Edgar Filing: LIONS GATE ENTERTAINMENT CORP /CN/

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2011

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

For the transition period from to

Commission File No.: 1-14880

Lions Gate Entertainment Corp.

(Exact name of registrant as specified in its charter)

British Columbia, Canada

N/A

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1055 West Hastings Street, Suite 2200

Vancouver, British Columbia V6E 2E9

and

2700 Colorado Avenue, Suite 200

Santa Monica, California 90404

(Address of principal executive offices)

(877) 848-3866

(Registrant’s telephone number, including area code)

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.


Title of Each Class		Outstanding at August 1, 2011
Common Shares, no par value per share		137,136,937 shares

TABLE OF CONTENTS


Item	Page
PART I — FINANCIAL INFORMATION

1. Financial Statements		4
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		42
3. Quantitative and Qualitative Disclosures About Market Risk		67
4. Controls and Procedures		69

PART II — OTHER INFORMATION

1. Legal Proceedings		69
1A. Risk Factors		70
2. Unregistered Sales of Equity Securities and Use of Proceeds		71
3. Defaults Upon Senior Securities		71
4. Removed and Reserved		71
5. Other Information		72
6. Exhibits		72

FORWARD-LOOKING STATEMENTS

This report includes statements that are, or may deemed to be, “forward looking statements” within the meaning of Section 27A of the Securities Act, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “potential,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “forecasts,” “may,” “will,” “could,” “would” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those discussed under Part I, Item 1.A. “Risk Factors” found in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on May 31, 2011, which risk factors are incorporated herein by reference, as updated by the risk factors found under Part II, Item 1A. Risk Factors herein. These factors should not be construed as exhaustive and should be read with the other cautionary statements and information in our Annual Report on Form 10-K and this report.

We caution you that forward-looking statements made in this report or anywhere else are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially and adversely from those made in or suggested by the forward looking statements contained in this report as a result of various important factors, including, but not limited to, the substantial investment of capital required to produce and market films and television series, increased costs for producing and marketing feature films and television series, budget overruns, limitations imposed by our credit facilities and notes, unpredictability of the commercial success of our motion pictures and television programming, risks related to our acquisition strategy and integration of acquired businesses, the effects of dispositions of businesses or assets, including individual films or libraries, the cost of defending our intellectual property, difficulties in integrating acquired businesses, technological changes and other trends affecting the entertainment industry, and the other risks and uncertainties discussed under Part I, Item 1.A. “Risk Factors” found in our Annual Report on Form 10-filed with the SEC on May 31, 2011, which risk factors are incorporated herein by reference, as updated by the risk factors found under Part II, Item 1A. Risk Factors herein. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods.

Any forward-looking statements, which we make in this report, speak only as of the date of such statement, and we undertake no obligation to update such statements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

Unless otherwise indicated, all references to the “Company,” “Lionsgate,” “we,” “us,” and “our” include reference to our subsidiaries as well.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30, 2011			March 31, 2011
	(Amounts in thousands,
	except share amounts)
ASSETS
Cash and cash equivalents	$	111,040		$	86,419
Restricted cash		19,778			43,458
Accounts receivable, net of reserve for returns and allowances of $66,151 (March 31, 2011 - $90,715) and provision for doubtful accounts of $1,488 (March 31, 2011 - $2,427)		252,319			330,624
Investment in films and television programs, net		725,578			607,757
Property and equipment, net		8,442			9,089
Equity method investments		152,762			150,585
Goodwill		239,254			239,254
Other assets		55,428			46,322
Assets held for sale		35,403			44,336

Total assets	$	1,600,004		$	1,557,844


LIABILITIES
Senior revolving credit facility	$	—		$	69,750
Senior secured second-priority notes		430,978			226,331
Accounts payable and accrued liabilities		155,130			230,989
Participations and residuals		291,363			297,482
Film obligations and production loans		298,147			326,440
Convertible senior subordinated notes and other financing obligations		94,202			110,973
Deferred revenue		176,337			150,937
Liabilities held for sale		12,427			17,396

Total liabilities		1,458,584			1,430,298


Commitments and contingencies

SHAREHOLDERS’ EQUITY

Common shares, no par value, 500,000,000 shares authorized, 137,102,540 and 136,839,445 shares issued at June 30, 2011 and March 31, 2011, respectively		644,716			643,200
Accumulated deficit		(501,982	)		(514,230	)
Accumulated other comprehensive loss		(1,314	)		(1,424	)

Total shareholders’ equity		141,420			127,546

Total liabilities and shareholders’ equity	$	1,600,004		$	1,557,844

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010
	(Amounts in thousands, except per share amounts)

Revenues	$	261,259		$	326,584
Expenses:
Direct operating		139,358			157,581
Distribution and marketing		64,746			140,059
General and administration		27,922			64,719
Depreciation and amortization		1,234			1,603

Total expenses		233,260			363,962

Operating income (loss)		27,999			(37,378	)

Other expenses (income):
Interest expense
Contractual cash based interest		11,715			10,091
Amortization of debt discount (premium) and deferred financing costs		4,620			4,452

Total interest expense		16,335			14,543
Interest and other income		(442	)		(387	)
Loss on extinguishment of debt		531			—

Total other expenses, net		16,424			14,156

Income (loss) before equity interests and income taxes		11,575			(51,534	)
Equity interests income (loss)		1,874			(11,707	)

Income (loss) before income taxes		13,449			(63,241	)
Income tax provision		1,201			827

Net income (loss)	$	12,248		$	(64,068	)


Basic Net Income (Loss) Per Common Share	$	0.09		$	(0.54	)


Diluted Net Income (Loss) Per Common Share	$	0.09		$	(0.54	)


Weighted average number of common shares outstanding:
Basic		137,011			118,226
Diluted		137,357			118,226

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


									Accumulated
									Other
	Common Shares					Accumulated			Comprehensive			Comprehensive
	Number		Amount			Deficit			Loss			Income		Total
	(Amounts in thousands, except share amounts)
Balance at March 31, 2011		136,839,445	$	643,200		$	(514,230	)	$	(1,424	)			$	127,546
Stock based compensation, net of withholding tax obligations of $918		218,842		1,343											1,343
Issuance of common shares to directors for services		44,253		298											298
May 2011 Repurchase - reduction of equity component of October 2004 2.9375%
Notes extinguished				(125	)										(125	)
Comprehensive income
Net Income							12,248					$	12,248		12,248
Foreign currency translation adjustments										74			74		74
Net unrealized gain on foreign exchange contracts										36			36		36

Comprehensive income												$	12,358

Balance at June 30, 2011		137,102,540	$	644,716		$	(501,982	)	$	(1,314	)			$	141,420

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010
	(Amounts in thousands)
Operating Activities:
Net income (loss)	$	12,248		$	(64,068	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation of property and equipment		1,154			1,192
Amortization of intangible assets		80			411
Amortization of films and television programs		84,983			101,211
Amortization of debt discount (premium) and deferred financing costs		4,620			4,452
Non-cash stock-based compensation		2,261			22,196
Loss on extinguishment of debt		531			—
Equity interests (income) loss		(1,874	)		11,707
Changes in operating assets and liabilities:
Restricted cash		23,680			(17,071	)
Accounts receivable, net		86,383			32,363
Investment in films and television programs		(201,776	)		(165,905	)
Other assets		2,283			2,437
Accounts payable and accrued liabilities		(81,462	)		(1,542	)
Participations and residuals		(5,162	)		(16,361	)
Film obligations		2,260			636
Deferred revenue		25,332			25,409

Net Cash Flows Used In Operating Activities		(44,459	)		(62,933	)

Investing Activities:
Purchases of restricted investments		—			(6,993	)
Proceeds from the sale of restricted investments		—			6,995
Buy-out of the earn-out associated with the acquisition of Debmar-Mercury, LLC		—			(15,000	)
Investment in equity method investees		(475	)		(22,030	)
Increase in loans receivable		(1,500	)		—
Purchases of property and equipment		(411	)		(405	)

Net Cash Flows Used In Investing Activities		(2,386	)		(37,433	)

Financing Activities:
Tax withholding requirements on equity awards		(918	)		(1,497	)
Borrowings under senior revolving credit facility		95,400			243,000
Repayments of borrowings under senior revolving credit facility		(165,150	)		(61,000	)
Borrowings under individual production loans		48,466			13,737
Repayment of individual production loans		(78,595	)		(83,146	)
Production loan borrowings under Pennsylvania Regional Center credit facility		—			494
Production loan repayments under Pennsylvania Regional Center credit facility		—			(246	)
Production loan borrowings under film credit facility		7,711			3,118
Production loan repayments under film credit facility		(8,536	)		(419	)
Change in restricted cash collateral associated with financing activities		—			(3,666	)
Proceeds from sale of senior secured second-priority notes, net of deferred financing costs		192,396			—
Repurchase of convertible senior subordinated notes		(19,476	)		—

Net Cash Flows Provided By Financing Activities		71,298			110,375

Net Change In Cash And Cash Equivalents		24,453			10,009
Foreign Exchange Effects on Cash		168			(683	)
Cash and Cash Equivalents - Beginning Of Period		86,419			69,242

Cash and Cash Equivalents - End Of Period	$	111,040		$	78,568

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. General

Nature of Operations

Lions Gate Entertainment Corp. (the “Company,” “Lionsgate,” “we,” “us” or “our”) is a leading global entertainment company with a strong and diversified presence in motion picture production and distribution, television programming and syndication, home entertainment, family entertainment, digital distribution and new channel platforms.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Lionsgate and all of its majority-owned and controlled subsidiaries.

The unaudited condensed consolidated financial statements have been prepared in accordance with United States (the “U.S.”) accounting principles generally accepted (“GAAP”) for interim financial information and the instructions to quarterly report on Form 10-Q under the Exchange Act, and Article 10 of Regulation S-X under the Exchange Act. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been reflected in these unaudited condensed consolidated financial statements. Operating results for the three months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ended March 31, 2012. The balance sheet at March 31, 2011 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read together with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2011.

Certain amounts presented for fiscal 2011 have been reclassified to conform to the fiscal 2012 presentation relating to the sale of Maple Pictures (see Note 12).

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The most significant estimates made by management in the preparation of the financial statements relate to ultimate revenue and costs for investment in films and television programs; estimates of sales returns and other allowances and provisions for doubtful accounts; fair value of assets and liabilities for allocation of the purchase price of companies acquired; income taxes and accruals for contingent liabilities; and impairment assessments for investment in films and television programs, property and equipment, equity investments, goodwill and intangible assets. Actual results could differ from such estimates.

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update relating to the presentation of other comprehensive income. The accounting update eliminates the option to present components of other comprehensive income as part of the statement of stockholders’ equity. Instead, Companies must report comprehensive income in either a single continuous statement of comprehensive income (which would contain the current income statement presentation followed by the components of other comprehensive income and a total amount for comprehensive income), or in two separate but consecutive statements. This guidance is effective for the Company’s fiscal year beginning April 1, 2012. The Company does not expect the guidance to have a material impact on its consolidated financial statements.

for disclosing information about fair value measurements. Specifically, the guidance requires additional disclosures for fair value measurements that are based on significant unobservable inputs. The updated guidance is to be applied prospectively and is effective for the Company’s interim and annual periods beginning April 1, 2012. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

2. Restricted Cash

Restricted cash represents amounts held as collateral required under our revolving film credit facility, amounts that are contractually designated for certain theatrical marketing obligations, and approximately $14.0 million held in a trust to fund the Company’s cash severance obligations that would be due to certain executive officers should their employment be terminated “without cause” (as defined), in connection with a “change in control” of the Company (as defined in each of their respective employment contracts). For purposes of the employment agreements with such executive officers, a “change in control” occurred on June 30, 2010 when a certain shareholder became the beneficial owner of 33% or more of the Company’s common shares. Accordingly, the trust became irrevocable, and the Company may not withdraw any trust assets (other than once every six months in an amount that the trustee reasonably determines exceeds the remaining potential severance obligations), until any cash severance obligations that have become payable to the executives have been paid or the employment agreements with the executives expire or terminate without those obligations becoming payable.

3. Investment in Films and Television Programs


	June 30, 2011		March 31, 2011
	(Amounts in thousands)
Motion Picture Segment - Theatrical and Non-Theatrical Films
Released, net of accumulated amortization	$	240,163	$	212,125
Acquired libraries, net of accumulated amortization		30,268		31,929
Completed and not released		42,310		47,347
In progress		243,987		170,372
In development		9,755		11,825
Product inventory		30,988		29,467

		597,471		503,065

Television Segment - Direct-to-Television Programs
Released, net of accumulated amortization		77,647		92,290
In progress		47,640		10,206
In development		2,820		2,196

		128,107		104,692

	$	725,578	$	607,757

The following table sets forth acquired libraries that represent titles released three years prior to the date of acquisition, and amortized over their expected revenue stream from acquisition date up to 20 years:


		Total		Remaining		Unamortized Costs		Unamortized Costs
		Amortization		Amortization		June 30,		March 31,
Acquired Library	Acquisition Date	Period		Period		2011		2011
		(In years)				(Amounts in thousands)
Trimark Holdings	October 2000		20.00		9.25	$	2,740	$	2,900
Artisan Entertainment	December 2003		20.00		12.50		26,861		28,348
Lionsgate UK	October 2005		20.00		14.25		667		681

Total Acquired Libraries						$	30,268	$	31,929

The Company expects approximately 44% of completed films and television programs, net of accumulated amortization, will be amortized during the one-year period ending June 30, 2012. Additionally, the Company expects approximately 80% of completed and released films and television programs, net of accumulated amortization and excluding acquired libraries, will be amortized during the three-year period ending June 30, 2014.

4. Equity Method Investments

The carrying amount of significant equity method investments at June 30, 2011 and March 31, 2011 were as follows:


Equity Method Investee	June 30, 2011 Ownership Percentage			June 30, 2011		March 31, 2011
				(Amounts in thousands)
Horror Entertainment, LLC (“FEARnet”)		34.5	%	$	2,865	$	2,809
NextPoint, Inc. (“Break Media”)		42.0	%		12,977		14,293
Roadside Attractions, LLC (“Roadside”)		43.0	%		2,558		2,756
Studio 3 Partners, LLC (“EPIX”)		31.2	%		19,460		14,664
TV Guide Network		51.0	%		114,003		114,940
Tiger Gate Entertainment Limited (“Tiger Gate”)		45.9	%		899		1,123

				$	152,762	$	150,585

Equity interests in equity method investments in our unaudited condensed consolidated statements of operations represent our portion of the income or loss of our equity method investees based on our percentage ownership and the elimination of profits on sales to equity method investees. Equity interests in equity method investments for the three months ended June 30, 2011 and 2010 were as follows (income (loss)):


Equity Method Investee	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010
	(Amounts in thousands)
Horror Entertainment, LLC (“FEARnet”)	$	56		$	513
NextPoint, Inc. (“Break Media”)		(1,316	)		(251	)
Roadside Attractions, LLC (“Roadside”)		(39	)		86
Studio 3 Partners, LLC (“EPIX”)		4,796			(11,987	)
TV Guide Network		(936	)		(1	)
Tiger Gate Entertainment Limited (“Tiger Gate”)		(687	)		(67	)

	$	1,874		$	(11,707	)

Horror Entertainment, LLC. Horror Entertainment, LLC (“FEARnet”), a multiplatform programming and content service provider of horror genre films operating under the branding of “FEARnet.” The Company licenses content to FEARnet for video-on-demand and broadband exhibition. The Company is recording its share of the FEARnet results on a one quarter lag and, accordingly, during the three months ended June 30, 2011, the Company recorded its share of the income earned by FEARnet for the three months ended March 31, 2011.

NextPoint, Inc. NextPoint, Inc. (“Break Media”), an online home entertainment service provider operating under the branding of “Break Media.” The Company is recording its share of the Break Media results on a one quarter lag and, accordingly, during the three months ended June 30, 2011, the Company recorded its share of losses incurred by Break Media for the three months ended March 31, 2011.

Roadside Attractions, LLC. Roadside Attractions, LLC (“Roadside”), an independent theatrical releasing company. The Company is recording its share of the Roadside results on a one quarter lag and, accordingly, during the three months ended June 30, 2011, the Company recorded its share of losses incurred by Roadside for the three months ended March 31, 2011.

Studio 3 Partners, LLC (“EPIX”). In April 2008, the Company formed a joint venture with Viacom Inc. (“Viacom”), its Paramount Pictures unit (“Paramount Pictures”) and Metro-Goldwyn-Mayer Studios Inc. (“MGM”) to create a premium television channel and subscription video-on-demand service named “EPIX”. The Company has invested $80.4 million through September 30, 2010, and no additional amounts have been funded since. The Company is recording its share of the joint venture results on a one quarter lag and, accordingly, during the three months ended June 30, 2011, the Company recorded its share of the net income earned by the joint venture for the three months ended March 31, 2011. EPIX expects to report net income of approximately $17 million for its quarter ended June 30, 2011, of which the Company’s pro rata share will be recorded in the quarter ended September 30, 2011.

The Company licenses certain of its theatrical releases and other films and television programs to EPIX. A portion of the profits of these licenses reflecting the Company’s ownership share in the venture are eliminated through an adjustment to the equity interest income (loss) of the venture. These profits are recognized as they are realized by the venture. For the three months ended June 30,

2011, the Company recognized $35.2 million of revenue and $21.6 million of gross profit on the licensing of films to EPIX before eliminations. For the three months ended June 30, 2010, there was not a significant amount of revenue from the licensing of products to EPIX.

The following table presents summarized balance sheet data as of March 31, 2011 and December 31, 2010 for EPIX:


	March 31, 2011		December 31, 2010
	(Amounts in thousands)

Current assets	$	143,856	$	117,835
Non-current assets	$	95,293	$	89,648
Current liabilities	$	104,243	$	105,303
Non-current liabilities	$	15,219	$	6,719

The following table presents the summarized statement of operations for the three months ended March 31, 2011 and 2010 for EPIX and a reconciliation of the net income (loss) reported by EPIX to equity interest income (loss) recorded by the Company:


	Three Months Ended March 31, 2011			Three Months Ended March 31, 2010
	(Amounts in thousands)

Revenues	$	77,285		$	295
Expenses:
Operating expenses		48,078			37,568
Selling, general and administrative expenses		5,097			5,089

Operating income (loss)		24,110			(42,363	)
Interest income		3			1

Net income (loss)	$	24,113		$	(42,362	)


Reconciliation of net income (loss) reported by EPIX to equity interest income (loss):

Net income (loss) reported by EPIX	$	24,113		$	(42,362	)
Ownership interest in EPIX		31.15	%		31.15	%


Share of net income (loss)		7,511			(13,196	)

Adjustments and eliminations of the Company’s share of profits on sales to EPIX		(6,560	)		—
Realization of the Company’s share of profits on sales to EPIX		3,845			1,209


Total equity interest income (loss) recorded	$	4,796		$	(11,987	)

TV Guide Network. The Company’s investment balance consists of common share units of $8.0 million and mandatorily redeemable preferred stock units of $106.0 million. On February 28, 2009, the Company purchased all of the issued and outstanding equity interests of TV Guide Network. The Company paid approximately $241.6 million for all of the equity interest of TV Guide Network. On May 28, 2009, the Company sold 49% of the Company’s interest in TV Guide Network (see Note 12).

The February 28, 2009 acquisition was accounted for as a purchase, with the results of operations of TV Guide Network included in the Company’s consolidated results from February 28, 2009 through May 27, 2009 when a portion of the entity was sold. Subsequent to the sale of TV Guide Network, and pursuant to the new accounting guidance on accounting for variable interest entities (“VIEs”) effective April 1, 2010, which the Company has retrospectively applied, the Company’s interest in TV Guide Network is being accounted for under the equity method of accounting. Accordingly, the Company’s portion of the loss incurred by TV Guide Network for the three months ended June 30, 2011 and 2010 is reflected in equity interest loss.

Investment in Mandatorily Redeemable Preferred Stock Units. The mandatorily redeemable preferred stock carries a dividend rate of 10% compounded annually and is mandatorily redeemable in May 2019 at the stated value plus the dividend return and any additional capital contributions less previous distributions. The mandatorily redeemable preferred stock units were initially recorded based on their estimated fair value, as determined using an option pricing model methodology. The mandatorily redeemable preferred stock units and the 10% dividend are being accreted up to its redemption amount over the ten-year period to the redemption date which is recorded as income within equity interest.

The Company licenses certain films and/or television programs to TV Guide Network. A portion of the profits of these licenses reflecting the Company’s ownership share in the venture are eliminated through an adjustment to the equity interest loss of the venture. These profits are recognized as they are realized by the venture. For the three months ended June 30, 2011, the Company recognized $2.9 million of revenue and $0.9 million of gross profit on the licensing of television programs to TV Guide Network before eliminations. For the three months ended June 30, 2010, there was not a significant amount of revenue from the licensing of products to TV Guide Network.

The following table presents summarized balance sheet data as of June 30, 2011 and March 31, 2011 for TV Guide Network:


	June 30, 2011		March 31, 2011
	(Amounts in thousands)

Current assets	$	44,703	$	43,497
Non-current assets	$	259,150	$	261,245
Current liabilities	$	32,691	$	32,126
Non-current liabilities	$	39,904	$	40,354
Redeemable preferred stock	$	207,767	$	200,724

The following table presents the summarized statement of operations for the three months ended June 30, 2011 and 2010 for TV Guide Network and a reconciliation of the net loss reported by TV Guide Network to equity interest loss recorded by the Company:


	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010
	(Amounts in thousands)

Revenues	$	28,260		$	29,045
Expenses:
Cost of services		10,189			8,312
Selling, marketing, and general and administration		15,793			16,308
Depreciation and amortization		2,947			4,015

Operating income (loss)		(669	)		410
Interest expense, net		460			410
Accretion of redeemable preferred stock units (1)		7,042			6,598

Total interest expense, net		7,502			7,008

Loss before income taxes		(8,171	)		(6,598	)
Income tax expense		—			2

Net loss	$	(8,171	)	$	(6,600	)


Reconciliation of net loss reported by TV Guide Network to equity interest loss:

Net loss reported by TV Guide Network	$	(8,171	)	$	(6,600	)
Ownership interest in TV Guide Network		51	%		51	%


Share of net loss		(4,167	)		(3,366	)

Accretion of dividend and interest income on redeemable preferred stock units (1)		3,592			3,365
Adjustments and eliminations of the Company’s share of profits on sales to TV Guide Network		(484	)		—
Realization of the Company’s share of profits on sales to TV Guide Network		123			—


Total equity interest loss recorded	$	(936	)	$	(1	)

(1)

Accretion of mandatorily redeemable preferred stock units represents TV Guide Network’s 10% dividend and the amortization of discount on its mandatorily redeemable preferred stock units held by the Company and the 49% interest holder. The Company records 51% of this expense as income from the accretion of dividend and discount on mandatorily redeemable preferred stock units within equity interest loss.

