e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2009
or
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o |
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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)
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British Columbia, Canada
(State or other jurisdiction of
incorporation or organization)
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N/A
(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
(Registrants 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 þ No o
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 o No o
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:
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the registrants classes of common stock,
as of the latest practicable date.
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Title of Each Class |
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Outstanding at February 1, 2010 |
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Common Shares, no par value per share |
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117,836,146 shares |
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FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by terms
such as may, intend, will, could, would, expect, anticipate, potential, believe,
estimate, or the negative of these terms, and similar expressions intended to identify
forward-looking statements.
These forward-looking statements reflect Lions Gate Entertainment Corp.s current views with
respect to future events and are based on assumptions and are subject to risks and uncertainties.
Also, these forward-looking statements present our estimates and assumptions only as of the date of
this report. Except for our ongoing obligation to disclose material information as required by
federal securities laws, we do not intend to update you concerning any future revisions to any
forward-looking statements to reflect events or circumstances occurring after the date of this
report.
Actual results in the future could differ materially and adversely from those described in the
forward-looking statements 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, budget overruns, limitations imposed by
our credit facilities, unpredictability of the commercial success of our motion pictures and
television programming, the cost of defending our intellectual property, difficulties in
integrating acquired businesses, technological changes and other trends affecting the entertainment
industry, and the risk factors found herein and under the heading Risk Factors in our Annual
Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the SEC) on June 1,
2009, and in Exhibit 99.1 to our Current Report on Form 8-K filed with the SEC on October 13, 2009,
which risk factors are incorporated herein by reference.
Unless otherwise indicated, all references to the Company, Lionsgate, we, us, and
our include reference to our subsidiaries as well.
3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
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December 31, |
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March 31, |
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2009 |
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2009 |
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(Amounts in thousands, |
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except share amounts) |
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ASSETS |
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Cash and cash equivalents |
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$ |
105,090 |
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$ |
138,475 |
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Restricted cash |
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706 |
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10,056 |
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Restricted investments |
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6,995 |
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6,987 |
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Accounts receivable, net of reserve for returns and allowances of $83,578 (March 31, 2009 -
$98,947) and provision for doubtful accounts of $8,961 (March 31, 2009 - $9,847) |
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255,377 |
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227,010 |
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Investment in films and television programs, net |
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731,289 |
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702,767 |
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Property and equipment, net |
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35,359 |
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42,415 |
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Finite-lived intangible assets, net |
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74,412 |
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78,904 |
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Goodwill |
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376,853 |
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379,402 |
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Other assets |
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113,026 |
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81,234 |
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Total assets |
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$ |
1,699,107 |
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$ |
1,667,250 |
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LIABILITIES |
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Senior revolving credit facility |
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$ |
12,000 |
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$ |
255,000 |
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Senior secured second-priority notes |
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225,488 |
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Accounts payable and accrued liabilities |
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244,969 |
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270,561 |
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Participations and residuals |
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286,656 |
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371,857 |
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Film and production obligations |
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397,068 |
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304,525 |
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Subordinated notes and other financing obligations |
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200,064 |
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281,521 |
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Mandatorily redeemable preferred stock units held by noncontrolling interest |
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91,454 |
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Deferred revenue |
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136,977 |
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142,093 |
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Total liabilities |
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1,594,676 |
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1,625,557 |
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Commitments and contingencies |
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SHAREHOLDERS EQUITY |
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Lions Gate Entertainment Corp. shareholders equity: |
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Common shares, no par value, 500,000,000 shares authorized, 117,834,653 and
116,950,512 shares issued at December 31, 2009 and March 31, 2009, respectively |
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515,728 |
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494,724 |
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Accumulated deficit |
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(438,347 |
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(441,153 |
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Accumulated other comprehensive loss |
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(5,091 |
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(11,878 |
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Total Lions Gate Entertainment Corp. shareholders equity |
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72,290 |
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41,693 |
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Noncontrolling interest |
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32,141 |
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Total equity |
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104,431 |
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41,693 |
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Total liabilities and shareholders equity |
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$ |
1,699,107 |
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$ |
1,667,250 |
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See accompanying notes.
4
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Three Months |
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Three Months |
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Nine Months |
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Nine Months |
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Ended |
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Ended |
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Ended |
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Ended |
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December 31, |
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December 31, |
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December 31, |
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December 31, |
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2009 |
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2008 |
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2009 |
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2008 |
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(Amounts in thousands, except per share amounts) |
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Revenues |
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$ |
371,783 |
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$ |
324,027 |
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$ |
1,153,167 |
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$ |
1,003,204 |
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Expenses: |
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Direct operating |
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208,907 |
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218,451 |
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620,013 |
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565,761 |
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Distribution and marketing |
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160,303 |
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170,400 |
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347,531 |
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458,782 |
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General and administration |
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39,571 |
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27,472 |
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123,142 |
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96,380 |
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Depreciation and amortization |
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6,685 |
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1,575 |
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21,087 |
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4,376 |
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Total expenses |
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415,466 |
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417,898 |
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1,111,773 |
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1,125,299 |
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Operating income (loss) |
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(43,683 |
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(93,871 |
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41,394 |
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(122,095 |
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Other expenses (income): |
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Interest expense |
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Contractual cash based interest |
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7,655 |
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3,497 |
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18,040 |
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10,406 |
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Amortization of debt discount, deferred financing costs
and accretion of redeemable preferred stock units |
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9,104 |
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4,615 |
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22,725 |
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14,502 |
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Total interest expense |
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16,759 |
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8,112 |
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40,765 |
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24,908 |
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Interest and other income |
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(420 |
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(860 |
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(1,228 |
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(5,062 |
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Loss (gain) on extinguishment of debt |
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1,783 |
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(3,023 |
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(5,675 |
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(3,023 |
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Total other expenses, net |
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18,122 |
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4,229 |
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33,862 |
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16,823 |
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Income (loss) before equity interests and income taxes |
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(61,805 |
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(98,100 |
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7,532 |
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(138,918 |
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Equity interests loss |
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(6,903 |
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(1,695 |
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(10,548 |
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(5,841 |
) |
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Loss before income taxes |
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(68,708 |
) |
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(99,795 |
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(3,016 |
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(144,759 |
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Income tax provision (benefit) |
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(1,752 |
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(2,039 |
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259 |
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1,292 |
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Net loss |
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(66,956 |
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(97,756 |
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(3,275 |
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(146,051 |
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Add: Net loss attributable to noncontrolling interest |
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1,697 |
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6,081 |
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Net income (loss) attributable to Lions Gate Entertainment Corp. Shareholders |
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$ |
(65,259 |
) |
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$ |
(97,756 |
) |
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$ |
2,806 |
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$ |
(146,051 |
) |
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Basic Net Income (Loss) Per Common Share |
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$ |
(0.55 |
) |
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$ |
(0.84 |
) |
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$ |
0.02 |
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$ |
(1.25 |
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Diluted Net Income (Loss) Per Common Share |
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$ |
(0.55 |
) |
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$ |
(0.84 |
) |
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$ |
0.02 |
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$ |
(1.25 |
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Weighted average number of common shares outstanding: |
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Basic |
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117,745 |
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115,765 |
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117,381 |
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117,018 |
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Diluted |
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117,745 |
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115,765 |
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117,579 |
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117,018 |
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See accompanying notes.
5
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
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Lions Gate Entertainment Corp. Shareholders |
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Accumulated |
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Other |
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Common Shares |
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Accumulated |
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Comprehensive |
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Noncontrolling |
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Comprehensive |
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Number |
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Amount |
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Deficit |
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Income (Loss) |
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Interest |
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Income |
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Total |
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(Amounts in thousands, except share amounts) |
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Balance at March 31, 2009, as adjusted (Note 10) |
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116,950,512 |
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$ |
494,724 |
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$ |
(441,153 |
) |
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$ |
(11,878 |
) |
|
$ |
|
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$ |
41,693 |
|
Stock based compensation, net of
withholding tax obligations of $1,733 |
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|
759,810 |
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10,008 |
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10,008 |
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Issuance of common shares
to directors for services |
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100,665 |
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573 |
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573 |
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Sale of TV
Guide Network common stock units to noncontrolling interest |
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(167 |
) |
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38,222 |
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38,055 |
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Equity
component of April 2009 3.625%
Notes, net of $3.9 million reduction for
February 2005 3.625% Notes extinguished in
the April 2009 exchange transaction (Note 10) |
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14,761 |
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14,761 |
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Reduction of equity component for October 2004
2.9375% Notes and February 3.625% Notes extinguished in December 2009 (Note 10) |
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(4,171 |
) |
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|
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|
(4,171 |
) |
Comprehensive income |
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Net income (loss) |
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|
2,806 |
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|
|
(6,081 |
) |
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$ |
(3,275 |
) |
|
|
(3,275 |
) |
Foreign currency translation
adjustments |
|
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|
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|
6,628 |
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6,628 |
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|
6,628 |
|
Net unrealized gain on foreign
exchange contracts |
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|
159 |
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|
159 |
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|
159 |
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Comprehensive income |
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|
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$ |
3,512 |
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|
Balance at December 31, 2009 |
|
|
117,810,987 |
|
|
$ |
515,728 |
|
|
$ |
(438,347 |
) |
|
$ |
(5,091 |
) |
|
$ |
32,141 |
|
|
|
|
|
|
$ |
104,431 |
|
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|
|
|
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|
|
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|
See accompanying notes.
6
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
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|
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|
|
|
|
|
|
Nine Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Amounts in thousands) |
|
Operating Activities: |
|
|
|
|
|
|
|
|
Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders |
|
$ |
2,806 |
|
|
$ |
(146,051 |
) |
Net loss attributable to noncontrolling interest |
|
|
(6,081 |
) |
|
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|
|
|
|
|
|
|
|
|
Net loss |
|
|
(3,275 |
) |
|
|
(146,051 |
) |
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation of property and equipment |
|
|
11,174 |
|
|
|
3,616 |
|
Amortization of films and television programs |
|
|
429,474 |
|
|
|
315,614 |
|
Amortization of debt discount, deferred financing costs
and accretion of redeemable preferred stock units |
|
|
22,725 |
|
|
|
14,502 |
|
Amortization of intangible assets |
|
|
9,913 |
|
|
|
760 |
|
Non-cash stock-based compensation |
|
|
11,741 |
|
|
|
12,027 |
|
Gain on extinguishment of debt |
|
|
(5,675 |
) |
|
|
(3,023 |
) |
Equity interests loss |
|
|
10,548 |
|
|
|
5,841 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Restricted cash |
|
|
9,350 |
|
|
|
(6,700 |
) |
Accounts receivable, net |
|
|
(22,966 |
) |
|
|
72,945 |
|
Investment in films and television programs |
|
|
(457,271 |
) |
|
|
(471,308 |
) |
Other assets |
|
|
(2,315 |
) |
|
|
(12,191 |
) |
Accounts payable and accrued liabilities |
|
|
(30,305 |
) |
|
|
26,826 |
|
Participations and residuals |
|
|
(85,802 |
) |
|
|
24,696 |
|
Film obligations |
|
|
(20,019 |
) |
|
|
58,711 |
|
Deferred revenue |
|
|
(5,399 |
) |
|
|
7,826 |
|
|
|
|
|
|
|
|
Net Cash Flows Used In Operating Activities |
|
|
(128,102 |
) |
|
|
(95,909 |
) |
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Purchases of restricted investments |
|
|
(13,994 |
) |
|
|
|
|
Proceeds from the sale of restricted investments |
|
|
13,985 |
|
|
|
|
|
Investment in equity method investees |
|
|
(41,342 |
) |
|
|
(15,886 |
) |
Increase in loans receivable |
|
|
(362 |
) |
|
|
(28,767 |
) |
Repayment of loans receivable |
|
|
8,333 |
|
|
|
|
|
Purchases of property and equipment |
|
|
(4,228 |
) |
|
|
(6,465 |
) |
|
|
|
|
|
|
|
Net Cash Flows Used In Investing Activities |
|
|
(37,608 |
) |
|
|
(51,118 |
) |
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
2,894 |
|
Tax withholding requirements on equity awards |
|
|
(1,733 |
) |
|
|
(3,134 |
) |
Repurchase and cancellation of common shares |
|
|
|
|
|
|
(44,968 |
) |
Proceeds from the sale of 49% interest in TV Guide Network |
|
|
122,355 |
|
|
|
|
|
Borrowings under senior revolving credit facility |
|
|
170,000 |
|
|
|
|
|
Repayments of borrowings under senior revolving credit facility |
|
|
(413,000 |
) |
|
|
|
|
Borrowings under individual production obligations |
|
|
134,587 |
|
|
|
117,662 |
|
Repayment of individual production obligations |
|
|
(111,885 |
) |
|
|
(165,298 |
) |
Production obligation borrowings under Pennsylvania Regional Center credit facility |
|
|
57,000 |
|
|
|
8,758 |
|
Production obligation borrowings under film credit facility |
|
|
32,217 |
|
|
|
|
|
Proceeds from sale of senior secured second-priority notes |
|
|
216,232 |
|
|
|
|
|
Repurchase of subordinated notes |
|
|
(75,185 |
) |
|
|
(5,310 |
) |
Repayment of other financing obligations |
|
|
(615 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Provided By (Used In) Financing Activities |
|
|
129,973 |
|
|
|
(89,396 |
) |
|
|
|
|
|
|
|
Net Change In Cash And Cash Equivalents |
|
|
(35,737 |
) |
|
|
(236,423 |
) |
Foreign Exchange Effects on Cash |
|
|
2,352 |
|
|
|
(4,453 |
) |
Cash and Cash Equivalents Beginning Of Period |
|
|
138,475 |
|
|
|
371,589 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents End Of Period |
|
$ |
105,090 |
|
|
$ |
130,713 |
|
|
|
|
|
|
|
|
See accompanying notes.
7
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 the
leading next generation studio with a diversified presence in the production and distribution of
motion pictures, television programming, home entertainment, family entertainment, video-on-demand
and digitally delivered content.
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 Form 10-Q under the Securities Exchange Act of 1934,
as amended (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 Companys 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 and nine months ended December 31, 2009 are not necessarily indicative of the results
that may be expected for the fiscal year ended March 31, 2010. The balance sheet at March 31, 2009
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 Exhibit 99.5 to our Current Report on Form 8-K
filed with the SEC on October 13, 2009.
Certain amounts presented for fiscal 2009 have been reclassified to conform to the fiscal 2010
presentation.
Net Loss Attributable to Noncontrolling interest
As discussed in Note 12, the net loss attributable to noncontrolling interest in the
consolidated statements of operations and shareholders equity represents the noncontrolling
interests 49% share of the net loss incurred by TV Guide Network for the period from May 28, 2009
through December 31, 2009.
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 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 168, The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles, a replacement of FASB
Statement No. 162 (SFAS No.
168). This statement modifies the GAAP hierarchy by establishing only two levels of GAAP,
authoritative and nonauthoritative accounting literature. Effective July 2009, the FASB Accounting
Standards Codification (ASC), also known collectively as the Codification, is considered the
single source of authoritative U.S. accounting and reporting standards, except for additional
authoritative rules and interpretive releases issued by the SEC. Nonauthoritative
8
guidance and literature would include, among other things, FASB Concepts Statements, American
Institute of Certified Public Accountants Issue Papers and Technical Practice Aids and accounting
textbooks. The Codification was developed to organize GAAP pronouncements by topic so that users
can more easily access authoritative accounting guidance. It is organized by topic, subtopic,
section, and paragraph, each of which is identified by a numerical designation. The Company has
adopted the Codification prospectively beginning in the second quarter of fiscal 2010, resulting in
no impact on the Companys consolidated financial statements.
Accounting for noncontrolling interest in consolidated subsidiaries. The Company adopted new
accounting guidance that changes the accounting and reporting for minority interests, which are
recharacterized as noncontrolling interests and classified as a component of equity. This new
consolidation method changes the accounting for transactions with noncontrolling interest holders.
We adopted this standard beginning in the first quarter of fiscal 2010 (see Note 12).
Accounting for certain convertible debt instruments. The Company adopted new accounting
guidance that specifies that issuers of convertible debt instruments that may be settled in cash
upon either mandatory or optional conversion (including partial cash settlement) should separately
account for the liability and equity components in a manner that will reflect the entitys
nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The
Company adopted this standard beginning in the first quarter of fiscal 2010 (see Note 10).
Subsequent events. The Company adopted new accounting guidance related to the accounting for
and disclosure of subsequent events that occur after the balance sheet date. Entities are also
required to disclose the date through which subsequent events have been evaluated and the basis for
that date. The Company adopted this standard beginning in the first quarter of fiscal 2010 and has
evaluated subsequent events through the date of issuance, February 9, 2010, resulting in no impact
on the Companys consolidated financial statements.
Consolidation accounting for variable interest entities. This new accounting guidance modifies
the previous guidance in relation to the identification of controlling financial interests in a
variable interest entity (VIE). This analysis identifies the primary beneficiary of a VIE as the
enterprise that has both of the following characteristics, among others: (a) the power to direct
the activities of a VIE that most significantly impact the entitys economic performance; and (b)
the obligation to absorb losses of the entity, or the right to receive benefits from the entity,
that could potentially be significant to the VIE. If an enterprise determines that power is shared
among multiple unrelated parties such that no one party has the power to direct the activities of a
VIE that most significantly impact the VIEs economic performance, then no party is the primary
beneficiary. Power is shared if each of the parties sharing power are required to consent to the
decisions relating to the activities that most significantly impact the VIEs performance. The
provisions of this standard will become effective for the Company beginning in fiscal 2011. The
Company is currently evaluating the impact of this standard on the Companys VIEs. Based upon the
Companys initial review and its current business and ownership structure of one of its VIEs, TV
Guide Network, the Company may no longer be required to consolidate TV Guide Network, effective
April 1, 2010.
2. Restricted Cash and Restricted Investments
Restricted Cash. Restricted cash represents amounts on deposit with financial institutions
that are contractually designated for certain theatrical marketing obligations.
Restricted Investments. Restricted investments, which are measured at fair value, represent
amounts held in investments that are contractually designated as collateral for certain production
obligations. The carrying amounts of these restricted investments are equal to their respective
fair values as of December 31, 2009 and March 31, 2009. At December 31, 2009 and March 31, 2009,
restricted investments consist of United States Treasury Bills bearing an interest rate of 0.165%,
maturing May 13, 2010.
9
3. Investment in Films and Television Programs
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2009 |
|
|
|
(Amounts in thousands) |
|
Motion Picture Segment Theatrical and Non-Theatrical Films |
|
|
|
|
|
|
|
|
Released, net of accumulated amortization |
|
$ |
250,871 |
|
|
$ |
262,067 |
|
Acquired libraries, net of accumulated amortization |
|
|
46,872 |
|
|
|
56,898 |
|
Completed and not released |
|
|
24,751 |
|
|
|
55,494 |
|
In progress |
|
|
234,854 |
|
|
|
149,402 |
|
In development |
|
|
10,043 |
|
|
|
6,732 |
|
Product inventory |
|
|
43,189 |
|
|
|
40,392 |
|
|
|
|
|
|
|
|
|
|
|
610,580 |
|
|
|
570,985 |
|
|
|
|
|
|
|
|
Television Segment Direct-to-Television Programs |
|
|
|
|
|
|
|
|
Released, net of accumulated amortization |
|
|
88,350 |
|
|
|
77,973 |
|
In progress |
|
|
29,106 |
|
|
|
51,619 |
|
In development |
|
|
2,565 |
|
|
|
1,445 |
|
|
|
|
|
|
|
|
|
|
|
120,021 |
|
|
|
131,037 |
|
|
|
|
|
|
|
|
Media Networks |
|
|
|
|
|
|
|
|
Released, net of accumulated amortization |
|
|
352 |
|
|
|
|
|
In progress |
|
|
336 |
|
|
|
745 |
|
|
|
|
|
|
|
|
|
|
|
688 |
|
|
|
745 |
|
|
|
|
|
|
|
|
|
|
$ |
731,289 |
|
|
$ |
702,767 |
|
|
|
|
|
|
|
|
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 |
|
Acquired |
|
|
|
|
|
Amortization |
|
|
Amortization |
|
|
December 31, |
|
|
March 31, |
|
Library |
|
Acquisition Date |
|
|
Period |
|
|
Period |
|
|
2009 |
|
|
2009 |
|
|
|
|
|
|
|
(In years) |
|
|
(Amounts in thousands) |
|
Trimark |
|
October 2000 |
|
|
20.00 |
|
|
|
10.75 |
|
|
$ |
5,263 |
|
|
$ |
6,280 |
|
Artisan |
|
December 2003 |
|
|
20.00 |
|
|
|
14.00 |
|
|
|
39,434 |
|
|
|
47,255 |
|
Modern |
|
August 2005 |
|
|
20.00 |
|
|
|
15.50 |
|
|
|
1,288 |
|
|
|
2,462 |
|
Lionsgate UK |
|
October 2005 |
|
|
20.00 |
|
|
|
15.75 |
|
|
|
887 |
|
|
|
901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Acquired Libraries |
|
|
|
|
|
|
|
|
|
$ |
46,872 |
|
|
$ |
56,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects approximately 44% of completed films and television programs, net of
accumulated amortization, will be amortized during the one-year period ending December 31, 2010.
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 December 31, 2012.
4. Goodwill
The changes in the carrying amount of goodwill by reporting segment were as follows in the
nine months ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion |
|
|
|
|
|
|
Media |
|
|
|
|
|
|
Pictures |
|
|
Television |
|
|
Networks |
|
|
Total |
|
|
|
(Amounts in thousands) |
|
Balance as of March 31, 2009 |
|
$ |
210,293 |
|
|
$ |
13,961 |
|
|
$ |
155,148 |
|
|
$ |
379,402 |
|
TV Guide Network |
|
|
|
|
|
|
|
|
|
|
(2,549 |
) |
|
|
(2,549 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009 |
|
$ |
210,293 |
|
|
$ |
13,961 |
|
|
$ |
152,599 |
|
|
$ |
376,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended December 31, 2009, goodwill decreased by $2.5 million due to
the completion of the preliminary purchase price allocation of the identified tangible and
intangible assets and liabilities assumed from the acquisition of the TV Guide Network.
10
5.
Finite-Lived Intangible Assets and Other Assets
Finite-Lived
Intangible Assets. Finite-lived intangible assets consist primarily of customer
relationships and trademarks. The composition of the Companys finite-lived intangible assets and
the associated accumulated amortization is as follows as of December 31, 2009 and March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Range |
|
|
|
|
|
|
|
|
|
average |
|
|
of |
|
|
December 31, 2009 |
|
|
March 31, 2009 |
|
|
|
remaining |
|
|
remaining |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
|
life in |
|
|
life in |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
|
years |
|
|
years |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
|
(Amounts in thousands) |
|
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
|
10 |
|
|
|
511 |
|
|
$ |
66,340 |
|
|
$ |
5,352 |
|
|
$ |
60,988 |
|
|
$ |
64,330 |
|
|
$ |
530 |
|
|
$ |
63,800 |
|
Trademarks |
|
|
16 |
|
|
|
220 |
|
|
|
11,850 |
|
|
|
1,743 |
|
|
|
10,107 |
|
|
|
11,330 |
|
|
|
627 |
|
|
|
10,703 |
|
Developed technology and patents |
|
|
2 |
|
|
|
26 |
|
|
|
3,710 |
|
|
|
1,470 |
|
|
|
2,240 |
|
|
|
3,740 |
|
|
|
147 |
|
|
|
3,593 |
|
Distribution agreements |
|
|
2 |
|
|
|
24 |
|
|
|
4,031 |
|
|
|
2,954 |
|
|
|
1,077 |
|
|
|
1,598 |
|
|
|
790 |
|
|
|
808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finite-lived intangible assets |
|
|
|
|
|
|
|
|
|
$ |
85,931 |
|
|
$ |
11,519 |
|
|
$ |
74,412 |
|
|
$ |
80,998 |
|
|
$ |
2,094 |
|
|
$ |
78,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate amount of amortization expense associated with the Companys intangible
assets for the three months ended December 31, 2009 and 2008 were $3.5 million and $0.2 million,
respectively. The aggregate amount of amortization expense associated with the Companys intangible
assets for the nine-month periods ended December 31, 2009 and 2008 were $9.9 million and $0.8
million, respectively. The estimated aggregate amortization expense associated with the Companys
intangible assets, for the three-months ended March 31, 2010 and for each of the years ending March
31, 2011 through 2014 is approximately $2.7 million, $10.2 million, $7.1 million, $7.0 million, and
$6.8 million, respectively.
Other
Assets. The composition of the Companys other assets is as follows as of December 31,
2009 and March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2009 |
|
|
|
(Amounts in thousands) |
|
Deferred
financing costs, net of accumulated amortization |
|
$ |
20,734 |
|
|
$ |
10,184 |
|
Prepaid expenses and other |
|
|
6,651 |
|
|
|
6,025 |
|
Loans receivable |
|
|
25,071 |
|
|
|
33,065 |
|
Equity method investments |
|
|
60,570 |
|
|
|
31,960 |
|
|
|
|
|
|
|
|
|
|
$ |
113,026 |
|
|
$ |
81,234 |
|
|
|
|
|
|
|
|
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 (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 (see Note 10) that are deferred and
amortized to interest expense using the effective interest method.
Prepaid
Expenses and Other
Prepaid expenses and other primarily include prepaid expenses and security deposits.
Loans
Receivable
Loans receivable at December 31, 2009 consist of a $16.7 million collateralized note
receivable plus $0.4 million of accrued interest from a third party producer, and $7.1 million of
notes receivable and $0.7 million of accrued interest from
NextPoint, Inc. (Break.com), an equity method investee, as described below. At March 31, 2009, loans
receivable consisted of a $25.0 million collateralized note receivable plus $0.8 million of accrued
interest from a third party producer, and $6.8 million of notes receivable and $0.3 million of
accrued interest from Break.com.
11
Equity
Method Investments
The carrying amount of significant equity method investments at December 31, 2009 and March
31, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2009 |
|
|
|
(Amounts in thousands) |
|
Horror Entertainment, LLC (FEARnet) |
|
$ |
887 |
|
|
$ |
845 |
|
NextPoint, Inc. (Break.com) |
|
|
17,078 |
|
|
|
17,542 |
|
Roadside Attractions, LLC |
|
|
1,735 |
|
|
|
2,062 |
|
Studio 3 Partners, LLC (EPIX) |
|
|
40,870 |
|
|
|
11,511 |
|
|
|
|
|
|
|
|
|
|
$ |
60,570 |
|
|
$ |
31,960 |
|
|
|
|
|
|
|
|
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 investee
based on our percentage ownership. Equity interests in equity method investments for the three and
nine months ended December 31, 2009 and 2008 were as follows (income (loss)):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Amounts in thousands) |
|
Horror Entertainment, LLC
(FEARnet) |
|
$ |
83 |
|
|
$ |
(1,373 |
) |
|
$ |
(312 |
) |
|
$ |
(3,783 |
) |
NextPoint, Inc. (Break.com) |
|
|
165 |
|
|
|
(208 |
) |
|
|
(466 |
) |
|
|
(1,354 |
) |
Roadside Attractions, LLC |
|
|
(230 |
) |
|
|
134 |
|
|
|
(327 |
) |
|
|
(244 |
) |
Studio 3 Partners, LLC (EPIX) |
|
|
(6,921 |
) |
|
|
(248 |
) |
|
|
(9,443 |
) |
|
|
(460 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(6,903 |
) |
|
$ |
(1,695 |
) |
|
$ |
(10,548 |
) |
|
$ |
(5,841 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Horror
Entertainment, LLC. Represents the Companys 33.33% interest in 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 made capital contributions to FEARnet of $0.3
million in April 2009. The Company is recording its share of the FEARnet results on a one quarter
lag and, accordingly, during the nine months ended December 31, 2009, the Company recorded 33.33%
of the loss incurred by FEARnet through September 30, 2009.
