UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal period ended December 31, 2007

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

For the transition period from                      to                     

Commission File Number 0-15761

ENTERTAINMENT DISTRIBUTION COMPANY, INC.

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE		98-0085742
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
825 8th Avenue, 23rd FL, New York, New York		10019
(Address of principal executive offices)		(Zip Code)

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common Stock, $0.02 par value		The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None
Title of Class

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes o No þ

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer and large accelerated filer,” “accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller Reporting Company o

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of Registrant, computed by reference to the closing price of the Registrant’s common stock on June 29, 2007, was approximately $140 million. The number of shares of the Registrants’ common stock outstanding on March 10, 2008 was 70,158,052.

Document		Location of Form
Proxy Statement for 2008 Annual Meeting of Stockholders		Part III

 

 

Entertainment Distribution Company, Inc. and Subsidiaries

INDEX

		Page
Part I
Item 1. Business			3
Item 1A. Risk Factors			7
Item 1B. Unresolved Staff Comments			10
Item 2. Properties			11
Item 3. Legal Proceedings			11
Item 4. Submission of Matters to a Vote of Security Holders			12
Part II
Item 5. Market for Registrant’s Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities			13
Item 6. Selected Financial Data			16
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			28
Item 8. Financial Statements
Report of Independent Registered Public Accounting Firm			31
Consolidated Balance Sheets as of December 31, 2007 and 2006			32
Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005			33
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) for the years ended December 31, 2007, 2006 and 2005			34
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005			35
Notes to Consolidated Financial Statements			36
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			68
Item 9A. Controls and Procedures including Reports of Independent Registered Public Accounting Firm			68
Item 9B. Other Information			70
Part III
EX-21.1 SUBSIDIARIES OF THE COMPANY
EX-23.1 CONSENT OF ERNST & YOUNG LLP
EX-31.1 SECTION 302, CERTIFICATION OF THE INTERIM CEO AND CFO
EX-32.1 SECTION 906, CERTIFICATION OF THE INTERIM CEO AND CFO
EX-99.1 MUTUAL SEPARATION AGREEMENT

We, from time to time, make “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements reflect the expectations of management at the time such statements are made. The reader can identify such forward-looking statements by the use of words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intend(s),” “potential,” “continue,” or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements.

Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” below. All forward-looking statements included in this Report on Form 10-K are based on information available to us on the date hereof. We assume no obligation to update any forward-looking statements.

PART I

ITEM 1. BUSINESS

Overview

Entertainment Distribution Company, Inc., formerly Glenayre Technologies, Inc., was incorporated in Delaware on September 21, 1987, and is the successor to a corporation organized on April 7, 1945. The principal executive offices are located in New York City at 825 8^th Avenue, New York, New York, 10019. The Company’s telephone number for investor relations is (212) 333-8400. In this Form 10-K, the terms “we,” “us,” “our” “EDCI” and “the Company”each refer to Entertainment Distribution Company, Inc. and its wholly-owned and controlled majority owned subsidiaries unless the context requires otherwise.

In past periods, including during fiscal year 2006, we had two reportable business segments: Entertainment Distribution Company, LLC (“EDC”) and Glenayre Messaging (“Messaging”). On December 31, 2006, we sold substantially all of the assets comprising the Messaging business. All prior period information has been restated to present the operations of this segment as discontinued operations.

EDC, our only continuing segment, is an industry leader in providing pre-recorded products and distribution services to the entertainment industry with operations serving the United States (“U.S.”), central Europe and the United Kingdom (“UK”). EDC was formed by the acquisition of the U.S. and central European CD and DVD manufacturing and distribution operations from Universal Music Group (“Universal”) in May 2005. As part of the transaction, we entered into supply agreements with Universal with initial terms of 10 years under which we became the exclusive manufacturer and distributor for Universal’s CD and DVD manufacturing requirements and distribution requirements for the U.S. and central Europe.

In July 2006, EDC’s presence in the European market was expanded when we acquired a CD manufacturing operation in Blackburn, UK (“Blackburn”). Blackburn is the largest CD replicator in the UK. Its customer base includes Universal Music Group, its largest customer, as well as Ministry of Sound, Union Square Music, Demon Music Group and Warner Music Group. This acquisition also allowed EDC to secure all of Universal’s UK CD manufacturing business, a portion of which was scheduled to revert to EDC in 2007 as part of EDC’s international supply agreement with Universal.

Together these two acquisitions comprise EDC’s operations. The results of our U.S., central European and UK operations have been included in the consolidated financial statements since their applicable acquisition dates.

Evolving retail trends have caused entertainment content owners to seek out opportunities to lower their costs and to shorten their supply chain. Our core competencies are CD and DVD replication and logistic services, and we are well positioned to participate in this supply chain evolution. As an independent service provider, with the world’s largest music company as its primary customer, EDC is pursuing opportunities to increase revenue by providing a wide range of physical manufacturing, distribution and value added services to entertainment content owners and their customers. These opportunities consist of manufacturing and/or distribution services agreements with existing or new customers. In evaluating these opportunities, we will consider the continued downward pressure on pre-recorded entertainment product pricing and the strong interest from the third party market for CD and DVD production and distribution services. We are also focused on implementing various strategic operational initiatives to increase capabilities and capacity and reduce costs over time.

Products

EDC’s products include pre-recorded multimedia products CDs and DVDs, and manufactured jewel boxes and trays for the entertainment industry. Piracy and illegal downloading of music through web sites have caused CD volumes to decline. We expect that file sharing and downloading, both legal and illegal, and portable personal digital devices

will continue to exert downward pressure on the demand for CDs. In addition, the removal of Digital Rights Management (DRM) by Universal and other content providers will potentially have a negative impact on physical content sales. However, the CD is, and in the foreseeable future is expected to remain, the standard format for the music industry.

The digital transfer and downloading of video files has also become more widespread in large part due to improvement in the speed and quality with which video files can be transferred and downloaded. As a result, file sharing and downloading has exerted significant downward pressure on the demand for DVDs. However, we believe the DVD format, including high definition DVD, will continue to be the standard format for the video industry.

Professional Services

EDC offers an array of professional services including:

Distribution Services: product delivery to mass merchants’ regional distribution centers and wholesalers. We provide direct to retail distribution in Europe as the standard and in the U.S. when timing is crucial. With one German and three U.S. distribution centers, EDC is well positioned to deliver pre-recorded products throughout the U.S. and Europe. The services provided are an integral part of EDC’s customers’ supply chain.

Printed Components and Packaging Services: purchase of printed components and assembly of shelf ready packages. In response to our customer’s demand for more environmentally friendly packaging, we added the assembly of ECOPAK products to our service line in 2007.

Value Added Services: custodial responsibilities for inventory storage and control, returns processing, fulfillment of promotional product, retail price stickering, product quality evaluations, logistics advice, claims administration, data interfaces and cash collections.

Markets, Sales and Marketing

EDC provides CD and DVD manufacturing and distribution services to entertainment content providers in the U.S. and central Europe and manufacturing services in the UK. In addition to its direct sales force located in the U.S., EDC has sales personnel in Hanover, Germany and Blackburn, UK.

Competition

EDC’s competitors include subsidiaries of media conglomerates that produce content while others, like EDC, are purely manufacturers and/or distributors. Our competitors include:

Manufacturing only: AMI, Crest National, Disc Makers, Expedia Media, MPO, OK Media, DocData and Optical Entertainment Media and Zomax.

Distribution only: Ditan, Handleman, Anderson, Entertainment One, Source Interlink, Arvato, Alliance, Ingram, VPD, Baker & Taylor and Navarre.

Manufacturing and Distribution: Cinram, JVC America, Sonopress, Sony DADC/Sony Entertainment Distribution, MPO and Media Motion.

Competition in the pre-recorded multimedia industry is intense and winning new customers, as well as maintaining existing customers, is based on a combination of price, capacity, reliability and the level of service and support. We believe that our competency in providing complete end-to-end manufacturing and distribution supply chain services differentiates us from many of our competitors. However, some of our competitors are larger than us and may have more resources available to them to help them manage their business and respond as the industry continues to experience a decline in demand.

Service and Support

EDC is an integral part of our customers’ supply chain, managing and delivering products to mass merchant regional distribution centers and wholesalers. We provide direct to retail distribution in Europe as the standard and in the U.S when timing is crucial, requests for which were more prevalent in 2007. EDC coordinates the printed material and packaging functions and ships shelf-ready packages world wide on demand. EDC generally does not own finished goods inventory. It provides custodial responsibilities for inventory management, and storage of

finished goods and component parts, product quality evaluations, logistics advice, claims administration and data interfaces for its customers.

Customers

EDC’s major customers are Universal Music Group, BMG Record Club, Vivendi Games, Universal Pictures International-Germany, Ministry of Sound, Union Square Music, Demon Music Group and Warner Music Group.

Universal: EDC’s manufacturing and distribution agreements with Universal accounted for approximately 76%, 87% and 91% of its 2007, 2006 and 2005 revenues, respectively. EDC plans, manages and monitors the use of resources based on regular forecasts provided by Universal. Because EDC is dependent on Universal for a significant amount of its revenues, if market or other factors cause Universal to reduce or postpone significant levels of current or expected purchase commitments for EDC’s products, EDC’s operating results and financial condition may be adversely affected.

Other: All other customers totaling over 150 companies accounted for, in the aggregate, approximately 24%, 13% and 9% of our 2007, 2006 and 2005 revenues, respectively. We have a business development and sales and marketing team focused on providing a high level of service to Universal as well as attracting new customers in the music, video, gaming markets and health and fitness products.

International Sales

EDC’s international sales, which originate primarily in Germany and the UK, are denominated in Euros and British pounds, respectively, and accounted for approximately 66%, 60% and 50% of EDC’s total revenues in 2007, 2006 and 2005, respectively. See Note 20 to the consolidated financial statements for information concerning revenues and long-lived assets by geographic area.

Operations

Manufacturing: EDC currently manufactures its products for the U.S. market at our facility in Grover, North Carolina, for the central European market at our facility in Hanover, Germany and for the UK market at our facility in Blackburn, UK. We own the facility in Grover, have an option to purchase the Hanover facility, which we currently lease from Universal, and lease the Blackburn facility. We believe that these facilities are adequate for our current manufacturing needs.

Distribution: EDC distributes products for the U.S. market at our main distribution facility in Fishers, Indiana and two satellite distribution facilities in Reno, Nevada and Wilkes-Barre, Pennsylvania and for the central European market at our facility in Hanover, Germany which is a combined manufacturing and distribution facility. All the facilities are leased and we have an option to purchase the Hanover facility, as noted above.

We believe in setting high standards of quality throughout all of our operations. Our Hanover, Germany facility and our Grover, North Carolina manufacturing facility are registered ISO 9001:2000 the international standard for quality assurance and ISO 14001 for environmental management. Our Blackburn, UK facility is ISO 9001:2000 certified and is in the process of obtaining ISO 14001 certification. During 2006, the U.S. distribution operations became ISO 9001:2000 compliant. We believe that adhering to the stringent ISO 9001 and 14001 procedures not only creates efficiency in operations, but also positions EDC to meet the exacting standards required by its customers.

EDC is also a member of the Content Delivery and Storage Association (CDSA) and fully supports and complies with the worldwide CDSA Anti-Piracy program. This compliance program ensures that EDC only provides services to those intellectual property owners who have certified and documented ownership and proper use of content, thus ensuring the legitimacy of customer products.