Tiger Gate Entertainment Limited. Tiger Gate Entertainment Limited (“Tigergate”) is an operator of pay television channels and a distributor of television programming and action and horror films across Asia. The Company is recording its share of the joint venture

results on a one quarter lag and, accordingly, during the three months ended June 30, 2011, the Company recorded its share of the loss incurred by the joint venture for the three months ended March 31, 2011. The Company funded an additional $0.5 million during the three months ended June 30, 2011.

5. Other Assets

The composition of the Company’s other assets is as follows as of June 30, 2011 and March 31, 2011:


	June 30, 2011		March 31, 2011
	(Amounts in thousands)
Deferred financing costs, net of accumulated amortization	$	24,888	$	15,360
Loans receivable		20,237		18,433
Prepaid expenses and other		10,303		12,529

	$	55,428	$	46,322

Deferred Financing Costs. Deferred financing costs primarily include costs incurred in connection with (1) an amended senior revolving credit facility (see Note 6), (2) the issuance of the Senior Secured Second-Priority Notes (as defined herein, see Note 7) and (3) the issuance of the October 2004 2.9375% Notes, the February 2005 3.625% Notes and the April 2009 3.625% Notes (as defined herein, see Note 10) that are deferred and amortized to interest expense using the effective interest method.

Loans Receivable. The following table sets forth the Company’s loans receivable at June 30, 2011 and March 31, 2011:


	Interest Rate	June 30, 2011		March 31, 2011
	(Amounts in thousands)
Third-party producer	3.0%	$	8,840	$	8,777
NextPoint, Inc. (“Break Media”)	5.25% - 20.0%		11,397		9,656

		$	20,237	$	18,433

Prepaid Expenses and Other. Prepaid expenses and other primarily include prepaid expenses and security deposits.

6. Senior Revolving Credit Facility

Outstanding Amount. At June 30, 2011, the Company had no borrowings outstanding (March 31, 2011 — $69.8 million).

Availability of Funds. At June 30, 2011, there was $325.0 million available (March 31, 2011 — $255.2 million). The senior revolving credit facility provides for borrowings and letters of credit up to an aggregate of $340 million. The availability of funds is limited by a borrowing base and also reduced by outstanding letters of credit which amounted to $15.0 million at June 30, 2011 (March 31, 2011 — $15.0 million).

Maturity Date. The senior revolving credit facility expires July 25, 2013.

Interest. As of June 30, 2011, the senior revolving credit facility bore interest of 2.5% over the “Adjusted LIBOR” rate (effective interest rate of 2.69% and 2.74% as of June 30, 2011 and March 31, 2011, respectively).

Commitment Fee. The Company is required to pay a quarterly commitment fee based upon 0.5% per annum on the total senior revolving credit facility of $340 million less the amount drawn.

Security. Obligations under the senior revolving credit facility are secured by collateral (as defined in the credit agreement) granted by the Company and certain subsidiaries of the Company, as well as a pledge of equity interests in certain of the Company’s subsidiaries.

Covenants. The senior revolving credit facility contains a number of affirmative and negative covenants that, among other things, require the Company to satisfy certain financial covenants and restrict the ability of the Company to incur additional debt, pay dividends and make distributions, make certain investments and acquisitions, repurchase its stock and prepay certain indebtedness, create liens, enter into agreements with affiliates, modify the nature of its business, enter into sale-leaseback transactions, transfer and sell material assets and merge or consolidate.

Change in Control. Under the senior revolving credit facility, the Company may also be subject to an event of default upon a change in control (as defined in the senior revolving credit facility) which, among other things, includes a person or group acquiring ownership or control in excess of 50% (amended from 20% on June 22, 2010) of the Company’s common stock.

7. Senior Secured Second-Priority Notes

On October 21, 2009, Lions Gate Entertainment Inc. (“LGEI”), the Company’s wholly-owned subsidiary, issued $236.0 million aggregate principal amount of senior secured second-priority notes due 2016 (the “October 2009 Senior Notes”) in a private offering conducted pursuant to Rule 144A and Regulation S under the Securities Act.

On May 13, 2011, LGEI issued approximately $200.0 million aggregate principal amount of senior secured second-priority notes due 2016 (the “May 2011 Senior Notes,” and collectively with the October 2009 Senior Notes, the “Senior Notes”) in a private offering conducted pursuant to Rule 144A and Regulation S under the Securities Act. The May 2011 Senior Notes were issued pursuant a Supplemental Indenture among LGEI, the Company, the subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee. The Supplemental Indenture amended the indenture under the October 2009 Senior Notes to, among other things, enable LGEI to issue additional notes having the same terms as the October 2009 Senior Notes, except for the issue date, issue price and first interest payment, in an aggregate principal amount of up to $200.0 million.

Outstanding Amount. The outstanding amount is set forth in the tables below:


	June 30, 2011
	Principal		Unamortized Premium/ (Discount)			Net Carrying Amount
	(Amounts in thousands)

Senior Secured Second-Priority Notes
October 2009 Senior Notes	$	236,000	$	(9,343	)	$	226,657
May 2011 Senior Notes		200,000		4,321			204,321

	$	436,000	$	(5,022	)	$	430,978


	March 31, 2011
	Principal		Unamortized Discount			Net Carrying Amount
	(Amounts in thousands)

Senior Secured Second-Priority Notes
October 2009 Senior Notes	$	236,000	$	(9,669	)	$	226,331

Maturity Date. The Senior Notes are due November 1, 2016.

Original Issue Discount/Premium. The October 2009 Senior Notes were issued by LGEI at an initial price of 95.222% (original issue discount — 4.778%) of the principal amount. The May 2011 Senior Notes were issued by LGEI at an initial price of 102.219% (original issue premium — 2.219%) of the principal amount, plus accrued interest thereon from May 1, 2011, resulting in gross proceeds of approximately $204.4 million and net proceeds of approximately $192.4 million after estimated fees and expenses, including $5.6 million paid in connection with the consent solicitation of holders of the October 2009 Senior Notes. The original issue discount/premium, interest and deferred financing costs are being amortized through November 1, 2016 using the effective interest method. As of June 30, 2011 the remaining amortization period was 5.3 years.

Interest. The Senior Notes pay interest semi-annually on May 1 and November 1 of each year at a rate of 10.25% per year.

Security. The Senior Notes are guaranteed on a senior secured basis by the Company, and certain wholly-owned subsidiaries of both the Company and LGEI. The Senior Notes are ranked junior in right of payment to the Company’s senior revolving credit facility, ranked equally in right of payment to the Company’s convertible senior subordinated notes, and ranked senior to any of the Company’s unsecured debt.

Covenants. The Senior Notes contain certain restrictions and covenants that, subject to certain exceptions, limit the Company’s ability to incur additional indebtedness, pay dividends or repurchase the Company’s common shares, make certain loans or investments, and sell or otherwise dispose of certain assets subject to certain conditions, among other limitations.

8. Participations and Residuals

The Company expects approximately 74% of accrued participations and residuals will be paid during the one-year period ending June 30, 2012.

Theatrical Slate Participation

On May 29, 2009, the Company terminated its theatrical slate participation arrangement with Pride Pictures, LLC (“Pride”), an unrelated entity. Under the arrangement dated May 25, 2007 and amended on January 30, 2008 (the “Master Picture Purchase Agreement”), Pride contributed, in general, 50% of the Company’s production, acquisition, marketing and distribution costs of theatrical feature films and participated in a pro rata portion of the pictures’ net profits or losses similar to a co-production arrangement based on the portion of costs funded. In late 2008, the administrative agent for the senior lenders under Pride’s senior credit facility took the position, among others, that the senior lenders did not have an obligation to continue to fund under the senior credit facility because the conditions precedent to funding set forth in the senior credit facility could not be satisfied. The Company was not a party to the credit facility. Consequently, Pride did not purchase the pictures The Spirit, My Bloody Valentine 3-D and Madea Goes To Jail. Thereafter, on April 20, 2009, after failed attempts by the Company to facilitate a resolution, it gave FilmCo and Pride notice that LG Film Finance I, LLC (“FilmCo”), through Pride’s failure to make certain capital contributions, was in default of the Master Picture Purchase Agreement. On May 5, 2009, the representative for the Pride equity and the Pride mezzanine investor responded that the required amount was fully funded and that it had no further obligations to make any additional capital contributions. Consequently, on May 29, 2009, the Company gave notice of termination of the Master Picture Purchase Agreement. Since May 29, 2009, there have been no developments with respect to the arrangement. The Company will no longer receive financing as provided from the participation of Pride in its films.

Amounts provided from Pride are reflected as a participation liability. The difference between the ultimate participation expected to be paid to Pride and the amount provided by Pride is amortized as a charge to or a reduction of participation expense under the individual-film-forecast method.

At June 30, 2011, $17.4 million (March 31, 2011, $19.2 million) was payable to Pride and is included in participations and residuals in the unaudited condensed consolidated balance sheets.

Société Générale de Financement du Québec Filmed Entertainment Participation

On July 30, 2007, the Company entered into a four-year filmed entertainment slate participation agreement with Société Générale de Financement du Québec (“SGF”), the Québec provincial government’s investment arm. SGF will provide up to 35% of production costs of television and feature film productions produced in Québec for a four-year period for an aggregate participation of up to $140 million, and the Company will advance all amounts necessary to fund the remaining budgeted costs. The maximum aggregate of budgeted costs over the four-year period will be $400 million, including the Company’s portion, but no more than $100 million per year. In connection with this agreement, the Company and SGF will proportionally share in the proceeds derived from the productions after the Company deducts a distribution fee, recoups all distribution expenses and releasing costs, and pays all applicable third party participations and residuals.

Amounts provided from SGF are reflected as a participation liability. The difference between the ultimate participation expected to be paid to SGF and the amount provided by SGF is amortized as a charge to or a reduction of participation expense under the individual film forecast method. At June 30, 2011, $6.9 million (March 31, 2011, $7.1 million) was payable to SGF and is included in participations and residuals in the unaudited condensed consolidated balance sheets. Under the terms of the arrangement, $35 million was available through July 30, 2011. Of the $35 million available through July 30, 2011, $5.7 million was provided through June 30, 2011, and the remaining commitment expired on July 30, 2011.

9. Film Obligations and Production Loans


	June 30, 2011		March 31, 2011
	(Amounts in thousands)
Film obligations	$	61,317	$	58,681
Production loans
Individual production loans		151,725		181,829
Pennsylvania Regional Center production loans		65,500		65,500
Film Credit Facility		19,605		20,430

Total film obligations and production loans	$	298,147	$	326,440

The following table sets forth future nine-month and annual repayment of film obligations and production loans:


	Nine Months Ended March 31,		Year Ended March 31,
	2012		2013		2014		2015		2016		Thereafter		Total
	(Amounts in thousands)
Future annual repayment of Film Obligations and Production Loans recorded as of June 30, 2011
Film obligations	$	28,124	$	16,875	$	13,766	$	6,553	$	—	$	—	$	65,318
Production loans
Individual production loans		79,991		56,734		15,000		—		—		—		151,725
Pennsylvania Regional Center production loans		—		—		65,500		—		—		—		65,500
Film Credit Facility		12,486		7,119		—		—		—		—		19,605

	$	120,601	$	80,728	$	94,266	$	6,553	$	—	$	—	$	302,148

Less imputed interest on film obligations														(4,001	)

													$	298,147

Film Obligations

Film obligations include minimum guarantees, which represent amounts payable for film rights that the Company has acquired and certain theatrical marketing obligations, which represent amounts received from third parties that are contractually committed for theatrical marketing expenditures associated with specific titles.

Individual Production Loans

Production loans represent individual loans for the production of film and television programs that the Company produces. Individual production loans have contractual repayment dates either at or near the expected completion date, with the exception of certain loans containing repayment dates on a longer term basis. Individual production loans of $106.7 million incur interest at rates ranging from 3.39% to 3.83%, and approximately $45.0 million of production loans are non-interest bearing.

Pennsylvania Regional Center

General. On April 9, 2008, the Company entered into a loan agreement with the Pennsylvania Regional Center, which provides for the availability of production loans up to $65,500,000 on a five-year term for use in film and television productions in the State of Pennsylvania. The amount that was borrowed was limited to approximately one half of the qualified production costs incurred in the State of Pennsylvania through the two-year period ended April 2010, and is subject to certain other limitations. Under the terms of the loan, for every dollar borrowed, the Company’s production companies are required (within a two-year period) to either create a specified number of jobs, or spend a specified amount in certain geographic regions in the State of Pennsylvania.

Outstanding Amount. At June 30, 2011, the Company had borrowings of $65.5 million (fair value — $62.4 million) (March 31, 2011 — $65.5 million (fair value — $62.0 million)).

Availability of Funds. At June 30, 2011, there were no amounts available under this agreement (March 31, 2011 — nil).

Maturity Date. All amounts borrowed under this loan agreement with the Pennsylvania Regional Center are due April 11, 2013, five years from the date that the Company began to borrow under this agreement.

Interest. Amounts borrowed under the agreement carry an interest rate of 1.5%, which is payable semi-annually.

Security. The loan is secured by a first priority security interest in the Company’s film library pursuant to an intercreditor agreement with the Company’s senior lender under the Company’s senior revolving credit facility. Pursuant to the terms of the Company’s senior revolving credit facility, the Company is required to maintain certain collateral equal to the loans outstanding plus 5% under this facility. Such collateral can consist of cash, cash equivalents or debt securities, including the Company’s convertible senior subordinated notes repurchased. As of June 30, 2011, $72.8 million principal value (fair value — $72.4 million) of the Company’s convertible senior subordinated notes repurchased in December 2009 (see Note 10) was held as collateral under the Company’s senior revolving credit facility (March 31, 2011 — $72.8 million principal value, $72.4 million fair value).

Film Credit Facility

On October 6, 2009, the Company entered into a revolving film credit facility agreement, as amended effective December 31, 2009 and June 22, 2010 (the “Film Credit Facility”), which provides for borrowings for the acquisition or production of motion pictures.

Outstanding Amount. At June 30, 2011, the Company had borrowings of $19.6 million (March 31, 2011 — $20.4 million).

Availability of Funds. Currently, the Film Credit Facility provides for total borrowings up to $130 million, subject to a borrowing base, which can vary based on the amount of sales contracts in place on pictures financed under the facility. The Film Credit Facility can be increased to $200 million if additional qualified lenders or financial institutions become a party to and provide a commitment under the facility.

Maturity Date. The Film Credit Facility has a maturity date of April 6, 2013. Borrowings under the Film Credit Facility are due the earlier of (a) nine months after delivery of each motion picture or (b) April 6, 2013.

Interest. As of June 30, 2011, the Film Credit Facility bore interest of 3.25% over the “LIBO” rate (as defined in the credit agreement). The weighted average interest rate on borrowings outstanding as of June 30, 2011 was 3.44% (March 31, 2011 — 3.49%).

Commitment Fee. The Company is required to pay a quarterly commitment fee of 0.75% per annum on the unused commitment under the Film Credit Facility.

Security. Borrowings under the Film Credit Facility are subject to a borrowing base calculation and are secured by interests in the related motion pictures, together with certain other receivables from other motion picture and television productions pledged by the Company, including a minimum pledge of such receivables of $25 million. Receivables pledged to the Film Credit Facility must be excluded from the borrowing base calculation under the Company’s senior revolving credit facility, as described in Note 6.

10. Convertible Senior Subordinated Notes and Other Financing Obligations

Accounting Method Description. The Company accounts for its convertible senior subordinated notes by separating the liability and equity components. The liability component is recorded at the date of issuance based on its fair value which is generally determined in a manner that will reflect an interest cost equal to the Company’s nonconvertible debt borrowing rate at the convertible senior subordinated notes issuance date. The amount of the proceeds less the amount recorded as the liability component is recorded as an addition to shareholders’ equity reflecting the equity component (i.e., conversion feature). The difference between the principal amount and the amount recorded as the liability component represents the debt discount. The carrying amount of the liability is accreted up to the principal amount through the amortization of the discount, using the effective interest method, to interest expense over the expected life of the note.

Outstanding Amount. The following table sets forth the convertible senior subordinated notes and other financing obligations outstanding at June 30, 2011 and March 31, 2011:


	June 30, 2011
	Principal		Unamortized Discount			Net Carrying Amount
	(Amounts in thousands)
Convertible Senior Subordinated Notes
October 2004 2.9375% (Equity Component $47,955)	$	26,931	$	(491	)	$	26,440
February 2005 3.625% (Equity Component $50,855)		23,470		(1,016	)		22,454
April 2009 3.625% (Equity Component $16,085)		66,581		(24,991	)		41,590

	$	116,982	$	(26,498	)		90,484


Other financing obligations							3,718


						$	94,202


	March 31, 2011
	Principal		Unamortized Discount			Net Carrying Amount
	(Amounts in thousands)
Convertible Senior Subordinated Notes
October 2004 2.9375% (Equity Component $48,080)	$	46,326	$	(1,598	)	$	44,728
February 2005 3.625% (Equity Component $50,855)		23,470		(1,363	)		22,107
April 2009 3.625% (Equity Component $16,085)		66,581		(26,161	)		40,420

	$	136,377	$	(29,122	)		107,255


Other financing obligations							3,718


						$	110,973

The following table sets forth future nine-month and annual contractual principal payment commitments under convertible senior subordinated notes as of June 30, 2011:


		Nine Months
		Ended
		March 31,		Year Ended March 31,
Note	First Holder Redemption Date	2012		2013		2014		2015		2016		Thereafter		Total
		(Amounts in thousands)
October 2004 2.9375% Notes	October 2011	$	26,931	$	—	$	—	$	—	$	—	$	—	$	26,931
February 2005 3.625% Notes	March 2012		23,470		—		—		—		—		—		23,470
April 2009 3.625% Notes	March 2015		—		—		—		66,581		—		—		66,581

		$	50,401	$	—	$	—	$	66,581	$	—	$	—	$	116,982

The future repayment dates of the convertible senior subordinated notes represent the first redemption date by holder for each note respectively, as described above.

Interest Expense. The effective interest rate on the liability component and the amount of interest expense, which includes both the contractual interest coupon and amortization of the discount on the liability component, for the three months ended June 30, 2011 and 2010 are presented below.


	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010
	(Amounts in thousands)
October 2004 2.9375% Convertible Senior Subordinated Notes:
Effective interest rate of liability component (9.65%)
Interest Expense
Contractual interest coupon	$	266	$	808
Amortization of discount on liability component and debt issuance costs		616		1,717

		882		2,525

February 2005 3.625% Convertible Senior Subordinated Notes:
Effective interest rate of liability component (10.03%)
Interest Expense
Contractual interest coupon		213		539
Amortization of discount on liability component and debt issuance costs		374		852

		587		1,391

April 2009 3.625% Convertible Senior Subordinated Notes:
Effective interest rate of liability component (17.26%)
Interest Expense
Contractual interest coupon		603		603
Amortization of discount on liability component and debt issuance costs		1,175		987

		1,778		1,590

Total
Contractual interest coupon		1,082		1,950
Amortization of discount on liability component and debt issuance costs		2,165		3,556

	$	3,247	$	5,506

Fiscal 2011 and 2012 Convertible Senior Subordinated Notes Transactions

May 2011 Repurchase of a Portion of October 2004 2.9375% Notes: In May 2011, LGEI paid $19.5 million to repurchase $19.4 million of aggregate principal amount (carrying value — $18.9 million) of the 2.9375% Convertible Senior Subordinated Notes (the “October 2004 2.9375% Notes”). The Company recorded a loss on extinguishment in the quarter ended June 30, 2011 of $0.5 million, which includes $0.1 million of deferred financing costs written off. The loss represented the excess of the fair value of the liability component of the October 2004 2.9375% Notes repurchased over their carrying values, plus the deferred financing costs written off. The amount of consideration recorded as a reduction of shareholders’ equity represents the equity component of the October 2004 2.9375% Notes repurchased.

July 20, 2010 Refinancing Exchange Agreement: On July 20, 2010, the Company entered into a Refinancing Exchange Agreement to exchange approximately $36.0 million in aggregate principal amount of the 3.625% Convertible Senior Subordinated Notes (the “February 2005 3.625% Notes”) and approximately $63.7 million in aggregate principal amount of the October 2004 2.9375% Notes for equal principal amounts, respectively, of new 3.625% Convertible Senior Subordinated Notes due 2027 (the “New 3.625% Notes”) and new 2.9375% Convertible Senior Subordinated Notes due 2026 (the “New 2.9375% Notes”, and together with the New 3.625% Notes, the “New Notes”). The New Notes took effect immediately and all terms were identical to the February 2005 3.625% Notes and October 2004 2.9375% Notes except that the New Notes had an extended maturity date, extended put rights by two years, and were immediately convertible at an initial conversion rate of 161.2903 common shares of the Company per $1,000 principal amount of New Notes (conversion price per share of $6.20), subject to specified contingencies.

On July 20, 2010, the New Notes were converted into 16,236,305 common shares of the Company. As a result, the New Notes are no longer outstanding as of July 20, 2010.

As a result of the exchange transaction and related conversion, the Company recorded a non-cash loss on extinguishment of debt of $14.5 million during the quarter ended September 30, 2010, which includes the write-off of $0.6 million of unamortized deferred financing costs, an increase to common shares equity of $106.0 million and reduction in the carrying amount of the old notes of approximately $91.2 million. The loss represented the excess of the fair value of the common stock issuable pursuant to conversion terms contained in the New Notes as compared to the fair value of the Company’s common stock issuable pursuant to the conversion terms of the old notes, partially offset by the excess of the carrying amount of the debt extinguished over the fair value of the Company’s common stock issuable pursuant to the conversion terms of the old notes.

Convertible Senior Subordinated Notes Terms

October 2004 2.9375% Notes. In October 2004, LGEI sold $150.0 million of the October 2004 2.9375% Notes.

Outstanding Amount: As of June 30, 2011, $26.9 million of aggregate principal amount (carrying value — $26.4 million) of the October 2004 2.9375% Notes remain outstanding.

Interest: Interest on the October 2004 2.9375% Notes is payable semi-annually on April 15 and October 15.

Maturity Date: The October 2004 2.9375% Notes mature on October 15, 2024.

Redeemable by LGEI: From October 15, 2010 to October 14, 2011, LGEI may redeem the October 2004 2.9375% Notes at 100.420%, and, thereafter, LGEI may redeem the October 2004 2.9375% Notes at 100%.

Redeemable by Holder: The holder may require LGEI to repurchase the October 2004 2.9375% Notes on October 15, 2011, 2014 and 2019 or upon a change in control at a price equal to 100% of the principal amount, together with accrued and unpaid interest through the date of repurchase.

Conversion Features: The holder may convert the October 2004 2.9375% Notes into the Company’s common shares prior to maturity only if the price of the Company’s common shares issuable upon conversion of a note reaches or falls below a certain specific threshold over a specified period, the notes have been called for redemption, a change in control occurs or certain other corporate transactions occur. Before the close of business on or prior to the trading day immediately before the maturity date, the holder may convert the notes into the Company’s common shares at a conversion rate equal to 86.9565 shares per $1,000 principal

amount of the October 2004 2.9375% Notes, subject to adjustment in certain circumstances, which represents a conversion price of approximately $11.50 per share. Upon conversion of the October 2004 2.9375% Notes, the Company has the option to deliver, in lieu of common shares, cash or a combination of cash and common shares of the Company.

