stock options in the three months ended October 1, 2006.
In June 2005, the FASB ratified its consensus in EITF Issue 04-05, Determining Whether a General
Partner, or the General Partners as Group, Controls a Limited Partnership or Similar Entity When
the Limited Partners Have Certain Rights (Issue 04-5). The adoption of the provision of EITF 04-05
as of July 2, 2006 had no impact on the Companys results of operations or financial condition.
In January 2003, the FASB issued Interpretation No. 46 Consolidation of Variable Interest Entities
(FIN 46). This Interpretation addresses consolidation by business enterprises of certain variable
interest entities and the conditions under which they should be included in consolidated
11
financial statements. In December 2003, the FASB issued Interpretation No. 46R (FIN 46R), which
served to clarify guidance on FIN 46 and provided additional guidance
surrounding the application of FIN 46. The adoption of FIN 46 as of July 3, 2005 had no impact on
the consolidated financial statements.
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48). FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or expected to be taken in
a tax return. The Interpretation also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective in
fiscal years beginning after December 15, 2006. The provisions of FIN 48 are to be applied to all
tax positions upon initial adoption, with the cumulative effect adjustment reported as an
adjustment to the opening balance of retained earnings. We are currently evaluating the potential
impact, if any, that the adoption of FIN 48 will have on our consolidated financial statements.
3. Investments in Unconsolidated Affiliates
In September 1999, in connection with the acquisition of Concerts, the Company acquired a 50%
interest in House of Blues Concerts Canada, which owns and operates two facilities, and promotes
and produces live music events in Canada. The fair value of this interest exceeded the equity in
the underlying assets by $14,893 at the date of acquisition. The excess amounts were being
amortized on a straight-line basis over 20 years until the Company adopted SFAS No. 142 in fiscal
2002. No amortization was recorded during fiscal 2006 or the three months ended October 1, 2006 and
October 2, 2005. The Company accounts for its 50% interest under the equity method of accounting.
Summarized Financial Information
The following table sets forth certain condensed financial information representing 100% of House
of Blues Concerts Canada balances and not the Companys pro-rata share:
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2 |
|
October 1 |
|
October 2 |
|
|
2006 |
|
2006 |
|
2005 |
|
|
|
|
|
|
(unaudited) |
For the year ended July 2,
2006, three months ended
October 1, 2006 and three
months ended October 2, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
126,382 |
|
|
$ |
35,046 |
|
|
$ |
39,936 |
|
Operating income |
|
|
6,457 |
|
|
|
2,034 |
|
|
|
3,030 |
|
Net income |
|
|
5,613 |
|
|
|
2,034 |
|
|
|
3,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At July 2, 2006, October 1,
2006 and October 2, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
12,356 |
|
|
|
11,556 |
|
|
|
10,992 |
|
Noncurrent assets |
|
|
15,155 |
|
|
|
15,460 |
|
|
|
12,351 |
|
Current liabilities |
|
|
12,325 |
|
|
|
9,805 |
|
|
|
8,634 |
|
Noncurrent liabilities |
|
|
404 |
|
|
|
|
|
|
|
|
|
On March 1, 2006 Marina City Hotel Enterprises, LLC, a 44% owned unconsolidated affiliate, sold its
property and the Company received cash of $10,291, net of selling expenses of $1,127. The Company
recorded $3,117 as deferred revenue for the use of the Companys name on the hotel which was part
of the sold property, which will be recognized as revenue over the seven- year term of the related
license agreement. The remaining $7,174 was recognized as income when received, and is classified
in Other Income.
4. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following at July 2, 2006 and October
1, 2006:
|
|
|
|
|
|
|
|
|
|
|
July 2 |
|
October 1 |
|
|
2006 |
|
2006 |
|
|
|
|
| | | | |
(unaudited) |
Payroll-related costs |
|
$ |
8,748 |
|
|
$ |
6,705 |
|
Performance and talent |
|
|
2,528 |
|
|
|
2,908 |
|
Property, sales and other taxes |
|
|
3,085 |
|
|
|
3,320 |
|
Rent |
|
|
1,014 |
|
|
|
849 |
|
Other |
|
|
13,890 |
|
|
|
14,022 |
|
|
|
|
|
|
$ |
29,265 |
|
|
$ |
27,804 |
|
|
|
|
5. Property and Equipment
Property and equipment consist of the following at July 2, 2006 and October 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
July 2 |
|
October 1 |
|
|
2006 |
|
2006 |
|
|
|
|
|
| | | |
(unaudited) |
Land |
|
$ |
2,277 |
|
|
$ |
2,277 |
|
Building and leasehold improvements |
|
|
109,154 |
|
|
|
109,857 |
|
Art and artifacts |
|
|
3,341 |
|
|
|
3,339 |
|
Furniture and equipment |
|
|
8,376 |
|
|
|
8,425 |
|
Office equipment and computers |
|
|
9,060 |
|
|
|
9,322 |
|
Construction in progress |
|
|
11,675 |
|
|
|
13,151 |
|
|
|
|
|
|
|
143,883 |
|
|
|
146,371 |
|
Less accumulated depreciation and amortization |
|
|
(39,137 |
) |
|
|
(40,841 |
) |
|
|
|
|
|
$ |
104,746 |
|
|
$ |
105,530 |
|
|
|
|
13
6. Income Taxes
The provision for income taxes for the year ended July 2, 2006 and three months ended October 1,
2006 and October 2, 2005, resulted in a minimal current tax provision. The Company has historically
incurred book and tax losses, which had been fully reserved because of the uncertainty of their
realization. Accordingly, the Company recorded a valuation allowance equal to its net deferred tax
assets at July 2, 2006 and October 1, 2006. In addition, the Company has recorded a deferred tax
liability related to timing differences from its tax-deductible goodwill which cannot be offset
with its net deferred tax assets because of its indefinite-lived nature.
The provision for income taxes is comprised of the following for the year ended July 2, 2006, three
months ended October 1, 2006 and three months ended October 2, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2 |
|
October 1 |
|
October 2 |
|
|
2006 |
|
2006 |
|
2005 |
|
|
|
|
|
|
|
|
|
(unaudited) |
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
78 |
|
|
$ |
21 |
|
|
$ |
25 |
|
State and Foreign |
|
|
191 |
|
|
|
255 |
|
|
|
62 |
|
|
|
|
Total current provision |
|
|
269 |
|
|
|
276 |
|
|
|
87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
2,707 |
|
|
|
631 |
|
|
|
677 |
|
State and Foreign |
|
|
301 |
|
|
|
111 |
|
|
|
75 |
|
|
|
|
Total deferred provision |
|
|
3,008 |
|
|
|
742 |
|
|
|
752 |
|
|
|
|
Total income tax provision |
|
$ |
3,277 |
|
|
$ |
1,018 |
|
|
$ |
839 |
|
|
|
|
The reconciliation of the effective tax rate to the statutory United States federal tax rate is
summarized as follows for the year ended July 2, 2006 and three months ended October 1, 2006 and
October 2, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2 |
|
October 1 |
|
October 2 |
|
|
2006 |
|
2006 |
|
2005 |
|
|
|
|
|
|
|
|
|
(unaudited) |
Statutory federal rate |
|
|
34 |
% |
|
|
34 |
% |
|
|
34 |
% |
State and foreign taxes, net of federal tax effect |
|
|
10 |
|
|
|
5 |
|
|
|
2 |
|
Effect of valuation allowance, net |
|
|
(1 |
) |
|
|
(21 |
) |
|
|
(2 |
) |
|
|
|
Effective tax rate |
|
|
43 |
% |
|
|
18 |
% |
|
|
34 |
% |
|
|
|
14
The significant deferred tax assets and liabilities, as determined under the provisions of SFAS No.
109 are as follows at July 2, 2006 and October 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
July 2 |
|
October 1 |
|
|
2006 |
|
2006 |
|
|
|
|
|
|
|
|
|
(unaudited) |
Long-term deferred tax liability |
|
$ |
(8,045 |
) |
|
$ |
(8,787 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss carry forwards |
|
$ |
59,632 |
|
|
$ |
60,774 |
|
Other deferred tax assets, net |
|
|
14,195 |
|
|
|
12,551 |
|
|
|
|
|
|
|
73,827 |
|
|
|
73,325 |
|
Valuation allowance |
|
|
(73,827 |
) |
|
|
(73,325 |
) |
|
|
|
Net long-term deferred tax liability |
|
$ |
(8,045 |
) |
|
$ |
(8,787 |
) |
|
|
|
Deferred tax assets principally comprise deferred revenues and accrued liabilities and the deferred
tax liability relates to the temporary difference resulting from the amortization for tax purposes
of the goodwill established on the acquisition of Concerts.
The Company had approximately $173,610 and $10,091 in net operating loss carry forwards for federal
and California income tax purposes, respectively, at July 2,
2006 and approximately $172,545 and
$9,035, respectively, at October 1, 2006. The net operating loss carry forwards will expire in
fiscal years 2007 through 2024 if not previously utilized. In the event of certain changes in
ownership of the Company, as defined in the Internal Revenue Code, existing net operating loss
carry forwards may be subject to limitation.
