CKX 10Q 2006 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 000-17436

CKX, INC.

(Exact name of Registrant as specified in its charter)

Delaware		27-0118168
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

650 Madison Avenue
New York, New York 10022

(Address of Principal Executive Offices and Zip Code)

Registrant’s Telephone Number, Including Area Code: (212) 838-3100

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, Par Value $0.01 Per Share

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the 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. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer o Accelerated filer x Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of November 3, 2006, there were 92,594,743 shares of the registrant’s common stock outstanding.

TABLE OF CONTENTS

Part I.	FINANCIAL INFORMATION
Item 1	Financial Statements
	Condensed Consolidated Balance Sheets (Unaudited) at September 30, 2006 and December 31, 2005	2
	Condensed Consolidated Statements of Operations (Unaudited) for the three months ended September 30, 2006 and 2005	3
	Condensed Consolidated Statements of Operations (Unaudited) for the nine months ended September 30, 2006 and 2005 and the period January 1, 2005 to February 7, 2005 (Predecessor)	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2006 and 2005 and the period January 1, 2005 to February 7, 2005 (Predecessor)	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4	Controls and Procedures	37
Part II	OTHER INFORMATION
Item 6	Exhibits	38

CKX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	September 30, 2006				December 31, 2005
	(in thousands, except share and per share information)
ASSETS
Current assets:
Cash and cash equivalents		$	49,194			$	36,979
Marketable securities, at cost		—				42,625
Receivables, net of allowance for doubtful accounts of $30 at September 30, 2006 and $7 at December 31, 2005		35,296				19,503
Inventories, net of allowance for obsolescence of $655 at September 30, 2006 and $394 at December 31, 2005		2,405				2,850
Prepaid expenses		5,532				2,515
Prepaid income taxes		—				1,477
Deferred tax assets		150				150
Total current assets		92,577				106,099
Property and equipment—net		34,087				26,685
Receivables		1,259				2,087
Deferred production costs		1,087				428
Other assets		18,997				13,210
Goodwill		139,334				125,793
Other intangible assets—net		201,930				150,912
Deferred tax assets		5,789				4,914
TOTAL ASSETS		$	495,060			$	430,128
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	1,924			$	2,769
Accrued expenses		40,698				17,612
Current portion of long-term debt		631				362
Income taxes payable		14,867				732
Other current liabilities		1,167				624
Deferred revenue		8,841				12,200
Total current liabilities		68,128				34,299
Long-term liabilities:
Long-term debt		3,133				3,138
Deferred revenue		3,249				1,511
Other long-term liabilities		4,339				3,902
Deferred tax liabilities		28,640				37,043
Total liabilities		107,489				79,893
Minority interest		3,362				3,801
Redeemable restricted common stock—1,672,170 shares outstanding at September 30, 2006 and December 31, 2005		23,002				23,002
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value, authorized 75,000,000 shares:
Series B—1,491,817 outstanding		22,825				22,825
Series C—1 share outstanding		—				—
Common stock, $0.01 par value: authorized 200,000,000 shares, 90,772,573 and 90,528,818 shares issued and outstanding at September 30, 2006 and December 31, 2005, respectively		908				905
Additional paid-in-capital		365,915				362,833
Accumulated deficit		(25,503		)		(43,931		)
Accumulated other comprehensive loss		(2,938		)		(19,200		)
Total stockholders’ equity		361,207				323,432
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	495,060			$	430,128

The accompanying notes are an integral part of these condensed consolidated financial statements.

CKX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended				Three Months Ended
	September 30, 2006				September 30, 2005
	(in thousands, except share and per share information)
Revenue		$	76,522			$	59,780
Operating expenses:
Cost of sales		34,356				33,725
Selling, general and administrative expenses		17,801				13,482
Corporate expenses		3,832				3,299
Depreciation and amortization		5,309				4,401
Other costs		2,513				—
Total operating expenses		63,811				54,907
Operating income		12,711				4,873
Interest income		138				698
Interest expense		(382		)		(39		)
Other income (expense)		(690		)		1,037
Income before income taxes, equity in earnings of affiliates and minority interest		11,777				6,569
Income tax expense		2,956				3,440
Income before equity in earnings of affiliates and minority interest		8,821				3,129
Equity in earnings of affiliates		296				298
Minority interest		(372		)		(312		)
Net income		8,745				3,115
Dividends on preferred stock		(456		)		(456		)
Net income available to common shareholders		$	8,289			$	2,659
Income per share:
Basic income per share		$	0.09			$	0.03
Diluted income per share		$	0.09			$	0.03
Average number of common shares outstanding:
Basic		92,327,445				91,858,319
Diluted		96,096,416				92,932,174

The accompanying notes are an integral part of these condensed consolidated financial statements.

CKX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

									Predecessor(1)
	Nine Months Ended September 30, 2006				Nine Months Ended September 30, 2005				January 1 to February 7, 2005
	(in thousands, except share and per share information)
Revenue		$	177,841			$	103,169			$	3,442
Operating expenses:
Cost of sales		68,093				46,803				423
Selling, general and administrative expenses		47,219				30,400				2,431
Corporate expenses		11,254				8,330				—
Depreciation and amortization		15,163				10,079				126
Other costs		3,159				2,175				—
Total operating expenses		144,888				97,787				2,980
Operating income		32,953				5,382				462
Interest income		1,125				813				—
Interest expense		(751		)		(4,303		)		(115		)
Write-off of unamortized deferred loan costs		—				(1,894		)		—
Other income (expense)		(1,106		)		2,844				—
Income before income taxes, equity in earnings of affiliates and minority interest		32,221				2,842				347
Income tax expense		12,115				1,730				152
Income before equity in earnings of affiliates and minority interest		20,106				1,112				195
Equity in earnings of affiliates		724				659				—
Minority interest		(1,034		)		(1,024		)		—
Net income		19,796				747				195
Dividends on preferred stock		(1,368		)		(1,176		)		—
Accretion of beneficial conversion feature		—				(17,762		)		—
Net income (loss) available to common shareholders		$	18,428			$	(18,191	)		$	195
Income (loss) per share:
Basic income (loss) per share		$	0.20			$	(0.27	)
Diluted income (loss) per share		$	0.19			$	(0.27	)
Average number of common shares outstanding:
Basic		92,252,617				66,559,664
Diluted		96,178,307				66,559,664

(1) Prior to the acquisition of the Presley Business, the Company did not have any operations. As a result, the Presley Business is considered to be a predecessor company (“Predecessor”). Accordingly, relevant prior period financial information regarding the Predecessor has been presented herein.

The accompanying notes are an integral part of these condensed consolidated financial statements.

CKX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

									Predecessor(1)
	Nine Months Ended				Nine Months Ended				January 1 to
	September 30, 2006				September 30, 2005				February 7, 2005
					(in thousands)
Cash flows from operating activities:
Net income		$	19,796			$	747			$	195
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		15,163				10,079				126
Share-based payments		766				558				—
Deferred income taxes		(4,775		)		(112		)		—
Provision for accounts receivable allowance		23				21				—
Provision for inventory allowance		262				—				—
Minority interest		1,034				1,024				—
Changes in operating assets and liabilities:
Receivables		(13,406		)		4,729				(566		)
Inventory		422				(731		)		124
Prepaid expenses and other		(73		)		(8,929		)		(576		)
Other assets		(3,776		)		2,171				—
Accounts payable and accrued expenses		21,029				11,915				1,048
Deferred revenue		(6,356		)		703				1,410
Income taxes payable		16,481				744				152
Other		(524		)		642				—
Net cash provided by operating activities		46,066				23,561				1,913
Cash flows from investing activities:
Purchases of businesses, net of cash acquired		(58,088		)		(210,818		)		—
Acquisition of certain assets of Elvis-themed museum		(3,928		)		—				—
Acquisition of additional interest in affiliate		(2,776		)		—				—
Proceeds from sale of marketable securities		42,625				—				—
Investments in marketable securities		—				(80,000		)		—
Purchases of land, property and equipment		(8,756		)		(669		)		(2		)
Net cash used in investing activities		(30,923		)		(291,487		)		(2		)
Cash flows from financing activities:
Issuance of common stock		—				3,058				—
Public offering of common stock		—				253,000				—
Underwriting discount and other offering costs		—				(20,017		)		—
Exercise of warrants		—				30,000				—
Proceeds from Huff investment		—				43,819				—
Proceeds from credit facilities		—				148,000				—
Costs associated with Huff investment and credit facility commitment		—				(3,207		)		—
Costs associated with new revolving credit facility		(3,118		)		—				—
Distributions to minority interest shareholders		(1,473		)		(874		)		—
Principal payments on debt		(571		)		(148,390		)		(185		)
Dividends paid on preferred stock		(1,368		)		(720		)		—
Distributions to trust beneficiary		—				—				(23		)
Net cash provided by (used in) financing activities		(6,530		)		304,669				(208		)
Effect of exchange rate changes on cash		3,602				(214		)		—
Net increase in cash and equivalents		12,215				36,529				1,703
Cash and cash equivalents—beginning of period		36,979				—				201
Cash and cash equivalents—end of period		$	49,194			$	36,529			$	1,904
Supplemental Cash flow data:
Cash paid during the period for:
Interest		$	334			$	3,211			$	172
Income taxes		2,029				508				125

Supplemental Cash Flow Information

The Company had the following non-cash investing and financing activities in the nine months ended September 30, 2006 (in thousands):

Issuance of note in connection with the acquisition of certain assets of Elvis-themed museum		$	750
Common stock issued in connection with acquisitions		2,278

The Company had the following non-cash investing and financing activities in the nine months ended September 30, 2005 (in thousands):

Common stock issued as partial consideration for the acquisition of the Presley Business	$	3,835
Series B Convertible Preferred stock issued as partial consideration for acquisition of the Presley Business	22,825
Issuance of Priscilla Presley Note in connection with the Presley Business acquisition	3,500
Common stock and redeemable restricted common stock issued for the acquisition of 19 Entertainment	26,341
Conversion of Series A Convertible Redeemable Preferred Stock to common stock	17,762
Issuance of common shares in satisfaction of obligation to former affiliate	270
Common stock issued for the acquisition of MBST	9,618

The accompanying notes are an integral part of these condensed consolidated financial statements.

CKX, INC.
NOTES TO UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

1. Overview and Basis of Presentation

General

CKX, Inc. (the “Company”) is engaged in the ownership, development and commercial utilization of entertainment content, including the rights to the name, image and likeness of Elvis Presley and the operation of Graceland, the rights to the name, image and likeness of Muhammad Ali and proprietary rights to the IDOLS television brand, including the American Idol series in the United States and local adaptations of the IDOLS television show format which, collectively, air in over 100 countries around the world.

The financial information in this report for the three and nine months ended September 30, 2006 and 2005 has not been audited, but in the opinion of management all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly such information have been included. The operating results for the three and nine months ended September 30, 2006 and 2005 are not necessarily indicative of the results to be expected for the full year due to the seasonal nature of some of the Company’s businesses. The financial statements included herein should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. Certain prior year amounts have been reclassified to conform to the Company’s current presentation.