Raw Materials and Components

EDC’s principle raw materials are polystyrene used in the manufacture of jewel boxes and trays (in Germany only) and polycarbonate used in the manufacture of CDs and DVDs. EDC has a limited number of suppliers who are able to provide raw materials. In Germany, we purchase polystyrene (which accounts for approximately 8% of total cost of sales), polycarbonate (which accounts for approximately 9% of total cost of sales) and any jewel boxes and trays, not internally manufactured, (which accounts for approximately 7% of total cost of sales) from several suppliers. In the UK, we purchase polycarbonate (which accounts for approximately 11% of total cost of sales) and jewel boxes

and trays (which accounts for approximately 20% of total cost of sales) from several suppliers. In the U.S., we purchase polycarbonate (which accounts for approximately 11% of total cost of sales) and jewel boxes and trays (which accounts for approximately 26% of total cost of sales) from several suppliers. These inputs are crucial to the production of CDs and DVDs and, while there are alternative suppliers of these products, it would be disruptive to EDC’s production if any of our suppliers were unable to deliver its product to EDC.

Proprietary Technology

EDC has non-exclusive CD replication licensing agreements with a member of the Philips Group of Companies and with Discovision Associates and non-exclusive DVD replication licensing agreements with MPEGLA, the 3-C and AC-3 Groups (both administered by Philips Electronics), the 6-C Group (administered by Toshiba Corporation) and Discovision Associates.

Registered Trademarks

Our trademarks and service marks are also valued corporate assets. We protect our most important marks through registrations in the U.S. and various foreign countries. We are in the process of registering “EDC” and “SIDEBURST” as trademarks.

Government Regulation

Our manufacturing and distribution operations are subject to a range of federal, state, local and international laws and regulations relating to the environment. These include laws and regulations that govern discharges into the air, water and landfills and the handling and disposal of hazardous substances and wastes. We do not anticipate any material effect on our capital expenditures, earnings or competitive position in order to remain in compliance with government regulations involving environmental matters.

Seasonality

EDC typically manufactures and distributes approximately 55% to 60% of its annual demand by volume in the second half of the calendar year due to seasonality in the entertainment business. Variability is also experienced on a quarterly basis with the lowest demand typically being experienced in the first calendar quarter and with the highest demand occurring in the last calendar quarter. This seasonality cycles year over year and is influenced by our customers’ product release schedules.

Backlog

EDC’s customers order products and services only as they are needed, therefore we do not maintain any significant backlog.

Employees

At December 31, 2007, we employed over 2,000 persons. In Germany, approximately 43% of our workforce of 880 employees is represented by a works council. However, collective bargaining agreements negotiated by the works council cover all non-exempt staff. In February 2008, we reached an agreement with the works council on an eight year collective bargaining agreement which runs through 2015. Exempt staff represents approximately 4% of the total employees in Germany. In the UK, approximately 72% of our workforce of 334 employees is unionized and subject to collective bargaining agreements. In July 2007, we entered into an agreement with the UK employees that was retroactively effective January 1, 2007, and ran until January 1, 2008. We are currently in negotiations for the 2008 UK contract. The 2007 contract terms will remain in effect until a new agreement is reached. In the U.S., approximately 24% of our workforce of approximately 819 employees is unionized and subject to collective bargaining agreements. In April 2007, EDC entered into a new collective bargaining agreement with U.S. employees that will run through April 2010. We believe employee relations are good.

SEC Filings

We make available all annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports free of charge through our Internet website at www.edcllc.com as soon as reasonably practicable after they are filed with, or furnished to, the Securities and Exchange Commission. These reports are also available on the Securities and Exchange Commission’s Internet website at www.sec.gov.

Our code of ethics is posted on our Internet website at www.edcllc.com. You can also receive a copy free of charge by sending an email request to investor.relations@edcllc.com or by sending a written request to our offices at 825 8^th Avenue, 23^rd Floor, New York, NY 10019, Attention: Investor Relations.

ITEM 1A. RISK FACTORS

Our prospects are subject to certain risks and uncertainties including the following:

Declining Nature of CD and DVD Industries

Our business is dependent on the continued viability and growth of physical distribution of music and video through authorized pre-recorded media. Alternative distribution channels and methods, both authorized and unauthorized, for delivering music have eroded and are expected to continue to erode our volume of sales and the pricing of our products and services. The growth of these alternatives is driven by advances in technology that allow for the transfer and downloading of music and video files from the Internet. The proliferation of this copying, use and distribution of such files is supported by the increasing availability and decreasing price of new technologies, such as personal video recorders, CD and DVD burners, portable MP3 music and video players, widespread access to the Internet, and the increasing number of peer-to-peer digital distribution services that facilitate file transfers and downloading. We expect that file sharing and downloading, both legally and illegally, the introduction of new optical formats and portable personal digital devices will continue to exert downward pressure on the demand for CDs. The digital transfer and downloading of video files has become more widespread in large part due to improvement in the speed and quality with which video files can be transferred and downloaded. As a result, file sharing and downloading has also exerted significant downward pressure on the demand for DVDs. In addition, our business faces pressure from the emerging distribution alternatives, like video on demand (“VOD”) and personal digital video recorders. As substantially all of our revenues are derived from the sale of CDs and to a lesser extent DVDs, increased file sharing, downloading and piracy or the growth of other alternative distribution channels and methods, could materially adversely affect our business, financial condition and results of operations.

Potential Intellectual Property Infringement Claims from Third Parties

Substantial litigation regarding intellectual property rights continues in the technology industry. If we were to discover that our products violated a third party’s proprietary rights and were unable to obtain licenses on terms acceptable to us, we might not be able to continue offering those products without substantial reengineering. Reengineering efforts might result in substantial costs and product delays, and might not be successful.

The industry in which EDC competes has many participants who own, or who claim to own, intellectual property for certain of the manufacturing processes we employ, the products we produce or the content produced by our customers. We pay licensing fees to certain third parties who claim to own the rights to intellectual property that we employ in our manufacturing processes or products. In addition, from time to time others may claim rights to intellectual property we employ, asserting a right to royalties or penalties for infringement. It is not possible to determine with certainty whether these or any other existing third party patents or the issuance of any new third party patents may require us to alter, or obtain licenses relating to our processes or products. New multimedia formats will likely require us to obtain additional licenses. We may not be able to obtain any such licenses on favorable terms and obtaining and paying royalties on new licenses might materially increase our costs.

Any intellectual property infringement claims asserted by a third party against us could be time-consuming and costly to defend, divert management’s attention and resources, cause product and service delays, or require us to pay damages to or enter into licensing agreements with third party claimants. An adverse decision in an infringement claim asserted against us could result in our being prohibited from using such technology, as licensing arrangements may not be available on commercially reasonable terms. Our inability to license the infringed or similar technology on commercially reasonable terms could have a material adverse effect on our business, financial condition and results of operations.

Variability of Quarterly Results and Dependence on Key Customers

Our manufacturing and distribution agreements with Universal accounted for approximately 76%, 87% and 91% of our 2007, 2006 and 2005 revenues, respectively. If market or other factors cause Universal to reduce or postpone significant levels of current or expected purchase commitments for our products, our operating results and financial condition will be adversely affected. We have a business development and sales and marketing team focused on providing a high level of service to Universal as well as attracting other customers in the music, video and games markets. Our efforts to expand business with parties other than Universal may not succeed, and as a result, we may not be able to significantly reduce our dependence on Universal.

Under our agreements with Universal, we are required to deliver substantial volumes of products meeting stringent requirements. Our failure to successfully manage the production or supply of our products, including the failure to meet scheduled production and delivery deadlines, or the failure of our products to meet required quality standards, could materially adversely affect our business, operating results and financial condition.

Our production levels, revenue and cash flows are largely affected by our customers’ product release schedule. The release schedule is dependent on a variety of factors such as consumer demand and the availability of marketable content. Our results of operations and cash flows in any period can be materially affected by the timing of product releases by our customers, which may result in significant fluctuations from period to period. In addition, the entertainment business is seasonal and, as such, we typically manufacture and distribute approximately 55% to 60% of our annual demand by volume in the second half of the calendar year. Typically the lowest demand is experienced in the first calendar quarter with the highest demand occurring in the last calendar quarter. This seasonality cycles year over year and is also influenced by our customers’ new product release schedule.

Senior Secured Credit Facility

EDC’s Senior Secured Credit Facility contains usual and customary restrictive covenants that, among other things, permit EDC to use the revolver only as a source of liquidity for EDC and its subsidiaries and place limitations on (i) EDC’s ability to incur additional indebtedness; (ii) our ability to pay dividends or make acquisitions outside our current industries; (iii) EDC’s ability to make any payments to us in the form of cash dividends, loans or advances (other than tax distributions) and (iv) asset dispositions by EDC. It also contains financial covenants relating to maximum consolidated EDC and subsidiaries leverage, minimum interest coverage and maximum senior secured leverage as defined therein. EDC’s ability to comply with these financial covenants is dependent on its future performance, which is subject to prevailing economic conditions and other factors that are beyond our control. Our failure to comply with any of these restrictions in the Senior Secured Credit Facility may result in an event of default, which, if not cured or waived, would allow the lenders to accelerate the payment of the loans and/or terminate the commitments to lend or foreclose on collateral in addition to other legal remedies.

Sensitivity to Economic Trends and Consumer Preferences

Our financial performance depends on consumer demand for our customers’ products. Substantially all of the purchases of the pre-recorded media products sold by our customers are discretionary. Accordingly, weak economic conditions or outlook or varying consumer confidence could significantly reduce consumption in any of our customers’ major markets thereby causing material declines in our sales and net earnings. In addition, because of the discretionary nature of their products, our customers must continually compete for the public’s leisure time and disposable income with other forms of entertainment, including legal and illegal downloading of content, box office movies, sporting events, concerts, live theatre and restaurants. As a result of this competition, demand for our customers’ products could be reduced and our sales volumes and gross profit margins could be adversely affected.

Concentration of Suppliers

EDC’s principle raw materials are polystyrene used in the manufacture of jewel boxes and trays (in Germany only) and polycarbonate used in the manufacture of CDs and DVDs. EDC has a limited number of suppliers who are able to provide raw materials. In Germany, we purchase polystyrene (which accounts for 8% of total cost of sales), polycarbonate (which accounts for approximately 9% of total cost of sales) and any jewel boxes and trays, not internally manufactured, (which accounts for approximately 7% of total cost of sales) from several suppliers. In the UK, we purchase polycarbonate (which accounts for approximately 11% of total cost of sales) and jewel boxes and trays (which accounts for approximately 20% of total cost of sales) from several suppliers. In the U.S., we purchase polycarbonate (which accounts for approximately 11% of total cost of sales) and jewel boxes and trays (which accounts for approximately 26% of total cost of sales) from several suppliers.

These inputs are crucial to the production of CDs and DVDs and, while there are alternative suppliers of these products, it would be disruptive to EDC’s production if any of our suppliers were unable to deliver their product to EDC which could materially adversely affect our business, financial condition and results of operations.

Increased Costs or Shortages of Raw Materials or Energy

We purchase significant quantities of plastics (e.g., polystyrene and polycarbonate), the key raw materials used in the production of DVDs, CDs, jewel cases and trays. The availability and price of these materials may be influenced by a number of different factors, many of which are beyond our control, including weather, transportation, increased demand, production delays and the price of oil. The costs of these raw materials are passed through to Universal. The processes at our manufacturing and distribution facilities are energy-intensive. Therefore, increases in energy costs would adversely affect our gross margins and results of operations.

