**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-Q**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe quarterly period ended September 30, 2006**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe transition periodfrom                 to**

**CommissionFile No. 000-17436**

**CKX, INC.**

(Exact name of Registrantas specified in its charter)

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

 

**650 Madison AvenueNew York, New York 10022**

(Address of PrincipalExecutive Offices and Zip Code)

Registrant’s TelephoneNumber, Including Area Code: **(212) 838-3100**

Securities RegisteredPursuant to Section 12(b) of the Act: **None**

Securities Registered Pursuant to Section 12(g) ofthe Act:

**CommonStock, Par Value $0.01 Per Share**

Indicate by check markwhether the registrant (1) filed all reports required to be filed by Section 13or 15(d) of the Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes x   No o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer (as defined in Rule 12b-2 of the ExchangeAct).

Large acceleratedfiler  o             Acceleratedfiler  x            Non-acceleratedfiler  o

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

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

 

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**TABLEOF 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     |

 

1

----

**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.

2

----

**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.

3

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**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 acquisitionof 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 thePredecessor has been presented herein.

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

4

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**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 |   |   |

----

(1)                Prior to the acquisition of the Presley Business, theCompany did not have any operations. As a result, the Presley Business isconsidered to be a predecessor company (“Predecessor”). Accordingly, relevantprior period financial information regarding the Predecessor has been presentedherein.

5

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**Supplemental CashFlow Information**

TheCompany had the following non-cash investing and financing activities in thenine 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 |   |

 

TheCompany had the following non-cash investing and financing activities in thenine 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.

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**CKX, INC.NOTES TO UNAUDITED CONDENSED**

**CONSOLIDATED FINANCIAL STATEMENTS**

**1.**                 Overviewand Basis of Presentation

**General**

CKX, Inc. (the “Company”) is engaged in theownership, development and commercial utilization of entertainment content,including the rights to the name, image and likeness of Elvis Presley and theoperation of Graceland, the rights to the name, image and likeness of MuhammadAli and proprietary rights to the *IDOLS*televisionbrand, 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 threeand nine months ended September 30, 2006 and 2005 has not been audited,but in the opinion of management all adjustments (consisting only of normalrecurring adjustments) considered necessary to present fairly such informationhave 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 forthe 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 thefinancial statements and notes included in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2005. Certain prior year amounts have beenreclassified to conform to the Company’s current presentation.

On February 7, 2005, RFX Acquisition LLC, anentity formed and controlled by Robert F.X. Sillerman, acquired a controllinginterest 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 theentities which own and/or control certain content relating to Elvis Presley(the “Presley Business”). Prior to the acquisition of the Presley Business, theCompany did not have any operations. As a result, the Presley Business isconsidered to be the predecessor company (“Predecessor”). Accordingly, relevantfinancial information regarding the Predecessor, including financial statementsfor 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 theacquisition of the Presley Business, The Huff Alternative Fund, L.P. and itsaffiliate 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 AConvertible Redeemable Preferred Stock, (ii) 3,706,052 newly issued sharesof common stock, (iii) warrants to purchase 1,860,660 shares of commonstock at $1.00 per share, (iv) warrants to purchase 1,860,660 shares ofcommon stock at $1.50 per share, and (v) warrants to purchase 1,860,661shares of common stock at $2.00 per share. On March 21, 2005, The HuffAlternative Fund, L.P. and its affiliate exercised their rights to convertall of their 2,172,400 shares of Series A Convertible RedeemablePreferred Stock into 6,051,253 shares of common stock. Following suchconversion, no shares of Series A Convertible Redeemable Preferred Stockremain outstanding.

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

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eight-yearredemption period of the Series A Convertible Redeemable Preferred Stockand recorded as a preferred dividend. As a result of the early conversiondescribed above, a non-cash dividend equal to the amount of theunaccreted beneficial conversion feature of $17.8 million was recognizedat that time.

**Accounting Policies**

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

**2.**                 ComprehensiveIncome (Loss)

Thefollowing table is a reconciliation of the Company’s net income tocomprehensive 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 currencytranslation adjustments result from the conversion of 19 Entertainment’sfinancial statements. No reconciliation between net income and comprehensiveincome (loss) for the period January 1, 2005 to February 7, 2005 is reflectedin the table above because there were no adjustments between net income andcomprehensive income (loss) for such period.

**3.**                 EarningsPer Share/Common Shares Outstanding

Earnings per share is computed in accordance with SFASNo. 128, *Earnings Per Share*.Basic earnings per share is calculated by dividing net income (loss) applicableto common stockholders by the weighted-average number of sharesoutstanding during the period. Diluted earnings per share includes thedeterminants of basic earnings per share and, in addition, gives effect topotentially dilutive common shares. Basic and diluted earnings per share forthe three months ended September 30, 2006 are $0.09. Basic and dilutedearnings per share for the nine months ended September 30, 2006 are $0.20and $0.19, respectively. The diluted earnings per share calculations excludethe impact of the conversion of 1,491,817 shares of Series B ConvertiblePreferred shares and the impact of the conversion of all outstanding employeeshare-based stock plan awards because the effect would be anti-dilutive.Diluted loss per share for the nine months ended September 30, 2005 is thesame as basic loss per share because the conversion of all potential commonshares would be anti-dilutive. As a result, 4,363,899 shares are excluded fromthe calculation of diluted earnings per share for the nine months ended September 30,2005.