NextPoint,
Inc. Represents the Companys 42% equity interest in NextPoint, Inc. (Break.com),
an online home entertainment service provider operating under the branding of Break.com. The
interest was acquired on June 29, 2007 for an aggregate purchase price of $21.4 million which
included $0.5 million of transaction costs, by issuing 1,890,189 of the Companys common shares.
The value assigned to the shares for purposes of recording the investment of $20.9 million was
based on the average price of the Companys common shares a few days prior and subsequent to the
date of the closing of the acquisition. The Company is recording its share of the Break.com results
on a one quarter lag and, accordingly, during the nine months ended December 31, 2009, the Company
recorded 42% of the loss incurred by Break.com through September 30, 2009.
Roadside
Attractions, LLC. Represents the Companys 43% equity interest acquired on July 26,
2007 in Roadside Attractions, LLC (Roadside), an independent theatrical releasing company. The
Company has a call option which is exercisable for a period of 90 days commencing on the receipt of
certain audited financial statements for the three years ended July 26, 2010, to purchase all of
the remaining 57% equity interests of Roadside, at a price representative of the then fair value of
the remaining interest. The estimated initial cost of the call option was de minimus since the
option price is designed to be representative of the then fair value and is included within the
investment balance. The Company is recording its share of the Roadside results on a one quarter lag
and, accordingly, during the nine months ended December 31, 2009, the Company recorded 43% of the
loss incurred by Roadside through September 30, 2009.
12
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 new venture has access to the Companys titles released theatrically on or after
January 1, 2009. Viacom provides operational support to the venture, including marketing and
affiliate services through its MTV Networks division. The joint venture provides the Company with
an additional platform to distribute its library of motion picture titles and television episodes
and programs. The Company increased its initial 28.57% interest in EPIX to 31.15% during the
quarter ended December 31, 2009. The Company has invested $51.2 million through December 31, 2009
and will fund additional amounts in the future. The Company is recording its share of the joint
venture results on a one quarter lag and, accordingly, during the nine months ended December 31,
2009, the Company recorded 28.57% of the loss incurred by the joint venture through September 30,
2009.
Certain of the Companys theatrical releases have been made available to EPIX for exhibition
in the domestic pay television window, for which $25.7 million of revenue and $17.2 million of
gross profit was recognized by the Company in the nine months ended December 31, 2009. Intercompany
profits reflecting our pro rata share of the venture of $5.3 million for the nine months ended
December 31, 2009 were eliminated in the Equity interests
loss line in our Consolidated Statements
of Operations. Also reflected within Equity interests loss are $1.6 million and $4.1 million for
our share of EPIX losses for the three and nine months ended December 31, 2009, respectively.
EPIX launched operations during the current quarter and began amortization of its program cost
and increased its marketing efforts, and as a result, EPIX expects to report losses of
approximately $48.0 million for its quarter ended December 31, 2009, of which the Companys pro
rata share will be recorded in the quarter ended March 31, 2010.
6. Senior Revolving Credit Facility
On September 30, 2009, the Company amended its senior revolving credit facility which allowed
for the Company to issue certain senior secured second-priority notes and expand acceptable
obligors included in the senior revolving credit facilitys borrowing base calculation. The
amendment resulted in an increase of the interest rate of 0.25%, and an additional financial
covenant was added, among other changes.
At December 31, 2009, the Company had borrowings of $12.0 million (March 31, 2009 $255
million) under its senior revolving credit facility. The availability of funds under its senior
revolving credit facility is limited by a borrowing base and also reduced by outstanding letters of
credit which amounted to $22.6 million at December 31, 2009 (March 31, 2009 $46.7 million). At
December 31, 2009, there was $305.4 million available under the senior revolving credit facility
(March 31, 2009 $38.3 million). The Company is required to pay a quarterly commitment fee based
upon 0.375% per annum on the total senior revolving credit facility of $340 million less the amount
drawn. The senior revolving credit facility expires July 25, 2013 and as of December 31, 2009, bore
interest of 2.50% over the Adjusted LIBOR rate (effective interest rate of 2.73% and 2.75% as of
December 31, 2009 and March 31, 2009, respectively). 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
Companys subsidiaries. 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. 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
20% of our common stock.
7. Senior Secured Second-Priority Notes
On October 21, 2009, Lions Gate Entertainment Inc. (LGEI), one of the Companys wholly-owned
subsidiaries, issued $236.0 million aggregate principal amount of senior secured second-priority
notes due 2016 (the 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 Senior Notes were issued by LGEI at an initial price of 95.222% (original issue discount
4.778%) of the principal amount. The net proceeds, after deducting discounts, fees paid to the
initial purchaser, and all transaction costs (including accrued legal, accounting and other professional
fees) from the sale of the Senior Notes was approximately $214.2 million, which was used by LGEI to
repay a portion of its outstanding debt under its senior revolving credit facility. The original
issue discount, interest and deferred financing costs are being amortized through November 1, 2016
using the effective interest method.
13
The Senior Notes pay interest semi-annually on May 1 and November 1 of each year at a rate of
10.25% per year and mature on November 1, 2016.
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 Companys senior revolving
credit facility, ranked equally in right of payment to the Companys subordinated notes, and ranked
senior to any of the Companys unsecured debt, to the extent of the value of the respective
collateral.
The Senior Notes contain certain restrictions and covenants that, subject to certain
exceptions, limit our ability to incur additional indebtedness, pay dividends or repurchase the
Companys 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 78% of accrued participations and residuals will be paid
during the one-year period ending December 31, 2010.
Theatrical
Slate Participation
On May 25, 2007, the Company closed a theatrical slate participation arrangement, as amended
on January 30, 2008. Under this arrangement, Pride Pictures, LLC (Pride), an unrelated entity,
was to contribute, in general, 50% of the Companys production, acquisition, marketing and
distribution costs of theatrical feature films up to an aggregate of approximately $196 million,
net of transaction costs. The funds available from Pride were generated from the issuance of
subordinated debt instruments, equity and a senior revolving credit facility, which was subject to
a borrowing base. The borrowing base calculation was generally based on 90% of the estimated
ultimate amounts due to Pride on previously released films, as defined in the applicable
agreements. The Company was not a party to the Pride debt obligations or their senior credit
facility, and provided no guarantee of repayment of these obligations. The percentage of the
contribution could vary on certain pictures. Pride 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. The Company distributed the pictures covered by the arrangement with a portion of net
profits after all costs and the Companys distribution fee being distributed to Pride based on
their pro rata contribution to the applicable costs similar to a back-end participation on a film.
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.
In late 2008, the administrative agent for the senior lenders under Prides 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, the Company gave LG Film Finance I, LLC (FilmCo) and Pride notice that
FilmCo, through Prides 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 terminated its theatrical slate participation arrangement with Pride.
At December 31, 2009, $26.7 million (March 31, 2009, $83.8 million) was payable to Pride and
is included in participations and residuals liability 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 governments 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
14
budgeted costs over the four-year period will be $400 million, including the Companys
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 December 31, 2009, $6.7 million (March 31, 2009, $3.2 million) was payable to SGF and is
included in the participations and residuals liability in the unaudited condensed consolidated
balance sheets. Under the terms of the arrangement, $35 million is available through July 30, 2010
and $35 million is available during the twelve-month period ending July 30, 2011, to be provided by
SGF.
9. Film and Production Obligations
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2009 |
|
|
|
(Amounts in thousands) |
|
Film obligations |
|
$ |
69,391 |
|
|
$ |
88,814 |
|
Production obligations |
|
|
|
|
|
|
|
|
Individual production loans |
|
|
229,726 |
|
|
|
206,978 |
|
Pennsylvania Regional Center production loans |
|
|
65,734 |
|
|
|
8,733 |
|
Film Credit Facility |
|
|
32,217 |
|
|
|
|
|
|
|
|
|
|
|
|
Total film and production obligations |
|
|
397,068 |
|
|
|
304,525 |
|
Less film and production obligations expected to be paid within one year |
|
|
(172,233 |
) |
|
|
(185,647 |
) |
|
|
|
|
|
|
|
Film and production obligations expected to be paid after one year |
|
$ |
224,835 |
|
|
$ |
118,878 |
|
|
|
|
|
|
|
|
Film Obligations
Film obligations include minimum guarantees, which represent amounts payable for film rights
that the Company has acquired and theatrical marketing obligations, which represent amounts that
are contractually committed for theatrical marketing expenditures associated with specific titles.
Individual Production Loans
Production obligations represent individual loans for the production of film and television
programs that the Company produces. Individual production obligations have contractual repayment
dates either at or near the expected completion date, with the exception of certain obligations
containing repayment dates on a longer term basis. Individual production obligations of $191.2
million incur interest at rates ranging from 1.83% to 5.50%, and approximately $70.7 million of
production obligations are non-interest bearing.
Pennsylvania Regional Center
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 $66,500,000 on a five year
term for use in film and television productions in the State of Pennsylvania. The amount that can
be borrowed is generally 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 Companys
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.
Amounts borrowed under the agreement carry an interest rate of 1.5%, which is payable
semi-annually, and the principal amount is
due on the five-year anniversary date of the first borrowing under the agreement (i.e., April
2013). The loan is secured by a first priority security interest in the Companys film library
pursuant to an intercreditor agreement with the Companys senior lender under the Companys senior
revolving credit facility. Pursuant to the terms of the Companys 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 Companys subordinated debt repurchased. As of December 31, 2009, $72.8 million principal value
of the Companys subordinated debt repurchased in December 2009 (see Note 10) was held as
collateral under the Companys senior revolving credit facility.
15
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.
Film Credit Facility
On October 6, 2009, the Company, entered into a revolving film credit facility agreement, as
amended effective December 31, 2009 (Film Credit Facility), which provides for borrowings for the
acquisition or production of motion pictures. Currently, the Film Credit Facility provides for
total borrowings up to $120 million and can be increased to $200 million if additional lenders or
financial institutions become a party to and provide a commitment under the facility. The Film
Credit Facility has a maturity date of April 6, 2013 and generally bears an interest rate of 3.25%
over the LIBO rate (as defined in the credit agreement). The Company is required to pay a
quarterly commitment fee of 0.75% per annum on the unused commitment under the Film Credit
Facility. 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. 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 Companys senior revolving credit facility as described in Note 6. At
December 31, 2009, the Company had borrowings of $32.2 million and $87.8 million available under
the Film Credit Facility.
10. Subordinated Notes and Other Financing Obligations
The following table sets forth the subordinated notes and other financing obligations
outstanding at December 31, 2009 and March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2009 |
|
|
|
(Amounts in thousands) |
|
October 2004 2.9375% Convertible Senior Subordinated Notes |
|
$ |
97,881 |
|
|
$ |
127,253 |
|
February 2005 3.625% Convertible Senior Subordinated Notes |
|
|
51,881 |
|
|
|
138,552 |
|
April 2009 3.625% Convertible Senior Subordinated Notes |
|
|
35,201 |
|
|
|
|
|
Other financing obligations |
|
|
15,101 |
|
|
|
15,716 |
|
|
|
|
|
|
|
|
|
|
$ |
200,064 |
|
|
$ |
281,521 |
|
|
|
|
|
|
|
|
Subordinated Notes
New Accounting Pronouncement. On April 1, 2009, the Company adopted a new accounting standard
that specifies that issuers of convertible debt instruments that may be settled in cash upon
conversion (including partial cash settlement) should separately account for the liability and
equity components in a manner that will reflect the entitys nonconvertible debt borrowing rate on
the instruments issuance date when interest cost is recognized. Accordingly, a portion of the
proceeds received is recorded as a liability and a portion 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.
Retrospective Impact of Application of New Accounting Pronouncement. The Company applied the
provisions of this standard retrospectively to all periods presented resulting in an increase to
interest expense of $3.8 million, a decrease to gain on extinguishment of debt of $0.5 million, an
increase to net loss of $4.3 million and an increase in basic and diluted loss per share of $0.03
for the three months ended December 31, 2008. For the nine months ended December 31, 2008, the
application of the provisions of the new accounting standard resulted in an increase to interest
expense of $11.1 million, a decrease to gain on extinguishment of debt of $0.5 million, an increase
to net loss of $11.6 million and an increase in basic and diluted loss per share of $0.10.
Shareholders equity at March 31, 2009 was increased by $49.9 million consisting of the increase in
the accumulated deficit of $54.5 million resulting from the cumulative change in interest expense
from the date the notes were issued and changes in the previously reported gains on extinguishment
of debt, net of the increase in common shareholders equity of $104.4 million, representing the
carrying amount of the equity component of the notes.
16
Carrying Value. The following table sets forth the equity and liability components of the
Companys subordinated notes outstanding as of December 31, 2009 and March 31, 2009 as fully
described below:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2009 |
|
|
|
(Amounts in thousands) |
|
October 2004 2.9375% Convertible Senior Subordinated Notes: |
|
|
|
|
|
|
|
|
Carrying amount of equity component |
|
$ |
48,080 |
|
|
$ |
50,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount of liability component |
|
|
|
|
|
|
|
|
Principal amount of October 2004 2.9375% Notes |
|
$ |
110,035 |
|
|
$ |
150,000 |
|
Unamortized discount (remaining period of 2.0 and 2.8 years, respectively) |
|
|
(12,154 |
) |
|
|
(22,747 |
) |
|
|
|
|
|
|
|
Net carrying amount of October 2004 2.9375% Notes |
|
$ |
97,881 |
|
|
$ |
127,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2005 3.625% Convertible Senior Subordinated Notes: |
|
|
|
|
|
|
|
|
Carrying amount of equity component |
|
$ |
50,855 |
|
|
$ |
54,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount of liability component |
|
|
|
|
|
|
|
|
Principal amount of February 3.625% Notes |
|
$ |
59,479 |
|
|
$ |
166,000 |
|
Unamortized discount (remaining period of 2.3 and 3.0 years, respectively) |
|
|
(7,598 |
) |
|
|
(27,448 |
) |
|
|
|
|
|
|
|
Net carrying amount of February 2005 3.625% Notes |
|
$ |
51,881 |
|
|
$ |
138,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2009 3.625% Convertible Senior Subordinated Notes: |
|
|
|
|
|
|
|
|
Carrying amount of equity component |
|
$ |
16,085 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount of liability component |
|
|
|
|
|
|
|
|
Principal amount of April 2009 3.625% Notes |
|
$ |
66,581 |
|
|
|
N/A |
|
Unamortized discount (remaining period of 5.3 years) |
|
|
(31,380 |
) |
|
|
N/A |
|
|
|
|
|
|
|
|
Net carrying amount of April 2009 3.625% Notes |
|
$ |
35,201 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
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 and nine months ended December 31, 2009 and 2008
are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(Amounts in thousands) |
|
|
|
|
|
October 2004 2.9375% Convertible Senior Subordinated Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective interest rate of liability component (9.65%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual interest coupon |
|
$ |
868 |
|
|
$ |
1,102 |
|
|
$ |
3,071 |
|
|
$ |
3,305 |
|
Amortization of discount on liability component |
|
|
2,092 |
|
|
|
1,924 |
|
|
|
6,141 |
|
|
|
5,602 |
|
Amortization of debt issuance costs |
|
|
129 |
|
|
|
117 |
|
|
|
390 |
|
|
|
334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,089 |
|
|
$ |
3,143 |
|
|
$ |
9,602 |
|
|
$ |
9,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2005 3.625% Convertible Senior Subordinated Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective interest rate of liability component (10.03%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual interest coupon |
|
$ |
497 |
|
|
$ |
1,560 |
|
|
$ |
2,426 |
|
|
$ |
4,732 |
|
Amortization of discount on liability component |
|
|
1,393 |
|
|
|
1,999 |
|
|
|
4,304 |
|
|
|
5,886 |
|
Amortization of debt issuance costs |
|
|
75 |
|
|
|
126 |
|
|
|
246 |
|
|
|
364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,965 |
|
|
$ |
3,685 |
|
|
$ |
6,976 |
|
|
$ |
10,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2009 3.625% Convertible Senior Subordinated Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective interest rate of liability component (17.26%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual interest coupon |
|
$ |
604 |
|
|
|
N/A |
|
|
$ |
1,683 |
|
|
|
N/A |
|
Amortization of discount on liability component |
|
|
902 |
|
|
|
N/A |
|
|
|
2,305 |
|
|
|
N/A |
|
Amortization of debt issuance costs |
|
|
2 |
|
|
|
N/A |
|
|
|
5 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,508 |
|
|
|
N/A |
|
|
$ |
3,993 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
October 2004 2.9375% Notes. In October 2004, LGEI sold $150.0 million of 2.9375%
Convertible Senior Subordinated Notes (the October 2004 2.9375% Notes).
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 Company: From October 15, 2009 to October 14, 2010, LGEI may redeem the
October 2004 2.9375% Notes at 100.839%; 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
Companys common shares prior to maturity only if the price of the Companys 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
Companys 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 Companys common shares on the effective date of the change in
control. No make whole premium will be paid if the price of the Companys common shares at such
time is less than $8.79 per share or exceeds $50.00 per share.
Transaction: In December 2009, LGEI paid $38.0 million to repurchase $40.0 million of
aggregate principal amount (carrying value $35.5 million) of the October 2004 2.9375% Notes and
recorded a loss on extinguishment of $0.8 million, which includes $0.3 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 value, plus the
deferred financing costs written off. The excess of the amount paid to repurchase the October
2004 2.9375% Notes over the fair value of the October 2004 2.9375% Notes repurchased was recorded
as a reduction of shareholders equity reflecting the repurchase of the equity component of the
October 2004 2.9375% Notes repurchased.
The October 2004 2.9375% Notes repurchased in December 2009 are being held as collateral
under the Companys senior revolving credit facility and may be resold at the prevailing market
value.
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).
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.
18
Redeemable by Company: 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
Companys common shares on the effective date of the change in control. No make whole premium
will be paid if the price of the Companys common shares at such time is less than $10.35 per
share or exceeds $75.00 per share.
Transactions: The Company had the following transactions associated with its February 2005
3.625% Notes:
December 2008 Repurchase: In December 2008, LGEI paid $5.5 million to extinguish $9.0
million of aggregate principal amount (carrying value $7.4 million) of the February 2005 3.625%
Notes and recorded a gain on extinguishment of $3.0 million, which includes $0.1 million of
deferred financing costs written off. The gain represented the excess of the carrying value of
the liability component of the February 2005 3.625% Notes repurchased over their fair value, net
of the deferred financing costs written off. The excess of the amount paid to repurchase the
February 2005 3.625% Notes over the fair value of the February 2005 3.625% Notes repurchased was
recorded as a reduction of shareholders equity reflecting the repurchase of the equity component
of the February 2005 3.625% Notes repurchased.
April 20, 2009 Refinancing Exchange Agreement: On April 20, 2009, LGEI entered into
Refinancing Exchange Agreements (the Refinancing Exchange Agreements) with certain existing
holders of the February 2005 3.625% Notes. Pursuant to the terms of the Refinancing Exchange
Agreements, holders of the February 2005 3.625% Notes exchanged approximately $66.6 million
aggregate principal amount of the February 2005 3.625% Notes for new 3.625% convertible senior
subordinated notes (the April 2009 3.625% Notes) in the same aggregate principal amount under a
new indenture entered into by LGEI, the Company, as guarantor, and an indenture trustee
thereunder. As a result of the exchange transaction, the Company recorded a gain on
extinguishment of debt of $7.5 million. The gain represented the difference between the fair
value of the liability component of the February 2005 3.625% Notes and their carrying value. The
excess of the fair value of both the equity and liability component of the April 2009 3.625%
Notes over the fair value of the February 2005 3.625% Notes of $3.9 million was recorded as a
reduction of shareholders equity reflecting the repurchase of the equity component of the
February 2005 3.625% Notes.
December 2009 Repurchase: In December 2009, LGEI paid $37.7 million to extinguish $39.9
million of aggregate principal amount (carrying value $35.0 million) of the February 2005
3.625% Notes and recorded a loss on extinguishment of $0.9 million, which includes $0.4 million
of deferred financing costs written off. The loss represented the excess of the fair value of the
liability component of the February 2005 3.625% Notes repurchased over their carrying value, plus
the deferred financing costs written off. The excess of the amount paid to repurchase the
February 2005 3.625% Notes over the fair value of the February 2005 3.625% Notes repurchased was
recorded as a reduction of shareholders equity reflecting the repurchase of the equity component
of the February 2005 3.625% Notes repurchased.
The February 2005 3.625% Notes repurchased in December 2009 may be resold at the prevailing
market value. In addition, $32.9 million of aggregate principal amount of the February 2005
3.625% Notes repurchased are being held as collateral under the Companys senior revolving credit
facility.
19
April 2009 3.625% Notes. As discussed above, in April 2009, LGEI issued approximately $66.6
million of 3.625% Convertible Senior Subordinated Notes (the April 2009 3.625% Notes).
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 Company: 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.
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
Companys common shares on the effective date of the change in control. No make whole premium
will be paid if the price of the Companys common shares at such time is less than $5.36 per
share or exceeds $50.00 per share.
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.
TV Guide Network has a capital lease obligation for a satellite transponder lease in the amount of
$11.4 million as of December 31, 2009. The monthly payment on the capital lease obligation totals
$1.6 million per year through August 2019, with an imputed interest rate of 6.65%.
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 instruments 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:
20
|
|
|
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 Companys
senior revolving credit facility and convertible senior subordinated notes, both 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 Companys outstanding debt at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
|
|
|
|
Value |
|
|
Fair Value |
|
|
|
|
|
|
|
(Level 2) |
|
|
|
(Amounts in thousands) |
|
Senior revolving credit facility |
|
$ |
12,000 |
|
|
$ |
13,252 |
|
October 2004 2.9375% Convertible Senior Subordinated
Notes |
|
|
97,881 |
|
|
|
98,778 |
|
February 2005 3.625% Convertible Senior Subordinated
Notes |
|
|
51,881 |
|
|
|
53,076 |
|
April 2009 3.625% Convertible Senior Subordinated Notes |
|
|
35,201 |
|
|
|
34,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
196,963 |
|
|
$ |
199,709 |
|
|
|
|
|
|
|
|
12. Acquisitions and Divestitures
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, accountants fees and other professional fees).
21
The acquisition was accounted for as a purchase, with the results of operations of TV Guide
Network included in the Companys consolidated results from February 28, 2009. The acquisition
goodwill represents the significant opportunity for the Company to expand the existing television
channel and online media platforms. Goodwill of $152.6 million represents the excess of the
purchase price over the fair value of the tangible and intangible assets acquired and liabilities
assumed. Although the goodwill will not be amortized for financial reporting purposes, it is
anticipated that substantially all of the goodwill will be deductible for federal tax purposes over
the statutory period of 15 years. The final allocation of the purchase price to the assets acquired
and liabilities assumed were as follows:
|
|
|
|
|
|
|
Allocation |
|
|
|
(Amounts in |
|
|
|
thousands) |
|
Accounts receivable, net |
|
$ |
14,505 |
|
Property and equipment |
|
|
26,649 |
|
Other assets acquired |
|
|
1,831 |
|
Finite-lived intangible assets: |
|
|
|
|
Customer relationships |
|
|
66,340 |
|
Trademarks/trade names |
|
|
10,250 |
|
Internal Use Software |
|
|
2,200 |
|
Prepaid Patent License Agreements |
|
|
1,510 |
|
Goodwill |
|
|
152,599 |
|
Other liabilities assumed |
|
|
(32,775 |
) |
|
|
|
|
Total purchase price including transaction costs |
|
$ |
243,109 |
|
|
|
|
|
22
Sale of Noncontrolling Interest in TV Guide Network. On May 28, 2009, the Company entered
into a Purchase Agreement (the 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 Companys 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.
In exchange for the cash consideration, OEP received mandatorily redeemable preferred stock
units and common stock units representing its 49% noncontrolling interest in TV Guide Network. The
Company also received mandatorily redeemable preferred stock units and common stock units
representing its 51% ownership share. 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.
TV Guide Network is a variable interest entity that is currently required to be consolidated
since the Company is the primary beneficiary pursuant to its business and ownership structure. The
net loss attributable to noncontrolling interest in the consolidated statement of operations
represents the noncontrolling interests 49% share of the net loss incurred by TV Guide Network for
the period from May 28, 2009 through December 31, 2009.
As a result of the sale transaction, the difference between the cash received and 49% of the
carrying value of TV Guide Network acquired by OEP was recorded as an adjustment to shareholders
equity attributable to the Companys shareholders. The mandatorily redeemable preferred stock units
attributable to the noncontrolling interest were recorded based on their estimated fair value, as
determined using an option pricing model methodology, as a liability in our consolidated balance
sheet. The carrying value of the 49% interest in TV Guide Network, less the amount recorded for the
mandatorily redeemable preferred stock units, representing the common stock units held by the
minority holders, was recorded as equity attributable to noncontrolling interest in our
consolidated statement of shareholders equity.
The portion of the mandatorily redeemable preferred and common stock units held by the Company
and associated non-cash interest representing the Companys 51% ownership interest is eliminated in
consolidation. The mandatorily redeemable preferred stock held by the noncontrolling interest and
the 10% dividend is being accreted, through a non-cash charge to interest expense, up to its
redemption amount over the ten-year period to the redemption date. The redemption amount of the
noncontrolling interests share of the mandatorily redeemable preferred stock as of December 31,
2009 which includes capital contributions and dividend accretion through December 31, 2009 was
$132.6 million (carrying value $91.5 million).
The following unaudited pro forma condensed consolidated statement of operations presented
below illustrate the results of operations of the Company as if the acquisition of TV Guide Network
on February 28, 2009 had occurred at April 1, 2008 and also presents the pro forma adjustments and
results of operations as if the sale of the Companys interest in TV Guide Network as described
above occurred at April 1, 2008:
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Amounts in thousands, except per share amounts) |
|
Revenues |
|
$ |
1,153,167 |
|
|
$ |
1,106,341 |
|
Operating income (loss) |
|
$ |
41,394 |
|
|
$ |
(126,463 |
) |
Net income (loss) |
|
$ |
1,119 |
|
|
$ |
(151,736 |
) |
Basic Net Income (Loss) Per Common Share |
|
$ |
0.01 |
|
|
$ |
(1.30 |
) |
Diluted Net Income (Loss) Per Common Share |
|
$ |
0.01 |
|
|
$ |
(1.30 |
) |
Weighted average number of common shares outstanding Basic |
|
|
117,381 |
|
|
|
117,018 |
|
Weighted average number of common shares outstanding Diluted |
|
|
117,580 |
|
|
|
117,018 |
|
23
The following table sets forth the carrying amounts of the assets and liabilities of the
TV Guide Network included in the consolidated balance sheet as of December 31, 2009:
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
|
(Amounts in |
|
|
|
thousands) |
|
Cash and cash equivalents |
|
$ |
20,400 |
|
Accounts receivable, net |
|
|
17,887 |
|
Investment in films and television programs, net |
|
|
688 |
|
Property and equipment, net |
|
|
22,691 |
|
Finite-lived intangible assets, net |
|
|
72,506 |
|
Goodwill |
|
|
152,599 |
|
Other assets |
|
|
353 |
|
|
|
|
|
Total Assets |
|
|
287,124 |
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
15,925 |
|
Other financing obligations |
|
|
11,383 |
|
Mandatorily redeemable preferred stock units held by noncontrolling interest |
|
|
91,454 |
|
Other liabilities |
|
|
7,901 |
|
|
|
|
|
Total Liabilities |
|
|
126,663 |
|
|
|
|
|
|
Noncontrolling interest |
|
|
32,141 |
|
|
|
|
|
|
|
|
|
|
Net assets held by Lions Gate Entertainment Corp. |
|
$ |
128,320 |
|
|
|
|
|
Acquisition of Mandate Pictures, LLC
On September 10, 2007, the Company purchased all of the membership interests in Mandate
Pictures, LLC, a Delaware limited liability company (Mandate). Mandate is 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 Companys 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
Companys 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 December 31, 2009, 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.
