UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

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

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

Commission File No.: 1-14880

Lions Gate Entertainment Corp.

British Columbia, Canada		N/A
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		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)

     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 þ 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. (Check one):

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

     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 registrant’s classes of common stock, as of the latest practicable date.

Title of Each Class		Outstanding at February 1, 2011
Common Shares, no par value per share		136,740,665 shares

 

 

TABLE OF CONTENTS

Item		Page
PART I — FINANCIAL INFORMATION
1. Financial Statements			4
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			40
3. Quantitative and Qualitative Disclosures About Market Risk			75
4. Controls and Procedures			76
PART II — OTHER INFORMATION
1. Legal Proceedings			78
1A. Risk Factors			79
2. Unregistered Sales of Equity Securities and Use of Proceeds			80
3. Defaults Upon Senior Securities			80
4. Removed and Reserved			80
5. Other Information			80
6. Exhibits			80
EX-3.2
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

FORWARD-LOOKING STATEMENTS

     This report contains statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “may,” “intend,” “will,” “could,” “would,” “expect,” “anticipate,” “potential,” “believe,” “estimate,” “plan,” “project,” “forecast,” or the negative of these terms, as applicable, and similar expressions intended to identify forward-looking statements.

     These forward-looking statements are not guarantees of future performance — they 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 new information, future revisions, events or otherwise, to any forward-looking statements to reflect events or circumstances occurring after the date of this report.

     Our actual results of operations, financial condition and liquidity and the development of the industry in which we operate may differ materially and adversely from what is expressed or forecasted 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 and notes, 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 under the heading “Risk Factors” found in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on June 1, 2010, which risk factors are incorporated herein by reference, as updated by the risk factors found under Part II Item 1A. Risk Factors herein. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods.

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

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

		December 31,				March 31,
		2010				2010
		(Amounts in thousands,
		except share amounts)
ASSETS
Cash and cash equivalents		$	69,578			$	69,242
Restricted cash			19,322				4,123
Restricted investments			—				6,995
Accounts receivable, net of reserve for returns and allowances of $84,357 (March 31, 2010 - $87,978) and provision for doubtful accounts of $7,685 (March 31, 2010 - $7,676)			400,001				292,924
Investment in films and television programs, net			682,775				661,105
Property and equipment, net			10,020				12,414
Equity method investments			159,212				179,071
Goodwill			239,254				239,254
Other assets			49,457				62,027
Total assets		$	1,629,619			$	1,527,155
LIABILITIES
Senior revolving credit facility		$	224,250			$	17,000
Senior secured second-priority notes			226,005				225,155
Accounts payable and accrued liabilities			269,873				253,745
Participations and residuals			281,605				302,677
Film obligations and production loans			278,347				351,769
Subordinated notes and other financing obligations			108,740				192,036
Deferred revenue			164,180				130,851
Total liabilities			1,553,000				1,473,233
Commitments and contingencies
SHAREHOLDERS’ EQUITY
Common shares, no par value, 500,000,000 shares authorized, 136,713,477 and 117,951,754 shares issued at December 31, 2010 and March 31, 2010, respectively			641,471				521,164
Accumulated deficit			(560,375	)			(460,631	)
Accumulated other comprehensive loss			(4,477	)			(6,611	)
Total shareholders’ equity			76,619				53,922
Total liabilities and shareholders’ equity		$	1,629,619			$	1,527,155

