OUTDOOR CHANNEL HOLDINGS INC - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

(Edgar Glimpses Via Acquire Media NewsEdge) Significant components of management's discussion and analysis of results of operations and financial condition include: • Overview and Strategy. The overview and strategy section provides a summary of our business.

• Consolidated Results of Operations. The consolidated results of operations section provides an analysis of our results on a consolidated basis for the year ended December 31, 2012 compared to the year ended December 31, 2011.

• Segment Results of Operations. The segment results of operations section provides an analysis of our results on a reportable operating segment basis for the year ended December 31, 2012 compared to the year ended December 31, 2011.

• Consolidated Results of Operations for the Prior Year Period. The consolidated results of operations section provides an analysis of our results on a consolidated basis for the year ended December 31, 2011 compared to the year ended December 31, 2010.

• Segment Results of Operations for the Prior Year Period. The segment results of operations section provides an analysis of our results on a reportable operating segment basis for the year ended December 31, 2011 compared to the year ended December 31, 2010.

• Liquidity and Capital Resources. The liquidity and capital resources section provides a discussion of our cash flows for the year ended December 31, 2012 compared to the year ended December 31, 2011 and our liquidity as of December 31, 2012.

OVERVIEW AND STRATEGY Outdoor Channel Holdings, Inc. is an entertainment and media company. We are organized into three operating segments, Outdoor Channel or TOC, Production Services which includes solely our Winnercomm results and Aerial Cameras which includes SkyCam and CableCam. Each of these operating segments has unique characteristics and faces different opportunities and challenges. An overview of our three operating segments follows.

25-------------------------------------------------------------------------------- Table of Contents Our core business, TOC, is engaged in the development, production and broadcast of traditional outdoor programming such as hunting, fishing and shooting. With hunting season being in the second half of the calendar year, the success of our hunting programming during this same time has been the main driver of our stronger financial performance in the second half of the year. We continue to broaden our programming offerings in the first half of the year in an attempt to improve our financial performance during that same period. Our fishing programming includes notable fishing programs like Bassmasters, Madfin Shark Series, Spanish Fly and Zona. In addition, we introduced Major League Fishing, a new program which features 24 of the top anglers in the United States which provides us with opportunities to bolster this type of programming. Overall, in addition to increasing revenue opportunities in the first half of the year, we believe this strategy will generate growth in our revenue from improving our program viewership ratings and increasing our distribution.

Our Production Services segment, which is made up entirely of our Winnercomm production entity, is closely aligned with our core focus on outdoor programming, but it also produces scripted and live event sports television and provides website services to other third parties.

Our Aerial Cameras segment, which we acquired along with the purchase of Winnercomm in 2009, is the dominant U.S. provider of sports-related aerial filming services. As we believe our Aerial Cameras segment is not strategically essential to our core outdoor business and will likely require significant capital investments to accelerate its growth, we announced in June 2012 that we are exploring strategic alternatives for this business and that process is still ongoing.

Recent Developments As described in Part I, Item 1 of this report, on March 13, 2013, we entered into the KSE Merger Agreement with KSE and KSE Merger Sub, Inc., pursuant to which, subject to the satisfaction or waiver of certain conditions therein, KSE Merger Sub will merge with and into Outdoor Channel Holdings, Inc. As a result of the merger, KSE Merger Sub will cease to exist, and Outdoor Channel Holdings, Inc. will survive as an indirect wholly owned subsidiary of KSE. Following the closing, our shares will no longer be listed for trading on NASDAQ.

Upon the consummation of the merger, subject to the terms of the KSE Merger Agreement, which has been unanimously approved by our Board of Directors, each of our shares of common stock issued and outstanding immediately prior to the effective time of the KSE Merger (other than shares held in treasury stock, shares held by any of our direct or indirect subsidiaries, shares held by KSE or any of its subsidiaries and shares for which holders have properly perfected and not withdrawn a demand for appraisal pursuant to Delaware General Corporation Law) will be automatically converted into and thereafter represent the right to receive $8.75 in cash, without interest.

The completion of the merger is subject to customary conditions, including without limitation, (i) approval of the merger by our stockholders; (ii) expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

The execution of the KSE Merger Agreement followed the determination by our Board of Directors that the terms of KSE proposal constituted a Superior Proposal under the terms of the InterMedia Merger Agreement. Prior to entering into the KSE Merger Agreement, we terminated the InterMedia Merger Agreement and paid InterMedia a termination fee of $6.5 million as required by the terms of the InterMedia Merger Agreement.

Outdoor Channel Outdoor Channel is a national television network devoted primarily to traditional outdoor activities, such as hunting, fishing and shooting sports and other outdoor related lifestyle programming. TOC revenues consist primarily of advertising fees, including those from advertisements aired on Outdoor Channel and fees paid by third-party producers to purchase advertising time in connection with the airing of their programs on Outdoor Channel, and subscriber fees paid by cable, satellite and telephone company distributors that air Outdoor Channel.

Our advertising revenue for TOC consists of advertising bought on our cable network and advertising revenue related to ads placed on our website, outdoorchannel.com. Advertising revenues are generally driven by audience delivery, which in turn are determined by our subscriber base and the ratings our programs achieve in those homes. A portion of TOC's advertising contracts, primarily those with national non-endemic advertisers, may guarantee the advertiser a minimum audience for its advertisements over the term of the contracts. This requires us to make estimates of the audience size that will be delivered throughout the terms of the contracts at the time we enter into such contracts. We base our estimate of audience size primarily on our Nielsen ratings from prior years. If after running the advertising we determine we did not deliver the guaranteed audience, an accrual for "make-good" advertisements is recorded as a reduction of revenue, and we then provide the advertiser with additional advertising time to reach the aggregate minimum audience that we guaranteed and then recognize such revenue at that time. Any estimated make-good accrual is adjusted throughout the terms of the advertising contracts. The continued growth of our advertising revenues will, to a certain extent, be dependent on the growth of our audience viewing and subscriber base, as well as the general health of the advertising marketplace.

For December 2012, Nielsen estimated that Outdoor Channel had 38.6 million subscriber homes compared to 35.4 million for the same period a year ago.

Nielsen revises its estimate of the number of subscribers to our channel each month and there is usually a lag of 2-3 months before Nielsen captures any new launches or tier migrations. For March 2013 Nielsen's estimate increased to 39.1 million subscribers. Nielsen is the leading provider of television audience measurement and advertising information services worldwide, and its estimates and methodology are generally accepted and used in the advertising industry. Our March 2013 Nielsen estimate of 39.1 million subscribers is the highest Outdoor Channel has ever achieved. The estimate regarding Outdoor Channel's subscriber base is made by Nielsen Media Research and is theirs alone, and does not represent our opinions, forecasts or predictions. It should not be implied that we endorse nor necessarily concur with such information, simply due to our reference to or distribution of their estimate. There can be no assurances that there will be any correlation between our actual paying subscribers compared to Nielsen's estimate.