24
Acquisition of Debmar-Mercury, LLC
On July 3, 2006, the Company acquired all of the capital stock of Debmar-Mercury, LLC
(Debmar-Mercury), a leading syndicator of film and television packages. Consideration for the
Debmar-Mercury acquisition was $27.0 million, comprised of a combination of $24.5 million in cash
paid on July 3, 2006 and $2.5 million in common shares of the Company issued in January 2008, and
assumed liabilities of $10.5 million. Goodwill of $8.7 million represents the excess of the
purchase price over the fair value of the net identifiable tangible and intangible assets acquired.
Pursuant to the purchase agreement, if the aggregate earnings before interest, taxes,
depreciation and amortization adjusted to add back 20% of the overhead expense (Adjusted EBITDA)
of Debmar-Mercury for the five-year period ending after the closing date exceeds the target amount,
then up to 40% of the excess Adjusted EBITDA over the target amount is payable as additional
consideration. The percentage of the excess Adjusted EBITDA over the target amount ranges from 20%
of such excess up to an excess of $3 million, 25% of such excess over $3 million and less than $6
million, 30% of such excess over $6 million and less than $10 million, and 40% of such excess over
$10 million. The target amount is $32.2 million plus adjustments for interest on certain funding
provided by the Company and adjustments for certain overhead and other items.
In addition, up to 40% (percentage is determined based on how much the cumulative Adjusted
EBITDA exceeds the target amount) of Adjusted EBITDA of Debmar-Mercury generated subsequent to the
five-year period from the assets existing as of the fifth anniversary date of the close is also
payable as additional consideration on a quarterly basis (i.e., the Continuing Earnout Payment)
unless the substitute earn out option is exercised by either the seller or the Company. The
substitute earn out option is only available if the aggregate Adjusted EBITDA for the five-year
period ending after the closing date exceeds the target amount. Under the substitute earn out
option, the seller can elect to receive an amount equal to $2.5 million in lieu of the Continuing
Earnout Payments and the Company can elect to pay an amount equal to $15 million in lieu of the
Continuing Earnout Payments.
Amounts paid, if any, under the above additional consideration provisions will be recorded as
additional goodwill.
13. Direct Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(Amounts in thousands) |
|
|
|
|
|
Amortization of films and television programs |
|
$ |
142,171 |
|
|
$ |
128,871 |
|
|
$ |
429,474 |
|
|
$ |
315,614 |
|
Participations and residual expense |
|
|
66,194 |
|
|
|
86,728 |
|
|
|
188,443 |
|
|
|
245,735 |
|
Other expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts |
|
|
755 |
|
|
|
1,591 |
|
|
|
2,346 |
|
|
|
1,813 |
|
Foreign exchange losses (gains) |
|
|
(213 |
) |
|
|
1,261 |
|
|
|
(250 |
) |
|
|
2,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
208,907 |
|
|
$ |
218,451 |
|
|
$ |
620,013 |
|
|
$ |
565,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14. Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(Amounts in thousands) |
|
|
|
|
|
Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders |
|
$ |
(65,259 |
) |
|
$ |
(97,756 |
) |
|
$ |
2,806 |
|
|
$ |
(146,051 |
) |
Add (Deduct): Foreign currency translation adjustments |
|
|
741 |
|
|
|
(6,954 |
) |
|
|
6,628 |
|
|
|
(10,834 |
) |
Add: Net unrealized gain on foreign exchange contracts |
|
|
142 |
|
|
|
103 |
|
|
|
159 |
|
|
|
115 |
|
Add: Unrealized gain on investments available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Lions Gate Entertainment Corp. |
|
$ |
(64,376 |
) |
|
$ |
(104,607 |
) |
|
$ |
9,593 |
|
|
$ |
(156,697 |
) |
Comprehensive loss attributable to noncontrolling interest |
|
|
(1,697 |
) |
|
|
|
|
|
|
(6,081 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
(66,073 |
) |
|
$ |
(104,607 |
) |
|
$ |
3,512 |
|
|
$ |
(156,697 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
25
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 and nine months ended
December 31, 2009 and 2008 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(Amounts in thousands) |
|
|
|
|
|
Basic Net Income (Loss) Per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders |
|
$ |
(65,259 |
) |
|
$ |
(97,756 |
) |
|
$ |
2,806 |
|
|
$ |
(146,051 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
117,745 |
|
|
|
115,765 |
|
|
|
117,381 |
|
|
|
117,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Net Income (Loss) Per Common Share |
|
$ |
(0.55 |
) |
|
$ |
(0.84 |
) |
|
$ |
0.02 |
|
|
$ |
(1.25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and nine months ended December 31, 2009 and 2008 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(Amounts in thousands) |
|
|
|
|
|
Diluted Net Income (Loss) Per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders |
|
$ |
(65,259 |
) |
|
$ |
(97,756 |
) |
|
$ |
2,806 |
|
|
$ |
(146,051 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
117,745 |
|
|
|
115,765 |
|
|
|
117,381 |
|
|
|
117,018 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted share units |
|
|
|
|
|
|
|
|
|
|
198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average common shares outstanding |
|
|
117,745 |
|
|
|
115,765 |
|
|
|
117,579 |
|
|
|
117,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Net Income (Loss) Per Common Share |
|
$ |
(0.55 |
) |
|
$ |
(0.84 |
) |
|
$ |
0.02 |
|
|
$ |
(1.25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine months ended December 31, 2009 and 2008, the weighted average
common shares calculated under the if converted and treasury stock method presented below were
excluded from diluted net income (loss) per common share for the periods because their inclusion
would have had an anti-dilutive effect.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(Amounts in thousands) |
|
|
|
|
|
Conversion of Notes |
|
|
26,312 |
|
|
|
25,226 |
|
|
|
27,249 |
|
|
|
25,088 |
|
Share purchase options |
|
|
3,548 |
|
|
|
3,961 |
|
|
|
3,747 |
|
|
|
8,278 |
|
Restricted share units |
|
|
1,219 |
|
|
|
1,782 |
|
|
|
1,262 |
|
|
|
1,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average common shares excluded from Diluted Net Income Per Common Share |
|
|
31,079 |
|
|
|
30,969 |
|
|
|
32,258 |
|
|
|
34,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
The Company had 500,000,000 authorized common shares at December 31, 2009 and March 31, 2009.
The table below outlines common shares reserved for future issuance:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2009 |
|
|
|
(Amounts in thousands) |
|
Stock options outstanding, average exercise price $9.85 (March 31, 2009 - $9.75 ) |
|
|
3,551 |
|
|
|
3,899 |
|
Restricted share units unvested |
|
|
3,194 |
|
|
|
2,566 |
|
Share purchase options and restricted share units available for future issuance |
|
|
4,000 |
|
|
|
5,120 |
|
Shares issuable upon conversion of October 2004 2.9375% Notes at conversion price of $11.50 per share |
|
|
9,568 |
|
|
|
13,043 |
|
Shares issuable upon conversion of February 2005 3.625% Notes at conversion price of $11.04 per share |
|
|
4,164 |
|
|
|
11,622 |
|
Shares issuable upon conversion of April 2009 3.625% Notes at conversion price of $8.25 per share |
|
|
8,070 |
|
|
|
|
|
|
|
|
|
|
|
|
Shares reserved for future issuance |
|
|
32,547 |
|
|
|
36,250 |
|
|
|
|
|
|
|
|
The Companys Board of Directors has authorized the repurchase of up to $150 million of
the Companys common shares, with the timing, price, quantity, and manner of the purchases to be
made at the discretion of management, depending upon market conditions. During the period from the
authorization date through December 31, 2009, 6,787,310 shares have been repurchased pursuant to
the plan at a cost of approximately $65.2 million, including commission costs. No shares were
repurchased during the three and nine months ended December 31, 2009. The share repurchase program
has no expiration date.
16. Accounting for Stock-Based Compensation
The Company recognized the following share-based compensation expense (benefit) during the
three and nine months ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(Amounts in thousands) |
|
|
|
|
|
Compensation Expense (Benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
$ |
798 |
|
|
$ |
800 |
|
|
$ |
2,418 |
|
|
$ |
2,399 |
|
Restricted Share Units and Other Share-based Compensation |
|
|
3,257 |
|
|
|
3,265 |
|
|
|
9,323 |
|
|
|
9,182 |
|
Stock Appreciation Rights |
|
|
222 |
|
|
|
(2,654 |
) |
|
|
824 |
|
|
|
(3,300 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,277 |
|
|
$ |
1,411 |
|
|
$ |
12,565 |
|
|
$ |
8,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There was no income tax benefit recognized in the statements of operations for
share-based compensation arrangements during the three and nine months ended December 31, 2009 and
2008.
During the nine months ended December 31, 2009, the Company granted 110,000 stock options and
1,558,209 restricted share units at a weighted average grant date fair value of $3.21 and $5.62,
respectively.
Total unrecognized compensation cost related to unvested stock options and restricted share
unit awards at December 31, 2009 is $3.6 million and $14.3 million, respectively, and is expected
to be recognized over a weighted average period of 1.2 and 1.7 years, respectively.
27
Stock Appreciation Rights
The Company has the following stock appreciation rights (SARs) outstanding as of December
31, 2009 as set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date |
|
|
|
July 14, 2008 |
|
|
August 14, 2008 |
|
|
February 5, 2009 |
|
|
April 6, 2009 |
|
SARs outstanding |
|
|
750,000 |
|
|
|
250,000 |
|
|
|
850,000 |
|
|
|
700,000 |
|
Vested and exercisable |
|
|
500,000 |
|
|
|
187,500 |
|
|
|
|
|
|
|
|
|
Exercise price |
|
$ |
9.56 |
|
|
$ |
11.16 |
|
|
$ |
5.45 |
|
|
$ |
5.17 |
|
Vesting period |
|
3 years |
|
|
4 years |
|
|
3 years |
|
|
4 years |
|
Expiration date |
|
July 14, 2013 |
|
|
June 20, 2012 |
|
|
February 5, 2014 |
|
|
April 6, 2014 |
|
Fair value as of December 31, 2009 |
|
$ |
1.15 |
|
|
$ |
0.58 |
|
|
$ |
2.33 |
|
|
$ |
2.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability as of December 31, 2009
(in thousands) |
|
$ |
865 |
|
|
$ |
144 |
|
|
$ |
596 |
|
|
$ |
324 |
|
SARs require that upon their exercise, the Company pay the holder the excess of the
market value of the Companys 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, the fair value of the SARs is expensed on a pro rata basis over the vesting period or
service period, if shorter. The SARs granted on July 14, 2008 were granted to a third party
producer and vest in 250,000 SAR increments 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 the
SARs are 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 the
SARs recorded to expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date |
|
|
|
July 14, 2008 |
|
|
August 14, 2008 |
|
|
February 5, 2009 |
|
|
April 6, 2009 |
|
Risk-free interest rate |
|
|
2.2 |
% |
|
|
1.7 |
% |
|
|
2.2 |
% |
|
|
2.7 |
% |
Expected option lives (in years) |
|
3.5 years |
|
|
2.5 years |
|
|
4.1 years |
|
|
4.3 years |
|
Expected volatility for options |
|
|
45 |
% |
|
|
45 |
% |
|
|
45 |
% |
|
|
45 |
% |
Expected dividend yield |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
28
17. Segment Information
Certain accounting guidance and standards require the Company to make certain disclosures
about each reportable segment. The Companys 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 evaluates performance of
each segment using segment profit (loss) as defined below. The Company has three reportable
business segments: Motion Pictures, Television Production, and Media Networks.
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.
Media Networks consists of TV Guide Network, one of the 30 most widely distributed general
entertainment cable networks in the U.S., including TV Guide Network On Demand and TV Guide Online
(www.tvguide.com), an online navigational tool and provider of television listings and video and
other entertainment content (which we acquired in February 2009 and of which we sold a 49% interest
in May 2009). The Media Networks segment includes distribution revenue from multi-system cable
operators and digital broadcast satellite providers (distributors generally pay a per subscriber
fee for the right to distribute programming) and advertising revenue from the sale of advertising
on its television channel and related online media platforms.
Segmented information by business unit is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(Amounts in thousands) |
|
|
|
|
|
Segment revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures |
|
$ |
250,965 |
|
|
$ |
254,861 |
|
|
$ |
800,815 |
|
|
$ |
824,391 |
|
Television Production |
|
|
91,539 |
|
|
|
69,166 |
|
|
|
267,659 |
|
|
|
178,813 |
|
Media Networks |
|
|
29,279 |
|
|
|
|
|
|
|
84,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
371,783 |
|
|
$ |
324,027 |
|
|
$ |
1,153,167 |
|
|
$ |
1,003,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures |
|
$ |
114,610 |
|
|
$ |
164,365 |
|
|
$ |
369,133 |
|
|
$ |
422,315 |
|
Television Production |
|
|
85,575 |
|
|
|
54,086 |
|
|
|
223,742 |
|
|
|
143,446 |
|
Media Networks |
|
|
8,722 |
|
|
|
|
|
|
|
27,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
208,907 |
|
|
$ |
218,451 |
|
|
$ |
620,013 |
|
|
$ |
565,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures |
|
$ |
147,839 |
|
|
$ |
164,756 |
|
|
$ |
314,224 |
|
|
$ |
441,652 |
|
Television Production |
|
|
7,919 |
|
|
|
5,644 |
|
|
|
22,403 |
|
|
|
17,130 |
|
Media Networks |
|
|
4,545 |
|
|
|
|
|
|
|
10,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
160,303 |
|
|
$ |
170,400 |
|
|
$ |
347,531 |
|
|
$ |
458,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administration |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures |
|
$ |
11,195 |
|
|
$ |
11,593 |
|
|
$ |
33,953 |
|
|
$ |
36,468 |
|
Television Production |
|
|
2,498 |
|
|
|
3,135 |
|
|
|
6,581 |
|
|
|
8,463 |
|
Media Networks |
|
|
9,356 |
|
|
|
|
|
|
|
31,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,049 |
|
|
$ |
14,728 |
|
|
$ |
72,104 |
|
|
$ |
44,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures |
|
$ |
(22,679 |
) |
|
$ |
(85,853 |
) |
|
$ |
83,505 |
|
|
$ |
(76,044 |
) |
Television Production |
|
|
(4,453 |
) |
|
|
6,301 |
|
|
|
14,933 |
|
|
|
9,774 |
|
Media Networks |
|
|
6,656 |
|
|
|
|
|
|
|
15,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(20,476 |
) |
|
$ |
(79,552 |
) |
|
$ |
113,519 |
|
|
$ |
(66,270 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of investment in films and television programs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures |
|
$ |
76,540 |
|
|
$ |
123,312 |
|
|
$ |
277,126 |
|
|
$ |
325,072 |
|
Television Production |
|
|
39,055 |
|
|
|
22,820 |
|
|
|
154,523 |
|
|
|
146,236 |
|
Media Networks |
|
|
8,200 |
|
|
|
|
|
|
|
25,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
123,795 |
|
|
$ |
146,132 |
|
|
$ |
457,271 |
|
|
$ |
471,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment amounted to $0.5 million and $4.2 million for the
three and nine months ended December 31, 2009, respectively, all primarily pertaining to purchases
for the Companys corporate headquarters and Media Networks segment. For the three and nine months
ended December 31, 2008, purchases of property and equipment amounted to $0.7 million and $6.5
million, respectively, all primarily pertaining to purchases for the Companys corporate
headquarters.
29
Segment profit (loss) is defined as segment revenue less segment direct operating,
distribution and marketing, and general and administration expenses. The reconciliation of total
segment profit (loss) to the Companys income (loss) before income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
Nine Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(Amounts in thousands) |
|
|
|
|
|
Companys total segment profit (loss) |
|
$ |
(20,476 |
) |
|
$ |
(79,552 |
) |
|
$ |
113,519 |
|
|
$ |
(66,270 |
) |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate general and administration |
|
|
(16,522 |
) |
|
|
(12,744 |
) |
|
|
(51,038 |
) |
|
|
(51,449 |
) |
Depreciation and amortization |
|
|
(6,685 |
) |
|
|
(1,575 |
) |
|
|
(21,087 |
) |
|
|
(4,376 |
) |
Interest expense |
|
|
(16,759 |
) |
|
|
(8,112 |
) |
|
|
(40,765 |
) |
|
|
(24,908 |
) |
Interest and other income |
|
|
420 |
|
|
|
860 |
|
|
|
1,228 |
|
|
|
5,062 |
|
Gain (loss) on extinguishment of debt |
|
|
(1,783 |
) |
|
|
3,023 |
|
|
|
5,675 |
|
|
|
3,023 |
|
Equity interests loss |
|
|
(6,903 |
) |
|
|
(1,695 |
) |
|
|
(10,548 |
) |
|
|
(5,841 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
$ |
(68,708 |
) |
|
$ |
(99,795 |
) |
|
$ |
(3,016 |
) |
|
$ |
(144,759 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth significant assets as broken down by segment and other
unallocated assets as of December 31, 2009 and March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
March 31, 2009 |
|
|
|
Motion |
|
|
Television |
|
|
Media |
|
|
|
|
|
|
Motion |
|
|
Television |
|
|
Media |
|
|
|
|
|
|
Pictures |
|
|
Production |
|
|
Networks |
|
|
Total |
|
|
Pictures |
|
|
Production |
|
|
Networks |
|
|
Total |
|
|
|
(Amounts in thousands) |
Significant assets by segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
128,140 |
|
|
$ |
109,350 |
|
|
$ |
17,887 |
|
|
$ |
255,377 |
|
|
$ |
148,625 |
|
|
$ |
61,652 |
|
|
$ |
16,733 |
|
|
$ |
227,010 |
|
Investment in films
and television programs, net |
|
|
610,580 |
|
|
|
120,021 |
|
|
|
688 |
|
|
|
731,289 |
|
|
|
570,985 |
|
|
|
131,037 |
|
|
|
745 |
|
|
|
702,767 |
|
Goodwill |
|
|
210,293 |
|
|
|
13,961 |
|
|
|
152,599 |
|
|
|
376,853 |
|
|
|
210,293 |
|
|
|
13,961 |
|
|
|
155,148 |
|
|
|
379,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
949,013 |
|
|
$ |
243,332 |
|
|
$ |
171,174 |
|
|
$ |
1,363,519 |
|
|
$ |
929,903 |
|
|
$ |
206,650 |
|
|
$ |
172,626 |
|
|
$ |
1,309,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other unallocated assets (primarily cash, restricted
investments, other assets, and finite-
lived intangible assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
335,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
358,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,699,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,667,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
19. Consolidating Financial Information Subordinated Notes
The October 2004 2.9375% Notes, the February 2005 3.625% Notes and the February 2005 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
December 31, 2009 and March 31, 2009, and for the nine months ended December 31, 2009 and 2008 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 Other Subsidiaries) and (4) the Company, on a consolidated basis.
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 |
|
|
|
Lions Gate |
|
|
Lions Gate |
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment |
|
|
Entertainment |
|
|
Other |
|
|
Consolidating |
|
|
Lions Gate |
|
|
|
Corp. |
|
|
Inc. |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,638 |
|
|
$ |
10,348 |
|
|
$ |
91,104 |
|
|
$ |
|
|
|
$ |
105,090 |
|
Restricted cash |
|
|
|
|
|
|
706 |
|
|
|
|
|
|
|
|
|
|
|
706 |
|
Restricted investments |
|
|
|
|
|
|
6,995 |
|
|
|
|
|
|
|
|
|
|
|
6,995 |
|
Accounts receivable, net |
|
|
118 |
|
|
|
1,977 |
|
|
|
253,282 |
|
|
|
|
|
|
|
255,377 |
|
Investment in films and television programs, net |
|
|
2 |
|
|
|
6,391 |
|
|
|
726,285 |
|
|
|
(1,389 |
) |
|
|
731,289 |
|
Property and equipment, net |
|
|
|
|
|
|
11,791 |
|
|
|
23,568 |
|
|
|
|
|
|
|
35,359 |
|
Finite-lived intangible assets, net |
|
|
|
|
|
|
|
|
|
|
74,412 |
|
|
|
|
|
|
|
74,412 |
|
Goodwill |
|
|
10,173 |
|
|
|
|
|
|
|
366,680 |
|
|
|
|
|
|
|
376,853 |
|
Other assets |
|
|
415 |
|
|
|
44,949 |
|
|
|
67,662 |
|
|
|
|
|
|
|
113,026 |
|
Subsidiary investments and advances |
|
|
90,801 |
|
|
|
(18,900 |
) |
|
|
(106,362 |
) |
|
|
34,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
105,147 |
|
|
$ |
64,257 |
|
|
$ |
1,496,631 |
|
|
$ |
33,072 |
|
|
$ |
1,699,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders
Equity (Deficiency) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior revolving credit facility |
|
$ |
|
|
|
$ |
12,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12,000 |
|
Senior secured second-priority notes |
|
|
|
|
|
|
225,488 |
|
|
|
|
|
|
|
|
|
|
|
225,488 |
|
Accounts payable and accrued liabilities |
|
|
460 |
|
|
|
21,740 |
|
|
|
223,959 |
|
|
|
(1,190 |
) |
|
|
244,969 |
|
Participations and residuals |
|
|
180 |
|
|
|
3,221 |
|
|
|
283,266 |
|
|
|
(11 |
) |
|
|
286,656 |
|
Film and production obligations |
|
|
76 |
|
|
|
|
|
|
|
396,992 |
|
|
|
|
|
|
|
397,068 |
|
Subordinated notes and other financing obligations |
|
|
|
|
|
|
184,963 |
|
|
|
15,101 |
|
|
|
|
|
|
|
200,064 |
|
Mandatorily redeemable preferred stock units held
by noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
186,641 |
|
|
|
(95,187 |
) |
|
|
91,454 |
|
Deferred revenue |
|
|
|
|
|
|
266 |
|
|
|
136,711 |
|
|
|
|
|
|
|
136,977 |
|
Shareholders equity (deficiency) |
|
|
104,431 |
|
|
|
(383,421 |
) |
|
|
253,961 |
|
|
|
129,460 |
|
|
|
104,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
105,147 |
|
|
$ |
64,257 |
|
|
$ |
1,496,631 |
|
|
$ |
33,072 |
|
|
$ |
1,699,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, 2009 |
|
|
|
Lions Gate |
|
|
Lions Gate |
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment |
|
|
Entertainment |
|
|
Other |
|
|
Consolidating |
|
|
Lions Gate |
|
|
|
Corp. |
|
|
Inc. |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
STATEMENT OF OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
27,762 |
|
|
$ |
1,150,443 |
|
|
$ |
(25,038 |
) |
|
$ |
1,153,167 |
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating |
|
|
|
|
|
|
672 |
|
|
|
638,980 |
|
|
|
(19,639 |
) |
|
|
620,013 |
|
Distribution and marketing |
|
|
|
|
|
|
3,372 |
|
|
|
345,518 |
|
|
|
(1,359 |
) |
|
|
347,531 |
|
General and administration |
|
|
919 |
|
|
|
50,108 |
|
|
|
72,330 |
|
|
|
(215 |
) |
|
|
123,142 |
|
Depreciation and amortization |
|
|
|
|
|
|
3,758 |
|
|
|
17,329 |
|
|
|
|
|
|
|
21,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
919 |
|
|
|
57,910 |
|
|
|
1,074,157 |
|
|
|
(21,213 |
) |
|
|
1,111,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
(919 |
) |
|
|
(30,148 |
) |
|
|
76,286 |
|
|
|
(3,825 |
) |
|
|
41,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
31,860 |
|
|
|
16,774 |
|
|
|
(7,869 |
) |
|
|
40,765 |
|
Interest and other income |
|
|
(97 |
) |
|
|
(1,209 |
) |
|
|
(546 |
) |
|
|
624 |
|
|
|
(1,228 |
) |
Loss (gain) on extinguishment of debt |
|
|
|
|
|
|
(5,675 |
) |
|
|
|
|
|
|
|
|
|
|
(5,675 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses (income) |
|
|
(97 |
) |
|
|
24,976 |
|
|
|
16,228 |
|
|
|
(7,245 |
) |
|
|
33,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE EQUITY
INTERESTS AND INCOME
TAXES |
|
|
(822 |
) |
|
|
(55,124 |
) |
|
|
60,058 |
|
|
|
3,420 |
|
|
|
7,532 |
|
Equity interests income (loss) |
|
|
(2,442 |
) |
|
|
50,875 |
|
|
|
(9,755 |
) |
|
|
(49,226 |
) |
|
|
(10,548 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES |
|
|
(3,264 |
) |
|
|
(4,249 |
) |
|
|
50,303 |
|
|
|
(45,806 |
) |
|
|
(3,016 |
) |
Income tax provision (benefit) |
|
|
11 |
|
|
|
817 |
|
|
|
(569 |
) |
|
|
|
|
|
|
259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
|
(3,275 |
) |
|
|
(5,066 |
) |
|
|
50,872 |
|
|
|
(45,806 |
) |
|
|
(3,275 |
) |
Add: Net loss attributable to noncontrolling interest |
|
|
6,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO
LIONS GATE ENTERTAINMENT CORP. SHAREHOLDERS |
|
$ |
2,806 |
|
|
$ |
(5,066 |
) |
|
$ |
50,872 |
|
|
$ |
(45,806 |
) |
|
$ |
2,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, 2009 |
|
|
|
Lions Gate |
|
|
Lions Gate |
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment |
|
|
Entertainment |
|
|
Other |
|
|
Consolidating |
|
|
Lions Gate |
|
|
|
Corp. |
|
|
Inc. |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
STATEMENT OF CASH FLOWS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) OPERATING
ACTIVITIES |
|
$ |
(9,915 |
) |
|
$ |
24,245 |
|
|
$ |
(142,432 |
) |
|
$ |
|
|
|
$ |
(128,102 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of restricted investments |
|
|
|
|
|
|
(13,994 |
) |
|
|
|
|
|
|
|
|
|
|
(13,994 |
) |
Proceeds from the sale of restricted investments |
|
|
|
|
|
|
13,985 |
|
|
|
|
|
|
|
|
|
|
|
13,985 |
|
Investment in equity method investees |
|
|
|
|
|
|
|
|
|
|
(41,342 |
) |
|
|
|
|
|
|
(41,342 |
) |
Increase in loan receivables |
|
|
|
|
|
|
(362 |
) |
|
|
|
|
|
|
|
|
|
|
(362 |
) |
Repayment of loans receivable |
|
|
|
|
|
|
|
|
|
|
8,333 |
|
|
|
|
|
|
|
8,333 |
|
Purchases of property and equipment |
|
|
|
|
|
|
(535 |
) |
|
|
(3,693 |
) |
|
|
|
|
|
|
(4,228 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) INVESTING
ACTIVITIES |
|
|
|
|
|
|
(906 |
) |
|
|
(36,702 |
) |
|
|
|
|
|
|
(37,608 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax withholding requirements on equity awards |
|
|
(1,733 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,733 |