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Thefollowing table shows the computation of the Company’s basic and dilutedearnings per share for the three and nine months ended September 30, 2006and 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 PresleyBusiness (Predecessor)*

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

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

*19 Entertainment*

On March 17, 2005, the Company acquired 100% of19 Entertainment Limited (“19 Entertainment”), a company that is a creator,producer, and promoter of entertainment properties, including the*IDOLS*

9

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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) incash, 198,388 unregistered shares of common stock and 1,672,170 shares ofredeemable restricted common stock, each paid at closing, with an additional£19.2 million ($34.0 million based on the exchange rate at the date ofpayment) of deferred consideration that was paid in cash on December 15,2005. The results of operations of 19 Entertainment are included in the resultsof the Company since the date of acquisition.

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

In August 2006, 19Entertainment acquired 100% of the outstanding capital stock of, a companyengaged in marketing services and the creation and promotion of consumer brandawareness. Consideration paid at closing for the acquisition consisted of £3.5million in cash ($6.7 million based on the exchange rate at the date ofacquisition) 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). TheCompany has performed a preliminary valuation of the assets acquired and hasmade an initial allocation of $1.3 million to other intangible assets, whichwill be amortized over five years, and $5.9 million to goodwill.

*MBST*

On August 9, 2005,the Company acquired 100% of Morra, Brezner, Steinberg & TenenbaumEntertainment, Inc. (“MBST”), a manager of comedic talent and producer ofmotion pictures and television programming. The Company acquired MBST forinitial total consideration paid at closing of $1.0 million in cash and 700,000unregistered shares of common stock. The purchase price is subject to a workingcapital adjustment, of which $1.1 million in cash and 40,480 unregisteredshares were paid to the sellers in 2005 and 28,847 unregistered shares werepaid to the sellers in 2006. Additional working capital adjustments may be madein 2006 which could result in additional payments to the sellers that areexpected to be less than $0.5 million. In addition, the sellers mayreceive up to an additional 150,000 shares of common stock upon satisfaction ofcertain performance thresholds over the five-year period following the closing.The receipt by the sellers of any such shares will be accounted for asadditional purchase price at the time such performance thresholds are met. Theallocation of the fair values to the assets acquired and liabilities assumedwas based on a valuation prepared by an independent appraisal firm. The resultsof operations of MBST are included in the results of the Company since the dateof 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 ofMuhammad Ali, certain trademarks and copyrights owned by Mr. Ali and hisaffiliates and the rights to all existing Muhammad Ali license agreements (the “AliBusiness”). 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 intransaction costs. The Muhammad Ali Family Trust has retained a 20% interest inthe Ali Business.

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

10

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estimates of the fair value of the assets acquired andliabilities assumed. The Company expects that the purchase price allocationswill be finalized by the time it files its annual report on Form 10-Kfor the year ended December 31, 2006. The significant assumptions used inthe valuation included factors affecting the duration, growth rates and amountsof 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 providedfor deferred taxes for the difference between the book and tax basis of the netassets acquired.

Thepurchase price for the Ali Business was determined based on management’s assessmentof the financial prospects of the existing business as well as the increasedvalue the Company believes can be derived from pursuing additional licensing opportunities.The preliminary amounts allocated to intangible assets were attributed to thefollowing 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 whetherthe amounts allocated to the above intangible assets will change when theCompany finalizes its valuation and if changes are made, the amount of suchchanges. A $1.0 million fluctuation in fair value amounts allocated to therelationships with licensees intangible asset would increase or decrease annualamortization expense by $0.3 million.

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

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

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***Pro Forma Information***

Thefollowing tables summarize unaudited pro forma financial information for theCompany assuming the Presley Business, 19 Entertainment, MBST and the AliBusiness acquisitions and the related financing transactions had occurred on January 1,2006 and 2005. The unaudited pro forma financial information does notnecessarily represent what would have occurred if the transactions had occurredon the dates presented and should not be taken as representative of the Company’sfuture 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 forthe nine months ended September 30, 2005 exclude non-cash employeecompensation expense associated with the exercise of employee stock options by19 Entertainment employees immediately prior to the Company’s acquisition on March 17,2005. The exercises were a one time non-recurring event that resulteddirectly from the acquisition of 19 Entertainment by the Company. Thisexpense was $14.8 million before tax, or $(0.16) per share after tax.

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**5.**                 IntangibleAssets and Goodwill

Intangibleassets 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 |   |   |
|                                                               |            |                                              |            |                                                                       |            |                                               |            |  |  |  |  |  |  |  |  |  |

 

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Intangibleassets 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 intangibleassets 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 ninemonths ended September 30, 2006 and 2005, respectively. At September 30,2006, estimated future amortization expense of definite lived intangible assetsis as follows:  $4.6 million for theremaining three months of 2006 and $18.2 million, $17.1 million, $15.5 millionand $14.8 million for 2007, 2008, 2009 and 2010, respectively.

Goodwillas 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 purchaseprice allocation resulted in a decrease in goodwill and deferred taxliabilities of $4.5 million in the nine months ended September 30, 2006.

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

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**6.**                 Debt

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

On May 24, 2006, theCompany entered into a $125.0 million revolving credit agreement (the “CreditFacility”) with various lenders, including Bear, Stearns & Co. Inc. Asof September 30, 2006, the Company had not drawn on the Credit Facility.Loans under the Credit Facility are guaranteed by all of the Company’swholly-owned domestic subsidiaries and certain of its wholly-owned foreignsubsidiaries. The loans are secured by a pledge of certain assets of theCompany and its subsidiary guarantors, including ownership interests in allwholly-owned domestic subsidiaries, substantially all wholly-owned foreignsubsidiaries and certain subsidiaries that are not wholly-owned. Loans underthe Credit Facility are available to the Company for general corporate purposesand 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 ofcommon 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 exerciseprice of $10.00 per share which expire on February 7, 2008.