Make Whole Premium: Under certain circumstances, if the holder requires LGEI to repurchase all or a portion of their notes or the holder converts the notes upon a change in control, they will be entitled to receive a make whole premium. The amount of the make whole premium, if any, will be based on the price of the Company’s common shares on the effective date of the change in control. No make whole premium will be paid if the price of the Company’s common shares at such time is less than $8.79 per share or exceeds $50.00 per share.

February 2005 3.625% Notes. In February 2005, LGEI sold $175.0 million of 3.625% Convertible Senior Subordinated Notes (the “February 2005 3.625% Notes”).

Outstanding Amount: As of June 30, 2011, $23.5 million of aggregate principal amount (carrying value — $22.5 million) of the February 2005 3.625% Notes remain outstanding.

Interest: Interest on the February 2005 3.625% Notes is payable at 3.625% per annum semi-annually on March 15 and September 15 until March 15, 2012 and at 3.125% per annum thereafter until maturity.

Maturity Date: The February 2005 3.625% Notes will mature on March 15, 2025.

Redeemable by LGEI: LGEI may redeem all or a portion of the February 2005 3.625% Notes at its option on or after March 15, 2012 at 100% of their principal amount, together with accrued and unpaid interest through the date of redemption.

Redeemable by Holder: The holder may require LGEI to repurchase the February 2005 3.625% Notes on March 15, 2012, 2015 and 2020 or upon a change in control at a price equal to 100% of the principal amount, together with accrued and unpaid interest through the date of repurchase.

Conversion Features: The February 2005 3.625% Notes are convertible, at the option of the holder, at any time before the maturity date, if the notes have not been previously redeemed or repurchased, at a conversion rate equal to 70.0133 shares per $1,000 principal amount of the February 2005 3.625% Notes, subject to adjustment in certain circumstances, which represents a conversion price of approximately $14.28 per share. Upon conversion of the February 2005 3.625% Notes, the Company has the option to deliver, in lieu of common shares, cash or a combination of cash and common shares of the Company.

Make Whole Premium: Under certain circumstances, if the holder requires LGEI to repurchase all or a portion of their notes upon a change in control, they will be entitled to receive a make whole premium. The amount of the make whole premium, if any, will be based on the price of the Company’s common shares on the effective date of the change in control. No make whole premium will be paid if the price of the Company’s common shares at such time is less than $10.35 per share or exceeds $75.00 per share.

April 2009 3.625% Notes. In April 2009, LGEI issued approximately $66.6 million of 3.625% Convertible Senior Subordinated Notes (the “April 2009 3.625% Notes”).

Outstanding Amount: As of June 30, 2011, $66.6 million of aggregate principal amount (carrying value — $41.6 million) of the April 2009 3.625% Notes remain outstanding.

Interest: Interest on the April 2009 3.625% Notes is payable at 3.625% per annum semi-annually on March 15 and September 15 of each year.

Maturity Date: The April 2009 3.625% Notes will mature on March 15, 2025.

Redeemable by LGEI: On or after March 15, 2015, the Company may redeem the April 2009 3.625% Notes, in whole or in part, at a price equal to 100% of the principal amount of the April 2009 3.625% Notes to be redeemed, plus accrued and unpaid interest through the date of redemption.

Redeemable by Holder: The holder may require LGEI to repurchase the April 2009 3.625% Notes on March 15, 2015, 2018 and 2023 or upon a “designated event,” at a price equal to 100% of the principal amount of the April 2009 3.625% Notes to be repurchased plus accrued and unpaid interest.

Conversion Features: The April 2009 3.625% Notes may be converted into common shares of the Company at any time before maturity, redemption or repurchase. The initial conversion rate of the April 2009 3.625% Notes is 121.2121 common shares per $1,000 principal amount of the April 2009 3.625% Notes, subject to adjustment in certain circumstances, which represents a conversion price of approximately $8.25 per share. Upon conversion of the April 2009 3.625% Notes, the Company has the option to deliver, in lieu of common shares, cash or a combination of cash and common shares of the Company.

Other Financing Obligations

On June 1, 2007, the Company entered into a bank financing agreement for $3.7 million to fund the acquisition of certain capital assets. Interest is payable in monthly payments totaling $0.3 million per year for five years at an interest rate of 8.02%, with the entire principal due June 2012.

11. Fair Value Measurements

Fair Value

Accounting guidance and standards about fair value define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Fair Value Hierarchy

Accounting guidance and standards about fair value establish a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The accounting guidance and standards establish three levels of inputs that may be used to measure fair value:

•

Level 1 — Quoted prices in active markets for identical assets or liabilities.

•

Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 liabilities that are measured at fair value on a recurring basis include the Company’s senior revolving credit facility, convertible senior subordinated notes, Pennsylvania Regional Center loan, and Senior Notes, which are priced using discounted cash flow techniques that use observable market inputs, such as LIBOR-based yield curves, three- and seven-year swap rates, and credit ratings.

•

Level 3 — Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

The following table sets forth the carrying values and fair values (all determined using Level 2 inputs defined above) of the Company’s outstanding debt at June 30, 2011:


	Carrying Value		Fair Value
			(Level 2)
	(Amounts in thousands)

October 2004 2.9375% Convertible Senior Subordinated Notes	$	26,440	$	27,002
February 2005 3.625% Convertible Senior Subordinated Notes		22,454		23,326
April 2009 3.625% Convertible Senior Subordinated Notes		41,590		60,220
Pennsylvania Regional Center Loan		65,500		62,441
Senior Secured Second-Priority Notes		430,978		439,270


	$	586,962	$	612,259

12. Acquisitions and Divestitures

Maple Pictures

On June 23, 2011, the Company executed an agreement to sell its interest in Maple Pictures Corp. (“Maple Pictures”) to Alliance Films Holdings Inc. (“Alliance”), a leading Canadian producer and distributor of motion pictures, television programming and home entertainment. The sales price was approximately $34.5 million, net of an estimated working capital adjustment, which is subject to further adjustments subsequent to the closing of the transaction.

Alliance will be responsible for all of Maple Pictures’ distribution, including Maple Pictures’ exclusive five-year output deal for Canadian distribution of the Company’s new motion picture and second window television product and Maple Pictures’ exclusive long-term arrangement for distribution of Canadian rights of the Company’s filmed entertainment library (ie. distribution rights). The purchase price will be allocated between the fair value of the distribution rights and the fair value of Maple Pictures exclusive of the distribution rights. The fair value of the distribution rights will be recorded as deferred revenue and will be recognized as revenue by the Company as the revenues are earned pursuant to the distribution rights. The fair value of Maple Pictures exclusive of the distribution rights will be recorded as proceeds from sale.

The sale will be treated as the disposal of an asset group rather than a discontinued operation because, due to the distribution rights, the Company will have continuing involvement in the cash flows generated pursuant to the distribution rights.

Maple Pictures is included in the Company’s Motion Pictures reporting segment. A portion of Motion Pictures goodwill, which is not expected to be significant, will be allocated to the asset group and included in the carrying value of the assets disposed upon closing of the transaction. The assets and liabilities are classified as held for sale in the unaudited condensed consolidated balance sheets and are recorded at their carrying value, which is lower than their fair value less cost to sell. At June 30, 2011, the carrying value of the Maple Pictures assets sold pursuant to the agreement are set forth in the table below:


	June 30, 2011			March 31, 2011
	(Amounts in thousands)

Accounts receivable, net	$	21,404		$	29,197
Investment in films and television programs, net		12,530			13,531
Other assets		1,469			1,608
Liabilities		(12,427	)		(17,396	)

Net assets and liabilities held for sale		22,976			26,940
Participations payable to Lionsgate (1)		(24,929	)		(30,576	)

Carrying value of Maple Pictures	$	(1,953	)	$	(3,636	)

(1)	Participation liabilities payable to the Company, which are eliminated in the consolidated financial statements.

TV Guide Network

Acquisition of TV Guide Network. On February 28, 2009, the Company purchased all of the issued and outstanding equity interests of TV Guide Network and TV Guide.com (collectively “TV Guide Network”), a network and online provider of entertainment and television guidance-related programming, as well as localized program listings and descriptions primarily in the U.S. The Company paid approximately $241.6 million for all of the equity interest of TV Guide Network, which included a capital lease obligation of $12.1 million, and incurred approximately $1.5 million in direct transaction costs (legal fees, accountant’s fees and other professional fees).

Sale of Non-Controlling Interest in TV Guide Network. On May 28, 2009, the Company entered into a purchase agreement with One Equity Partners (“OEP”), the global private equity investment arm of JPMorgan Chase Bank, N.A., pursuant to which OEP purchased 49% of the Company’s interest in TV Guide Network for approximately $122.4 million in cash. In addition, OEP reserved the option of buying another 1% of TV Guide Network under certain circumstances. The arrangement contains joint control rights, as evidenced in an operating agreement as well as certain transfer restrictions and exit rights. There was no gain or loss on the transaction.

Acquisition of Mandate Pictures, LLC

On September 10, 2007, the Company purchased all of the membership interests in Mandate Pictures, LLC (“Mandate”), a worldwide independent film producer and distributor. The Company paid approximately $58.6 million, comprised of $46.8 million in cash and 1,282,999 of the Company’s common shares. The value assigned to the shares for purposes of recording the acquisition was $11.8 million and was based on the average price of the Company’s common shares a few days prior and subsequent to the date of the closing of the acquisition, which is when it was publicly announced.

In addition, the Company may be obligated to pay additional amounts pursuant to the purchase agreement should certain films or derivative works meet certain target performance thresholds. Such amounts, to the extent they relate to films or derivative works of

films identified at the acquisition date will be charged to goodwill if the target thresholds are achieved, and such amounts, to the extent they relate to other qualifying films produced in the future, will be accounted for similar to other film participation arrangements. The amount to be paid is the excess of the sum of the following amounts over the performance threshold (i.e., the “Hurdle Amount”):

•

80% of the earnings of certain films for the longer of 5 years from the closing or 5 years from the release of the pictures, plus

•

20% of the earnings of certain pictures which commence principal photography within 5 years from the closing date for a period up to 10 years, plus

•

certain fees designated for derivative works which commence principal photography within 7 years of the initial release of the original picture.

The Hurdle Amount is the purchase price of approximately $56 million plus an interest cost accruing until such hurdle is reached, and certain other costs the Company agreed to pay in connection with the acquisition. Accordingly, the additional consideration is the total of the above in excess of the Hurdle Amount. As of June 30, 2011, the total earnings and fees from identified projects in process are not projected to reach the Hurdle Amount. However, as additional projects are identified in the future and current projects are released in the market place, the total projected earnings and fees from these projects could increase causing additional payments to the sellers to become payable.

13. Direct Operating Expenses


	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010
	(Amounts in thousands)
Amortization of films and television programs	$	84,983		$	101,211
Participations and residual expense		55,136			56,375
Other expenses:
Provision for doubtful accounts		(418	)		316
Foreign exchange gains		(343	)		(321	)

	$	139,358		$	157,581

14. Comprehensive Income (Loss)


	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010
	(Amounts in thousands)
Net income (loss)	$	12,248	$	(64,068	)
Add (Deduct): Foreign currency translation adjustments		74		(2,047	)
Add (Deduct): Net unrealized gain (loss) on foreign exchange contracts		36		(830	)

Comprehensive income (loss)	$	12,358	$	(66,945	)

15. Net Income (Loss) Per Share

Basic net income (loss) per share is calculated based on the weighted average common shares outstanding for the period. Basic net income (loss) per share for the three months ended June 30, 2011 and 2010 is presented below:


	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010
	(Amounts in thousands)
Basic Net Income (Loss) Per Common Share:
Numerator:
Net income (loss)	$	12,248	$	(64,068	)


Denominator:
Weighted average common shares outstanding		137,011		118,226


Basic Net Income (Loss) Per Common Share	$	0.09	$	(0.54	)

Diluted net income (loss) per common share reflects the potential dilutive effect, if any, of the conversion of the October 2004 2.9375% Notes, the February 2005 3.625% Notes and the April 2009 3.625% Notes under the “if converted” method. Diluted net income (loss) per common share also reflects share purchase options and restricted share units using the treasury stock method when dilutive, and any contingently issuable shares when dilutive. Diluted net income (loss) per common share for the three months ended June 30, 2011 and 2010 is presented below:


	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010
	(Amounts in thousands)
Diluted Net Income (Loss) Per Common Share:
Numerator:
Net income (loss)	$	12,248	$	(64,068	)


Denominator:
Weighted average common shares outstanding		137,011		118,226
Effect of dilutive securities:
Share purchase options		2		—
Restricted share units		344		—

Adjusted weighted average common shares outstanding		137,357		118,226


Diluted Net Income (Loss) Per Common Share	$	0.09	$	(0.54	)

For the three months ended June 30, 2010, the weighted average incremental common shares calculated under the “if converted” and treasury stock method presented below were excluded from diluted net loss per common share for the period because their inclusion would have had an anti-dilutive effect as a result of the reported net losses.


	Three Months Ended June 30, 2010
	(Amounts in thousands)
Incremental shares
Conversion of notes		21,802
Restricted share units		1,667

Total incremental shares excluded from Diluted Net Loss Per Common Share		23,469

Additionally, for the three months ended June 30, 2011 and 2010, the weighted average common shares issuable presented below were excluded from diluted net income (loss) per common share because their inclusion would have had an anti-dilutive effect due to either their award terms or the market price of common shares.


	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010
	(Amounts in thousands)
Anti-dilutive shares issuable
Conversion of notes		12,833		—
Share purchase options		3,250		3,331
Restricted share units		55		216
Contingently issuable shares		369		180

Total weighted average anti-dilutive shares issuable excluded from Diluted
Net Income (Loss) Per Common Share		16,507		3,727

The Company had 500,000,000 authorized common shares at June 30, 2011 and March 31, 2011. The table below outlines common shares reserved for future issuance:


	June 30, 2011		March 31, 2011
	(Amounts in thousands)
Stock options outstanding, average exercise price $9.75 (March 31, 2011 - $9.75)		3,310		3,310
Restricted share units — unvested		1,793		1,801
Share purchase options and restricted share units available for future issuance		3,598		3,683
Shares issuable upon conversion of October 2004 2.9375% Notes at conversion price of $11.50 per share		2,342		4,028
Shares issuable upon conversion of February 2005 3.625% Notes at conversion price of $14.28 per share		1,643		1,643
Shares issuable upon conversion of April 2009 3.625% Notes at conversion price of $8.25 per share		8,070		8,070

Shares reserved for future issuance		20,756		22,535

16. Accounting for Stock-Based Compensation

The Company recognized the following share-based compensation expense during the three months ended June 30, 2011 and 2010:


	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010
	(Amounts in thousands)
Compensation Expense:
Stock Options	$	31	$	2,527
Restricted Share Units and Other Share-based Compensation		2,230		19,669
Stock Appreciation Rights		345		5,062

Total	$	2,606	$	27,258

On June 30, 2010, certain unvested equity awards of certain executive officers immediately vested as a result of the triggering of “change in control” provisions in their respective employment agreements. For purposes of the employment agreements with such executive officers, a “change in control” occurred on June 30, 2010 when a certain shareholder became the beneficial owner of 33% or more of the Company’s common shares. As a result, the Company recognized $21.9 million in additional compensation expense during the three months ended June 30, 2010, which is included in the table above.

There was no income tax benefit recognized in the statements of operations for share-based compensation arrangements during the three months ended June 30, 2011 and 2010.

During the three months ended June 30, 2011, the Company granted 312,635 restricted share units at a weighted average grant date fair value of $6.36.

Total unrecognized compensation cost related to unvested stock options and restricted share unit awards at June 30, 2011 are $0.2 million and $7.7 million, respectively, and are expected to be recognized over a weighted average period of 1.1 and 1.6 years, respectively.

Stock Appreciation Rights

The Company has the following stock appreciation rights (“SARs”) outstanding as of June 30, 2011:


	Grant Date
	July 14, 2008		August 14, 2008		February 5, 2009		April 6, 2009		March 17, 2010		February 15, 2011
SARs outstanding		750,000		250,000		850,000		700,000		500,000		1,000,000
Vested and exercisable		750,000		250,000		850,000		700,000		500,000		333,333
Exercise price	$	9.56	$	11.16	$	5.45	$	5.17	$	5.95	$	6.13
Original vesting period (see below)		3 years		4 years		3 years		4 years		4 years		3 years
Expiration date		July 14, 2013		June 20, 2012		February 5, 2014		April 6, 2014		March 17, 2015		February 15, 2016
Fair value as of June 30, 2011	$	0.89	$	0.23	$	2.41	$	2.59	$	2.57	$	2.79
Liability as of June 30, 2011 (in thousands)	$	671	$	56	$	2,047	$	1,813	$	1,284	$	1,096

At June 30, 2011, the Company has a stock-based compensation liability accrual in the amount of $7.0 million (March 31, 2011 — $6.1 million) included in accounts payable and accrued liabilities on the unaudited condensed consolidated balance sheets relating to these SARs.

On June 30, 2010, the SARs granted on February 5, 2009, April 6, 2009 and March 17, 2010 became fully vested due to the triggering of the “change in control” provisions in certain executive officer employment agreements discussed above.

On February 15, 2011, the Company granted an additional 1,000,000 SARs to a third party producer, which vest in 333,333 SAR increments over a three-year period based on the commencement of principal photography of certain films.

SARs require that upon their exercise, the Company pay the holder the excess of the market value of the Company’s common stock at that time over the exercise price of the SAR multiplied by the number of SARs exercised. SARs can be exercised at any time subsequent to vesting and prior to expiration. The fair value of all unexercised SARs are determined at each reporting period under a Black-Scholes option pricing methodology based on the inputs in the table below and are recorded as a liability over the vesting period. With the exception of the SARs granted on July 14, 2008 and February 15, 2011, the fair value of the SARs is expensed on a pro rata basis over the vesting period or service period, if shorter. Changes in the fair value of vested SARs are expensed in the period of change. SARs granted on July 14, 2008 and February 15, 2011 were granted to a third party producer and vest in 250,000 and 333,333 SAR increments, respectively, over a three-year period based on the commencement of principal photography of certain films. Accordingly, the pro rata portion of the fair value of SARs is recorded as part of the cost of the related films until commencement of principal photography of the motion picture (i.e., vesting) with subsequent changes in the fair value of SARs recorded to expense.

For the three months ended June 30, 2011, the following assumptions were used in the Black-Scholes option-pricing model:


	Grant Date
	July 14, 2008			August 14, 2008			February 5, 2009			April 6, 2009			March 17, 2010			February 15, 2011
Risk-free interest rate		0.5	%		0.2	%		0.8	%		0.8	%		1.3	%		1.8	%
Expected option lives (in years)		2.0 years			1.0 year			2.6 years			2.8 years			3.7 years			4.6 years
Expected volatility for options		45	%		45	%		45	%		45	%		45	%		45	%
Expected dividend yield		0	%		0	%		0	%		0	%		0	%		0	%

17. Segment Information

Accounting guidance requires the Company to make certain disclosures about each reportable segment. The Company’s reportable segments are determined based on the distinct nature of their operations and each segment is a strategic business unit that offers different products and services and is managed separately. The Company has two reportable business segments as of June 30, 2011: Motion Pictures and Television Production.

Motion Pictures consists of the development and production of feature films, acquisition of North American and worldwide distribution rights, North American theatrical, home entertainment and television distribution of feature films produced and acquired, and worldwide licensing of distribution rights to feature films produced and acquired.

Television Production consists of the development, production and worldwide distribution of television productions including television series, television movies and mini-series and non-fiction programming.

Segmented information by business unit is as follows:


	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010
	(Amounts in thousands)
Segment revenues
Motion Pictures	$	192,517	$	272,713
Television Production		68,742		53,871

	$	261,259	$	326,584

Direct operating expenses
Motion Pictures	$	86,187	$	114,235
Television Production		53,171		43,346

	$	139,358	$	157,581

Distribution and marketing
Motion Pictures	$	59,099	$	135,514
Television Production		5,647		4,545

	$	64,746	$	140,059

Segment contribution before general and administration expenses
Motion Pictures	$	47,231	$	22,964
Television Production		9,924		5,980

	$	57,155	$	28,944

General and administration
Motion Pictures	$	12,185	$	11,610
Television Production		2,672		3,074

	$	14,857	$	14,684

Segment profit
Motion Pictures	$	35,046	$	11,354
Television Production		7,252		2,906

	$	42,298	$	14,260

Acquisition of investment in films and television programs
Motion Pictures	$	150,607	$	107,072
Television Production		51,169		58,833

	$	201,776	$	165,905

Segment contribution before general and administration expenses is defined as segment revenue less segment direct operating and distribution and marketing expenses.

Segment profit is defined as segment revenue less segment direct operating, distribution and marketing, and general and administration expenses. The reconciliation of total segment profit to the Company’s income (loss) before income taxes is as follows:


	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010
	(Amounts in thousands)
Company’s total segment profit	$	42,298		$	14,260
Less:
Shared services and corporate expenses (1)		(13,065	)		(50,035	)
Depreciation and amortization		(1,234	)		(1,603	)
Interest expense		(16,335	)		(14,543	)
Interest and other income		442			387
Loss on extinguishment of debt		(531	)		—
Equity interests income (loss)		1,874			(11,707	)

Income (loss) before income taxes	$	13,449		$	(63,241	)

(1)

Includes stock-based compensation expense of $2.6 million and $27.3 million for the three months ended June 30, 2011 and 2010, respectively. During the three months ended June 30, 2010 the Company incurred $21.9 million of stock-based compensation expense associated with the immediate vesting of equity awards of certain executive officers triggered by the “change in control” provisions in their respective employment agreements. Also includes a benefit for charges associated with a shareholder activist matter of $3.9 million associated with the negotiated settlement of certain costs incurred and recorded in previous periods for the three months ended June 30, 2011 compared to charges of $7.3 million for the three months ended June 30, 2010.

The following table sets forth significant assets as broken down by segment and other unallocated assets as of June 30, 2011 and March 31, 2011:


	June 30, 2011						March 31, 2011
	Motion Pictures		Television Production		Total		Motion Pictures		Television Production		Total
	(Amounts in thousands)
Significant assets by segment
Accounts receivable	$	93,208	$	159,111	$	252,319	$	167,093	$	163,531	$	330,624
Investment in films and television programs, net		597,471		128,107		725,578		503,065		104,692		607,757
Goodwill		210,293		28,961		239,254		210,293		28,961		239,254

	$	900,972	$	316,179	$	1,217,151	$	880,451	$	297,184	$	1,177,635

Other unallocated assets (primarily cash, other assets, equity method investments and assets held for sale)						382,853						380,209

Total assets					$	1,600,004					$	1,557,844

There have been no changes in the carrying amount of goodwill during the periods presented.

Purchases of property and equipment amounted to $0.4 million for the three months ended June 30, 2011 and 2010, all primarily pertaining to purchases for the Company’s corporate headquarters.