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		December 31,				December 31,				December 31,				December 31,
		2010				2009				2010				2009
		(Amounts in thousands, except per share amounts)
Revenues		$	422,905			$	342,584			$	1,205,805			$	1,087,859
Expenses:
Direct operating			204,691				200,265				600,480				600,298
Distribution and marketing			158,978				156,371				461,480				339,951
General and administration			35,938				30,215				134,335				97,766
Depreciation and amortization			1,409				2,322				4,485				10,616
Total expenses			401,016				389,173				1,200,780				1,048,631
Operating income (loss)			21,889				(46,589	)			5,025				39,228
Other expenses (income):
Interest expense
Contractual cash based interest			9,974				7,464				29,679				17,588
Amortization of debt discount and deferred financing costs			3,389				6,081				12,056				15,764
Total interest expense			13,363				13,545				41,735				33,352
Interest and other income			(329	)			(413	)			(1,082	)			(1,207	)
Loss (gain) on extinguishment of debt			—				1,783				14,505				(5,675	)
Total other expenses, net			13,034				14,915				55,158				26,470
Income (loss) before equity interests and income taxes			8,855				(61,504	)			(50,133	)			12,758
Equity interests loss			(13,144	)			(5,509	)			(45,566	)			(9,701	)
Income (loss) before income taxes			(4,289	)			(67,013	)			(95,699	)			3,057
Income tax provision (benefit)			1,728				(1,754	)			4,045				251
Net income (loss)		$	(6,017	)		$	(65,259	)		$	(99,744	)		$	2,806
Basic Net Income (Loss) Per Common Share		$	(0.04	)		$	(0.55	)		$	(0.77	)		$	0.02
Diluted Net Income (Loss) Per Common Share		$	(0.04	)		$	(0.55	)		$	(0.77	)		$	0.02
Weighted average number of common shares outstanding:
Basic			136,661				117,745				129,338				117,381
Diluted			136,661				117,745				129,338				117,579

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

														Accumulated
														Other
		Common Shares								Accumulated				Comprehensive				Comprehensive
		Number				Amount				Deficit				Loss				Loss				Total
		(Amounts in thousands, except share amounts)
Balance at March 31, 2010			117,951,754			$	521,164			$	(460,631	)		$	(6,611	)						$	53,922
Stock based compensation, net of withholding tax obligations of $12,919			2,413,635				13,473																13,473
Issuance of common shares to directors for services			111,783				811																811
Conversion of $63,709 (principal) of October 2004 2.9375% Notes (see Note 10)			10,355,299				67,620																67,620
Conversion of $36,009 (principal) of February 2005 3.625% Notes (see Note 10)			5,881,006				38,403																38,403
Comprehensive loss
Net loss											(99,744	)						$	(99,744	)			(99,744	)
Foreign currency translation adjustments															2,312				2,312				2,312
Net unrealized loss on foreign exchange contracts															(178	)			(178	)			(178	)
Comprehensive loss																		$	(97,610	)
Balance at December 31, 2010			136,713,477			$	641,471			$	(560,375	)		$	(4,477	)						$	76,619

