Noncontrolling Interest Liability

3 Months Ended

Jun. 30, 2012

Noncontrolling Interest Liability [Abstract]

Note 6.

Noncontrolling Interest Liability

In September 2010, Image and its then wholly-owned subsidiary Image/Madacy Home Entertainment, LLC (IMHE) entered into an Asset Purchase Agreement (Purchase Agreement) with Madacy Entertainment for certain home video division assets. Part of the purchase price included a 30% limited liability membership interest in IMHE (IMHE Noncontrolling Interest).

The IMHE Noncontrolling Interest is subject to a right of repurchase by Image on August 31, 2013 at a repurchase price calculated as the product of 2.25 times the operating income for four consecutive fiscal quarters ending on or prior to the repurchase date, multiplied by the IMHE Noncontrolling Interest. If Image does not repurchase the IMHE Noncontrolling Interest on August 31, 2013, then Image is required to repurchase such interest on August 31, 2014 at a repurchase price calculated as the product of 2.75 times the operating income for four consecutive fiscal quarters ending on or prior to the repurchase date. If Image undergoes a change of control on or prior to August 31, 2013, Madacy Entertainment may opt to have Image repurchase the IMHE Noncontrolling Interest substantially based on the formula for a repurchase at August 31, 2013.

The purchase of the IMHE Noncontrolling Interest by August 31, 2014 is mandatorily redeemable, unless the interest is purchased sooner at the Company's option. At acquisition and each reporting period thereafter, the IMHE Noncontrolling Interest is valued using the discounted cash flow method. Since the purchase is time certain and is not triggered by liquidation or termination of IMHE, the Noncontrolling Interest of $521,000 at June 30, 2012 and $500,000 at March 31, 2012 is recorded as a liability at its fair value. The change in the fair value of the noncontrolling interest liability during the three months ended June 30, 2012 and 2011 was $21,000 and ($173,000), respectively, and is included as a component of other expense (income) in the consolidated statement of operations. In addition, during the three months ended June 30, 2012 and 2011, the Company recorded $165,000 and $81,000, respectively, as a component of other expense relating to to the noncontrolling interest holder for its share in the net operating income of IMHE.

In connection with the purchase of the Home Video Division, on September 7, 2010, Image entered into a three year Management Services Agreement with Madacy Entertainment Management LP, and IMHE entered into an Employee Services Agreement with Sonoma Entertainment LP, each of which was effective August 31, 2010. Pursuant to the Management Services Agreement, Image pays fees for management services provided by certain employees who oversaw the Seller's Home Video Division prior to the Closing. The management fee is $400,000 per year, subject to adjustment based on IMHE's operating income as calculated in accordance with the terms and conditions of the Operating Agreement (which has a $200,000 floor and an $800,000 ceiling annually), to be paid quarterly. At each of June 30, 2012 and 2011, none and $33,000 was included as a component of accrued liabilities, and $50,000 and $100,000 was included in general and administrative expenses for each of the three months ended June 30, 2012 and 2011, respectively. Pursuant to the Employee Services Agreement, IMHE agreed to pay approximately CDN$29,000 per month for the services of certain people employed in connection with the Seller's Home Video Division prior to the Closing who will continue to assist IMHE with the Home Video Division. The Employee Services Agreement will remain in effect until Image's repurchase of the IMHE Noncontrolling Interest. For the three months ended June 30, 2012 and 2011, $94,000 and $92,000, respectively, was included in selling, general and administrative expenses.

- Definition

The entire disclosure for noncontrolling interest in consolidated subsidiaries, which could include the name of the subsidiary, the ownership percentage held by the parent, the ownership percentage held by the noncontrolling owners, the amount of the noncontrolling interest, the location of this amount on the balance sheet (when not reported separately), an explanation of the increase or decrease in the amount of the noncontrolling interest, the noncontrolling interest share of the net Income or Loss of the subsidiary, the location of this amount on the income statement (when not reported separately), the nature of the noncontrolling interest such as background information and terms, the amount of the noncontrolling interest represented by preferred stock, a description of the preferred stock, and the dividend requirements of the preferred stock.

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