We continue to pursue subscriber growth by utilizing various incentives, including offering lower per-subscriber fees for broader distribution, payment of subscriber acquisition or launch support fees and committing TOC marketing dollars among other tactics. Any subscriber acquisition or launch support fees are capitalized and amortized over the period that the pay 26-------------------------------------------------------------------------------- Table of Contents television distributor is required to carry the newly acquired TOC subscriber.

To the extent revenue is associated with the incremental subscribers, the amortization is charged to offset the related revenue. Any excess of launch support amortization over the related subscriber fee revenue is charged to expense as other direct costs. During 2012, we gained approximately 1.9 million subscribers through carriage upgrades in the northeastern United States. Due to penetration discounts, we do not expect a significant increase in subscriber fees from these systems.

While we are 100% programmed in high-definition format ("HD"), our HD signal is only carried on a subset of our overall subscriber base. We currently have approximately 15.3 million HD subscriber homes, all of which are on cable or telephone systems. We are continuing our efforts to increase the carriage of our HD signal as we deem this to be an important competitive feature.

We increased our programming expenditures in 2012 and expect to continue to see increases in programming costs as we believe we need to invest in our programming brand given the increased viewing alternatives, including competitors with similar outdoor themed programming. Our advertising and marketing expense increased in 2012 compared to 2011, partially driven by marketing focused on new distribution we achieved in the latter part of 2011 and in 2012. While we believe these investments in programming and marketing will help assure our long term growth, they may have a dampening effect on TOC's operating income in the near term.

Production Services Production Services is comprised solely of our wholly owned subsidiary, Winnercomm, Inc., which is involved in the production, development and marketing of sports programming. Production Services revenues include revenues from sponsorship, sales representation fees on television advertising sold on behalf of client advertisers, revenues from production services for customer-owned telecasts, and revenue from website design, management, marketing and hosting fees.

Since our acquisition of Winnercomm in January 2009, we have been focused on eliminating Winnercomm's low margin production and non-strategic business and returning the segment to profitability. This has resulted in a material reduction of the segment's third-party revenues and gross profits. Our Winnercomm unit is increasingly being used to produce high quality programming for TOC, including Major League Fishing ("MLF") and Elite Tactical Unit ("ETU"), the latter a new program that launched on TOC in January 2013.

Aerial Cameras Our Aerial Cameras segment is comprised of our SkyCam and CableCam entities, which were acquired in connection with our Winnercomm acquisition in January 2009. These entities are engaged in providing aerial camera services for customer owned telecasts. Most of the segment's revenues relate to professional and college football, but we also provide services, although to a much lesser extent, for other sports such as baseball, soccer and hockey and for special events such as concerts. In an effort to expand our business to other areas outside of football and sports in general, in April 2012 we signed our first ever contract with a U.S. government prime contractor related to a U.S. military project, which we hope will become a new and growing customer group for us.

In the second quarter of 2012 one of our key network clients exercised their option to extend our agreement covering NFL football games for two additional years and also awarded us additional college football games for the 2012 and 2013 seasons.

During 2011 our Aerial Cameras segment received a favorable jury verdict on our legal actions against ActionCam and its founder, a competitor to our aerial camera business which we initiated suit against in 2009 for misappropriation of trade secrets, breach of separation agreement and unfair competition. In late September 2012, the court issued final orders in the matter upholding the jury award to SkyCam and further awarding SkyCam a royalty per each event covered by ActionCam from September 1, 2009 through March 1, 2013. In October 2012, the Company filed a claim with the court for ActionCam to reimburse the Company for legal fees incurred in connection with the suit. The Company has not recorded any awards or royalty income from ActionCam as there is no certainty that ActionCam has the ability to pay these awards and might appeal the court's decision.

27 -------------------------------------------------------------------------------- Table of Contents As we believe our Aerial Cameras segment is not strategically essential to our core outdoor business and will likely require significant capital investments to accelerate its growth, we announced in June 2012 that we are exploring strategic alternatives for this business and that process is still ongoing.

Seasonality All of our segments generate a higher proportion of their revenue and operating income in the second half of our fiscal year due to higher viewed hunting programming which coincides with the fall hunting season at TOC, hunting and sports related programming at our Production Services segment and to football driven revenues at our Aerial Cameras segment.

Critical Accounting Policies and Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates.

We believe that the policies set forth below may involve a higher degree of judgment and complexity in their application than our other accounting policies and represent the critical accounting policies used in the preparation of our financial statements.

Revenue Recognition TOC generates revenue through advertising fees from advertisements and infomercials aired on Outdoor Channel, fees paid by outside producers to purchase advertising time in connection with the airing of their programs on Outdoor Channel and from subscriber fees paid by cable and satellite service providers that air Outdoor Channel. Advertising revenues are recognized when the advertisement is aired and the collectability of fees is reasonably assured.

Subscriber fees are recognized in the period the programming is aired by the distributor.

Production Services revenue includes revenue from sponsorship and advertising fees from ad inventory, revenue from production services for customer-owned telecasts, revenue from aerial camera services for customer-owned telecasts and revenue from website design, management, marketing and hosting fees. Advertising revenues are recognized when the advertisement is aired and the collectability of fees is reasonably assured. Revenue from production services for customer-owned telecasts is recognized upon completion and delivery of the telecast to the customer. Costs incurred prior to completion and delivery are reflected as programming and production costs in the accompanying consolidated balance sheets. Advances of payments prior to completion and delivery are shown as deferred revenue in the accompanying consolidated balance sheets. Revenue from aerial camera services for customer-owned telecasts is recognized upon completion and delivery of the telecast to the customer. Revenue from each event is based on an agreed upon contracted amount plus allowed expenses. Revenue from website design, management, marketing and hosting services is recognized upon the completion of services.

Commission revenue from the marketing of program advertising, and commercial air time is recognized when the advertising or commercial air time occurs. In the normal course of business, we act as or use an intermediary or agent in executing transactions with third parties. Certain transactions are recorded on a gross or net basis depending on whether we are acting as the principal in a transaction or acting as an agent in the transaction. We serve as the principal in transactions in which we have substantial risks and rewards of ownership and, accordingly, record revenue on a gross basis. For those transactions in which we do not have substantial risks and rewards of ownership, we are considered an agent in the transaction and, accordingly, record revenue on a net basis. We record revenue when our commission is earned.

Broadcast and national television network advertising contracts may guarantee the advertiser a minimum audience for its advertisements over the term of the contracts. We provide the advertiser with additional advertising time if we do not deliver the guaranteed audience size. The amount of additional advertising time is generally based upon the percentage of shortfall in audience size. This requires us to make estimates of the audience size that will be delivered throughout the terms of the contracts. We base our estimate of audience size on information provided by ratings services and our historical experience. If we determine we will not deliver the guaranteed audience or have not yet delivered the additional advertising time, an accrual for "make-good" advertisements is recorded as a reduction of revenue. The estimated make-good accrual is adjusted throughout the duration of the advertising contracts. Revenues recognized do not exceed the total of the cash payments received and cash received in excess of revenue earned is recorded as deferred revenue.