18. Contingencies

The Company is, from time to time, involved in various claims, legal proceedings and complaints arising in the ordinary course of business. The Company does not believe that adverse decisions in any such pending or threatened proceedings, or any amount which the Company might be required to pay by reason thereof, would have a material adverse effect on the financial condition or future results of the Company.

Kornitzer Capital Management, Inc. (the “BC Action”). The Offeror filed an amended petition on July 26, 2010. Dr. Mark Rachesky, a director of the Company, is the managing member of MHR Institutional Partners III LP’s general partner. Among other things, the Offeror claimed that a July 20, 2010 Refinancing Exchange Agreement (the “Exchange”) between the Company and Kornitzer Capital Management, Inc. to exchange certain convertible notes of Lions Gate Entertainment Inc. (“LGEI”), as well as the Note Sale (as defined below) and Conversion (as defined below), were “oppressive” to the Offeror under British Columbia law. The Offeror sought, among other things, orders (1) declaring that the Company is oppressing its shareholders, (2) prohibiting MHR Institutional Partners III LP from transferring or voting its new shares, (3) prohibiting the Company from issuing any securities, (4) unwinding the July 20 transactions between the MHR Fund, the Company, and Kornitzer Capital Management, Inc. (which includes the Exchange, the Note Sale and the Conversion) and (5) compensating the petitioners. The BC Court heard argument during the week of October 11, 2010. On November 1, 2010, the BC Court issued a final order and decision dismissing the Offeror’s claims in their entirety and awarding costs to Company. On November 2, 2010, the Offeror announced its intent to appeal the decision. On November 5, 2010, a single Justice of the British Columbia Court of Appeal denied the Offeror’s application for an expedited appeal or, in the alternative, an order prohibiting the Company from scheduling its 2010 annual general meeting of shareholders before January 21, 2011. The Offeror’s application to vary this order was denied by a panel of the British Columbia Court of Appeal on December 7, 2010. The British Columbia Court of Appeal heard oral argument on the Offeror’s appeal from the final order and decision of the BC Court on March 24, 2011. The appeal was dismissed on May 10, 2011. For purposes herein, the “Note Sale” means the July 20, 2010 entry into a Purchase Agreement and subsequent sale of the New Notes received by Kornitzer Capital Management, Inc. in the Exchange to MHR Institutional Partners III LP. Additionally, the “Conversion” means, after the consummation of the Note Sale, the July 20, 2010 exercise by MHR Institutional Partners III LP of conversion rights under the New Notes whereby the New Notes were converted in full into 16,236,305 common shares of the Company.

The Offeror also sought an order from the British Columbia Securities Commission (the “BCSC”) on July 22, 2010 requiring, among other things, that Dr. Rachesky, the MHR Fund, and their respective affiliates cease trading in any securities of the Company until further order of the BCSC and that the Company and each of its directors cease trading in any securities of the Company until further order of the BCSC. The Offeror alleged that the Exchange was, among other things, an unlawful defensive tactic, and that the disclosures concerning the transactions violated applicable securities laws. A hearing on the request for a temporary cease trade order was held on July 28, 2010, and the BCSC determined to dismiss the Offeror’s application for a temporary cease trade order against the Company and the MHR Fund.

On July 26, 2010, the Offeror filed suit in New York Supreme Court against the Company, the Board of Directors of the Company, LGEI, Dr. Rachesky, the MHR Fund, MHR Institutional Advisors II LLC, MHR Institutional Advisors III LLC, and Kornitzer Capital Management, Inc. and its principal John C. Kornitzer (the “New York Action”). The Offeror claims, among other things, that the Exchange and subsequent issuance of common shares of the Company to Dr. Rachesky’s fund through the Conversion constitutes (1) a breach of a certain July 9, 2010 letter agreement between the Company and the Offeror; (2) tortious interference with the same July 9 letter agreement; and (3) tortious interference with prospective business relationships. The complaint seeks, among other things, a preliminary and permanent injunction rescinding the Exchange and share issuance; a preliminary injunction prohibiting all defendants from voting their shares in any election of directors or any other shareholder vote; and an award of compensatory and punitive damages. On August 26, 2010, the defendants moved to dismiss or stay the New York Action. On November 15, 2010, the Offeror filed a motion for a preliminary injunction. The Offeror’s motion for a preliminary injunction was denied on December 9, 2010. On March 30, 2011, defendants’ motion to dismiss the complaint was granted in its entirety and the complaint was dismissed. The Offeror filed a notice of appeal on April 4, 2011.

On October 28, 2010, the Company filed an action in the United States District Court for the Southern District of New York against Carl Icahn, Brett Icahn, and various investment vehicles controlled by Carl Icahn. The action is captioned Lions Gate Entertainment Corp. v. Carl C. Icahn, Brett Icahn, Icahn Partners LP, High River Limited Partnership, Hopper Investments LLC, Barberry Corp., Icahn Onshore LP, Icahn Offshore LP, Icahn Capital LP, IPH GP LLC, Icahn Enterprises Holdings L.P., Icahn Enterprises G.P. Inc., and Beckton Corp., No. 10-CV-8169. The complaint, filed as Exhibit (a)(8) to the Company’s Amendment No. 7 to the Schedule 14D-9, filed with the Securities and Exchange Commission on October 29, 2010, alleges violations of Sections 13(d), 14(a), 14(d), and 14(e) of the Exchange Act, and certain rules promulgated thereunder, and tortious interference with prospective business relations under state law. The complaint sought damages and injunctive relief, including an order requiring the defendants to make corrective disclosures before the Company’s 2010 annual general meeting of shareholders. On November 22, 2010, the Offeror moved to dismiss the complaint. The Company amended its complaint on December 3, 2010. The Offeror moved to dismiss the amended complaint on December 17, 2010. Following oral argument on March 18, 2011, the Court granted in part and denied in part the Offeror’s motion to dismiss. The Court granted the Offeror’s motion to dismiss with respect to the Company’s claims alleging that the Offeror violated Sections 13(d), 14(a), 14(d) (except for Section 14(d)(7) as discussed below) and 14(e) of the Exchange Act, and certain rules promulgated thereunder, and tortious interference with prospective business relations under state law.

The Court denied the Offeror’s motion to dismiss with respect to the Company’s claim alleging that the Offeror violated Section 14(d)(7) of the Exchange Act, and Rule 14d-10(a)(2) promulgated thereunder, by offering special consideration to a particular shareholder in the course of its tender offer when it was required to offer all shareholders the highest consideration paid to any single shareholder, and the suit is ongoing with respect to that remaining claim. The Court denied the Offeror’s motion for reconsideration on June 20, 2011.

From time to time, the Company is involved in certain claims and legal proceedings arising in the normal course of business. While the resolution of these matters cannot be predicted with certainty, the Company does not believe, based on current knowledge, that the outcome of any currently pending claims or legal proceedings in which the Company is currently involved will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flow.

19. Consolidating Financial Information — Convertible Senior Subordinated Notes

The October 2004 2.9375% Notes, the February 2005 3.625% Notes and the April 2009 3.625% Notes, by their terms, are fully and unconditionally guaranteed by the Company.

The following tables present unaudited condensed consolidating financial information as of June 30, 2011 and March 31, 2011, and for the three months ended June 30, 2011 and 2010 for (1) the Company, on a stand-alone basis, (2) LGEI, on a stand-alone basis, (3) the non-guarantor subsidiaries of the Company (including the subsidiaries of LGEI), on a combined basis (collectively, the “Non-guarantor Subsidiaries”) and (4) the Company, on a consolidated basis.


	As of June 30, 2011
	Lions Gate Entertainment Corp.		Lions Gate Entertainment Inc.			Non-guarantor Subsidiaries			Consolidating Adjustments			Lions Gate Consolidated
	(Amounts in thousands)
BALANCE SHEET
Assets
Cash and cash equivalents	$	7,129	$	30,170		$	73,741		$	—		$	111,040
Restricted cash		13,996		5,782			—			—			19,778
Accounts receivable, net		582		4,317			247,420			—			252,319
Investment in films and television programs, net		12		6,391			722,632			(3,457	)		725,578
Property and equipment, net		—		7,697			745			—			8,442
Equity method investments		899		15,538			136,325			—			152,762
Goodwill		10,173		—			229,081			—			239,254
Other assets		—		46,374			9,054			—			55,428
Assets held for sale		—		—			35,403			—			35,403
Subsidiary investments and advances		110,151		(57,596	)		(309,380	)		256,825			—

	$	142,942	$	58,673		$	1,145,021		$	253,368		$	1,600,004


Liabilities and Shareholders’ Equity (Deficiency)
Senior revolving credit facility	$	—	$	—		$	—		$	—		$	—
Senior secured second-priority notes		—		430,978			—			—			430,978
Accounts payable and accrued liabilities		1,250		41,781			112,080			19			155,130
Participations and residuals		196		10,335			280,539			293			291,363
Film obligations and production loans		76		—			298,071			—			298,147
Convertible senior subordinated notes and other financing obligations		—		90,484			3,718			—			94,202
Deferred revenue		—		45			176,292			—			176,337
Liabilities held for sale		—		—			12,427			—			12,427
Shareholders’ equity (deficiency)		141,420		(514,950	)		261,894			253,056			141,420

	$	142,942	$	58,673		$	1,145,021		$	253,368		$	1,600,004


	Three Months Ended June 30, 2011
	Lions Gate Entertainment Corp.			Lions Gate Entertainment Inc.			Non-guarantor Subsidiaries			Consolidating Adjustments			Lions Gate Consolidated
				(Amounts in thousands)
STATEMENT OF OPERATIONS
Revenues	$	—		$	11,239		$	250,397		$	(377	)	$	261,259
EXPENSES:
Direct operating		—			(85	)		137,333			2,110			139,358
Distribution and marketing		—			(94	)		64,895			(55	)		64,746
General and administration		1,116			11,872			14,971			(37	)		27,922
Depreciation and amortization		—			867			367			—			1,234

Total expenses		1,116			12,560			217,566			2,018			233,260

OPERATING INCOME (LOSS)		(1,116	)		(1,321	)		32,831			(2,395	)		27,999

Other expenses (income):
Interest expense		—			14,147			2,408			(220	)		16,335
Interest and other income		(39	)		(492	)		(131	)		220			(442	)
Loss on extinguishment of debt		—			531			—			—			531

Total other expenses (income)		(39	)		14,186			2,277			—			16,424

INCOME (LOSS) BEFORE EQUITY INTERESTS AND INCOME TAXES		(1,077	)		(15,507	)		30,554			(2,395	)		11,575
Equity interests income (loss)		13,278			26,509			1,354			(39,267	)		1,874

INCOME (LOSS) BEFORE INCOME TAXES		12,201			11,002			31,908			(41,662	)		13,449
Income tax provision (benefit)		(47	)		563			685			—			1,201

NET INCOME (LOSS)	$	12,248		$	10,439		$	31,223		$	(41,662	)	$	12,248


	Three Months Ended June 30, 2011
	Lions Gate Entertainment Corp.			Lions Gate Entertainment Inc.			Non-guarantor Subsidiaries			Consolidating Adjustments			Lions Gate Consolidated
							(Amounts in thousands)
STATEMENT OF CASH FLOWS
NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	7,702		$	(77,679	)	$	25,518		$	—		$	(44,459	)
INVESTING ACTIVITIES:
Investment in equity method investees		(475	)		—			—			—			(475	)
Increase in loan receivables		—			(1,500	)		—			—			(1,500	)
Purchases of property and equipment		—			(272	)		(139	)		—			(411	)

NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES		(475	)		(1,772	)		(139	)		—			(2,386	)

FINANCING ACTIVITIES:
Tax withholding requirements on equity awards		(918	)		—			—			—			(918	)
Borrowings under senior revolving credit facility		—			95,400			—			—			95,400
Repayments of borrowings under senior revolving credit facility		—			(165,150	)		—			—			(165,150	)
Borrowings under individual production loans		—			—			48,466			—			48,466
Repayment of individual production loans		—			—			(78,595	)		—			(78,595	)
Production loan borrowings under film credit facility		—			—			7,711			—			7,711
Production loan repayments under film credit facility		—			—			(8,536	)		—			(8,536	)
Proceeds from sale of senior secured second-priority notes, net of deferred financing costs		—			192,396			—			—			192,396
Repurchase of convertible senior subordinated notes		—			(19,476	)		—			—			(19,476	)

NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES		(918	)		103,170			(30,954	)		—			71,298

NET CHANGE IN CASH AND CASH EQUIVALENTS		6,309			23,719			(5,575	)		—			24,453

FOREIGN EXCHANGE EFFECTS ON CASH		25			—			143			—			168
CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD		795			6,451			79,173			—			86,419

CASH AND CASH EQUIVALENTS — END OF PERIOD	$	7,129		$	30,170		$	73,741		$	—		$	111,040


	As of March 31, 2011
	Lions Gate Entertainment Corp.			Lions Gate Entertainment Inc.			Non-guarantor Subsidiaries			Consolidating Adjustments			Lions Gate Consolidated
	(Amounts in thousands)
BALANCE SHEET
Assets
Cash and cash equivalents	$	795		$	6,451		$	79,173		$	—		$	86,419
Restricted cash		13,992			29,466			—			—			43,458
Restricted investments		—			—			—			—			—
Accounts receivable, net		494			4,237			325,893			—			330,624
Investment in films and television programs, net		12			6,391			603,264			(1,910	)		607,757
Property and equipment, net		—			8,292			797			—			9,089
Equity method investments		1,123			17,052			132,410			—			150,585
Goodwill		10,173			—			229,081			—			239,254
Other assets		458			34,214			11,650			—			46,322
Assets held for sale		—			—			44,336			—			44,336
Subsidiary investments and advances		102,680			(171,895	)		(229,913	)		299,128			—

	$	129,727		$	(65,792	)	$	1,196,691		$	297,218		$	1,557,844


Liabilities and Shareholders’ Equity (Deficiency)
Senior revolving credit facility	$	—		$	69,750		$	—		$	—		$	69,750
Senior secured second-priority notes		—			226,331			—			—			226,331
Accounts payable and accrued liabilities		1,910			52,035			177,031			13			230,989
Participations and residuals		195			11,093			286,290			(96	)		297,482
Film obligations and production loans		76			—			326,364			—			326,440
Convertible senior subordinated notes and other financing obligations		—			107,255			3,718			—			110,973
Deferred revenue		—			134			150,803			—			150,937
Liabilities held for sale		—			—			17,396			—			17,396
Shareholders’ equity (deficiency)		127,546			(532,390	)		235,089			297,301			127,546

	$	129,727		$	(65,792	)	$	1,196,691		$	297,218		$	1,557,844


	Three Months Ended June 30, 2010
	Lions Gate Entertainment Corp.			Lions Gate Entertainment Inc.			Non-guarantor Subsidiaries			Consolidating Adjustments			Lions Gate Consolidated
	(Amounts in thousands)
STATEMENT OF OPERATIONS
Revenues	$	—		$	2,048		$	329,098		$	(4,562	)	$	326,584
EXPENSES:
Direct operating		—			76			168,034			(10,529	)		157,581
Distribution and marketing		—			(1	)		140,066			(6	)		140,059
General and administration		290			49,713			14,768			(52	)		64,719
Depreciation and amortization		—			923			680			—			1,603

Total expenses		290			50,711			323,548			(10,587	)		363,962

OPERATING INCOME (LOSS)		(290	)		(48,663	)		5,550			6,025			(37,378	)

Other expenses (income):
Interest expense		—			14,128			670			(255	)		14,543
Interest and other income		(36	)		(427	)		(179	)		255			(387	)

Total other expenses (income)		(36	)		13,701			491			—			14,156

INCOME (LOSS) BEFORE EQUITY INTERESTS AND INCOME TAXES		(254	)		(62,364	)		5,059			6,025			(51,534	)
Equity interests income (loss)		(63,814	)		(652	)		(11,475	)		64,234			(11,707	)

INCOME (LOSS) BEFORE INCOME TAXES		(64,068	)		(63,016	)		(6,416	)		70,259			(63,241	)
Income tax provision		—			393			434			—			827

NET INCOME (LOSS)	$	(64,068	)	$	(63,409	)	$	(6,850	)	$	70,259		$	(64,068	)


	Three Months Ended June 30, 2010
	Lions Gate Entertainment Corp.			Lions Gate Entertainment Inc.			Non-guarantor Subsidiaries			Consolidating Adjustments		Lions Gate Consolidated
	(Amounts in thousands)
STATEMENT OF CASH FLOWS
NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	1,761		$	(176,013	)	$	111,319		$	—	$	(62,933	)

INVESTING ACTIVITIES:
Purchases of restricted investments		—			(6,993	)		—			—		(6,993	)
Proceeds from the sale of restricted investments		—			6,995			—			—		6,995
Buy-out of the earn-out associated with the acquisition of Debmar-Mercury, LLC		—			—			(15,000	)		—		(15,000	)
Investment in equity method investees		—			—			(22,030	)		—		(22,030	)
Purchases of property and equipment		—			(196	)		(209	)		—		(405	)

NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES		—			(194	)		(37,239	)		—		(37,433	)

FINANCING ACTIVITIES:
Tax withholding requirements on equity awards		(1,497	)		—			—			—		(1,497	)
Borrowings under senior revolving credit facility		—			243,000			—			—		243,000
Repayments of borrowings under senior revolving credit facility		—			(61,000	)		—			—		(61,000	)
Borrowings under individual production loans		—			—			13,737			—		13,737
Repayment of individual production loans		—			—			(83,146	)		—		(83,146	)
Production loan borrowings under Pennsylvania Regional Center credit facility		—			—			494			—		494
Production loan repayments under Pennsylvania Regional Center credit facility		—			—			(246	)		—		(246	)
Production loan borrowings under film credit facility		—			—			3,118			—		3,118
Production loan repayments under film credit facility		—			—			(419	)		—		(419	)
Restricted cash collateral requirement under the film credit facility		—			—			(3,666	)		—		(3,666	)

NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES		(1,497	)		182,000			(70,128	)		—		110,375

NET CHANGE IN CASH AND CASH EQUIVALENTS		264			5,793			3,952			—		10,009

FOREIGN EXCHANGE EFFECTS ON CASH		(44	)		—			(639	)		—		(683	)
CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD		814			3,059			65,369			—		69,242

CASH AND CASH EQUIVALENTS — END OF PERIOD	$	1,034		$	8,852		$	68,682		$	—	$	78,568

20. Consolidating Financial Information — Senior Secured Second-Priority Notes

In October 2009, the Company issued $236.0 million aggregate principal amount of the Senior Notes, and in May 2011, the Company issued an additional $200.0 million aggregate principal amount of the Senior Notes, in a private offering conducted pursuant to Rule 144A and Regulation S under the Securities Act through LGEI.

The Company has agreed to make available to the trustee and the holders of the Senior Notes the following tables which present unaudited condensed consolidating financial information as of June 30, 2011 and March 31, 2011, and for the three months ended June 30, 2011 and 2010 for (1) the Company, on a stand-alone basis, (2) LGEI, on a stand-alone basis, (3) the guarantor subsidiaries of the Company (including the subsidiaries of LGEI), on a combined basis (4) the non-guarantor subsidiaries of the Company (including the subsidiaries of LGEI), on a combined basis and (5) the Company, on a consolidated basis.


	As of June 30, 2011
	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other Subsidiaries						Consolidating			Lions Gate
	Corp.			Inc.			Guarantors			Non-guarantors			Adjustments			Consolidated
	(Amounts in thousands)
BALANCE SHEET
Assets
Cash and cash equivalents	$	7,129		$	30,170		$	1,957		$	71,784		$	—		$	111,040
Restricted cash		13,996			5,782			—			—			—			19,778
Accounts receivable, net		582			4,317			232,490			14,930			—			252,319
Investment in films and television programs, net		12			6,391			615,412			103,930			(167	)		725,578
Property and equipment, net		—			7,697			160			585			—			8,442
Equity method investments		899			15,538			22,310			116,938			(2,923	)		152,762
Goodwill		10,173			—			198,883			30,198			—			239,254
Other assets		—			46,374			7,921			1,133			—			55,428
Assets held for sale		—			—			—			35,403			—			35,403
Subsidiary investments and advances		110,151			(57,596	)		(88,456	)		(201,586	)		237,487			—

	$	142,942		$	58,673		$	990,677		$	173,315		$	234,397		$	1,600,004


Liabilities and Shareholders’ Equity (Deficiency)
Senior revolving credit facility	$	—		$	—		$	—		$	—		$	—		$	—
Senior secured second-priority notes		—			430,978			—			—			—			430,978
Accounts payable and accrued liabilities		1,250			41,781			98,351			13,702			46			155,130
Participations and residuals		196			10,335			261,417			19,516			(101	)		291,363
Film obligations and production loans		76			—			280,942			17,129			—			298,147
Convertible senior subordinated notes and other financing obligations		—			90,484			3,718			—			—			94,202
Deferred revenue		—			45			140,751			35,541			—			176,337
Liabilities held for sale		—			—			—			12,427			—			12,427
Shareholders’ equity (deficiency)		141,420			(514,950	)		205,498			75,000			234,452			141,420

	$	142,942		$	58,673		$	990,677		$	173,315		$	234,397		$	1,600,004


	Three Months Ended June 30, 2011
	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other Subsidiaries						Consolidating			Lions Gate
	Corp.			Inc.			Guarantors			Non-guarantors			Adjustments			Consolidated
	(Amounts in thousands)
STATEMENT OF OPERATIONS
Revenues	$	—		$	11,239		$	234,357		$	29,727		$	(14,064	)	$	261,259
EXPENSES:
Direct operating		—			(85	)		132,226			12,238			(5,021	)		139,358
Distribution and marketing		—			(94	)		52,262			13,578			(1,000	)		64,746
General and administration		1,116			11,872			11,439			3,532			(37	)		27,922
Depreciation and amortization		—			867			237			130			—			1,234

Total expenses		1,116			12,560			196,164			29,478			(6,058	)		233,260

OPERATING INCOME (LOSS)		(1,116	)		(1,321	)		38,193			249			(8,006	)		27,999

Other expenses (income):
Interest expense		—			14,147			2,174			234			(220	)		16,335
Interest and other income		(39	)		(492	)		(69	)		(62	)		220			(442	)
Loss (gain) on extinguishment of debt		—			531			—			—			—			531

Total other expenses (income)		(39	)		14,186			2,105			172			—			16,424

INCOME (LOSS) BEFORE EQUITY INTERESTS AND INCOME TAXES		(1,077	)		(15,507	)		36,088			77			(8,006	)		11,575
Equity interests income (loss)		13,278			26,509			4,852			(575	)		(42,190	)		1,874

INCOME (LOSS) BEFORE INCOME TAXES		12,201			11,002			40,940			(498	)		(50,196	)		13,449
Income tax provision (benefit)		(47	)		563			617			68			—			1,201