On February 7, 2005, RFX Acquisition LLC, an entity formed and controlled by Robert F.X. Sillerman, acquired a controlling interest in the Company (formerly known as Sports Entertainment Enterprises, Inc.), which had been inactive since it sold all of its assets in August 2002. Simultaneous with that transaction, the Company acquired an 85% interest in the entities which own and/or control certain content relating to Elvis Presley (the “Presley Business”). Prior to the acquisition of the Presley Business, the Company did not have any operations. As a result, the Presley Business is considered to be the predecessor company (“Predecessor”). Accordingly, relevant financial information regarding the Predecessor, including financial statements for the period from January 1—February 7, 2005, has been presented. See Note 4 for a description of the acquisition.

Simultaneous with the RFX investment and the acquisition of the Presley Business, The Huff Alternative Fund, L.P. and its affiliate contributed to the Company an aggregate of $43.3 million in cash, after fees and expenses, in exchange for: (i) 2,172,400 shares of Series A Convertible Redeemable Preferred Stock, (ii) 3,706,052 newly issued shares of common stock, (iii) warrants to purchase 1,860,660 shares of common stock at $1.00 per share, (iv) warrants to purchase 1,860,660 shares of common stock at $1.50 per share, and (v) warrants to purchase 1,860,661 shares of common stock at $2.00 per share. On March 21, 2005, The Huff Alternative Fund, L.P. and its affiliate exercised their rights to convert all of their 2,172,400 shares of Series A Convertible Redeemable Preferred Stock into 6,051,253 shares of common stock. Following such conversion, no shares of Series A Convertible Redeemable Preferred Stock remain outstanding.

The allocation of the proceeds from the Huff investment, taking into account, among other things, the value of the warrants and the conversion ratio of one share of preferred stock into 2.8 shares of common stock, resulted in a beneficial conversion feature for the Series A Convertible Redeemable Preferred Stock in the amount of $17.8 million, which reduced the carrying value of the Series A Convertible Redeemable Preferred Stock by that amount. This beneficial conversion feature was to be accreted over the original

eight-year redemption period of the Series A Convertible Redeemable Preferred Stock and recorded as a preferred dividend. As a result of the early conversion described above, a non-cash dividend equal to the amount of the unaccreted beneficial conversion feature of $17.8 million was recognized at that time.

Accounting Policies

During the nine months ended September 30, 2006, there have been no significant changes to the Company’s accounting policies and estimates as disclosed in the Company’s Form 10-K for the year ended December 31, 2005.

2. Comprehensive Income (Loss)

The following table is a reconciliation of the Company’s net income to comprehensive income (loss) for the three and nine months ended September 30, 2006 and 2005 (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2006		2005			2006		2005
Net income	$	8,745	$	3,115		$	19,796	$	747
Other comprehensive income:
Foreign currency translation adjustments	6,014		(4,512		)	16,262		(15,167		)
Comprehensive income (loss)	$	14,759	$	(1,397	)	$	36,058	$	(14,420	)

Foreign currency translation adjustments result from the conversion of 19 Entertainment’s financial statements. No reconciliation between net income and comprehensive income (loss) for the period January 1, 2005 to February 7, 2005 is reflected in the table above because there were no adjustments between net income and comprehensive income (loss) for such period.

3. Earnings Per Share/Common Shares Outstanding

Earnings per share is computed in accordance with SFAS No. 128, Earnings Per Share. Basic earnings per share is calculated by dividing net income (loss) applicable to common stockholders by the weighted-average number of shares outstanding during the period. Diluted earnings per share includes the determinants of basic earnings per share and, in addition, gives effect to potentially dilutive common shares. Basic and diluted earnings per share for the three months ended September 30, 2006 are $0.09. Basic and diluted earnings per share for the nine months ended September 30, 2006 are $0.20 and $0.19, respectively. The diluted earnings per share calculations exclude the impact of the conversion of 1,491,817 shares of Series B Convertible Preferred shares and the impact of the conversion of all outstanding employee share-based stock plan awards because the effect would be anti-dilutive. Diluted loss per share for the nine months ended September 30, 2005 is the same as basic loss per share because the conversion of all potential common shares would be anti-dilutive. As a result, 4,363,899 shares are excluded from the calculation of diluted earnings per share for the nine months ended September 30, 2005.

The following table shows the computation of the Company’s basic and diluted earnings per share for the three and nine months ended September 30, 2006 and 2005:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006		2005
	(in thousands, except share and per share information)
Basic income (loss) per share computation:
Net income (loss) applicable to common shareholders	$	8,289	$	2,659	$	18,428	$	(18,191	)
Basic common shares outstanding (including redeemable restricted common stock)	92,327,445		91,858,319		92,252,617		66,559,664
Basic income (loss) per share	$	0.09	$	0.03	$	0.20	$	(0.27	)
Diluted income (loss) per share computation:
Net income (loss) applicable to common shareholders	$	8,289	$	2,659	$	18,428	$	(18,191	)
Basic common shares outstanding (including redeemable restricted common stock)	92,327,445		91,858,319		92,252,617		66,559,664
Incremental shares for assumed exercise of warrants	3,768,971		1,073,855		3,925,690		—
Diluted common shares outstanding (including redeemable restricted common stock)	96,096,416		92,932,174		96,178,307		66,559,664
Diluted income (loss) per share	$	0.09	$	0.03	$	0.19	$	(0.27	)

4. Acquisitions

The Presley Business (Predecessor)

On February 7, 2005, the Company acquired an 85% interest in the Presley Business. The consideration for the acquisition included (i) $53.1 million in cash, (ii) 1,491,817 shares of Series B Convertible Preferred Stock, (iii) one share of Series C Convertible Preferred Stock, (iv) 500,000 shares of common stock and (v) the repayment of $25.1 million in indebtedness. Prior to the acquisition of the Presley Business, the Company did not have any operations. The results of operations of the Presley Business are included in the results of the Company since the date of acquisition and in the financial statements of the Predecessor for the period from January 1—February 7, 2005.

In March 2006, the Presley Business acquired certain assets of an Elvis-themed museum located in Las Vegas, Nevada, including certain intellectual property rights as well as a substantial portion of the memorabilia formerly on display at the establishment. The total purchase price for the assets was approximately $4.7 million, $3.9 million (including $0.1 million of transaction costs) of which was paid in cash in full at closing and $0.8 million of which was paid in the form of a three-year promissory note (see note 6). The Company paid $2.0 million for the acquired memorabilia and $2.7 million for a non-compete agreement from the former owners which is being amortized over five years. The sellers permanently closed the museum and the name of the museum has been retired as part of the Company’s overall plan to bring a world-class Elvis-themed attraction to Las Vegas.

19 Entertainment

On March 17, 2005, the Company acquired 100% of 19 Entertainment Limited (“19 Entertainment”), a company that is a creator, producer, and promoter of entertainment properties, including the IDOLS

television show format. Consideration for the acquisition consisted of £64.5 million ($124.4 million based on the exchange rate at the date of acquisition) in cash, 198,388 unregistered shares of common stock and 1,672,170 shares of redeemable restricted common stock, each paid at closing, with an additional £19.2 million ($34.0 million based on the exchange rate at the date of payment) of deferred consideration that was paid in cash on December 15, 2005. The results of operations of 19 Entertainment are included in the results of the Company since the date of acquisition.

In March 2006, 19 Entertainment acquired the remaining 50% of a previously 50%-owned affiliate engaged in the management of songwriters and producers. The purchase price for the remaining 50% interest was £1.6 million ($2.8 million based on the exchange rate at the date of acquisition), paid in cash at closing. The Company has performed a preliminary valuation of the assets acquired and has made an initial allocation of $0.5 million to other intangible assets, which will be amortized over five years, and $2.3 million to goodwill.

In August 2006, 19 Entertainment acquired 100% of the outstanding capital stock of, a company engaged in marketing services and the creation and promotion of consumer brand awareness. Consideration paid at closing for the acquisition consisted of £3.5 million in cash ($6.7 million based on the exchange rate at the date of acquisition) and 139,553 shares of common stock valued at £0.7 million ($1.3 million based on the exchange rate at the date of acquisition). The Company has performed a preliminary valuation of the assets acquired and has made an initial allocation of $1.3 million to other intangible assets, which will be amortized over five years, and $5.9 million to goodwill.

MBST

On August 9, 2005, the Company acquired 100% of Morra, Brezner, Steinberg & Tenenbaum Entertainment, Inc. (“MBST”), a manager of comedic talent and producer of motion pictures and television programming. The Company acquired MBST for initial total consideration paid at closing of $1.0 million in cash and 700,000 unregistered shares of common stock. The purchase price is subject to a working capital adjustment, of which $1.1 million in cash and 40,480 unregistered shares were paid to the sellers in 2005 and 28,847 unregistered shares were paid to the sellers in 2006. Additional working capital adjustments may be made in 2006 which could result in additional payments to the sellers that are expected to be less than $0.5 million. In addition, the sellers may receive up to an additional 150,000 shares of common stock upon satisfaction of certain performance thresholds over the five-year period following the closing. The receipt by the sellers of any such shares will be accounted for as additional purchase price at the time such performance thresholds are met. The allocation of the fair values to the assets acquired and liabilities assumed was based on a valuation prepared by an independent appraisal firm. The results of operations of MBST are included in the results of the Company since the date of acquisition.

The Ali Business

On April 10, 2006, the Company acquired an 80% interest in the name, image, likeness and all other rights of publicity of Muhammad Ali, certain trademarks and copyrights owned by Mr. Ali and his affiliates and the rights to all existing Muhammad Ali license agreements (the “Ali Business”). The Company acquired the Ali Business for $50.0 million in cash, which was funded from cash on hand, and incurred an additional $2.1 million in transaction costs. The Muhammad Ali Family Trust has retained a 20% interest in the Ali Business.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed on April 10, 2006. These amounts have been adjusted to reflect the Company’s 80% ownership interest. The estimated fair values are based on a preliminary valuation performed by management. The Company has engaged an independent appraisal firm to perform a valuation of the assets acquired and liabilities assumed. The initial purchase price allocations are preliminary and may be adjusted for changes in

estimates of the fair value of the assets acquired and liabilities assumed. The Company expects that the purchase price allocations will be finalized by the time it files its annual report on Form 10-K for the year ended December 31, 2006. The significant assumptions used in the valuation included factors affecting the duration, growth rates and amounts of future cash flows.

	(in thousands)
Current assets		$	2,760
Intangible assets		54,376
Other assets		73
Assets acquired		57,209
Current liabilities		2,027
Deferred tax liabilities		144
Other liabilities		2,939
Liabilities assumed		5,110
Net assets acquired		$	52,099

In accordance with SFAS No. 109, we have provided for deferred taxes for the difference between the book and tax basis of the net assets acquired.

The purchase price for the Ali Business was determined based on management’s assessment of the financial prospects of the existing business as well as the increased value the Company believes can be derived from pursuing additional licensing opportunities. The preliminary amounts allocated to intangible assets were attributed to the following categories and related useful lives (dollar amounts in thousands):

Trademarks, publicity rights and other intellectual property		$	54,056		indefinite
Relationships with licensees		320			3 years

At this time management is unable to determine whether the amounts allocated to the above intangible assets will change when the Company finalizes its valuation and if changes are made, the amount of such changes. A $1.0 million fluctuation in fair value amounts allocated to the relationships with licensees intangible asset would increase or decrease annual amortization expense by $0.3 million.