**8.**                 Share-BasedPayments

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

**9.**                 IncomeTaxes

In calculating the provision for income taxes on aninterim basis, the Company uses an estimate of the annual effective tax ratebased upon the facts and circumstances known. The Company’s effective tax rateis based on expected income, statutory tax rates and permanent differencesapplicable to the Company in various jurisdictions in which the Companyoperates.

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

During the third quarter of 2006, the Companydetermined that it is more likely than not that the Company’s deferred taxassets for net operating loss carryforwards and other temporary differences of$7.5 million will be realized in 2006. In addition, the Company determined thatit is more likely than not that it will be able to partially utilize foreigntax credits arising from foreign income taxes paid during 2006. Accordingly, theCompany reduced the valuation allowance previously recorded against the netoperating 

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

In 2005, deferred tax assets were reduced by avaluation allowance of $31.4 million, principally relating to uncertaintyregarding the future realizability of tax benefits related to net operatingloss carryforwards and foreign tax credits. When $27.2 million of thesevaluation allowances are reversed in future periods, the reversals will becredited to goodwill in accordance with FAS 109.

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

**10.**          SegmentInformation

As of September 30, 2006, the Company had fivereportable segments: Presley Business—Royalties and Licensing, Presley Business—GracelandOperations, 19 Entertainment, MBST and the Ali Business. These designationshave been made as the discrete operating results of these segments are reviewedby the Company’s chief operating decision-maker to assess performance and makeoperating decisions. All inter-segment transactions have been eliminatedin the consolidated financial statements.

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

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TheCompany evaluates its operating performance based on several factors, includinga financial measure of operating income (loss) before non-cashdepreciation of tangible assets and non-cash amortization of intangibleassets (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 |   |
|                                                                          |            |                                      |            |                                   |            |                           |            |                       |            |            |            |                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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Belowis 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 LOOKINGSTATEMENTS**

In addition to historical information, this Form 10-Q(this “Quarterly Report”) contains forward-looking statements within themeaning of Section 27A of the Securities Act of 1933, as amended, and Section 21Eof the Securities Exchange Act of 1934, as amended. Forward-lookingstatements are those that predict or describe future events or trends and thatdo not relate solely to historical matters. You can generally identify forward-lookingstatements 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 identifyingwords. 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 bypursuing management’s current plans and objectives are forward-lookingstatements. You should not place undue reliance on our forward-lookingstatements because the matters they describe are subject to known and unknownrisks, uncertainties and other unpredictable factors, many of which are beyondour control. Our forward-looking statements are based on the informationcurrently available to us and speak only as of the date on which this QuarterlyReport was filed with the Securities and Exchange Commission (“SEC”). Weexpressly disclaim any obligation to issue any updates or revisions to ourforward-looking statements, even if subsequent events cause ourexpectations to change regarding the matters discussed in those statements.Over time, our actual results, performance or achievements will likely differfrom the anticipated results, performance or achievements that are expressed orimplied by our forward-looking statements, and such difference might besignificant and materially adverse to our stockholders.

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**Item 2.**                        Management’sDiscussion and Analysis of Financial Condition and Results of Operations

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

**General**

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

On February 7, 2005, RFX Acquisition LLC, amanagement group led by Robert F.X. Sillerman, acquired control of the Company(formerly known as Sports Entertainment Enterprises, Inc.) which had beeninactive since it sold all of its assets in August 2002. Simultaneous withthat transaction, the Company acquired an 85% interest in the entities whichown and/or control certain content relating to Elvis Presley (the “PresleyBusiness”). The former owner of the Presley Business maintains a 15% interestin the business and is entitled to certain future distributions and has othercontractual rights. On March 17, 2005, the Company acquired 100% of theoutstanding 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 andall other rights of publicity of Muhammad Ali, certain trademarks andcopyrights owned by Mr. Ali and his affiliates and the rights to allexisting Muhammad Ali license agreements (the “Ali Business”). The former ownerof the Ali Business maintains a 20% interest in the business and is entitled tocertain future distributions and has other contractual rights.

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

**Presley Business**

The Presley Business consists of entities which ownand/or control the commercial utilization of the name, image and likeness ofElvis Presley, the operation of the Graceland museum and related attractions,as well as revenue derived from Elvis Presley’s television specials, films andcertain of his recorded musical works. The Presley Business consists of tworeportable segments: Royalties and Licensing - intellectual property, includingthe licensing of the name, image, likeness and trademarks associated with ElvisPresley, as well as other owned and/or controlled intellectual property and thecollection of royalties from certain motion pictures, television specials andrecorded musical works and music compositions; and Graceland Operations - theoperation of the Graceland museum and related attractions and retailestablishments, including Elvis Presley’s Heartbreak Hotel and other ancillaryreal estate assets.

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

19

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minimum guarantees, ourlicensing revenue varies based on the actual product sales generated bylicensees. The intellectual property created by Elvis during his lifetime thatis owned by the Company has generally been assigned to third parties forcommercial exploitation under long-term agreements. Although we maintaincertain controls over the use of this content and, in certain cases, haverights to terminate these agreements if the third party fails to perform, ourrevenue from this intellectual property is highly dependant upon the ability ofthird parties to successfully market the content.

The Graceland Operations segment generates its primaryrevenue from ticket and merchandise sales and related income from public toursof Graceland as well as from the operation of Elvis Presley’s Heartbreak Hoteland the Meadow Oaks apartment complex. Revenue from Graceland has historicallybeen seasonal with sharply higher numbers of visitors during the late springand summer seasons as compared to the fall and winter seasons.