Advances in Technology, Efforts to Add Services and Changes in Customer Demands

As the demands and requirements of our customers shift, we will need to modify the products and services offered to retain these customers. The costs associated with adapting our operations to these requirements will likely be significant. The initiatives we are pursuing to increase revenue by providing a wide range of manufacturing, distribution and value added services to entertainment content owners and their customers will also require us to incur costs, which may be significant. However, there can be no assurance that these initiatives will succeed in significantly increasing our revenues. If we are unable to obtain the resources necessary to fund product expansion and new technology development or to increase revenues by adding to the types of manufacturing, distribution and value added services we provide to our customers, we may not be able to successfully implement our business strategies and our market share, gross profit margins and results of operations could be adversely affected. Changes in the technology employed by the pre-recorded media industry and the emergence of the future generations of multimedia products, such as Blu-ray discs, may require us to extensively upgrade or alter our manufacturing processes and production facilities in order to offer the most up-to-date product variations.

International Business Risks

International sales are subject to the customary risks associated with international transactions, including political risks, local laws and taxes, the potential imposition of trade or currency exchange restrictions, tariff increases, transportation delays, difficulties or delays in collecting accounts receivable and, to a lesser extent, exchange rate fluctuations. Accordingly, we may seek to mitigate our currency exchange fluctuation risk by entering into currency hedging transactions. However, there can be no assurance that these efforts will successfully limit the risks associated with these international transactions.

Limitations on NOLs Resulting from Ownership Changes

As a result of certain transactions involving our common stock, we have calculated, using the best available public information as of December 11, 2007, that approximately 30% of our share base has changed hands in the past three years utilizing the methodologies outlined in section 382 of the Internal Revenue Code (“section 382”). If we had an “ownership change”, as defined in section 382, our net operating losses (“NOLs”) generated prior to the ownership change would be subject to annual limitations, which could reduce, eliminate, or defer the utilization of these NOLs. Section 382 generally limits the amount of the taxable income that can be offset by a pre-change loss to the product of (i) the long-term tax exempt bond rate (published monthly by the U.S. Treasury) as of the date of the change of ownership and (ii) the value of the company’s shares immediately before the ownership change.

Generally, a loss corporation incurs an “ownership change” within the meaning of section 382 if, immediately after any change in the ownership of the stock in the loss corporation affecting the percentage of stock owned by any 5% stockholder (the date of any such change is referred to as a “testing date”), the percentage of stock owned by one or more 5% stockholders, in the aggregate, has increased by more than 50 percentage points over the lowest percentage of stock owned by such 5% stockholders at any time during the three-year period ending on the testing date. Thus, as of any testing date, changes in stock ownership occurring more than three years prior to the testing date do not have to be taken into account when determining whether an ownership change has occurred.

The amount of our NOLs have not been audited or otherwise validated by the IRS. The IRS could challenge the amount of our NOLs, which could result in an increase in our liability for income taxes. Therefore, we cannot assure you that the calculation of the amount of our NOLs may not be changed as a result of a challenge by a governmental authority or our learning of new information about the ownership of, and transactions in, our securities. In addition, calculating whether an ownership change has occurred is subject to uncertainty, both because of the complexity and ambiguity of section 382 and because of limitations on a publicly traded company’s knowledge as to the ownership of, and transactions in, its securities. Based upon a review of past changes in our ownership, as of December 11, 2007, we do not believe that we have experienced an ownership change (as defined under section 382) that would result in any limitation on our future ability to use these net operating loss and capital

loss carry forwards. However, the IRS or some other taxing authority may disagree with our position and contend that we have already experienced such an ownership change, which would severely limit our ability to use our NOL carry forwards and capital loss carry forwards to offset future taxable income. See Note 15 of the consolidated financial statements for additional information regarding our NOLs.

Environmental Laws and Regulations

Our manufacturing and distribution operations are subject to environmental laws and requirements that may impose material costs or liabilities on us. Our facilities are subject to a range of federal, state, local and international laws and regulations relating to the environment. These include laws and regulations that govern discharges into the air, water and landfills and the handling and disposal of hazardous substances and wastes. Compliance with existing and future environmental laws and regulations and enforcement policies may require us to incur capital and other costs, which may materially adversely affect future financial conditions. Such costs, or related third-party personal injury or property damage claims, could have a material adverse affect on our business, results of operations or financial condition.

Ability to Attract and Retain Key Personnel

Our continued growth and success depends to a significant extent on the continued service of senior management and other key employees, the development of additional management personnel and the hiring of new qualified employees. There can be no assurance that we will be successful in continuously recruiting new personnel or in retaining existing personnel. The loss of one or more key or other employees or our inability to attract additional qualified employees or retain other employees could have a material adverse effect on our business, results of operations or financial condition.

Competition

Some of our competitors have substantially greater financial, technical, marketing and distribution resources than us and we may be unable to successfully compete with these competitors. In addition, competitive pricing pressures may have an adverse effect on our profit margins in the future.

Volatility of Stock Price

The market price of our common stock is volatile. The market price of our common stock could be subject to significant fluctuations in response to variations in quarterly operating results and other factors such as announcements of technological developments or new products, developments in relationships with our customers, strategic alliances and partnerships, potential acquisitions and strategic investments, technological advances by existing and new competitors, general market conditions in our industries and changes in government regulations.

Continued NASDAQ Listing

In January 2008, we received notification from Nasdaq that we were not in compliance with the minimum bid price requirement for continued listing set forth in Nasdaq Marketplace Rule 4450(a)(5) and were provided with 180 calendar days, or until July 2, 2008, to regain compliance. Alternatively, we can apply to transfer our common stock to The Nasdaq Capital Market if we satisfy the applicable listing requirements, other than the bid price requirement, either during the first 180 day period or after July 2, 2008. If our application is approved, we will be afforded a second 180 calendar day compliance period in order to regain compliance with the minimum bid price rule.

If we are unable to regain compliance with the Nasdaq criteria, our common stock may be delisted. In such an event, our shares could only be traded on the over-the-counter bulletin board system. This method of trading could impair the liquidity of our common stock and our ability to raise capital. In addition, we may become subject to special rules, called “penny stock” rules that impose additional sales practice requirements on broker-dealers who sell our common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES

The following table sets forth certain information regarding our principal facilities used in its continuing operations:

Size

Owned Or

Lease

Location

(Square Feet)

Leased

Expiration Date

Used

Blackburn, Lancashire, UK

148,869

Leased

2017

Manufacturing facility and administrative offices for EDC UK information services, finance and accounting.

Grover, North Carolina, U.S.A.

356,000

Owned

N/A

Manufacturing facility and administrative offices for EDC U.S. manufacturing operations.

Fishers, Indiana, U.S.A.

648,000

Leased

2012

Full stocking warehouse and distribution center, offices for EDC U.S. information services, and corporate accounting and finance.

Reno, Nevada, U.S.A.

100,000

Leased

2010

EDC product warehouse and distribution center.

Wilkes-Barre, Pennsylvania, U.S.A.

60,000

Leased

2010

EDC product warehouse and distribution center.

New York, New York, U.S.A.

5,300

Leased

2008

Corporate Headquarters

Hanover, Germany

738,000

Leased

2015

Manufacturing facility and full stocking warehouse and distribution center and administrative offices for EDC central Europe information services, finance and accounting.

ITEM 3. LEGAL PROCEEDINGS

In addition to the legal proceedings discussed below, we are, from time to time, involved in various disputes and legal actions related to our business operations. While no assurance can be given regarding the outcome of these matters, based on information currently available, we believe that the resolution of these matters will not have a material adverse effect on our financial position or results of our future operations. However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions be unfavorable, our business, financial condition, results of operations and cash flows could be materially adversely affected.

Shareholder Derivative Actions — As previously reported, on September 6, 2006, Vladimir Gusinsky (“Gusinsky”), a Company shareholder, commenced a derivative action (the “Gusinsky Action”) in the Supreme Court of the State of New York, New York County, against the Company (as nominal defendant) and against certain of our current and former officers and directors as defendants. The complaint, as amended in December 2006 and January 2007, purportedly on behalf of the Company, contained a variety of allegations relating to the backdating of certain stock option grants. On January 26, 2007 and February 7, 2007, two additional derivative actions were commenced in the United States District Court for the Southern District of New York by two different Company shareholders, Larry L. Stoll and Mark C. Neiswender, respectively (the “Subsequent Actions”). The Subsequent Actions were identical to each other, and asserted the same claims as those asserted in the Gusinsky Action regarding a subset of the same option grants at issue in that action along with additional claims alleging violations of federal securities laws.

As previously reported, a Special Litigation Committee of the Board of Directors of the Company, following an internal investigation, concluded that there was no conclusive or compelling evidence that any of the named defendants in the lawsuits breached the fiduciary duties of care or loyalty, or acted in bad faith with respect to their obligations to the Company or its shareholders, and further concluded that it would not be in the Company’s best interest to pursue any claims with respect to these grants. The Company also restated certain financial statements as a result of this internal investigation.

On August 1, 2007, the Company filed a motion to dismiss the Gusinsky Action. The plaintiffs’ time to respond to that motion was stayed while the parties engaged in settlement discussions.

On July 16, 2007, the court granted a motion filed by plaintiffs to consolidate the Subsequent Actions. On August 6, 2007, the plaintiffs in the Subsequent Actions filed an amended complaint which added several new defendants and allegations that additional grants were backdated. The claims in the amended complaint were similar to those asserted in the Gusinsky Action with additional claims alleging violations of federal securities laws relating to the challenged grants. On August 17, 2007, the Company moved to dismiss the amended complaint, in part on the grounds that the federal securities claims were time barred. On October 9, 2007, the Court granted the Company’s

motion and dismissed the Subsequent Actions. On November 8, 2007, the plaintiffs filed a notice of appeal of the Court’s dismissal. On December 21, 2007, the parties to the Subsequent Actions agreed to withdraw the appeal without prejudice to re-filing it.

On January 30, 2008, all parties to the Gusinsky Action and the Subsequent Actions entered into an agreement to settle both actions. The agreement is subject to the approval of the Court. Pursuant to the settlement agreement, the Company’s insurer will pay plaintiffs’ counsel in the Gusinsky Action and the Subsequent Actions for their fees and expenses, and will pay for the costs of notifying the Company’s shareholders of the settlement. The Company will also implement certain changes to its Equity Compensation Policy and adopt related reform policies. In exchange, the plaintiffs in both the Gusinsky Action and the Subsequent Actions will dismiss their claims with prejudice, forego any appeals and release all the defendants from all claims that were or could have been asserted in either action and arise out of or are based upon or relate in any way to any of the allegations set forth in the complaints. The papers in support of preliminary approval of the settlement were filed in the Gusinsky Action on January 31, 2008 and the matter is now pending before that Court.

Patent Litigation - In March 2008, EDC was served as a defendant in an action by Koninklijke Philips Electronics N. V. and U.S. Philips Corporation, pending in the U. S. District Court for the Eastern District of Texas, Beaumont Division, filed on January 18, 2008. Plaintiffs allege breach of contract for failure to pay royalties and patent infringement and claim unspecified damages. EDC does not believe the complaint has merit and has indemnification rights under certain contractual arrangements covering a substantial portion of the alleged infringement. EDC intends to vigorously defend the action. At this early stage in this matter, the Company is not able to assess the materiality of any potential outcome.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades on the NASDAQ Global Market under the symbol “EDCI.” The table below sets forth the inter-day high and low sale prices for our common stock on the NASDAQ Global Market for the periods indicated.