28-------------------------------------------------------------------------------- Table of Contents We maintain an allowance for doubtful accounts for estimated losses that may arise if any of our customers are unable to make required payments. Management specifically analyzes the age of customer balances, historical bad debt experience, customer credit-worthiness and trade publications regarding the financial health of our larger customers and changes in customer payment terms when making estimates of the uncollectability of our trade accounts receivable balances. If we determine that the financial condition of any of our customers deteriorated or improved, whether due to customer specific or general economic conditions, we make appropriate adjustments to the allowance. All of our bad debt expense is included in selling, general and administrative expense.

Valuation of Goodwill We currently have three reporting units, TOC, Production Services and Aerial Cameras. The Production Services reporting unit consists solely of our Winnercomm business and the Aerial Cameras reporting unit consists of our CableCam and SkyCam businesses which were acquired on January 12, 2009. All of our goodwill is attributed to our TOC reporting unit.

We review goodwill for impairment annually as of October 1, or whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Prior to 2011, we performed a two-step impairment test on goodwill.

In the first step, we compare the fair value of our reporting unit with goodwill to its carrying value. If the fair value of our reporting unit exceeds the carrying values of the net assets assigned to that unit, goodwill is not impaired and we are not required to perform further testing. If the carrying value of the net assets assigned to our reporting unit exceeds the fair value, then we must perform the second step in order to determine the implied fair value of the reporting unit's goodwill and compare it to the carrying value of the reporting unit's goodwill. If the carrying value of a reporting unit's goodwill exceeds its implied fair value, then we must record an impairment loss equal to the difference.

Current accounting guidance permits entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a two-step goodwill impairment test. Our annual goodwill impairment test was conducted in the fourth quarter of 2012 and we concluded that there was no impairment of our goodwill as of October 1, 2012.

No impairment losses were recorded on goodwill during the years ended December 31, 2012, 2011 or 2010.

Programming Costs We produce a portion of the programming we air on our channel in-house and through work-for-hire arrangements and amortize the related costs of production on a straight-line basis over the expected airings of the produced shows. We also have work in progress for uncompleted production projects. At any given time, we have unamortized costs for programming that are carried on our balance sheet as "Programming and production costs." These unamortized costs will be charged to programming expense when the related programs air and the related advertising revenue is recognized. At the time it is determined that a program will not likely air, we charge to programming expense any remaining unamortized costs recorded in programming costs.

Share-Based Compensation We record stock compensation expense for equity based awards granted, including restricted stock, restricted stock units, performance units and stock options, for which expense is recognized over the service period, based on the fair value of the award at the date of grant.

We account for stock options granted to non-employees using the fair value method. Compensation expense for options granted to non-employees has been determined as the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. Compensation expense for options granted to non-employees is periodically remeasured as the underlying options vest and is recorded as expense in the consolidated financial statements.

We have not issued any new stock options during the three year period ended December 31, 2012 and have instead granted restricted stock and restricted stock units to certain of our employees and to most of our board of directors.

29-------------------------------------------------------------------------------- Table of Contents Income Taxes We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.

Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We record net deferred income tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established against deferred tax assets that do not meet the criteria for recognition. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes.

We recognize a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized initially and in subsequent periods.

We have experienced a materially higher income tax expense in 2011 and 2010 than would be expected based on a 34% statutory income tax rate due to the expiration of unexercised stock options and performance units and to a lesser extent, due to deduction limits related officer compensation. We expect that certain deferred income tax assets relating to outstanding stock options at December 31, 2012 that expire in 2013 and 2014 will, if unexercised, generate deferred tax expense in those years of approximately $153,000 and $156,000, respectively.

Recent Accounting Pronouncements In July 2012, the Financial Accounting Standards Boards ("FASB") issued an accounting standard update to simplify how entities test indefinite-lived intangible assets for impairment. The guidance provides companies with the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount.

If after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount. This guidance is effective for the Company's annual and interim periods beginning after September 15, 2012, with early adoption permitted. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements, with the exception of goodwill, as we have no indefinite-lived intangible assets.

In February 2013, the FASB issued an accounting standard update which requires disclosure of significant amounts reclassified out of accumulated other comprehensive income by component and their corresponding effect on the respective line items of net income. This guidance is effective for reporting periods beginning after December 15, 2012 and is not expected to have a material impact on the Company's consolidated financial statements or financial statement disclosures.

30 -------------------------------------------------------------------------------- Table of Contents CONSOLIDATED RESULTS OF OPERATIONS Our consolidated results of operations are presented below for the years ended December 31, 2012 and 2011.

Comparison of Consolidated Operating Results for the Years Ended December 31, 2012 and December 31, 2011 The following table discloses certain financial information for the periods presented, expressed in terms of dollars, dollar change, percentage change and as a percent of total revenue (all dollar amounts are in thousands): Change % of Total Revenue 2012 2011 $ % 2012 2011 Revenues: Advertising $ 39,648 $ 36,918 $ 2,730 7 % 51 % 51 % Subscriber fees 21,584 20,155 1,429 7 28 28 Production services 16,090 14,782 1,308 9 21 21 Total revenues 77,322 71,855 5,467 8 100 100 Cost of services: Programming 8,365 7,511 854 11 11 11 Satellite transmission fees 1,726 1,590 136 9 2 2 Production and operations 20,792 19,616 1,176 6 27 27 Other direct costs 382 280 102 36 1 - Total cost of services 31,265 28,997 2,268 8 40 40 Other expenses: Advertising 7,423 2,845 4,578 161 10 4Selling, general and administrative 29,502 30,385 (883 ) (3 ) 38 42 Merger related expenses 1,942 - 1,942 N/A 3 - Depreciation and amortization 2,898 2,874 24 1 4 4 Total other expenses 41,765 36,104 5,661 16 54 50 Income from operations 4,292 6,754 (2,462 ) (37 ) 6 9 Other-than-temporary impairment on auction-rate securities (680 ) - (680 ) N/A (1 ) - Interest and other income, net 90 18 72 400 1 - Income from operations before income taxes 3,702 6,772 (3,070 ) (45 ) 5 9 Income tax provision 1,808 4,927 (3,119 ) (63 ) 2 7 Net income $ 1,894 $ 1,845 $ 49 3 % 3 % 3 % (percentages may not add due to rounding) Revenues Total revenues for 2012 were $77.3 million, an increase of $5.5 million, or 8%, compared to revenues of $71.9 million for 2011. The increase was due primarily to higher advertising and subscriber revenue at TOC and higher production services revenue at our Aerial Camera unit, net of a decline in revenue at our Production Services unit, all as discussed further in our segment results of operations below.