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

Our significant costs tooperate the Presley Business include salaries, rent and other overhead costs.Most of our costs do not vary significantly with our revenue. Our discretionarycosts are generally in our marketing and promotions department which weprimarily incur to maintain and/or increase the number of visitors toGraceland. We may also incur discretionary expenses in exploring opportunitiesto bring Elvis-related attractions to Las Vegas and other strategic locationsthroughout 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 revenuesources include production and license fees and related ratings and rankingsbonuses from television programs, and royalties from the sale of recorded musicby artists signed to our record labels. We also derive revenue from the sale ofmerchandise, sponsorships and tours based on our television programs andrecorded music artists, and fee income from management clients.

The majority of 19 Entertainment’s revenue is derivedfrom production and license fees and related performance bonuses from producingand licensing the *IDOLS*television show format in various countries and ancillary revenue streams fromthe *IDOLS* brand. Ancillaryrevenue from the *IDOLS* brand isgenerated through agreements which provide us with the option to sign finalistson the *IDOLS* television shows tolong-term recording contracts, concert tours we produce featuring *IDOLS* finalists and the sale ofsponsorships and merchandise involving the *IDOLS*brand and finalists.

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

Other than *American Idol*,which is discussed below, the *IDOLS*television shows are generally produced or licensed under one year contractswhereby each local television network has the right, but not the obligation, torenew the agreement for additional years. Our recording artists are generallysigned to long-term recording contracts with 19 Recordings covering aspecified 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 Foxtelevision network in the United States, and local adaptations of the *IDOLS* television show which air around the world. A portionof our revenue from the 

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*AmericanIdol* series is dependent upon the number of hours ofprogramming we deliver. In the fourth broadcast season, which aired during ourfirst and second fiscal quarters of 2005, we delivered 38.5 hours ofprogramming. We delivered 45 hours of programming for the fifth season ofAmerican 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, FremantleMediaand SonyBMG/Simco, related to our ownership interest in the *American Idol* television program. Under the terms of theagreement with Fox, Fox has guaranteed at least three (2007-2009) and asmany as five more seasons of *American Idol*.The new agreement with Fox requires Fox to order a minimum of 37 hours and amaximum of 45 hours of *American Idol*programmingeach season and to pay 19 Entertainment and FremantleMedia an increased licensefee per season. Fox is also required to pay an annual fee to 19 Entertainmenttied to our new recording agreement with SonyBMG.

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

19 Entertainment also generates significant revenueand 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 Entertainmentrecords 100% of the television and sponsorship revenue and related productionand other expenses from *So You Think You CanDance*. Thecontractual share of the revenue that we are required to pay to our productionpartner is reflected in 19 Entertainment’s operating expenses.

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

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

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

**MBST**

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

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

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

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**Ali Business**

The Ali Business consists of the commercialexploitation of the name, image, likeness and intellectual property of MuhammadAli, primarily through endorsement and licensing arrangements.

The primary revenue source comes from licensingMuhammad Ali’s name and likeness for consumer products, commercials and otheruses. Licensing revenue is primarily derived from long-term contracts withterms of one to five years. Although we seek to obtain significant minimumguarantees, our licensing revenue varies based on the actual product salesgenerated by licensees. The intellectual property that is owned by the Companyis licensed to third parties for commercial exploitation under long-termagreements. Although we maintain certain controls over the use of this contentand, in certain cases, have rights to terminate these agreements if the thirdparty fails to perform, our revenue from this intellectual property is highlydependant upon the ability of third parties to successfully market the content.Most of our revenue sources are dependant upon the public’s continued interestin Muhammad Ali and associated intellectual property. The Ali Business alsogenerates revenue from sports memorabilia signings performed by Mr. Ali.

Our significant costs tooperate the Ali Business include commissions, salaries and other generaloverhead costs. With the exception of commissions, most of our costs do notvary significantly with our revenue.

**Use of OIBDA**

We evaluate our operating performance based on severalfactors, including a financial measure of operating income (loss) before non-cashdepreciation of tangible assets and non-cash amortization of intangibleassets (which we refer to as “OIBDA”). We consider OIBDA to be an importantindicator of the operational strengths and performance of our businesses, includingthe ability to provide cash flows to service debt. However, a limitation of theuse of OIBDA as a performance measure is that it does not reflect the periodiccosts of certain capitalized tangible and intangible assets used in generatingrevenue in our businesses. Accordingly, OIBDA should be considered in additionto, not as a substitute for, operating income (loss), net income (loss) andother measures of financial performance reported in accordance with US GAAPbecause OIBDA is not a GAAP equivalent measurement.

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

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**Consolidated Operating Results Three Months Ended September 30,2006Compared 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 comparedto $59.8 million for the same period in 2005. The increase of $16.7 million isprimarily attributable to a $15.3 million increase in revenue at19 Entertainment, reflecting higher revenue associated with the *American Idol*tour. Revenue at the Presley Businessincreased $0.6 million primarily due to an increase in visitors and pervisitor spending at Graceland. MBST contributed $0.9 million in revenue for thethree months ended September 30, 2006 compared to $0.7 million from thedate of acquisition in 2005. The Ali Business contributed $0.6 million inrevenue for the three months ended September 30, 2006.