		Price Range of
		Common Stock
		High				Low
Year Ended December 31, 2007
First Quarter		$	2.70			$	2.13
Second Quarter		$	2.46			$	1.78
Third Quarter		$	1.99			$	1.23
Fourth Quarter		$	1.35			$	0.57
Year Ended December 31, 2006
First Quarter		$	5.25			$	3.17
Second Quarter		$	6.02			$	2.21
Third Quarter		$	2.80			$	2.00
Fourth Quarter		$	2.69			$	2.15

At March 10, 2008 there were approximately 1,537 holders of record of our common stock.

The Company has not paid cash dividends since 1982 and does not anticipate paying cash dividends in the foreseeable future. We expect to utilize future earnings to finance the development and expansion of our business.

Stock Performance Graph

The following graph compares the cumulative total return on $100 invested on December 31, 2002 in each of the Company’s Common Stock, the NASDAQ U.S. Composite Index and the S&P 500 Movies & Entertainment Index at the end of each fiscal year through 2007. The returns are calculated assuming the reinvestment of dividends. The Company has not paid any cash dividends during the period covered by the graph below. The stock price performance shown on the graph below is not necessarily indicative of future stock price performance.

								INDEXED RETURNS
				Base				Years Ending
				Period
	Company / Index			Dec02					Dec03					Dec04					Dec05					Dec06						Dec07
	Entertainment Distribution Company				100					235.96					191.23					285.09					224.56					58.77
	Nasdaq U.S. Index				100					150.36					163.00					166.58					183.68					201.91
	S&P 500 Movies & Entertainment Index				100					126.46					127.83					112.90					144.81					131.00

Equity Compensation Plan Information

The following table provides information as of December 31, 2007, with respect to our shares of common stock that may be issued under our existing equity compensation plan, which has been approved by our stockholders. We currently do not have any equity compensation plans that have not been approved by our stockholders.

EQUITY COMPENSATION PLAN INFORMATION

Number of Common Shares

Number of

Remaining Available for Future

Common

Weighted

Issuance Under Equity

Shares to be Issued

Average Exercise

Compensation

Upon Exercise of

Price of

Plans (Excluding Common

Outstanding

Outstanding

Shares

Plan Category

Options

Options

Reflected in Column (a))

(a)

(b)

(c)

Equity compensation plan approved by stockholders

1,432,030

$

3.40

8,869,649

ITEM 6. SELECTED FINANCIAL DATA

The Selected Consolidated Financial Data presented below for each of the five years in the period ended December 31, 2007, has been derived from our audited consolidated financial statements. The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7, “Management’s Discussion and Analysis-Financial Condition and Results of Operations” and the consolidated financial statements and Notes thereto included in Item 8 of this Form 10-K to fully understand factors that may affect the comparability of the information presented below.

		Year Ended December 31,
		2007				2006 (1)				2005 (2)				2004				2003
						(In thousands, except per share data)
Operating Data (3):
Total revenues		$	384,557			$	348,528			$	189,588			$	—			$	—
Income (loss) from continuing operations			(15,636	)			(1,550	)			1,785				(4,277	)			(3,425	)
Income (loss) from discontinued operations			(542	)			(8,220	)			6,190				8,796				5,009
Gain on sale of Messaging business			1,044				6,127				—				—				—
Extraordinary Gain			—				7,668				—				—				—
Net income (loss)			(15,134	)			4,025				7,975				4,519				1,584
Per Share Data:
Per Weighted Average Common Share:
Income (loss) from continuing operations			(0.22	)			(0.02	)			0.03				(0.06	)			(0.05	)
Income (loss) from discontinued operations			(0.01	)			(0.12	)			0.09				0.13				0.08
Gain on sale of Messaging business			0.01				0.09				—				—				—
Extraordinary Gain			—				0.11				—				—				—
Net income (loss)			(0.22	)			0.06				0.12				0.07				0.02
Per Weighted Average Common Share – Assuming Dilution:
Income (loss) from continuing operations			(0.22	)			(0.02	)			0.03				(0.06	)			(0.05	)
Income (loss) from discontinued operations			(0.01	)			(0.12	)			0.09				0.13				0.08
Gain on sale of Messaging business			0.01				0.09				—				—				—
Extraordinary Gain			—				0.11				—				—				—
Net income (loss)			(0.22	)			0.06				0.11				0.07				0.02

		At December 31,
		2007				2006				2005				2004				2003
										(In thousands)
Balance Sheet Data (3):
Working capital		$	56,795			$	59,874			$	47,539			$	89,120			$	88,386
Total assets			296,021				324,236				313,472				121,282				133,355
Long-term Debt			21,589				43,959				61,868				—				—
Accumulated Deficit			(273,333	)			(258,199	)			(262,224	)			(270,199	)			(274,718	)
Stockholders Equity			106,236				112,785				103,681				95,185				90,232

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) describes the matters that we consider to be important to understanding the results of our operations for each of the three years in the period ended December 31, 2007, and our financial condition and liquidity as of December 31, 2007.

In past periods, including during fiscal year 2006, we had two reportable business segments: Entertainment Distribution Company (“EDC”) and Glenayre Messaging (“Messaging”). On December 31, 2006, we sold substantially all of the assets comprising the Messaging business. As a result, all prior period information has been restated to present the operations of this segment as discontinued operations.

EDC, our only continuing segment, is an industry leader in providing pre-recorded products and distribution services to the entertainment industry with operations serving the U.S., central Europe and the UK. EDC is comprised of operations acquired in separate acquisitions in 2005 of our U.S. and central Europe operations and in 2006 of our UK operations, as is discussed in more detail below. We offer customers one solution for both manufacturing and delivery requirements; and therefore, our CD/DVD manufacturing and distribution operations are integral to one another. Meeting the logistical requirements of our customers is the core competency of this business. We also offer separate manufacturing and distribution services based upon the customer requirements. The nature of the products and services in our three geographic markets are similar and our primary customer is Universal Music.

Overview and Key Events

On May 31, 2005, we, through our then newly formed EDC segment, acquired the U.S. and central European CD and DVD manufacturing and distribution operations from Universal. The acquisition created the opportunity for us to become an industry leader in providing pre-recorded products and distribution services to the entertainment industry. As part of the transaction, EDC entered into supply agreements with Universal with initial terms of 10 years under which it immediately became the exclusive manufacturer and distributor for approximately 80% of Universal’s CD and DVD manufacturing requirements, increasing to 100% within two years and 100% of their distribution requirements for the U.S. and central Europe. Under these contracts, beginning in 2008, EDC will have responsibility for all of Universal’s requirements in the U.S. and central Europe that were previously outsourced to other suppliers.

On July 21, 2006, EDC acquired a CD manufacturing operation in Blackburn, UK (the “UK operations”). Blackburn is the largest CD replicator in the UK. Its customer base includes Universal Music Group, its largest customer, as well as Ministry of Sound, Union Square Music, Demon Music Group, and Warner Music Group. This acquisition also allowed EDC to secure all of Universal’s UK CD manufacturing business, a portion of which was scheduled to revert to EDC in 2007 as part of EDC’s international supply agreement with Universal.

The results of EDC’s operations have been included in our consolidated financial statements since the acquisition on May 31, 2005 and the results of our UK operations have been included since their acquisition on July 21, 2006.

On December 31, 2006, we sold substantially all of the assets comprising our other reportable segment Messaging. The sale of the U.S. messaging assets closed on December 31, 2006, with the transfer of certain international locations having occurred during 2007. All prior period information has been restated to present the operations of this segment as discontinued operations.

Revenues for 2007, 2006 and 2005 were $384.6 million, $348.5 million and $189.6 million, respectively. Our 2007 revenues increased 10.3% compared to 2006 primarily due to an increase in revenues of $30.1 million from our UK operations due to a full year of volumes in 2007 and the impact of favorable exchange rate in revenues fluctuations of $19.5 million, which offset volume declines in our U.S. operations of $9.0 million and changes in product mix of $6.4 million. The results for 2007 included a loss from continuing operations of $15.6 million compared to loss from continuing operations of $1.6 million in 2006 and income from continuing operations of $1.8 million in 2005. The 2007 period included a charge of $9.8 million for the impairment of long-lived assets.

Results of Continuing Operations

The following table sets forth the operating results of our EDC segment as a percentage of total revenues for the periods indicated. Our results of operations in 2005 only include seven months of operations for EDC which was acquired on May 31, 2005. With the sale of substantially all of the assets comprising our Messaging segment on December 31, 2006, all results for this segment have been reported as results from discontinued operations for all periods presented.

		Periods Ended December 31,
		2007				2006				2005
		(Percentage of Revenue)
REVENUES:
Product revenues			78.7	%			76.6	%			72.7	%
Service revenues			21.3	%			23.4	%			27.3	%
Total Revenues			100.0	%			100.0	%			100.0	%
COST OF REVENUES:
Cost of product revenues			68.6	%			63.7	%			60.6	%
Cost of service revenues			15.6	%			17.5	%			19.2	%
Total Cost of Revenues			84.2	%			81.2	%			79.8	%
GROSS PROFIT			15.8	%			18.8	%			20.2	%
OPERATING EXPENSES:
Selling, general and administrative			13.6	%			13.8	%			14.5	%
Impairment of long-lived assets			2.6	%			0.0	%			0.0	%
Amortization of intangible assets			2.2	%			2.3	%			2.0	%
Total Operating Expenses			18.4	%			16.1	%			16.5	%
OPERATING INCOME (LOSS)			-2.6	%			2.7	%			3.7	%
OTHER INCOME (EXPENSE):
Interest income			1.2	%			1.2	%			1.5	%
Interest expense			-1.3	%			-1.7	%			-1.9	%
Gain (loss) on currency swap, net			-0.8	%			-0.9	%			0.4	%
Gain (loss) on currency transaction, net			0.2	%			0.6	%			-1.0	%
Other gain (loss), net			0.1	%			0.0	%			0.0	%
Total Other Expenses			-0.6	%			-0.8	%			-1.0	%
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES, MINORITY INTEREST, DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM			-3.2	%			1.9	%			2.7	%
Income tax provision			0.9	%			2.3	%			1.8	%
Minority interest			0.0	%			0.0	%			0.1	%
INCOME (LOSS) FROM CONTINUING OPERATIONS			-4.1	%			-0.4	%			0.8	%
DISCONTINUED OPERATIONS, NET OF TAX:
INCOME (LOSS) FROM DISCONTINUED OPERATION			-0.2	%			-2.4	%			3.3	%
GAIN ON SALE OF MESSAGING BUSINESS			0.3	%			1.8	%			0.0	%
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM			-4.0	%			-1.0	%			4.1	%
Extraordinary gain, net of income tax			0.0	%			2.2	%			0.0	%
NET INCOME (LOSS)			-4.0	%			1.2	%			4.1	%

Year Ended December 31, 2007 compared to Year Ended December 31, 2006

Revenues. Revenues for 2007 were $384.6 million compared to $348.5 million for 2006. The following table illustrates the components of changes in our revenue from 2006 to 2007 by operating unit.