Cost of Services Total cost of services for 2012 was $31.3 million, an increase of $2.3 million, or 8%, compared to $29.0 million for 2011. The increase was primarily driven by higher production costs at our Aerial Cameras unit and increases in programming and operational expenses at our Outdoor Channel unit, offset somewhat by a decline in cost of service at our Production Services unit - all as further discussed in the segment results of operations below.

31-------------------------------------------------------------------------------- Table of Contents Other Expenses Advertising expenses for 2012 were $7.4 million, a 161% increase compared to $2.8 million for 2011. The increase was due to increased cross channel advertising and promotional campaigns in support of recent new subscriber and program launches.

Selling, general and administrative ("SG&A") expenses for 2012 were $29.5 million, a 3% decrease compared to $30.4 million 2011. The decrease was primarily driven by lower legal expenses related to our ActionCam litigation at our Aerial Camera unit partially offset by higher professional fees associated with distribution renewals and succession related compensation expense.

Merger related expenses for 2012 were $1.9 million and related to our anticipated merger with InterMedia Outdoors Holdings, LLC, which was subsequently terminated on March 13, 2013.

Depreciation and amortization expense for 2012 was $2.9 million, a 1% increase compared to depreciation and amortization expense of $2.9 million for 2011. The increase primarily relates to an increase in assets at our Aerial Camera unit.

Income from Operations Income from operations for 2012 was $4.3 million, a decrease of $2.5 million, compared to $6.8 million for 2011. As discussed below in our segment results of operations, the decrease in our income from operations for 2012 compared to the prior year period was driven primarily by an increase in advertising expense and SG&A expenses related to merger and acquisition activities, partially offset by increases in production services revenue.

Other-than-temporary Impairment on Auction-Rate Securities Other-than-temporary impairment on auction-rate securities was $680,000 for 2012. This impairment loss resulted from the change in our intention to no longer hold these securities until their maturity since in connection with our anticipated merger with InterMedia Outdoors Holdings, LLC, we intended to sell these securities when the merger closed. Subsequent to year-end we sold these securities and used the sale price received as the best indicator of fair value as of December 31, 2012 which was below the original purchase value resulting in the impairment loss.

Interest and Other Income, Net Interest and other income, net for 2012 was income of $90,000, an increase of $72,000, compared to income of $18,000 for 2011. The increase was principally the result of higher interest earned on our securities.

Income from Operations Before Income Taxes Resulting income from operations before income taxes for 2012 was $3.7 million, a 45% decrease compared to income from operations before income taxes of $6.8 million for 2011.

Income Tax Provision Income tax expense for 2012 was $1.8 million compared to $4.9 million for 2011.

The income tax provision reflected in the accompanying consolidated statements of operations for 2012 and 2011 is different than that computed based on the applicable statutory Federal income tax rate of 34% due to state taxes, the tax effect of accounting for share-based compensation and the limitations on the deductibility of executive compensation as provided for in Internal Revenue Code Section 162(m). The effective income tax rate was approximately 49% for 2012 and 73% for 2011. Certain performance units that were granted to our Chief Executive Officer in 2006 along with other previously granted stock options expired unissued in October 2011, which resulted in a decrease of $2.0 million to our deferred tax assets and a corresponding increase to income tax expense. Our remaining unexercised stock options at December 31, 2012 will expire in 2013 and 2014 and if they are not exercised, we will record deferred income tax expense in those years of approximately $153,000 and $156,000, respectively.

Net Income Our resulting net income for 2012 was $1.9 million compared to net income of $1.8 million for 2011.

32 -------------------------------------------------------------------------------- Table of Contents SEGMENT RESULTS OF OPERATIONS Transactions between reportable segments are accounted for as third-party arrangements for the purposes of presenting reporting segment results of operations below. Typical intersegment transactions include the purchase by our TOC segment of programs to air on Outdoor Channel and website design, management and maintenance services from our Production Services segment. Our Aerial Cameras segment has no intersegment transactions between our TOC or Production Services segments.

TOC Comparison of Operating Results for the Years Ended December 31, 2012 and December 31, 2011 The following table discloses certain financial information for the periods presented, expressed in terms of dollars, dollar change and percentage change (all dollar amounts are in thousands): Change 2012 2011 $ % Revenues: Advertising $ 39,648 $ 36,918 $ 2,730 7 % Subscriber fees 21,584 20,155 1,429 7 Total revenues 61,232 57,073 4,159 7 Cost of services: Programming 8,826 8,434 392 5 Satellite transmission fees 1,726 1,590 136 9 Production and operations 7,980 7,502 478 6 Other direct costs 382 280 102 36 Total cost of services 18,914 17,806 1,108 6 Other expenses: Advertising 7,443 2,865 4,578 160 Selling, general and administrative 26,434 24,669 1,765 7 Merger related expenses 1,942 - 1,942 N/A Depreciation and amortization 1,367 1,432 (65 ) (5 ) Total other expenses 37,186 28,966 8,220 28 Income from operations 5,132 10,301 (5,169 ) (50 ) Other-than-temporary impairment on auction-rate securities (680 ) - (680 ) N/A Interest and other income, net 163 109 54 50 Income from operations before income taxes $ 4,615 $ 10,410 $ (5,795 ) 56 % (percentages may not add due to rounding) Revenues Total revenues for TOC for 2012 increased to $61.2 million, or 7%, compared to $57.1 million in 2011.

Advertising revenue for 2012 was $39.6 million, an increase of $2.7 million, or 7%, compared to $36.9 million for 2011. The increase in advertising revenue for 2012 was due primarily to an increase in advertising revenues from higher priced endemic advertisers and to new sponsorship revenues related to MLF, which debuted on our network in the second quarter of 2012.

Subscriber fees for 2012 were $21.6 million, an increase of $1.4 million, or 7%, compared to $20.2 million for 2011. The increase in subscriber fees was primarily due to an increase in subscribers and in subscriber rates.

33-------------------------------------------------------------------------------- Table of Contents Cost of Services Programming expenses for 2012 were $8.8 million, an increase of $392,000, or 5%, compared to $8.4 million for 2011. This increase was due primarily to the debut of our MLF program, which was more expensive than the 2011 time period programming it replaced and to increased program write-downs.

Satellite transmission fees for 2012 were $1.7 million, an increase of $136,000, or 9%, compared to $1.6 million for 2011. This increase relates to an upgrade in backup transponder services negotiated in 2012.

Production and operations costs for 2012 were $8.0 million, an increase of $478,000, or 6%, compared to $7.5 million for 2011. The increase in costs for 2012 was driven primarily by increases to our website costs and executive compensation and recruiting costs.

Other direct costs for 2012 were $382,000, an increase of $102,000, or 36%, compared to $280,000 for 2011. This increase was due primarily to net increases in subscriber acquisition fees amortization related to system migrations in late 2011.