7. Debt
Debt consists of the following at July 2, 2006 and October 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
July 2 |
|
October 1 |
|
|
2006 |
|
2006 |
|
|
|
|
|
|
|
|
|
(unaudited) |
Term loans (a) |
|
$ |
40,000 |
|
|
$ |
40,000 |
|
Other |
|
|
210 |
|
|
|
210 |
|
|
|
|
|
|
|
40,210 |
|
|
|
40,210 |
|
Less current maturities |
|
|
(42 |
) |
|
|
(42 |
) |
|
|
|
|
|
$ |
40,168 |
|
|
$ |
40,168 |
|
|
|
|
|
|
|
(a) |
|
Term loan collateralized by a second lien on substantially all of the Companys assets.
Interest at LIBOR plus 6.5% (or Base Rate plus 5.25%) is due quarterly. All principal is
due at maturity on March 18, 2009. |
The Company also has a $35,000 line of credit that is collateralized by a first lien on
substantially all of the Companys assets. Interest at LIBOR plus 3.0%-3.5% (or Base Rate plus
2.0%-2.5%) is due quarterly. This facility matures March 18, 2008. There have been no cash
15
draws on the new line of credit, and outstanding letters of credit were $6,133 at July 2, 2006 and
October 1, 2006, leaving a remaining availability of $28,867 as of those dates.
Financial covenants for the term loan and line of credit are the same, and require that the Company
maintain on a quarterly basis certain levels of fixed charge coverage ratios and leverage ratios as
defined in the agreement, as amended. Additional provisions under the facility, among other things,
have certain restrictions on capital expenditures and new venue development. The Company was in
compliance with its financial covenants at July 2, 2006 and October 1, 2006.
Principal payments due as of July 2, 2006 and October 1, 2006, are as follows:
|
|
|
|
|
Fiscal year ended: |
|
|
|
|
2007 |
|
$ |
42 |
|
2008 |
|
|
92 |
|
2009 |
|
|
40,056 |
|
2010 |
|
|
20 |
|
|
|
|
|
|
|
$ |
40,210 |
|
|
|
|
|
The fair value of the Companys long term debt approximates its carrying value.
8. Commitments and Contingencies
Litigation
A class action lawsuit was filed in January 2005 alleging violations of the California Labor Code
concerning the payment of wages of the Companys Los Angeles and Anaheim club venue employees. A
settlement was reached in September 2005 to which the Court granted final approval in May 2006. The
Company accrued $800 for this claim in the fiscal year ended July 3, 2005, with no additional
accruals in the fiscal year ended July 2, 2006 or three months ended October 1, 2006.
The Company and its subsidiaries are parties to various other legal proceedings arising in the
ordinary course of business. Management believes, based upon the advice of legal counsel
responsible for the review of such matters, that there is no proceeding, either threatened or
pending, against the Company or its subsidiaries that could result in a material adverse effect on
the results of operations or the financial condition of the Company.
Operating Lease Agreements
The Company has entered into various operating lease agreements for land and buildings for
entertainment venues and office space. Total rent expense for the year ended July 2, 2006, three
16
months ended October 1, 2006 and three months ended October 2, 2005, was $22,393, $5,879 and
$6,069, respectively.
Future minimum lease payments at July 2, 2006, relating to the Companys noncancelable operating
leases are as follows:
|
|
|
|
|
Fiscal year ended: |
|
|
|
|
2007 |
|
$ |
8,679 |
|
2008 |
|
|
8,453 |
|
2009 |
|
|
8,335 |
|
2010 |
|
|
7,187 |
|
2011 |
|
|
7,249 |
|
Thereafter |
|
|
73,195 |
|
|
|
|
|
|
|
$ |
113,098 |
|
|
|
|
|
Certain entertainment venue property leases require base and/or additional contingent rental
payments based upon a percentage of gross sales or contractually defined earnings. Certain property
leases have renewal options, which permit the Company to extend the basic lease for periods of five
to 30 years beyond the original terms.