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Nine Months				Nine Months
		Ended				Ended
		December 31,				December 31,
		2010				2009
		(Amounts in thousands)
Operating Activities:
Net income (loss)		$	(99,744	)		$	2,806
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation of property and equipment			3,595				6,172
Amortization of intangible assets			890				4,444
Amortization of films and television programs			400,583				409,904
Amortization of debt discount and deferred financing costs			12,056				15,764
Non-cash stock-based compensation			26,391				11,741
Loss (gain) on extinguishment of debt			14,505				(5,675	)
Equity interests loss			45,566				9,701
Changes in operating assets and liabilities:
Restricted cash			(18,699	)			9,350
Accounts receivable, net			(105,039	)			(23,605	)
Investment in films and television programs			(421,148	)			(438,020	)
Other assets			(1,458	)			2,411
Accounts payable and accrued liabilities			32,375				(31,717	)
Participations and residuals			(21,169	)			(85,802	)
Film obligations			(17,572	)			(20,019	)
Deferred revenue			33,232				(5,513	)
Net Cash Flows Used In Operating Activities			(115,636	)			(138,058	)
Investing Activities:
Purchases of restricted investments			(13,993	)			(13,994	)
Proceeds from the sale of restricted investments			20,989				13,985
Buy-out of the earn-out associated with the acquisition of Debmar-Mercury, LLC			(15,000	)			—
Investment in equity method investees			(24,677	)			(41,342	)
Increase in loans receivable			—				(362	)
Repayment of loans receivable			8,113				8,333
Purchases of property and equipment			(1,187	)			(2,574	)
Net Cash Flows Used In Investing Activities			(25,755	)			(35,954	)
Financing Activities:
Tax withholding requirements on equity awards			(12,919	)			(1,733	)
Proceeds from the issuance of mandatorily redeemable preferred stock units and common stock units related to the sale of 49% interest in TV Guide Network, net of unrestricted cash deconsolidated			—				109,776
Borrowings under senior revolving credit facility			481,750				170,000
Repayments of borrowings under senior revolving credit facility			(274,500	)			(413,000	)
Borrowings under individual production loans			100,203				134,587
Repayment of individual production loans			(143,297	)			(111,885	)
Production loan borrowings under Pennsylvania Regional Center credit facility			—				57,000
Production loan borrowings under film credit facility			17,721				32,217
Production loan repayments under film credit facility			(31,507	)			—
Decrease in restricted cash collateral requirement under the film credit facility			3,087				—
Proceeds from sale of senior secured second-priority notes			—				216,232
Repurchase of subordinated notes			—				(75,185	)
Repayment of other financing obligations			—				(134	)
Net Cash Flows Provided By Financing Activities			140,538				117,875
Net Change In Cash And Cash Equivalents			(853	)			(56,137	)
Foreign Exchange Effects on Cash			1,189				2,352
Cash and Cash Equivalents — Beginning Of Period			69,242				138,475
Cash and Cash Equivalents — End Of Period		$	69,578			$	84,690

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. General

     Nature of Operations

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

     Basis of Presentation

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

     The unaudited condensed consolidated financial statements have been prepared in accordance with United States (the “U.S.”) accounting principles generally accepted (“GAAP”) for interim financial information and the instructions to quarterly report on Form 10-Q under the Securities Exchange Act, and Article 10 of Regulation S-X under the Exchange Act. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been reflected in these unaudited condensed consolidated financial statements. Operating results for the three and nine months ended December 31, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ended March 31, 2011. The balance sheet at March 31, 2010 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read together with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2010.

     As a result of a new consolidation accounting standard adopted April 1, 2010 (discussed below under Recent Accounting Pronouncements), prior year amounts presented for fiscal 2010 have been reclassified to conform to the fiscal 2011 presentation.

     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

     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”). Under this new guidance, the primary beneficiary of a VIE is 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 entity’s 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 VIE’s economic performance, then no party is the primary beneficiary. Power is shared if each of the parties sharing power is required to consent to the decisions relating to the activities that most significantly impact the VIE’s performance. The provisions of this standard became effective for the Company beginning in fiscal 2011.

     Upon adoption of the new accounting standard, on April 1, 2010, the Company determined that it was no longer the primary beneficiary of TV Guide Network and TV Guide.com (collectively “TV Guide Network”) because, pursuant to the operating agreement of the entity, the power to direct the activities that most significantly impact the economic performance of TV Guide Network are shared with the 49% owner of TV Guide Network, One Equity Partners (“OEP”). Accordingly, upon adoption of the new accounting standard, the Company is no longer consolidating TV Guide Network and instead is accounting for TV Guide Network under the equity method of accounting.

     The Company has applied the provisions of the new accounting standard retrospectively and accordingly, the Company deconsolidated TV Guide Network from May 28, 2009, the date the Company sold a 49% interest to OEP, and retrospectively adjusted the financial statements to reflect TV Guide Network as if it were accounted for under the equity method of accounting since that date. The deconsolidation of TV Guide Network resulted in the reclassification of $305.4 million of assets, $147.3 million of liabilities and $30.0 million of non-controlling interest amounts from each of their respective consolidated balance sheet captions to the investment in equity method investee’s account as of March 31, 2010, reflecting the carrying amount of the Company’s interest in the mandatorily redeemable preferred and common stock units of TV Guide Network as of March 31, 2010. In addition, under the equity method of accounting, the Company’s share of the revenues and expenses of TV Guide Network and income for the accretion of the dividend and discount of the mandatorily redeemable preferred stock are recorded net in the equity interest line item in the consolidated statements of operations. The adoption of the new accounting standard did not impact the Company’s net loss for the year ended March 31, 2010. See Note 4 and Note 12 for further detail regarding the TV Guide Network.