Other Expenses Advertising expenses for 2012 were $7.4 million, an increase of $4.6 million, or 160%, compared to $2.9 million for 2011. The increase in 2012 was primarily due to increased cross channel advertising and promotional campaigns to support recent new subscriber launches and to new programs launching in the first quarter of 2013.

SG&A expenses, which includes corporate expenses to the extent not allocated to other segments, for 2012 were $26.4 million, an increase of $1.8 million, or 7%, compared to $24.7 million for 2011. This increase was primarily driven by increased professional fees associated with distributor agreement renewals and succession-related compensation expense, partially offset by a reduction in our provision for doubtful accounts.

Merger related expenses for 2012 were $1.9 million and related to our anticipated merger with InterMedia Outdoors Holdings, LLC, which was subsequently terminated on March 13, 2013.

Depreciation and amortization for 2012 was $1.4 million, a decrease of $65,000, or 5%, compared to $1.4 million for 2011. The decrease in depreciation and amortization primarily relates to more assets becoming fully depreciated than depreciation on asset additions in that same period.

Income from Operations Income from operations for 2012 was $5.1 million, a decrease of $5.2 million, compared to $10.3 million for 2011. As discussed above, the decrease in our income from operations was driven primarily by increased advertising expense, increased SG&A expenses related to merger and acquisition activities and succession-related compensation expense, partially offset by increases in advertising and subscriber fee revenues.

Other-than-temporary Impairment on Auction-Rate Securities Other-than-temporary impairment on auction-rate securities was $680,000 for 2012. This impairment loss resulted from the change in our intention to no longer hold these securities until their maturity since in connection with our anticipated merger with InterMedia Outdoors Holdings, LLC, we intended to sell these securities when the merger closed. Subsequent to year-end we sold these securities and used the sale price received as the best indicator of fair value as of December 31, 2012 which was below the original purchase value resulting in the impairment loss.

Interest and Other Income, Net Interest and other income, net for 2012 was income of $163,000, an increase of $54,000, compared to income of $109,000 for 2011. The increase was due primarily to higher interest earned on our securities.

34-------------------------------------------------------------------------------- Table of Contents Production Services Comparison of Operating Results for the Years Ended December 31, 2012 and December 31, 2011 The following table discloses certain financial information for the periods presented, expressed in terms of dollars, dollar change and percentage change (all dollar amounts are in thousands): Change 2012 2011 $ % Revenues: Production services $ 6,963 $ 9,228 $ (2,265 ) (25 )% Total revenues 6,963 9,228 (2,265 ) (25 ) Cost of services: Production and operations 6,022 7,874 (1,852 ) (24 ) Total cost of services 6,022 7,874 (1,852 ) (24 ) Other expenses: Selling, general and administrative 1,095 2,651 (1,556 ) (59 ) Depreciation and amortization 495 552 (57 ) (10 ) Total other expenses 1,590 3,203 (1,613 ) (50 ) Loss from operations (649 ) (1,849 ) 1,200 (65 ) Interest and other income, net - - - - Loss from operations before income taxes $ (649 ) $ (1,849 ) $ 1,200 (65 )% (percentages may not add due to rounding) Revenues Production services revenue for 2012 was $7.0 million, a decrease of $2.3 million, or 25%, as compared to $9.2 million for 2011. The decrease in 2012 as compared to the same period a year ago was due primarily to an expected and continued reduction in the number of third-party production contracts that were renewed at Winnercomm for 2012.

Cost of Services Production and operations costs for 2012 were $6.0 million, a decrease of $1.9 million, or 24%, compared to $7.9 million for 2012. The decrease in costs in 2012 relates primarily to decreased production costs caused by fewer third-party production contracts being renewed in the current year.

Other Expenses SG&A expenses for 2012 were $1.1 million, a decrease of $1.6 million, or 59%, compared to $2.7 million for 2011. This decrease relates primarily to reduced payroll and related compensation costs associated with the elimination and reassignment of personnel in the current year as compared to the prior year and to reduced rent and related expenses resulting from the relocation of our Winnercomm business to a new facility in October 2011.

Depreciation and amortization for 2012 was $495,000, a decrease of $57,000, or 10%, compared to $552,000 for 2011. The decrease in depreciation and amortization for 2012 primarily relates to more fixed assets becoming fully depreciated over the past year than depreciation on assets acquired in that same period.

Loss from Operations Our resulting loss from operations for 2012 was $649,000, an improvement of $1.2 million compared to a net loss from operations of $1.8 million for 2011. The decrease in loss from operations was due primarily to lower SG&A expenses.

35-------------------------------------------------------------------------------- Table of Contents Aerial Cameras Comparison of Operating Results for the Years Ended December 31, 2012 and December 31, 2011 The following table discloses certain financial information for the periods presented, expressed in terms of dollars, dollar change and percentage change (all dollar amounts are in thousands): Change 2012 2011 $ % Revenues: Production services $ 12,018 $ 8,663 $ 3,355 39 % Total revenues 12,018 8,663 3,355 39 Cost of services: Production and operations 9,132 6,342 2,790 44 Total cost of services 9,132 6,342 2,790 44 Other expenses: Selling, general and administrative 1,973 3,065 (1,092 ) (36 ) Depreciation and amortization 1,036 890 146 16 Total other expenses 3,009 3,955 (946 ) (24 ) Loss from operations (123 ) (1,634 ) 1,511 (93 ) Interest and other income, net (73 ) (91 ) 18 (20 ) Loss from operations before income taxes $ (196 ) $ (1,725 ) $ 1,529 (89 )% (percentages may not add due to rounding) Revenues Production services revenue from our aerial camera unit for 2012 was $12.0 million, an increase of $3.4 million, or 39%, as compared to $8.7 million for 2011. The increase in 2012 was due primarily to revenues from our development project with a prime contractor of the U.S. government and an increase in the number of collegiate sporting events, minimally offset by various miscellaneous aerial camera production events that did not reoccur in 2012.

Cost of Services Production and operations costs for 2012 were $9.1 million, an increase of $2.8 million, or 44%, compared to $6.3 million for 2011. The increase in costs in 2012 relates primarily to our U.S. government development project, the increased number of collegiate sporting events offset by reduced rent and related facility costs.

Other Expenses SG&A expenses for 2012 were $2.0 million, a decrease of $1.1 million, or 36%, compared to $3.1 million for 2011. This decrease relates primarily to reduced legal fees related to the ActionCam litigation and reduced rent and related expenses resulting from our facility move to Ft. Worth, Texas in September 2011.

Depreciation and amortization for 2012 was $1.0 million, an increase of $146,000, or 16%, compared to $890,000 for 2011. The increase in depreciation and amortization for 2012 primarily relates to new assets purchased in 2012 for expanded sporting event coverage and capacity along with a full year amortization of our leasehold improvements at our new location in Ft. Worth, Texas incurred in September 2011.

Loss from Operations Our resulting loss from operations for 2012 was $123,000, an improvement of $1.5 million compared to a net loss from operations of $1.6 million for 2011. The decrease in loss from operations for the year was due primarily to increased revenues and related margins and reductions in SG&A expense.