The Ali Trust, as the holder of a 20% interest in the Ali Business, is entitled to certain preferred minimum distributions of certain cash flow from the Ali Business. During the first twelve month period following closing, the amount of the annual minimum distribution will be $0.5 million. In addition, the Ali Trust has the right to receive an additional 5% membership interest in the Ali Business effective as of the end of the calendar year in which the total compound internal rate of return to the Company on its initial $50 million investment equals or exceeds (i) 30% on a cumulative basis during the five year period following the closing date or (ii) 25% on a cumulative basis for any period commencing on the closing date and ending at any time after the fifth anniversary of the closing date. The Ali Trust also has the right to require the Company to purchase all of its remaining ownership interest in the Ali Business beginning on the fifth anniversary of the acquisition at a price based on the then current fair market value.

The results of operations of the Ali Business are included in the results of the Company since the date of acquisition.

Pro Forma Information

The following tables summarize unaudited pro forma financial information for the Company assuming the Presley Business, 19 Entertainment, MBST and the Ali Business acquisitions and the related financing transactions had occurred on January 1, 2006 and 2005. The unaudited pro forma financial information does not necessarily represent what would have occurred if the transactions had occurred on the dates presented and should not be taken as representative of the Company’s future consolidated results of operations or financial position:

	Three Months Ended September 30,
	2006		2005
	(in thousands, except per share information)
Revenue	$	76,522	$	62,625
Net income (loss) available to common stockholders	$	8,289	$	3,460
Net income (loss) per common share:
Basic	$	0.09	$	0.04
Diluted	$	0.09	$	0.04

	Nine Months Ended September 30,
	2006		2005
	(in thousands, except per share information)
Revenue	$	181,448	$	133,410
Net income (loss) available to common stockholders	$	19,447	$	(17,256	)
Net income (loss) per common share:
Basic	$	0.21	$	(0.25	)
Diluted	$	0.20	$	(0.25	)

Note that the amounts for the nine months ended September 30, 2005 exclude non-cash employee compensation expense associated with the exercise of employee stock options by 19 Entertainment employees immediately prior to the Company’s acquisition on March 17, 2005. The exercises were a one time non-recurring event that resulted directly from the acquisition of 19 Entertainment by the Company. This expense was $14.8 million before tax, or $(0.16) per share after tax.

5. Intangible Assets and Goodwill

Intangible assets as of September 30, 2006 consist of (dollar amounts in thousands):

	Weighted Average Remaining Useful Life	Gross Carrying Amount		Intangible Assets Acquired During 2006			Accumulated Amortization				Cumulative Foreign Currency Translation Adjustments				Net Carrying Amount
Definite Lived Intangible Assets:
Presley record, music publishing, film and video rights	13.3 years	$	28,900		$	—		$	(2,979	)		$	—		$	25,921
Other Presley intangible assets	15.4 years	10,880			2,742			(2,397		)		—			11,225
19 Entertainment IDOLS television programming, merchandising and sponsorship contracts	5.5 years	78,043			—			(14,610		)		(2,820		)	60,613
19 Entertainment other artist management, recording, merchandising, and sponsorship contracts	2.4 years	12,526			1,814			(5,618		)		(473		)	8,249
MBST artist contracts, profit participation rights and other intangible assets	5.2 years	4,270			—			(836		)		—			3,434
Ali Business relationships with licensees	2.5 years	—			320			(53		)		—			267
		$	134,619		$	4,876		$	(26,493	)		$	(3,293	)	$	109,709

	Balance at December 31, 2005			Indefinite Lived Intangible Assets Acquired During 2006			Balance at September 30, 2006
Indefinite Lived Intangible Assets:
Trademarks, publicity rights and other intellectual property		$	38,165		$	54,056		$	92,221

Intangible assets as of December 31, 2005 consist of (dollar amounts in thousands):

	Gross Carrying Amount		Accumulated Amortization				Foreign Currency Translation Adjustments				Net Carrying Amount
Definite Lived Intangible Assets:
Presley record, music publishing, film and video rights	$	28,900		$	(1,521	)		$	—		$	27,379
Other Presley intangible assets	10,880			(1,566		)		—			9,314
19 Entertainment IDOLS television programming, merchandising and sponsorship contracts	78,043			(6,583		)		(8,165		)	63,295
19 Entertainment other artist management, recording, merchandising, and sponsorship contracts	12,526			(3,044		)		(1,187		)	8,295
MBST artist contracts, profit participation rights and consulting agreement	4,745			(281		)		—			4,464
	$	135,094		$	(12,995	)		$	(9,352	)	$	112,747
Indefinite Lived Intangible Assets:
Trademarks, publicity rights and other intellectual property	$	38,165									$	38,165

Amortization expense for definite lived intangible assets was $4.7 million and $3.9 million for the three months ended September 30, 2006 and 2005, respectively, and $13.5 million and $8.8 million for the nine months ended September 30, 2006 and 2005, respectively. At September 30, 2006, estimated future amortization expense of definite lived intangible assets is as follows: $4.6 million for the remaining three months of 2006 and $18.2 million, $17.1 million, $15.5 million and $14.8 million for 2007, 2008, 2009 and 2010, respectively.

Goodwill as of September 30, 2006 consists of (dollar amounts in thousands):

	Balance at December 31, 2005			Goodwill Acquired During 2006			2006 Foreign Currency Translation Adjustment			Other Adjustments				Balance at September 30, 2006
Presley royalties and licensing		$	6,967		$	—		$	—		$	(4,535	)		$	2,432
Presley Graceland operations		7,675			—			—			—				7,675
19 Entertainment		102,096			8,122			9,231			—				119,449
MBST		9,055			—			—			723				9,778
Total		$	125,793		$	8,122		$	9,231		$	(3,812	)		$	139,334

The finalization of the Presley Business purchase price allocation resulted in a decrease in goodwill and deferred tax liabilities of $4.5 million in the nine months ended September 30, 2006.

The finalization of the MBST purchase price allocation resulted in a $0.4 million increase in goodwill and a corresponding decrease in intangible assets in the nine months ended September 30, 2006.

6. Debt

At September 30, 2006, the Company had $3.1 million outstanding under a subordinated promissory note issued in connection with the acquisition of the Presley Business and $0.6 million outstanding under a note issued in conjunction with the Presley Business’ acquisition of memorabilia and certain other assets of a Las Vegas-based Elvis-themed museum during the first quarter of 2006, which bears interest at 5% per annum and is payable in 36 equal monthly installments.

On May 24, 2006, the Company entered into a $125.0 million revolving credit agreement (the “Credit Facility”) with various lenders, including Bear, Stearns & Co. Inc. As of September 30, 2006, the Company had not drawn on the Credit Facility. Loans under the Credit Facility are guaranteed by all of the Company’s wholly-owned domestic subsidiaries and certain of its wholly-owned foreign subsidiaries. The loans are secured by a pledge of certain assets of the Company and its subsidiary guarantors, including ownership interests in all wholly-owned domestic subsidiaries, substantially all wholly-owned foreign subsidiaries and certain subsidiaries that are not wholly-owned. Loans under the Credit Facility are available to the Company for general corporate purposes and to finance future acquisitions and joint ventures.

7. Stockholders’ Equity

At September 30, 2006, the Company had outstanding warrants to purchase 4,551,597 shares of common stock at an exercise price of $2.00 per share which expire on February 7, 2007, and warrants to purchase 500,000 shares of common stock at an exercise price of $10.00 per share which expire on February 7, 2008.

8. Share-Based Payments

The Company’s 2005 Omnibus Long-Term Incentive Compensation Plan (the “2005 Plan”) was approved by the Company’s stockholders in March 2005. Under the 2005 Plan, the maximum number of shares of common stock that may be subject to stock options, stock awards, deferred shares, or performance shares is 4,000,000. Shares available for future grants under the 2005 Plan were 3,371,332 at September 30, 2006. The Company estimates the fair value of share-based payments using the Black Scholes model for stock options and the market price of the Company’s common stock for stock grants. Total share-based compensation expense for the three and nine months ended September 30, 2006 was $0.3 million and $0.8 million, respectively. Total share-based compensation expense for the three and nine months ended September 30, 2005 was $0.2 million and $0.5 million, respectively.

9. Income Taxes

In calculating the provision for income taxes on an interim basis, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances known. The Company’s effective tax rate is based on expected income, statutory tax rates and permanent differences applicable to the Company in various jurisdictions in which the Company operates.

For the nine months ended September 30, 2006, the Company’s effective tax rate was 37.6%. The Company recorded a provision for income taxes of $3.0 million and $12.1 million for the three and nine months ended September 30, 2006.

loss carryforwards and other temporary differences. The valuation allowance was recorded in prior periods because it was not more likely than not that these deferred tax assets would be realized in the future due to the Company’s short operating history, its strategic direction to make additional significant acquisitions and the uncertainty surrounding future taxable income. The Company now believes that there is sufficient certainty with respect to its tax position for the current year. The Company has achieved substantial taxable income during the nine months ended September 30, 2006, has met internal financial forecasts and the uncertainty arising from the potential impact of additional acquisitions during the year has been reduced.

In 2005, deferred tax assets were reduced by a valuation allowance of $31.4 million, principally relating to uncertainty regarding the future realizability of tax benefits related to net operating loss carryforwards and foreign tax credits. When $27.2 million of these valuation allowances are reversed in future periods, the reversals will be credited to goodwill in accordance with FAS 109.

For the three months ended September 30, 2005, the Company recorded federal income tax expense of $2.3 million, state income tax expense of $0.8 million and foreign income tax expense of $0.3 million. For the nine months ended September 30, 2005, the Company recorded federal income tax expense of $0.1 million, state income tax expense of $1.3 million and foreign income tax expense of $0.3 million.

10. Segment Information

As of September 30, 2006, the Company had five reportable segments: Presley Business—Royalties and Licensing, Presley Business—Graceland Operations, 19 Entertainment, MBST and the Ali Business. These designations have been made as the discrete operating results of these segments are reviewed by the Company’s chief operating decision-maker to assess performance and make operating decisions. All inter-segment transactions have been eliminated in the consolidated financial statements.

The operating income (loss) amounts for the Presley Business after its acquisition by the Company are not directly comparable to the amounts for the Presley Business as Predecessor due to the impact of purchase accounting adjustments made upon the acquisition of the Presley Business on February 7, 2005 which resulted in a substantial increase in the carrying value of fixed and intangible assets and a corresponding increase in depreciation and amortization expense in the post-acquisition periods.

The Company evaluates its operating performance based on several factors, including a financial measure of operating income (loss) before non-cash depreciation of tangible assets and non-cash amortization of intangible assets (which we refer to as “OIBDA”).