2. Restricted Cash and Restricted Investments

     Restricted Cash. Restricted cash represents amounts held as collateral required under our revolving film credit facility, amounts that are contractually designated for certain theatrical marketing obligations, and approximately $15.8 million held in a trust to fund the Company’s cash severance obligations that would be due to certain executive officers should their employment be terminated “without cause” (as defined), in connection with a “change in control” of the Company, (as defined in each of their respective employment contracts). For purposes of the employment agreements with such executive officers, a “change in control” occurred on June 30, 2010 when a certain shareholder became the beneficial owner of 33% or more of the Company’s common shares. Accordingly, the trust became irrevocable, and the Company may not withdraw any trust assets (other than once every six months in an amount that the trustee reasonably determines exceeds the remaining potential severance obligations), until any cash severance obligations that have become payable to the executives have been paid or the employment agreements with the executives expire or terminate without those obligations becoming payable.

     Restricted Investments. Restricted investments, which are measured at fair value, represent amounts that are contractually designated as collateral for certain production loans pursuant to an escrow agreement. The carrying amount of this restricted investment is equal to its respective fair value as of March 31, 2010. At March 31, 2010, the restricted investment consisted of approximately $7.0 million of United States Treasury Bills bearing an interest rate of 0.198%, which matured on November 4, 2010.

3. Investment in Films and Television Programs

		December 31,				March 31,
		2010				2010
		(Amounts in thousands)
Motion Picture Segment — Theatrical and Non-Theatrical Films
Released, net of accumulated amortization		$	259,226			$	212,582
Acquired libraries, net of accumulated amortization			34,943				43,374
Completed and not released			51,979				49,338
In progress			146,663				198,743
In development			14,530				10,730
Product inventory			38,767				38,291
			546,108				553,058
Television Segment — Direct-to-Television Programs
Released, net of accumulated amortization			98,266				80,557
In progress			35,684				24,198
In development			2,717				3,292
			136,667				108,047
		$	682,775			$	661,105

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

					Total				Remaining			Unamortized Costs				Unamortized Costs
					Amortization				Amortization			December 31,				March 31,
Acquired Library		Acquisition Date			Period				Period			2010				2010
				(In years)								(Amounts in thousands)
Trimark Holdings		October 2000			20.00				9.75			$	3,635			$	4,589
Artisan Entertainment		December 2003			20.00				13.00				30,615				36,836
Modern Entertainment		August 2005			20.00				—				—				1,142
Lionsgate UK		October 2005			20.00				14.75				693				807
Total Acquired Libraries												$	34,943			$	43,374

     The Company expects approximately 46% of completed films and television programs, net of accumulated amortization, will be amortized during the one-year period ending December 31, 2011. 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, 2013.

4. Equity Method Investments

Equity Method Investments. The carrying amount of significant equity method investments at December 31, 2010 and March 31, 2010 were as follows:

		December 31,
		2010
		Ownership				December 31,				March 31,
Equity Method Investee		Percentage				2010				2010
						(Amounts in thousands)
Horror Entertainment, LLC (“FEARnet”)			34.5	%		$	3,275			$	630
NextPoint, Inc. (“Break.com”)			42.0	%			16,006				16,698
Roadside Attractions, LLC			43.0	%			2,598				1,913
Studio 3 Partners, LLC (“EPIX”)			31.2	%			9,948				31,700
TV Guide Network			51.0	%			125,211				128,130
Tiger Gate Entertainment Limited (“Tiger Gate”)			45.9	%			2,174				—
						$	159,212			$	179,071