***Operating Expenses***

Operating expenses for thethree months ended September 30, 2006 increased by $8.9 million over thesame period in 2005. Of this increase, $4.4 million reflects the increase inoperating expenses of 19 Entertainment, primarily related to higher costsassociated with the*American Idol*tourand increased selling, general and administrative costs. Presley Businessoperating costs increased $0.3 million, primarily due to increased professionalfees and amortization related to the acquisition of assets of an Elvis-themedmuseum in Las Vegas. MBST incurred operating costs of $1.4 million in the threemonths ended September 30, 2006, an increase of $0.6 million from 2005 dueto the timing of the acquisition. The Ali Business incurred operating costs of$0.5 million in the three months ended September 30, 2006. Corporateexpenses increased by $0.6 million for the three months ended September 30,2006, reflecting increased headcount and increased accounting and audit-relatedexpenses arising from our efforts to comply with the requirements of theSarbanes-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 likelyto be consummated.

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***Operating Income***

Operating income for thethree months ended September 30, 2006 was $12.7 million, compared tooperating income of $4.9 million for the three months ended September 30,2005. The increase is attributable to a $10.9 million increase in operatingincome 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 corporateexpenses and $2.5 million in other costs.

***OIBDA***

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

***InterestIncome/Expense, net***

The Company had netinterest 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 withmaintaining the Company’s revolving credit facilities offset by interest incomeon cash. The Company had net interest income of $0.7 million for the 2005period, primarily attributable to interest income on the unused proceeds fromthe Company’s public stock offering on June 27, 2005.

***Other Income (Loss)***

Other loss of $0.7 millionfor the three months ended September 30, 2006 was primarily a result offoreign exchange losses generated at 19 Entertainment from transactionsdenominated in non-UK pound sterling currencies. Other income of $1.0 millionfor the three months ended September 30, 2005 was primarily a result of aforeign exchange gain on the Company’s deferred purchase consideration payablefor 19 Entertainment.

***Income Taxes***

In calculating the provision for income taxes on aninterim basis, the Company uses an estimate of the annual effective tax ratebased upon the facts and circumstances known. The Company’s effective tax rateis based on expected income, statutory tax rates and permanent differencesapplicable to the Company in various jurisdictions in which the Companyoperates.

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

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

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income during the ninemonths ended September 30, 2006, has met internal financial forecasts andthe uncertainty arising from the potential impact of additional acquisitionsduring the year has been reduced.

In 2005, deferred tax assets were reduced by avaluation allowance of $31.4 million, principally relating to uncertaintyregarding the future realizability of tax benefits related to net operatingloss carryforwards and foreign tax credits. When $27.2 million of thesevaluation allowances are reversed in future periods, the reversals will becredited to goodwill in accordance with FAS 109.

For the three months endedSeptember 30, 2005, the Company recorded federal income tax expense of$2.3 million, state income tax expense of $0.8 million and foreign income taxexpense 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 $0.3million of earnings in unconsolidated affiliates for the three months ended September 30,2006 and 2005.

***Minority Interest***

Minority interest expenseof $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 PresleyBusiness and the Ali Business related to the equity interests retained by theformer owners.

***Net Income***

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

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

**Presley Business**

Revenue for the PresleyBusiness 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. Operatingexpenses for the Presley Business, including acquisition-related depreciationand 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 thePresley Business for the three months ended September 30, 2006 was $3.2million, an increase of $0.3 million, or 10%, from the prior period. OIBDA forthe 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 yearperiod. This decrease was due to a $0.5 million decline in royalties from thesales of DVD’s of the “‘68 Special” and “Aloha from Hawaii” concerts, whichwere re-released in 2004, partially offset by higher name, image and likenessroyalties from television commercials. Operating expenses for the Royalties andLicensing segment, including acquisition-related depreciation and amortizationexpenses 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 costsin 2005. OIBDA related to the Royalties and Licensing segment was $1.5 millionfor the three months ended September 30, 2006, compared to $1.3 million inthe prior year period.

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***GracelandOperations***

Revenue for the Graceland Operations segment, whichincludes several sources of revenue, was $11.2 million for the threemonths ended September 30, 2006, an increase of $0.7 million, or 7%, fromthe 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 theprior year. This increase resulted from a 12.6% increase in per visitorspending and a 4.5% increase in visitors to 189,279 in 2006 from 181,181 in theprior period, which had been negatively impacted by Hurricane Katrina. Theaffect on domestic tourism to the Gulf Coast region as a result of HurricaneKatrina and higher gasoline prices seems to be abating, though group andinternational tourism is still down when compared to the prior year andattendance has not returned to 2004 levels. Certain events in the secondquarter of 2006, including the taping of an *American Idol*episode at Graceland which aired in April and the visit by President Bushand the Prime Minister of Japan at the end of June also generatedfavorable publicity which we believe contributed to the increase in attendance.Per visitor spending improvement is partially due to an increase in visitorschoosing the VIP premium tour option.

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

Operating expenses for theGraceland Operations segment were $8.8 million compared to $8.1 million in theprior period, an increase of $0.7 million, or 9%, due primarily to higherprofessional services and related costs associated with the potentialredevelopment of Graceland and our new initiatives with Cirque du Soleil. OIBDAfor the Graceland Operations segment was $2.9 million for the three monthsended September 30, 2006, compared to $2.8 million in the prior yearperiod.