	Presley Business
Segment Information	Royalties and Licensing			Graceland Operations				19 Entertainment			MBST			Ali Business			Corporate and other				Total
	(amounts in thousands)
Three months ended September 30, 2006:
Revenue		$	2,688		$	11,269			$	61,075	$	873			$	617		$	—		$	76,522
Operating income (loss)		$	811		$	2,436			$	16,253	$	(511	)		$	90		$	(6,368	)	$	12,711
Depreciation and amortization		$	645		$	507			$	3,900	$	202			$	32		$	23		$	5,309
OIBDA		$	1,456		$	2,943			$	20,153	$	(309	)		$	122		$	(6,345	)	$	18,020
Three months ended September 30, 2005:
Revenue		$	2,837		$	10,465			$	45,793	$	685			$	—		$	—		$	59,780
Operating income (loss)		$	550		$	2,364			$	5,441	$	(139	)		$	—		$	(3,343	)	$	4,873
Depreciation and amortization		$	721		$	392			$	3,170	$	116			$	—		$	2		$	4,401
OIBDA		$	1,271		$	2,756			$	8,611	$	(23	)		$	—		$	(3,341	)	$	9,274
Nine months ended September 30, 2006:
Revenue		$	9,303		$	25,644			$	134,957	$	4,654			$	3,283		$	—		$	177,841
Operating income (loss)		$	3,855		$	2,656			$	39,181	$	404			$	1,335		$	(14,478	)	$	32,953
Depreciation and amortization		$	1,936		$	1,343			$	11,174	$	582			$	63		$	65		$	15,163
OIBDA		$	5,791		$	3,999			$	50,355	$	986			$	1,398		$	(14,413	)	$	48,116
Nine months ended September 30, 2005:
Revenue		$	15,567		$	22,405			$	64,512	$	685			$	—		$	—		$	103,169
Operating income (loss)		$	4,382		$	3,964			$	7,724	$	(139	)		$	—		$	(10,549	)	$	5,382
Depreciation and amortization		$	2,507		$	880			$	6,571	$	116			$	—		$	5		$	10,079
OIBDA		$	6,889		$	4,844			$	14,295	$	(23	)		$	—		$	(10,544	)	$	15,461
Period January 1, 2005 to February 7, 2005 (Predecessor):
Revenue		$	1,702		$	1,740			$	—	$	—			$	—		$	—		$	3,442
Operating income (loss)		$	1,167		$	(705	)		$	—	$	—			$	—		$	—		$	462
Depreciation and amortization		$	—		$	126			$	—	$	—			$	—		$	—		$	126
OIBDA		$	1,167		$	(579	)		$	—	$	—			$	—		$	—		$	588
Asset Information:
Segment assets at September 30, 2006		$	76,533		$	64,177			$	233,707	$	13,927			$	56,312		$	50,404		$495,060
Segment assets at December 31, 2005		$	76,694		$	56,693			$	202,764	$	14,195			$	—		$	79,782		$	430,128

Below is a reconciliation of the Company’s OIBDA to net income:

													Predecessor
	Three Months Ended						Nine Months Ended						January 1 to
	September 30,						September 30,						February 7,
	2006			2005			2006			2005			2005
	(amounts in thousands)
OIBDA	$	18,020		$	9,274		$	48,116		$	15,461			$	588
Depreciation and amortization	(5,309		)	(4,401		)	(15,163		)	(10,079		)		(126		)
Interest income	138			698			1,125			813				—
Interest expense	(382		)	(39		)	(751		)	(4,303		)		(115		)
Write-off of unamortized deferred loan costs	—			—			—			(1,894		)		—
Equity in earnings of affiliates	296			298			724			659				—
Other income (expense)	(690		)	1,037			(1,106		)	2,844				—
Income tax expense	(2,956		)	(3,440		)	(12,115		)	(1,730		)		(152		)
Minority interest	(372		)	(312		)	(1,034		)	(1,024		)		—
Net income	$	8,745		$	3,115		$	19,796		$	747			$	195

* * * * *

FORWARD LOOKING STATEMENTS

In addition to historical information, this Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements as statements containing the words “believe,” “expect,” “will,” “anticipate,” “intend,” “estimate,” “project,” “assume” or other similar expressions, although not all forward-looking statements contain these identifying words. All statements in this Quarterly Report regarding our future strategy, future operations, projected financial position, estimated future revenue, projected costs, future prospects, and results that might be obtained by pursuing management’s current plans and objectives are forward-looking statements. You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are based on the information currently available to us and speak only as of the date on which this Quarterly Report was filed with the Securities and Exchange Commission (“SEC”). We expressly disclaim any obligation to issue any updates or revisions to our forward-looking statements, even if subsequent events cause our expectations to change regarding the matters discussed in those statements. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such difference might be significant and materially adverse to our stockholders.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the historical financial statements and footnotes of the registrant included in its Annual Report on Form 10-K for the year ended December 31, 2005. Our future results of operations may change materially from the historical results of operations reflected in our historical financial statements.

General

We are engaged in the ownership, development and commercial utilization of entertainment content, including the rights to the name, image and likeness of Elvis Presley and the operations of Graceland, the rights to the name, image and likeness of Muhammad Ali and proprietary rights to the IDOLS television brand, including the American Idol series in the United States and local adaptations of the IDOLS television show format which, collectively, air in over 100 countries around the world.

On February 7, 2005, RFX Acquisition LLC, a management group led by Robert F.X. Sillerman, acquired control of the Company (formerly known as Sports Entertainment Enterprises, Inc.) which had been inactive since it sold all of its assets in August 2002. Simultaneous with that transaction, the Company acquired an 85% interest in the entities which own and/or control certain content relating to Elvis Presley (the “Presley Business”). The former owner of the Presley Business maintains a 15% interest in the business and is entitled to certain future distributions and has other contractual rights. On March 17, 2005, the Company acquired 100% of the outstanding capital stock of 19 Entertainment Limited. On August 9, 2005 we acquired 100% of the outstanding capital stock of Morra, Brezner, Steinberg & Tenenbaum Entertainment, Inc. (“MBST”). On April 10, 2006, the Company acquired an 80% interest in the name, image and likeness and all other rights of publicity of Muhammad Ali, certain trademarks and copyrights owned by Mr. Ali and his affiliates and the rights to all existing Muhammad Ali license agreements (the “Ali Business”). The former owner of the Ali Business maintains a 20% interest in the business and is entitled to certain future distributions and has other contractual rights.

Management’s discussion and analysis of financial condition and results of operations is based on the historical financial condition and results of operations of the Presley Business, as Predecessor, rather than those of CKX, prior to February 7, 2005. The historical financial statements of the Presley Business and related management’s discussion and analysis of financial condition and results of operations reflect 100% of the Presley Business.

Presley Business

The Presley Business consists of entities which own and/or control the commercial utilization of the name, image and likeness of Elvis Presley, the operation of the Graceland museum and related attractions, as well as revenue derived from Elvis Presley’s television specials, films and certain of his recorded musical works. The Presley Business consists of two reportable segments: Royalties and Licensing - intellectual property, including the licensing of the name, image, likeness and trademarks associated with Elvis Presley, as well as other owned and/or controlled intellectual property and the collection of royalties from certain motion pictures, television specials and recorded musical works and music compositions; and Graceland Operations - the operation of the Graceland museum and related attractions and retail establishments, including Elvis Presley’s Heartbreak Hotel and other ancillary real estate assets.

The Royalties and Licensing segment generates revenue from the name, image and likeness of Elvis Presley, including physical and intellectual property owned or created by Elvis Presley during his life. The primary revenue source of this segment comes from licensing Elvis’ name and likeness for consumer products, commercials and other uses and royalties and other income derived from intellectual property created by Elvis including records, movies, videos and music publishing. Licensing revenue is primarily derived from long-term contracts with terms of one to ten years. Although we seek to obtain significant

minimum guarantees, our licensing revenue varies based on the actual product sales generated by licensees. The intellectual property created by Elvis during his lifetime that is owned by the Company has generally been assigned to third parties for commercial exploitation under long-term agreements. Although we maintain certain controls over the use of this content and, in certain cases, have rights to terminate these agreements if the third party fails to perform, our revenue from this intellectual property is highly dependant upon the ability of third parties to successfully market the content.

The Graceland Operations segment generates its primary revenue from ticket and merchandise sales and related income from public tours of Graceland as well as from the operation of Elvis Presley’s Heartbreak Hotel and the Meadow Oaks apartment complex. Revenue from Graceland has historically been seasonal with sharply higher numbers of visitors during the late spring and summer seasons as compared to the fall and winter seasons.

Most of the Presley Business’ revenue sources are dependant upon the public’s continued interest in Elvis Presley and the intellectual property he created.

Our significant costs to operate the Presley Business include salaries, rent and other overhead costs. Most of our costs do not vary significantly with our revenue. Our discretionary costs are generally in our marketing and promotions department which we primarily incur to maintain and/or increase the number of visitors to Graceland. We may also incur discretionary expenses in exploring opportunities to bring Elvis-related attractions to Las Vegas and other strategic locations throughout the world and to redevelop the Graceland attraction.

19 Entertainment

19 Entertainment generates revenue from the creation, production and ownership of entertainment properties. Our primary revenue sources include production and license fees and related ratings and rankings bonuses from television programs, and royalties from the sale of recorded music by artists signed to our record labels. We also derive revenue from the sale of merchandise, sponsorships and tours based on our television programs and recorded music artists, and fee income from management clients.

The majority of 19 Entertainment’s revenue is derived from production and license fees and related performance bonuses from producing and licensing the IDOLS television show format in various countries and ancillary revenue streams from the IDOLS brand. Ancillary revenue from the IDOLS brand is generated through agreements which provide us with the option to sign finalists on the IDOLS television shows to long-term recording contracts, concert tours we produce featuring IDOLS finalists and the sale of sponsorships and merchandise involving the IDOLS brand and finalists.

Most of our IDOLS related revenue is paid under agreements with our global television production and distribution partner, FremantleMedia Limited, and our principal global record label partners, Ronagold Limited (an affiliate of SonyBMG) for American Idol seasons one through four and Simco Limited (an affiliate of SonyBMG) for all seasons subsequent to American Idol 4. Therefore, we are highly dependent upon the continued ability of these entities to successfully maintain the IDOLS brand and promote our recording artists.

Other than American Idol, which is discussed below, the IDOLS television shows are generally produced or licensed under one year contracts whereby each local television network has the right, but not the obligation, to renew the agreement for additional years. Our recording artists are generally signed to long-term recording contracts with 19 Recordings covering a specified number of albums over an allotted timeframe.

Our revenue from the IDOLS brand is highly dependent upon the continued success of the American Idol series, which currently airs on the Fox television network in the United States, and local adaptations of the IDOLS television show which air around the world. A portion of our revenue from the

American Idol series is dependent upon the number of hours of programming we deliver. In the fourth broadcast season, which aired during our first and second fiscal quarters of 2005, we delivered 38.5 hours of programming. We delivered 45 hours of programming for the fifth season of American Idol, which aired in the first and second quarters of 2006. On November 28, 2005, 19 Entertainment entered into a series of agreements with Fox, FremantleMedia and SonyBMG/Simco, related to our ownership interest in the American Idol television program. Under the terms of the agreement with Fox, Fox has guaranteed at least three (2007-2009) and as many as five more seasons of American Idol. The new agreement with Fox requires Fox to order a minimum of 37 hours and a maximum of 45 hours of American Idol programming each season and to pay 19 Entertainment and FremantleMedia an increased license fee per season. Fox is also required to pay an annual fee to 19 Entertainment tied to our new recording agreement with SonyBMG.

19 Entertainment’s revenue and OIBDA are seasonal in nature, reflecting the timing of our television shows and tours in various markets. 19 Entertainment generates higher revenue and OIBDA during the first three quarters of the calendar year, which corresponds to the dates our American Idol series airs on Fox in the United States and the American Idol tour is presented. 19 Entertainment’s revenues reflect its contractual share of the IDOLS television revenue representing producer, format and licensing fees as well as ratings and rankings bonuses and do not include the revenues earned or the production costs incurred directly by our production and distribution partner, FremantleMedia.