36-------------------------------------------------------------------------------- Table of Contents Interest and Other Income, Net Interest and other income, net for 2012 was an expense of $73,000, a decrease of $18,000, compared to an expense of $91,000 for 2011.

CONSOLIDATED RESULTS OF OPERATIONS FOR THE PRIOR YEAR PERIOD Comparison of Consolidated Operating Results for the Years Ended December 31, 2011 and December 31, 2010 The following table discloses certain financial information for the periods presented, expressed in terms of dollars, dollar change, percentage change and as a percent of total revenue (all dollar amounts are in thousands): Change % of Total Revenue 2011 2010 $ % 2011 2010 Revenues: Advertising $ 36,918 $ 37,000 $ (82 ) - % 51 % 44 % Subscriber fees 20,155 17,953 2,202 12 28 22 Production services 14,782 28,389 (13,607 ) (48 ) 21 34 Total revenues 71,855 83,342 (11,487 ) (14 ) 100 100 Cost of services: Programming 7,511 6,139 1,372 22 11 7 Satellite transmission fees 1,590 1,584 6 - 2 2 Production and operations 19,616 29,036 (9,420 ) (32 ) 27 35 Other direct costs 280 447 (167 ) (37 ) - 1 Total cost of services 28,997 37,206 (8,209 ) (22 ) 40 45 Other expenses: Advertising 2,845 3,521 (676 ) (19 ) 4 4 Selling, general and administrative 30,385 34,646 (4,261 ) (12 ) 42 42 Depreciation and amortization 2,874 3,383 (509 ) (15 ) 4 4 Total other expenses 36,104 41,550 (5,446 ) (13 ) 50 50 Income from operations 6,754 4,586 2,168 47 9 6 Interest and other income, net 18 31 (13 ) (42 ) - - Income from operations before income taxes 6,772 4,617 2,155 47 9 6 Income tax provision 4,927 3,373 1,554 46 7 4 Net income $ 1,845 $ 1,244 $ 601 48 % 3 % 2 % (percentages may not add due to rounding) Revenues Total revenues for 2011 were $71.9 million, a decrease of $11.5 million, or 14%, compared to revenues of $83.3 million for 2010. The decrease was due primarily to lower production services revenue, partially offset by an increase in our subscriber fee revenue, as discussed further in our segment results of operations below.

Cost of Services Total cost of services for 2011 was $29.0 million, a decrease of $8.2 million, or 22%, compared to $37.2 million for 2010. The decrease was primarily driven by lower production costs at our Production Services unit, net of increases in programming and operational expenses at our Outdoor Channel unit, as further discussed in the segment results of operations below.

37-------------------------------------------------------------------------------- Table of Contents Other Expenses Advertising expenses for 2011 were $2.9 million, a 19% decrease compared to $3.5 million for 2010. The decrease was due to a shift in our marketing efforts from media buys to more targeted and cost-effective social network outlets.

Selling, general and administrative ("SG&A") expenses for 2011 were $30.4 million, a 12% decrease compared to $34.7 million 2010. The decrease was primarily driven by lower professional fees related to public company and corporate governance matters, a decrease in accounting fees, reduced payroll and related compensation expenses associated with a reduction in headcount at our Production Services unit, and a decrease in the provision for doubtful accounts, all as further discussed in the segment results of operations below.

Depreciation and amortization expense for 2011 was $2.9 million, a 15% decrease compared to depreciation and amortization expense of $3.4 million for 2010. The decrease primarily relates to more assets having become fully depreciated partially offset by depreciation on assets acquired in that same period.

Income from Operations Income from operations for 2011 was $6.8 million, an increase of $2.2 million, compared to $4.6 million for 2010. As discussed below in our segment results of operations, the increase in our income from operations for 2011 compared to the prior year period was driven primarily by an increase in subscriber fee revenues, reduced SG&A at both TOC and our Production Services unit, partially offset by increases in programming expense. As a percentage of revenues, our income from operations was 9% for 2011 compared to 6% for 2010 due primarily to aforementioned reasons and a lower proportion of our overall revenue being contributed by our lower margin Production Services unit.

Interest and Other Income, Net Interest and other income, net for 2011 was $18,000, a decrease of $13,000, compared to $31,000 for 2010. The decrease was principally the result of lower interest rates on invested cash and investments.

Income from Operations Before Income Taxes Resulting income from operations before income taxes for 2011 was $6.8 million, a 47% increase compared to income from operations before income taxes of $4.6 million for 2010.

Income Tax Provision Income tax expense for 2011 was $4.9 million compared to $3.4 million for 2010.

The income tax provision reflected in the accompanying consolidated statements of operations for 2011 and 2010 is different than that computed based on the applicable statutory Federal income tax rate of 34% due to state taxes, the tax effect of accounting for share-based compensation and the limitations on the deductibility of executive compensation as provided for in Internal Revenue Code Section 162(m). The effective income tax rate was approximately 73% for both 2011 and 2010. Certain performance units that were granted to our Chief Executive Officer in 2006 along with other previously granted stock options expired unissued in October 2011, which resulted in a decrease of $2.0 million to our deferred tax assets and a corresponding increase to income tax expense.

Our remaining unexercised stock options at December 31, 2011 will expire in 2013 and 2014 and if they are not exercised, we will record deferred income tax expense in those years of approximately $153,000 and $156,000, respectively.

Net Income Our resulting net income for 2011 was $1.8 million compared to net income of $1.2 million for 2010.

38 -------------------------------------------------------------------------------- Table of Contents SEGMENT RESULTS OF OPERATIONS FOR THE PRIOR YEAR PERIOD Transactions between reportable segments are accounted for as third-party arrangements for the purposes of presenting reporting segment results of operations below. Typical intersegment transactions include the purchase by our TOC segment of programs to air on Outdoor Channel and website design, management and maintenance services from our Production Services segment. Our Aerial Cameras segment has no intersegment transactions between our TOC or Production Services segments.

TOC Comparison of Operating Results for the Years Ended December 31, 2011 and December 31, 2010 The following table discloses certain financial information for the periods presented, expressed in terms of dollars, dollar change and percentage change (all dollar amounts are in thousands): Change 2011 2010 $ % Revenues: Advertising $ 36,918 $ 37,000 $ (82 ) - % Subscriber fees 20,155 17,953 2,202 12 Total revenues 57,073 54,953 2,120 4 Cost of services: Programming 8,434 6,722 1,712 26 Satellite transmission fees 1,590 1,584 6 - Production and operations 7,502 6,875 627 9 Other direct costs 280 447 (167 ) (37 ) Total cost of services 17,806 15,628 2,178 14 Other expenses: Advertising 2,865 3,491 (626 ) (18 ) Selling, general and administrative 24,669 26,223 (1,554 ) (6 ) Depreciation and amortization 1,432 1,652 (220 ) (13 ) Total other expenses 28,966 31,366 (2,400 ) (8 ) Income from operations 10,301 7,959 2,342 29 Interest and other income, net 109 121 (12 ) (10 ) Income from operations before income taxes $ 10,410 $ 8,080 $ 2,330 29 % (percentages may not add due to rounding) Revenues Total revenues for TOC for 2011 increased to $57.1 million, or 4%, compared to $55.0 million in 2010.