NET INCOME (LOSS)	$	12,248		$	10,439		$	40,323		$	(566	)	$	(50,196	)	$	12,248


	Three Months Ended June 30, 2011
	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other Subsidiaries						Consolidating			Lions Gate
	Corp.			Inc.			Guarantors			Non-guarantors			Adjustments			Consolidated
	(Amounts in thousands)
STATEMENT OF CASH FLOWS
NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	7,702		$	(77,679	)	$	30,630		$	(5,112	)	$	—		$	(44,459	)
INVESTING ACTIVITIES:
Investment in equity method investees		(475	)		—			—			—			—			(475	)
Increase in loan receivables		—			(1,500	)		—			—			—			(1,500	)
Purchases of property and equipment		—			(272	)		(117	)		(22	)		—			(411	)

NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES		(475	)		(1,772	)		(117	)		(22	)		—			(2,386	)

FINANCING ACTIVITIES:
Tax withholding requirements on equity awards		(918	)		—			—			—			—			(918	)
Borrowings under senior revolving credit facility		—			95,400			—			—			—			95,400
Repayments of borrowings under senior revolving credit facility		—			(165,150	)		—			—			—			(165,150	)
Borrowings under individual production loans		—			—			48,223			243			—			48,466
Repayment of individual production loans		—			—			(76,650	)		(1,945	)		—			(78,595	)
Production loan borrowings under film credit facility		—			—			7,711			—			—			7,711
Production loan repayments under film credit facility		—			—			(8,536	)		—			—			(8,536	)
Proceeds from sale of senior secured second-priority notes, net of deferred financing costs		—			192,396			—			—			—			192,396
Repurchase of convertible senior subordinated notes		—			(19,476	)		—			—			—			(19,476	)

NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES		(918	)		103,170			(29,252	)		(1,702	)		—			71,298

NET CHANGE IN CASH AND CASH EQUIVALENTS		6,309			23,719			1,261			(6,836	)		—			24,453

FOREIGN EXCHANGE EFFECTS ON CASH		25			—			—			143			—			168
CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD		795			6,451			696			78,477			—			86,419

CASH AND CASH EQUIVALENTS — END OF PERIOD	$	7,129		$	30,170		$	1,957		$	71,784		$	—		$	111,040


	As of March 31, 2011
	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other Subsidiaries						Consolidating			Lions Gate
	Corp.			Inc.			Guarantors			Non-guarantors			Adjustments			Consolidated
	(Amounts in thousands)
BALANCE SHEET
Assets
Cash and cash equivalents	$	795		$	6,451		$	696		$	78,477		$	—		$	86,419
Restricted cash		13,992			29,466			—			—			—			43,458
Restricted investments		—			—			—			—			—			—
Accounts receivable, net		494			4,237			292,860			33,033			—			330,624
Investment in films and television programs, net		12			6,391			513,505			89,137			(1,288	)		607,757
Property and equipment, net		—			8,292			189			608			—			9,089
Equity method investments		1,123			17,052			17,405			117,514			(2,509	)		150,585
Goodwill		10,173			—			198,883			30,198			—			239,254
Other assets		458			34,214			10,658			992			—			46,322
Assets held for sale		—			—			—			44,336			—			44,336
Subsidiary investments and advances		102,680			(171,895	)		(28,053	)		(199,205	)		296,473			—

	$	129,727		$	(65,792	)	$	1,006,143		$	195,090		$	292,676		$	1,557,844


Liabilities and Shareholders’ Equity (Deficiency)
Senior revolving credit facility	$	—		$	69,750		$	—		$	—		$	—		$	69,750
Senior secured second-priority notes		—			226,331			—			—			—			226,331
Accounts payable and accrued liabilities		1,910			52,035			141,715			35,288			41			230,989
Participations and residuals		195			11,093			264,320			21,973			(99	)		297,482
Film obligations and production loans		76			—			308,744			17,620			—			326,440
Convertible senior subordinated notes and other financing obligations		—			107,255			3,718			—			—			110,973
Deferred revenue		—			134			123,696			27,107			—			150,937
Liabilities held for sale		—			—			—			17,396			—			17,396
Shareholders’ equity (deficiency)		127,546			(532,390	)		163,950			75,706			292,734			127,546

	$	129,727		$	(65,792	)	$	1,006,143		$	195,090		$	292,676		$	1,557,844


	Three Months Ended June 30, 2010
	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other Subsidiaries						Consolidating			Lions Gate
	Corp.			Inc.			Guarantors			Non-guarantors			Adjustments			Consolidated
							(Amounts in thousands)
STATEMENT OF OPERATIONS
Revenues	$	—		$	2,048		$	292,166		$	39,351		$	(6,981	)	$	326,584
EXPENSES:
Direct operating		—			76			152,492			17,347			(12,334	)		157,581
Distribution and marketing		—			(1	)		123,265			16,801			(6	)		140,059
General and administration		290			49,713			11,078			3,693			(55	)		64,719
Depreciation and amortization		—			923			485			195			—			1,603

Total expenses		290			50,711			287,320			38,036			(12,395	)		363,962

OPERATING INCOME (LOSS)		(290	)		(48,663	)		4,846			1,315			5,414			(37,378	)

Other expenses (income):
Interest expense		—			14,128			392			278			(255	)		14,543
Interest and other income		(36	)		(427	)		(145	)		(34	)		255			(387	)

Total other expenses (income)		(36	)		13,701			247			244			—			14,156

INCOME (LOSS) BEFORE EQUITY INTERESTS AND INCOME TAXES		(254	)		(62,364	)		4,599			1,071			5,414			(51,534	)
Equity interests income (loss)		(63,814	)		(652	)		(11,474	)		(1	)		64,234			(11,707	)

INCOME (LOSS) BEFORE INCOME TAXES		(64,068	)		(63,016	)		(6,875	)		1,070			69,648			(63,241	)
Income tax provision (benefit)		—			393			417			17			—			827

NET INCOME (LOSS)		(64,068	)		(63,409	)		(7,292	)		1,053			69,648			(64,068	)


	Three Months Ended June 30, 2010
	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other Subsidiaries						Consolidating		Lions Gate
	Corp.			Inc.			Guarantors			Non-guarantors			Adjustments		Consolidated
							(Amounts in thousands)
STATEMENT OF CASH FLOWS
NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	1,761		$	(176,013	)	$	100,574		$	10,745		$	—	$	(62,933	)

INVESTING ACTIVITIES:
Purchases of restricted investments		—			(6,993	)		—			—			—		(6,993	)
Proceeds from the sale of restricted investments		—			6,995			—			—			—		6,995
Buy-out of the earn-out associated with the acquisition of Debmar-Mercury, LLC		—			—			(15,000	)		—			—		(15,000	)
Investment in equity method investees		—			—			(22,030	)		—			—		(22,030	)
Purchases of property and equipment		—			(196	)		(133	)		(76	)		—		(405	)

NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES		—			(194	)		(37,163	)		(76	)		—		(37,433	)

FINANCING ACTIVITIES:
Tax withholding requirements on equity awards		(1,497	)		—			—			—			—		(1,497	)
Borrowings under senior revolving credit facility		—			243,000			—			—			—		243,000
Repayments of borrowings under senior revolving credit facility		—			(61,000	)		—			—			—		(61,000	)
Borrowings under individual production loans		—			—			13,178			559			—		13,737
Repayment of individual production loans		—			—			(83,146	)		—			—		(83,146	)
Production loan borrowings under Pennsylvania Regional Center credit facility		—			—			494			—			—		494
Production loan repayments under Pennsylvania Regional Center credit facility		—			—			(246	)		—			—		(246	)
Production loan borrowings under film credit facility		—			—			3,118			—			—		3,118
Production loan repayments under film credit facility		—			—			(419	)		—			—		(419	)
Restricted cash collateral requirement under the film credit facility		—			—			(3,666	)		—			—		(3,666	)

NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES		(1,497	)		182,000			(70,687	)		559			—		110,375

NET CHANGE IN CASH AND CASH EQUIVALENTS		264			5,793			(7,276	)		11,228			—		10,009

FOREIGN EXCHANGE EFFECTS ON CASH		(44	)		—			—			(639	)		—		(683	)
CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD		814			3,059			8,152			57,217			—		69,242

CASH AND CASH EQUIVALENTS — END OF PERIOD	$	1,034		$	8,852		$	876		$	67,806		$	—	$	78,568

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

Overview

Lions Gate Entertainment Corp. (“Lionsgate,” the “Company,” “we,” “us” or “our”) is a leading global entertainment company with a strong and diversified presence in motion picture production and distribution, television programming and syndication, home entertainment, family entertainment, digital distribution and new channel platforms.

Revenues

Our revenues are derived from the Motion Pictures and Television Production segments, as described below. Our revenues are derived from the U.S., Canada, the United Kingdom, Australia and other foreign countries; none of the non-U.S. countries individually comprised greater than 10% of total revenues for the three months ended June 30, 2011 and 2010.

Motion Pictures. Motion Pictures includes “Theatrical,” “Home Entertainment,” “Television,” “International,” “Lionsgate UK,” and “Mandate Pictures” revenue.

Theatrical revenues are derived from the theatrical release of motion pictures in the U.S. and Canada which are distributed to theatrical exhibitors on a picture by picture basis. The financial terms that we negotiate with our theatrical exhibitors generally provide that we receive a percentage of the box office results and are negotiated on a picture by picture basis.

Home Entertainment revenues includes revenues from our own film and television productions and acquired or licensed films, including theatrical and direct-to-video releases, generated from the sale to retail stores and through digital media platforms. In addition, we have revenue sharing arrangements with certain rental stores which generally provide that in exchange for a nominal or no upfront sales price, we share in the rental revenues generated by each such store on a title by title basis. We categorized our Home Entertainment revenue as follows:

•

Packaged media revenue: Package media revenue consists of the sale or rental of DVD’s and Blu-ray devices.

•

Electronic media revenue: Electronic media revenue consists of revenues generated from electronic-sell through or “EST”, digital rental, pay-per-view and video-on-demand platforms.

Television revenues are primarily derived from the licensing of our productions and acquired films to the domestic cable, satellite, and free and pay television markets.

International revenues include revenues from our international subsidiaries from the licensing and sale of our productions, acquired films, our catalog product or libraries of acquired titles and revenues from our distribution to international sub-distributors, on a territory-by-territory basis.

Lionsgate UK revenues include revenues from the licensing and sale of our productions, acquired films, our catalog product or libraries of acquired titles from our subsidiary located in the United Kingdom.

Mandate Pictures revenues include revenues from the sales and licensing of domestic and worldwide rights of titles developed or acquired by Mandate Pictures to third-party distributors and to international sub-distributors.

Television Production. Television Production includes the licensing and syndication to domestic and international markets of one-hour and half-hour drama series, television movies and mini-series and non-fiction programming, and home entertainment revenues consisting of television production movies or series.

Expenses

Our primary operating expenses include direct operating expenses, distribution and marketing expenses and general and administration expenses.

Direct operating expenses include amortization of film and television production or acquisition costs, participation and residual expenses, provision for doubtful accounts, and foreign exchange gains and losses. Participation costs represent contingent consideration payable based on the performance of the film to parties associated with the film, including producers, writers, directors

or actors, etc. Residuals represent amounts payable to various unions or “guilds” such as the Screen Actors Guild, Directors Guild of America, and Writers Guild of America, based on the performance of the film in certain ancillary markets or based on the individual’s (i.e., actor, director, writer) salary level in the television market.

Distribution and marketing expenses primarily include the costs of theatrical “prints and advertising” (“P&A”) and of DVD/Blu-ray duplication and marketing. Theatrical P&A includes the costs of the theatrical prints delivered to theatrical exhibitors and the advertising and marketing cost associated with the theatrical release of the picture. DVD/Blu-ray duplication represents the cost of the DVD/Blu-ray product and the manufacturing costs associated with creating the physical products. DVD/Blu-ray marketing costs represent the cost of advertising the product at or near the time of its release or special promotional advertising.

General and administration expenses include salaries and other overhead.

Recent Developments

Additional Issuance of Senior Secured Second-Priority Notes. On May 13, 2011, Lions Gate Entertainment Inc. (“LGEI”), our wholly-owned subsidiary, issued approximately $200.0 million aggregate principal amount of senior secured second-priority notes due 2016 (the “May 2011 Senior Notes”) in a private offering conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). The May 2011 Senior Notes were issued pursuant to a supplemental indenture dated as of May 13, 2011 (the “Supplemental Indenture”) to the indenture dated as of October 21, 2009 (the “October 2009 Indenture”), among LGEI, the Company, the subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee. LGEI had issued $236.0 million aggregate principal amount of 10.25% senior secured second priority notes due 2016 (the “October 2009 Senior Notes”) under the October 2009 Indenture on October 21, 2009. The Supplemental Indenture amended the October 2009 Indenture to, among other things, enable LGEI to issue additional notes having the same terms as the October 2009 Senior Notes, except for the issue date, issue price and first interest payment, in an aggregate principal amount of up to $200.0 million. The May 2011 Senior Notes were sold at 102.219% of the principal amount plus accrued interest thereon from May 1, 2011, resulting in gross proceeds of approximately $204.4 million and net proceeds of approximately $192.4 million after estimated fees and expenses, including $5.6 million paid in connection with the consent solicitation of holders of the October 2009 Senior Notes. A portion of the proceeds were used to pay down amounts outstanding under our senior secured credit facility. The May 2011 Senior Notes accrue interest at a rate of 10.25% per annum from May 1, 2011 and will be payable semiannually on May 1 and November 1 of each year, commencing on November 1, 2011. The May 2011 Senior Notes will mature on November 1, 2016.

May 2011 Repurchase of a Portion of the October 2004 2.9375% Notes. In May 2011, LGEI paid $19.5 million to repurchase $19.4 million of aggregate principal amount (carrying value — $18.9 million) of the 2.9375% Convertible Senior Subordinated Notes (the “October 2004 2.9375% Notes”).

CRITICAL ACCOUNTING POLICIES

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The application of the following accounting policies, which are important to our financial position and results of operations, requires significant judgments and estimates on the part of management. As described more fully below, these estimates bear the risk of change due to the inherent uncertainty attached to the estimate. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. For example, accounting for films and television programs requires us to estimate future revenue and expense amounts which, due to the inherent uncertainties involved in making such estimates, are likely to differ to some extent from actual results. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. For a summary of all of our accounting policies, including the accounting policies discussed below, see Note 2 to our audited consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended March 31, 2011.

Accounting for Films and Television Programs. We capitalize costs of production and acquisition, including financing costs and production overhead, to investment in films and television programs. These costs for an individual film or television program are amortized and participation and residual costs are accrued to direct operating expenses in the proportion that current year’s revenues

bear to management’s estimates of the ultimate revenue at the beginning of the year expected to be recognized from exploitation, exhibition or sale of such film or television program over a period not to exceed ten years from the date of initial release. For previously released film or television programs acquired as part of a library, ultimate revenue includes estimates over a period not to exceed 20 years from the date of acquisition.

Due to the inherent uncertainties involved in making such estimates of ultimate revenues and expenses, these estimates have differed in the past from actual results and are likely to differ to some extent in the future from actual results. In addition, in the normal course of our business, some films and titles are more successful than anticipated and some are less successful than anticipated. Our management regularly reviews and revises when necessary its ultimate revenue and cost estimates, which may result in a change in the rate of amortization of film costs and participations and residuals and/or write-down of all or a portion of the unamortized costs of the film or television program to its estimated fair value. Our management estimates the ultimate revenue based on experience with similar titles or title genre, the general public appeal of the cast, actual performance (when available) at the box office or in markets currently being exploited, and other factors such as the quality and acceptance of motion pictures or programs that our competitors release into the marketplace at or near the same time, critical reviews, general economic conditions and other tangible and intangible factors, many of which we do not control and which may change.

An increase in the estimate of ultimate revenue will generally result in a lower amortization rate and, therefore, less film and television program amortization expense, while a decrease in the estimate of ultimate revenue will generally result in a higher amortization rate and, therefore, higher film and television program amortization expense, and also periodically results in an impairment requiring a write-down of the film cost to the title’s fair value. These write-downs are included in amortization expense within direct operating expenses in our consolidated statements of operations.

Revenue Recognition. Revenue from the theatrical release of feature films is recognized at the time of exhibition based on our participation in box office receipts. Revenue from the sale of DVDs/Blu-ray discs in the retail market, net of an allowance for estimated returns and other allowances, is recognized on the later of receipt by the customer or “street date” (when it is available for sale by the customer). Under revenue sharing arrangements, rental revenue is recognized when we are entitled to receipts and such receipts are determinable. Revenues from television licensing are recognized when the feature film or television program is available to the licensee for telecast. For television licenses that include separate availability “windows” during the license period, revenue is allocated over the “windows.” Revenue from sales to international territories are recognized when access to the feature film or television program has been granted or delivery has occurred, as required under the sales contract, and the right to exploit the feature film or television program has commenced. For multiple media rights contracts with a fee for a single film or television program where the contract provides for media holdbacks (defined as contractual media release restrictions), the fee is allocated to the various media based on our assessment of the relative fair value of the rights to exploit each media and is recognized as each holdback is released. For multiple-title contracts with a fee, the fee is allocated on a title-by-title basis, based on our assessment of the relative fair value of each title. The primary estimate requiring the most subjectivity and judgment involving revenue recognition is the estimate of sales returns associated with our revenue from the sale of DVD’s/Blu-ray discs in the retail market which is discussed separately below under the caption “Sales Returns Allowance.”

Sales Returns Allowance. Revenues are recorded net of estimated returns and other allowances. We estimate reserves for DVD/Blu-ray returns based on previous returns experience, point-of-sale data available from certain retailers, current economic trends, and projected future sales of the title to the consumer based on the actual performance of similar titles on a title-by-title basis in each of the DVD/Blu-ray businesses. Factors affecting actual returns include, among other factors, limited retail shelf space at various times of the year, success of advertising or other sales promotions, and the near term release of competing titles. We believe that our estimates have been materially accurate in the past; however, due to the judgment involved in establishing reserves, we may have adjustments to our historical estimates in the future. Our estimate of future returns affects reported revenue and operating income. If we underestimate the impact of future returns in a particular period, then we may record less revenue in later periods when returns exceed the estimated amounts. If we overestimate the impact of future returns in a particular period, then we may record additional revenue in later periods when returns are less than estimated. An incremental change of 1% in our estimated sales returns rate (i.e., provisions for returns divided by gross sales of related product) for home entertainment products would have had an approximately $1.0 million impact on our total revenue in the three months ended June 30, 2011.

Provisions for Accounts Receivable. We estimate provisions for accounts receivable based on historical experience and relevant facts and information regarding the collectability of the accounts receivable. In performing this evaluation, significant judgments and estimates are involved, including an analysis of specific risks on a customer-by-customer basis for our larger customers and an analysis of the length of time receivables have been past due. The financial condition of a given customer and its ability to pay may change over time or could be better or worse than anticipated and could result in an increase or decrease to our allowance for doubtful accounts, which, when the impact of such change is material, is disclosed in our discussion on direct operating expenses elsewhere in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Income Taxes. We are subject to federal and state income taxes in the U.S., and in several foreign jurisdictions. We record deferred tax assets, net of applicable reserves, related to net operating loss carryforwards and certain temporary differences. We recognize a future tax benefit to the extent that realization of such benefit is more likely than not or a valuation allowance is applied. In order to realize the benefit of our deferred tax assets we will need to generate sufficient taxable income in the future. Because of our historical operating losses, we have provided a full valuation allowance against our net deferred tax assets. However, the assessment as to whether there will be sufficient taxable income to realize our net deferred tax assets is an estimate which could change in the future depending primarily upon the actual performance of our Company. When we have a history of profitable operations sufficient to demonstrate that it is more likely than not that our deferred tax assets will be realized, the valuation allowance or a portion of the valuation allowance will be reversed and reflected as a benefit in the income tax provision. After that we will be required to continually evaluate the more likely than not assessment that our net deferred tax assets will be realized and if operating results deteriorate we may need to reestablish all or a portion of the valuation allowance through a charge to our income tax provision.

Goodwill. Goodwill is reviewed annually for impairment each fiscal year or between the annual tests if an event occurs or circumstances change that indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value. We perform our annual impairment test as of January 1 in each fiscal year. We performed our last annual impairment test on our goodwill as of January 1, 2011. No goodwill impairment was identified in any of our reporting units. Determining the fair value of reporting units requires various assumptions and estimates. The estimates of fair value include consideration of the future projected operating results and cash flows of the reporting unit. Such projections could be different than actual results. Should actual results be significantly less than estimates, the value of our goodwill could be impaired in the future.

Convertible Senior Subordinated Notes. We account for our convertible senior subordinated notes by separating the liability and equity components. The liability component is recorded at the date of issuance based on its fair value which is generally determined in a manner that will reflect an interest cost equal to our nonconvertible debt borrowing rate at the convertible senior subordinated notes issuance date. The amount of the proceeds less the amount recorded as the liability component is recorded as an addition to shareholders’ equity reflecting the equity component (i.e., conversion feature). The difference between the principal amount and the amount recorded as the liability component represents the debt discount. The carrying amount of the liability is accreted up to the principal amount through the amortization of the discount, using the effective interest method, to interest expense over the expected life of the note. The determination of the fair value of the liability component is an estimate dependent on a number of factors including estimates of market rates for similar non convertible debt instruments at the date of issuance. A higher value attributable to the liability component results in a lower value attributed to the equity component and therefore a smaller discount amount and lower interest cost as a result of amortization of the smaller discount. A lower value attributable to the liability component results in a higher value attributed to the equity component and therefore a larger discount amount and higher interest cost as a result of amortization of the larger discount.

Business Acquisitions. We account for business acquisitions as a purchase, whereby the purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair value. The excess of the purchase price over estimated fair value of the net identifiable assets is allocated to goodwill. Determining the fair value of assets and liabilities requires various assumptions and estimates. These estimates and assumptions are refined with adjustments recorded to goodwill as information is gathered and final appraisals are completed over a one-year allocation period. The changes in these estimates or different assumptions used in determining these estimates could impact the amount of assets, including goodwill and liabilities, ultimately recorded in our balance sheet and could impact our operating results subsequent to such acquisition. We believe that our assumptions and estimates have been materially accurate in the past.

Recent Accounting Pronouncements

either a single continuous statement of comprehensive income (which would contain the current income statement presentation followed by the components of other comprehensive income and a total amount for comprehensive income), or in two separate but consecutive statements. This guidance is effective for our fiscal year beginning April 1, 2012. We do not expect the guidance to have a material impact on our consolidated financial statements.

In May 2011, the FASB issued an accounting standard update related to fair value measurements and disclosures to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards. This guidance includes amendments that clarify the intent about the application of existing fair value measurement requirements, while other amendments change a principle or requirement for measuring fair value or for disclosing information about fair value measurements. Specifically, the guidance requires additional disclosures for fair value measurements that are based on significant unobservable inputs. The updated guidance is to be applied prospectively and is effective for our interim and annual periods beginning April 1, 2012. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

Results of Operations

Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010

The following table sets forth the components of consolidated revenue by segment for the three months ended June 30, 2011 and 2010:



	Three Months Ended		Three Months Ended		Increase (Decrease)
	June 30, 2011		June 30, 2010		Amount			Percent
			(Amounts in millions)
Consolidated Revenue
Motion Pictures	$	192.6	$	272.7	$	(80.1	)		(29.4%	)
Television Production		68.7		53.9		14.8			27.5%

	$	261.3	$	326.6	$	(65.3	)		(20.0%	)

Our largest component of revenue comes from home entertainment. The following table sets forth total home entertainment revenue for both the Motion Pictures and Television Production reporting segments for the three months ended June 30, 2011 and 2010:


	Three Months Ended		Three Months Ended		Increase (Decrease)
	June 30, 2011		June 30, 2010		Amount			Percent
			(Amounts in millions)
Home Entertainment Revenue (1)
Motion Pictures	$	86.8	$	131.1	$	(44.3	)		(33.8%	)
Television Production		6.1		5.8		0.3			5.2%

	$	92.9	$	136.9	$	(44.0	)		(32.1%	)

(1)	See reclassification footnote under the table in the Motion Pictures Revenue discussion below.