19 Entertainment also generates significant revenue and OIBDA from its television show So You Think You Can Dance. The show, which originally aired on Fox entirely in the third quarter of 2005, aired its second season from May through August 2006. 19 Entertainment records 100% of the television and sponsorship revenue and related production and other expenses from So You Think You Can Dance. The contractual share of the revenue that we are required to pay to our production partner is reflected in 19 Entertainment’s operating expenses.

Our revenue is also dependent upon the continued success and productivity of our recording artists and management clients.

As a result of the seasonality of 19 Entertainment’s principal television properties, we expect that 19 Entertainment will generate lower revenue and negative OIBDA during the fourth quarter of 2006.

Our significant costs to operate 19 Entertainment include salaries and other compensation, rents and general overhead costs. Our discretionary costs include salary and overhead costs incurred in the development of new entertainment content.

MBST

MBST is a full service management company representing an array of leading entertainers including Robin Williams, Billy Crystal and Woody Allen. MBST also has an advisory relationship with Apple Corps Ltd., the holding corporation for the Beatles. In addition to its management activities, MBST produces motion pictures.

MBST earns revenue through arrangements with artists that result in MBST receiving a percentage of the artists’ performance revenue, from consulting fees paid by advisory clients and from participations in films it has produced. Executives and other employees of MBST are also actively involved in developing and implementing revenue enhancement opportunities for the Company’s other entertainment content and assets.

Our significant costs to operate MBST include salaries, rent and general overhead costs. Most of these costs do not vary significantly with our revenue.

Ali Business

The Ali Business consists of the commercial exploitation of the name, image, likeness and intellectual property of Muhammad Ali, primarily through endorsement and licensing arrangements.

The primary revenue source comes from licensing Muhammad Ali’s name and likeness for consumer products, commercials and other uses. Licensing revenue is primarily derived from long-term contracts with terms of one to five years. Although we seek to obtain significant minimum guarantees, our licensing revenue varies based on the actual product sales generated by licensees. The intellectual property that is owned by the Company is licensed to third parties for commercial exploitation under long-term agreements. Although we maintain certain controls over the use of this content and, in certain cases, have rights to terminate these agreements if the third party fails to perform, our revenue from this intellectual property is highly dependant upon the ability of third parties to successfully market the content. Most of our revenue sources are dependant upon the public’s continued interest in Muhammad Ali and associated intellectual property. The Ali Business also generates revenue from sports memorabilia signings performed by Mr. Ali.

Our significant costs to operate the Ali Business include commissions, salaries and other general overhead costs. With the exception of commissions, most of our costs do not vary significantly with our revenue.

Use of OIBDA

We evaluate our operating performance based on several factors, including a financial measure of operating income (loss) before non-cash depreciation of tangible assets and non-cash amortization of intangible assets (which we refer to as “OIBDA”). We consider OIBDA to be an important indicator of the operational strengths and performance of our businesses, including the ability to provide cash flows to service debt. However, a limitation of the use of OIBDA as a performance measure is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenue in our businesses. Accordingly, OIBDA should be considered in addition to, not as a substitute for, operating income (loss), net income (loss) and other measures of financial performance reported in accordance with US GAAP because OIBDA is not a GAAP equivalent measurement.

We have reconciled OIBDA to operating income in the following consolidated operating results tables for the three and nine months ended September 30, 2006 and 2005.

Consolidated Operating Results Three Months Ended September 30, 2006
Compared to Three Months Ended September 30, 2005

	Three Months Ended September 30, 2006				Three Months Ended September 30, 2005				Variance
	(in thousands)
Revenue		$	76,522			$	59,780		$	16,742
Operating expenses		63,811				54,907			8,904
Operating income		12,711				4,873			7,838
Interest (expense), net		(244		)		659			(903		)
Other income (loss)		(690		)		1,037			(1,727		)
Income before income taxes		11,777				6,569			5,208
Income tax expense		2,956				3,440			(484		)
Income before equity in earnings of affiliates and minority interest		8,821				3,129			5,692
Equity in earnings of affiliates		296				298			(2		)
Minority interest		(372		)		(312		)	(60		)
Net income		$	8,745			$	3,115		$	5,630
Operating income		$	12,711			$	4,873		$	7,838
Depreciation and amortization		5,309				4,401			908
OIBDA		$	18,020			$	9,274		$	8,746

Revenue

Revenue was $76.5 million for the three months ended September 30, 2006 compared to $59.8 million for the same period in 2005. The increase of $16.7 million is primarily attributable to a $15.3 million increase in revenue at 19 Entertainment, reflecting higher revenue associated with the American Idol tour. Revenue at the Presley Business increased $0.6 million primarily due to an increase in visitors and per visitor spending at Graceland. MBST contributed $0.9 million in revenue for the three months ended September 30, 2006 compared to $0.7 million from the date of acquisition in 2005. The Ali Business contributed $0.6 million in revenue for the three months ended September 30, 2006.

Operating Expenses

Operating expenses for the three months ended September 30, 2006 increased by $8.9 million over the same period in 2005. Of this increase, $4.4 million reflects the increase in operating expenses of 19 Entertainment, primarily related to higher costs associated with the American Idol tour and increased selling, general and administrative costs. Presley Business operating costs increased $0.3 million, primarily due to increased professional fees and amortization related to the acquisition of assets of an Elvis-themed museum in Las Vegas. MBST incurred operating costs of $1.4 million in the three months ended September 30, 2006, an increase of $0.6 million from 2005 due to the timing of the acquisition. The Ali Business incurred operating costs of $0.5 million in the three months ended September 30, 2006. Corporate expenses increased by $0.6 million for the three months ended September 30, 2006, reflecting increased headcount and increased accounting and audit-related expenses arising from our efforts to comply with the requirements of the Sarbanes-Oxley law. Other costs of $2.5 million in the three months ended September 30, 2006 reflect due diligence costs for potential acquisitions that are not likely to be consummated.

Operating Income

Operating income for the three months ended September 30, 2006 was $12.7 million, compared to operating income of $4.9 million for the three months ended September 30, 2005. The increase is attributable to a $10.9 million increase in operating income at 19 Entertainment, a $0.3 million increase at the Presley Business and $0.1 million of operating income generated by the Ali Business, offset by a $0.4 million decrease at MBST in 2006, a $0.6 million increase in corporate expenses and $2.5 million in other costs.

OIBDA

OIBDA increased by $8.7 million to $18.0 million for the three months ended September 30, 2006. The increase in OIBDA was primarily attributable to increases at 19 Entertainment and the Presley Business of $11.5 million and $0.4 million, respectively, and $0.1 million of OIBDA at the Ali Business, partially offset by a decline in OIBDA of $0.3 million at MBST and a $3.0 million increase in corporate and other expenses.

Interest Income/Expense, net

The Company had net interest expense of $0.2 million for the three months ended September 30, 2006 due to interest expense on the Company’s debt and costs associated with maintaining the Company’s revolving credit facilities offset by interest income on cash. The Company had net interest income of $0.7 million for the 2005 period, primarily attributable to interest income on the unused proceeds from the Company’s public stock offering on June 27, 2005.

Other Income (Loss)

Other loss of $0.7 million for the three months ended September 30, 2006 was primarily a result of foreign exchange losses generated at 19 Entertainment from transactions denominated in non-UK pound sterling currencies. Other income of $1.0 million for the three months ended September 30, 2005 was primarily a result of a foreign exchange gain on the Company’s deferred purchase consideration payable for 19 Entertainment.

Income Taxes

For the three months ended September 30, 2006, the Company’s effective tax rate was 25.1%. The Company recorded a provision for income taxes of $3.0 million for the three months ended September 30, 2006.

During the third quarter of 2006, the Company determined that it is more likely than not that the Company’s deferred tax assets for net operating loss carryforwards and other temporary differences of $7.5 million will be realized in 2006. In addition, the Company determined that it is more likely than not that it will be able to partially utilize foreign tax credits arising from foreign income taxes paid during 2006. Accordingly, the Company reduced the valuation allowance previously recorded against the net operating loss carryforwards and other temporary differences. The valuation allowance was recorded in prior periods because it was not more likely than not that these deferred tax assets would be realized in the future due to the Company’s short operating history, its strategic direction to make additional significant acquisitions and the uncertainty surrounding future taxable income. The Company now believes that there is sufficient certainty with respect to its tax position for the current year. The Company has achieved substantial taxable

income during the nine months ended September 30, 2006, has met internal financial forecasts and the uncertainty arising from the potential impact of additional acquisitions during the year has been reduced.

For the three months ended September 30, 2005, the Company recorded federal income tax expense of $2.3 million, state income tax expense of $0.8 million and foreign income tax expense of $0.3 million. For the three months ended September 30, 2005, the Company’s effective tax rate was 52.4%.

Equity in Earnings of Affiliates

The Company recorded $0.3 million of earnings in unconsolidated affiliates for the three months ended September 30, 2006 and 2005.

Minority Interest

Minority interest expense of $0.4 million and $0.3 million for the three months ended September 30, 2006 and 2005, respectively, reflect shares in the net income of the Presley Business and the Ali Business related to the equity interests retained by the former owners.

Net Income

Net income was $8.7 million for the three months ended September 30, 2006 compared to $3.1 million for the period in 2005.

The results of the Company’s five reportable segments are discussed below.

Presley Business

Revenue for the Presley Business was $13.9 million for the three months ended September 30, 2006, an increase of $0.6 million, or 5%, over the prior year period. Operating expenses for the Presley Business, including acquisition-related depreciation and amortization expenses of $0.6 million, were $10.7 million, an increase of $0.3 million, or 3%, over the prior year period. Operating income for the Presley Business for the three months ended September 30, 2006 was $3.2 million, an increase of $0.3 million, or 10%, from the prior period. OIBDA for the Presley Business was $4.4 million for the three months ended September 30, 2006, an increase of $0.4 million, or 10%, from the prior year period.

Royalties and Licensing

Revenue for the Royalties and Licensing segment was $2.7 million, a decrease of $0.1 million, or 4%, from the prior year period. This decrease was due to a $0.5 million decline in royalties from the sales of DVD’s of the “‘68 Special” and “Aloha from Hawaii” concerts, which were re-released in 2004, partially offset by higher name, image and likeness royalties from television commercials. Operating expenses for the Royalties and Licensing segment, including acquisition-related depreciation and amortization expenses of $0.6 million and $0.7 million in 2006 and 2005, respectively, were $1.9 million and $2.3 million, respectively, for the three months ended September 30, 2006 and 2005. The decrease of $0.4 million is due to higher production costs in 2005. OIBDA related to the Royalties and Licensing segment was $1.5 million for the three months ended September 30, 2006, compared to $1.3 million in the prior year period.