     Equity interests in equity method investments in our unaudited condensed consolidated statements of operations represent our portion of the income or loss of our equity method investees based on our percentage ownership and the elimination of profits on sales to equity method investees. Equity interests in equity method investments for the three and nine months ended December 31, 2010 and 2009 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,
Equity Method Investee		2010				2009				2010				2009
		(Amounts in thousands)
Horror Entertainment, LLC (“FEARnet”)		$	180			$	83			$	1,144			$	(312	)
NextPoint, Inc. (“Break.com”)			(469	)			165				(692	)			(466	)
Roadside Attractions, LLC			609				(230	)			685				(327	)
Studio 3 Partners, LLC (“EPIX”)			(11,112	)			(6,921	)			(42,929	)			(9,443	)
TV Guide Network			(1,959	)			1,394				(2,918	)			847
Tiger Gate Entertainment Limited (“Tiger Gate”)			(393	)			—				(856	)			—
		$	(13,144	)		$	(5,509	)		$	(45,566	)		$	(9,701	)

     Horror Entertainment, LLC. Horror Entertainment, LLC (“FEARnet”), a multiplatform programming and content service provider of horror genre films operating under the branding of “FEARnet.” The Company licenses content to FEARnet for video-on-demand and broadband exhibition. The Company is recording its share of the FEARnet results on a one quarter lag and, accordingly, during the three and nine months ended December 31, 2010, the Company recorded its share of the income earned by FEARnet for the three and nine months ended September 30, 2010. The Company funded an additional $1.5 million during the nine months ended December 31, 2010.

     NextPoint, Inc. 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 Company’s 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 Company’s 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 three and nine months ended December 31, 2010, the Company recorded its share of losses incurred by Break.com for the three and nine months ended September 30, 2010.

     Roadside Attractions, LLC. 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 three and nine months ended December 31, 2010, the Company recorded its share of income earned by Roadside for the three and nine months ended September 30, 2010.

     Studio 3 Partners, LLC (“EPIX”). In April 2008, the Company formed a joint venture with Viacom Inc. (“Viacom”), its Paramount Pictures unit (“Paramount Pictures”) and Metro-Goldwyn-Mayer Studios Inc. (“MGM”) to create a premium television channel and subscription video-on-demand service named “EPIX”. The Company has invested $80.4 million through December 31, 2010, including $0.6 million funded during the nine months ended December 31, 2010. The Company is recording its share of the joint venture results on a one quarter lag and, accordingly, during the three and nine months ended December 31, 2010, the Company recorded its share of the loss incurred by the joint venture for the three and nine months ended September 30, 2010.

     The Company licenses certain of its theatrical releases and other films and television programs to EPIX. A portion of the profits of these licenses reflecting the Company’s ownership share in the venture are eliminated through an adjustment to the equity interest loss of the venture. These profits are recognized as they are realized by the venture. For the three months ended December 31, 2010, the Company recognized $18.3 million of revenue and $15.0 million of gross profit on the sale of licenses to EPIX. For the nine months ended December 31, 2010, the Company recognized $58.2 million of revenue and $35.6 million of gross profit on the sale of licenses to EPIX. EPIX expects to report net income of approximately $18 million for its quarter ended December 31, 2010, of which the Company’s pro rata share will be recorded in the quarter ended March 31, 2011.