														Exchange
		2006				Volume				Price/Mix				Rate				2007
Product Revenues			267.1				26.0				(4.8	)			14.4				302.7
Service Revenues			81.4				(3.0	)			(1.6	)			5.1				81.9
Total Revenue		$	348.5			$	23.0			$	(6.4	)		$	19.5			$	384.6

Product Revenues. Product revenues were $302.7 million in 2007 compared to $267.1 million in 2006. The increase is primarily due to a full twelve months of revenue from our UK operations, which were acquired in July 2006, and favorable exchange rate fluctuations from the strengthening of the Euro and British pound which offset the effects of volume and pricing declines in our U.S. operations. Our UK operations revenues were positively impacted by a full-year of business, but our per unit price suffered as lower priced new business replaced declines in existing business. Our central European operation volumes in 2007 were up slightly compared to 2006, but included a larger percentage of lower priced units. Our U.S. operations CD volumes for 2007 were down 7.0% compared to the same period of 2006, offset only partially by a 40.9% increase in 2007 DVD volumes, production of which began in the second quarter of 2006. These CD volume declines reflect a weak retail CD market in the U.S. that began in the first quarter of 2007, of which we were able to offset a significant portion with new business, albeit at lower per unit revenue rates. Product revenues in our U.S. operations from our primary customers declined 18.4% in 2007.

Service Revenues. Service revenues were $81.9 million in 2007 compared to $81.4 million in 2006. Our central European operations saw a positive impact from favorable exchange rate fluctuations and a 2.4% increase in volumes, offset by the impact of changes in distribution services requested by our customers. The decline in our U.S. operations was due to a 14.9% decline in volumes reflecting a weak retail CD market in the U.S. that began in the first quarter of 2007.

Gross Profit on Product Revenues and Service Revenues. Gross profits were $60.6 million, or 15.8% of revenues, during 2007 compared to $65.6 million, or 18.8% of revenues, in 2006. The following table shows the elements impacting our gross profit from 2006 to 2007 by operating unit.

																										Exchange
		2006								Volume								Cost/Mix								Rate								2007
		$				%				$				%				$				%				$				%				$				%
Product Revenues			44.9				16.8	%			(0.7	)			-0.7	%			(7.5	)			-5.0	%			2.3				1.5	%			39.0				12.9	%
Service Revenues			20.7				25.4	%			(1.7	)			-1.8	%			0.9				1.0	%			1.7				1.8	%			21.6				26.4	%
Total Gross Profit		$	65.6				18.8	%		$	(2.4	)			-1.5	%		$	(6.6	)			-4.0	%		$	4.0				2.4	%		$	60.6				15.8	%

Product Revenues. Gross profit on product revenues were $39.0 million, or 12.9% of product revenues, in 2007 compared to $44.9 million, or 16.8% of product revenues, in 2006. Gross profit for our UK operations, acquired in July 2006, increased in 2007 compared to the abbreviated 2006 period. However, the UK gross margin percent was negatively impacted by low margins and volumes during the first half of 2007, which were not a factor in the abbreviated 2006 period. The gross profit of our U.S. operations declined due to lower margins on new customer business and reduced production for our primary customer. Gross profit in our central European operations declined compared to 2006 primarily due to product mix for 2007 including a larger percentage of lower margin units than 2006, offset partially by improved volumes and the impact of favorable exchange rate fluctuations.

Service Revenues. Gross profit on service revenues were $21.6 million, or 26.4% of service revenues, in 2007 compared to $20.7 million, or 25.4% of service revenues, in 2006. Our central European operations gross profit on service revenues improved in 2007 compared to 2006 primarily due to favorable exchange rate fluctuations, improved volumes and improved labor and cost efficiencies. Our U.S. operations gross profit declined due to volume declines, which we were not able to fully offset with cost reductions.

Selling, General and Administrative Expense (SG&A). SG&A expense was $52.3 million in 2007 compared to $48.3 million in 2006. The increase is primarily due to $2.5 million of additional SG&A costs from our UK operations acquired in July 2006, a $2.2 million unfavorable impact from exchange rate changes, a $2.2 million reserve for a doubtful customer accounts receivable and $1.1 million in severance costs, offset by $1.1 million for lower amortization of profits interests due to interests vesting and $2.9 million primarily related to cost savings.

Impairment of Long-Lived Assets. We recorded an impairment of long-lived assets of $9.8 million in 2007 primarily related to the decline in value of our intangible asset related to our U.S. Universal manufacturing and distribution service supply agreement and certain distribution physical assets.

Amortization of Intangible Assets. Amortization expense was $8.3 million in 2007 compared to $7.9 million in 2006. The increase is due to finalizing the purchase accounting valuation for our acquisition of EDC during 2006 and the unfavorable impact of exchange rate fluctuations. The Company’s amortizable intangible assets consist primarily of manufacturing and distribution services agreements with original 10 year terms that EDC entered into with Universal as part of the acquisition in 2005, and agreements with various central European customers.

Other Income (Expenses)

Interest Income. Interest income in 2007 was $4.5 million compared to $4.2 million in 2006. Our interest income is primarily derived from income earned on excess cash held in interest-bearing money market accounts and short-term investments.

Interest Expense. Interest expense was $4.8 million in 2007 compared to $6.0 million in 2006. Our interest expense includes interest on our term debt, amortization of debt issuance costs, amortization of interest on our Rebate Loans with Universal and interest due on loans to EDC by employees of our central European operations under a government regulated employee savings plan. The decrease was primarily due to a combination of lower outstanding balance on our debt during 2007 and lower interest rates.

Losses on Currency Swap, net. We recorded losses on our currency swap of $3.2 million in each of 2007 and 2006. The losses are due to the strengthening of the Euro against the U.S. dollar. The currency swap is not subject to hedge accounting but instead fluctuations in the fair value of the instrument are recorded in earnings for the period.

Gain on Currency Transaction, net. We recorded gains of $0.8 million and $2.1 million in 2007 and 2006, respectively, on intercompany transactions with our international operations which are denominated in their local currency.

Income Taxes. We recorded income tax expense of $3.4 million in 2007 compared to $7.9 million in 2006. The decrease in expense in 2007 relates primarily to favorable adjustments of $2.6 million with respect to tax rate changes in the UK and Germany and a decrease in taxable income from our central European and UK operations. The tax rate changes are effective in 2008, but we were required to adjust the value of our related deferred tax assets and liabilities in 2007, the period the rate changes were enacted. No tax benefit has been provided for losses in the U.S. Additionally, we continue to maintain a full valuation allowance on our U.S. deferred tax assets until we reach an appropriate level of profitability in the U.S. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, we have concluded that a full valuation allowance is necessary at December 31, 2007. In the event we determine that we will be able to realize our deferred tax assets in the future, an adjustment to the valuation allowance would increase income in the period such determination is made.

Extraordinary Gain. We recorded an extraordinary gain of $7.7 million in 2006 as a result of acquiring the net assets of our UK operations with fair values in excess of the purchase price.

Year Ended December 31, 2006 compared to Year Ended December 31, 2005

Revenues. Revenues for 2006 were $348.5 million compared to $189.6 million for the seven months ended December 31, 2005. The 2006 results included $40.6 million of revenues from our UK operations acquired in July 2006. Product revenues were $267.1 million in the 2006 period, including $40.6 million from our UK operations compared to $137.8 million for the 2005 period. Service revenues were $81.4 million in 2006 compared to $51.8 million for the 2005 period. During 2006, Universal individually accounted for approximately 87% of EDC’s revenue in 2006 compared to 91% in 2005. The increase in revenue in 2006 was largely due to twelve months of

operations in 2006 versus seven months in 2005. EDC’s revenues were also positively impacted by the settlement of CD pricing cost adjustments with Universal under the terms of the 10 year supply agreements.

Gross Profit on Product Sales and Services. Gross profit was $65.6 million or 19% of revenues during 2006 compared to $38.3 million or 20% of revenues in 2005. Gross profit on product revenues was $44.9 million in the 2006 period, or 17% of product revenues compared to $23.0 million, or 17% of product revenues, in the seven months ended December 31, 2005. Gross profit on service revenues was $20.7 million or 25% of service revenues in 2006 compared to $15.3 million, or 30% of service revenues, in the seven months ended December 31, 2005. Gross margins as a percent of revenue in 2006 were impacted by inclusion of a full year of EDC gross margins, which included five months of off-peak season results. Three of the seven months of EDC operations included in the 2005 period were from our peak selling season when our gross margin as a percent of sales is four to five percentage points higher than at other points in the year.

Selling, General and Administrative Expense (SG&A). SG&A expense was $48.3 million in 2006 compared to $27.5 million in the 2005 period. The increase is primarily due to a full year of EDC’s expenses in 2006 combined with SG&A costs from our UK operation acquired in 2006, internal and external costs related to SOX compliance and higher professional fees.

Amortization of Intangible Assets. Amortization expense was $7.9 million in 2006 compared to $3.7 million in the 2005 period. The increase is due to the inclusion of a full year of amortization of intangibles in 2006 at EDC. The Company’s amortizable intangible assets consist primarily of 10 year term manufacturing and distribution services agreements that EDC entered into with Universal as part of the acquisition in 2005, and agreements with various central European customers.

Other Income (Expenses)

Interest Income. Interest income in 2006 was $4.2 million compared to $2.9 million in the 2005 period. Our interest income is primarily derived from income earned on excess cash held in interest-bearing money market accounts. The increase is primarily due to interest earned on a full year of EDC cash.

Interest Expense. Interest expense in the 2006 period was $6.0 million compared to $3.6 million in the 2005 period. The increase is primarily due to interest on debt for a full year in 2006, compared to seven months in 2005.

Gains (Losses) on Currency Swap, net. We recorded losses of $3.2 million on our currency swap arrangement in 2006 compared to gains of $0.8 million in the 2005 period. The losses in 2006 are due to the strengthening of the Euro against the U.S. dollar. The currency swap is not subject to hedge accounting but instead fluctuations in the fair value of the instrument are recorded in earnings for the period.

Transaction Gains (Losses), net. We recorded gains of $2.1 million on intercompany transactions with our international operations denominated in their local currency in 2006 compared to losses of $1.9 million in the 2005 period. The gains in 2006 are due to the strengthening of the Euro against the U.S. dollar.

Income Taxes. The provision for income taxes increased $4.4 million to $7.9 million in 2006 from $3.5 million in 2005 primarily due to inclusion of a full year of EDC results and the taxes related to our UK operations. Our provision relates to income from operations from our central European and UK operations. We continue to maintain a full valuation allowance on our U.S. deferred tax assets until we reach an appropriate level of profitability in the U.S. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, we have concluded that a full valuation allowance is necessary at December 31, 2006. In the event we determine that we will be able to realize our deferred tax assets in the future, an adjustment to the valuation allowance would increase income in the period such determination was made.

Extraordinary Gain. We recorded an extraordinary gain of $7.7 million in 2006 as a result of acquiring the net assets of our UK operations with fair values in excess of the purchase price.

Financial Condition and Liquidity

Overview

At December 31, 2007, we had cash and cash equivalents and short-term investments totaling $93.4 million. As of December 31, 2007, we had short-term investments of $29.6 million, comprised primarily of corporate bonds, short-term

notes, commercial paper, certificates of deposits and auction rate securities (totaling $10.8 million). At December 31, 2007, our principal sources of liquidity were our $63.9 million of unrestricted cash and cash equivalents, $29.6 million of short-term investments and the $10 million unused revolving line of credit under the EDC Senior Secured Credit Facility, which expires on May 31, 2008. Our cash generally consists of money market demand deposits. We had investments in auction-rate securities held at December 31, 2007 that experienced failed auctions in fiscal 2008. All of these securities had experienced at least one successful auction in 2008. If the market for auction-rate securities were to deteriorate further in 2008, our ability to liquidate these instruments could be adversely affected.