**19 Entertainment**

Revenuefor 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. Operatingexpenses for 19 Entertainment, including acquisition-related depreciation andamortization expenses of $3.7 million, were $44.8 million, an increase of $4.4million, or 11%, over the prior year period. The following table provides abreakdown of 19 Entertainment’s revenue, cost of sales, operating income andOIBDA 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 |   |

 

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The increase in revenue was primarily due to thegrowth 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 alsobenefited from strong ticket sales, better terms with the tour promoter andhigher sponsorship revenues. Revenues for *SoYou Think You Can Dance*declined $3.4 million from the prior yearperiod reflecting a shift in the commencement of airing from the third quarter of2005 to the second quarter of 2006. *So YouThink You Can Dance*broadcast 15 hours in the third quarter of 2006as compared to 17.5 hours in the prior year period. Music revenuesincreased $4.0 million over the prior year period reflecting the continuingsuccess of prior *American Idol*artists.

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

**MBST**

MBST contributed $0.9million in revenue for the three months ended September 30, 2006, comparedto $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 periodfrom 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 newprojects from certain major clients.

**Ali Business**

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

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

Prior to the acquisitionof the Presley Business on February 7, 2005, the Company had nooperations. As a result, the Presley Business is considered to be thepredecessor company. To assist in the understanding of the results ofoperations of the Company, we have presented supplemental historical results ofthe Predecessor. For the purpose of management’s discussion and analysis offinancial condition and results of operations, we have compared the results ofthe 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 forthe period January 1, 2005 to February 7, 2005. The results ofoperations of the Predecessor and CKX are not necessarily comparable, in partdue to the change in basis resulting from the Company’s acquisition of thePredecessor. Although the combined 2005 financial information does not complywith generally accepted accounting principles, management is providing thisinformation solely to explain changes in results of operations for the periodspresented in the financial statements. The combined total column has beenprepared on a different accounting basis than the Company for the period ended September 30,2006. The combined total excludes the impact of additional depreciation andamortization expense resulting from the fair value accounting of acquiredassets for the Presley Business for the predecessor period January 1, 2005to 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 millionfor the nine months ended September 30, 2006 compared to $106.6 millionfor the combined 2005 period. The increase of $71.2 million is primarilyattributable to $134.9 million of revenue at 19 Entertainment for the ninemonths ended September 30, 2006, up from $64.5 million from its date ofacquisition (March 17, 2005) to September 30, 2005. Revenue at thePresley 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 thecombined 2005 period. MBST contributed $4.7 million in revenue for the ninemonths ended September 30, 2006, an increase of $4.0 million compared torevenue of $0.7 million from its date of acquisition (August 9, 2005) to September 30,2005. The Ali Business 

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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 thenine months ended September 30, 2006 were $144.9 million, representing anincrease of $44.1 million over the combined prior period. Of this increase,$38.9 million reflects the increase in operating expenses of19 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 additionalacquisition-related depreciation and amortization expenses. Presley Businessoperating costs decreased $4.2 million to $28.4 million in 2006, including $0.5million in decreased acquisition-related depreciation and amortization expensesas a result of the finalization of the purchase valuation, primarily due to thecosts incurred in 2005 associated with “Elvis by the Presleys.” MBST hadoperating costs of $4.3 million in the first nine months of 2006, up from $0.8million from its date of acquisition (August 9, 2005) to September 30,2005. The Ali Business had operating costs of $2.0 million in the periodfrom 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 theCompany, which resulted in only a partial period of corporate expenses beingrecorded in 2005 and increased headcount and increased accounting and audit-relatedexpenses arising from our efforts to comply with the requirements of theSarbanes-Oxley law. Other costs for the nine months ended September 30,2006 reflect $3.2 million of due diligence costs for potential acquisitionsthat 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 thetransition of the Company from an entity with no operations.

***Operating Income***

Operating income for thenine months ended September 30, 2006 was $32.9 million, compared tocombined operating income of $5.8 million for the 2005 period. The increase isattributable to $39.2 million of operating income generated in the currentperiod by 19 Entertainment, up from $7.7 million from its date ofacquisition through September 30, 2005, $0.4 million of operating incomegenerated by MBST in 2006, up from an operating loss of $0.1 million from itsdate of acquisition through September 30, 2005, $1.3 million of operatingincome generated by the Ali Business in the period from the date of acquisitionto September 30, 2006, partially offset by a $3.9 million increase incorporate and other expenses for the current period and a $2.3 million decreasein operating income at the Presley Business.

***OIBDA***

OIBDA increased by $32.1million to $48.1 million for the nine months ended September 30, 2006 ashigher 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 monthsended September 30, 2006 were partially offset by a $3.9 millionincrease in corporate and other expenses and a decrease in OIBDA of $2.5million at the Presley Business.

***Interest Income/Expense, net***

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

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acquisitionsof the Presley Business and 19 Entertainment. These borrowings were repaid in June 2005with 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-termsenior loans used to finance the Presley Business and 19 Entertainmentacquisitions were re-paid in June 2005 from the proceeds of the Company’spublic offering of common stock.

***Other Income (Loss)***

Other loss of $1.1 millionfor the nine months ended September 30, 2006 was primarily a result offoreign exchange losses generated at 19 Entertainment from transactionsdenominated in non-UK pound sterling currencies. Other income of $2.8 millionfor the nine months ended September 30, 2005 was primarily a result of aforeign exchange gain on the Company’s deferred purchase consideration payablefor 19 Entertainment.

***Income Taxes***

In calculating theprovision for income taxes on an interim basis, the Company uses an estimate ofthe annual effective tax rate based upon the facts and circumstances known. TheCompany’s effective tax rate is based on expected income, statutory tax ratesand permanent differences applicable to the Company in various jurisdictions inwhich the Company operates.