     The following table presents the summarized statement of operations for the three and nine months ended September 30, 2010 and 2009 for EPIX and a reconciliation of the net loss reported by EPIX to equity interest loss recorded by the Company:

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		September 30,				September 30,				September 30,				September 30,
		2010				2009				2010				2009
		(Amounts in thousands)
Revenues		$	37,741			$	—			$	46,955			$	—
Expenses:
Programming expenses			52,158				—				133,539				—
Other operating expenses			11,673				5,539				29,174				14,323
Operating loss			(26,090	)			(5,539	)			(115,758	)			(14,323	)
Interest income (expense)			49				(8	)			8				(41	)
Net loss		$	(26,041	)		$	(5,547	)		$	(115,750	)		$	(14,364	)
Reconciliation of net loss reported by EPIX to equity interest loss:
Net loss reported by EPIX		$	(26,041	)		$	(5,547	)		$	(115,750	)		$	(14,364	)
Ownership interest in EPIX			31.15	%			28.60	%			31.15	%			28.60	%
Share of net loss			(8,112	)			(1,586	)			(36,056	)			(4,108	)
Elimination of the Company’s share of profits on sales to EPIX			(4,671	)			(5,335	)			(11,138	)			(5,335	)
Realization of the Company’s share of profits on sales to EPIX			1,671				—				4,265				—
Total equity interest loss recorded		$	(11,112	)		$	(6,921	)		$	(42,929	)		$	(9,443	)

     TV Guide Network. The Company’s investment balance consists of common share units of $16.3 million and mandatorily redeemable preferred stock units of $108.9 million. On February 28, 2009, the Company purchased all of the issued and outstanding equity interests of TV Guide Network. The Company paid approximately $241.6 million for all of the equity interest of TV Guide Network. On May 28, 2009, the Company sold 49% of the Company’s interest in TV Guide Network (see Note 12).

     The February 28, 2009 acquisition was accounted for as a purchase, with the results of operations of TV Guide Network included in the Company’s consolidated results from February 28, 2009 through May 27, 2009 when a portion of the entity was sold. Subsequent to the sale of TV Guide Network, and pursuant to the new accounting guidance on accounting for VIEs effective April 1, 2010 which the Company has retrospectively applied, the Company’s interest in TV Guide Network is being accounted for under the equity method of accounting. Accordingly, the Company’s portion of the loss incurred by TV Guide Network for the three and nine months ended December 31, 2010 and the period from May 28, 2009 through December 31, 2009 is reflected in equity interest loss.

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

     The Company licenses certain films and/or television programs to TV Guide Network. A portion of the profits of these licenses reflecting the Company’s ownership share in the venture are eliminated through an adjustment to the equity interest loss of the venture. These profits are recognized as they are realized by the venture. For the three months ended December 31, 2010, the Company recognized $9.7 million of revenue and $3.7 million of gross profit on the sale of licenses to TV Guide Network. For the nine months ended December 31, 2010, the Company recognized $14.2 million of revenue and $5.4 million of gross profit on the sale of licenses to TV Guide Network.

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

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		December 31,				December 31,				December 31,				December 31,
		2010				2009				2010				2009 (1)
		(Amounts in thousands)
Revenues		$	28,847			$	29,892			$	85,953			$	67,015
Expenses:
Direct operating			8,611				8,722				24,605				20,012
Distribution and marketing			4,747				4,545				14,499				8,912
General and administration			11,441				9,356				34,061				25,376
Depreciation and amortization			3,876				4,363				11,883				10,471
Operating income			172				2,906				905				2,244
Interest expense			509				191				1,372				452
Accretion of redeemable preferred stock units (2)			7,057				6,169				20,479				14,206
Interest income			(10	)			(7	)			(31	)			(21	)
Loss before income taxes			(7,384	)			(3,447	)			(20,915	)			(12,393	)
Income tax provision			19				2				83				8
Net loss		$	(7,403	)		$	(3,449	)		$	(20,998	)		$	(12,401	)
Reconciliation of net loss reported by TV Guide Network to equity interest income (loss):
Net loss reported by TV Guide Network		$	(7,403	)		$	(3,449	)		$	(20,998	)		$	(12,401	)
Ownership interest in TV Guide Network			51	%			51	%			51	%			51	%
Share of net loss			(3,776	)			(1,759	)			(10,709	)			(6,325	)
Accretion of dividend and interest income on redeemable preferred stock units (2)			3,599				3,146				10,444				7,245
Elimination of the Company’s share of profits on sales to TV Guide Network			(1,876	)			7				(2,747	)			(73	)
Realization of the Company’s share of profits on sales to TV Guide Network			94				—				94				—
Total equity interest income (loss) recorded		$	(1,959	)		$	1,394			$	(2,918	)		$	847