Advertising revenue for 2011 was $36.9 million, a decrease of $82,000, or 0.2%, compared to $37.0 million for 2010. The decrease in advertising revenue for 2011 was due primarily to a decrease in website and long-form advertising, partially offset by increases in short-form and time-buy advertising on higher prices.

Subscriber fees for 2011 were $20.2 million, an increase of $2.2 million, or 12%, compared to $18.0 million for 2010. The increase in subscriber fees was primarily due to increased rates and to a decrease in the change in our estimated potential most-favored nation liabilities related to our distributors.

39 -------------------------------------------------------------------------------- Table of Contents Cost of Services Programming expenses for 2011 were $8.4 million, an increase of $1.7 million, or 26%, compared to $6.7 million for 2010. This increase was due primarily to write-downs of programming costs related to our decision not to air certain shows beyond 2011, along with the expensing of development costs related to Major League Fishing, a new programming venture, and to new, more expensive programs airing during the current year periods compared to the prior year periods.

Satellite transmission fees for both 2011 and 2010 were $1.6 million.

Production and operations costs for 2011 were $7.5 million, an increase of $627,000, or 9%, compared to $6.9 million for 2010. The increase in costs for 2011 was driven primarily by increased consulting fees and online services costs as we continue to expand and improve the content of our online website presence.

Other direct costs for 2011 were $280,000, a decrease of $167,000, or 37%, compared to $447,000 for 2010. This expense, which represents subscriber acquisition fee amortization, decreased due to lower acquisition costs paid in 2011 compared to 2010 and 2009.

Other Expenses Advertising expenses for 2011 were $2.9 million, a decrease of $626,000, or 18%, compared to $3.5 million for 2010. The decrease in 2011 was primarily due to a shift in our marketing efforts from media buys to more targeted and cost-effective social network outlets.

SG&A expenses, which includes corporate expenses to the extent not allocated to other segments, for 2011 were $24.7 million, a decrease of $1.6 million, or 6%, compared to $26.2 million for 2010. This decrease was primarily driven by lower professional fees related to public company and corporate governance matters, a decrease in the provision for doubtful accounts, a decrease in sales commissions and a decrease in stock compensation.

Depreciation and amortization for 2011 was $1.4 million, a decrease of $220,000, or 13%, compared to $1.7 million for 2010. The decrease in depreciation and amortization primarily relates to more assets becoming fully depreciated than depreciation on asset additions in that same period.

Income from Operations Income from operations for 2011 was $10.3 million, an increase of $2.3 million, compared to $8.0 million for 2010. As discussed above, the increase in our income from operations was driven primarily by increased subscriber fees and reductions in selling, general and administrative expenses, net of higher programming costs.

Interest and Other Income, Net Interest and other income, net for 2011 was $109,000, a decrease of $12,000, compared to $121,000 for 2010. The decrease was due primarily to lower interest rates on our cash equivalents and investments in available-for-sale securities.

40 -------------------------------------------------------------------------------- Table of Contents Production Services Comparison of Operating Results for the Years Ended December 31, 2011 and December 31, 2010 The following table discloses certain financial information for the periods presented, expressed in terms of dollars, dollar change and percentage change (all dollar amounts are in thousands): Change 2011 2010 $ % Revenues: Production services $ 9,228 $ 21,506 $ (12,278 ) (57 )% Total revenues 9,228 21,506 (12,278 ) (57 ) Cost of services: Production and operations 7,874 17,644 (9,770 ) (55 ) Total cost of services 7,874 17,644 (9,770 ) (55 ) Other expenses: Advertising - 29 (29 ) (100 ) Selling, general and administrative 2,651 5,163 (2,512 ) (49 ) Depreciation and amortization 552 808 (256 ) (32 ) Total other expenses 3,203 6,000 (2,797 ) (47 ) Loss from operations (1,849 ) (2,138 ) 289 (14 ) Interest and other income, net - - - - Loss from operations before income taxes $ (1,849 ) $ (2,138 ) $ 289 (14 )% (percentages may not add due to rounding) Revenues Production services revenue for 2011 was $9.2 million, a decrease of $12.3 million, or 57%, as compared to $21.5 million for 2010. The decrease in 2011 as compared to the same period a year ago was due primarily to an expected reduction in the number of production contracts that were renewed in the current year period at Winnercomm.

Cost of Services Production and operations costs for 2011 were $7.9 million, a decrease of $9.8 million, or 55%, compared to $17.6 million for 2010. The decrease in costs in 2011 relates primarily to decreased production costs caused by fewer Winnercomm production contracts being renewed in the current year and reduced payroll and related compensation costs associated with a reduction in headcount.

Other Expenses SG&A expenses for 2011 were $2.7 million, a decrease of $2.5 million, or 49%, compared to $5.2 million for 2010. This decrease relates primarily to reduced payroll and related compensation costs associated with a reduction in headcount, reduced professional fees and a reduction in our provision for doubtful accounts, all resulting from our reduced scale of operations following the cancellation and non-renewal of a sizeable portion of the segment's revenues.

Depreciation and amortization for 2011 was $552,000, a decrease of $256,000, or 32%, compared to $808,000 for 2010. The decrease in depreciation and amortization for 2011 primarily relates to reduced amortization of leasehold improvements in the current year due to the reduction of leased office space in Tulsa and to certain intangible assets becoming fully amortized prior to the current year period.

41 -------------------------------------------------------------------------------- Table of Contents Loss from Operations Our resulting loss from operations for 2011 was $1.8 million, a decrease of $289,000 compared to a net loss from operations of $2.1 million for 2010.

Aerial Cameras Comparison of Operating Results for the Years Ended December 31, 2011 and December 31, 2010 The following table discloses certain financial information for the periods presented, expressed in terms of dollars, dollar change and percentage change (all dollar amounts are in thousands): Change 2011 2010 $ % Revenues: Production services $ 8,663 $ 9,140 $ (477 ) (5 )% Total revenues 8,663 9,140 (477 ) (5 ) Cost of services: Production and operations 6,342 6,199 143 2 Total cost of services 6,342 6,199 143 2 Other expenses: Advertising - 1 (1 ) (100 ) Selling, general and administrative 3,065 3,260 (195 ) (6 ) Depreciation and amortization 890 923 (33 ) (4 ) Total other expenses 3,955 4,184 (229 ) (6 ) Loss from operations (1,634 ) (1,243 ) (391 ) (32 ) Interest and other income, net (91 ) (90 ) (1 ) 1 Loss from operations before income taxes $ (1,725 ) $ (1,333 ) $ (392 ) 29 % (percentages may not add due to rounding) Revenues Production services revenue from our aerial camera unit for 2011 was $8.7 million, a decrease of $477,000, or 5%, as compared to $9.1 million for 2010.