9. Related Party Transactions
In August 2005 an agreement was reached with SilkHOB, LLC, (SilkHOB) an affiliate of a
shareholder and Director of the Company to provide advisory, promotional and marketing services to
the Companys Myrtle Beach club. The agreement provides in part that the Company will be
reimbursed for any Myrtle Beach net operating losses, as defined in the agreement, up to $3,000 for
the three years beginning July 2005. As a result, the Company had accrued an $884 receivable as of
July 2, 2006 and $910 as of October 1, 2006. During the term of the Myrtle Beach lease SilkHOB is
to receive 70% of the clubs net operating income as defined in the agreement, if any. SilkHOB
also has an option to take over the Myrtle Beach property as long as the Company is released from
obligations under the building lease, and has certain other House of Blues branded hotel and
Foundation Room development rights in Myrtle Beach. In addition, during the fiscal year ended July
2, 2006 a different affiliate of the same Company shareholder and Director purchased the real
estate containing the Myrtle Beach club, thereby becoming that clubs landlord, without any change
in the related lease. The Myrtle Beach club had operating losses during the year ended July 2,
2006, three months ended October 1, 2006 and three months ended October 2, 2005, and the Companys
Myrtle Beach fixed assets have a net book value of $0 as of July 2, 2006 and $24 as of October 1,
2006.
17
10. Preferred Stock and Common Stockholders Equity
Preferred Stock
Preferred stock consists of the following:
|
|
|
|
|
|
|
|
|
|
|
July 2 |
|
October 1 |
|
|
2006 |
|
2006 |
|
|
|
|
|
|
|
|
|
(unaudited) |
Redeemable 12% senior preferred stock, $0.001 par
value, 35 shares authorized, issued and
outstanding, with a liquidation preference of
$45,703 and $47,085 |
|
$ |
45,703 |
|
|
$ |
47,085 |
|
|
|
|
Total preferred stock |
|
$ |
45,703 |
|
|
$ |
47,085 |
|
|
|
|
12% Senior Preferred Stock
Holders of 12% senior preferred stock are entitled to cumulative dividends at the rate of 12% per
annum on the original purchase price of the shares, compounded quarterly. The dividend rate on the
12% senior preferred stock is subject to increase to as high as 20% in certain circumstances. All
dividends are to be paid out of assets legally available for distribution. No dividend payments can
be made until the entire balance of the Companys term loans and revolving line of credit have been
repaid.
The 12% senior preferred stock is redeemable at the option of the Company at any time, is
mandatorily redeemable upon the consummation of a qualified initial public offering and is
redeemable at the option of the holder in the event of a change of control (as defined in the
Companys certificate of incorporation), in each case at the original purchase price per share plus
accrued but unpaid dividends and the applicable redemption premium.
The Company increases the carrying amount of the 12% senior preferred stock by periodic accretions,
using the effective-interest method, such that the carrying amount of such shares equals the
liquidation preference plus accrued dividends at the end of each reporting period.
Other Rights
Certain holders of the common and preferred stock of the Company have registration rights, rights
of first refusal on disposition of shares by other holders and contractual preemptive rights.
Holders of preferred stock have limited voting rights.
Warrants and Options
In connection with various transactions, the Company has issued and outstanding as of July 2, 2006
and October 1, 2006, the following warrants and options (exclusive of the option plans described in
Note 11) to purchase shares of the Companys common stock.
18
|
|
|
|
|
|
|
|
|
|
|
Shares Outstanding |
|
|
July 2 |
|
October 1 |
Exercise Price Per Share |
|
2006 |
|
2006 |
|
|
|
|
|
|
|
(unaudited) |
$0.50 |
|
|
33 |
|
|
|
33 |
|
$7.29 |
|
|
165 |
|
|
|
165 |
|
$60.00-$250.00 |
|
|
40 |
|
|
|
40 |
|
|
|
|
|
|
|
238 |
|
|
|
238 |
|
|
|
|
These warrants and options generally expire 10 years from the date of grant.
11. Stock Option Plan
The Company adopted stock options plans (the Option Plans) during 1993, 2001 and 2004. The Option
Plans allow for a committee selected by the Board of Directors to grant stock options to certain
employees at a price not less than 100% of the fair value of the Companys common stock, as defined
by the Option Plans (incentive stock options), or issue nonqualified stock options pursuant to the
Option Plans. The Option Plans prescribe general terms for the exercise of options and option
periods subject to the condition that all options terminate not more than 10 years from the date of
grant. As of July 2, 2006, under the 2004 Plans 21,556 of 24,375 options had been granted. No
further grants are being made from the 1993 or 2001 Plans and 504 and 423 are outstanding as of
July 2, 2006 and October 1, 2006, respectively.
Options granted generally vest over four-year periods unless otherwise specified in the option
grant. In addition, options granted under the 2004 Performance Equity Incentive Plan are not
exercisable unless, among other criteria, a liquidity event, as defined, has occurred. There was no
liquidity event through October 1, 2006. Information regarding stock options awarded under the
Option Plans at July 2, 2006 and October 1, 2006 is as follows.