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

During the third quarterof 2006, the Company determined that it is more likely than not that theCompany’s deferred tax assets for net operating loss carryforwards and othertemporary 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 topartially utilize foreign tax credits arising from foreign income taxes paidduring 2006. Accordingly, the Company reduced the valuation allowancepreviously recorded against the net operating loss carryforwards and othertemporary differences. The valuation allowance was recorded in prior periodsbecause it was not more likely than not that these deferred tax assets would berealized in the future due to the Company’s short operating history, itsstrategic direction to make additional significant acquisitions and theuncertainty surrounding future taxable income. The Company now believes thatthere is sufficient certainty with respect to its tax position for the currentyear. The Company has achieved substantial taxable income during the ninemonths ended September 30, 2006, has met internal financial forecasts andthe uncertainty arising from the potential impact of additional acquisitions duringthe year has been reduced.

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

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

***Equity in Earnings of Affiliates***

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

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***Minority Interest***

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

***Net Income***

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

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

**Presley Business**

Revenue for the PresleyBusiness was $34.9 million for the nine months ended September 30, 2006, adecrease of $6.5 million, or 16%, from the combined prior year period.Operating expenses for the Presley Business, including acquisition-relateddepreciation and amortization expenses of $1.9 million, were $28.4 million,representing a decrease of $4.2 million, or 13%, from the combined prior yearperiod. 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 priorperiod. OIBDA for the Presley Business was $9.8 million for the nine monthsended September 30, 2006, a decrease of $2.5 million, or 20%, from thecombined prior year period.

***Royalties and Licensing***

Revenue for the Royaltiesand Licensing segment was $9.3 million, a decrease of $8.0 million, or46%, from the prior year combined period. This decrease was largely due to $5.7million of revenue generated in 2005 from the television broadcast of “Elvis bythe Presleys,” and the release of a related DVD and book . The remainingdecrease includes $2.0 million in lower royalties in 2006 from the sales ofDVDs of the “Aloha from Hawaii” and “‘68 Special” concerts which werere-released in 2004, license fees of $0.7 million in 2005 for a separatetelevision miniseries and a decline in revenue from commercials and otherprojects of $0.3 million. Partially offsetting these revenue declines was thereceipt of $0.6 million from a royalty audit settlement with SonyBMG in 2006.Operating expenses for the Royalties and Licensing segment, includingacquisition-related depreciation and amortization expenses of $1.9 million and$2.5 million in 2006 and 2005, respectively, were $5.4 million and $11.8million for the nine months ended September 30, 2006 and 2005, respectively.$5.7 million of the decrease was attributable to production costs and otherexpenses for “Elvis by the Presleys” in 2005. OIBDA for the Royalties andLicensing 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 GracelandOperations segment, which includes several sources of revenue, was $25.6 millionfor 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 thenine 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 a13% increase in per visitor spending partially offset by a 3% decline invisitors from 449,089 to 435,336. We believe that the decline in year-to-dateattendance was due to the impact of Hurricane Katrina and higher gasolineprices. Though we are unable to predict when or if tourism levels in the regionwill fully return to historical levels, we have seen an improvement inattendance of 4.5% in the third quarter of 2006 over the prior period. Certainevents in the second quarter of 2006, including the taping of an *American Idol* episode at Graceland which aired in April andthe 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 increasein attendance. Per visitor spending improvement is partially due to an increasein visitors choosing the VIP premium tour option.

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Revenue from Graceland’s retail operations was $10.1million, an increase of $0.4 million, or 4% over the prior period,resulting primarily from a change in July 2005 to the mail order retailbusiness where the Company now bears the business risk for sales and relatedexpenses and therefore records sales and cost of sales. During the first sevenmonths of 2005, mail order retail sales were outsourced and the Companyreceived a commission based on net sales. Graceland on-site retail salesincreased 1.7% in 2006, which is attributable to an increase in per visitorspending 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 theGraceland Operations segment were $23.0 million compared to $20.8 millionin the combined prior period, an increase of $2.2 million, or 11%, due toamortization related to the purchase of rights to an Elvis-themed museum in LasVegas, higher fulfillment and distribution costs for the mail order retailsales business, higher professional services and related costs associated withthe potential redevelopment of the Graceland attraction and a general increasein operating costs. OIBDA for the Graceland Operations segment was $4.0 millionfor the nine months ended September 30, 2006, compared to $4.3 million inthe combined prior year period.

**19 Entertainment**

Revenuefor 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 thedate of acquisition, March 17, 2005, through September 30, 2005. Operatingexpenses for 19 Entertainment, including acquisition-related depreciation andamortization 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 abreakdown of 19 Entertainment’s revenue, cost of sales, operating income andOIBDA 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 ninemonths ended September 30, 2006 over the prior period is primarily due toan increase in revenue for *American Idol 5*due to the November 2005 amended Fox agreement, increased broadcast hoursof *So You Think You Can Dance*, anexpanded *American Idol 5*tour andthe recognition of a full nine months of CKX ownership in 2006.

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

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*ratingsfor*American Idol5 in its targeted demographics. Also recordedas revenue was 19 Entertainment’s share of the production savings.Additionally, an annual fee of $5.0 million paid by Fox to 19 Entertainment fordesignating SonyBMG as the continuing record label for AmericanIdolartists and for featuring certain SonyBMG controlled talent on the show. The American Idol 5tour played 60 dates as compared to 40 dates for the American Idol 4tour in the prior period. The American Idol 5tour benefited from strong ticket sales, better termswith the tour promoter and higher sponsorship revenues. Revenues for So You Think You Can Danceincreased to $35.0 million from $21.6 million in theprior year reflecting an increase in broadcast hours to30 hours as compared to 17.5 hours in the prior year.Music revenues increased over the prior year period reflecting the continuingsuccess of prior AmericanIdolartists.