     Tiger Gate Entertainment Limited. Tiger Gate Entertainment Limited is an operator of pay television channels and a distributor of television programming and action and horror films across Asia. The Company is recording its share of the joint venture results on a one quarter lag and, accordingly, during the three and nine months ended December 31, 2010, the Company recorded its share of the loss incurred by the joint venture for the three and nine months ended September 30, 2010.

5. Other Assets

     The composition of the Company’s other assets is as follows as of December 31, 2010 and March 31, 2010:

		December 31,				March 31,
		2010				2010
		(Amounts in thousands)
Deferred financing costs, net of accumulated amortization		$	16,543			$	19,460
Prepaid expenses and other			15,084				16,471
Loans receivable			17,830				26,096
		$	49,457			$	62,027

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

Prepaid Expenses and Other. Prepaid expenses and other primarily include prepaid expenses, security deposits, and finite-lived intangible assets.

Loans Receivable. The following table sets forth the Company’s loans receivable at December 31, 2010 and March 31, 2010:

		Interest				December 31,				March 31,
		Rate				2010				2010
						(Amounts in thousands)
Third-party producer			3.05%			$	9,468			$	17,147
NextPoint, Inc. (“Break.com”)			5.30% - 20.0%				8,362				7,891
Other			3.49%				—				1,058
						$	17,830			$	26,096

6. Senior Revolving Credit Facility

     Outstanding Amount. At December 31, 2010, the Company had borrowings of $224.3 million (March 31, 2010 — $17.0 million).

     Availability of Funds. At December 31, 2010, there was $100.6 million available (March 31, 2010 — $297.4 million). The senior revolving credit facility provides for borrowings and letters of credit up to an aggregate of $340 million. The availability of funds is limited by a borrowing base and also reduced by outstanding letters of credit which amounted to $15.1 million at December 31, 2010 (March 31, 2010 — $25.6 million).

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

     Interest. As of December 31, 2010, the senior revolving credit facility bore interest of 2.5% over the “Adjusted LIBOR” rate (effective interest rate of 2.76% and 2.75% as of December 31, 2010 and March 31, 2010, respectively).

     Commitment Fee. 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.

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

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

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

7. Senior Secured Second-Priority Notes

     On October 21, 2009, Lions Gate Entertainment Inc. (“LGEI”), the Company’s wholly-owned subsidiary, issued $236.0 million aggregate principal amount of senior secured second-priority notes due 2016 (the “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”).

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

		December 31,				March 31,
		2010				2010
		(Amounts in thousands)
Principal amount of Senior Secured Second-Priority Notes		$	236,000			$	236,000
Unamortized discount (remaining period as of December 31, 2010 of 5.8 years )			(9,995	)			(10,845	)
Net carrying amount of Senior Secured Second-Priority Notes		$	226,005			$	225,155

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

     Original Issue Discount. The Senior Notes were issued by LGEI at an initial price of 95.222% (original issue discount — 4.778%) of the principal amount. The original issue discount, interest and deferred financing costs are being amortized through November 1, 2016 using the effective interest method.

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

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

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

8. Participations and Residuals

     The Company expects approximately 80% of accrued participations and residuals will be paid during the one-year period ending December 31, 2011.

     Theatrical Slate Participation

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

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

     At December 31, 2010, $20.9 million (March 31, 2010, $24.1 million) was payable to Pride and is included in participations and residuals in the unaudited condensed consolidated balance sheets.