) |
Proceeds from the sale of 49% interest in TV Guide Network |
|
|
|
|
|
|
|
|
|
|
122,355 |
|
|
|
|
|
|
|
122,355 |
|
Borrowings under senior revolving credit facility |
|
|
|
|
|
|
170,000 |
|
|
|
|
|
|
|
|
|
|
|
170,000 |
|
Repayments of borrowings under senior revolving credit facility |
|
|
|
|
|
|
(413,000 |
) |
|
|
|
|
|
|
|
|
|
|
(413,000 |
) |
Borrowings under individual production obligations |
|
|
|
|
|
|
|
|
|
|
134,587 |
|
|
|
|
|
|
|
134,587 |
|
Repayment of individual production obligations |
|
|
|
|
|
|
|
|
|
|
(111,885 |
) |
|
|
|
|
|
|
(111,885 |
) |
Production obligation borrowings under Pennsylvania Regional
Center credit facility |
|
|
|
|
|
|
|
|
|
|
57,000 |
|
|
|
|
|
|
|
57,000 |
|
Production obligation borrowings under film credit facility |
|
|
|
|
|
|
|
|
|
|
32,217 |
|
|
|
|
|
|
|
32,217 |
|
Proceeds from sale of senior secured second-priority notes |
|
|
|
|
|
|
216,232 |
|
|
|
|
|
|
|
|
|
|
|
216,232 |
|
Repurchase of subordinated notes |
|
|
|
|
|
|
(75,185 |
) |
|
|
|
|
|
|
|
|
|
|
(75,185 |
) |
Repayment of other financing obligations |
|
|
|
|
|
|
|
|
|
|
(615 |
) |
|
|
|
|
|
|
(615 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) FINANCING
ACTIVITIES |
|
|
(1,733 |
) |
|
|
(101,953 |
) |
|
|
233,659 |
|
|
|
|
|
|
|
129,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH
EQUIVALENTS |
|
|
(11,648 |
) |
|
|
(78,614 |
) |
|
|
54,525 |
|
|
|
|
|
|
|
(35,737 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN EXCHANGE EFFECTS ON
CASH |
|
|
2,033 |
|
|
|
|
|
|
|
319 |
|
|
|
|
|
|
|
2,352 |
|
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD |
|
|
13,253 |
|
|
|
88,962 |
|
|
|
36,260 |
|
|
|
|
|
|
|
138,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS
END OF PERIOD |
|
$ |
3,638 |
|
|
$ |
10,348 |
|
|
$ |
91,104 |
|
|
$ |
|
|
|
$ |
105,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2009 |
|
|
|
Lions Gate |
|
|
Lions Gate |
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment |
|
|
Entertainment |
|
|
Other |
|
|
Consolidating |
|
|
Lions Gate |
|
|
|
Corp. |
|
|
Inc. |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
13,253 |
|
|
$ |
88,962 |
|
|
$ |
36,260 |
|
|
$ |
|
|
|
$ |
138,475 |
|
Restricted cash |
|
|
|
|
|
|
10,056 |
|
|
|
|
|
|
|
|
|
|
|
10,056 |
|
Restricted investments |
|
|
|
|
|
|
6,987 |
|
|
|
|
|
|
|
|
|
|
|
6,987 |
|
Accounts receivable, net |
|
|
113 |
|
|
|
3,737 |
|
|
|
223,289 |
|
|
|
(129 |
) |
|
|
227,010 |
|
Investment in films and television programs, net |
|
|
2 |
|
|
|
6,761 |
|
|
|
695,781 |
|
|
|
223 |
|
|
|
702,767 |
|
Property and equipment, net |
|
|
|
|
|
|
15,014 |
|
|
|
27,401 |
|
|
|
|
|
|
|
42,415 |
|
Finite-lived intangible assets, net |
|
|
|
|
|
|
|
|
|
|
78,904 |
|
|
|
|
|
|
|
78,904 |
|
Goodwill |
|
|
10,173 |
|
|
|
|
|
|
|
369,229 |
|
|
|
|
|
|
|
379,402 |
|
Other assets |
|
|
|
|
|
|
37,636 |
|
|
|
43,598 |
|
|
|
|
|
|
|
81,234 |
|
Subsidiary investments and advances |
|
|
19,188 |
|
|
|
(1,103 |
) |
|
|
(52,438 |
) |
|
|
34,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
42,729 |
|
|
$ |
168,050 |
|
|
$ |
1,422,024 |
|
|
$ |
34,447 |
|
|
$ |
1,667,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders
Equity (Deficiency) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior revolving credit facility |
|
$ |
|
|
|
$ |
255,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
255,000 |
|
Accounts payable and accrued liabilities |
|
|
821 |
|
|
|
12,289 |
|
|
|
257,866 |
|
|
|
(415 |
) |
|
|
270,561 |
|
Participations and residuals |
|
|
152 |
|
|
|
472 |
|
|
|
371,234 |
|
|
|
(1 |
) |
|
|
371,857 |
|
Film and production obligations |
|
|
63 |
|
|
|
|
|
|
|
304,590 |
|
|
|
(128 |
) |
|
|
304,525 |
|
Subordinated notes and other financing obligations |
|
|
|
|
|
|
265,805 |
|
|
|
15,716 |
|
|
|
|
|
|
|
281,521 |
|
Deferred revenue |
|
|
|
|
|
|
385 |
|
|
|
141,708 |
|
|
|
|
|
|
|
142,093 |
|
Shareholders equity (deficiency) |
|
|
41,693 |
|
|
|
(365,901 |
) |
|
|
330,910 |
|
|
|
34,991 |
|
|
|
41,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
42,729 |
|
|
$ |
168,050 |
|
|
$ |
1,422,024 |
|
|
$ |
34,447 |
|
|
$ |
1,667,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, 2008 |
|
|
|
Lions Gate |
|
|
Lions Gate |
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment |
|
|
Entertainment |
|
|
Other |
|
|
Consolidating |
|
|
Lions Gate |
|
|
|
Corp. |
|
|
Inc. |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
STATEMENT OF OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
580 |
|
|
$ |
19,287 |
|
|
$ |
1,009,574 |
|
|
$ |
(26,237 |
) |
|
$ |
1,003,204 |
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating |
|
|
674 |
|
|
|
51 |
|
|
|
567,876 |
|
|
|
(2,080 |
) |
|
|
566,521 |
|
Distribution and marketing |
|
|
|
|
|
|
548 |
|
|
|
458,270 |
|
|
|
(36 |
) |
|
|
458,782 |
|
General and administration |
|
|
757 |
|
|
|
50,743 |
|
|
|
44,880 |
|
|
|
|
|
|
|
96,380 |
|
Depreciation and amortization |
|
|
|
|
|
|
3,003 |
|
|
|
613 |
|
|
|
|
|
|
|
3,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
1,431 |
|
|
|
54,345 |
|
|
|
1,071,639 |
|
|
|
(2,116 |
) |
|
|
1,125,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
(851 |
) |
|
|
(35,058 |
) |
|
|
(62,065 |
) |
|
|
(24,121 |
) |
|
|
(122,095 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
15 |
|
|
|
23,865 |
|
|
|
1,028 |
|
|
|
|
|
|
|
24,908 |
|
Interest and other income |
|
|
(170 |
) |
|
|
(3,564 |
) |
|
|
(1,328 |
) |
|
|
|
|
|
|
(5,062 |
) |
Gain on extinguishment of debt |
|
|
|
|
|
|
(3,023 |
) |
|
|
|
|
|
|
|
|
|
|
(3,023 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other
expenses (income) |
|
|
(155 |
) |
|
|
17,278 |
|
|
|
(300 |
) |
|
|
|
|
|
|
16,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE EQUITY
INTERESTS AND INCOME
TAXES |
|
|
(696 |
) |
|
|
(52,336 |
) |
|
|
(61,765 |
) |
|
|
(24,121 |
) |
|
|
(138,918 |
) |
Equity interests income (loss) |
|
|
(145,344 |
) |
|
|
(103,600 |
) |
|
|
(4,030 |
) |
|
|
247,133 |
|
|
|
(5,841 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES |
|
|
(146,040 |
) |
|
|
(155,936 |
) |
|
|
(65,795 |
) |
|
|
223,012 |
|
|
|
(144,759 |
) |
Income tax provision (benefit) |
|
|
11 |
|
|
|
1,036 |
|
|
|
247 |
|
|
|
(2 |
) |
|
|
1,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
(146,051 |
) |
|
$ |
(156,972 |
) |
|
$ |
(66,042 |
) |
|
$ |
223,014 |
|
|
$ |
(146,051 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, 2008 |
|
|
|
Lions Gate |
|
|
Lions Gate |
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment |
|
|
Entertainment |
|
|
Other |
|
|
Consolidating |
|
|
Lions Gate |
|
|
|
Corp. |
|
|
Inc. |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
STATEMENT OF CASH FLOWS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) OPERATING
ACTIVITIES |
|
$ |
52,992 |
|
|
$ |
(248,097 |
) |
|
$ |
99,196 |
|
|
$ |
|
|
|
$ |
(95,909 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in equity method investees |
|
|
|
|
|
|
|
|
|
|
(15,886 |
) |
|
|
|
|
|
|
(15,886 |
) |
Increase in loan receivables |
|
|
|
|
|
|
(3,767 |
) |
|
|
(25,000 |
) |
|
|
|
|
|
|
(28,767 |
) |
Purchases of property and equipment |
|
|
|
|
|
|
(6,172 |
) |
|
|
(293 |
) |
|
|
|
|
|
|
(6,465 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) INVESTING
ACTIVITIES |
|
|
|
|
|
|
(9,939 |
) |
|
|
(41,179 |
) |
|
|
|
|
|
|
(51,118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
2,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,894 |
|
Tax withholding requirements on equity awards |
|
|
(3,134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,134 |
) |
Repurchases of common shares |
|
|
(44,968 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,968 |
) |
Production obligation borrowings under Pennsylvania Regional Center credit facility |
|
|
|
|
|
|
|
|
|
|
117,662 |
|
|
|
|
|
|
|
117,662 |
|
Production obligation borrowings under film credit facility |
|
|
|
|
|
|
|
|
|
|
(165,298 |
) |
|
|
|
|
|
|
(165,298 |
) |
Proceeds from sale of senior secured second-priority notes |
|
|
|
|
|
|
|
|
|
|
8,758 |
|
|
|
|
|
|
|
8,758 |
|
Repurchase of subordinated notes |
|
|
|
|
|
|
(5,310 |
) |
|
|
|
|
|
|
|
|
|
|
(5,310 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) FINANCING
ACTIVITIES |
|
|
(45,208 |
) |
|
|
(5,310 |
) |
|
|
(38,878 |
) |
|
|
|
|
|
|
(89,396 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH
EQUIVALENTS |
|
|
7,784 |
|
|
|
(263,346 |
) |
|
|
19,139 |
|
|
|
|
|
|
|
(236,423 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN EXCHANGE EFFECTS ON
CASH |
|
|
(1,534 |
) |
|
|
|
|
|
|
(2,919 |
) |
|
|
|
|
|
|
(4,453 |
) |
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD |
|
|
4,474 |
|
|
|
350,581 |
|
|
|
16,534 |
|
|
|
|
|
|
|
371,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS
END OF PERIOD |
|
$ |
10,724 |
|
|
$ |
87,235 |
|
|
$ |
32,754 |
|
|
$ |
|
|
|
$ |
130,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
20. Consolidating Financial Information Senior Secured Second-Priority Notes
In October 2009, the Company issued $236.0 million aggregate principal amount of senior
secured second-priority notes (Senior Notes) due 2016 in a private offering conducted pursuant to
Rule 144A and Regulation S under the Securities Act of 1933, as amended (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
December 31, 2009 and March 31, 2009, and for the nine months ended December 31, 2009 and 2008 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 December 31, 2009 |
|
|
|
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 |
|
$ |
3,638 |
|
|
$ |
10,348 |
|
|
$ |
8,909 |
|
|
$ |
82,195 |
|
|
$ |
|
|
|
$ |
105,090 |
|
Restricted cash |
|
|
|
|
|
|
706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
706 |
|
Restricted investments |
|
|
|
|
|
|
6,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,995 |
|
Accounts receivable, net |
|
|
118 |
|
|
|
1,977 |
|
|
|
193,588 |
|
|
|
59,694 |
|
|
|
|
|
|
|
255,377 |
|
Investment in films and television programs, net |
|
|
2 |
|
|
|
6,391 |
|
|
|
627,348 |
|
|
|
98,937 |
|
|
|
(1,389 |
) |
|
|
731,289 |
|
Property and equipment, net |
|
|
|
|
|
|
11,791 |
|
|
|
439 |
|
|
|
23,129 |
|
|
|
|
|
|
|
35,359 |
|
Finite-lived intangible assets, net |
|
|
|
|
|
|
|
|
|
|
1,385 |
|
|
|
73,027 |
|
|
|
|
|
|
|
74,412 |
|
Goodwill |
|
|
10,173 |
|
|
|
|
|
|
|
183,883 |
|
|
|
182,797 |
|
|
|
|
|
|
|
376,853 |
|
Other assets |
|
|
415 |
|
|
|
44,949 |
|
|
|
64,943 |
|
|
|
2,719 |
|
|
|
|
|
|
|
113,026 |
|
Subsidiary investments and advances |
|
|
90,801 |
|
|
|
(18,900 |
) |
|
|
(68,400 |
) |
|
|
(67,037 |
) |
|
|
63,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
105,147 |
|
|
$ |
64,257 |
|
|
$ |
1,012,095 |
|
|
$ |
455,461 |
|
|
$ |
62,147 |
|
|
$ |
1,699,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders
Equity (Deficiency) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior revolving credit facility |
|
$ |
|
|
|
$ |
12,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12,000 |
|
Senior secured second-priority notes |
|
|
|
|
|
|
225,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,488 |
|
Accounts payable and accrued liabilities |
|
|
460 |
|
|
|
21,740 |
|
|
|
182,516 |
|
|
|
42,280 |
|
|
|
(2,027 |
) |
|
|
244,969 |
|
Participations and residuals |
|
|
180 |
|
|
|
3,221 |
|
|
|
241,066 |
|
|
|
42,200 |
|
|
|
(11 |
) |
|
|
286,656 |
|
Film and production obligations |
|
|
76 |
|
|
|
|
|
|
|
376,281 |
|
|
|
20,711 |
|
|
|
|
|
|
|
397,068 |
|
Subordinated notes and other financing obligations |
|
|
|
|
|
|
184,963 |
|
|
|
3,718 |
|
|
|
11,383 |
|
|
|
|
|
|
|
200,064 |
|
Mandatorily redeemable preferred stock units held
by noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186,641 |
|
|
|
(95,187 |
) |
|
|
91,454 |
|
Deferred revenue |
|
|
|
|
|
|
266 |
|
|
|
121,735 |
|
|
|
14,976 |
|
|
|
|
|
|
|
136,977 |
|
Shareholders equity (deficiency) |
|
|
104,431 |
|
|
|
(383,421 |
) |
|
|
86,779 |
|
|
|
137,270 |
|
|
|
159,372 |
|
|
|
104,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
105,147 |
|
|
$ |
64,257 |
|
|
$ |
1,102,095 |
|
|
$ |
455,461 |
|
|
$ |
62,147 |
|
|
$ |
1,699,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, 2009 |
|
|
|
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 |
|
$ |
|
|
|
$ |
27,762 |
|
|
$ |
883,299 |
|
|
$ |
273,117 |
|
|
$ |
(31,011 |
) |
|
$ |
1,153,167 |
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating |
|
|
|
|
|
|
672 |
|
|
|
497,624 |
|
|
|
149,847 |
|
|
|
(28,130 |
) |
|
|
620,013 |
|
Distribution and marketing |
|
|
|
|
|
|
3,372 |
|
|
|
288,454 |
|
|
|
57,064 |
|
|
|
(1,359 |
) |
|
|
347,531 |
|
General and administration |
|
|
919 |
|
|
|
50,108 |
|
|
|
30,471 |
|
|
|
41,870 |
|
|
|
(226 |
) |
|
|
123,142 |
|
Depreciation and amortization |
|
|
|
|
|
|
3,758 |
|
|
|
3,092 |
|
|
|
14,237 |
|
|
|
|
|
|
|
21,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
919 |
|
|
|
57,910 |
|
|
|
819,641 |
|
|
|
263,018 |
|
|
|
(29,715 |
) |
|
|
1,111,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
(919 |
) |
|
|
(30,148 |
) |
|
|
63,658 |
|
|
|
10,099 |
|
|
|
(1,296 |
) |
|
|
41,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
31,860 |
|
|
|
1,186 |
|
|
|
15,588 |
|
|
|
(7,869 |
) |
|
|
40,765 |
|
Interest and other income |
|
|
(97 |
) |
|
|
(1,209 |
) |
|
|
(477 |
) |
|
|
(69 |
) |
|
|
624 |
|
|
|
(1,228 |
) |
Loss (gain) on extinguishment of debt |
|
|
|
|
|
|
(5,675 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,675 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses (income) |
|
|
(97 |
) |
|
|
24,976 |
|
|
|
709 |
|
|
|
15,519 |
|
|
|
(7,245 |
) |
|
|
33,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE EQUITY
INTERESTS AND INCOME
TAXES |
|
|
(822 |
) |
|
|
(55,124 |
) |
|
|
62,949 |
|
|
|
(5,420 |
) |
|
|
5,949 |
|
|
|
7,532 |
|
Equity interests income (loss) |
|
|
(2,442 |
) |
|
|
50,875 |
|
|
|
(9,755 |
) |
|
|
|
|
|
|
(49,226 |
) |
|
|
(10,548 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES |
|
|
(3,264 |
) |
|
|
(4,249 |
) |
|
|
53,194 |
|
|
|
(5,420 |
) |
|
|
(43,277 |
) |
|
|
(3,016 |
) |
Income tax provision (benefit) |
|
|
11 |
|
|
|
817 |
|
|
|
(1,312 |
) |
|
|
743 |
|
|
|
|
|
|
|
259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
|
(3,275 |
) |
|
|
(5,066 |
) |
|
|
54,506 |
|
|
|
(6,163 |
) |
|
|
(43,277 |
) |
|
|
(3,275 |
) |
Add: Net loss attributable to noncontrolling interest |
|
|
6,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO
LIONS GATE ENTERTAINMENT CORP. SHAREHOLDERS |
|
$ |
2,806 |
|
|
$ |
(5,066 |
) |
|
$ |
54,506 |
|
|
$ |
(6,163 |
) |
|
$ |
(43,277 |
) |
|
$ |
2,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, 2009 |
|
|
|
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 |
|
$ |
(9,915 |
) |
|
$ |
24,245 |
|
|
$ |
(69,035 |
) |
|
$ |
(73,397 |
) |
|
$ |
|
|
|
$ |
(128,102 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of restricted investments |
|
|
|
|
|
|
(13,994 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,994 |
) |
Proceeds from the sale of restricted investments |
|
|
|
|
|
|
13,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,985 |
|
Investment in equity method investees |
|
|
|
|
|
|
|
|
|
|
(41,342 |
) |
|
|
|
|
|
|
|
|
|
|
(41,342 |
) |
Increase in loan receivables |
|
|
|
|
|
|
(362 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(362 |
) |
Repayment of loans receivable |
|
|
|
|
|
|
|
|
|
|
8,333 |
|
|
|
|
|
|
|
|
|
|
|
8,333 |
|
Purchases of property and equipment |
|
|
|
|
|
|
(535 |
) |
|
|
(467 |
) |
|
|
(3,226 |
) |
|
|
|
|
|
|
(4,228 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) INVESTING
ACTIVITIES |
|
|
|
|
|
|
(906 |
) |
|
|
(33,476 |
) |
|
|
(3,226 |
) |
|
|
|
|
|
|
(37,608 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax withholding requirements
on equity awards |
|
|
(1,733 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,733 |
) |
Proceeds from the sale of 49% interest in TV Guide Network |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122,355 |
|
|
|
|
|
|
|
122,355 |
|
Borrowings under senior revolving credit facility |
|
|
|
|
|
|
170,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170,000 |
|
Repayments of borrowings under senior revolving credit facility |
|
|
|
|
|
|
(413,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(413,000 |
) |
Borrowings under individual production obligations |
|
|
|
|
|
|
|
|
|
|
122,470 |
|
|
|
12,117 |
|
|
|
|
|
|
|
134,587 |
|
Repayment of individual production obligations |
|
|
|
|
|
|
|
|
|
|
(110,691 |
) |
|
|
(1,194 |
) |
|
|
|
|
|
|
(111,885 |
) |
Production obligation borrowings under Pennsylvania Regional Center
credit facility |
|
|
|
|
|
|
|
|
|
|
57,000 |
|
|
|
|
|
|
|
|
|
|
|
57,000 |
|
Production obligation borrowings under film credit facility |
|
|
|
|
|
|
|
|
|
|
32,217 |
|
|
|
|
|
|
|
|
|
|
|
32,217 |
|
Proceeds from sale of senior secured second-priority notes |
|
|
|
|
|
|
216,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216,232 |
|
Repurchase of subordinated notes |
|
|
|
|
|
|
(75,185 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75,185 |
) |
Repayment of other financing obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(615 |
) |
|
|
|
|
|
|
(615 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) FINANCING
ACTIVITIES |
|
|
(1,733 |
) |
|
|
(101,953 |
) |
|
|
100,996 |
|
|
|
132,663 |
|
|
|
|
|
|
|
129,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH
EQUIVALENTS |
|
|
(11,648 |
) |
|
|
(78,614 |
) |
|
|
(1,515 |
) |
|
|
56,040 |
|
|
|
|
|
|
|
(35,737 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN EXCHANGE EFFECTS ON
CASH |
|
|
2,033 |
|
|
|
|
|
|
|
|
|
|
|
319 |
|
|
|
|
|
|
|
2,352 |
|
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD |
|
|
13,253 |
|
|
|
88,962 |
|
|
|
10,424 |
|
|
|
25,836 |
|
|
|
|
|
|
|
138,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS
END OF PERIOD |
|
$ |
3,638 |
|
|
$ |
10,348 |
|
|
$ |
8,909 |
|
|
$ |
82,195 |
|
|
$ |
|
|
|
$ |
105,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2009 |
|
|
|
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 |
|
$ |
13,253 |
|
|
$ |
88,962 |
|
|
$ |
10,424 |
|
|
$ |
25,836 |
|
|
$ |
|
|
|
$ |
138,475 |
|
Restricted cash |
|
|
|
|
|
|
10,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,056 |
|
Restricted investments |
|
|
|
|
|
|
6,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,987 |
|
Accounts receivable, net |
|
|
113 |
|
|
|
3,737 |
|
|
|
168,479 |
|
|
|
54,810 |
|
|
|
(129 |
) |
|
|
227,010 |
|
Investment in films and television programs, net |
|
|
2 |
|
|
|
6,761 |
|
|
|
515,278 |
|
|
|
180,909 |
|
|
|
(183 |
) |
|
|
702,767 |
|
Property and equipment, net |
|
|
|
|
|
|
15,014 |
|
|
|
558 |
|
|
|
26,843 |
|
|
|
|
|
|
|
42,415 |
|
Finite-lived intangible assets, net |
|
|
|
|
|
|
|
|
|
|
1,070 |
|
|
|
77,834 |
|
|
|
|
|
|
|
78,904 |
|
Goodwill |
|
|
10,173 |
|
|
|
|
|
|
|
183,883 |
|
|
|
185,346 |
|
|
|
|
|
|
|
379,402 |
|
Other assets |
|
|
|
|
|
|
37,636 |
|
|
|
40,427 |
|
|
|
3,171 |
|
|
|
|
|
|
|
81,234 |
|
Subsidiary investments and advances |
|
|
19,188 |
|
|
|
(1,103 |
) |
|
|
13,718 |
|
|
|
(33,545 |
) |
|
|
1,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
42,729 |
|
|
$ |
168,050 |
|
|
$ |
933,837 |
|
|
$ |
521,204 |
|
|
$ |
1,430 |
|
|
$ |
1,667,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders
Equity (Deficiency) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior revolving credit facility |
|
$ |
|
|
|
$ |
255,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
255,000 |
|
Accounts payable and accrued liabilities |
|
|
821 |
|
|
|
12,289 |
|
|
|
216,725 |
|
|
|
40,301 |
|
|
|
425 |
|
|
|
270,561 |
|
Participations and residuals |
|
|
152 |
|
|
|
472 |
|
|
|
280,070 |
|
|
|
91,118 |
|
|
|
45 |
|
|
|
371,857 |
|
Film and production obligations |
|
|
63 |
|
|
|
|
|
|
|
258,597 |
|
|
|
45,993 |
|
|
|
(128 |
) |
|
|
304,525 |
|
Subordinated notes and other financing obligations |
|
|
|
|
|
|
265,805 |
|
|
|
3,718 |
|
|
|
11,998 |
|
|
|
|
|
|
|
281,521 |
|
Deferred revenue |
|
|
|
|
|
|
385 |
|
|
|
110,652 |
|
|
|
31,056 |
|
|
|
|
|
|
|
142,093 |
|
Shareholders equity (deficiency) |
|
|
41,693 |
|
|
|
(365,901 |
) |
|
|
64,075 |
|
|
|
300,738 |
|
|
|
1,088 |
|
|
|
41,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
42,729 |
|
|
$ |
168,050 |
|
|
$ |
933,837 |
|
|
$ |
521,204 |
|
|
$ |
1,430 |
|
|
$ |
1,667,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, 2008 |
|
|
|
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 |
|
$ |
580 |
|
|
$ |
19,287 |
|
|
$ |
883,516 |
|
|
$ |
127,939 |
|
|
$ |
(28,118 |
) |
|
$ |
1,003,204 |
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating |
|
|
674 |
|
|
|
51 |
|
|
|
527,033 |
|
|
|
68,729 |
|
|
|
(29,966 |
) |
|
|
566,521 |
|
Distribution and marketing |
|
|
|
|
|
|
548 |
|
|
|
397,342 |
|
|
|
60,958 |
|
|
|
(66 |
) |
|
|
458,782 |
|
General and administration |
|
|
757 |
|
|
|
50,743 |
|
|
|
32,776 |
|
|
|
12,104 |
|
|
|
|
|
|
|
96,380 |
|
Depreciation and amortization |
|
|
|
|
|
|
3,003 |
|
|
|
396 |
|
|
|
217 |
|
|
|
|
|
|
|
3,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
1,431 |
|
|
|
54,345 |
|
|
|
957,547 |
|
|
|
142,008 |
|
|
|
(30,032 |
) |
|
|
1,125,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
(851 |
) |
|
|
(35,058 |
) |
|
|
(74,031 |
) |
|
|
(14,069 |
) |
|
|
1,914 |
|
|
|
(122,095 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
15 |
|
|
|
23,865 |
|
|
|
691 |
|
|
|
831 |
|
|
|
(494 |
) |
|
|
24,908 |
|
Interest and other income |
|
|
(170 |
) |
|
|
(3,564 |
) |
|
|
(1,236 |
) |
|
|
(586 |
) |
|
|
494 |
|
|
|
(5,062 |
) |
Gain on extinguishment of debt |
|
|
|
|
|
|
(3,023 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,023 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses (income) |
|
|
(155 |
) |
|
|
17,278 |
|
|
|
(545 |
) |
|
|
245 |
|
|
|
|
|
|
|
16,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE EQUITY
INTERESTS AND INCOME
TAXES |
|
|
(696 |
) |
|
|
(52,336 |
) |
|
|
(73,486 |
) |
|
|
(14,314 |
) |
|
|
1,914 |
|
|
|
(138,918 |
) |
Equity interests income (loss) |
|
|
(145,344 |
) |
|
|
(103,600 |
) |
|
|
(4,030 |
) |
|
|
|
|
|
|
247,133 |
|
|
|
(5,841 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES |
|
|
(146,040 |
) |
|
|
(155,936 |
) |
|
|
(77,516 |
) |
|
|
(14,314 |
) |
|
|
249,047 |
|
|
|
(144,759 |
) |
Income tax provision (benefit) |
|
|
11 |
|
|
|
1,036 |
|
|
|
965 |
|
|
|
(720 |
) |
|
|
|
|
|
|
1,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO
LIONS GATE ENTERTAINMENT CORP. SHAREHOLDERS |
|
$ |
(146,051 |
) |
|
$ |
(156,972 |
) |
|
$ |
(78,481 |
) |
|
$ |
(13,594 |
) |
|
$ |
249,047 |
|
|
$ |
(146,051 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, 2008 |
|
|
|
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 |
|
$ |
52,992 |
|
|
$ |
(248,097 |
) |
|
$ |
92,348 |
|
|
$ |
6,848 |
|
|
$ |
|
|
|
$ |
(95,909 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in equity method investees |
|
|
|
|
|
|
|
|
|
|
(15,886 |
) |
|
|
|
|
|
|
|
|
|
|
(15,886 |
) |
Increase in loan receivables |
|
|
|
|
|
|
(3,767 |
) |
|
|
(25,000 |
) |
|
|
|
|
|
|
|
|
|
|
(28,767 |
) |
Repayment of loans receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
|
|
|
|
(6,172 |
) |
|
|
(258 |
) |
|
|
(35 |
) |
|
|
|
|
|
|
(6,465 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) INVESTING
ACTIVITIES |
|
|
|
|
|
|
(9,939 |
) |
|
|
(41,144 |
) |
|
|
(35 |
) |
|
|
|
|
|
|
(51,118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
2,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,894 |
|
Tax withholding requirements on equity awards |
|
|
(3,134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,134 |
) |
Repurchases of common shares |
|
|
(44,968 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,968 |
) |
Borrowings under individual production obligations |
|
|
|
|
|
|
|
|
|
|
79,531 |
|
|
|
38,131 |
|
|
|
|
|
|
|
117,662 |
|
Repayment of individual production obligations |
|
|
|
|
|
|
|
|
|
|
(140,478 |
) |
|
|
(24,820 |
) |
|
|
|
|
|
|
(165,298 |
) |
Production obligation borrowings under
Pennsylvania Regional Center credit facility |
|
|
|
|
|
|
|
|
|
|
8,758 |
|
|
|
|
|
|
|
|
|
|
|
8,758 |
|
Repurchase of subordinated notes |
|
|
|
|
|
|
(5,310 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,310 |
) |
Repayment of other financing obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) FINANCING
ACTIVITIES |
|
|
(45,208 |
) |
|
|
(5,310 |
) |
|
|
(52,189 |
) |
|
|
13,311 |
|
|
|
|
|
|
|
(89,396 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH
EQUIVALENTS |
|
|
7,784 |
|
|
|
(263,346 |
) |
|
|
(985 |
) |
|
|
20,124 |
|
|
|
|
|
|
|
(236,423 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN EXCHANGE EFFECTS ON
CASH |
|
|
(1,534 |
) |
|
|
|
|
|
|
|
|
|
|
(2,919 |
) |
|
|
|
|
|
|
(4,453 |
) |
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD |
|
|
4,474 |
|
|
|
350,581 |
|
|
|
5,899 |
|
|
|
10,635 |
|
|
|
|
|
|
|
371,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS
END OF PERIOD |
|
$ |
10,724 |
|
|
$ |
87,235 |
|
|
$ |
4,914 |
|
|
$ |
27,840 |
|
|
$ |
|
|
|
$ |
130,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Lions Gate Entertainment Corp. (Lionsgate, the Company, we, us or our) is the
leading next generation studio with a diversified presence in the production and distribution of
motion pictures, television programming, home entertainment, family entertainment, video-on-demand
and digitally delivered content.