Graceland Operations

Revenue for the Graceland Operations segment, which includes several sources of revenue, was $11.2 million for the three months ended September 30, 2006, an increase of $0.7 million, or 7%, from the prior year period. Tour and exhibit revenue for the three months ended September 30, 2006 was $4.6 million, an increase of $0.7 million, or 18% from the prior year. This increase resulted from a 12.6% increase in per visitor spending and a 4.5% increase in visitors to 189,279 in 2006 from 181,181 in the prior period, which had been negatively impacted by Hurricane Katrina. The affect on domestic tourism to the Gulf Coast region as a result of Hurricane Katrina and higher gasoline prices seems to be abating, though group and international tourism is still down when compared to the prior year and attendance has not returned to 2004 levels. Certain events in the second quarter of 2006, including the taping of an American Idol episode at Graceland which aired in April and the visit by President Bush and the Prime Minister of Japan at the end of June also generated favorable publicity which we believe contributed to the increase in attendance. Per visitor spending improvement is partially due to an increase in visitors choosing the VIP premium tour option.

Revenue from Graceland’s retail operations was $4.5 million, a decrease of $0.1 million, or 2%, from the prior year. The decrease was due to non-recurring Elvis the Concert international merchandise sales of $0.5 million in 2005, offset by an increase in on-site merchandise sales of $0.3 million and a $0.1 million increase in the mail order retail business. Hotel room revenue of $1.1 million was up 4% from the prior year, as the average occupancy rate was flat and yield per room improved due to rate increases.

Operating expenses for the Graceland Operations segment were $8.8 million compared to $8.1 million in the prior period, an increase of $0.7 million, or 9%, due primarily to higher professional services and related costs associated with the potential redevelopment of Graceland and our new initiatives with Cirque du Soleil. OIBDA for the Graceland Operations segment was $2.9 million for the three months ended September 30, 2006, compared to $2.8 million in the prior year period.

19 Entertainment

Revenue for 19 Entertainment was $61.1 million for the three months ended September 30, 2006, an increase of $15.3 million, or 33%, over the prior year period. Operating expenses for 19 Entertainment, including acquisition-related depreciation and amortization expenses of $3.7 million, were $44.8 million, an increase of $4.4 million, or 11%, over the prior year period. The following table provides a breakdown of 19 Entertainment’s revenue, cost of sales, operating income and OIBDA for the three months ended September 30, 2006:

	Revenue		Cost of Sales
	(amounts in thousands)
American Idol (including television production, foreign syndication,sponsorship, merchandise and touring)	$	30,666		$	(12,950	)	$	17,716
Other IDOLS television programs (including license fees and sponsorship)	1,104			—			1,104
So You Think You Can Dance and other television productions	18,246			(13,751		)	4,495
Recorded music, management clients and other	11,059			(5,365		)	5,694
	$	61,075		$	(32,066	)	$	29,009
Selling, general and administrative expenses							(8,856		)
Depreciation and amortization							(3,900		)
Operating income							$	16,253
Operating income							$	16,253
Depreciation and amortization							3,900
OIBDA							$	20,153

The increase in revenue was primarily due to the growth of the American Idol 5 tour, which played 60 dates as compared to 40 dates for the American Idol 4 tour in the prior period. The American Idol 5 tour also benefited from strong ticket sales, better terms with the tour promoter and higher sponsorship revenues. Revenues for So You Think You Can Dance declined $3.4 million from the prior year period reflecting a shift in the commencement of airing from the third quarter of 2005 to the second quarter of 2006. So You Think You Can Dance broadcast 15 hours in the third quarter of 2006 as compared to 17.5 hours in the prior year period. Music revenues increased $4.0 million over the prior year period reflecting the continuing success of prior American Idol artists.

Operating expenses increased by $4.4 million, or 11%, in the three months ended September 30, 2006 over the prior year period reflecting increased tour costs and music royalties.

MBST

MBST contributed $0.9 million in revenue for the three months ended September 30, 2006, compared to $0.7 million for the period from the date of acquisition (August 9, 2005) through September 30, 2005. Operating expenses were $1.4 million and $0.8 million for the three months ended September 30, 2006 and the period from the date of acquisition through September 30, 2005, respectively. OBIDA was ($0.3) million and break-even for the three months ended September 30, 2006 and the period from the date of acquisition through September 30, 2005, respectively. The decline in OIBDA in 2006 reflects timing differences on new projects from certain major clients.

Ali Business

The Ali Business contributed $0.6 million in revenue for three months ended September 30, 2006. Operating expenses were $0.5 million. OBIDA was $0.1 million for the three months ended September 30, 2006.

Consolidated Operating Results Nine Months Ended September 30, 2006
Compared to Combined Nine Months Ended September 30, 2005

Prior to the acquisition of the Presley Business on February 7, 2005, the Company had no operations. As a result, the Presley Business is considered to be the predecessor company. To assist in the understanding of the results of operations of the Company, we have presented supplemental historical results of the Predecessor. For the purpose of management’s discussion and analysis of financial condition and results of operations, we have compared the results of the Company for the nine months ended September 30, 2006 to the Company’s results for the nine months ended September 30, 2005 combined with that of the Predecessor for the period January 1, 2005 to February 7, 2005. The results of operations of the Predecessor and CKX are not necessarily comparable, in part due to the change in basis resulting from the Company’s acquisition of the Predecessor. Although the combined 2005 financial information does not comply with generally accepted accounting principles, management is providing this information solely to explain changes in results of operations for the periods presented in the financial statements. The combined total column has been prepared on a different accounting basis than the Company for the period ended September 30, 2006. The combined total excludes the impact of additional depreciation and amortization expense resulting from the fair value accounting of acquired assets for the Presley Business for the predecessor period January 1, 2005 to February 7, 2005.

	CKX Nine Months Ended September 30, 2006				CKX Nine Months Ended September 30, 2005				Predecessor January 1 to February 7, 2005				Combined Total			Variance
					(in thousands)
Revenue		$	177,841			$	103,169			$	3,442		$	106,611		$	71,230
Operating expenses		144,888				97,787				2,980			100,767			44,121
Operating income		32,953				5,382				462			5,844			27,109
Interest (expense), net		374				(3,490		)		(115		)	(3,605		)	3,979
Write-off of unamortized deferred loan costs		—				(1,894		)		—			(1,894		)	1,894
Other income (loss)		(1,106		)		2,844				—			2,844			(3,950		)
Income (loss) before income taxes		32,221				2,842				347			3,189			29,032
Income tax expense (benefit)		12,115				1,730				152			1,882			10,233
Income (loss) before equity in earnings of affiliates and minority interest		20,106				1,112				195			1,307			18,799
Equity in earnings of affiliates		724				659				—			659			65
Minority interest		(1,034		)		(1,024		)		—			(1,024		)	(10		)
Net income (loss)		$	19,796			$	747			$	195		$	942		$	18,854
Operating income		$	32,953			$	5,382			$	462		$	5,844		$	27,109
Depreciation and amortization		15,163				10,079				126			10,205			4,958
OIBDA		$	48,116			$	15,461			$	588		$	16,049		$	32,067

Revenue

Revenue was $177.8 million for the nine months ended September 30, 2006 compared to $106.6 million for the combined 2005 period. The increase of $71.2 million is primarily attributable to $134.9 million of revenue at 19 Entertainment for the nine months ended September 30, 2006, up from $64.5 million from its date of acquisition (March 17, 2005) to September 30, 2005. Revenue at the Presley Business was $34.9 million for the nine months ended September 30, 2006, a decrease of $6.5 million compared to revenue of $41.4 million in the combined 2005 period. MBST contributed $4.7 million in revenue for the nine months ended September 30, 2006, an increase of $4.0 million compared to revenue of $0.7 million from its date of acquisition (August 9, 2005) to September 30, 2005. The Ali Business

contributed $3.3 million in revenue for the period from the date of acquisition (April 10, 2006) to September 30, 2006.

Operating Expenses

Operating expenses for the nine months ended September 30, 2006 were $144.9 million, representing an increase of $44.1 million over the combined prior period. Of this increase, $38.9 million reflects the increase in operating expenses of 19 Entertainment for the nine months ended September 30, 2006, compared to the period from the date of acquisition (March 17, 2005) through September 30, 2005, including $4.3 million in additional acquisition-related depreciation and amortization expenses. Presley Business operating costs decreased $4.2 million to $28.4 million in 2006, including $0.5 million in decreased acquisition-related depreciation and amortization expenses as a result of the finalization of the purchase valuation, primarily due to the costs incurred in 2005 associated with “Elvis by the Presleys.” MBST had operating costs of $4.3 million in the first nine months of 2006, up from $0.8 million from its date of acquisition (August 9, 2005) to September 30, 2005. The Ali Business had operating costs of $2.0 million in the period from the date of acquisition (April 10, 2006) to September 30, 2006. Corporate expenses increased by $2.9 million for the nine months ended September 30, 2006, reflecting the timing of the RFX Acquisition LLC acquisition of the Company, which resulted in only a partial period of corporate expenses being recorded in 2005 and increased headcount and increased accounting and audit-related expenses arising from our efforts to comply with the requirements of the Sarbanes-Oxley law. Other costs for the nine months ended September 30, 2006 reflect $3.2 million of due diligence costs for potential acquisitions that are not likely to be consummated. For the nine months ended September 30, 2005, the Company incurred $2.2 million of other costs related to the transition of the Company from an entity with no operations.

Operating Income

Operating income for the nine months ended September 30, 2006 was $32.9 million, compared to combined operating income of $5.8 million for the 2005 period. The increase is attributable to $39.2 million of operating income generated in the current period by 19 Entertainment, up from $7.7 million from its date of acquisition through September 30, 2005, $0.4 million of operating income generated by MBST in 2006, up from an operating loss of $0.1 million from its date of acquisition through September 30, 2005, $1.3 million of operating income generated by the Ali Business in the period from the date of acquisition to September 30, 2006, partially offset by a $3.9 million increase in corporate and other expenses for the current period and a $2.3 million decrease in operating income at the Presley Business.

OIBDA

OIBDA increased by $32.1 million to $48.1 million for the nine months ended September 30, 2006 as higher OIBDA attributable to 19 Entertainment, MBST and the Ali Business of $36.1 million, $1.0 million and $1.4 million, respectively, for the nine months ended September 30, 2006 were partially offset by a $3.9 million increase in corporate and other expenses and a decrease in OIBDA of $2.5 million at the Presley Business.

Interest Income/Expense, net

The Company had net interest income of $0.4 million for the nine months ended September 30, 2006, attributable to $1.1 million in interest income generated from cash and marketable securities, offset in part by $0.7 million of interest expense on the Company’s debt and costs associated with maintaining the Company’s revolving credit facilities. The Company had net interest expense of $3.6 million for the combined 2005 period attributable to interest costs associated with borrowings incurred to finance the

acquisitions of the Presley Business and 19 Entertainment. These borrowings were repaid in June 2005 with the proceeds from the Company’s public offering of common stock.

Deferred Loan Cost Write-Off

In the prior year, unamortized deferred loan costs of $1.9 million were expensed when the short-term senior loans used to finance the Presley Business and 19 Entertainment acquisitions were re-paid in June 2005 from the proceeds of the Company’s public offering of common stock.

Other Income (Loss)

Other loss of $1.1 million for the nine months ended September 30, 2006 was primarily a result of foreign exchange losses generated at 19 Entertainment from transactions denominated in non-UK pound sterling currencies. Other income of $2.8 million for the nine months ended September 30, 2005 was primarily a result of a foreign exchange gain on the Company’s deferred purchase consideration payable for 19 Entertainment.