We expect to use our cash and cash equivalents for working capital, payments of long-term debt obligations and other general corporate purposes, including the expansion and development of our existing products and markets, liabilities related to discontinued operations, and potential strategic opportunities.

Derivative Activities

We entered into a cross currency rate swap agreement with a commercial bank on May 31, 2005. The objective of this swap agreement is to manage foreign currency exposure arising from our intercompany loan to our German subsidiary, and is therefore for purposes other than trading. The loan is denominated in Euros and repayment is due on the earlier of demand or May 31, 2010. In accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, the currency swap does not qualify for hedge accounting. Therefore we report the foreign currency exchange gains or losses attributable to changes in the U.S.$/Euro€ exchange rate on the currency swap in earnings.

The fair value of the currency rate swap was calculated based on mathematical approximations of market values derived from the commercial banks’ proprietary models as of a given date. These valuations are calculated on a mid-market basis and do not include a bid/offered spread that would be reflected in an actual price quotation. Therefore, the actual price quotations for unwinding these transactions would be different. These valuations and models rely on certain assumptions regarding past, present and future market conditions and are subject to change at any time. Valuations based on other models or assumptions may yield different results. At December 31, 2007, we are in a net loss position of $5.6 million on the fair value of the currency swap.

Cash Flows

Operating Activities. Cash provided by operating activities in 2007 was $21.2 million compared to $9.4 million in 2006, driven by $21.6 million from net income (loss) (adjusted for non-cash items) in 2007, offset by working capital changes of $1.5 million. Net income (loss) (adjusted for non-cash items) in 2007 increased $7.2 million from $14.4 million in 2006 primarily due to losses from our discontinued Messaging business prior to its sale, offset partially by a decline in results from our EDC business. The working capital changes in 2006 were $6.2 million primarily driven by the timing of printed material pass-through costs and prepaid taxes and the impact of the UK acquisition on accounts receivable, offset by changes from our Messaging business prior to its sale.

Working capital changes in 2007 included, without limitation:

	•		A decrease of $7.5 million in accounts receivable compared to an increase of $3.5 million in 2006 due primarily to the impact of our UK operations. Payment terms for our Universal business contractually changed in 2007 from 60 days in 2006 to the current 15 days. This was partially offset by an increase in accounts receivable balance of our U.S. operations related to non-Universal customers with terms longer than 15 days.
	•		An increase in prepaid and other current assets of $0.4 million compared to an increase of $3.5 million in 2006 was primarily due to an insurance reimbursement receivable and increases in prepaid insurance premiums, deposits and expenses, offset by the timing of printed material pass-through costs in Germany.
	•		An increase of $1.4 million in accounts payable compared to a decrease of $3.8 million in 2006 was primarily due to the timing of payments around year end 2007 compared to year end 2006.
	•		A decrease of $10.0 million in accrued liabilities and income taxes payable compared to an increase of $2.3 million in 2006 included payments of $4.7 million for 2005 and 2006 German income taxes, $2.0 million related to Messaging sale closing costs and $1.3 million related to a legal settlement from the Messaging business and $0.9 million in legal fees primarily due to payment of fees associated with option litigation and investigation.

Investing Activities. Investing activities in 2007 included capital expenditures of $6.8 million and proceeds of $3.8 million from the settlement of a portion of the long-term receivable and Messaging sale cash and working capital

adjustments. Also, during 2007, $29.6 million of cash was invested in various debt securities available for sale and classified in the consolidated balance sheet as short-term investments.

Investing activities in 2006 included $15.3 million for capital expenditures, $5.6 million for the purchase of our UK operations, $16.5 million for the release of restricted cash that had been collateralized as part of the EDC acquisition and $25.0 million related to the sale of the Messaging business. Capital expenditures in 2006 included $3.4 million for super jewel box manufacturing equipment in our central European operations and $2.5 million for DVD equipment in our U.S. operations.

Financing Activities. EDC has a Senior Secured Credit Facility with Wachovia Bank, National Association for an aggregate principal amount of $56.5 million, consisting of a term facility of $46.5 million, and a revolving credit facility of up to $10.0 million. Substantially all of EDC’s assets are pledged as collateral to secure obligations under the Senior Secured Credit Facility. On May 31, 2007, EDC completed an amendment of the Senior Secured Credit Facility which extended the revolving credit facility for one year. On March 4, 2008 EDC completed an amendment to the facility to permit the adjustment of EBITDA for financial covenants purposes to eliminate the impact of the impairment charge taken in the fourth quarter of 2007. The term loan expires on December 31, 2010 and the revolving credit facility expires on May 31, 2008. The Senior Secured Credit Facility bears interest, at our option, at either: (a) the higher of (i) the Prime Rate in effect and (ii) the Federal Funds Effective Rate in effect plus ¹/2 of 1% and a 1.75% margin on the non-cash collateralized portion; or (b) LIBOR plus a 1.25% margin on the cash collateralized portion of the term loan. The applicable LIBOR is determined periodically based on the length of the interest term selected by us. The weighted average interest rate of outstanding debt was 6.83% at December 31, 2007. At December 31, 2007, $27.0 million was outstanding on the term loan and the $10 million revolving credit facility was unused. Scheduled payments are due on December 31 of each year.

The Senior Secured Credit Facility contains usual and customary restrictive covenants that, among other things, permit EDC to use the revolver only as a source of liquidity for EDC and its subsidiaries and place limitations on (i) EDC’s ability to incur additional indebtedness; (ii) our ability to pay dividends or make acquisitions outside our current industries; (iii) EDC’s ability to make any payments to EDCI in the form of cash dividends, loans or advances (other than tax distributions) and (iv) asset dispositions by EDC. It also contains financial covenants relating to maximum consolidated EDC, LLC and subsidiaries leverage, minimum interest coverage and maximum senior secured leverage as defined therein. As noted above, the Company entered into an amendment which modified the calculation of certain financial covenants as of December 31, 2007. As of December 31, 2007, we were in compliance with all such covenants, as amended, under the facility.

During the year ended December 31, 2007, we made scheduled payments of $22.8 million under our long-term debt and capital lease obligations and $1.3 million under our employee loan agreements. We also received proceeds of $0.7 million from the issuance our common stock in connection with the exercise of options and other awards.

Capital Expenditures

Capital expenditures amounted to approximately $6.8 million in 2007 and are anticipated to be approximately $6.0 million in 2008. Anticipated expenditures in 2008 are primarily targeted for normal equipment and facility maintenance, replacement and upgrades and efficiency improvements.

Income Tax Matters

EDCI’s recent cash outlays for income taxes have been limited primarily to foreign income taxes. At December 31, 2007, EDCI had U.S. and international net operating loss carryforwards (“NOLs”) aggregating approximately $363.0 million, which may be used to offset future taxable income and reduce federal and international income taxes.

These NOLs begin to expire in 2008 as noted in the table below.

		Unrestricted U.S.				Restricted U.S.				Canada				Total
2008		$	—			$	3.3			$	—			$	3.3
2009			—				3.7				4.5			$	8.2
2010			—				5.9				49.2			$	55.1
2011			—				9.0				—			$	9.0
2012			—				9.4				0.3			$	9.7
2019			44.3				—				—			$	44.3
2020			50.6				—				—			$	50.6
2021			65.0				—				—			$	65.0
2022			13.4				—				—			$	13.4
2023			20.7				—				—			$	20.7
2024			48.4				—				—			$	48.4
2025			2.0				—				—			$	2.0
2026			31.4				—				—			$	31.4
2027			1.9				—				—			$	1.9
TOTAL		$	277.7			$	31.3			$	54.0			$	363.0

Contractual Obligations

The following table summarizes our contractual obligations, as discussed in the notes to consolidated financial statements, as of December 31, 2007 (in thousands):

		Payments Due by Period
		Total				2008				2009–2011				2012–2014				Thereafter
Long-term debt (1)		$	46,626			$	24,354			$	20,836			$	1,436			$	—
Capital Lease (2)			593				432				161				—				—
Loans from employees (3)			4,913				1,267				2,890				756				—
Operating leases (4)			56,132				9,036				24,871				18,358				3,867
Pension and post-retirement benefit obligations (5)			14,285				723				2,937				4,972				5,653
Purchase obligations (6)			13,129				13,105				24				—				—
Non-current liabilities (7)			5,604				—				5,604				—				—
Total		$	141,282			$	48,917			$	57,323			$	25,522			$	9,520

Outlook

Fiscal year 2007 was challenging for EDC and the industry as a whole as demand for CDs continues to decline. During 2007, the music industry reported physical sales declines of approximately 15% in the U.S. and 13% in Western Europe. Despite this, in 2007 EDC continued to outperform the industry through the addition of a full year of operations at our UK facility, early return of reversionary business and the addition of new customers. Excluding the impact of full-year volumes from our UK operations, our total units manufactured and distributed in 2007 decreased 6% from 2006.

In 2008, we expect the challenging and difficult operating environment to continue, anticipating industry declines of approximately 10-12%. To offset the impact of these declines, we are continuing our cost-savings initiatives to right size our corporate and operating structure and focusing on our operational efficiency projects regarding optimizing labor, realigning operating hours based on forecasting of weekly production demands and, to a lesser extent, process improvements in manufacturing and distribution. In 2008, we anticipate savings of approximately $10 million from these cost initiatives and operational efficiency projects.

With respect to sales and business development, we continue to win competitive bids for new business due to our outstanding reputation in the industry and our ability to offer a complete supply chain solution as well as individual manufacturing and distribution services. This new business should help partially offset the industry declines, which are impacting our customer base. We continue to actively pursue new business opportunities and compete well in our core markets. We are also monitoring the consolidation of smaller and independent labels as the decline in the physical market continues to affect this market segment.

After exploring numerous strategic opportunities for the EDC business in 2007, we have determined that a potential transaction is unlikely to happen at this time. However, we are continuing to explore strategic options and conversations remain ongoing with several parties. In addition, we are also examining business opportunities outside EDC’s industry to take advantage of our unrestricted NOLs and corporate cash and expect this process to accelerate in 2008.

This Outlook section contains forward-looking statements that are subject to the risks described above in Part I Item 1A, Risk Factors.

Critical Accounting Policies and Estimates

General. Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates. We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company’s consolidated financial statements.

Revenue Recognition. Our revenue consists of pre-recorded entertainment product revenues and distribution service revenues earned from the fulfillment of services. Pursuant to Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104), we recognize revenue when a signed contract exists, the fee is fixed and determinable, delivery terms are met, and collection of the resulting receivable is probable. Service revenue is recognized as services are performed. For certain components, including printed materials, we may act as an agent for the customer, and the customer reimburses us for any incurred costs plus a handling fee. The reimbursement for the costs is reported as a reduction to expense and the handling fees are recognized as revenue. Shipping and handling costs that are reimbursed by customers for invoice charges such as postage, freight packing and small order surcharges are recorded as revenue and cost of revenue.