Our revenues are derived from the following business segments: Motion Pictures, which includes
Theatrical, Home Entertainment, Television, International, and Mandate Pictures.
Motion Pictures
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 consist of the sale or rental of packaged media (i.e., DVD and
Blu-ray) and electronic media (i.e., electronic-sell through or EST) of our own productions and
acquired films, including theatrical releases and direct-to-video releases, 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.
Television revenues are primarily derived from the licensing of our productions and acquired
films to the domestic cable, 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. Our revenues are derived from the U.S., Canada, the United Kingdom, Australia and other
foreign countries; none of the foreign countries individually comprised greater than 10% of total
revenues.
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 as
well as certain titles sold by Mandate International, LLC, one of the Companys international
divisions, 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.
Media Networks
Media Networks consists of TV Guide Network, one of the 30 most widely distributed general
entertainment cable networks in the U.S., including TV Guide Network On Demand, and TV Guide Online
(www.tvguide.com), an online navigational tool and provider of television listings and video and
other entertainment content (which we acquired in February 2009 and of which we sold a 49% interest
in May 2009). Media Networks includes distribution revenue from multi-system cable operators and
digital broadcast satellite providers (distributors generally pay a per subscriber fee for the
right to distribute programming) and advertising revenue from the sale of advertising on its
television channel and related online media platforms.
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 and provision for doubtful accounts.
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 individuals (i.e., actor, director, writer) salary level
in the television market.
40
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 represents the
costs of the theatrical prints delivered to theatrical exhibitors and advertising includes 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
December 2009 Repurchase: In December 2009, our wholly-owned subsidiary, Lions Gate
Entertainment Inc. (LGEI), paid $37.7 million to extinguish $39.9 million of aggregate principal
amount (carrying value $35.0 million) of the February 2005 3.625% Notes and recorded a loss on
extinguishment of $0.9 million, which includes $0.4 million of deferred financing costs written
off. The loss represented the excess of the fair value of the liability component of the February
2005 3.625% Notes repurchased over their carrying value, plus the deferred financing costs written
off. The excess of the amount paid to repurchase the February 2005 3.625% Notes over the fair value
of the February 2005 3.625% Notes repurchased was recorded as a reduction of shareholders equity
reflecting the repurchase of the equity component of the February 2005 3.625% Notes repurchased.
In December 2009, LGEI paid $38.0 million to extinguish $40.0 million of aggregate principal
amount (carrying value $35.5 million) of the October 2004 2.9375% Notes and recorded a loss on
extinguishment of $0.8 million, which includes $0.3 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 value, plus the deferred financing costs written
off. The excess of the amount paid to repurchase the October 2004 2.9375% Notes over the fair value
of the October 2004 2.9375% Notes repurchased was recorded as a reduction of shareholders equity
reflecting the repurchase of the equity component of the October 2004 2.9375% Notes repurchased.
10.25% Senior Secured Second-Priority Notes. On October 21, 2009, LGEI issued $236.0 million
aggregate principal amount of senior secured second-priority notes due 2016 (the 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 Notes will pay interest semi-annually on May 1 and November 1 of each year at a rate of
10.25% per year and will mature on November 1, 2016.
The Senior Notes were issued by LGEI at an initial price of 95.222% (original issue discount
4.778%) of the principal amount. The net proceeds, after deducting discounts, the fees paid to
the initial purchaser, and all transaction costs (including accrued legal, accounting and other
professional fees) from the sale of the Senior Notes was approximately $214.2 million, which was
used by LGEI to repay a portion of its outstanding debt under its senior revolving credit facility.
The original issue discount and deferred financing costs are amortized through November 1, 2016
under the effective interest method.
Film Credit Facility. On October 6, 2009, we entered into a revolving film credit facility
agreement, as amended effective December 31, 2009 (Film Credit Facility), which provides for
borrowings for the acquisition or production of motion pictures. Currently, the Film Credit
Facility provides for total borrowings up to $120 million and can be increased to $200 million if
additional lenders or financial institutions become a party to and provide a commitment under the
facility. The Film Credit Facility has a maturity date of April 6, 2013 and generally bears an
interest rate of 3.25% over the LIBO rate (as defined in the credit agreement). We are required
to pay a quarterly commitment fee of 0.75% per annum on the unused commitment under the Film Credit
Facility. 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. 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.
TV Guide Network Acquisition. In January 2009, the Company entered into an Equity Purchase
Agreement (the Equity Purchase Agreement) with Gemstar-TV Guide International, Inc. (Gemstar),
TV Guide Entertainment Group, Inc. (TVGE), its parent company, UV Corporation and Macrovision
Solutions Corporation (Macrovision), the ultimate parent company of Gemstar, TVGE and UV
Corporation, for the purchase by the Company from UV Corporation of all of the issued and
outstanding equity interests of TVGE. In connection with the transaction, Gemstar and its
subsidiaries transferred, assigned and licensed to the Company certain assets related to TV Guide
Network, one of the 30 most widely distributed general entertainment cable networks in the U.S.,
and
41
related assets, including TV Guide Network On Demand, and TV Guide Online (www.tvguide.com), a
leading online navigational tool and provider of television listings and video and other
entertainment content (collectively, TV Guide Network). The acquisition closed February 28, 2009.
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 in liabilities, and incurred
approximately $1.5 million in direct transaction costs (legal fees, accountants fees and other
professional fees).
The acquisition was accounted for as a purchase, with the results of operations of TV Guide
Network consolidated from February 28, 2009. Goodwill of $152.6 million represents the excess of
purchase price over the fair value of the tangible and intangible assets acquired and liabilities
assumed.
Sale of Noncontrolling Interest in TV Guide Network. On May 28, 2009, the Company entered into
a Purchase Agreement (the 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 Companys 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.
CRITICAL ACCOUNTING POLICIES
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. For example, accounting for films and television
programs requires the Company 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. 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 Exhibit 99.5 to our
Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the SEC) on
October 13, 2009.
Generally Accepted Accounting Principles (GAAP). Our consolidated financial statements have
been prepared in accordance with U.S. GAAP.
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 years revenues bear to managements 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.
The Companys 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. The Companys 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. In the normal course of our business, some films and titles are more successful
than anticipated and some are less successful. Accordingly, we update our estimates of ultimate
revenue and participation costs based upon the actual results achieved or new information as to
anticipated revenue performance such as (for home entertainment revenues) initial orders and demand
from retail stores when it becomes available. An increase in the ultimate revenue will generally
result in a lower amortization rate while a decrease in the ultimate revenue will generally result
in a higher amortization rate and periodically results in an impairment requiring a write down of
the film cost to the titles 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
42
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.
Distribution revenue from the distribution of TV Guide Network programming (distributors
generally pay a per subscriber fee for the right to distribute programming) is recognized in the
month the services are provided.
Advertising revenue is recognized when the advertising spot is broadcast or displayed online.
Advertising revenue is recorded net of agency commissions and discounts.
Cash payments received are recorded as deferred revenue until all the conditions of revenue
recognition have been met. Long-term, non-interest bearing receivables are discounted to present
value.
Reserves. Revenues are recorded net of estimated returns and other allowances. We estimate
reserves for DVD/Blu-ray returns based on previous returns and our estimated expected future
returns related to current period sales 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.
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 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 Managements 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. Because of our historical operating losses, we have provided a full valuation allowance
against our net deferred tax assets. 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 will be reversed. However, this assessment of our planned use of our deferred
tax assets is an estimate which could change in the future depending upon the generation of taxable
income in amounts sufficient to realize our deferred tax assets.
43
Goodwill. Goodwill is reviewed annually for impairment within 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, 2009. No goodwill impairment was identified in any of our
reporting units. We will be updating our assessment as of January 1, 2010. 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.
Business Acquisitions. The Company accounts for its 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 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 estimates have been
materially accurate in the past.
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 168, The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162 (SFAS No.
168). This statement modifies the GAAP hierarchy by establishing only two levels of GAAP,
authoritative and nonauthoritative accounting literature. Effective July 2009, the FASB Accounting
Standards Codification (ASC), also known collectively as the Codification, is considered the
single source of authoritative U.S. accounting and reporting standards, except for additional
authoritative rules and interpretive releases issued by the SEC. Nonauthoritative guidance and
literature would include, among other things, FASB Concepts Statements, American Institute of
Certified Public Accountants Issue Papers and Technical Practice Aids and accounting textbooks. The
Codification was developed to organize GAAP pronouncements by topic so that users can more easily
access authoritative accounting guidance. It is organized by topic, subtopic, section, and
paragraph, each of which is identified by a numerical designation. We adopted SFAS No. 168
prospectively beginning in the second quarter of fiscal 2010, resulting in no impact on the
Companys consolidated financial statements.
Accounting for noncontrolling interest in consolidated subsidiaries. We adopted new accounting
guidance that changes the accounting and reporting for minority interests, which are
recharacterized as noncontrolling interests and classified as a component of equity. This new
consolidation method changes the accounting for transactions with noncontrolling interest holders.
We adopted this standard beginning in the first quarter of fiscal 2010 (see Note 12 of our
unaudited condensed consolidated financial statements).
Accounting for certain convertible debt instruments. We adopted new accounting guidance that
specifies that issuers of convertible debt instruments that may be settled in cash upon either
mandatory or optional conversion (including partial cash settlement) should separately account for
the liability and equity components in a manner that will reflect the entitys nonconvertible debt
borrowing rate when interest cost is recognized in subsequent periods. We adopted this standard
beginning in the first quarter of fiscal 2010 (see Note 10 of our unaudited condensed consolidated financial statements).
Subsequent events. We adopted new accounting guidance related to the accounting for and disclosure
of subsequent events that occur after the balance sheet date. Entities are required to disclose the
date through which subsequent events have been evaluated and the basis for that date. We adopted
this standard beginning in the first quarter of fiscal 2010 and have evaluated subsequent events
through the date of issuance, February 9, 2010, resulting in no impact on the Companys
consolidated financial statements.
44
Consolidation accounting for variable interest entities. This new accounting guidance
modifies the previous guidance in relation to the identification of controlling financial interests
in a variable interest entity (VIE). This analysis identifies the primary beneficiary of a VIE as
the enterprise that has both of the following characteristics, among others: (a) the power to
direct the activities of a VIE that most significantly impact the entitys economic performance;
and (b) the obligation to absorb losses of the entity, or the right to receive benefits from the
entity, that could potentially be significant to the VIE. If an enterprise determines that power is
shared among multiple unrelated parties such that no one party has the power to direct the
activities of a VIE that most significantly impact the VIEs economic performance, then no party is
the primary beneficiary. Power is shared if each of the parties sharing power are required to
consent to the decisions relating to the activities that most significantly impact the VIEs
performance. The provisions of this standard will become effective for us beginning in fiscal 2011.
We are currently evaluating the impact this standard will have on our VIEs. Based upon our initial
review and our current business and ownership structure of one our VIEs, TV Guide Network, we may
no longer be required to consolidate TV Guide Network, effective April 1, 2010.
Results of Operations
Three Months Ended December 31, 2009 Compared to Three Months Ended December 31, 2008
Consolidated revenues this quarter of $371.8 million increased $47.8 million, or 14.8%,
compared to $324.0 million in the prior years quarter. Motion pictures revenue of $251.0 million
this quarter decreased $3.9 million, or 1.5%, compared to $254.9 million in the prior years
quarter. We reduced the number of our theatrical releases for fiscal 2010, as compared to fiscal
2009. As a result, we currently expect that our motion picture segment revenue for fiscal 2010 will
not exceed our fiscal 2009 motion picture segment revenue. However, actual motion picture revenue
will depend on the performance of our film and video titles across all media and territories and
can vary materially from expectations.
Television production revenues of $91.5 million this quarter increased $22.3 million, or
32.2%, compared to $69.2 million in the prior years quarter. Based on the television shows
currently expected to be delivered in fiscal 2010, we currently anticipate that our television
production segment revenue in fiscal 2010 will exceed our fiscal 2009 television production segment
revenue. However, actual revenues will depend on actual deliveries and can vary materially from
expectations.
Media Networks revenue was $29.3 million for the current quarter, as compared to nil in the
prior years quarter. Our revenues for the remainder of the fiscal year could be negatively
impacted if, among other factors, we lose certain affiliation agreements or we have reduced
viewership of the TV Guide Network. See our discussion of the risk factors relating to our revenues
and TV Guide Network in our Annual Report on Form 10-K filed with the SEC on June 1, 2009, and in
Exhibit 99.1 to our Current Report on Form 8-K filed with the SEC on October 13, 2009.
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 December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
Increase (Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
|
|
(Amounts in millions) |
|
Home Entertainment Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures |
|
$ |
95.0 |
|
|
$ |
94.6 |
|
|
$ |
0.4 |
|
|
|
0.4 |
% |
Television Production |
|
|
12.1 |
|
|
|
6.9 |
|
|
|
5.2 |
|
|
|
75.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
107.1 |
|
|
$ |
101.5 |
|
|
$ |
5.6 |
|
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
45
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 December 31, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
Increase (Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
|
|
|
|
|
|
(Amounts in millions) |
|
|
|
|
|
Motion Pictures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical |
|
$ |
49.4 |
|
|
$ |
69.3 |
|
|
$ |
(19.9 |
) |
|
|
(28.7 |
%) |
Home Entertainment |
|
|
95.0 |
|
|
|
94.6 |
|
|
|
0.4 |
|
|
|
0.4 |
% |
Television |
|
|
54.7 |
|
|
|
39.0 |
|
|
|
15.7 |
|
|
|
40.3 |
% |
International |
|
|
37.5 |
|
|
|
41.1 |
|
|
|
(3.6 |
) |
|
|
(8.8 |
%) |
Mandate Pictures |
|
|
12.9 |
|
|
|
8.3 |
|
|
|
4.6 |
|
|
|
55.4 |
% |
Other |
|
|
1.5 |
|
|
|
2.6 |
|
|
|
(1.1 |
) |
|
|
(42.3 |
%) |
|
|
$ |
251.0 |
|
|
$ |
254.9 |
|
|
$ |
(3.9 |
) |
|
|
(1.5 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the titles contributing significant motion pictures
revenue for the three-month periods ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended December 31, |
2009 |
|
|
2008 |
|
|
|
Theatrical and DVD |
|
|
|
|
|
Theatrical and DVD |
Title |
|
Release Date |
|
|
Title |
|
Release Date |
Theatrical: |
|
|
|
Theatrical: |
|
|
|
|
Brothers
|
|
December 2009
|
|
|
|
The Spirit
|
|
December 2008 |
|
|
Precious
|
|
November 2009
|
|
|
|
Transporter 3
|
|
November 2008 |
|
|
Saw VI
|
|
October 2009
|
|
|
|
Religulous
|
|
October 2008 |
|
|
I Can Do Bad All Myself
|
|
September 2009
|
|
|
|
Saw V
|
|
October 2008 |
|
|
|
|
|
|
|
|
W.
|
|
October 2008 |
|
Home Entertainment: |
|
|
|
Home Entertainment: |
|
|
|
|
Crank: High Voltage
|
|
September 2009
|
|
|
|
Beer for My Horses
|
|
November 2008 |
|
|
Jillian Michaels: 30 Day Shred
|
|
March 2008
|
|
|
|
The Forbidden Kingdom
|
|
September 2008 |
|
|
New In Town
|
|
May 2009
|
|
|
|
The Bank Job
|
|
July 2008 |
|
|
|
|
|
|
|
|
Rambo
|
|
May 2008 |
|
|
|
|
|
|
|
|
War
|
|
January 2008 |
|
|
|
Television:
|
|
Television: |
The Haunting in Connecticut
Madea Goes To Jail
My Bloody Valentine 3-D
New In Town
The Spirit
|
|
Meet the Browns
Rambo
The Bank Job
The Eye |
|
|
|
International:
|
|
International: |
Brothers
My Bloody Valentine 3-D
Saw VI
|
|
Conan the Barbarian
Punisher: War Zone
Saw V
The Eye |
|
|
|
Mandate Pictures:
|
|
Mandate Pictures: |
Drag Me To Hell
Juno
Whip It
|
|
Juno
Nick and Norahs Infinite Playlist
Passengers |
|
|
|
|
46
Theatrical revenue of $49.4 million decreased $19.9 million, or 28.7%, in this quarter as
compared to the prior years quarter due to fewer wide theatrical releases and lower box office
receipts on our releases in the current quarter as compared to the prior years quarter. In this
quarter, the titles listed in the above table as contributing significant theatrical revenue
represented individually between 7% and 40% of total theatrical revenue and, in the aggregate,
approximately 94%, or $46.1 million of total theatrical revenue. In the prior years quarter, the
titles listed in the above table as contributing significant theatrical revenue represented
individually between 7% and 38% of total theatrical revenue and, in the aggregate, approximately
89%, or $61.7 million of total theatrical revenue.
Home entertainment revenue of $95.0 million increased $0.4 million, or 0.4%, in this quarter
as compared to the prior years quarter. The titles listed above as contributing significant home
entertainment revenue in the current quarter represented individually between 2% to 4% of total
home entertainment revenue and, in the aggregate, 8%, or $7.5 million of total home entertainment
revenue for the quarter. In the prior years quarter, the titles listed above as contributing
significant home entertainment revenue represented individually between 2% to 7% of total home
entertainment revenue and, in the aggregate, 20%, or $18.8 million of total home entertainment
revenue for the quarter. In the current quarter, $87.5 million, or 92%, of total home entertainment
revenue was contributed by titles that individually make up less than 2% of total home
entertainment revenue, and in the prior years quarter this amounted to $75.8 million, or 80%, of
total home entertainment revenue.
Television revenue included in motion pictures revenue of $54.7 million in this quarter
increased $15.7 million, or 40.3%, compared to the prior years quarter. The increase in the
current quarter is mainly due to the higher box office receipts generated by titles listed above
compared to the prior years quarter, which generally enhances their value in the television
windows. In this quarter, the titles listed above as contributing significant television revenue
represented individually between 6% to 29% of total television revenue and, in the aggregate, 74%,
or $40.2 million of total television revenue for the quarter. In the prior years quarter the
titles listed above as contributing significant television revenue represented individually between
5% to 28% of total television revenue and, in the aggregate, 63%, or $24.7 million of total
television revenue for the quarter. In the current quarter, $14.5 million, or 26%, of total
television revenue was contributed by titles that individually make up less than 5% of total
television revenue, and in the prior years quarter, this amounted to $14.3 million, or 37%, of
total television revenue for the year.
International revenue of $37.5 million decreased $3.6 million, or 8.8%, in this quarter as
compared to the prior years quarter. Lions Gate UK Ltd., our wholly-owned subsidiary (Lionsgate
UK), contributed $21.1 million, or 56.3% of international revenue in the current quarter, which
included revenues from Drag Me To Hell, Saw VI, and Hurt Locker, compared to $14.9 million, or
36.3%, of total international revenue in the prior years quarter. In this quarter, the titles
listed in the table above as contributing significant international revenue, excluding revenue
generated from these titles by Lionsgate UK, represented individually between 4% to 8% of total
international revenue and, in the aggregate, 16%, or $6.0 million, of total international revenue
for the quarter. In the prior years quarter, the titles listed in the table above as contributing
significant revenue represented individually between 3% to 19% of total international revenue and,
in the aggregate, 43%, or $17.7 million, of total international revenue for the quarter.
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. International revenue, other than international revenue from
Lionsgate UK, from Mandate Pictures titles is included in the Mandate Pictures revenue in the table
above. In the current quarter, Mandate Pictures revenue amounted to $12.9 million, as compared to
$8.3 million in the prior years quarter. The increase in Mandate Pictures revenue in the current
quarter is mainly due to stronger performance by the titles listed above compared to the prior
years quarter. In this quarter, the titles listed in the table above as contributing significant
Mandate Pictures
revenue represented individually between 12% and 54% of total Mandate Pictures revenue and, in
the aggregate, 86%, or $11.1 million of total Mandate Pictures revenue for the year. In the prior
years quarter, the titles listed in the table above as contributing significant Mandate Pictures
revenue represented individually between 9% and 59% of total Mandate Pictures revenue and, in the
aggregate, 88%, or $7.3 million of total Mandate Pictures revenue for the quarter.
47
Television Production Revenue
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 December 31, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
Increase (Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
|
|
(Amounts in millions) |
|
Television Production |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic series licensing |
|
$ |
69.7 |
|
|
$ |
56.8 |
|
|
$ |
12.9 |
|
|
|
22.7 |
% |
International |
|
|
9.5 |
|
|
|
5.4 |
|
|
|
4.1 |
|
|
|
75.9 |
% |
Home entertainment releases of television production |
|
|
12.1 |
|
|
|
6.9 |
|
|
|
5.2 |
|
|
|
75.4 |
% |
Other |
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
91.5 |
|
|
$ |
69.2 |
|
|
$ |
22.3 |
|
|
|
32.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the components of revenue that make up domestic series
licensing revenue for the three-month periods ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
Increase (Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
|
|
(Amounts in millions) |
|
Domestic series licensing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lionsgate Television |
|
$ |
41.7 |
|
|
$ |
30.2 |
|
|
$ |
11.5 |
|
|
|
38.1 |
% |
Debmar-Mercury |
|
|
25.2 |
|
|
|
12.1 |
|
|
|
13.1 |
|
|
|
108.3 |
% |
Ish Entertainment |
|
|
2.8 |
|
|
|
14.5 |
|
|
|
(11.7 |
) |
|
|
(80.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
69.7 |
|
|
$ |
56.8 |
|
|
$ |
12.9 |
|
|
|
22.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the number of television episodes and hours delivered by
Lions Gate Television, Inc., our wholly-owned subsidiary (Lionsgate Television), in the three
months ended December 31, 2009 and 2008, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
Episodes |
|
|
Hours |
|
|
|
|
|
|
|
|
|
|
Episodes |
|
|
Hours |
|
Blue Mountain State Season 1 |
|
1/2hr |
|
|
13 |
|
|
|
6.5 |
|
|
Crash TV Series Season 1 |
|
1hr |
|
|
13 |
|
|
|
13.0 |
|
Nurse Jackie Season 2 |
|
1/2hr |
|
|
2 |
|
|
|
1.0 |
|
|
Mad Men Season 2 |
|
1hr |
|
|
3 |
|
|
|
3.0 |
|
Crash TV Series Season 2 |
|
1hr |
|
|
8 |
|
|
|
8.0 |
|
|
Scream Queens |
|
1hr |
|
|
8 |
|
|
|
8.0 |
|
Mad Men Season 3 |
|
1hr |
|
|
5 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
20.5 |
|
|
|
|
|
|
|
|
|
|
|
24 |
|
|
|
24.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues included in domestic series licensing from Debmar-Mercury increased $13.1
million to $25.2 million in the current quarter, from $12.1 million in the prior years quarter,
primarily due to increased revenue from the television series House of Payne, Meet the Browns and
The Wendy Williams Show.
Revenues included in domestic series licensing from the Companys reality television venture
with Ish Entertainment, Inc. (Ish), of $2.8 million in the current quarter resulted from the
production of the domestic series Gone Too Far, as compared to $14.5 million in the prior years
quarter which included Paris Hiltons My New BFF and 50 Cent: The Money and the Power.
48
International revenue of $9.5 million increased by $4.1 million in the current quarter mainly
due to international revenue from Weeds Season 4, Mad Men Season 3, and Mad Men Season 1, compared
to international revenue of $5.4 million in the prior years quarter from Mad Men Season 1 and Mad
Men Season 2.
The increase in revenue from home entertainment releases of television production is primarily
driven by DVD/Blu-Ray revenue from Mad Men Season 2, Mad Men Season 1, Weeds Season 4 and Weeds
Season 2.
Media Networks Revenue
Media Networks revenue for the three months ended December 31, 2009 and 2008 are $29.3 million
and nil, respectively. The acquisition of TV Guide Network occurred on February 28, 2009.