The decrease in 2011 was due primarily to a net decrease in the number of professional and collegiate sporting and other production events, including the 2010 Winter Olympics and the 2010 World Cup events.

Cost of Services Production and operations costs for 2011 were $6.3 million, an increase of $143,000, or 2%, compared to $6.2 million for 2010. The increase in costs in 2011 relates primarily to the lease abandonment charge related to exiting our SkyCam facility lease in Tulsa, partially offset by reduced aerial camera production events.

Other Expenses SG&A expenses for 2011 were $3.1 million, a decrease of $195,000, or 6%, compared to $3.3 million for 2010. This decrease relates primarily to decreased legal fees related to litigation against one of our competitors and its founder, a former employee of ours (together, "ActionCam"), a reduction in research and development expenses and a reduction in our provision for doubtful accounts.

These reductions were partially offset by move related expenses incurred in connection with the relocation of our aerial camera units to a new combined facility during the year.

Depreciation and amortization for 2011 was $890,000, a decrease of $33,000, or 4%, compared to $923,000 for 2010. The decrease in depreciation and amortization for 2011 primarily relates to certain intangible assets becoming fully amortized prior to the current year period, partially offset by increased depreciation of new assets and leasehold improvements at our new location in Ft. Worth, Texas.

42 -------------------------------------------------------------------------------- Table of Contents Loss from Operations Our resulting loss from operations for 2011 was $1.6 million, an increase of $391,000 compared to a net loss from operations of $1.2 million for 2010.

Interest and Other Income, Net Interest and other income, net for 2011 was an expense of $91,000, an increase of $1,000, compared to an expense of $90,000 for 2010.

LIQUIDITY AND CAPITAL RESOURCES We generated $5.9 million of cash from operating activities in 2012, compared to $9.3 million in 2011. Our combined cash and cash equivalent and investment in available-for-sale securities balance was $53.4 million at December 31, 2012, a decrease of $6.1 million from the combined balance of $59.5 million at December 31, 2011. The decrease in cash flows from operating activities in 2012 compared to the same period in 2011 was due primarily to a decrease in our operating income, increases in working capital related to investment in new programming and higher subscriber acquisition payments. Net working capital increased to $73.5 million at December 31, 2012, compared to $72.3 million at December 31, 2011.

Net cash provided by investing activities was $12.5 million in 2012 compared to cash used in investing activities of $15.1 million for 2011. The increase in cash provided by investing activities related principally to net sales (sales, net of purchases) of short-term available-for-sale securities partially offset by a $2.6 million increase in capital expenditures for fixed assets. The increase in our capital expenditures from 2011 to 2012 related primarily to the expansion of our offices at our Temecula headquarters to accommodate additional staff who relocated in late January 2013 from our former leased facility adjacent to our owned building. The cash used in investing activities in 2011 related primarily to the net purchases of short-term available-for-sale securities, net of capital expenditures for fixed asset replacements.

As of December 31, 2012, we held $4.6 million in our investments in auction-rate securities ("ARS") which consisted of one auction-rate municipal security collateralized by federally backed student loans and one closed-end perpetual preferred security which has redemption features which call for redemption at 100% of par value and both have maintained at least A3 credit rating despite the failure of the auction process. To date, we have collected all interest due on all of our ARS in accordance with their stated terms. In connection with our anticipated merger with InterMedia Outdoors Holdings, LLC pursuant to the InterMedia Merger Agreement dated November 15, 2012 (which was subsequently terminated on March 13, 2013), we no longer intended to hold these ARS until their maturity but intended to sell them around the anticipated merger completion date, which we estimated at the time to be in the first quarter of 2013. Therefore, we obtained estimated market pricing as of December 31, 2012 and have adjusted the fair value of these ARS down to the expected sale price.

As a result of this adjustment we have recorded a loss on our ARS. We deemed the loss to be other-than-temporary since these ARS were sold in March 2013.

Cash used by financing activities was $7.4 million for both 2012 and $7.3 million for 2011. The cash used by financing activities relates to a special $6.3 million dividend ($.25 per common share) declared in November 2012 and paid in December 2012 and another special $6.2 million dividend declared and paid in December 2011, in addition to the purchase and retirement of treasury stock as employees used stock to satisfy withholding taxes related to the vesting of restricted shares.

43 -------------------------------------------------------------------------------- Table of Contents On September 5, 2012, the Company renewed its revolving line of credit agreement (the "Revolver") with U.S. Bank N.A., extending the maturity date to September 5, 2013 and renewing the total amount which can be drawn upon under the Revolver to $10,000,000. The Revolver provides that the interest rate per annum as selected by us shall be prime rate (3.25% and 3.25% as of December 31, 2012 and 2011, respectively) plus 0.25% or LIBOR (0.25% and 0.31% as of December 31, 2012 and 2011, respectively) plus 2.25%. The Revolver is unsecured.

This credit facility contains customary financial and other covenants and restrictions, as amended, including a change of control provision and minimum liquidity metrics. As of December 31, 2012, we did not have any amounts outstanding under this credit facility and we were in compliance with all the Revolver covenants. This Revolver is guaranteed by TOC.

While we declared special dividends in December 2012 and 2011, there are no current plans to declare such a dividend in 2013. However, our Board of Directors continues to regularly assess our need for cash and liquidity.

As of December 31, 2012, we had sufficient cash on hand and expected cash flow from operations to meet our short-term cash flow requirements. Management believes that our existing cash resources, including cash on-hand and anticipated cash flows from operations, will be sufficient to fund our operations at current levels and anticipated capital requirements through at least December 31, 2013. To the extent that such amounts are insufficient to finance our working capital requirements or our desire to expand operations beyond current levels, we could seek additional financing. There can be no assurance that equity or debt financing will be available if needed or, if available, will be on terms favorable to us.

A summary of our contractual obligations as of December 31, 2012 is as follows (in thousands): Less than After Contractual Obligations Total 1 year 2 - 3 years 4 - 5 years 5 years Operating lease obligations $ 9,534 $ 2,086 $ 3,738 $ 2,683 $ 1,027 Purchase obligations 5,221 4,520 701 - - Employment agreements 3,231 1,796 1,435 - - Total $ 17,986 $ 8,402 $ 5,874 $ 2,683 $ 1,027 Operating lease obligations principally relate to satellite lease commitments for delivery of our signal and office leases. Purchase obligations relate to purchase commitments made for the acquisition of programming, advertising and promotions, including magazine advertisements, talent agreements, equipment or software maintenance, ratings and research services and other operating purchases. Employment agreements represent remaining base salary obligations through the end of their agreements.

[ Back To Technology News's Homepage ]