Bad Debt. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. On a quarterly basis, we perform a reserve calculation based on the aging of receivables and either increase or decrease the estimate of doubtful accounts accordingly. Additional allowances may be required if one or more customer’s financial condition deteriorates, resulting in an impairment of their ability to make payments. Such allowances, if any, would be recorded in the period the impairment is identified.

Inventory. Inventories are valued using a first in, first out method and are stated at the lower of cost or market.

Generally, EDC does not own the finished goods and component parts produced by it. Consequently, reserves relate primarily to raw materials. Our inventories at December 31, 2007 were $9.1 million, net of reserves of $1.4 million.

Impairment of Long-Lived Assets. We record the impairment or disposal of long-lived assets in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. We review the recoverability of long-lived assets, including property, plant and equipment and intangible assets with finite lives when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of the asset from the expected future pre-tax cash flows of the related operations. To the extent that the asset is not recoverable, we measure the impairment based on the projected discounted cash flows of the asset over the remaining useful life. The measurement of impairment requires us to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations.

Negative operating conditions encountered during 2007 and anticipated to continue in the future indicated that the carrying value of our U.S. manufacturing and distribution supply agreement intangible asset and certain U.S. distribution assets had carrying values which would not be recovered from the cash flows related to operations of these assets. We made certain assumptions when estimating future cash flows to be generated from the assets including decline in future sales volumes, pricing, and costs saving initiatives in support of the assets. We also reviewed the carrying value related to certain U.S. distribution assets and compared them to fair value. As a result of our analysis, we recorded impairment of assets of $9.8 million in 2007.

Self-insurance accrual.  We maintain a self-funded insurance plan for our employee group health insurance.  Our insurance accruals are based on claims filed and estimates of claims incurred but not reported and are developed by our management with assistance from a third-party claims administrator.  The insurance accruals are influenced by our past claims experience factors, which have a limited history.  If we experience insurance claims or costs above or below our historically evaluated levels, our estimates could be materially affected.  The frequency and amount of claims or incidents could vary significantly over time, which could materially affect our self-insurance liabilities. Additionally, the actual costs to settle the self-insurance liabilities could materially differ from the original estimates and cause us to incur additional costs in future periods associated with prior year claims. We maintain stop loss coverage with third party insurers to limit our individual claim exposure on our employee health benefit program. 

Pension, Early Retirement and Long-term Service Awards. Our Pension, Early Retirement and Long-term Service Awards cover employees of our German operation and Long-term Service Awards cover employees of our UK operation. The benefit costs and obligations for these plans are actuarially calculated based on various assumptions including discount rates, salary growth rates and other factors. The discount rate assumption is based on current investment yields on high quality fixed income investments. The salary growth assumptions include long-term actual experience and expectations for future growth. The differences between actual experience and the assumptions are accumulated and amortized over the estimated future working life of the plan participants. See Note 16 to the consolidated financial statements for specific assumption values.

Post-retirement Health Care Benefit. We have a plan for post-retirement health care benefits covering a limited number of employees and retirees. The post-retirement benefit costs and obligations for this plan are actuarially calculated based on various assumptions. These assumptions relate to discount rates, medical cost trend rates and other factors. The discount rate assumption is based on current investment yields on high quality fixed income investments. The salary growth assumptions include long-term actual experience and expectations for future growth. The medical cost trend assumptions are based on historical cost data, the near-term outlook and an assessment of likely long-term trends. The differences between actual experience and the assumptions are accumulated and amortized over the estimated future working life of the plan participants. See Note 16 to the consolidated financial statements for specific assumption values.

We believe our pension and retiree medical plan assumptions are appropriate based on the above factors. If the health-care-cost trend rates were to change by one percentage point each future year, the aggregate of the service cost and the interest cost components of the 2007 annual expense would change by an amount less than $0.1 million. If the 2007 discount rate for pension plan and post-retirement health care benefit plan were changed by a quarter percentage point, loss before income taxes would change by an amount less than $0.1 million.

Taxes

Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, (SFAS 109) establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FAS 109, Accounting for Income Taxes (FIN 48), to create a single model to address accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 was effective for fiscal years beginning after December 15, 2006.

Our operations involve uncertainties and judgments in the application of complex tax regulations in a multitude of jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal, state, and international tax audits. We recognize potential liabilities and record tax liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. As of January 1, 2007, we follow FIN 48 guidance to record these liabilities (refer to Note 15 for additional information). We adjust these reserves in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. On February 6, 2008, we were notified by the Internal Revenue Service of the intent to audit our 2005 federal tax return.

Recently Issued Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”) which defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States and expands disclosure about fair value measurements. The statement is effective for us beginning January 1, 2008. Subsequent to SFAS 157’s issuance, the FASB issued an exposure draft that provides for a one-year deferral for the implementation of SFAS 157 for non-financial assets and liabilities. We are still assessing the potential impact of SFAS 157, but do not anticipate its adoption to have any impact on our financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS 159”) “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115”. SFAS 159 provides entities with an option to choose to measure eligible items at fair value at specified election dates. If elected, an entity must report unrealized gains and losses on the item in earnings at each subsequent reporting date. The fair value option may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method, is irrevocable (unless a new election date occurs); and is applied only to entire instruments and not to portions of instruments. We are still evaluating the impact of SFAS 159, which is effective beginning in our fiscal year 2008, but do not anticipate its adoption to have any impact on our financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards (revised 2007) (“SFAS 141R”) “Business Combinations”. SFAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R is effective for us beginning January 1, 2009. We are currently evaluating the potential impact, if any, of the adoption of SFAS 141R on our consolidated financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS 160”), “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51”. SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 requires retroactive adoption of the

presentation and disclosure requirements for existing minority interests. All other requirements of SFAS 160 must be applied prospectively. SFAS 160 is effective for us beginning January 1, 2009. We are currently evaluating the potential impact of the adoption of SFAS 160 on our consolidated financial statements.

In December 2007, the FASB ratified the Emerging Issues Task Force consensus on EITF Issue No. 07-1, “Accounting for Collaborative Arrangements” that discusses how parties to a collaborative arrangement (which does not establish a legal entity within such arrangement) should account for various activities. The consensus indicates that costs incurred and revenues generated from transactions with third parties (i.e. parties outside of the collaborative arrangement) should be reported by the collaborators on the respective line items in their income statements pursuant to EITF Issue No. 99-19, “Reporting Revenue Gross as a Principal Versus Net as an Agent.”  Additionally, the consensus provides that income statement characterization of payments between the participants in a collaborative arrangement should be based upon existing authoritative pronouncements; analogy to such pronouncements if not within their scope; or a reasonable, rational, and consistently applied accounting policy election. EITF Issue No. 07-1 is effective for us beginning January 1, 2009 and is to be applied retrospectively to all periods presented for collaborative arrangements existing as of the date of adoption. We are currently evaluating the impacts and disclosures of this standard, but would not expect EITF Issue No. 07-1 to have a material impact on our consolidated results of operations or financial condition.

Other

Leases

We lease manufacturing, warehouse, and office facilities and equipment under operating leases. The office leases generally include provisions for rent escalation of 3% or less and hold over options to continue occupancy without renewal. The lease for EDC’s facility in Germany escalates in 5% increments if the German Consumer Price Index has increased 5% or greater. Contingent rentals are estimated based on provisions in the lease and historical trends. The principal leases for our UK manufacturing facility include an option to break the lease without penalty in 2010 along with a rent escalation of 11%.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements including special purpose entities.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to market risk arising from adverse changes in interest rates, foreign exchange, customer credit, and the market for auction rate securities. We do not enter into financial investments for speculation or trading purposes and are not a party to any financial or commodity derivatives except for a cross currency rate swap discussed below.

Interest Rate Risk

We have variable rate debt that is not hedged by interest rate swaps. A 100 basis point change in the interest rate would affect earnings by approximately $0.3 million per year, based on variable rate balances outstanding at December 31, 2007.

Changes in interest rates would also affect our investment portfolio. During 2007, $29.6 million of cash was invested primarily in corporate bonds, short term notes, municipal bond, certificates of deposit and auction rate securities which were classified on the consolidated balance sheet as short-term investments. Changes in the overall level of interest rates affect interest income generated from our short-term investments in these debt securities. If overall interest rates were one percentage point lower than current rates, our annual interest income would decline by approximately $0.3 million, based on our short-term investments at December 31, 2007. We do not currently manage our investment interest-rate volatility risk through the use of derivative instruments.

Foreign Currency Risk

We operate internationally and are exposed to movements in foreign currency exchange rates primarily related to our German manufacturing and distribution operations and our UK manufacturing operations. Approximately 46% and 20% of the revenues and 42% and 18% of the expenses for EDC were transacted in Euros and British pounds, respectively, during 2007. We also have demand deposits denominated in non-functional currencies. We entered into a cross currency rate swap agreement with a commercial bank to offset the effect of exchange rate fluctuations with our German subsidiary.

At December 31, 2007, approximately $0.5 million or less than 1% of our cash and cash equivalent balances were denominated in non-functional currencies. The impact of a 10% strengthening or decline in the dollar related to these balances would be immaterial to our results of operations. We seek to mitigate the risk associated with non-functional currency deposits by monitoring and limiting the total cash deposits held in non-functional currencies. Additionally, we may seek to mitigate the risk by entering into currency derivative transactions.

Credit Risk

Credit risk represents the loss that we would incur if a counterparty fails to perform under its contractual obligations. We have established controls to determine and monitor the creditworthiness of customers. Credit concentration exists when a group of customers have similar business characteristics and/or are engaged in like activities that would cause their ability to meet their contractual commitments to be adversely affected, in a similar manner, by changes in the economy or other market conditions. Since EDC’s primary customer, Universal, represented approximately 76%, 87% and 91% of EDC revenue in 2007, 2006 and 2005, respectively, our exposure to credit risk largely depends on Universal’s performance under its contractual obligations.

Other financial instruments potentially subjecting us to concentrations of credit risk consist of temporary cash investments and a currency swap. We place our temporary cash investments and currency swap with large diversified entities with operations throughout the U.S.

Auction-Rate Securities Market

At December 31, 2007, we had approximately $10.8 million in auction-rate securities, which represent interests in collateralized debt obligations with high quality credit ratings. These instruments typically trade in a market which features an auction process that resets the applicable interest rates on the instruments at pre-determined intervals, usually every 7,28,35 or 90 days. At December 31, 2007, we held auction-rate securities which experienced failed auctions in fiscal 2008. All securities had experienced at least one successful auction in fiscal 2008 and the carrying values were not adversely affected. In fiscal 2008, we have decreased our holdings in auction-rate securities and had approximately $4.4 million as of March 11, 2008. If the market for auction rate securities were to deteriorate further in 2008, our ability to liquidate these instruments as well as the carrying values of the instruments themselves could be adversely affected.

ITEM 8. FINANCIAL STATEMENTS

Our consolidated financial statements, which include our wholly owned and controlled majority owned subsidiaries as of December 31, 2007 and 2006 and for each of the three years in the period ended December 31, 2007, as well as the report of independent auditors thereon, are set forth on the following pages. The index to such financial statements is set forth below.

INDEX TO FINANCIAL STATEMENTS

Financial Statements:		Page
Report of Ernst & Young LLP Independent Auditors			31
Consolidated Balance Sheets at December 31, 2007 and 2006			32
Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005			33
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) for the years ended December 31, 2007, 2006 and 2005			34
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005			35
Notes to Consolidated Financial Statements			36

All other schedules are omitted because they are not applicable or not required.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Entertainment Distribution Company, Inc.