Direct Operating Expenses
The following table sets forth direct operating expenses by segment for the three months ended
December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
Three Months Ended |
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
|
Motion |
|
|
Television |
|
|
Media |
|
|
|
|
|
|
Motion |
|
|
Television |
|
|
|
|
|
|
Pictures |
|
|
Production |
|
|
Networks |
|
|
Total |
|
|
Pictures |
|
|
Production |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions) |
|
|
|
|
|
|
|
|
|
Direct operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of films
and television programs |
|
$ |
69.3 |
|
|
$ |
64.7 |
|
|
$ |
8.3 |
|
|
$ |
142.2 |
|
|
$ |
86.2 |
|
|
$ |
42.7 |
|
|
$ |
128.9 |
|
Participation and residual expense |
|
|
45.1 |
|
|
|
21.0 |
|
|
|
|
|
|
|
66.1 |
|
|
|
75.6 |
|
|
|
11.1 |
|
|
|
86.7 |
|
Other expenses |
|
|
0.2 |
|
|
|
(0.1 |
) |
|
|
0.4 |
|
|
|
0.5 |
|
|
|
2.6 |
|
|
|
0.3 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
114.6 |
|
|
$ |
85.6 |
|
|
$ |
8.7 |
|
|
$ |
208.9 |
|
|
$ |
164.4 |
|
|
$ |
54.1 |
|
|
$ |
218.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses as a
percentage of segment revenues |
|
|
45.7 |
% |
|
|
93.6 |
% |
|
|
29.7 |
% |
|
|
56.2 |
% |
|
|
64.5 |
% |
|
|
78.2 |
% |
|
|
67.4 |
% |
Direct operating expenses of the motion pictures segment of $114.6 million for this
quarter were 45.7% of motion pictures revenue, compared to $164.4 million, or 64.5% of motion
pictures revenue for the prior years quarter. The decrease in direct operating expense of the
motion pictures segment in the current quarter as a percent of revenue is primarily due to
higher investment in film write-downs and a participation reserve in last years quarter that did not
occur in the current quarter. Investment in film write-downs of the motion picture segment during
the current quarter totaled approximately $7.3 million compared to last years quarter of approximately $22.6 million of charges for write-downs of investment in
film, and a $20.3 million participation reserve in connection with a home entertainment library
distribution contract of family entertainment titles also in the prior years quarter. In the
current quarter approximately $7.1 million of charges for write-downs were due to the lower than anticipated
performance of one title that had not yet been released. In the prior
years quarter, approximately $19.1 million of charges for write-downs of investment in film were
due to the lower than anticipated performance of three titles that had not yet been released, and
$2.8 million of the write-downs was a result of the decrease in value of a library acquired during
the acquisition of Mandate Pictures due to the underperformance of those titles. Other expenses
consist of the provision (benefit) for doubtful accounts and foreign exchange losses (gains). Our
direct operating expenses generally fluctuate with changes in our revenue. Because of our current
expectations on motion picture revenue for fiscal 2010, we believe that our direct operating
expenses of our motion picture segment for fiscal 2010 will not exceed our fiscal 2009 motion
picture segment direct operating expenses. However, a number of factors could impact the level of
direct operating expenses, including, but not limited to, the actual and anticipated performance of
our films, possible write downs of our film costs, foreign exchange rate changes, and bad debt
expense.
Direct operating expenses of the television production segment of $85.6 million for this
quarter were 93.6% of television production revenue, compared to $54.1 million, or 78.2% of
television production revenue for the prior years quarter. In
the current quarter, $5.7 million of
charges for write-downs of television film costs were included in the amortization of television
programs, compared to $4.5 million in the prior years quarter associated with a television series.
Because we anticipate our television production segment revenues to increase in fiscal 2010, as
compared to fiscal 2009, we also expect that our direct operating expenses of our television
production segment will increase in fiscal 2010, as compared to fiscal 2009. However, a number of
factors could impact the level of direct operating expenses, including, but not limited to, the
actual and anticipated performance of our television programs,
possible write-downs of our
television program costs, foreign exchange rate changes, and bad debt expense.
Direct operating expenses of the Media Networks segment of $8.7 million for the current
quarter consists primarily of programming expenses associated with the production of such programs
as Hollywood 411.
49
Distribution and Marketing Expenses
The following table sets forth distribution and marketing expenses by segment for the three
months ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
|
Motion |
|
|
Television |
|
|
Media |
|
|
|
|
|
|
Motion |
|
|
Television |
|
|
|
|
|
|
Pictures |
|
|
Production |
|
|
Networks |
|
|
Total |
|
|
Pictures |
|
|
Production |
|
|
Total |
|
|
|
(Amounts in millions) |
|
Distribution and marketing expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical |
|
$ |
99.1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
99.1 |
|
|
$ |
104.0 |
|
|
$ |
|
|
|
$ |
104.0 |
|
Home Entertainment |
|
|
36.0 |
|
|
|
4.1 |
|
|
|
|
|
|
|
40.1 |
|
|
|
42.4 |
|
|
|
1.9 |
|
|
|
44.3 |
|
Television |
|
|
0.2 |
|
|
|
2.5 |
|
|
|
|
|
|
|
2.7 |
|
|
|
1.0 |
|
|
|
2.7 |
|
|
|
3.7 |
|
International |
|
|
12.0 |
|
|
|
1.1 |
|
|
|
|
|
|
|
13.1 |
|
|
|
16.4 |
|
|
|
0.9 |
|
|
|
17.3 |
|
Media Networks |
|
|
|
|
|
|
|
|
|
|
4.5 |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
0.5 |
|
|
|
0.2 |
|
|
|
|
|
|
|
0.7 |
|
|
|
1.0 |
|
|
|
0.1 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
147.8 |
|
|
$ |
7.9 |
|
|
$ |
4.5 |
|
|
$ |
160.2 |
|
|
$ |
164.8 |
|
|
$ |
5.6 |
|
|
$ |
170.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $99.1 million decreased $4.9 million, or 4.7%, compared to $104.0 million in the prior
years quarter. Domestic theatrical P&A from the motion pictures segment in this quarter included
P&A incurred on the release of Brothers, Precious, and Saw VI, and P&A incurred in advance of the
release of titles such as Daybreakers and Spy Next Door, which individually represented between 9%
and 26% of total theatrical P&A and, in the aggregate, accounted for 89% of the total theatrical
P&A. Domestic theatrical P&A from the motion pictures segment in the prior years quarter included
P&A incurred on the release of My Bloody Valentine 3-D,
Punisher: War Zone, Saw V, Transporter 3,
and The Spirit, which individually represented between 9% and 27% of total theatrical P&A and, in
the aggregate, accounted for 92% of the total theatrical P&A.
Theatrical distribution and marketing expenses generally depend on the number of theatrical
motion pictures we release and the release plan of those motion pictures in a given year. As a
result, we do not currently believe that total theatrical distribution and marketing expenses for
fiscal 2010 will exceed that of fiscal 2009 levels because the number of pictures that we expect to
release in fiscal 2010 will be less than the number released last fiscal year.
Home entertainment distribution and marketing costs on motion pictures and television product
in this quarter of $40.1 million decreased $4.2 million, or 9.5%, compared to $44.3 million in the
prior years quarter. The decrease in home entertainment distribution and marketing costs is mainly
due to fewer titles released in the current quarter as compared to prior years quarter. Home
entertainment distribution and marketing costs as a percentage of home entertainment revenues was
37.4% and 43.6% in the current quarter and prior years quarter, respectively. The decrease in home
entertainment distribution and marketing costs as a percentage of revenue is primarily due to lower
marketing costs and, to a lesser extent, lower manufacturing and distribution costs.
International distribution and marketing expenses in this quarter includes $10.6 million of
distribution and marketing costs from Lionsgate UK, compared to $14.6 million in the prior years
quarter.
Media Networks includes transmission and marketing and promotion expenses.
50
General and Administrative Expenses
The following table sets forth general and administrative expenses by segment for the three
months ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
Increase (Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
|
|
|
|
|
|
(Amounts in millions) |
|
|
|
|
|
General and Administrative Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures |
|
$ |
11.2 |
|
|
$ |
11.6 |
|
|
$ |
(0.4 |
) |
|
|
(3.4 |
%) |
Television Production |
|
|
2.5 |
|
|
|
3.1 |
|
|
|
(0.6 |
) |
|
|
(19.4 |
%) |
Media Networks |
|
|
9.4 |
|
|
|
|
|
|
|
9.4 |
|
|
|
100.0 |
% |
Corporate,
including stock-based compensation |
|
|
16.5 |
|
|
|
12.8 |
|
|
|
3.7 |
|
|
|
28.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total General and Administrative Expenses |
|
$ |
39.6 |
|
|
$ |
27.5 |
|
|
$ |
12.1 |
|
|
|
44.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Media Networks General and Administrative Expenses |
|
|
(9.4 |
) |
|
|
|
|
|
|
(9.4 |
) |
|
NM |
Less Stock-Based Compensation Expense |
|
|
(4.3 |
) |
|
|
(1.4 |
) |
|
|
(2.9 |
) |
|
|
207.1 |
% |
General and Administrative Expenses excluding Media |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Networks and Stock-Based Compensation Expense |
|
$ |
25.9 |
|
|
$ |
26.1 |
|
|
$ |
(0.2 |
) |
|
|
(0.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative expenses as a percentage of revenue |
|
|
10.7 |
% |
|
|
8.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses excluding Media Networks and
stock-based compensation expense, as a percentage of
Motion Pictures and Television Production revenue |
|
|
7.6 |
% |
|
|
8.1 |
% |
|
|
|
|
|
|
|
|
The following table sets forth stock-based compensation expense (benefit) included in our
corporate segment for the three months ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
Increase (Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
|
|
|
|
|
|
(Amounts in millions) |
|
|
|
|
|
Stock-Based Compensation Expense (Benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
$ |
0.8 |
|
|
$ |
0.8 |
|
|
$ |
|
|
|
|
0.0 |
% |
Restricted share units |
|
|
3.3 |
|
|
|
3.3 |
|
|
|
|
|
|
|
0.0 |
% |
Stock appreciation rights |
|
|
0.2 |
|
|
|
(2.7 |
) |
|
|
2.9 |
|
|
|
(107.4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4.3 |
|
|
$ |
1.4 |
|
|
$ |
2.9 |
|
|
|
207.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses increased by $12.1 million or 44.0% mainly due to the
general and administrative expenses associated with the Media Networks segment, which was acquired
in February 2009, of $9.4 million and due to increases in stock based compensation included in the
Corporate segment, offset by slight decreases in our other reporting segments. General and
administrative expenses of the Media Networks segment are primarily related to salaries and related
expenses. The increase in stock based compensation included in the Corporate segment primarily
related to a $2.9 million increase in stock appreciation rights in the three months ended December
31, 2009 as compared to the three months ended December 31, 2008.
General
and administrative expenses excluding Media Network and stock-based compensation was
$25.9 million in the current quarter compared to $26.1 million in the prior year quarter, which
represents a decrease of $0.2 million or 1%.
51
At December 31, 2009, as disclosed in Note 16 to the unaudited condensed consolidated
financial statements, there was unrecognized compensation costs of approximately $17.9 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 December 31, 2009, 894,554 shares of restricted share units have
been awarded to four key executive officers, the vesting of which will be subject to performance
targets to be set annually by the Compensation Committee of the Board of Directors of the Company.
These restricted share units will vest in three, four, and five annual installments assuming annual
performance targets have been met. The fair value of the 894,554 shares whose future annual
performance targets have not been set was $5.2 million, based on the market price of the Companys
common shares as of December 31, 2009. 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 $6.7 million this quarter increased $5.1 million from $1.6
million in the prior years quarter. The increase is primarily due to depreciation of tangible
assets and amortization of intangible assets acquired in connection with the purchase of TV Guide
Network. Estimated amortization expense, based on intangible assets as of December 31, 2009, for
the three-months ended March 31, 2010 and for each of the years ending March 31, 2011 through 2014
is approximately $2.7 million, $10.2 million, $7.1 million, $7.0 million, and $6.8 million,
respectively.
52
Interest expense of $16.8 million this quarter increased $8.7 million, or 107.4%, from the
prior years quarter of $8.1 million. The following table sets forth the components of interest
expense for the three months ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Amounts in millions) |
|
Interest Expense |
|
|
|
|
|
|
|
|
Cash Based: |
|
|
|
|
|
|
|
|
Senior revolving credit facility |
|
$ |
1.1 |
|
|
$ |
0.5 |
|
Senior subordinated debentures |
|
|
2.0 |
|
|
|
2.7 |
|
Senior secured second priority notes |
|
|
4.0 |
|
|
|
|
|
Other |
|
|
0.6 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
7.7 |
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Based: |
|
|
|
|
|
|
|
|
Amortization of discount on liability component of
senior subordinated debentures |
|
|
4.4 |
|
|
|
3.9 |
|
Amortization of discount on senior secured second priority notes |
|
|
0.8 |
|
|
|
|
|
Amortization of deferred financing costs |
|
|
0.9 |
|
|
|
0.7 |
|
Accretion of mandatorily redeemable preferred stock units
and 10% non-cash dividend |
|
|
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.1 |
|
|
|
4.6 |
|
|
|
|
|
|
|
|
|
|
$ |
16.8 |
|
|
$ |
8.1 |
|
|
|
|
|
|
|
|
We expect that our interest expense will increase through the end of our fiscal year 2010
because of additional interest expense related to the senior secured second-priority notes issued
on October 21, 2009 and higher average outstanding balances under our senior secured credit
facility, as compared to the average outstanding balance of the prior year.
Interest and other income was $0.4 million for the quarter ended December 31, 2009, compared
to $0.9 million in the prior years quarter. Interest and other income this quarter was earned on
the lower average cash balances and restricted investments held during the three months ended
December 31, 2009 as compared to 2008.
Loss on extinguishment of debt was $1.8 million for the three months ended December 31, 2009,
resulting from the December 2009 repurchase of the October 2004 2.9375% Notes and the February 2005
3.625% Notes, compared to a gain of $3.0 million in the prior years period resulting from the
repurchase of $9.0 million of the February 2005 3.625% Notes.
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 December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
Percentage |
|
|
December 31, |
|
|
December 31, |
|
|
|
Ownership |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(Amounts in millions) |
|
Horror Entertainment, LLC (FEARnet) |
|
|
33.33 |
% |
|
$ |
83 |
|
|
$ |
(1,373 |
) |
NextPoint, Inc. (Break.com) |
|
|
42.00 |
% |
|
|
165 |
|
|
|
(208 |
) |
Roadside Attractions, LLC |
|
|
43.00 |
% |
|
|
(230 |
) |
|
|
134 |
|
Studio 3 Partners, LLC (EPIX) (1) |
|
|
28.57 |
% |
|
|
(6,921 |
) |
|
|
(248 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(6,903 |
) |
|
$ |
(1,695 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Certain of our theatrical releases have been made available to EPIX for exhibition in the
domestic pay television window, for which $25.7 million of revenue and $17.2 million of gross
profit was recognized in the three months ended December 31, 2009. Intercompany profits reflecting
our pro rata share of the venture of $5.3 million for the three months ended December 31, 2009 were
eliminated and are reflected in our share of losses incurred by EPIX shown above. Also reflected in
our share of losses incurred by EPIX shown above are
$1.6 million and $0.2 million of losses for the three
months ended December 31, 2009 and 2008, respectively. |
53
Income Tax Benefit
We had an income tax benefit of $1.8 million, or 2.6% of loss before income taxes in the three
months ended December 31, 2009, compared to a benefit of $2.0 million, or 2.0% of loss before
income taxes in the three months ended December 31, 2008. The tax benefit reflected in the current
quarter is primarily attributable to U.S. and Canadian 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 $133.2 million for U.S. federal income tax purposes
available to reduce income taxes over twenty years, $147.3 million for U.S. state income tax
purposes available to reduce income taxes over future years with varying expirations, $18.9 million
for Canadian income tax purposes available to reduce income taxes over 20 years with varying
expirations, $20.9 million for UK income tax purposes available indefinitely to reduce future
income taxes and $2.4 million of Hong Kong loss carryforwards available indefinitely to reduce
future income taxes.
At March 31, 2009, the Company had U.S. Alternative Minimum Tax (AMT) credit carryforwards
of approximately $2.0 million available to reduce future federal income tax, which begin to expire
in 2011.
Net Loss
Net loss for the three months ended December 31, 2009 was $67.0 million, compared to net loss
for the three months ended December 31, 2008 of $97.8 million.
Net loss attributable to noncontrolling interest for the three months ended December 31, 2009
was $1.7 million, compared to nil for the three months ended December 31, 2008.
Net loss attributable to our shareholders for the three months ended December 31, 2009 was
$65.3 million, or basic and diluted net loss per common share of $0.55 on 117.7 million weighted
average common shares outstanding. This compares to net loss attributable to our shareholders for
the three months ended December 31, 2008 of $97.8 million, or basic and diluted net loss per common
share of $0.84 on 115.8 million weighted average common shares outstanding.
54
Nine Months Ended December 31, 2009 Compared to Nine Months Ended December 31, 2008
Consolidated revenues for the nine months ended December 31, 2009 of $1.2 billion increased
$150.0 million, or 15.0%, compared to $1.0 billion in the nine months ended December 31, 2008.
Motion pictures revenue of $800.8 million for the current nine-month period decreased $23.6
million, or 2.9%, compared to $824.4 million in the prior years period. We reduced the number of
our theatrical releases for fiscal 2010, as compared to fiscal 2009. As a result, we currently
expect that our motion picture segment revenue for fiscal 2010 will not exceed our fiscal 2009
motion picture segment revenue. However, actual motion picture revenue will depend on the
performance of our film and video titles across all media and territories and can vary materially
from expectations.
Television production revenues of $267.7 million this period increased $88.9 million, or
49.7%, compared to $178.8 million in the prior years period. Based on the television shows
expected to be delivered in fiscal 2010, we currently anticipate that our television
production segment revenue in fiscal 2010 will exceed our fiscal 2009 television production segment
revenue. However, actual revenues will depend on actual deliveries and can vary materially from
expectations.
Media Networks revenue was $84.7 million for the current period, as compared to nil in the
prior years period. Our revenues for the remainder of the fiscal year could be negatively impacted
if, among other factors, we lose certain affiliation agreements or we have reduced viewership of
the TV Guide Network. See our discussion of the risk factors relating to our revenues and TV Guide
Network in our Annual Report on Form 10-K filed with the SEC on June 1, 2009, and in Exhibit 99.1 to
our Current Report on Form 8-K filed with the SEC on October 13, 2009.
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 nine-month periods ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Nine Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
Increase (Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
|
|
|
|
|
|
(Amounts in millions) |
|
|
|
|
|
Home Entertainment Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures |
|
$ |
359.5 |
|
|
$ |
411.0 |
|
|
$ |
(51.5 |
) |
|
|
(12.5 |
%) |
Television Production |
|
|
36.8 |
|
|
|
29.0 |
|
|
|
7.8 |
|
|
|
26.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
396.3 |
|
|
$ |
440.0 |
|
|
$ |
(43.7 |
) |
|
|
(9.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 nine-month periods ended December 31, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Nine Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
Increase (Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
|
|
|
|
|
|
(Amounts in millions) |
|
|
|
|
|
Motion Pictures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical |
|
$ |
102.4 |
|
|
$ |
133.9 |
|
|
$ |
(31.5 |
) |
|
|
(23.5 |
%) |
Home Entertainment |
|
|
359.5 |
|
|
|
411.0 |
|
|
|
(51.5 |
) |
|
|
(12.5 |
%) |
Television |
|
|
143.4 |
|
|
|
129.8 |
|
|
|
13.6 |
|
|
|
10.5 |
% |
International |
|
|
97.5 |
|
|
|
103.9 |
|
|
|
(6.4 |
) |
|
|
(6.2 |
%) |
Mandate Pictures |
|
|
91.8 |
|
|
|
38.0 |
|
|
|
53.8 |
|
|
|
141.6 |
% |
Other |
|
|
6.2 |
|
|
|
7.8 |
|
|
|
(1.6 |
) |
|
|
(20.5 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
800.8 |
|
|
$ |
824.4 |
|
|
$ |
(23.6 |
) |
|
|
(2.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
55
The following table sets forth the titles contributing significant motion pictures
revenue for the nine-month periods ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
Nine Months Ended December 31, |
2009 |
|
2008 |
|
|
Theatrical and DVD |
|
|
|
Theatrical and DVD |
Title |
|
Release Date |
|
Title |
|
Release Date |
Theatrical: |
|
|
|
Theatrical: |
|
|
Brothers |
|
December 2009 |
|
Transporter 3 |
|
November 2008 |
Precious |
|
November 2009 |
|
Saw V |
|
October 2008 |
Saw VI |
|
October 2009 |
|
W. |
|
October 2008 |
Gamer |
|
September 2009 |
|
My Best Friend's Girl |
|
September 2008 |
The Haunting in Connecticut |
|
March 2009 |
|
The Family That Preys |
|
September 2008 |
Crank: High Voltage |
|
April 2009 |
|
The Forbidden Kingdom |
|
April 2008 |
I Can Do Bad All By Myself |
|
September 2009 |
|
|
|
|
|
|
|
|
|
|
|
Home Entertainment: |
|
|
|
Home Entertainment: |
|
|
Crank: High Voltage |
|
September 2009 |
|
The Forbidden Kingdom |
|
September 2008 |
The Haunting in Connecticut |
|
July 2009 |
|
Meet The Browns |
|
July 2008 |
Madea Goes to Jail |
|
June 2009 |
|
The Bank Job |
|
July 2008 |
My Bloody Valentine 3-D |
|
May 2009 |
|
The Eye |
|
June 2008 |
New In Town |
|
May 2009 |
|
Witless Protection |
|
June 2008 |
The Spirit |
|
April 2009 |
|
Rambo |
|
May 2008 |
|
|
|
Television:
|
|
Television: |
Madea Goes to Jail
|
|
3:10 to Yuma |
My Bloody Valentine 3-D
|
|
Good Luck Chuck |
My Best Friends Girl
|
|
Rambo |
New In Town
|
|
Saw IV |
Saw V
|
|
The Eye |
The Family That Preys
|
|
War |
Transporter 3
|
|
Why Did I Get Married? Feature |
W. |
|
|
|
|
|
International:
|
|
International: |
My Best Friends Girl
|
|
My Best Friends Girl |
My Bloody Valentine 3-D
|
|
Punisher: War Zone |
Saw V
|
|
Saw IV |
Saw VI
|
|
Saw V
The Eye
War |
|
|
|
Mandate Pictures:
|
|
Mandate Pictures: |
Drag Me To Hell
|
|
30 Days of Night |
Horsemen
|
|
Harold & Kumar Escape from Guantanamo Bay |
Juno
|
|
Juno |
Passengers
|
|
Nick and Norahs Infinite Playlist |
Whip It
|
|
Passengers |
|
|
|
|
56
Theatrical revenue of $102.4 million decreased $31.5 million, or 23.5%, in this period as
compared to the prior years period due to fewer releases in the current period as compared to the
prior years period. In the current nine-month period, the titles listed in the above table as
contributing significant theatrical revenue represented individually between 6% and 24% of total
theatrical revenue and, in the aggregate, approximately 93%, or $95.5 million of total theatrical
revenue. In the prior years period, the titles listed in the above table as contributing
significant theatrical revenue represented individually between 6% and 20% of total theatrical
revenue and, in the aggregate, approximately 75%, or $100.4 million of total theatrical revenue.
Home entertainment revenue of $359.5 million decreased $51.5 million, or 12.5%, in this period
as compared to the prior years period. Approximately $36.0 million of the decrease is due to lower
revenue generated from the titles listed in the above table in the current period as compared to
the revenue generated from the titles in the above table for the prior years period. The titles
listed above as contributing significant home entertainment revenue in the current period
represented individually between 4% to 9% of total home entertainment revenue and, in the
aggregate, 35%, or $126.6 million of total home entertainment revenue for the period. In the prior
years period, the titles listed above as contributing significant home entertainment revenue
represented individually between 4% to 11% of total home entertainment revenue and, in the
aggregate, 40%, or $162.8 million of total home entertainment revenue for the period. In the
current period $232.9 million, or 65%, of total home entertainment revenue was contributed by
titles that individually make up less than 2% of total home entertainment revenue, and in the prior
years period this amounted to $248.3 million, or 60%, of total home entertainment revenue.
Television revenue included in motion pictures revenue of $143.4 million in this period
increased $13.6 million, or 10.5%, compared to the prior years period. In the current nine-month
period, the titles listed above as contributing significant television revenue represented
individually between 5% to 12% of total television revenue and, in the aggregate, 58% or $83.8
million of total television revenue for the period. In the prior years period, the titles listed
above as contributing significant television revenue represented individually between 5% to 11% of
total television revenue and, in the aggregate, 63%, or $81.7 million of total television revenue
for the period. In the current period, $59.6 million, or 42%, of total television revenue was
contributed by titles that individually make up less than 5% of total television revenue, and in
the prior years period, this amounted to $48.1 million, or 37%, of total television revenue for
the period.
International revenue of $97.5 million decreased $6.4 million, or 6.2%, in this period as
compared to the prior years period. Lionsgate UK contributed $49.6 million, or 50.9% of
international revenue in the current period, which included revenues from Crank: High Voltage, Drag
Me To Hell, My Bloody Valentine 3-D, and Saw VI, compared to $42.5 million, or 40.9%, of total
international revenue in the prior years period. In this period, the titles listed in the table
above as contributing significant international revenue, excluding revenue generated from these
titles by Lionsgate UK, represented individually between 2% to 5% of total international revenue
and, in the aggregate, 16%, or $15.7 million, of total international revenue for the period. In the
prior years period, the titles listed in the table above as contributing significant revenue
represented individually between 2% to 8% of total international revenue and, in the aggregate,
31%, or $32.5 million, of total international revenue for the period.
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. International revenue, other than international revenue from
Lionsgate UK, from Mandate Pictures titles is included in the Mandate Pictures revenue in the table
above. In the current period, Mandate Pictures revenue amounted to $91.8 million, as compared to
$38.0 million in the prior years period. This increase was mainly due to the release of the title
Drag Me To Hell in the current period. In this period, the titles listed in the table above as
contributing significant Mandate Pictures revenue represented individually between 7% and 53% of
total Mandate Pictures revenue and, in the aggregate, 94%, or $85.9 million of total Mandate
Pictures revenue for the period. In the prior years period, the titles listed in the table above
as contributing significant Mandate Pictures revenue represented individually between 6% and 36% of
total Mandate Pictures revenue and, in the aggregate, 88%, or $33.5 million of total Mandate
Pictures revenue for the period.