Income Taxes

For the nine months ended September 30, 2006, the Company’s effective tax rate was 37.6%. The Company recorded a provision for income taxes of $12.1 million for the nine months ended September 30, 2006.

For the nine months ended September 30, 2005, the Company recorded federal income tax expense of $0.1 million, state income tax expense of $1.3 million and foreign income tax expense of $0.3 million. For the nine months ended September 30, 2005, the Company’s effective tax rate was 60.9%.

Equity in Earnings of Affiliates

The Company recorded $0.7 million of earnings in unconsolidated affiliates for the nine months ended September 30, 2006 and 2005, respectively.

Minority Interest

Minority interest expense of $1.0 million for the nine months ended September 30, 2006 and 2005 reflect shares in the net income of the Presley Business and the Ali Business related to the equity interests retained by the former owners.

Net Income

Net income was $19.8 million in 2006 compared to a combined net income of $0.9 million in 2005.

The results of the Company’s five reportable segments are discussed below.

Presley Business

Revenue for the Presley Business was $34.9 million for the nine months ended September 30, 2006, a decrease of $6.5 million, or 16%, from the combined prior year period. Operating expenses for the Presley Business, including acquisition-related depreciation and amortization expenses of $1.9 million, were $28.4 million, representing a decrease of $4.2 million, or 13%, from the combined prior year period. Operating income for the Presley Business for the nine months ended September 30, 2006 was $6.5 million, a decrease of $2.3 million, or 26%, from the prior period. OIBDA for the Presley Business was $9.8 million for the nine months ended September 30, 2006, a decrease of $2.5 million, or 20%, from the combined prior year period.

Royalties and Licensing

Revenue for the Royalties and Licensing segment was $9.3 million, a decrease of $8.0 million, or 46%, from the prior year combined period. This decrease was largely due to $5.7 million of revenue generated in 2005 from the television broadcast of “Elvis by the Presleys,” and the release of a related DVD and book . The remaining decrease includes $2.0 million in lower royalties in 2006 from the sales of DVDs of the “Aloha from Hawaii” and “‘68 Special” concerts which were re-released in 2004, license fees of $0.7 million in 2005 for a separate television miniseries and a decline in revenue from commercials and other projects of $0.3 million. Partially offsetting these revenue declines was the receipt of $0.6 million from a royalty audit settlement with SonyBMG in 2006. Operating expenses for the Royalties and Licensing segment, including acquisition-related depreciation and amortization expenses of $1.9 million and $2.5 million in 2006 and 2005, respectively, were $5.4 million and $11.8 million for the nine months ended September 30, 2006 and 2005, respectively. $5.7 million of the decrease was attributable to production costs and other expenses for “Elvis by the Presleys” in 2005. OIBDA for the Royalties and Licensing segment was $5.8 million for the nine months ended September 30, 2006, compared to $8.0 million in the combined prior year period.

Graceland Operations

Revenue for the Graceland Operations segment, which includes several sources of revenue, was $25.6 million for the nine months ended September 30, 2006, an increase of $1.5 million, or 6%, from the combined prior year period. Tour and exhibit revenue for the nine months ended September 30, 2006 was $10.3 million, an increase of $0.9 million, or 10% over the prior year. This increase resulted from a 13% increase in per visitor spending partially offset by a 3% decline in visitors from 449,089 to 435,336. We believe that the decline in year-to-date attendance was due to the impact of Hurricane Katrina and higher gasoline prices. Though we are unable to predict when or if tourism levels in the region will fully return to historical levels, we have seen an improvement in attendance of 4.5% in the third quarter of 2006 over the prior period. Certain events in the second quarter of 2006, including the taping of an American Idol episode at Graceland which aired in April and the visit by President Bush and the Prime Minister of Japan at the end of June, generated favorable publicity which we believe has contributed to the increase in attendance. Per visitor spending improvement is partially due to an increase in visitors choosing the VIP premium tour option.

Revenue from Graceland’s retail operations was $10.1 million, an increase of $0.4 million, or 4% over the prior period, resulting primarily from a change in July 2005 to the mail order retail business where the Company now bears the business risk for sales and related expenses and therefore records sales and cost of sales. During the first seven months of 2005, mail order retail sales were outsourced and the Company received a commission based on net sales. Graceland on-site retail sales increased 1.7% in 2006, which is attributable to an increase in per visitor spending of 6% offset by the 3% decline in attendance. Hotel room revenue was $2.8 million, an increase of $0.1 million or 4% over the prior year.

Operating expenses for the Graceland Operations segment were $23.0 million compared to $20.8 million in the combined prior period, an increase of $2.2 million, or 11%, due to amortization related to the purchase of rights to an Elvis-themed museum in Las Vegas, higher fulfillment and distribution costs for the mail order retail sales business, higher professional services and related costs associated with the potential redevelopment of the Graceland attraction and a general increase in operating costs. OIBDA for the Graceland Operations segment was $4.0 million for the nine months ended September 30, 2006, compared to $4.3 million in the combined prior year period.

19 Entertainment

Revenue for 19 Entertainment was $134.9 million for the nine months ended September 30, 2006, an increase of $70.4 million, or 109%, over the prior period from the date of acquisition, March 17, 2005, through September 30, 2005. Operating expenses for 19 Entertainment, including acquisition-related depreciation and amortization expenses of $10.6 million, were $95.7 million, an increase of $38.9 million, or 68%, over the prior period. The following table provides a breakdown of 19 Entertainment’s revenue, cost of sales, operating income and OIBDA for the nine months ended September 30, 2006:

	Revenue		Cost of Sales
	(amounts in thousands)
American Idol (including television production, foreign syndication, sponsorship, merchandise and touring)	$	66,939		$	(19,734	)	$	47,205
Other IDOLS television programs (including license fees and sponsorship)	5,293			(61		)	5,232
So You Think You Can Dance and other television productions	34,791			(27,804		)	6,987
Recorded music, management clients and other	27,934			(14,187		)	13,747
	$	134,957		$	(61,786	)	$	73,171
Selling, general and administrative expenses							(22,816		)
Depreciation and amortization							(11,174		)
Operating income							$	39,181
Operating income							$	39,181
Depreciation and amortization							11,174
OIBDA							$	50,355

The revenue increase of $70.4 million in the nine months ended September 30, 2006 over the prior period is primarily due to an increase in revenue for American Idol 5 due to the November 2005 amended Fox agreement, increased broadcast hours of So You Think You Can Dance, an expanded American Idol 5 tour and the recognition of a full nine months of CKX ownership in 2006.

American Idol 5 aired 45 series hours in the U.S. between January and May 2006. 19 Entertainment recognized $9.0 million in incremental guaranteed license fees in 2006 from the amended Fox agreement. 19 Entertainment also receives a premium license fee per hour from Fox on an escalating scale for broadcast hours in excess of 26.5 hours per season; premium license fee revenue was recorded for 18.5 hours. In addition to the license fees, Fox also paid higher bonus fees in 2006 reflecting the higher

ratings for American Idol 5 in its targeted demographics. Also recorded as revenue was 19 Entertainment’s share of the production savings. Additionally, an annual fee of $5.0 million paid by Fox to 19 Entertainment for designating SonyBMG as the continuing record label for American Idol artists and for featuring certain SonyBMG controlled talent on the show. The American Idol 5 tour played 60 dates as compared to 40 dates for the American Idol 4 tour in the prior period. The American Idol 5 tour benefited from strong ticket sales, better terms with the tour promoter and higher sponsorship revenues. Revenues for So You Think You Can Dance increased to $35.0 million from $21.6 million in the prior year reflecting an increase in broadcast hours to 30 hours as compared to 17.5 hours in the prior year. Music revenues increased over the prior year period reflecting the continuing success of prior American Idol artists.

American Idol 4 aired 38.5 hours in the U.S. in 2005. Our results of operations for the period from the date of acquisition, March 17, 2005, through September 30, 2005 included the broadcast of 18.0 hours of American Idol 4 and excluded 20.5 hours which aired prior to the acquisition date.

Operating expenses increased by $38.9 million in the nine months ended September 30, 2006 over the prior period reflecting the cost of producing additional hours of the So You Think You Can Dance television program, higher tour costs and increased music royalties.

MBST

MBST contributed $4.7 million and $0.7 million in revenue for the nine months ended September 30, 2006 and for the period from the date of acquisition (August 9, 2005) through September 30, 2005, respectively. Operating expenses for the same periods, including acquisition-related depreciation and amortization expenses of $0.6 million and $0.1 million, respectively, were $4.3 million and $0.8 million, respectively. OBIDA was $1.0 million and break-even for the nine months ended September 30, 2006 and for the period from the date of acquisition through September 30, 2005, respectively.

Ali Business

The Ali Business contributed $3.3 million in revenue for the period from the date of acquisition (April 10, 2006) to September 30, 2006, $1.3 million of which was related to sports memorabilia signings by Mr. Ali. Operating expenses for the period were $2.0 million. OBIDA was $1.4 million for the period from the date of acquisition to September 30, 2006.

Liquidity and Capital Resources

Revolving Credit Facility—On May 24, 2006, the Company entered into a $125.0 million revolving credit agreement (the “Credit Facility”) with various lenders, including Bear, Stearns & Co. Inc. Loans under the Credit Facility are guaranteed by all of the Company’s wholly-owned domestic subsidiaries and certain of its wholly-owned foreign subsidiaries. The loans are secured by a pledge of certain assets of the Company and its subsidiary guarantors, including ownership interests in all wholly-owned domestic subsidiaries, substantially all wholly-owned foreign subsidiaries and certain subsidiaries that are not wholly-owned. The Credit Facility replaced the Company’s previous $50.0 million financing commitment. As of September 30, 2006, the Company had not drawn on the Credit Facility. Loans under the Credit Facility are available to the Company for general corporate purposes and to finance future acquisitions and joint ventures. Base rate loans under the Credit Facility will bear interest at a rate equal to the greater of (i) the prime rate or (ii) the federal funds rate, plus 50 basis points. Eurodollar loans under the Credit Facility will bear interest at a rate determined by a formula based on a published Telerate rate, adjusted for the reserve requirements prescribed for eurocurrency funding by a member bank of the Federal Reserve, plus 150 basis points. Any loans under the Credit Facility must be repaid by May 24, 2011. A commitment fee of 0.50% on the daily unused portion of the Credit Facility is payable monthly in arrears. The Credit Facility requires the Company and its subsidiaries to maintain certain financial covenants, including (a) a

maximum debt to EBITDA ratio of 4.5 to 1.0 and (b) a minimum EBITDA to interest expense ratio. Under the terms of the Credit Facility, EBITDA is defined as consolidated net income plus income tax expense, interest expense, depreciation and amortization expense, extraordinary charges and non-cash charges and minus interest income, extraordinary gains and any other non-cash income. The Credit Facility also contains covenants that regulate the Company’s and its subsidiaries’ incurrence of debt, disposition of property and capital expenditures.

Cash Flow for the nine months ended September 30, 2006 and 2005

Operating Activities

Net cash provided by operating activities was $46.1 million for the nine months ended September 30, 2006, reflecting net income of $19.8 million, which includes depreciation and amortization expenses of $15.2 million and the impact of seasonal changes in working capital levels.

Net cash provided by operating activities was $23.6 million for the nine months ended September 30, 2005 reflecting net income of $0.7 million, which includes depreciation and amortization expenses of $10.1 million and the impact of seasonal changes in working capital levels.