We have audited the accompanying consolidated balance sheets of Entertainment Distribution Company, Inc. and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of operations, cash flows, and comprehensive income (loss) for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Entertainment Distribution Company, Inc. and subsidiaries at December 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 16 to the financial statements, in 2006 Entertainment Distribution Company Inc. and subsidiaries adopted a new accounting pronouncement for defined benefit pension and other postretirement plans. As discussed in Note 17 to the financial statements, in 2006 Entertainment Distribution Company Inc. and subsidiaries adopted a new accounting pronouncement for stock-based compensation. As discussed in Note 15 to the financial statements, in 2007 Entertainment Distribution Company Inc. and subsidiaries adopted a new accounting pronouncement for income taxes.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Entertainment Distribution Company, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2008 expressed an unqualified opinion thereon.

Indianapolis, Indiana
March 11, 2008

ENTERTAINMENT DISTRIBUTION COMPANY, INC. AND SUBSIDIARIES

		December 31,				December 31,
		2007				2006
		{(In thousands, except share data)
ASSETS
Current Assets:
Cash and cash equivalents		$	63,850			$	96,088
Restricted cash			1,940				1,972
Short-term investments			29,589				—
Accounts receivable, net of allowances for doubtful accounts of $3,328 and $558 for 2007 and 2006, respectively			35,577				43,677
Current portion of long-term receivable			515				1,933
Inventories, net			9,111				8,684
Prepaid expenses and other current assets			16,069				15,850
Deferred income taxes			277				—
Current assets, discontinued operations			111				946
Total Current Assets			157,039				169,150
Restricted cash			26,015				22,390
Property, plant and equipment, net			55,245				59,219
Long-term receivable			4,244				4,078
Goodwill			—				2,382
Intangible assets			44,604				58,164
Deferred income taxes			1,934				2,943
Other assets			6,940				5,910
TOTAL ASSETS		$	296,021			$	324,236
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable		$	33,287			$	30,233
Accrued expenses and other liabilities			36,939				35,799
Income taxes payable			3,697				13,981
Deferred income taxes			126				262
Loans from employees			1,267				1,250
Current portion of long-term debt			24,364				22,157
Accrued liabilities, discontinued operations			564				5,594
Total Current Liabilities			100,244				109,276
Other non-current liabilities			12,185				4,151
Loans from employees			3,646				4,216
Long-term debt			21,589				43,959
Pension and other defined benefit obligations			36,155				35,774
Deferred income taxes			10,195				8,663
Total Liabilities			184,014				206,039
Minority interest in subsidiary company			5,771				5,412
Commitments and contingencies
Stockholders’ Equity:
Preferred stock, $.01 par value; authorized: 5,000,000 shares, no shares issued and outstanding			—				—
Common stock, $.02 par value; authorized: 200,000,000 shares, issued and outstanding: 2007 — 70,155,940 shares; 2006 — 69,325,780 shares			1,403				1,387
Additional paid in capital			369,665				368,493
Accumulated deficit			(273,333	)			(258,199	)
Accumulated other comprehensive income			8,501				1,104
Total Stockholders’ Equity			106,236				112,785
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	296,021			$	324,236

See Notes to Consolidated Financial Statements.

ENTERTAINMENT DISTRIBUTION COMPANY, INC. AND SUBSIDIARIES

		Year Ended December 31,
		2007				2006				2005
		(In thousands, except per share amounts)
REVENUES:
Product revenues		$	302,682			$	267,067			$	137,838
Service revenues			81,875				81,461				51,750
Total Revenues			384,557				348,528				189,588
COST OF REVENUES:
Cost of product revenues			263,708				222,159				114,843
Cost of service revenues			60,275				60,811				36,443
Total Cost of Revenues			323,983				282,970				151,286
GROSS PROFIT			60,574				65,558				38,302
OPERATING EXPENSES:
Selling, general and administrative expense			52,318				48,270				27,461
Impairment of long-lived assets			9,782				—				—
Amortization of intangible assets			8,331				7,860				3,729
Total Operating Expenses			70,431				56,130				31,190
OPERATING INCOME (LOSS)			(9,857	)			9,428				7,112
OTHER INCOME (EXPENSE):
Interest income			4,496				4,187				2,914
Interest expense			(4,844	)			(6,045	)			(3,631	)
Gain (loss) on currency swap, net			(3,152	)			(3,211	)			789
Gain (loss) on currency transaction, net			761				2,143				(1,857	)
Other income (expense), net			234				(37	)			76
Total Other Income (Expense)			(2,505	)			(2,963	)			(1,709	)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES, MINORITY INTEREST, DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM			(12,362	)			6,465				5,403
Income tax provision			3,400				7,921				3,504
Minority interest (income) expense			(126	)			94				114
INCOME (LOSS) FROM CONTINUING OPERATIONS			(15,636	)			(1,550	)			1,785
DISCONTINUED OPERATIONS, NET OF TAX:
INCOME (LOSS) FROM DISCONTINUED OPERATIONS			(542	)			(8,220	)			6,190
GAIN ON SALE OF MESSAGING BUSINESS			1,044				6,127				—
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM			(15,134	)			(3,643	)			7,975
Extraordinary gain — net of income tax			—				7,668				—
NET INCOME (LOSS)		$	(15,134	)		$	4,025			$	7,975
INCOME (LOSS) PER WEIGHTED AVERAGE COMMON SHARE (1):
Income (loss) from continuing operations		$	(0.22	)		$	(0.02	)		$	0.03
Discontinued Operations:
Income (loss) from discontinued operations			(0.01	)			(0.12	)			0.09
Gain on sale of Messaging business			0.01				0.09				—
Extraordinary gain			—				0.11				—
Net income (loss) per weighted average common share		$	(0.22	)		$	0.06			$	0.12
INCOME (LOSS) PER DILUTED COMMON SHARE
Income (loss) from continuing operations		$	(0.22	)		$	(0.02	)		$	0.03
Discontinued Operations:
Income (loss) from discontinued operations			(0.01	)			(0.12	)			0.09
Gain on sale of Messaging business			0.01				0.09				—
Extraordinary gain			—				0.11				—
Net income (loss) per diluted weighted average common share		$	(0.22	)		$	0.06			$	0.11

See Notes to Consolidated Financial Statements.

ENTERTAINMENT DISTRIBUTION COMPANY, INC. AND SUBSIDIARIES

																		Accumulated
																		Other
		Common Stock								Additional				Accumulated				Comprehensive				Comprehensive
		Shares				Amount				Paid-in Capital				Deficit				Income (Loss)				Income (Loss)
Balances, January 1, 2005			66,820			$	1,336			$	364,048			$	(270,199	)		$	—
Net income			—				—				—				7,975				—			$	7,975
Foreign currency translation			—				—				—				—				(1,182	)			(1,182	)
Comprehensive income			—				—				—				—				—			$	6,793
Shares issued for ESP Plan, other awards and option exercises			1,244				25				1,678				—				—
Balances, December 31, 2005			68,064			$	1,361			$	365,726			$	(262,224	)		$	(1,182	)
Net income			—				—				—				4,025				—			$	4,025
Foreign currency translation			—				—				—				—				3,429				3,429
Effect of adopting FAS 158 on post-retirement and pension benefit obligations, net of income tax of $528			—				—				—				—				(1,143	)			(1,143	)
Comprehensive income			—				—				—				—				—			$	6,311
Shares issued for ESP Plan, other awards and option exercises			1,262				26				2,767				—				—
Balances, December 31, 2006			69,326			$	1,387			$	368,493			$	(258,199	)		$	1,104
Net loss			—				—				—				(15,134	)			—			$	(15,134	)
Foreign currency translation			—				—				—				—				4,436				4,436
Post-retirement and pension benefit obligation adjustment, net of income tax of $1,754			—				—				—				—				3,071				3,071
Net unrealized investment losses			—				—				—				—				(110	)			(110	)
Comprehensive loss			—				—				—				—				—			$	(7,737	)
Shares issued for ESP Plan, other awards and option exercises			830				16				1,172				—				—
Balances, December 31, 2007			70,156			$	1,403			$	369,665			$	(273,333	)		$	8,501

See Notes to Consolidated Financial Statements.

ENTERTAINMENT DISTRIBUTION COMPANY, INC. AND SUBSIDIARIES

		Year Ended December 31,
		2007				2006				2005
		(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	(15,134	)		$	4,025			$	7,975
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Gain on sale of messaging business			(1,044	)			(6,127	)			—
Extraordinary gain			—				(7,668	)			—
Depreciation and amortization			21,641				21,946				12,783
Impairment of long-lived assets			9,782				—				—
Stock compensation expense			445				934				—
Compensation expense on profit interest in EDC, LLC			504				1,610				—
Bad debt expense			2,456				437				—
Unrealized (gain) loss on currency swap			3,152				3,211				(789	)
Foreign currency transaction (gain) loss			(761	)			(1,081	)			1,854
Gain on adjustment to discontinued operations accrual and related tax payable			(52	)			(3,972	)			(520	)
Deferred income taxes			(572	)			(1,719	)			(54	)
Non-cash interest expense			1,834				2,407				1,706
Minority interest (income) expense			(126	)			94				114
Other			(549	)			269				5
Changes in operating assets and liabilities, net of effects of business dispositions and acquisitions:
Restricted cash			(748	)			2,043				(959	)
Accounts receivable			7,483				(3,496	)			(16,126	)
Inventories			61				2,337				(4,377	)
Prepaid and other current assets			(398	)			(3,503	)			(4,416	)
Long-term receivables			1,684				5,463				7,133
Other assets			(1,217	)			(1,476	)			74
Accounts payable			1,362				(3,766	)			14,148
Deferred revenue			—				(6,255	)			5,249
Accrued liabilities and income taxes payable			(10,023	)			2,253				17,670
Other liabilities			1,460				1,448				(2,008	)
NET CASH PROVIDED BY OPERATING ACTIVITIES			21,240				9,414				39,462
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment			(6,823	)			(15,322	)			(8,274	)
Asset and share purchase of EDC operations, net of cash acquired			—				(5,591	)			(66,207	)
Cash restricted under long-term borrowing agreement			—				16,500				(16,500	)
Purchase of available for-sale securities			(29,623	)			—				—
Maturities of short-term securities			—				—				12,180
Proceeds from settlements related to the EDC acquisition and Messaging sale			3,788				25,000				—
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES			(32,658	)			20,587				(78,801	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of employee loans			(1,286	)			(1,156	)			—
Proceeds from long-term borrowing, net of costs			—				729				45,444
Repayment of long-term borrowing			(22,840	)			(15,406	)			(10,454	)
Proceeds from sales of LLC interest in subsidiary			—				58				772
Issuance of common stock under our stock-based compensation and stock purchase plans			741				1,836				1,703
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES			(23,385	)			(13,939	)			37,465
EFFECT OF EXCHANGE RATE CHANGES ON CASH			2,565				1,223				(2,014	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(32,238	)			17,285				(3,888	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			96,088				78,803				82,691
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	63,850			$	96,088			$	78,803
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash transactions:
Cash paid during period for Interest		$	2,614			$	3,918			$	2,854
Cash paid during period for Income taxes		$	9,673			$	3,267			$	74
Non cash transactions:
Pension and post-retirement benefit obligation adjustment		$	4,825			$	—			$	—
Capital lease obligation		$	—			$	1,118			$	—