*American Idol 4* aired 38.5 hours in the U.S. in 2005. Our results ofoperations 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 theacquisition date.

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

**MBST**

MBST contributed $4.7million 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 sameperiods, including acquisition-related depreciation and amortization expensesof $0.6 million and $0.1 million, respectively, were $4.3 million and $0.8million, respectively. OBIDA was $1.0 million and break-even for the ninemonths ended September 30, 2006 and for the period from the date ofacquisition through September 30, 2005, respectively.

**Ali Business**

The Ali Businesscontributed $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 wasrelated to sports memorabilia signings by Mr. Ali. Operating expenses forthe period were $2.0 million. OBIDA was $1.4 million for the period from thedate of acquisition to September 30, 2006.

**Liquidity andCapital Resources**

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

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maximumdebt to EBITDA ratio of 4.5 to 1.0 and (b) a minimum EBITDA to interestexpense ratio. Under the terms of the Credit Facility, EBITDA is defined asconsolidated net income plus income tax expense, interest expense, depreciationand amortization expense, extraordinary charges and non-cash charges and minusinterest income, extraordinary gains and any other non-cash income. The CreditFacility also contains covenants that regulate the Company’s and itssubsidiaries’ incurrence of debt, disposition of property and capitalexpenditures.

**Cash Flow for thenine months ended September 30, 2006 and 2005**

**OperatingActivities**

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

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

**InvestingActivities**

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

Net cash used in investingactivities 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 wereinvested in marketable securities. Capital expenditures were $0.7 million.

**FinancingActivities**

Cash used in financing activities was $6.5 million forthe 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 withthe new revolving credit facility, distributions to minority interestshareholders of $1.5 million, principal payments on notes payable of $0.5million and dividend payments of $1.4 million to the holder of the Series BConvertible Preferred Stock.

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

**Uses of Capital**

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

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

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

**CapitalExpenditures**

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

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

**Future Acquisitions**

We intend to acquireadditional businesses that fit our strategic goals. We expect to finance ourfuture acquisitions of entertainment related businesses from cash on hand, ourrevolving credit facility, new credit facilities, additional debt and equityofferings, issuance of our equity directly to sellers of businesses and cashflow from operations. However, no assurance can be given that we will be ableto obtain adequate financing to complete any potential future acquisitions wemight identify.

**Dividends**

Our Series B Convertible Preferred Stock requirespayment of a cash dividend of 8% per annum in quarterly installments. On anannual basis, our total dividend payment on the Series B ConvertiblePreferred Stock is $1.8 million. If we fail to make our quarterly dividendpayments to the holders of the Series B Convertible Preferred Stock on atimely basis, the dividend rate increases to 12% and all amounts owing must bepaid within three business days in shares of common stock valued at the averageclosing price over the previous 30 consecutive trading days. After such paymentis made, the dividend rate returns to 8% per annum.

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

**Commitments andContingencies**

There are various lawsuits and claims pending againstus and which we have initiated against others. We believe that any ultimateliability resulting from these actions or claims will not have a materialadverse 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 thePresley Business, to certain sellers of 19 Entertainment and to thesellers of MBST and the Ali Business, we have future cash obligations undervarious types of contracts. We lease office space and equipment under long-termoperating leases. We have also entered into long-term employment agreementswith certain of our executives and other key employees. These employmentagreements typically contain provisions that allow us to terminate the contractwith good cause.

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

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theCityCenter hotel/casino in November 2009. CKX and Cirque du Soleil have eachagreed to pay one-half of the creative development and production costs of thenew Elvis Presley show. CKX expects its portion of the investment to beapproximately $24 million, with the largest amount expected to be funded in thelater stages of development.

**Inflation**

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

**Critical AccountingPolicies**

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

**Off Balance SheetArrangements**

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

**Item 3.   QuantitativeAnd Qualitative Disclosure About Market Risk**

We are exposed to marketrisk arising from changes in market rates and prices, including movements inforeign currency exchange rates, interest rates and the market price of ourcommon stock. To mitigate these risks, we may utilize derivative financialinstruments, among other strategies. We do not use derivative financialinstruments 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 currentlyexposed to changes in interest rates.

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

**Foreign ExchangeRisk**

We have significant operations outside the UnitedStates, principally in the United Kingdom. Some of our foreign operations areconducted in local currencies. As a result, our financial results could be affectedby factors such as changes in foreign currency exchange rates or weak economicconditions in foreign markets in which we operate.

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

As of September 30,2006, we have not entered into any foreign currency option contracts or otherfinancial instruments intended to hedge our exposure to changes in foreignexchange rates. We intend to continue to monitor our operations outside theUnited States and in the future may seek to reduce our exposure to suchfluctuations by entering into foreign currency option contracts or otherhedging arrangements.

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**19 EntertainmentPut Option**

In connection with theacquisition of 19 Entertainment, certain sellers of 19 Entertainment enteredinto a Put and Call Option Agreement that provides them with certain rightswhereby, during a short period following the six year anniversary of theacquisition, these sellers can exercise a put right to sell 1,672,170 shares ofthe 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 thatthe put is exercisable and the sellers exercise this put right, the Companywill have exposure to market risk for the amount that $13.18 per share exceedsthe then market price of the stock for the number of shares put back to theCompany.

**Item 4.**                        Controlsand Procedures

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

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

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**Part II—OtherInformation**

**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).                                                                                                                                                                                                                                                            |

 

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly 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 |     |

 

39

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**INDEXTO 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. |

 

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