Motion Pictures Revenue

The following table sets forth the components of revenue and the changes in these components for the motion pictures reporting segment for the three-month periods ended June 30, 2011 and 2010:


	Three Months Ended		Three Months Ended		Increase (Decrease)
	June 30, 2011		June 30, 2010		Amount			Percent
	(Amounts in millions)
Motion Pictures
Theatrical	$	27.1	$	71.3	$	(44.2	)		(62.0%	)
Home Entertainment (1)		86.8		131.1		(44.3	)		(33.8%	)
Television (1)		43.3		10.2		33.1			NM
International		11.6		29.1		(17.5	)		(60.1%	)
Lionsgate UK		12.5		16.3		(3.8	)		(23.3%	)
Mandate Pictures		9.8		13.3		(3.5	)		(26.3%	)
Other		1.5		1.4		0.1			7.1%

	$	192.6	$	272.7	$	(80.1	)		(29.4%	)

NM — Percentage not meaningful

(1)

For the three months ended June 30, 2011, pay-per-view and video-on-demand revenue is included in Home Entertainment revenue rather than Television revenue in order to be consistent with the way management currently categorizes and analyzes those media types. For the three months ended June 30, 2010, $19.8 million of pay-per-view and video-on-demand revenue was reclassified from Television revenue to Home Entertainment revenue to be consistent with the current period presentation.

Motion Pictures — Theatrical Revenue

The following table sets forth the titles contributing significant theatrical revenue by fiscal years theatrical slate and the month of their release for the three-month periods ended June 30, 2011 and 2010:


Three Months Ended June 30,
2011		2010
	Theatrical Release Date		Theatrical Release Date
Fiscal 2012 Theatrical Slate:		Fiscal 2011 Theatrical Slate:
Madea’s Big Happy Family	April 2011	Killers	June 2010
		Kick-Ass	April 2010
		Why Did I Get Married Too?	April 2010

Theatrical revenue of $27.1 million decreased $44.2 million, or 62.0%, in this quarter as compared to the prior year’s quarter. The decrease in theatrical revenue in the current quarter as compared to the prior year’s quarter is due to a decrease in the number of theatrical releases in the current quarter as compared to the prior year’s quarter.

Motion Pictures — Home Entertainment Revenue

The following table sets forth the titles contributing significant motion pictures home entertainment revenue for the three-month periods ended June 30, 2011 and 2010:


Three Months Ended June 30,
2011		2010
	DVD Release Date		DVD Release Date
Fiscal 2011 Theatrical Slate:		Fiscal 2010 Theatrical Slate:
Rabbit Hole	April 2011	From Paris With Love	June 2010
The Next Three Days	March 2011	Daybreakers	May 2010
Saw 3D	January 2011	The Spy Next Door	May 2010
Alpha and Omega	January 2011	Brothers	March 2010
The Last Exorcism	January 2011	Precious	March 2010
The Expendables	November 2010	Gamer	January 2010
Direct-to-DVD, acquired and licensed brands, acquired library & other:
Biutiful	May 2011
I Love You Phillip Morris	April 2011
The Switch	March 2011

The following table sets forth the components of home entertainment revenue by product category for the three-month periods ended June 30, 2011 and 2010:


	Three Months Ended June 30,
	2011						2010
	Packaged Media		Electronic Media		Total		Packaged Media		Electronic Media		Total
					(Amounts in millions)
Home entertainment revenues (1)
Fiscal 2011 Theatrical Slate	$	8.1	$	17.3	$	25.4	$	—	$	—	$	—
Fiscal 2010 Theatrical Slate		1.0		0.2		1.2		52.5		18.0		70.5
Fiscal 2009 Theatrical Slate		0.4		0.4		0.8		1.7		0.3		2.0
Fiscal 2008 & Prior Theatrical Slate		4.1		0.7		4.8		5.2		1.0		6.2
Direct-to-DVD, acquired and licensed brands, acquired library & other		43.0		8.8		51.8		35.6		9.1		44.7
Other		2.3		0.5		2.8		6.3		1.4		7.7


	$	58.9	$	27.9	$	86.8	$	101.3	$	29.8	$	131.1

(1)	See reclassification footnote (1) under the table in the Motion Pictures Revenue discussion above.

Home entertainment revenue of $86.8 million decreased $44.3 million, or 33.8%, in the current quarter as compared to the prior year’s quarter. The decrease in home entertainment revenue is primarily due to a decrease in revenue from packaged media of $42.4 million, primarily due to a decrease in the contribution of revenue from the theatrical slates as listed above. The decrease in revenue contributed by the theatrical slates is primarily due to no significant wide release titles from our fiscal 2011 theatrical slate being released on DVD in the current quarter as compared to three titles from the 2010 theatrical slate released on DVD in the prior year’s quarter.

Motion Pictures — Television Revenue

The following table sets forth the titles contributing significant motion pictures television revenue for the three-month periods ended June 30, 2011 and 2010:


Three Months Ended June 30,
2011		2010
Fiscal 2011 Theatrical Slate:		Fiscal 2008 Theatrical Slate:
Alpha and Omega		Rambo
For Colored Girls		Direct-to-DVD, acquired and licensed brands,
Saw 3D		acquired library & other:
The Expendables		Skinwalkers
Fiscal 2009 Theatrical Slate:
Transporter 3

The following table sets forth the components of television revenue by product category for the three-month periods ended June 30, 2011 and 2010:


	Three Months Ended June 30,
	2011		2010
	(Amounts in millions)
Television revenues (1)
Fiscal 2011 Theatrical Slate	$	35.3	$	—
Fiscal 2010 Theatrical Slate		—		1.0
Fiscal 2009 Theatrical Slate		3.2		—
Fiscal 2008 & Prior Theatrical Slate		1.7		5.0
Direct-to-DVD, acquired and licensed brands, acquired library & other		2.5		3.1
Other		0.6		1.1


	$	43.3	$	10.2

(1)	See reclassification footnote (1) under the table in the Motion Pictures Revenue discussion above.

Television revenue included in motion pictures revenue of $43.3 million increased $33.1 million, or 324.5%, in the current quarter as compared to the prior year’s quarter. The increase in television revenue in the current quarter compared to the prior year’s quarter is mainly due to the number and performance of titles in the theatrical slates listed above with television availability windows opening in the current quarter. The contribution of television revenue from the titles listed above was $37.2 million in fiscal 2011 compared to $4.3 million in fiscal 2010, and the contribution of television revenue from titles not listed above was $6.1 million in fiscal 2011 compared to $5.9 million in fiscal 2010.

Motion Pictures — International Revenue

The following table sets forth the titles contributing significant motion pictures international revenue for the three-month periods ended June 30, 2011 and 2010:


Three Months Ended June 30,
2011		2010
Fiscal 2011 Theatrical Slate:		Fiscal 2011 Theatrical Slate:
Alpha and Omega		Kick-Ass
Kick-Ass		Killers
Saw 3D		Fiscal 2010 Theatrical Slate:
The Next Three Days		Brothers
		Daybreakers
		Saw VI

The following table sets forth the components of international revenue by product category for the three-month periods ended June 30, 2011 and 2010:


	Three Months Ended June 30,
	2011		2010
	(Amounts in millions)
International revenues
Fiscal 2012 Theatrical Slate	$	0.3	$	—
Fiscal 2011 Theatrical Slate		5.7		12.8
Fiscal 2010 Theatrical Slate		0.9		9.3
Fiscal 2009 Theatrical Slate		0.2		1.9
Fiscal 2008 & Prior Theatrical Slate		1.4		1.7
Direct-to-DVD, acquired and licensed brands, acquired library & other		2.9		3.1
Other		0.2		0.3


	$	11.6	$	29.1

International revenue included in motion pictures revenue of $11.6 million decreased $17.5 million, or 60.1%, in the current quarter as compared to the prior year’s quarter. The decrease in international revenue in the current quarter compared to the prior year’s quarter is mainly due to the revenues generated by the titles and product categories listed above.

Motion Pictures — Lionsgate UK Revenue

The following table sets forth the titles contributing significant Lionsgate UK revenue for the three-month periods ended June 30, 2011 and 2010:


Three Months Ended June 30,
2011		2010
Fiscal 2011 Theatrical Slate:		Fiscal 2010 Theatrical Slate:
The Expendables		Brothers
The Next Three Days		Daybreakers
LGUK Theatrical Slate:		LGUK Theatrical Slate:
Blitz		Harry Brown
		The Hurt Locker
		Direct-to-DVD, acquired and licensed brands,
		acquired library & other:
		The Imaginarium of Doctor Parnassus

The following table sets forth the components of Lionsgate UK revenue by product category for the three-month periods ended June 30, 2011 and 2010:


	Three Months Ended June 30,
	2011		2010
	(Amounts in millions)
Lionsgate UK revenues
Fiscal 2011 Theatrical Slate	$	4.4	$	0.6
Fiscal 2010 Theatrical Slate		0.3		4.6
Fiscal 2009 Theatrical Slate		—		0.3
Fiscal 2008 & Prior Theatrical Slate		0.3		0.2
Lionsgate UK and third party product		5.0		7.3
Direct-to-DVD, acquired and licensed brands, acquired library & other		2.0		2.2
Other		0.5		1.1


	$	12.5	$	16.3

Lionsgate UK revenue of $12.5 million decreased $3.8 million, or 23.3%, in the current quarter as compared to the prior year’s quarter. The decrease in Lionsgate UK revenue in the current quarter compared to the prior year’s quarter is mainly due to the revenue generated by the titles and product categories listed above.

Motion Pictures — Mandate Pictures Revenue

The following table sets forth the titles contributing significant Mandate Pictures revenue for the three-month periods ended June 30, 2011 and 2010:


Three Months Ended June 30,
2011		2010
50/50		Peacock
Juno		The Switch
Whip It		Whip It

Mandate Pictures revenue includes revenue from the sales and licensing of domestic and worldwide rights of titles developed or acquired by Mandate Pictures to third-party distributors or international sub-distributors. Mandate Pictures revenue of $9.8 million decreased $3.5 million, or 26.3%, in the current quarter as compared to the prior year’s quarter.

Television Production Revenue

Television production revenue of $68.7 million increased $14.8 million, or 27.5%, in the current quarter as compared to the prior year’s quarter. The following table sets forth the components and the changes in the components of revenue that make up television production revenue for the three-month periods ended June 30, 2011 and 2010:


	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010		Increase (Decrease)
	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010		Amount			Percent
			(Amounts in millions)
Television Production
Domestic series licensing
Lionsgate Television	$	7.9	$	8.4	$	(0.5	)		(6.0	%)
Debmar-Mercury		42.0		31.8		10.2			32.1	%

Total domestic series licensing		49.9		40.2		9.7			24.1	%
International		12.6		7.8		4.8			61.5	%
Home entertainment releases of television production		6.1		5.8		0.3			5.2	%
Other		0.1		0.1		—			0.0	%

	$	68.7	$	53.9	$	14.8			27.5	%

Revenues included in domestic series licensing increased in the current quarter mainly due to higher revenue generated from Debmar-Mercury, and higher international revenue in the current quarter as compared to the prior year’s quarter.

The following table sets forth the number of television episodes and hours included in Lionsgate Television domestic series licensing revenue in the three-month periods ended June 30, 2011 and 2010, respectively:


		Three Months Ended						Three Months Ended
		June 30, 2011						June 30, 2010
		Episodes		Hours				Episodes		Hours
Weeds Season 7	1/2hr		2		1.0	Mad Men Season 4	1hr		1		1.0
Pilots	1hr		1		1.0	Scream Queens Season 2	1hr		8		8.0

			3		2.0				9		9.0

Revenues included in domestic series licensing from Debmar-Mercury increased in the current quarter due to increased revenue from the deliveries of the television series Are We There Yet, House of Payne, Weeds Season 6, and The Wendy Williams Show.

International revenue increased in the current quarter due to an increase in episodes of programming delivered internationally. International revenue in the current quarter included revenue from Blue Mountain State Season 2, Weeds Seasons 5 and 6, Mad Men Season 4, and Paris Hilton’s My New BFF: Dubai. International revenue in the prior year’s quarter included revenue from Blue Mountain State Season 1, Crash Season 2, and Mad Men Season 3.

The increase in revenue from home entertainment releases of television production is primarily driven by revenue from Weeds Season 6 (released February 2011) and Mad Men Season 4 (released March 2011) in the current quarter, as compared to revenue from Weeds Season 5 (released January 2010) and Mad Men Season 3 (released March 2010) in the prior year’s quarter.

Direct Operating Expenses

The following table sets forth direct operating expenses by segment for the three months ended June 30, 2011 and 2010:


	Three Months Ended									Three Months Ended
	June 30, 2011									June 30, 2010
	Motion Pictures			Television Production			Total			Motion Pictures			Television Production			Total
	(Amounts in millions)
Direct operating expenses
Amortization of films and television programs	$	57.8		$	27.2		$	85.0		$	78.5		$	22.7		$	101.2
Participation and residual expense		29.0			26.1			55.1			35.7			20.7			56.4
Other expenses		(0.6	)		(0.1	)		(0.7	)		0.1			(0.1	)		—

	$	86.2		$	53.2		$	139.4		$	114.3		$	43.3		$	157.6

Direct operating expenses as a percentage of segment revenues		44.8	%		77.4	%		53.3	%		41.9	%		80.3	%		48.3	%

Direct operating expenses of the motion pictures segment of $86.2 million for this quarter were 44.8% of motion pictures revenue, compared to $114.3 million, or 41.9% of motion pictures revenue for the prior year’s quarter. The increase in direct operating expense of the motion pictures segment in the current quarter as a percent of revenue is primarily due to the change in the mix of product generating revenue compared to the prior year’s quarter. Investment in film write-downs of the motion pictures segment during the current quarter totaled approximately $0.1 million compared to $0.7 million for the prior year’s quarter.

Direct operating expenses of the television production segment of $53.2 million for the current quarter were 77.4% of television revenue, compared to $43.3 million, or 80.3%, of television revenue for the prior year’s quarter. The decrease in direct operating expenses as a percent of television revenue is primarily due to the continuing success of shows like Weeds, relative to total television revenue, and also due to lower charges for write-downs of television film costs in the current quarter as compared to the prior year’s quarter. In the current quarter, $1.6 million of charges for write-downs of television film costs were included in the amortization of television programs, compared to $3.2 million in the prior year’s quarter.

Distribution and Marketing Expenses

The following table sets forth distribution and marketing expenses by segment for the three months ended June 30, 2011 and 2010:


	Three Months Ended June 30, 2011						Three Months Ended June 30, 2010
	Motion Pictures		Television Production		Total		Motion Pictures		Television Production		Total
	(Amounts in millions)
Distribution and marketing expenses
Theatrical	$	26.4	$	—	$	26.4	$	83.7	$	—	$	83.7
Home Entertainment (1)		24.7		1.5		26.2		40.3		0.8		41.1
Television (1)		—		2.7		2.7		0.4		2.0		2.4
International		0.9		1.1		2.0		2.0		1.2		3.2
Lionsgate UK		6.7		0.3		7.0		9.2		0.3		9.5
Other		0.4		—		0.4		—		0.2		0.2

	$	59.1	$	5.6	$	64.7	$	135.6	$	4.5	$	140.1

(1)

For the three months ended June 30, 2011, pay-per-view and video-on-demand distribution and marketing expenses is included in Home Entertainment rather than Television distribution and marketing expenses in order to be consistent with the way management currently categorizes and analyzes those media types. For the three months ended June 30, 2010, $0.7 million of pay-per-view and video-on-demand distribution and marketing expenses were reclassified from Television to Home Entertainment distribution and marketing expenses to be consistent with the current period presentation.

The majority of distribution and marketing expenses relate to the motion pictures segment. Theatrical prints and advertising (“P&A”) in the motion pictures segment in the current quarter of $26.4 million decreased $57.3 million, compared to $83.7 million in the prior year’s quarter. Domestic theatrical P&A from the motion pictures segment in this quarter included P&A incurred on the release of Madea’s Big Happy Family. In addition, approximately $13.1 million of P&A was incurred on titles that did not contribute significant revenue in the quarter, of which $11.0 million was P&A incurred in advance for films to be released in subsequent quarters, such as Conan, Warrior, and Abduction . Domestic theatrical P&A from the motion pictures segment in the prior year’s quarter included P&A incurred on the release of Kick-Ass, Killers, and Why Did I Get Married Too?, which individually represented between 7% and 49% of total theatrical P&A and, in the aggregate, accounted for approximately 89% of total theatrical P&A. Approximately $9.3 million of P&A was incurred on titles that did not contribute significant revenue in the prior year’s quarter, of which $8.6 million was P&A related to titles released subsequent to that quarter including The Expendables and The Last Exorcism.

Home entertainment distribution and marketing costs on motion pictures and television product in this quarter of $26.2 million decreased $14.9 million, or 36.3%, compared to $41.1 million in the prior year’s quarter, primarily due to lower distribution and marketing cost associated with lower revenues. Home entertainment distribution and marketing costs as a percentage of home entertainment revenues was 28.2% and 30.0% in the current quarter and prior year’s quarter, respectively. The decrease in home entertainment distribution and marketing costs as a percentage of home entertainment revenues was primarily due to an increase in the percentage of home entertainment revenue from electronic media, which has a lower ratio of distribution and marketing costs as a percentage of home entertainment revenue, as compared to overall home entertainment revenue in the current quarter as compared to the prior year’s quarter.

Lionsgate UK distribution and marketing expenses in the motion pictures segment in the current quarter of $6.7 million decreased from $9.2 million in the prior year’s quarter.

General and Administrative Expenses

The following table sets forth general and administrative expenses by segment for the three months ended June 30, 2011 and 2010:


	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010			Increase (Decrease)
	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010			Amount			Percent
	(Amounts in millions)
General and administrative expenses
Motion Pictures	$	12.2		$	11.6		$	0.6			5.2	%
Television Production		2.7			3.1			(0.4	)		(12.9	%)
Shared services and corporate expenses, excluding items below		14.3			15.4			(1.1	)		(7.1	%)

Total general and administrative expenses before stock-based compensation expense and shareholder activist matter expenses		29.2			30.1			(0.9	)		(3.0	%)

Stock-based compensation expense		2.6			27.3			(24.7	)		(90.5	%)
Shareholder activist matter		(3.9	)		7.3			(11.2	)		(153.4	%)

		(1.3	)		34.6			(35.9	)		(103.8	%)


Total general and administrative expenses	$	27.9		$	64.7		$	(36.8	)		(56.9	%)


Total general and administrative expenses as a percentage of revenue		10.7	%		19.8	%

General and administrative expenses excluding stock-based compensation expense and shareholder activist matter expenses, as a percentage of revenue		11.2	%		9.2	%

Total General and Administrative Expenses

General and administrative expenses decreased by $36.8 million, or 56.9%, as reflected in the table above and further discussed below.

Motion Pictures

General and administrative expenses of the motion pictures segment increased $0.6 million, or 5.2%, mainly due to an increase in salary and related expenses. In the current quarter, $2.4 million of motion pictures production overhead was capitalized compared to $2.2 million in the prior year’s quarter.

Television Production

General and administrative expenses of the television production segment decreased $0.4 million, or 12.9%. In the current quarter, $1.4 million of television production overhead was capitalized compared to $1.0 million in the prior year’s quarter.

Shared Services and Corporate Expenses

Shared services and corporate expenses excluding stock-based compensation expense and shareholder activist matter costs decreased $1.1 million, or 7.1%, mainly due to decreases of $1.2 million in salary and related expenses, $0.9 million in other unallocated shared services and corporate expenses, partially offset by an increase of $1.0 million in legal and professional fees primarily associated with the sale of Maple Pictures.

Stock-based compensation expense decreased $24.7 million, mainly due to $21.9 million of expense in the prior year’s quarter associated with the immediate vesting of equity awards of certain executive officers triggered by the “change in control” provisions in their respective employment agreements.

Shareholder activist matter costs decreased $11.2 million as a result of no significant shareholder activist or related costs being incurred in the current quarter and a benefit in the current quarter resulting from a negotiated settlement of costs incurred and recorded in the prior fiscal year.

Stock-Based Compensation Expense. The following table sets forth stock-based compensation expense included in shared services and corporate expenses for the three months ended June 30, 2011 and 2010:


	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010		Increase (Decrease)
	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010		Amount			Percent
	(Amounts in millions)
Stock-Based Compensation Expense:
Stock options	$	—	$	2.5	$	(2.5	)		(100.0	%)
Restricted share units and other share-based compensation		2.2		19.7		(17.5	)		(88.8	%)
Stock appreciation rights		0.4		5.1		(4.7	)		(92.2	%)

	$	2.6	$	27.3	$	(24.7	)		(90.5	%)

At June 30, 2011, as disclosed in Note 16 to the unaudited condensed consolidated financial statements, there were unrecognized compensation costs of approximately $7.9 million related to stock options and restricted share units previously granted, including annual installments of share grants that were subject to performance targets, which will be expensed over the remaining vesting periods. At June 30, 2011, 381,698 shares of restricted share units have been awarded to two key executive officers, the vesting of which will be subject to performance targets to be set annually by our Compensation Committee of the Board of Directors. These restricted share units will vest in two annual installments assuming annual performance targets have been met. The fair value of the 381,698 shares, whose future annual performance targets have not been set, was $2.5 million, based on the market price of the our common shares as of June 30, 2011. The market value will be remeasured when the annual performance criteria are set and the value will be expensed over the remaining vesting periods once it becomes probable that the performance targets will be satisfied.

Depreciation, Amortization and Other Expenses (Income)

Depreciation and amortization of $1.2 million this quarter decreased $0.4 million from $1.6 million in the prior year’s quarter.

Interest expense of $16.3 million this quarter increased $1.8 million, or 12.4%, from the prior year’s quarter of $14.5 million. The following table sets forth the components of interest expense for the three months ended June 30, 2011 and 2010:


	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010
	(Amounts in millions)
Interest Expense
Cash Based:
Senior revolving credit facility	$	0.8	$	1.7
Convertible senior subordinated notes		1.1		2.0
Senior secured second-priority notes		8.8		6.0
Other		1.0		0.3

		11.7		10.0

Non-Cash Based:
Amortization of discount on liability component of convertible senior subordinated notes		2.1		3.4
Amortization of discount (premium) on senior secured second-priority notes		0.2		0.3
Amortization of deferred financing costs		2.3		0.8

		4.6		4.5

	$	16.3	$	14.5

Interest and other income was $0.4 million for the quarter ended June 30, 2011, compared to $0.4 million in the prior year’s quarter.