Television Production Revenue
The following table sets forth the components and the changes in the components of revenue
that make up television production revenue for the nine-month periods ended December 31, 2009 and
2008:
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Nine Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
Increase (Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
|
|
|
|
|
|
(Amounts in millions) |
|
|
|
|
|
Television Production |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic series licensing |
|
$ |
198.8 |
|
|
$ |
133.1 |
|
|
$ |
65.7 |
|
|
|
49.4 |
% |
International |
|
|
31.6 |
|
|
|
16.2 |
|
|
|
15.4 |
|
|
|
95.1 |
% |
Home entertainment releases of television production |
|
|
36.8 |
|
|
|
29.0 |
|
|
|
7.8 |
|
|
|
26.9 |
% |
Other |
|
|
0.5 |
|
|
|
0.5 |
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
267.7 |
|
|
$ |
178.8 |
|
|
$ |
88.9 |
|
|
|
49.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the components of revenue that make up domestic series
licensing revenue for the nine-month periods ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Nine Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
Increase (Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
|
|
|
|
|
|
(Amounts in millions) |
|
|
|
|
|
Domestic series licensing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lionsgate Television |
|
$ |
113.0 |
|
|
$ |
78.7 |
|
|
$ |
34.3 |
|
|
|
43.6 |
% |
Debmar-Mercury |
|
|
67.0 |
|
|
|
38.1 |
|
|
|
28.9 |
|
|
|
75.9 |
% |
Ish Entertainment |
|
|
18.8 |
|
|
|
16.3 |
|
|
|
2.5 |
|
|
|
15.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
198.8 |
|
|
$ |
133.1 |
|
|
$ |
65.7 |
|
|
|
49.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues included in domestic series licensing from Lionsgate Television of $113.0 million
increased by $34.3 million, or 43.6%, in the current nine-month period compared to $78.7 million in
the prior years period. The following table sets forth the number of television episodes and hours
delivered by Lionsgate Television in the nine months ended December 31, 2009 and 2008,
respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
Episodes |
|
|
Hours |
|
|
|
|
|
|
|
|
|
|
Episodes |
|
|
Hours |
|
Nurse Jackie Season 2 |
|
1/2 hr |
|
|
2 |
|
|
|
1.0 |
|
|
Weeds Season 4 |
|
1/2hr |
|
|
13 |
|
|
|
6.5 |
|
Blue Mountain State |
|
1/2hr |
|
|
13 |
|
|
|
6.5 |
|
|
Crash TV Series Season 1 |
|
1hr |
|
|
13 |
|
|
|
13.0 |
|
Nurse Jackie Season 1 |
|
1/2hr |
|
|
12 |
|
|
|
6.0 |
|
|
Fear Itself |
|
1hr |
|
|
13 |
|
|
|
13.0 |
|
Weeds Season 5 |
|
1/2hr |
|
|
13 |
|
|
|
6.5 |
|
|
Mad Men Season 2 |
|
1hr |
|
|
13 |
|
|
|
13.0 |
|
Crash TV Series Season 2 |
|
1hr |
|
|
13 |
|
|
|
13.0 |
|
|
Scream Queens |
|
1hr |
|
|
8 |
|
|
|
8.0 |
|
Mad Men Season 3 |
|
1hr |
|
|
13 |
|
|
|
13.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66 |
|
|
|
46.0 |
|
|
|
|
|
|
|
|
|
|
|
60 |
|
|
|
53.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues included in domestic series licensing from Debmar-Mercury increased $28.9
million to $67.0 million in the current period, from $38.1 million in the prior years period,
primarily due to increased revenue from the television series House of Payne and Meet the Browns.
Revenues included in domestic series licensing from the Companys reality television venture
with Ish, of $18.8 million in the current period resulted from the production of the domestic
series Paris Hiltons My New BFF and My Antonio, as compared to $16.3 million in the prior years
period.
58
International revenue of $31.6 million increased by $15.4 million in the current period mainly
due to international revenue from Crash TV Series Season 1, Dead Zone, Mad Men Season 1 and 2,
Paris Hiltons My New BFF, compared to international revenue of $16.2 million in the prior years
period from Mad Men Seasons 1 and 2, Weeds Season 3, The Kill Point, and Wildfire Season 4.
The increase in revenue from home entertainment releases of television production is primarily
driven by DVD/Blu-Ray revenue from Weeds Season 4 and Mad Men Seasons 1 and 2.
Media Networks Revenue
Media Networks revenue for the nine months ended December 31, 2009 and 2008 are $84.7 million
and nil, respectively. The acquisition of TV Guide Network occurred on February 28, 2009.
Direct Operating Expenses
The following table sets forth direct operating expenses by segment for the nine months ended
December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
Nine Months Ended |
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
|
Motion |
|
|
Television |
|
|
Media |
|
|
|
|
|
|
Motion |
|
|
Television |
|
|
|
|
|
|
Pictures |
|
|
Production |
|
|
Networks |
|
|
Total |
|
|
Pictures |
|
|
Production |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions) |
|
|
|
|
|
|
|
|
|
Direct operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of films
and television programs |
|
$ |
235.2 |
|
|
$ |
167.3 |
|
|
$ |
26.9 |
|
|
$ |
429.4 |
|
|
$ |
206.4 |
|
|
$ |
109.2 |
|
|
$ |
315.6 |
|
Participation and residual expense |
|
|
132.6 |
|
|
|
55.9 |
|
|
|
|
|
|
|
188.5 |
|
|
|
212.4 |
|
|
|
33.3 |
|
|
|
245.7 |
|
Other expenses |
|
|
1.3 |
|
|
|
0.6 |
|
|
|
0.2 |
|
|
|
2.1 |
|
|
|
3.5 |
|
|
|
0.9 |
|
|
|
4.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
369.1 |
|
|
$ |
223.8 |
|
|
$ |
27.1 |
|
|
$ |
620.0 |
|
|
$ |
422.3 |
|
|
$ |
143.4 |
|
|
$ |
565.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses as a
percentage of segment revenues |
|
|
46.1 |
% |
|
|
83.6 |
% |
|
|
32.0 |
% |
|
|
53.8 |
% |
|
|
51.2 |
% |
|
|
80.2 |
% |
|
|
56.4 |
% |
Direct operating expenses of the motion pictures segment of $369.1 million for the
current nine-month period were 46.1% of motion pictures revenue, compared to $422.3 million, or
51.2% of motion pictures revenue for the prior years period. The decrease in direct operating
expense of the motion pictures segment in the current period as a percent of revenue is primarily
due to higher investment in film write-downs in last years period compared to the current period
and a participation reserve in last years period that did not occur in the current period.
Investment in film write-downs of the motion picture segment totaled approximately $12.6 million for
the current period, compared to $28.9 million of charges for write-downs of investment in film and
a $20.3 million participation reserve in connection with a home entertainment library distribution
contract of family entertainment titles in the prior years period. In the current period,
approximately $7.1 million of the write-down related to the lower than anticipated performance
of one title that had not yet been released and approximately
$2.5 million of the write-down related to the change in domestic release strategy of
one motion picture. In the prior years period, approximately $23.3 million of the charges for
write-downs of investment in film were due to the lower than anticipated performance of four titles
that had not yet been released, and $2.8 million of the write-downs was a result of the decrease in
value of a library acquired during the acquisition of Mandate Pictures due to the underperformance
of those titles. Other expenses consist of the provision for doubtful accounts and foreign exchange
losses (gains). Our direct operating expenses generally fluctuate with changes in our revenue.
Because of our current expectations on motion picture revenue for fiscal 2010, we believe that our
direct operating expenses of our motion picture segment for fiscal 2010 will not exceed our fiscal
2009 motion picture segment direct operating expenses. However, a number of factors could impact
the level of direct operating expenses, including, but not limited to, the actual and anticipated
performance of our films, possible write-downs of our film costs, foreign exchange rate changes,
and bad debt expense.
Direct operating expenses of the television production segment of $223.8 million for this
period were 83.6% of television production revenue, compared to $143.4 million, or 80.2% of
television production revenue for the prior years period. In the current period, approximately
$7.5 million of charges for write-downs of television film costs were included in the amortization
of television programs, compared to $7.1 million in the prior years period. In the current period,
approximately $6.5 million of the write-down related to four television series. Included in the
charges in the prior years period was a write-down of
approximately $3.7 million associated with two
television series. Because we anticipate our television production segment revenues to increase in
fiscal 2010, as compared to fiscal 2009, we also expect that our direct operating expenses of our
television production segment will increase in fiscal 2010, as compared to fiscal 2009. However, a
number of factors could impact the level of direct operating expenses, including, but not
59
limited
to, the actual and anticipated performance of our television
programs, possible write-downs of our
television program costs, foreign exchange rate changes, and bad debt expense.
Direct operating expenses of the Media Networks segment of $27.1 million for the current
period consists primarily of programming expenses associated with the production of such programs
as Idol Tonight, Hollywood 411, and the 2009 Emmy Awards coverage.
Distribution and Marketing Expenses
The following table sets forth distribution and marketing expenses by segment for the nine
months ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
Nine Months Ended |
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
|
Motion |
|
|
Television |
|
|
Media |
|
|
|
|
|
|
Motion |
|
|
Television |
|
|
|
|
|
|
Pictures |
|
|
Production |
|
|
Networks |
|
|
Total |
|
|
Pictures |
|
|
Production |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions) |
|
|
|
|
|
|
|
|
|
Distribution and marketing expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical |
|
$ |
149.2 |
|
|
$ |
0.2 |
|
|
$ |
|
|
|
$ |
149.4 |
|
|
$ |
235.3 |
|
|
$ |
|
|
|
$ |
235.3 |
|
Home Entertainment |
|
|
134.3 |
|
|
|
11.7 |
|
|
|
|
|
|
|
146.0 |
|
|
|
166.1 |
|
|
|
8.5 |
|
|
|
174.6 |
|
Television |
|
|
1.8 |
|
|
|
6.7 |
|
|
|
|
|
|
|
8.5 |
|
|
|
3.5 |
|
|
|
5.2 |
|
|
|
8.7 |
|
International |
|
|
27.5 |
|
|
|
3.6 |
|
|
|
|
|
|
|
31.1 |
|
|
|
34.9 |
|
|
|
3.0 |
|
|
|
37.9 |
|
Media Networks |
|
|
|
|
|
|
|
|
|
|
10.9 |
|
|
|
10.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
1.4 |
|
|
|
0.2 |
|
|
|
|
|
|
|
1.6 |
|
|
|
1.9 |
|
|
|
0.4 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
314.2 |
|
|
$ |
22.4 |
|
|
$ |
10.9 |
|
|
$ |
347.5 |
|
|
$ |
441.7 |
|
|
$ |
17.1 |
|
|
$ |
458.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The majority of distribution and marketing expenses relate to the motion pictures
segment. Theatrical P&A in the motion pictures segment in the current period of $149.2 million
decreased $86.1 million, or 36.6%, compared to $235.3 million in the prior years period. Domestic
theatrical P&A from the motion pictures segment in this period included P&A incurred on the release
of Brothers, Saw VI, Precious, I Can Do Bad All By Myself, and Gamer, and P&A incurred in advance
of the release of titles such as Daybreakers and Spy Next Door, which individually represented
between 6% and 18% of total theatrical P&A and, in the aggregate, accounted for
86% of the total theatrical P&A. Domestic theatrical P&A from the motion pictures segment
in the prior years period included P&A incurred on the release of Bangkok Dangerous, Disaster
Movie, My Best Friends Girl, Punisher: War Zone, Saw V, The Family That Preys, The Forbidden
Kingdom, The Spirit, and Transporter 3, which individually represented between 6% and 12% of
total theatrical P&A and in the aggregate accounted for 87% of the total theatrical P&A. In the
prior years period, Bangkok Dangerous, Disaster Movie, Punisher: War Zone, and The Spirit
individually represented between 9% and 11% of total theatrical P&A, and in the aggregate,
accounted for 39% of total theatrical P&A, and each contributed less than 5% of total theatrical
revenue, and, in the aggregate, contributed less than 16% of total theatrical revenue.
Theatrical distribution and marketing expenses generally depend on the number of theatrical
motion pictures we release and the release plan of those motion pictures in a given year. As a
result, we do not currently believe that total theatrical distribution and marketing expenses for
fiscal 2010 will exceed that of fiscal 2009 levels because the number of pictures that we expect to
release in fiscal 2010 will be less than the number released last fiscal year.
Home entertainment distribution and marketing costs on motion pictures and television product
in this period of $146.0 million decreased $28.6 million, or 16.4%, compared to $174.6 million in
the prior years period. The decrease in home entertainment distribution and marketing costs is
mainly due to the decrease in home entertainment revenue in the current period as compared to the
prior years period, respectively. Home entertainment distribution and marketing costs as a
percentage of home entertainment revenues was 36.8% and 39.7% in the current period and prior
years period, respectively. The decrease in home entertainment distribution and marketing costs as
a percentage of revenue is primarily due to lower marketing costs and, to a lesser extent, lower
manufacturing and distribution costs.
International distribution and marketing expenses in this period includes $23.9 million of
distribution and marketing costs from Lionsgate UK, compared to $31.2 million in the prior years
period.
Media Networks includes transmission and marketing and promotion expenses.
60
General and Administrative Expenses
The following table sets forth general and administrative expenses by segment for the nine
months ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Nine Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
Increase (Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
|
|
|
|
|
|
(Amounts in millions) |
|
|
|
|
|
General and Administrative Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures |
|
$ |
34.0 |
|
|
$ |
36.5 |
|
|
$ |
(2.5 |
) |
|
|
(6.8 |
%) |
Television Production |
|
|
6.6 |
|
|
|
8.5 |
|
|
|
(1.9 |
) |
|
|
(22.4 |
%) |
Media Networks |
|
|
31.6 |
|
|
|
|
|
|
|
31.6 |
|
|
|
100.0 |
% |
Corporate, including stock based compensation |
|
|
50.9 |
|
|
|
51.4 |
|
|
|
(0.5 |
) |
|
|
(1.0 |
%) |
Total General and Administrative Expenses |
|
$ |
123.1 |
|
|
$ |
96.4 |
|
|
$ |
26.7 |
|
|
|
27.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Media Networks General and Administrative Expenses |
|
|
(31.6 |
) |
|
|
|
|
|
|
(31.6 |
) |
|
NM |
Less Stock-Based Compensation Expense |
|
|
(12.5 |
) |
|
|
(8.3 |
) |
|
|
(4.2 |
) |
|
|
50.6 |
% |
General and Administrative Expenses excluding Media |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Networks and Stock-Based Compensation Expense |
|
$ |
79.0 |
|
|
$ |
88.1 |
|
|
$ |
(9.1 |
) |
|
|
(10.3 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative expenses as a percentage of revenue |
|
|
10.7 |
% |
|
|
9.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and
administrative expenses excluding Media Networks and
stock-based compensation expense, as a percentage of
Motion Pictures and Television Production revenue |
|
|
7.4 |
% |
|
|
8.8 |
% |
|
|
|
|
|
|
|
|
61
The following table sets forth stock-based compensation expense (benefit) included in our
corporate segment for the nine months ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Nine Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
Increase (Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
|
|
|
|
|
|
(Amounts in millions) |
|
|
|
|
|
Stock-Based Compensation Expense (Benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
$ |
2.4 |
|
|
$ |
2.4 |
|
|
$ |
|
|
|
|
0.0 |
% |
Restricted share units |
|
|
9.3 |
|
|
|
9.2 |
|
|
|
0.1 |
|
|
|
1.1 |
% |
Stock appreciation rights |
|
|
0.8 |
|
|
|
(3.3 |
) |
|
|
4.1 |
|
|
|
(124.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12.5 |
|
|
$ |
8.3 |
|
|
$ |
4.2 |
|
|
|
50.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses increased by $26.7 million or 27.7% mainly due to the
general and administrative expenses associated with the Media Networks segment, which was acquired
in February 2009, of $31.6 million, and due to increases in
stock-based compensation included in
the corporate segment in the current period, offset by decreases in our other reporting segments.
General and administrative expenses of the Media Networks segment are primarily related to salaries
and related expenses.
General
and administrative expenses excluding the Media Networks segment and excluding stock-based compensation was $79.0 million in the current period compared to $88.1 million in the prior
year period which represents a decrease of $9.1 million or 10.3%.
General and administrative expenses of the motion pictures segment decreased $2.5 million or
6.8% mainly due to a decrease in other general overhead such as travel and entertainment expenses.
General and administrative expenses of the television production segment decreased $1.9
million or 22.4% mainly due to decreases in professional and consulting fees associated with the
Companys Asian television channel venture and to other general overhead decreases.
General and administrative expenses of the corporate segment decreased $0.5 million or 1.0%
mainly due to decreases in professional and consulting fees and other general overhead such as
travel and entertainment expenses, offset by an increase in stock-based compensation.
Depreciation, Amortization and Other Expenses (Income)
Depreciation and amortization of $21.1 million this period increased $16.7 million from $4.4
million in the prior years period. The increase is primarily due to depreciation of tangible
assets and amortization of intangible assets acquired in connection with the purchase of TV Guide
Network. Estimated amortization expense, based on intangible assets as of December 31, 2009, for
the three months ended March 31, 2010 and for each of the years ending March 31, 2011 through 2014
is approximately $2.7 million, $10.2 million, $7.1 million, $7.0 million, and $6.8 million,
respectively.
Interest expense of $40.8 million this period increased $15.9 million, or 63.9%, from the
prior years period of $24.9 million. The following table sets forth the components of interest
expense for the nine months ended December 31, 2009 and 2008:
62
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Amounts in millions) |
|
Interest Expense |
|
|
|
|
|
|
|
|
Cash Based: |
|
|
|
|
|
|
|
|
Senior revolving credit facility |
|
$ |
5.0 |
|
|
$ |
1.3 |
|
Senior subordinated debentures |
|
|
7.2 |
|
|
|
8.0 |
|
Senior secured second priority notes |
|
|
4.0 |
|
|
|
|
|
Other |
|
|
1.8 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
18.0 |
|
|
|
10.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Based: |
|
|
|
|
|
|
|
|
Amortization of discount on liability component of
senior subordinated debentures |
|
|
12.7 |
|
|
|
11.5 |
|
Amortization of discount on senior secured second priority notes |
|
|
0.8 |
|
|
|
|
|
Amortization of deferred financing costs |
|
|
2.3 |
|
|
|
3.0 |
|
Accretion of mandatorily redeemable preferred stock units
and 10% non-cash dividend |
|
|
7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.8 |
|
|
|
14.5 |
|
|
|
|
|
|
|
|
|
|
$ |
40.8 |
|
|
$ |
24.9 |
|
|
|
|
|
|
|
|
We expect that our interest expense will increase through the end of our fiscal year 2010
because of additional interest expense related to the senior secured second-priority notes issued
on October 21, 2009 (see description of notes in Recent Developments) and higher average
outstanding balances under our senior revolving credit facility, as compared to the average
outstanding balance of the prior year.
Interest and other income was $1.2 million for the period ended December 31, 2009, compared to
$5.1 million in the prior years period. Interest and other income this period was earned on the
lower average cash balances and restricted investments held during the nine months ended December
31, 2009 as compared to 2008.
Gain on extinguishment of debt was $5.7 million for the period ended December 31, 2009,
resulting from the December 2009 repurchase of the October 2004 2.9375% Notes and February 2005
3.625% Notes and the exchange of $66.6 million of the February 2005 3.625% Notes, compared to $3.0
million in the prior years period resulting from the repurchase of $9.0 million of the February
2005 3.625% Notes.
The following table represents our portion of the loss of our equity method
investees based on our percentage ownership for the nine months ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Nine Months |
|
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
Percentage |
|
|
December 31, |
|
|
December 31, |
|
|
|
Ownership |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(Amounts in millions) |
|
Horror Entertainment, LLC (FEARnet) |
|
|
33.33 |
% |
|
$ |
(312 |
) |
|
$ |
(3,783 |
) |
NextPoint, Inc. (Break.com) |
|
|
42.00 |
% |
|
|
(466 |
) |
|
|
(1,354 |
) |
Roadside Attractions, LLC |
|
|
43.00 |
% |
|
|
(327 |
) |
|
|
(244 |
) |
Studio 3 Partners, LLC (EPIX) (1) |
|
|
28.57 |
% |
|
|
(9,443 |
) |
|
|
(460 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(10,548 |
) |
|
$ |
(5,841 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Certain of our theatrical releases have been made available to EPIX for exhibition in the
domestic pay television window, for which $25.7 million of revenue and $17.2 million of gross
profit was recognized in the nine months ended December 31, 2009. Intercompany profits reflecting
our pro rata share of the venture of $5.3 million for the nine
months ended December 31, 2009 were eliminated and are reflected in our share of losses incurred by EPIX shown above. Also reflected in
our share of losses incurred by EPIX shown above are
$4.1 million and $0.5 million of losses for the nine
months ended December 31, 2009 and 2008, respectively. |
63
Income Tax Expense
We had income tax expense of $0.3 million, or 8.5% of loss before income taxes in the nine
months ended December 31, 2009, compared to an expense of $1.3 million, or (0.9%) of loss before
income taxes in the nine months ended December 31, 2008. The tax expense reflected in the current
period is primarily attributable to U.S. and Canadian 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 $133.2 million for U.S. federal income tax purposes
available to reduce income taxes over twenty years, $147.3 million for U.S. state income tax
purposes available to reduce income taxes over future years with varying expirations, $18.9 million
for Canadian income tax purposes available to reduce income taxes over 20 years with varying
expirations, $20.9 million for UK income tax purposes available indefinitely to reduce future
income taxes and $2.4 million of Hong Kong loss carryforwards available indefinitely to reduce
future income taxes.
At March 31, 2009, the Company had U.S. Alternative Minimum Tax (AMT) credit carryforwards
of approximately $2.0 million available to reduce future federal income tax, which begin to expire
in 2011.
Net Income (Loss)
Net loss for the nine months ended December 31, 2009 was $3.3 million, compared to net loss
for the nine months ended December 31, 2008 of $146.1 million.
Net loss attributable to noncontrolling interest for the nine months ended December 31, 2009
was $6.1 million, compared to nil for the nine months ended December 31, 2008.
Net income attributable to our shareholders for the nine months ended December 31, 2009 was
$2.8 million, or basic net income per common share of $0.02 on 117.4 million weighted average
common shares outstanding. Diluted net income per common share for the nine months ended December
31, 2009 was $0.02 on 117.6 million weighted average common shares outstanding. This compares to
net loss attributable to our shareholders for the nine months ended December 31, 2008 of $146.1
million, or basic and diluted net loss per common share of $1.25 on 117.0 million weighted average
common shares outstanding.
Liquidity and Capital Resources
Our liquidity and capital resources are provided principally through cash generated from
operations, issuance of subordinated notes, and our credit facilities.
Senior Secured Second-Priority Notes. On October 21, 2009, our wholly-owned subsidiary LGEI,
issued $236.0 million aggregate principal amount of senior secured second-priority notes due 2016
(the 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 Senior Notes were issued by LGEI at an initial price of 95.222% (original issue discount
4.778%) of the principal amount. The net proceeds, after deducting discounts, the fees paid to
the initial purchaser, and all transaction costs (including accrued legal, accounting and other
professional fees) from the sale of the Senior Notes was approximately $214.2 million, which was
used by LGEI to repay a portion of its outstanding debt under its senior revolving credit facility.
The original issue discount, interest and deferred financing costs are amortized through November
1, 2016 using the effective interest method.
The Senior Notes will pay interest semi-annually on May 1 and November 1 of each year at a
rate of 10.25% per year and will mature on November 1, 2016.
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 contain certain restrictions and covenants that, subject to certain
exceptions, limit our ability to incur additional indebtedness, pay dividends or repurchase the
Companys stock, make certain loans or investments, and sell or otherwise dispose of certain assets
subject to certain conditions, among other limitations.
64
Film Credit Facility. On October 6, 2009, we entered into a revolving film credit facility
agreement, as amended effective December 31, 2009 (Film Credit Facility), which provides for
borrowings for the acquisition or production of motion pictures. Currently, the Film Credit
Facility provides for total borrowings up to $120 million and can be increased to $200 million if
additional lenders or financial institutions become a party to and provide a commitment under the
facility. The Film Credit Facility has a maturity date of April 6, 2013 and generally bears an
interest rate of 3.25% over the LIBO rate (as defined in the credit agreement). We are required
to pay a quarterly commitment fee of 0.75% per annum on the unused commitment under the Film Credit
Facility. 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. 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.
Senior Revolving Credit Facility. At December 31, 2009, we had borrowings of $12.0 million
(March 31, 2009 $255 million) under our senior revolving credit facility. The availability of
funds under our senior revolving credit facility is limited by a borrowing base and also reduced by
outstanding letters of credit which amounted to $22.6 million at December 31, 2009 (March 31, 2009
- $46.7 million). At December 31, 2009, there was $305.4 million available under the senior
revolving credit facility (March 31, 2009 $38.3 million). We are required to pay a quarterly
commitment fee based upon 0.375% per annum on the total senior revolving credit facility of $340
million less the amount drawn. The senior revolving credit facility expires July 25, 2013 and as of
December 31, 2009 bore interest of 2.50% over the Adjusted LIBOR rate (effective interest rate of
2.73% and 2.75% as of December 31, 2009 and March 31, 2009, respectively). 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. 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 our business, enter into sale-leaseback
transactions, transfer and sell material assets and merge or consolidate. 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 20% of our common stock.
65
October 2004 2.9375% Notes. In October 2004, LGEI sold $150.0 million of 2.9375% Convertible
Senior Subordinated Notes (the October 2004 2.9375% Notes). As of December 31, 2009, we had
approximately $110.0 million (carrying value $97.9 million) of aggregate principle outstanding of
the October 2004 2.9375% Notes.
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 Company: From October 15, 2009 to October 14, 2010, LGEI may redeem the October
2004 2.9375% Notes at 100.839%; 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 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 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, 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.
Outstanding Amount: As of December 31, 2009, $110.0 million of aggregate principal amount
(carrying value $97.9 million) of the October 2004 2.9375% Notes remain outstanding.
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). As of December 31, 2009, we had
approximately $59.5 million (carrying value $51.9 million) of aggregate principle outstanding of
the February 2005 3.625% Notes.
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 mature on March 15, 2025.
Redeemable by Company: 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.
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, we have the option to deliver, in lieu of common shares, cash or a combination of cash and
our common shares.
66
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.
Outstanding Amount: As of December 31, 2009, $59.5 million of aggregate principal amount
(carrying value $51.9 million) of the February 2005 3.625% Notes remain outstanding.
April 2009 3.625% Notes. In April 2009, February 2005 3.625% Notes issued approximately $66.6
million of 3.625% Convertible Senior Subordinated Notes (the April 2009 3.625% Notes). As of
December 31, 2009, we had approximately $66.6 million (carrying value $35.2 million) of aggregate
principle outstanding of the April 2009 3.625% Notes.
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 Company: 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.
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 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 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 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.
Outstanding Amount: As of December 31, 2009, $66.6 million of aggregate principal amount
(carrying value $35.2 million) of the April 2009 3.625% Notes remain outstanding.
Theatrical Slate Participation. On May 29, 2009, LGEI and LGF terminated our theatrical slate
participation arrangement with Pride. The arrangement was evidenced by, among other documents, that
certain Master Covered Picture Purchase Agreement between LGF and FilmCo and the FilmCo Operating
Agreement for FilmCo by and between LGEI 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 Prides 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 us to
facilitate a resolution, we gave FilmCo and Pride notice that FilmCo, through Prides 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.
67
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, the Company entered into a
four-year filmed entertainment slate participation agreement with Société Générale de Financement
du Québec (SGF), the Québec provincial governments 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 $140.0 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 $400.0 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 $35.0 million is available through July 30, 2010 and $35.0 million is
available during the twelve-month period ended July 30, 2011 to be provided by SGF.
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 December 31, 2009 and March 31, 2009 is $433.3 million and $499.5
million, respectively.
Cash Flows Used in Operating Activities. Cash flows used in operating activities for the nine
months ended December 31, 2009 were $128.1 million compared to cash flows used in operating
activities in the nine months ended December 31, 2008 of $95.9 million. The increase in cash used
in operating activities was primarily due to an increase in accounts receivable in the current
period compared to a decrease in the prior years period, and reductions of accounts payable,
accrued liabilities, participations and residuals, film obligations and deferred revenues in the
current period as compared to increases in those accounts in the prior years period , offset by an
increase in net income and amortization of films and television programs as compared to the nine
months ended December 31, 2008.