Investing Activities

Net cash used in investing activities was $31.0 million for the nine months ended September 30, 2006. Cash paid for the Ali Business, certain assets of a Las Vegas-based Elvis-themed museum, a company that provides marketing services to advertisers to build relationships between consumers and their brands and 50% of a previously 50%-owned affiliate by 19 Entertainment totaled $64.8 million. The Company sold $42.6 million of marketable securities during the nine months ended September 30, 2006. Capital expenditures of $8.8 million included the purchase of additional land adjacent to Graceland and improvements to the Heartbreak Hotel.

Net cash used in investing activities was $291.5 million for the nine months ended September 30, 2005. Cash paid for acquisitions and related costs were $210.8 million. $80.0 million of proceeds from the public offering of common stock were invested in marketable securities. Capital expenditures were $0.7 million.

Financing Activities

Cash used in financing activities was $6.5 million for the nine months ended September 30, 2006. During the nine months ended September 30, 2006, the Company made payments totaling $3.1 million for costs associated with the new revolving credit facility, distributions to minority interest shareholders of $1.5 million, principal payments on notes payable of $0.5 million and dividend payments of $1.4 million to the holder of the Series B Convertible Preferred Stock.

Cash provided by financing activities was $304.7 million for the nine months ended September 30, 2005. The net proceeds from the June 2005 public offering of common stock after underwriting discounts and commissions and other offering costs were $233.0 million. The Company received $43.8 million of net proceeds from the Huff investment and $30.0 million proceeds from warrant exercises. Acquisition-related borrowings of $148.0 million under the short-term credit facilities in 2005 were repaid on June 27, 2005.

Uses of Capital

At September 30, 2006, the Company had $3.8 million of debt outstanding and $49.2 million in cash and cash equivalents.

We believe that our current cash on hand together with the Company’s revolving credit facility and cash flow from operations will be sufficient to fund our current operations, including payments of interest

and principal due on the Company’s debt, dividends on our Series B Convertible Preferred Stock, mandatory minimum distributions to the minority shareholder in the each of the Presley Business and Ali Business and capital expenditures.

Capital Expenditures

We presently anticipate that our total capital expenditures for the remainder of 2006, primarily related to land purchases in the vicinity around Graceland, will total approximately $1.5 million.

On February 23, 2006, we announced preliminary plans to re-develop our Graceland attraction including an expanded visitors center, developing new attractions and merchandising shops and building a new boutique convention hotel. This project is conditioned on a number of factors, including obtaining necessary approvals and concessions from local and state authorities and attracting an appropriate hotel partner. Although we have not yet determined the exact scope, cost, financing plan and timing of this project, we expect that the re-development of Graceland will take several years and could require a substantial financial investment by the Company.

Future Acquisitions

We intend to acquire additional businesses that fit our strategic goals. We expect to finance our future acquisitions of entertainment related businesses from cash on hand, our revolving credit facility, new credit facilities, additional debt and equity offerings, issuance of our equity directly to sellers of businesses and cash flow from operations. However, no assurance can be given that we will be able to obtain adequate financing to complete any potential future acquisitions we might identify.

Dividends

Our Series B Convertible Preferred Stock requires payment of a cash dividend of 8% per annum in quarterly installments. On an annual basis, our total dividend payment on the Series B Convertible Preferred Stock is $1.8 million. If we fail to make our quarterly dividend payments to the holders of the Series B Convertible Preferred Stock on a timely basis, the dividend rate increases to 12% and all amounts owing must be paid within three business days in shares of common stock valued at the average closing price over the previous 30 consecutive trading days. After such payment is made, the dividend rate returns to 8% per annum.

We have no intention of paying any dividends on our common stock for the foreseeable future.

Commitments and Contingencies

There are various lawsuits and claims pending against us and which we have initiated against others. We believe that any ultimate liability resulting from these actions or claims will not have a material adverse effect on our results of operations, financial condition or liquidity.

In addition to our scheduled maturities of debt, obligations to redeem preferred stock and obligations to the seller of the Presley Business, to certain sellers of 19 Entertainment and to the sellers of MBST and the Ali Business, we have future cash obligations under various types of contracts. We lease office space and equipment under long-term operating leases. We have also entered into long-term employment agreements with certain of our executives and other key employees. These employment agreements typically contain provisions that allow us to terminate the contract with good cause.

On August 17, 2006, the Company announced that, together with its subsidiaries, Elvis Presley Enterprises, Inc. and Elvis Presley Enterprises LLC, it has reached an agreement with Cirque du Soleil and MGM MIRAGE (“MGM”) to create a permanent Elvis Presley show at MGM’s CityCenter hotel/casino, which is currently under construction in Las Vegas. The new Elvis Presley show is expected to open with

the CityCenter hotel/casino in November 2009. CKX and Cirque du Soleil have each agreed to pay one-half of the creative development and production costs of the new Elvis Presley show. CKX expects its portion of the investment to be approximately $24 million, with the largest amount expected to be funded in the later stages of development.

Inflation

Inflation has affected the historical performances of the businesses primarily in terms of higher operating costs for salaries and other administrative expenses. Although the exact impact of inflation is indeterminable, we believe that the Presley Business has offset these higher costs by increasing prices at Graceland and for intellectual property licenses and that 19 Entertainment has offset these higher costs by increasing fees charged for its production services and higher royalty and sponsorship rates.

Critical Accounting Policies

During the nine months ended September 30, 2006, there have been no significant changes related to the Company’s critical accounting policies and estimates as disclosed in the Company’s Form 10-K for the year ended December 31, 2005.

Off Balance Sheet Arrangements

As of September 30, 2006, we did not have any off balance sheet arrangements.

Item 3. Quantitative And Qualitative Disclosure About Market Risk

We are exposed to market risk arising from changes in market rates and prices, including movements in foreign currency exchange rates, interest rates and the market price of our common stock. To mitigate these risks, we may utilize derivative financial instruments, among other strategies. We do not use derivative financial instruments for speculative purposes.

Interest Rate Risk

We had $3.8 million of total debt outstanding at September 30, 2006, none of which was variable rate debt. Accordingly, we are not currently exposed to changes in interest rates.

Any future borrowings under the Company’s revolving credit facility commitment would be variable rate debt and the Company would therefore have exposure to interest rate risk.

Foreign Exchange Risk

We have significant operations outside the United States, principally in the United Kingdom. Some of our foreign operations are conducted in local currencies. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets in which we operate.

Assuming a hypothetical weakening of the U.S. dollar exchange rate with the U.K. pound sterling of 10%, our net income for the nine months ended September 30, 2006 would have decreased by approximately $1.6 million, reflecting an excess of U.K. pound sterling denominated operating expenses over U.K. pound sterling denominated revenue.

As of September 30, 2006, we have not entered into any foreign currency option contracts or other financial instruments intended to hedge our exposure to changes in foreign exchange rates. We intend to continue to monitor our operations outside the United States and in the future may seek to reduce our exposure to such fluctuations by entering into foreign currency option contracts or other hedging arrangements.

19 Entertainment Put Option

In connection with the acquisition of 19 Entertainment, certain sellers of 19 Entertainment entered into a Put and Call Option Agreement that provides them with certain rights whereby, during a short period following the six year anniversary of the acquisition, these sellers can exercise a put right to sell 1,672,170 shares of the Company’s common stock to the Company at a price equal to $13.18 per share. If the Company’s stock price is below $13.18 per share during the period that the put is exercisable and the sellers exercise this put right, the Company will have exposure to market risk for the amount that $13.18 per share exceeds the then market price of the stock for the number of shares put back to the Company.

Item 4. Controls and Procedures

Management, with the participation of the Company’s chief executive officer, Robert F.X. Sillerman, and its chief financial officer, Thomas P. Benson, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15 (e) or 15d-15 (e)) as of September 30, 2006. Based on this evaluation, the chief executive officer and financial officer have concluded that, as of that date, disclosure controls and procedures required by paragraph (b) of Exchange Act rules 13a-15 or 15d-15, were not effective because of the identification of a material weakness in internal control over financial reporting, which the Company views as an integral part of its disclosure controls and procedures. The material weakness relates to the ineffective oversight and review of the Company’s accounting for income taxes.

Management has begun to implement additional oversight and review procedures designed to strengthen its internal controls relating to the accounting for income taxes, including engaging an accounting firm to assist us in this area.

Part II—Other Information

Item 6. Exhibits

Exhibit No.				Description
3.1				Certificate of Incorporation (Previously filed as Exhibit 3.1 to the Form 10-KSB filed September 30, 2005, and incorporated herein by reference).
3.2				By-Laws (Previously filed as Exhibit 3.2 to the Form 10-KSB filed September 30, 2005, and incorporated herein by reference).
4.1				Registration Rights Agreement, dated March 17, 2005, by and among the Company, Simon Robert Fuller and Fuller Nominees Limited (Previously filed as Exhibit 4.2 to the Form 10-QSB for the period ended September 30, 2005, and incorporated herein by reference).
4.2				Registration Rights Agreement, dated February 7, 2005 between the Company and The Huff Alternative Fund, L.P. (Previously filed as Exhibit 4.4 to the Form 8-K/A filed February 11, 2005, and incorporated herein by reference).
4.3				Letter Agreement dated June 6, 2005, among the Company, The Huff Alternative Fund, L.P. and The Huff Alternative Parallel Fund, L.P. (Previously filed as Exhibit 4.9 to Amendment No. 3 to Form S-1/A (Registration Statement No. 333-123995) filed June 21, 2005 and incorporated herein by reference).
4.4				Registration Rights Agreement, dated February 7, 2005 between the Company and The Promenade Trust (Previously filed as Exhibit 4.5 to the Form 8-K/A filed February 11, 2005, and incorporated herein by reference).
4.5				Form of Common Stock Purchase Warrant, dated as of February 7, 2005, to purchase shares of common stock of the Company (Previously filed as Exhibit 4.6 to the Form 8-K/A filed February 11, 2005, and incorporated herein by reference).
4.6				Form of Promissory Term Note made on February 7, 2005, payable to Priscilla Presley (Previously filed as Exhibit 4.8 to the Form 8-K/A filed February 11, 2005, and incorporated herein by reference).
31.1				Certification of Principal Executive Officer (Filed herewith).
31.2				Certification of Principal Financial Officer (Filed herewith).
32.1				Section 1350 Certification of Principal Executive Officer (Filed herewith).
32.2				Section 1350 Certification of Principal Financial Officer (Filed herewith).

SIGNATURES

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.

		CKX, INC.
	BY:	/s/ ROBERT F.X. SILLERMAN
		Name:	Robert F.X. Sillerman
		Title:	Chief Executive Officer and Chairman of the Board
	BY:	/s/ THOMAS P. BENSON
		Name:	Thomas P. Benson
		Title:	Chief Financial Officer, Executive Vice President and Treasurer
DATE: November 8, 2006

INDEX TO EXHIBITS

Exhibit No.				Description
31.1				Certification of Principal Executive Officer.
31.2				Certification of Principal Financial Officer.
32.1				Section 1350 Certification of Principal Executive Officer.
32.2				Section 1350 Certification of Principal Financial Officer.

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. junior Avg

CKX (CKXE) Inactive 10-Q2006 Q3 Quarterly report

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