Loss on extinguishment of debt was $0.5 million for the three months ended June 30, 2011, resulting from the May 2011 repurchase of approximately $19.4 million in aggregate principal amount of the October 2004 2.9375% Notes compared to nil in the prior year’s quarter.

The following table represents our portion of the income or (loss) of our equity method investees based on our percentage ownership for the three months ended June 30, 2011 and 2010:


	June 30, 2011 Ownership Percentage	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010
		(Amounts in millions)
Horror Entertainment, LLC (“FEARnet”)	34.5%	$	0.1		$	0.5
NextPoint, Inc. (“Break.com”)	42.0%		(1.3	)		(0.3	)
Roadside Attractions, LLC	43.0%		—			0.1
Studio 3 Partners, LLC (“EPIX”) (1)	31.2%		4.8			(12.0	)
TV Guide Network (2)	51.0%		(0.9	)		—
Tiger Gate	45.9%		(0.8	)		(0.1	)

		$	1.9		$	(11.7	)

(1)

We license certain of our theatrical releases and other films and television programs to EPIX. A portion of the profits of these licenses reflecting our ownership share in the venture are eliminated through an adjustment to the equity interest income (loss) of the venture. These profits are recognized as they are realized by the venture. For the three months ended June 30, 2011, we recognized $35.2 million of revenue and $21.6 million of gross profit on the licensing of films to EPIX before eliminations. The equity interest gain for EPIX for the three months ended June 30, 2011 includes $7.5 million, which represents our share of the EPIX income of $24.1 million for the three months ended March 31, 2011, and $3.8 million representing the realization of a portion of the profits previously eliminated on licenses to the venture, reduced by the elimination of our share of profits on sales to EPIX of $6.6 million. EPIX expects to report net income of approximately $17 million for its quarter ended June 30, 2011, of which our pro rata share will be recorded in the quarter ended September 30, 2011.

(2)

We license certain films and/or television programs to TV Guide Network. A portion of the profits of these licenses reflecting our ownership share in the venture are eliminated through an adjustment to the equity interest loss of the venture. These profits are recognized as they are realized by the venture. For the three months ended June 30, 2011, we recognized $2.9 million of revenue and $0.9 million of gross profit on the licensing of television programs to TV Guide Network before eliminations. The equity interest loss for TV Guide Network for the three months ended June 30, 2011 includes $4.2 million, which represents our share of the TV Guide Network losses of $8.2 million for the three months ended June 30, 2011, and $0.5 million representing the elimination of our share of profits on sales to TV Guide Network, reduced by the realization of a portion of the profits previously eliminated on licenses to TV Guide Network of $0.1 million and our share of income from the accretion of dividend and discount on TV Guide Network’s redeemable preferred stock units of $3.6 million.

Income Tax Provision

We had an income tax expense of $1.2 million, or 8.9%, of income before income taxes in the three months ended June 30, 2011, compared to a expense of $0.8 million, or (1.3%), of loss before income taxes in the three months ended June 30, 2010. The tax expense reflected in the current quarter is primarily attributable to deferred U.S. income taxes and foreign withholding taxes. Our actual annual effective tax rate will differ from the statutory federal rate as a result of several factors, including changes in the valuation allowance against net deferred tax assets, non-temporary differences, foreign income taxed at different rates, and state and local income taxes. Income tax loss carryforwards, subject to certain limitations that may prevent us from fully utilizing them, amount to approximately $179.0 million for U.S. federal income tax purposes available to reduce income taxes over twenty years, $123.5 million for U.S. state income tax purposes available to reduce income taxes over future years with varying expirations, $31.7 million for Canadian income tax purposes available to reduce income taxes over 20 years with varying expirations, and $6.8 million for UK income tax purposes available indefinitely to reduce future income taxes.

Net Income

Net income for the three months ended June 30, 2011 was $12.2 million, or basic and diluted net income per common share of $0.09 on 137.0 million and 137.4 million weighted average common shares outstanding, respectively. This compares to net loss for the three months ended June 30, 2010 of $64.1 million, or basic and diluted net loss per common share of $0.54 on 118.2 million weighted average common shares outstanding.

Liquidity and Capital Resources

Our liquidity and capital resources have been provided principally through cash generated from operations, our senior revolving credit facility, senior secured second-priority notes, issuance of convertible senior subordinated notes, the Film Credit Facility (as hereafter defined), borrowings under individual production loans, our Pennsylvania Regional Center credit facility, and certain participation financing arrangements.

Senior Revolving Credit Facility

Outstanding Amount. At June 30, 2011, we had no outstanding borrowings (March 31, 2011 — $69.8 million).

Maturity Date. The senior revolving credit facility expires July 25, 2013.

Interest. As of June 30, 2011, the senior revolving credit facility bore interest of 2.5% over the “Adjusted LIBOR” rate (effective interest rate of 2.69% and 2.74% as of June 30, 2011 and March 31, 2011, respectively).

Commitment Fee. We are required to pay a quarterly commitment fee based upon 0.5% per annum on the total senior revolving credit facility of $340 million less the amount drawn.

Security. Obligations under the senior revolving credit facility are secured by collateral (as defined in the credit agreement) granted by us and certain of our subsidiaries, as well as a pledge of equity interests in certain of our subsidiaries.

Covenants. The senior revolving credit facility contains a number of affirmative and negative covenants that, among other things, require us to satisfy certain financial covenants and restrict our ability to incur additional debt, pay dividends and make distributions, make certain investments and acquisitions, repurchase its stock and prepay certain indebtedness, create liens, enter into agreements with affiliates, modify the nature of its business, enter into sale-leaseback transactions, transfer and sell material assets and merge or consolidate.

Change in Control. Under the senior revolving credit facility, we may also be subject to an event of default upon a change in control (as defined in the senior revolving credit facility) which, among other things, includes a person or group acquiring ownership or control in excess of 50% (amended from 20% on June 22, 2010) of our common stock.

Senior Secured Second-Priority Notes

On October 21, 2009, Lions Gate Entertainment Inc. (“LGEI”), our wholly-owned subsidiary, issued $236.0 million aggregate principal amount of senior secured second-priority notes due 2016 (the “October 2009 Senior Notes”) in a private offering conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended (the “Securities Act”).

On May 13, 2011, LGEI issued approximately $200.0 million aggregate principal amount of senior secured second-priority notes due 2016 (the “May 2011 Senior Notes”, and collectively with the October 2009 Senior Notes, the “Senior Notes”) in a private offering conducted pursuant to Rule 144A and Regulation S under the Securities Act. The May 2011 Senior Notes were issued pursuant the Supplemental Indenture among LGEI, the Company, the subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee. The Supplemental Indenture amended the October 2009 Senior Notes Indenture to, among other things, enable the Issuer to issue additional notes having the same terms as the October 2009 Senior Notes, except for the issue date, issue price and first interest payment, in an aggregate principal amount of up to $200.0 million.

Outstanding Amount. The outstanding amount is set forth in the table below:


	June 30, 2011
	Principal		Unamortized Premium/ (Discount)			Net Carrying Amount
	(Amounts in thousands)
Senior Secured Second-Priority Notes
October 2009 Senior Notes	$	236,000	$	(9,343	)	$	226,657
May 2011 Senior Notes		200,000		4,321			204,321

	$	436,000	$	(5,022	)	$	430,978

Maturity Date. The Senior Notes are due November 1, 2016.

Interest. The Senior Notes pay interest semi-annually on May 1 and November 1 of each year at a rate of 10.25% per year.

Security. The Senior Notes are guaranteed on a senior secured basis by us, and certain wholly-owned subsidiaries of both us and LGEI. The Senior Notes are ranked junior in right of payment to our senior revolving credit facility, ranked equally in right of payment to our subordinated notes, and ranked senior to any of our unsecured debt.

Covenants. The Senior Notes contain certain restrictions and covenants that, subject to certain exceptions, limit our ability to incur additional indebtedness, pay dividends or repurchase our common shares, make certain loans or investments, and sell or otherwise dispose of certain assets subject to certain conditions, among other limitations.

Under the terms of the Senior Notes, there are certain covenants which restrict our ability to incur certain additional indebtedness, make certain “restricted payments” as defined, and other items. These covenants require certain ratios, such as the Secured Leverage Ratio and Consolidated Leverage Ratio (as defined in the indentures), meet certain specified thresholds before such additional indebtedness, restricted payments or other items are permitted under the terms of the indenture. These ratios are partially based on the net borrowing base amount, as calculated pursuant to the indenture. The following table sets forth the total gross and net borrowing base and certain components of the borrowing base as prescribed by the indenture to the Senior Notes:


Borrowing Base Definition Clause (2)	Category Name	June 30, 2011
		Gross (1)			Rate	Net (1)
		(Amounts in millions)
(i)	Eligible Major Domestic Receivables	$	138.8	@	100%	$	138.8
(ii)	Eligible Acceptable Domestic Receivables		127.1	@	90%		114.4
(iii)	Eligible Acceptable Foreign Receivables		37.2	@	85%		31.6
(iv)	Acceptable Tax Credits		43.6	@	85%/75%		35.1
(v)	Other Domestic Receivables		11.7	@	50%		5.9
(vi)	Other Foreign Receivables		24.2	@	50%		12.1

	Borrowing Base from Receivables	$	382.6			$	337.9
(vii)	Eligible Film Library		594.5		50%		297.2
(viii)	Eligible Video Cassette Inventory		35.2		50%		10.0
(ix)	Total Home Video, Pay Television, Free Television Credits		161.0		Misc.		161.0
(xiii)	Cash Collateral Accounts		1.4		100%		1.4
(xiv)	P&A Credit		5.6		50%		2.8

	Borrowing Base at June 30, 2011	$	1,180.3			$	810.3

(1)	Gross amount represents the amount as of each applicable category and the net amounts represents the acceptable portion of that amount permitted to be counted in the Borrowing Base (as defined) under the indenture.

(2)	The following numbered clauses from the Borrowing Base definition were either not applicable or not material as of June 30,, 2011: (x) Direct to Video Credit; (xi) Foreign Rights Credit; (xii) Eligible L/C Receivables.

Convertible Senior Subordinated Notes

As of June 30, 2011 we have convertible senior subordinated notes outstanding of $117.0 million in aggregate principal amount (carrying value — $90.5 million). In October 2011, March 2012 and March 2015 $26.9 million, $23.5 million and $66.6 million, respectively, of these convertible senior subordinated notes are redeemable by the holder.

May 2011 Repurchase of a Portion of October 2004 2.9375% Notes. In May 2011, LGEI paid $19.5 million to repurchase $19.4 million of aggregate principal amount (carrying value — $18.9 million) of the October 2004 2.9375% Notes. We recorded a loss on extinguishment in the quarter ended June 30, 2011 of $0.5 million, which includes $0.1 million of deferred financing costs written off. The loss represented the excess of the fair value of the liability component of the October 2004 2.9375% Notes repurchased over their carrying values, plus the deferred financing costs written off. The amount of consideration recorded as a reduction of shareholders’ equity represents the equity component of the October 2004 2.9375% Notes repurchased.

July 20, 2010 Refinancing Exchange Agreement. On July 20, 2010, we entered into a Refinancing Exchange Agreement to exchange approximately $36.0 million in aggregate principal amount of the February 2005 3.625% Notes and approximately $63.7 million in aggregate principal amount of the October 2004 2.9375% Notes for equal principal amounts, respectively, of the New 3.625% Notes and the New 2.9375% Notes. The New Notes took effect immediately and all terms were identical to the February 2005 3.625% Notes and October 2004 2.9375% Notes except that the New Notes had an extended maturity date, extended put rights by two years, and were immediately convertible at an initial conversion rate of 161.2903 of our common shares per $1,000 principal amount of New Notes (conversion price per share of $6.20), subject to specified contingencies.

On July 20, 2010, the New Notes were converted into 16,236,305 of our common shares. As a result, the New Notes are no longer outstanding as of July 20, 2010.

Key Terms of Convertible Senior Subordinated Notes:

October 2004 2.9375% Notes. In October 2004, LGEI sold $150.0 million of the October 2004 2.9375% Notes.

Outstanding Amount: As of June 30, 2011, $26.9 million of aggregate principal amount (carrying value — $26.4 million) of the October 2004 2.9375% Notes remain outstanding.

Interest: Interest on the October 2004 2.9375% Notes is payable semi-annually on April 15 and October 15.

Maturity Date: The October 2004 2.9375% Notes mature on October 15, 2024.

Redeemable by LGEI: From October 15, 2010 to October 14, 2011, LGEI may redeem the October 2004 2.9375% Notes at 100.420% and thereafter, LGEI may redeem the October 2004 2.9375% Notes at 100%.

Conversion Features: The holder may convert the October 2004 2.9375% Notes into our common shares prior to maturity only if the price of our common shares issuable upon conversion of a note reaches or falls below a certain specific threshold over a specified period, the notes have been called for redemption, a change in control occurs or certain other corporate transactions occur. Before the close of business on or prior to the trading day immediately before the maturity date, the holder may convert the notes into our common shares. The conversion rate is equal to 86.9565 shares per $1,000 principal amount of the October 2004 2.9375% Notes, subject to adjustment in certain circumstances, which represents a conversion price of approximately $11.50 per share. Upon conversion of the October 2004 2.9375% Notes, we have the option to deliver, in lieu of common shares, cash or a combination of cash and our common shares.

Make Whole Premium: Under certain circumstances, if the holder requires LGEI to repurchase all or a portion of our notes or the holder converts the notes upon a change in control, they will be entitled to receive a make whole premium. The amount of the make whole premium, if any, will be based on the price of our common shares on the effective date of the change in control. No make whole premium will be paid if the price of our common shares at such time is less than $8.79 per share or exceeds $50.00 per share.

February 2005 3.625% Notes. In February 2005, LGEI sold $175.0 million of the February 2005 3.625% Notes.

Outstanding Amount: As of June 30, 2011, $23.5 million of aggregate principal amount (carrying value — $22.5 million) of the February 2005 3.625% Notes remain outstanding.

Maturity Date: The February 2005 3.625% Notes mature on March 15, 2025.

Redeemable by LGEI: LGEI may redeem all or a portion of the February 2005 3.625% Notes at our option on or after March 15, 2012 at 100% of their principal amount, together with accrued and unpaid interest through the date of redemption.

Conversion Features: The February 2005 3.625% Notes are convertible, at the option of the holder, at any time before the maturity date, if the notes have not been previously redeemed or repurchased, at a conversion rate equal to 70.0133 shares per $1,000 principal amount of the February 2005 3.625% Notes, subject to adjustment in certain circumstances, which represents a conversion price of approximately $14.28 per share. Upon conversion of the February 2005 3.625% Notes, we have the option to deliver, in lieu of common shares, cash or a combination of cash and our common shares.

Make Whole Premium: Under certain circumstances, if the holder requires LGEI to repurchase all or a portion of our notes upon a change in control, they will be entitled to receive a make whole premium. The amount of the make whole premium, if any, will be based on the price of our common shares on the effective date of the change in control. No make whole premium will be paid if the price of our common shares at such time is less than $10.35 per share or exceeds $75.00 per share.

April 2009 3.625% Notes. In April 2009, LGEI issued approximately $66.6 million of 3.625% Convertible Senior Subordinated Notes (the “April 2009 3.625% Notes”).

Outstanding Amount: As of June 30, 2011, $66.6 million of aggregate principal amount (carrying value — $41.6 million) of the April 2009 3.625% Notes remain outstanding.

Interest: Interest on the April 2009 3.625% Notes is payable at 3.625% per annum semi-annually on March 15 and September 15 of each year.

Maturity Date: The April 2009 3.625% Notes will mature on March 15, 2025.

Redeemable by LGEI: On or after March 15, 2015, LGEI may redeem the April 2009 3.625% Notes, in whole or in part, at a price equal to 100% of the principal amount of the April 2009 3.625% Notes to be redeemed, plus accrued and unpaid interest through the date of redemption.

Conversion Features: The April 2009 3.625% Notes may be converted into our common shares at any time before maturity, redemption or repurchase. The initial conversion rate of the April 2009 3.625% Notes is 121.2121 common shares per $1,000 principal amount of the April 2009 3.625% Notes, subject to adjustment in certain circumstances, which represents a conversion price of approximately $8.25 per share. Upon conversion of the April 2009 3.625% Notes, we have the option to deliver, in lieu of common shares, cash or a combination of cash and our common shares.

Make Whole Premium: Under certain circumstances, if the holder requires LGEI to repurchase all or a portion of their notes upon a change in control, they will be entitled to receive a make whole premium. The amount of the make whole premium, if any, will be based on the price of our common shares on the effective date of the change in control. No make whole premium will be paid if the price of our common shares at such time is less than $5.36 per share or exceeds $50.00 per share.

We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Production Loans and Participation Financing Arrangements

Individual Production Loans

As of June 30, 2011 amounts outstanding under individual production loans was $151.7 million. Individual productions loans represent individual loans for the production of film and television programs that we produce. Individual production loans have contractual repayment dates either at or near the expected completion date, with the exception of certain loans containing repayment dates on a longer term basis. Individual production loans of $106.7 million incur interest at rates ranging from 3.39% to 3.83%, and approximately $45.0 million of production loans are non-interest bearing.

Film Credit Facility

On October 6, 2009, we entered into a revolving film credit facility agreement, as amended effective December 31, 2009 and June 22, 2010 (the “Film Credit Facility”), which provides for borrowings for the acquisition or production of motion pictures.

Outstanding Amount. At June 30, 2011, we had borrowings of $19.6 million (March 31, 2011 — $20.4 million).

Commitment Fee. We are required to pay a quarterly commitment fee of 0.75% per annum on the unused commitment under the Film Credit Facility.

Security. Borrowings under the Film Credit Facility are subject to a borrowing base calculation and are secured by interests in the related motion pictures, together with certain other receivables from other motion picture and television productions pledged by us, including a minimum pledge of such receivables of $25 million. Receivables pledged to the Film Credit Facility must be excluded from the borrowing base calculation under our senior revolving credit facility as described in Note 6.

Pennsylvania Regional Center

General. On April 9, 2008, we entered into a loan agreement with the Pennsylvania Regional Center which provides for the availability of production loans up to $65,500,000 on a five-year term for use in film and television productions in the State of Pennsylvania. The amount that was borrowed was limited to approximately one half of the qualified production costs incurred in the

State of Pennsylvania through the two-year period ended April 2010, and is subject to certain other limitations. Under the terms of the loan, for every dollar borrowed, our production companies are required (within a two-year period) to either create a specified number of jobs, or spend a specified amount in certain geographic regions in the State of Pennsylvania.

Outstanding Amount. At June 30, 2011, we had borrowings of $65.5 million (fair value — $62.4 million) (March 31, 2011 — $65.5 million).

Availability of Funds. At June 30, 2011, there were no amounts available under this agreement (March 31, 2011 — nil).

Maturity Date. All amounts borrowed under this loan agreement with the Pennsylvania Regional Center are due April 11, 2013, five years from the date that we began to borrow under this agreement.

Interest. Amounts borrowed under the agreement carry an interest rate of 1.5%, which is payable semi-annually.

Security. The loan is secured by a first priority security interest in our film library pursuant to an intercreditor agreement with our senior lender under our senior revolving credit facility. Pursuant to the terms of our senior revolving credit facility, we are required to maintain certain collateral equal to the loans outstanding plus 5% under this facility. Such collateral can consist of cash, cash equivalents or debt securities, including our convertible senior subordinated notes repurchased. As of June 30, 2011, $72.8 million principal value (fair value — $72.4 million) of our convertible senior subordinated notes repurchased in December 2009 (see Note 10) was held as collateral under our senior revolving credit facility (March 31, 2011 — $72.8 million principal value, $72.4 million fair value).

Participation Financing Arrangements

Theatrical Slate Participation. On May 29, 2009, we terminated our theatrical slate participation arrangement with Pride Pictures, LLC (“Pride”), an unrelated entity. The arrangement was evidenced by, among other documents, that certain Master Covered Picture Purchase Agreement (the “Master Picture Purchase Agreement”) between us and LG Film Finance I, LLC (“FilmCo”) and that certain Limited Liability Company Agreement for FilmCo by and between us and Pride, each dated as of May 25, 2007 and amended on January 30, 2008. Under the arrangement, Pride contributed, in general, 50% of our production, acquisition, marketing and distribution costs of theatrical feature films and participated in a pro rata portion of the pictures’ net profits or losses similar to a co-production arrangement based on the portion of costs funded. Amounts provided from Pride were reflected as a participation liability. In late 2008, the administrative agent for the senior lenders under Pride’s senior credit facility took the position, among others, that the senior lenders did not have an obligation to continue to fund under the senior credit facility because the conditions precedent to funding set forth in the senior credit facility could not be satisfied. We were not a party to the credit facility. Consequently, Pride did not purchase the pictures The Spirit, My Bloody Valentine 3-D and Madea Goes To Jail. Thereafter, on April 20, 2009, after failed attempts by us to facilitate a resolution, we gave FilmCo and Pride notice that FilmCo, through Pride’s failure to make certain capital contributions, was in default of the Master Picture Purchase Agreement. On May 5, 2009, the representative for the Pride equity and the Pride mezzanine investor responded that the required amount was fully funded and that it had no further obligations to make any additional capital contributions. Consequently, on May 29, 2009, we gave notice of termination of the Master Picture Purchase Agreement. Since May 29, 2009, there have been no developments with respect to the arrangement. Although we will no longer receive financing as provided from the participation of Pride in our films, we do not believe this will have a material adverse effect to our business.

Société Générale de Financement du Québec. On July 30, 2007, we entered into a four-year filmed entertainment slate participation agreement with Société Générale de Financement du Québec (“SGF”), the Québec provincial government’s investment arm. SGF will provide up to 35% of production costs of television and feature film productions produced in Québec for a four-year period for an aggregate participation of up to $140 million, and we will advance all amounts necessary to fund the remaining budgeted costs. The maximum aggregate of budgeted costs over the four-year period will be $400 million, including our portion, but no more than $100 million per year. In connection with this agreement, we and SGF will proportionally share in the proceeds derived from the productions after we deduct a distribution fee, recoup all distribution expenses and releasing costs, and pay all applicable third party participations and residuals. Under the terms of the arrangement, $35 million was available through July 30, 2011. Of the $35 million available through July 30, 2011, $5.7 million was provided through June 30, 2011, with the remaining commitment expiring on July 30, 2011.

Filmed Entertainment Backlog

Filmed Entertainment Backlog. Backlog represents the amount of future revenue not yet recorded from contracts for the licensing of films and television product for television exhibition and in international markets. Backlog at June 30, 2011 and March 31, 2011 is $546.0 million and $532.0 million, respectively.