Cash Flows Used in Investing Activities. Cash flows used in investing activities of $37.6
million for the nine months ended December 31, 2009 consisted of $4.2 million for purchases of
property and equipment and $41.3 million of capital contributions to companies accounted as equity
method investments, offset by $8.3 million repayment on a loan made to a third party producer. Cash
flows used in investing activities of $51.1 million for the nine months ended December 31, 2008
consisted of $6.5 million for purchases of property and equipment, $15.9 million of capital
contributions to companies accounted as equity method investments and $28.8 million for an increase
in a loan receivable from Break.com and a third party producer.
Cash Flows Provided by/Used In Financing Activities. Cash flows provided by financing
activities of $130.0 million for the nine months ended December 31, 2009 resulted from receipt of
net proceeds of $216.2 million from the sale of senior secured second-priority notes, borrowings of
$170.0 million under the senior revolving credit facility, increased production obligations of
$223.8 million and proceeds of $122.4 million from the sale of our 49% interest in TV Guide
Network, offset by $413.0 million repayment on the senior revolving credit facility, $111.9 million
repayment of production obligations, $75.2 million payment on the repurchase of subordinated notes,
$1.7 million paid for tax withholding requirements associated with our equity awards, and $0.6
million repayment of other financing obligations. Cash flows used in financing activities of $89.4
million for the nine months ended December 31, 2008 resulted from increased production obligations
of $126.4 million and the exercise of stock options of $2.9 million, offset by $165.3 million
repayment of production obligations, $45.0 million paid for the repurchase of the Companys common
shares and $3.1 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,
credit facility availability, tax-efficient financing and available production financing 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. 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 credit facilities, single-purpose
production financing, 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.
68
Future commitments under contractual obligations as of December 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
Thereafter |
|
|
Total |
|
Future annual repayment of debt and other
financing obligations as of December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior revolving credit facility |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12,000 |
|
|
$ |
|
|
|
$ |
12,000 |
|
Production obligations(1) |
|
|
3,706 |
|
|
|
202,286 |
|
|
|
40,952 |
|
|
|
|
|
|
|
80,733 |
|
|
|
|
|
|
|
327,677 |
|
Interest payments on subordinated notes and other
financing obligations |
|
|
2,547 |
|
|
|
8,815 |
|
|
|
8,754 |
|
|
|
3,032 |
|
|
|
2,936 |
|
|
|
3,821 |
|
|
|
29,905 |
|
Subordinated notes and other financing obligations (2) |
|
|
212 |
|
|
|
883 |
|
|
|
170,458 |
|
|
|
4,726 |
|
|
|
1,078 |
|
|
|
73,840 |
|
|
|
251,197 |
|
Interest payments on senior secured second priority notes |
|
|
|
|
|
|
24,190 |
|
|
|
24,190 |
|
|
|
24,190 |
|
|
|
24,190 |
|
|
|
72,570 |
|
|
|
169,330 |
|
Senior secured second priority notes (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
236,000 |
|
|
|
236,000 |
|
Mandatorily redeemable preferred stock units (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
324,088 |
|
|
|
324,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,465 |
|
|
$ |
236,174 |
|
|
$ |
244,354 |
|
|
$ |
31,948 |
|
|
$ |
120,937 |
|
|
$ |
710,319 |
|
|
$ |
1,350,197 |
|
Contractual commitments by expected
repayment date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film obligations(1) |
|
$ |
69,391 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
69,391 |
|
Distribution and marketing commitments (5) |
|
|
27,965 |
|
|
|
75,989 |
|
|
|
|
|
|
|
22,000 |
|
|
|
|
|
|
|
|
|
|
|
125,954 |
|
Minimum guarantee commitments (6) |
|
|
15,500 |
|
|
|
126,789 |
|
|
|
9,278 |
|
|
|
6,478 |
|
|
|
5,750 |
|
|
|
9,183 |
|
|
|
172,978 |
|
Production obligation commitments (6) |
|
|
148 |
|
|
|
12,415 |
|
|
|
1,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,261 |
|
Operating lease commitments |
|
|
3,418 |
|
|
|
11,468 |
|
|
|
11,293 |
|
|
|
11,855 |
|
|
|
11,861 |
|
|
|
14,918 |
|
|
|
64,813 |
|
Other contractual obligations |
|
|
955 |
|
|
|
2,654 |
|
|
|
2,399 |
|
|
|
1,317 |
|
|
|
1,200 |
|
|
|
3,900 |
|
|
|
12,425 |
|
Employment and consulting contracts |
|
|
9,529 |
|
|
|
31,233 |
|
|
|
13,950 |
|
|
|
5,275 |
|
|
|
1,599 |
|
|
|
|
|
|
|
61,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
126,906 |
|
|
$ |
260,548 |
|
|
$ |
38,618 |
|
|
$ |
46,925 |
|
|
$ |
20,410 |
|
|
$ |
28,001 |
|
|
$ |
521,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total future commitments under
contractual obligations |
|
$ |
133,371 |
|
|
$ |
496,722 |
|
|
$ |
282,972 |
|
|
$ |
78,873 |
|
|
$ |
141,347 |
|
|
$ |
738,320 |
|
|
$ |
1,871,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Film and production obligations include minimum guarantees, theatrical marketing obligations
and production obligations as disclosed in Note 9 of our unaudited condensed consolidated
financial statements. Repayment dates are based on anticipated delivery or release date of the
related film or contractual due dates of the obligation. |
|
(2) |
|
Subordinated notes and other financing obligations reflect the principal amounts of the
October 2004 2.9375% Notes, the February 2005 3.625% Notes and the April 2009 3.625% Notes and
other financing obligations with a carrying amount of $15.1 million as of December 31, 2009.
The combined carrying value of our subordinated notes was $185.0 million as of December 31,
2009. The difference between the carrying value and the principal amounts is being amortized
as a non-cash charge to interest expense over the expected life of the Notes. |
|
(3) |
|
Senior secured second-priority notes reflect the principal amount payable in November 2016
with a carrying amount of $225.5 million as of December 31, 2009. The difference between the
carrying value and the principal amount is being amortized as a non-cash charge to interest
expense over the expected life of the notes. |
|
(4) |
|
Amount represents the anticipated redemption amount (i.e., principal amount of $125.0 million
plus the accretion of a 10% annual dividend) payable in May 2019 of the mandatorily redeemable
preferred stock units held by the noncontrolling interest in TV Guide Network. The carrying
amount of the mandatorily redeemable preferred stock held by the non controlling interest was
$91.5 million as of December 31, 2009. The carrying amount and the 10% dividend is being
accreted, through a non cash charge to interest expense, up to its redemption amount over the
ten-year period to the redemption date. |
|
(5) |
|
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. |
|
(6) |
|
Minimum guarantee commitments represent contractual commitments related to the purchase of
film rights for future delivery. Production obligation commitments represent amounts committed
for future film production and development to be funded through production financing and
recorded as a production obligation liability. Future payments under these obligations are
based on anticipated delivery or release dates of the related film or contractual due dates of
the obligation. The amounts include future interest payments associated with the obligations. |
69
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 in our financial statements.
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
December 31, 2009, we had outstanding forward foreign exchange contracts to sell US $4.9 million in
exchange for Canadian (CDN) $5.3 million over a period of 4 months at a weighted average exchange
rate of CDN $1.07 and we had outstanding forward foreign exchange contracts to sell British Pound
Sterling £3.3 million in exchange for US$5.4 million over a period of 9 months at a weighted
exchange rate of US$1.64. Changes in the fair value representing a net unrealized fair value gain
on foreign exchange contracts outstanding during both the three and nine months ended December 31,
2009 amounted to $0.2 million and are included in accumulated other comprehensive income (loss), a
separate component of shareholders equity. 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. Our principal risk with respect to our debt is interest rate risk. We
currently have exposure to cash flow risk due to changes in market interest rates related to our
outstanding debt and other financing obligations. Our senior revolving credit facility has a
balance of $12.0 million at December 31, 2009. Production obligations subject to variable interest
rates include $191.2 million owed to film production entities on delivery of titles.
The table below presents repayments of the principal amounts for our senior revolving credit
facility, production obligations, subordinated notes and other financing obligations, senior
secured second-priority notes, and mandatorily redeemable preferred stock units as of December 31,
2009. The footnotes to the table provide the contractual interest rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
Thereafter |
|
|
Total |
|
Senior Revolving Credit Facility: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable (1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12,000 |
|
|
$ |
|
|
|
|
12,000 |
|
Production Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable (2) |
|
|
|
|
|
|
180,262 |
|
|
|
10,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191,226 |
|
Fixed (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,734 |
|
|
|
|
|
|
|
65,734 |
|
Subordinated Notes and Other Financing Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed (4) |
|
|
|
|
|
|
|
|
|
|
169,514 |
|
|
|
|
|
|
|
|
|
|
|
66,581 |
|
|
|
236,095 |
|
Fixed (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,718 |
|
|
|
|
|
|
|
|
|
|
|
3,718 |
|
Fixed (6) |
|
|
212 |
|
|
|
883 |
|
|
|
944 |
|
|
|
1,008 |
|
|
|
1,078 |
|
|
|
7,259 |
|
|
|
11,384 |
|
Senior Secured Second Priority Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed (7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
236,000 |
|
|
|
236,000 |
|
Mandatorily Redeemable Preferred Stock Units: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed (8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,009 |
|
|
|
125,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
212 |
|
|
$ |
181,145 |
|
|
$ |
181,422 |
|
|
$ |
4,726 |
|
|
$ |
78,812 |
|
|
$ |
434,849 |
|
|
$ |
881,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
(1) |
|
Senior revolving credit facility, which expires July 25, 2013 and bore interest at 2.25% over
the Adjusted LIBOR rate through September 29, 2009. On September 30, 2009, the Company amended
its senior revolving credit facility, which resulted in an increase of the interest rate of
0.25%. At December 31, 2009, we had borrowings of $12.0 million 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 obligations of $191.2
million incur interest at rates ranging from approximately 1.83% to 5.50%. Not included in the
table above are approximately $70.7 million of production obligations which are non-interest
bearing. |
|
(3) |
|
Long term production obligations of $65.7 million with a fixed interest rate equal to 1.5%. |
|
(4) |
|
Subordinated notes reflect the principal amounts of the October 2004 2.9375% Notes, the
February 2005 3.625% Notes and the April 2009 3.625% Notes as of September 30, 2009. |
|
(5) |
|
Other financing obligation with fixed interest rate equal to 8.02%. |
|
(6) |
|
Capital lease obligation for a satellite transponder with an imputed interest rate equal to
6.65%. |
|
(7) |
|
Senior secured second-priority notes reflect the principal amount of $236.0 million with a
fixed interest rate equal to 10.25%. |
|
(8) |
|
Mandatorily redeemable preferred stock units reflect the principal amount of $125.0 million
with a 10% dividend accretion through a non-cash charge to interest expense, up to its
redemption amount over the ten year period to the redemption date of May 2019. |
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 SECs
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 December 31, 2009, 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 December 31, 2009.
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 Companys management, including the Chief Executive Officer and Chief
Financial
Officer, also evaluated whether any changes occurred to the Companys 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.
71
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 1A. Risk Factors.
Other than the changes to the risk factors enclosed as Exhibit 99.1 to our Current Report on Form
8-K filed on October 13, 2009 and those 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, 2009.
We may not be able to generate sufficient cash to service all of our indebtedness, and be forced to
take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments or to refinance our debt obligations depends on our
financial and operating performance, which is subject to prevailing economic and competitive
conditions and to certain financial, business and other factors beyond our control. We cannot
assure you that we will maintain a level of cash flows from operating activities sufficient to
permit us to pay the principal, premium, if any, and interest on our indebtedness.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we
may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional
capital or restructure or refinance our indebtedness. We cannot assure you that we would be able to
take any of these actions, that these actions would be successful and permit us to meet our
scheduled debt service obligations or that these actions would be permitted under the terms of our
existing or future debt agreements. In the absence of such operating results and resources, we
could face substantial liquidity problems and might be required to dispose of material assets or
operations to meet our debt service and other obligations. Our $340 million senior revolving credit
facility and the indenture that governs our 10.25% Senior Secured Second-Priority Notes due 2016
(the 10.25% Notes) restrict our ability to dispose of assets and use the proceeds from the
disposition. We may not be able to consummate those dispositions or to obtain the proceeds which we
could realize from them and these proceeds may not be adequate to meet any debt service obligations
then due.
If we cannot make scheduled payments on our debt, we will be in default and, as a result:
|
|
|
our debt holders could declare all outstanding principal and interest to be due and
payable; |
|
|
|
|
the lenders under our senior revoling credit facility could terminate their commitments
to lend us money and foreclose against the assets securing their borrowings; and |
|
|
|
|
we could be forced into bankruptcy or liquidation. |
Despite current indebtedness levels, we and our subsidiaries may be able to incur substantial
additional indebtedness in the future. The terms of the indenture governing the 10.25% Notes do not
fully prohibit us or our subsidiaries from doing so. Additionally, our senior revolving credit
facility provides commitments of up to $340.0 million in the aggregate. All of those borrowings are
secured on a first lien basis, except to the extent such liens are subordinated to liens securing
certain indebtedness of guarantors with respect to certain film and television financing
arrangements. If new debt is added to our current debt levels, the related risks that we and our
subsidiaries now face could intensify. The Company and the subsidiaries that guarantee 10.25% Notes
are also guarantors under our senior revolving credit facility.
Our level of indebtedness could adversely affect our ability to raise additional capital to fund
our operations, limit our ability to react to changes in the economy or our industry and prevent us
from meeting our obligations under our indebtedness.
As of December 31, 2009, our consolidated total indebtedness was approximately $823.9 million. Our
substantial degree of leverage could have important consequences, including the following:
|
|
|
it may limit our ability to obtain additional debt or equity financing for working capital,
capital expenditures, motion picture and television development and production, debt service
requirements, acquisitions or general corporate or other purposes; |
|
|
|
|
a substantial portion of our cash flows from operations will be dedicated to the payment of
principal and interest on our indebtedness and will not be available for other purposes,
including our operations, capital expenditures and future business opportunities; |
|
|
|
|
the debt service requirements of our indebtedness could make it more difficult for us to
satisfy our financial obligations; |
|
|
|
|
certain of our borrowings, including borrowings under our senior revolving credit facility,
are at variable rates of interest, exposing us to the risk of increased interest rates; |
|
|
|
|
it may limit our ability to adjust to changing market conditions and place us at a
competitive disadvantage compared to our competitors that have less debt; and |
|
|
|
|
we may be vulnerable to a downturn in general economic conditions or in our business, or we
may be unable to carry out capital spending that is important to our growth. |
Substantial leverage could adversely affect our financial condition.
72
Historically, we have been highly leveraged and may be highly leveraged in the future. We have
access to capital through our $340.0 million senior revolving credit facility. In addition, we have
$236.0 million principal amount of the 10.25% Notes that mature in 2016 and have unsecured
convertible senior subordinated notes outstanding with an aggregate principal amount of $236.1
million. The holders of our unsecured convertible senior subordinated notes may require us to
repurchase such notes on certain dates ($110 million principal amount of our 2.9375% convertible
senior subordinated notes may be required to be repurchased as early as October 2011, $59.5 million
principal amount of our 3.625% convertible senior subordinated notes that were issued in February
2005 may be required to be repurchased as early as March 2012, and $66.6 million principal amount
of our 3.625% convertible senior subordinated notes that were issued in April 2009 may be required
to be repurchased as early as March 2015). In addition, the holders of our unsecured convertible
senior subordinated notes may require us to repurchase such notes 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.
Although each of our senior revolving credit facility and the indenture governing the 10.25% Notes
contains covenants that, among other things, limit our ability to incur additional indebtedness,
including guarantees, make restricted payments and investments, and grant liens on our assets, the
covenants contained in the indenture governing the 10.25% Notes provide a number of important
exceptions. Such exceptions will provide us substantial flexibility to incur indebtedness, grant
liens and expend funds to operate our business. Under the terms of the indenture governing the
10.25% Notes, so long as we meet certain specified conditions, we will be able to incur
indebtedness to purchase or acquire rights in motion picture or television productions secured by
liens on such rights, which liens will be prior to the liens in respect of the 10.25% Notes. For
example, in October 2009, we entered into a new revolving credit agreement that allows us to
diversify our capital sources for theatrical motion picture production and distribution. The
initial commitments for this facility are $120 million, but we may seek to increase the amount of
commitments to as much as $200 million, and obligations thereunder are secured on a first priority
basis by interests in the related motion pictures. Similarly, with few restrictions, we may incur
indebtedness in connection with certain film and television financing arrangements, or make
investments in assets that are not included in the borrowing base supporting the 10.25% Notes, in
each case, without having to meet the leverage ratio tests for debt incurrence or to fit such
investments within the restricted payments build-up basket or within other categories of funds
applicable to making investments and other restricted payments under the indenture governing the
10.25% Notes.
In addition, our ability to incur additional indebtedness under the leverage ratio tests depends in
part on the size of our borrowing base, as defined in the indenture governing the 10.25% Notes.
Many of the details of this definition depend, in turn, on corresponding provisions in the
definition of borrowing base in our
senior revolving credit agreement. As a result, whether certain particular assets are included in
the borrowing base for the 10.25% Notes effectively depends on whether the administrative agent and
the lenders under our senior revolving credit agreement permit their inclusion in the borrowing
base for such credit agreement.
At December 31, 2009, we had approximately $105.1 million in cash and cash equivalents. As of
December 31, 2009, we have borrowed $12 million of our senior revolving credit facility and had
$22.6 million letters of credit outstanding, and could borrow some or all of the permitted amount
in the future. The amount we have available to borrow under this facility depends upon our
borrowing base, which in turn depends on the value of our existing library of films and television
programs, as well as accounts receivable and cash held in collateral accounts. If several of our
larger motion picture releases are commercial failures or our library declines in value, our
borrowing base could decrease. Such a decrease could have a material adverse effect on our
business, results of operations, liquidity and financial condition. For example, it could:
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require us to dedicate a substantial portion of our cash flow to the repayment of our
indebtedness, reducing the amount of cash flow available to fund motion picture and television
production, distribution and other operating expenses; |
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limit our flexibility in planning for or reacting to downturns in our business, our industry
or the economy in general; |
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limit our ability to obtain additional financing, if necessary, for operating expenses, or
limit our ability to obtain such financing on terms acceptable to us; and |
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limit our ability to pursue strategic acquisitions and other business opportunities that may
be in our best interests. |
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 December 31, 2009, four of
our shareholders, Mark H. Rachesky, M.D., Carl C. Icahn, Capital Research Global Investors and
Kornitzer Capital Management, Inc. and their respective affiliates, beneficially owned 19.7%,
17.7%, 14.7% and 10.4%, respectively, of our outstanding common shares.
73
Under certain circumstances, including the acquisition of ownership or control by a person or group
in excess of 50% of our common shares, the noteholders of our unsecured convertible senior
subordinated notes and the 10.25% Notes may require us to repurchase all or a portion of such notes
upon a change in control and the noteholders of our unsecured 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 of control
because we may not have sufficient funds. Further, we may be contractually restricted under the
terms of our senior revolving credit facility from repurchasing all of the notes tendered by
holders upon a change of control. Our failure to repurchase the notes upon a change of control
would cause a default under the indentures governing the 10.25% Notes and our unsecured convertible
senior subordinated notes and a cross-default under the senior revolving credit facility.
Our senior revolving credit facility also provides that a change of control, which includes a
person or group acquiring ownership or control in excess of 20% 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 notes.
Restrictive covenants may adversely affect our operations.
Our senior revolving credit facility and the indenture governing the 10.25% Notes contain various
covenants that, subject to certain exceptions, limit our ability to, among other things:
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incur or assume additional debt or provide guarantees in respect of obligations of other
persons; |
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issue redeemable stock and preferred stock; |
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pay dividends or distributions or redeem or repurchase capital stock; |
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prepay, redeem or repurchase debt that is junior in right of payment to the 10.25% Notes; |
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make loans, investments and capital expenditures; |
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incur liens; |
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engage in sale/leaseback transactions; |
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restrict dividends, loans or asset transfers from our subsidiaries; |
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sell or otherwise dispose of assets, including capital stock of subsidiaries; |
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consolidate or merge with or into, or sell substantially all of our assets to, another
person; |
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enter into transactions with affiliates; and |
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enter into new lines of business. |
These covenants may prevent us from raising additional financing, competing effectively or taking
advantage of new business opportunities.
In addition, the restrictive covenants in our senior revolving credit facility require us to
maintain specified financial ratios and satisfy other financial condition tests. Our ability to
comply with these covenants or meet those financial ratios and tests can be affected by events
beyond our control (such as a change of control event), and we cannot assure you that we will meet
them.
Upon the occurrence of an event of default under our senior revolving credit facility, lenders
could elect to declare all amounts outstanding under our senior revolving credit facility to be
immediately due and payable and terminate all commitments to extend further credit. Further, the
lenders under our senior revolving credit facility could proceed against the collateral granted to
them to secure that indebtedness, which represents a significant portion of our assets. If the
lenders under our senior revolving credit facility accelerate the repayment of borrowings, we
cannot assure you that we will have sufficient cash flow or assets to repay our senior revolving
credit facility and our indebtedness or borrow sufficient funds to refinance such indebtedness.
Even if we are able to obtain new financing, it may not be on commercially reasonable terms, or
terms that are acceptable to us.
Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service
obligations to increase significantly.
Certain of our borrowings, primarily borrowings under our senior revolving 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 our 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. Assuming all revolving
loans are fully drawn, based on the applicable LIBOR in effect as of December
74
31, 2009, each quarter point change in interest rates would result in a $0.9 million change in
annual interest expense on our senior revolving credit facility. In the future, we may enter into
interest rate swaps, involving the exchange of floating for fixed rate interest payments, to reduce
interest rate volatility.
Certain shareholders own a majority of our outstanding common shares.
As of December 31, 2009, four of our shareholders beneficially owned an aggregate of 67,760,845 of
our common shares, or approximately 57.5% of the outstanding shares. Pursuant to a letter agreement
dated July 9, 2009 that we entered into with Mark H. Rachesky, M.D., the beneficial owner of 19.7%
of our outstanding common shares, we agreed to, among other things, name Dr. Rachesky to our slate
of nominees for election to our board of directors at our 2009 Annual General Meeting of
Shareholders and, subject to certain terms and conditions, enter into a registration rights
agreement with him and his affiliates. On September 15, 2009, Dr. Rachesky was nominated to our
board of directors. In accordance with the letter agreement, we entered into a registration rights
agreement with Dr. Rachesky on October 22, 2009. Accordingly, these four 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 December 31, 2009, approximately 66.2% 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.
Additionally, the following updates the risk factor entitled Our success depends on external
factors in the motion picture and television industry We could be adversely affected by strikes
or other union job action in the Risk Factors section of our Annual Report on Form 10-K for the
fiscal year ended March 31, 2009.
We are directly or indirectly dependent upon highly specialized union members who are essential to
the production of motion pictures and television programs. A strike by, or a lockout of, one or
more of the unions that provide personnel essential to the production of motion pictures or
television programs could delay or halt our ongoing production activities. Such a halt or delay,
depending on the length of time, could cause a delay or interruption in our release of new motion
pictures and television programs, which could have a material adverse effect on our business,
results of operations and financial condition.
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Item 2. |
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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 Companys 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, 2009, 6,787,310 shares have been repurchased at a cost of
approximately $65.2 million (including commission costs). The share repurchase program has no
expiration date.
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The following table sets forth information with respect to shares of our common stock purchased by
us during the three months ended December 31, 2009:
ISSUER PURCHASES OF EQUITY SECURITIES
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(a) Total |
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(c) Total Number of |
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(d) Approximate Dollar Value |
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Number of |
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Shares Purchased as Part |
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of Shares that May Yet Be |
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Shares |
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(b) Average Price |
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of Publicly Announced |
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Purchased Under the Plans or |
Period |
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Purchased |
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Paid per Share |
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Plans or Programs |
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Programs |
October 1, 2009 October 31, 2009 |
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November 1, 2009 November 30, 2009 |
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December 1, 2009 December 31, 2009 |
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Total |
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$ |
85,080,000 |
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Item 3. |
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Defaults Upon Senior Securities. |
None
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Item 4. |
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Submission of Matters to a Vote of Security Holders. |
None
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Item 5. |
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Other Information. |
None
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Exhibit |
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Number |
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Description of Documents |
3.1 (1)
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Articles |
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3.2 (2)
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Notice of Articles |
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3.3 (3)
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Vertical Short Form Amalgamation Application |
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3.4 (3)
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Certificate of Amalgamation |
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10.68 (4)
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Registration Rights Agreement, dated as of October 22, 2009, by and among Lions Gate
Entertainment Corp. and the persons listed on the signature pages thereto. |
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10.69 (5)
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Amendment of Employment Agreement, dated as of November 2, 2009, by and between the
Company and Michael Burns. |
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10.71 (6)
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Amendment No. 2 dated as of November 24, 2009 to the Second Amended and Restated
Credit, Security, Guaranty and Pledge Agreement dated as of July 25, 2008 among Lions
Gate Entertainment Inc., Lions Gate UK Limited and Lions Gate Australia Pty Limited,
as Borrowers, the guarantors and lenders referred to therein, JPMorgan Chase Bank,
N.A., as Administrative Agent and as Issuing Bank and Wachovia Bank, N.A., as
Syndication Agent. |
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10.72*
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Credit, Security, Guaranty and Pledge Agreement dated as of October 6, 2009, among
Lions Gate Mandate Financing Vehicle Inc., the guarantors and lenders referred to
therein, JPMorgan Chase Bank, N.A., as administrative agent and issuing bank, Union
Bank, N.A., as co-administrative agent, syndication agent and joint lead arranger,
and Wells Fargo Bank, National Association as documentation agent. |
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|
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Exhibit |
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Number |
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Description of Documents |
10.73
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Indenture dated as of October 21, 2009 among Lions Gate Entertainment Inc., Lions
Gate Entertainment Corp., the guarantors referred to therein and U.S. Bank National
Association. |
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10.74
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Pledge and Security Agreement dated as of October 21, 2009 among Lions Gate
Entertainment, Inc., the grantors listed therein and U.S. Bank National Association. |
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10.75
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Intercreditor Agreement dated as of October 21, 2009 among JPMorgan Chase Bank, N.A.,
as administrative agent, U.S. Bank National Association, as collateral agent, Lions
Gate Entertainment, Inc. and the loan parties referred to therein. |
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10.76*
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Amendment No. 1, executed on January 22, 2010 and dated as of December 31, 2009, to
Credit, Security, Guaranty and Pledge Agreement dated as of October 6, 2009, among
Lions Gate Mandate Financing Vehicle Inc., the guarantors and lenders referred to
therein, JPMorgan Chase Bank, N.A., as administrative agent and issuing bank, Union
Bank, N.A., as co-administrative agent, syndication agent and joint lead arranger,
and Wells Fargo Bank, National Association as documentation agent. |
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31.1
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Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2
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Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1
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Certification of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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(1) |
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Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year ended
March 31, 2005 as filed on June 29, 2005. |
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(2) |
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Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 2009 as filed on November 9, 2009. |
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(3) |
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Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year ended
March 31, 2007 as filed on May 30, 2007. |
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(4) |
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Incorporated by reference to the Companys Current Report on Form 8-K as filed on October 23, 2009. |
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(5) |
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Incorporated by reference to the Companys Current Report on Form 8-K as filed on November 6, 2009. |
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(6) |
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Incorporated by reference to the Companys Current Report on Form 8-K as filed on December 1, 2009. |
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* |
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Confidential treatment has been requested for portions of this exhibit. Portions of this document
have been omitted and submitted separately to the Securities and Exchange Commission. |
77
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.
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LIONS GATE ENTERTAINMENT CORP.
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By: |
/s/ James Keegan
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Name: |
James Keegan |
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Title: Duly Authorized Officer and Chief Financial Officer |
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Date: February 9, 2010
78