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|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Exercise |
|
|
Shares |
|
Price |
|
|
|
July 2, 2006 |
|
|
|
|
|
|
|
|
Options outstanding, at beginning of year |
|
|
21,589 |
|
|
$ |
7.53 |
|
Granted |
|
|
1,084 |
|
|
|
1.10 |
|
Exercised |
|
|
(5 |
) |
|
|
1.00 |
|
Canceled |
|
|
(608 |
) |
|
|
5.03 |
|
Options outstanding, at end of year |
|
|
22,060 |
|
|
$ |
2.64 |
|
|
|
|
|
|
|
|
|
|
Options exercisable, at end of year |
|
|
11,185 |
|
|
$ |
4.20 |
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of options granted |
|
|
|
|
|
$ |
0.62 |
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Exercise |
|
|
Shares |
|
Price |
|
|
|
|
|
(unaudited) |
October 1, 2006 |
|
|
|
|
|
|
|
|
Options outstanding, at beginning of year |
|
|
22,060 |
|
|
$ |
2.64 |
|
Granted |
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
Canceled |
|
|
(240 |
) |
|
$ |
21.04 |
|
Options outstanding, at end of year |
|
|
21,820 |
|
|
$ |
2.39 |
|
|
|
|
|
|
|
|
|
|
Options exercisable, at end of year |
|
|
11,067 |
|
|
$ |
3.71 |
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of options granted |
|
|
|
|
|
|
n/a |
|
The following summarizes the exercise price per share, the number of shares outstanding and
exercisable, and the weighted-average remaining contractual life of options exercisable at July 2,
2006 and October 1, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Option |
|
Option |
|
Remaining |
|
|
Shares |
|
Shares |
|
Contractual |
Exercise Price Per Share |
|
Outstanding |
|
Exercisable |
|
Life (years) |
(actual price) |
|
|
|
|
|
|
|
|
|
|
|
|
July 2, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
$1.00 |
|
|
21,345 |
|
|
|
10,684 |
|
|
|
7.73 |
|
1.50 |
|
|
211 |
|
|
|
|
|
|
|
n/a |
|
60.00 to 150.00 |
|
|
504 |
|
|
|
501 |
|
|
|
2.74 |
|
|
|
|
|
|
|
|
|
|
|
22,060 |
|
|
|
11,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Option |
|
Option |
|
Remaining |
|
|
Shares |
|
Shares |
|
Contractual |
Exercise Price Per Share |
|
Outstanding |
|
Exercisable |
|
Life (years) |
(actual price) |
|
|
(unaudited) |
October 1, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
$1.00 |
|
|
21,211 |
|
|
|
10,648 |
|
|
|
7.50 |
|
1.50 |
|
|
187 |
|
|
|
|
|
|
|
n/a |
|
60.00 to 150.00 |
|
|
422 |
|
|
|
419 |
|
|
|
2.93 |
|
|
|
|
|
|
|
|
|
|
|
21,820 |
|
|
|
11,067 |
|
|
|
|
|
|
|
|
|
|
|
|
20
12. Employee Benefit Plan
Effective January 1, 1996, the Company adopted the HOB Entertainment, Inc. 401(k) Plan to provide
deferred compensation benefits for all eligible employees. Each year, participants may elect to
contribute a fixed dollar amount or percentage not to exceed 15% of compensation, as defined,
subject to Internal Revenue Code limitations. In addition, the Company may make qualified
non-elective contributions to certain eligible participants for each 401(k) Plan year.
Contributions made by the Company for the year ended July 2, 2006, three months ended October 1,
2006 and three months ended October 2, 2005 were $486, $134 and $114, respectively.
13. Supplemental Disclosure of Cash Flow Information
Supplemental disclosure of cash flow information and noncash activities for the year ended July 2,
2006, and three months ended October 1, 2006 and October 2, 2005, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2 |
|
October 1 |
|
October 2 |
|
|
2006 |
|
2006 |
|
2005 |
|
|
|
|
|
|
|
|
|
(unaudited) |
Cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
6,083 |
|
|
$ |
1,421 |
|
|
$ |
1,382 |
|
Cash paid
for (refunds received for) income taxes |
|
$ |
191 |
|
|
$ |
179 |
|
|
$ |
(32 |
) |
Noncash rent expense |
|
$ |
480 |
|
|
$ |
122 |
|
|
$ |
121 |
|
14.
Subsequent Event (unaudited)
On
November 3, 2006, the Company was acquired by Live Nation, Inc. for
an aggregate price of $354 million in cash, subject to certain
adjustments.
21