Discussion of Operating, Investing, Financing Cash Flows

Cash Flows Used in Operating Activities. Cash flows used in operating activities for the three months ended June 30, 2011 were $44.5 million compared to cash flows used in operating activities in the three months ended June 30, 2010 of $62.9 million. The decrease in cash used in operating activities was primarily due to net income generated for the three months ended June 30, 2011 compared to a net loss for the three months ended June 30, 2010 and increases in cash provided by changes in restricted cash, accounts receivable, and participation and residuals, offset by an increase in investment in films and television programs, decreases in accounts payable and accrued liabilities, amortization of films and television programs, and non-cash stock-based compensation investment, and equity interest income for the three months ended June 30, 2011 compared to equity interest loss for the three months ended June 30, 2010.

Cash Flows Used in Investing Activities. Cash flows used in investing activities of $2.4 million for the three months ended June 30, 2011 consisted of $0.4 million for purchases of property and equipment, $0.5 million of capital contributions to companies accounted as equity method investments, and $1.5 million for an increase in loans made to Break Media. Cash flows used in investing activities of $37.4 million for the three months ended June 30, 2010 consisted of $15.0 million for the buy-out of the earn-out associated with the acquisition of Debmar-Mercury, $0.4 million for purchases of property and equipment and $22.0 million of capital contributions to companies accounted as equity method investments.

Cash Flows Provided by Financing Activities. Cash flows provided by financing activities of $71.3 million for the three months ended June 30, 2011 resulted from the receipt of net proceeds of $192.4 million from the sale of the May 2011 Senior Notes, borrowings of $95.4 million under the senior revolving credit facility, $56.2 million under production loans, partially offset by $165.2 million repayment on the senior revolving credit facility, $87.1 million repayment of production loans, $19.5 million payment on the repurchase of convertible senior subordinated notes, and $0.9 million paid for tax withholding requirements associated with our equity awards. Cash flows provided by financing activities of $110.4 million for the three months ended June 30, 2010 resulted from borrowings of $243.0 million under the senior revolving credit facility and increased production loans of $17.3 million, offset by $61.0 million repayment on the senior revolving credit facility, $83.8 million repayment of production loans, $3.7 million increase in restricted cash collateral requirement under the Film Credit Facility and $1.5 million paid for tax withholding requirements associated with our equity awards.

Anticipated Cash Requirements. The nature of our business is such that significant initial expenditures are required to produce, acquire, distribute and market films and television programs, while revenues from these films and television programs are earned over an extended period of time after their completion or acquisition. We believe that cash flow from operations, cash on hand, senior revolving credit facility availability, tax-efficient financing, available production financing, and the proceeds from the issuance of our May 2011 Senior Notes will be adequate to meet known operational cash requirements for the foreseeable future, including the funding of future film and television production, film rights acquisitions and theatrical and video release schedules, and future equity method investment funding requirements. We monitor our cash flow liquidity, availability, fixed charge coverage, capital base, film spending and leverage ratios with the long-term goal of maintaining our credit worthiness.

Our current financing strategy is to fund operations and to leverage investment in films and television programs through our cash flow from operations, our senior revolving credit facility, single-purpose production financing, the Film Credit Facility, government

incentive programs, film funds, and distribution commitments. In addition, we may acquire businesses or assets, including individual films or libraries that are complementary to our business. Any such transaction could be financed through our cash flow from operations, credit facilities, equity or debt financing. If additional financing beyond our existing cash flows from operations and credit facilities cannot fund such transactions, there is no assurance that such financing will be available on terms acceptable to us. We may also dispose of businesses or assets, including individual films or libraries, and use the net proceeds from such dispositions to fund operations or such acquisitions, or to repay debt.

Table of Debt and Other Financing Obligations and Contractual Commitments

The following table sets forth our future nine-month and annual repayment of debt and other financing obligations outstanding, and our contractual commitments as of June 30, 2011:


	Nine Months Ended March 31,		Year Ended March 31,
	2012		2013		2014		2015		2016		Thereafter		Total

Future annual repayment of debt and other financing obligations recorded as of June 30, 2011
Senior revolving credit facility	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Film obligations(1)		28,124		16,875		13,766		6,553		—		—		65,318
Production loans(1)
Individual production loans		79,991		56,734		15,000		—		—		—		151,725
Pennsylvania Regional Center production loans		—		—		65,500		—		—		—		65,500
Film Credit Facility		12,486		7,119		—		—		—		—		19,605
Principal amounts of convertible senior subordinated notes and other financing obligations (2)
October 2004 2.9375% Notes (carrying value of $26.4 million at June 30, 2011)		26,931		—		—		—		—		—		26,931
February 2005 3.625% Notes (carrying value of $22.5 million at June 30, 2011)		23,470		—		—		—		—		—		23,470
April 2009 3.625% Notes (carrying value of $41.6 million at June 30, 2011)		—		—		—		66,581		—		—		66,581
Other financing obligations		—		3,718		—		—		—		—		3,718
Principal amount of senior secured second-priority notes, due November 2016 (carrying value of $431.0 million at June 30, 2011)		—		—		—		—		—		436,000		436,000

	$	171,002	$	84,446	$	94,266	$	73,134	$	—	$	436,000	$	858,848
Contractual commitments by expected repayment date
Distribution and marketing commitments (3)	$	48,087	$	81,988	$	—	$	—	$	—	$	—	$	130,075
Minimum guarantee commitments (4)		113,190		34,206		300		3,103		6,438		—		157,237
Production loan commitments (4)		10,235		82,723		—		—		—		—		92,958
Cash interest payments on subordinated notes and other financing obligations		3,882		2,440		2,414		2,414		—		—		11,150
Cash interest payments on senior secured second priority notes		22,345		44,690		44,690		44,690		44,690		44,690		245,795
Operating lease commitments		6,938		9,481		9,544		9,011		4,181		625		39,780
Other contractual obligations		529		—		—		—		—		—		529
Employment and consulting contracts		27,568		22,586		10,192		2,697		1,892		—		64,935

	$	232,774	$	278,114	$	67,140	$	61,915	$	57,201	$	45,315	$	742,459


Total future commitments under contractual obligations	$	403,776	$	362,560	$	161,406	$	135,049	$	57,201	$	481,315	$	1,601,307

(1)

Film obligations include minimum guarantees and theatrical marketing obligations. Production loans represent loans for the production of film and television programs that we produce. Repayment dates are based on anticipated delivery or release date of the related film or contractual due dates of the obligation.

(2)	The future repayment dates of the convertible senior subordinated notes represent the first possible redemption date by the holder for each note respectively.

(3)	Distribution and marketing commitments represent contractual commitments for future expenditures associated with distribution and marketing of films which we will distribute. The payment dates of these amounts are primarily based on the anticipated release date of the film.

(4)

Minimum guarantee commitments represent contractual commitments related to the purchase of film rights for pictures to be delivered in the future. Production loan commitments represent amounts committed for future film production and development to be funded through production financing and recorded as a production loan liability when incurred. Future payments under these commitments are based on anticipated delivery or release dates of the related film or contractual due dates of the commitment. The amounts include future interest payments associated with the commitment.

Off-Balance Sheet Arrangements

We do not have any transactions, arrangements and other relationships with unconsolidated entities that will affect our liquidity or capital resources. We have no special purpose entities that provided off-balance sheet financing, liquidity or market or credit risk support, nor do we engage in leasing, hedging or research and development services, that could expose us to liability that is not reflected on the face of our consolidated financial statements. Our commitments to fund operating leases, minimum guarantees, production loans, equity method investment funding requirements and all other contractual commitments not reflected on the face of our audited consolidated financial statements are presented in the above table.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Currency and Interest Rate Risk Management

Market risks relating to our operations result primarily from changes in interest rates and changes in foreign currency exchange rates. Our exposure to interest rate risk results from the financial debt instruments that arise from transactions entered into during the normal course of business. As part of our overall risk management program, we evaluate and manage our exposure to changes in interest rates and currency exchange risks on an ongoing basis. Hedges and derivative financial instruments will be used in the future in order to manage our interest rate and currency exposure. We have no intention of entering into financial derivative contracts, other than to hedge a specific financial risk.

Currency Rate Risk. We enter into forward foreign exchange contracts to hedge our foreign currency exposures on future production expenses denominated in various foreign currencies. As of June 30, 2011, we had outstanding forward foreign exchange contracts to sell Canadian $1.1 million in exchange for US$1.1 million over a period of two months at a weighted average exchange rate of one Canadian dollar equals US$1.00. Additionally, we had outstanding forward foreign exchange contracts to buy Canadian $9.9 million in exchange for US$10.4 million over a period of four months at a weighted average exchange rate of one US$ equals Canadian $0.95. We also had outstanding forward foreign exchange contracts to sell British Pound Sterling £12.2 million in exchange for US$19.6 million over a period of eight months at a weighted average exchange rate of one British Pound Sterling equals US$1.60. Changes in the fair value representing a net unrealized fair value gain on foreign exchange contracts that qualified as effective hedge contracts outstanding during the three months ended June 30, 2011 amounted to less than $0.1 million and are included in accumulated other comprehensive loss, a separate component of shareholders’ equity. These contracts are entered into with a major financial institution as counterparty. We are exposed to credit loss in the event of nonperformance by the counterparty, which is limited to the cost of replacing the contracts, at current market rates. We do not require collateral or other security to support these contracts.

Interest Rate Risk. Certain of our borrowings, primarily borrowings under its senior revolving credit facility, certain production loans and the Film Credit Facility, are, and are expected to continue to be, at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and its net income would decrease. The applicable margin with respect to loans under the senior revolving credit facility is a percentage per annum equal to 2.50% plus an adjusted rate based on LIBOR. The applicable margin with respect to loans under the Film Credit Facility is a percentage per annum equal to 3.25% over the “LIBO” rate (as defined in the Film Credit Facility agreement). Assuming the senior revolving credit facility and the Film Credit Facility are fully drawn, based on the applicable LIBOR in effect as of June 30, 2011, each quarter point change in interest rates would result in a $0.9 million change in annual interest expense on the senior revolving credit facility and $0.3 million change in annual interest expense on the Film Credit Facility. The variable interest production loans incur interest at rates ranging from approximately 3.39% to 3.83% and applicable margins ranging from 3.25% over the one, three, six or twelve-month LIBOR. A quarter point increase of the interest rates on the outstanding principal amount of our variable rate production loans would result in $0.3 million in additional costs capitalized to the respective film or television asset.

The following table presents our financial instruments that are sensitive to changes in interest rates. The table also presents the cash flows of the principal amounts of the financial instruments with the related weighted-average interest rates by expected maturity dates and the fair value of the instrument as of June 30, 2011:


	Nine Months Ended March 31,			Year Ended March 31,
	2012			2013			2014			2015			2016		Thereafter			Total		Fair Value June 30, 2011
Variable Rates:
Senior Revolving Credit Facility (1)	$	—		$	—		$	—		$	—		$	—	$	—			—		—
Average Interest Rate		—			—			—			—			—		—
Production Loans (2):
Individual production loans		50,004			56,734			—			—			—		—			106,738		106,738
Average Interest Rate		3.59	%		3.55	%		—			—			—		—
Film Credit Facility		19,605			—			—			—			—		—			19,605		19,605
Average Interest Rate		3.44	%		—			—			—			—		—
Fixed Rates:
Production Loans (3):
Pennsylvania Regional Center production loans		—			—			65,500			—			—		—			65,500		62,441
Average Interest Rate		—			—			1.50	%		—			—		—
Principal Amounts of Convertible Senior Subordinated Notes (4):
October 2004 2.9375% Notes		26,931			—			—			—			—		—			26,931		27,002
Average Interest Rate		2.94	%		—			—			—			—		—
February 2005 3.625% Notes		23,470			—			—			—			—		—			23,470		23,326
Average Interest Rate		3.63	%		—			—			—			—		—
April 2009 3.625% Notes		—			—			—			66,581			—		—			66,581		60,220
Average Interest Rate		—			—			—			3.63	%		—		—
Other Financing Obligations (5)		—			3,718			—			—			—		—			3,718		3,718
Average Interest Rate		—			8.02	%		—			—			—		—
Principal Amount of Senior Secured Second-Priority Notes (6)		—			—			—			—			—		436,000			436,000		439,270
Average Interest Rate		—			—			—			—			—		10.25	%

	$	120,010		$	60,452		$	65,500		$	66,581		$	—	$	436,000		$	748,543	$	742,320

(1)	Senior revolving credit facility, which expires July 25, 2013 bears interest of 2.50% over the Adjusted LIBOR rate. At June 30, 2011, we had no outstanding borrowings under this facility.

(2)

Amounts owed to film production entities on anticipated delivery date or release date of the titles or the contractual due dates of the obligation. Production loans of $106.7 million incur interest at rates ranging from approximately 3.39% to 3.83%. Not included in the table above are approximately $45.0 million of production loans which are non-interest bearing.

(3)	Long term production loans with a fixed interest rate equal to 1.5%.

(4)	The future repayment dates of the convertible senior subordinated notes represent the first possible redemption date by the holder for each note respectively.

(5)	Other financing obligation with fixed interest rate equal to 8.02%.

(6)	Senior secured second-priority notes with a fixed interest rate equal to 10.25%.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 as amended (the “Exchange Act”). These rules refer to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within required time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of June 30, 2011, the end of the period covered by this report, the Company carried out an evaluation under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness of our disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures were effective as of June 30, 2011.

Changes in Internal Control over Financial Reporting

As required by Rule 13a-15(d) of the Exchange Act, the Company, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, also evaluated whether any changes occurred to the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, such control. Based on that evaluation, there has been no such change during the period covered by this report.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

On July 23, 2010, Icahn Partners LP, a limited partnership governed by the laws of Delaware and certain entities affiliated with Icahn Partners LP (collectively, the “Offeror”) filed a petition in the Supreme Court of British Columbia (the “BC Court”) against the Company, Dr. Mark Rachesky, MHR Fund Management LLC and MHR Institutional Partners III LP (the “MHR Fund”) and Kornitzer Capital Management, Inc. (the “BC Action”). The Offeror filed an amended petition on July 26, 2010. Dr. Mark Rachesky, a director of the Company, is the managing member of MHR Institutional Partners III LP’s general partner. Among other things, the Offeror claimed that a July 20, 2010 Refinancing Exchange Agreement (the “Exchange”) between the Company and Kornitzer Capital Management, Inc. to exchange certain convertible notes of Lions Gate Entertainment Inc. (“LGEI”), as well as the Note Sale (as defined below) and Conversion (as defined below), were “oppressive” to the Offeror under British Columbia law. The Offeror sought, among other things, orders (1) declaring that the Company is oppressing its shareholders, (2) prohibiting MHR Institutional Partners III LP from transferring or voting its new shares, (3) prohibiting the Company from issuing any securities, (4) unwinding the July 20 transactions between the MHR Fund, the Company, and Kornitzer Capital Management, Inc. (which includes the Exchange, the Note Sale and the Conversion) and (5) compensating the petitioners. The BC Court heard argument during the week of October 11, 2010. On November 1, 2010, the BC Court issued a final order and decision dismissing the Offeror’s claims in their entirety and awarding costs to Company. On November 2, 2010, the Offeror announced its intent to appeal the decision. On November 5, 2010, a single Justice of the British Columbia Court of Appeal denied the Offeror’s application for an expedited appeal or, in the alternative, an order prohibiting the Company from scheduling its 2010 annual general meeting of shareholders before January 21, 2011. The Offeror’s application to vary this order was denied by a panel of the British Columbia Court of Appeal on December 7, 2010. The British Columbia Court of Appeal heard oral argument on the Offeror’s appeal from the final order and decision of the BC Court on March 24, 2011. The appeal was dismissed on May 10, 2011. For purposes of this Item 1, the “Note Sale” means the July 20, 2010 entry into a Purchase Agreement and subsequent sale of the New Notes received by Kornitzer Capital Management, Inc. in the Exchange to MHR Institutional Partners III LP. Additionally, the “Conversion” means, after the consummation of the Note Sale, the July 20, 2010 exercise by MHR Institutional Partners III LP of conversion rights under the New Notes whereby the New Notes were converted in full into 16,236,305 common shares of the Company.

On October 28, 2010, the Company filed an action in the United States District Court for the Southern District of New York against Carl Icahn, Brett Icahn, and various investment vehicles controlled by Carl Icahn. The action is captioned Lions Gate Entertainment Corp. v. Carl C. Icahn, Brett Icahn, Icahn Partners LP, High River Limited Partnership, Hopper Investments LLC, Barberry Corp., Icahn Onshore LP, Icahn Offshore LP, Icahn Capital LP, IPH GP LLC, Icahn Enterprises Holdings L.P., Icahn Enterprises G.P. Inc., and Beckton Corp., No. 10-CV-8169. The complaint, filed as Exhibit (a)(8) to the Company’s Amendment No. 7 to the Schedule 14D-9, filed with the Securities and Exchange Commission on October 29, 2010, alleges violations of Sections 13(d), 14(a), 14(d), and 14(e) of the Securities Exchange Act of 1934, and certain rules promulgated thereunder, and tortious interference with prospective business relations under state law. The complaint sought damages and injunctive relief, including an order requiring the defendants to make corrective disclosures before the Company’s 2010 annual general meeting of shareholders. On November 22, 2010, the Offeror moved to dismiss the complaint. The Company amended its complaint on December 3, 2010. The Offeror moved to dismiss the amended complaint on December 17, 2010. Following oral argument on March 18, 2011, the Court granted in part and denied in part the Offeror’s motion to dismiss. The Court granted the Offeror’s motion to dismiss with respect to the Company’s claims alleging that the Offeror violated Sections 13(d), 14(a), 14(d) (except for Section 14(d)(7) as discussed below) and 14(e) of the Exchange Act, and certain rules promulgated thereunder, and tortious interference with prospective business relations under state law. The Court denied the Offeror’s motion to dismiss with respect to the Company’s claim alleging that the Offeror violated Section 14(d)(7) of the Exchange Act, and Rule 14d-10(a)(2) promulgated thereunder, by offering special consideration to a particular shareholder in the course of its tender offer when it was required to offer all shareholders the highest consideration paid to any single shareholder, and the suit is ongoing with respect to that remaining claim. The Court denied the Offeror’s motion for reconsideration on June 20, 2011.

Item 1A. Risk Factors.

Other than as set forth below, there were no other material changes to the risk factors previously reported in our Annual Report on Form 10-K for the fiscal year ended March 31, 2011.

An increase in the ownership of our common shares by certain shareholders could trigger a change in control under the agreements governing our long-term indebtedness.

The agreements governing certain of our long-term indebtedness contain change in control provisions that are triggered when any of our shareholders, directly or indirectly, acquires ownership or control in excess of a certain percentage of our common shares. As of June 30, 2011, three of our shareholders, Carl C. Icahn, Mark H. Rachesky, M.D. and Capital Research Global Investors and their respective affiliates, beneficially owned approximately 32.7%, 29.4% and 9.2%, respectively, of our outstanding common shares.

Under certain circumstances, including the acquisition of ownership or control by a person or group in excess of 50% of our common shares, the holders of our senior secured notes and our convertible senior subordinated notes may require us to repurchase all or a portion of such notes upon a change in control and the holders of our convertible senior subordinated notes may be entitled to receive

a make whole premium based on the price of our common shares on the change in control date. We may not be able to repurchase these notes upon a change in control because we may not have sufficient funds. Further, we may be contractually restricted under the terms of our senior secured credit facility and the Film Credit Facility, from repurchasing all of the notes tendered by holders upon a change in control. Our failure to repurchase our senior secured notes upon a change in control would cause a default under the indentures governing the senior secured notes and the convertible senior subordinated notes and a cross-default under the senior secured credit facility and the Film Credit Facility.

Our senior secured credit facility and the Film Credit Facility also provide that a change in control, which includes a person or group acquiring ownership or control in excess of 50% of our outstanding common shares, will be an event of default that permits lenders to accelerate the maturity of borrowings thereunder and to enforce security interests in the collateral securing such debt, thereby limiting our ability to raise cash to purchase our outstanding senior secured note and convertible senior subordinated notes. Any of our future debt agreements may contain similar provisions.

Certain shareholders own a majority of our outstanding common shares.

As of June 30, 2011, three of our shareholders beneficially owned an aggregate of 96,750,173 of our common shares, or approximately 70.9% of the outstanding shares. In addition, one of these shareholders, Mark H. Rachesky, M.D., the beneficial owner of approximately 28.9% of our outstanding common shares currently serves on our Board of Directors. Accordingly, these three shareholders, collectively, have the power to exercise substantial influence over us and on matters requiring approval by our shareholders, including the election of directors, the approval of mergers and other significant corporate transactions. This concentration of ownership may make it more difficult for other shareholders to effect substantial changes in our company and may also have the effect of delaying, preventing or expediting, as the case may be, a change in control of our company.

Sales of a substantial number of shares of our common shares, or the perception that such sales might occur, could have an adverse effect on the price of our common shares, and therefore our ability to raise additional capital to fund our operations.

As of June 30, 2011, over 70% of our common shares were held beneficially by certain individuals and institutional investors who each had ownership of greater than 5% of our common shares. Sales by such individuals and institutional investors of a substantial number of shares of our common shares into the public market, or the perception that such sales might occur, could have an adverse effect on the price of our common shares, which could materially impair our ability to raise capital through the sale of common shares or debt that is convertible into our common shares.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Securities

On May 31, 2007, our Board of Directors authorized the repurchase of up to $50 million of our common shares. Thereafter, on each of May 29, 2008 and November 6, 2008, as part of its regularly scheduled meetings, our Board of Directors authorized the repurchase up to an additional $50 million of our common shares, subject to market conditions. The additional resolutions increased the total authorization to $150 million. The common shares may be purchased, from time to time, at the Company’s discretion, including the quantity, timing and price thereof. Such purchases will be structured as permitted by securities laws and other legal requirements. During the period from the authorization date through December 31, 2010, 6,787,310 shares have been repurchased at a cost of approximately $65.2 million (including commission costs). The share repurchase program has no expiration date.

There were no purchases of shares of our common stock by us during the three months ended June 30, 2011.

Item 3. Defaults Upon Senior Securities.

None

Item 4. Removed and Reserved.

Item 5. Other Information.

The Company’s 2011 Annual General Meeting of Shareholders will be held on September 13, 2011. The Board of Directors of the Company has fixed the close of business on August 5, 2011 as the record date for determining the shareholders entitled to receive notice of the annual general meeting or any continuations, adjournments or postponements thereof.

Item 6. Exhibits.


Exhibit Number		Description of Documents

3.1 (1)		Articles

3.2 (2)		Notice of Articles

3.3 (3)		Vertical Short Form Amalgamation Application

3.4 (3)		Certificate of Amalgamation

4.1 (4)		Supplemental Indenture dated May 13, 2011 among Lions Gate Entertainment Inc., Lions Gate Entertainment Corp., the subsidiary guarantors named therein and U.S Bank National Association, as trustee

31.1		Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 formatted in Extensible Business Reporting Language (XBRL): (i ) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Shareholder’s Equity, (iv) the Condensed consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements

(1)	Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2005 as filed on June 29, 2005.

(2)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2010, as filed on February 9, 2011

(3)	Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007 as filed on May 30, 2007.

(4)	Incorporated by reference to the Company’s Current Report on Form 8-K as filed on May 13, 2011

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.