     Société Générale de Financement du Québec Filmed Entertainment Participation

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

     Amounts provided from SGF are reflected as a participation liability. The difference between the ultimate participation expected to be paid to SGF and the amount provided by SGF is amortized as a charge to or a reduction of participation expense under the individual film forecast method. At December 31, 2010, $6.6 million (March 31, 2010, $7.2 million) was payable to SGF and is included in participations and residuals in the unaudited condensed consolidated balance sheets. Under the terms of the arrangement, $35 million is available through July 30, 2011. Of the $35 million available through July 30, 2011, $5.3 million was provided through December 31, 2010, with the remaining commitment expiring on July 30, 2011.

9. Film Obligations and Production Loans

		December 31,				March 31,
		2010				2010
		(Amounts in thousands)
Film obligations		$	23,233			$	40,267
Production loans
Individual production loans			167,164				210,021
Pennsylvania Regional Center production loans			66,002				65,746
Film Credit Facility			21,948				35,735
Total film obligations and production loans			278,347				351,769
Less film obligations and production loans expected to be paid by March 31, 2011			(49,362	)			(227,100	)
Film obligations and production loans expected to be paid after March 31, 2011		$	228,985			$	124,669

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

		Three Months
		Ended
		March 31,				Year Ended March 31,
		2011				2012				2013				2014				2015				Thereafter				Total
		(Amounts in thousands)
Future annual repayment of Film Obligations and Production Loans recorded as of December 31, 2010
Film obligations		$	23,233			$	—			$	—			$	—			$	—			$	—			$	23,233
Production loans
Individual production loans			14,988				137,176				—				15,000				—				—				167,164
Pennsylvania Regional Center production loans			—				—				—				66,002				—				—				66,002
Film Credit Facility			11,141				10,807				—				—				—				—				21,948
		$	49,362			$	147,983			$	—			$	81,002			$	—			$	—			$	278,347

Film Obligations

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

Individual Production Loans

     Production loans represent individual loans for the production of film and television programs that the Company produces. Individual production loans have contractual repayment dates either at or near the expected completion date, with the exception of

certain loans containing repayment dates on a longer term basis. Individual production loans of $107.2 million incur interest at rates ranging from 3.45% to 4.25%, and approximately $60.0 million of production loans are non-interest bearing.

Pennsylvania Regional Center

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

     Outstanding Amount. At December 31, 2010, the Company had borrowings of $66.0 million (fair value — $61.5 million) which includes accrued interest of $0.5 million (March 31, 2010 — $65.7 million (fair value — $60.3 million) which includes accrued interest of $0.2 million).

     Availability of Funds. At December 31, 2010, there were no amounts available under this agreement (March 31, 2010 — nil).

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

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

     Security. The loan is secured by a first priority security interest in the Company’s film library pursuant to an intercreditor agreement with the Company’s senior lender under the Company’s senior revolving credit facility. Pursuant to the terms of the Company’s senior revolving credit facility, the Company is required to maintain certain collateral equal to the loans outstanding plus 5% under this facility. Such collateral can consist of cash, cash equivalents or debt securities, including the Company’s subordinated debt repurchased. As of December 31, 2010, $72.8 million principal value (fair value — $71.0 million) of the Company’s subordinated debt repurchased in December 2009 (see Note 10) was held as collateral under the Company’s senior revolving credit facility (March 31, 2010 — $72.8 million principal value, $69.5 million fair value).

Film Credit Facility

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

     Outstanding Amount. At December 31, 2010, the Company had borrowings of $21.9 million (March 31, 2010 — $35.7 million).

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

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

     Interest. As of December 31, 2010, the Film Credit Facility bore interest of 3.25% over the “LIBO” rate (as defined in the credit agreement). The weighted average interest rate on borrowings outstanding as of December 31, 2010 was 3.51% (March 31, 2010 — 3.50%).

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

     Security. Borrowings under the Film Credit Facility are subject to a borrowing base calculation and are secured by interests in the related motion pictures, together with certain other receivables from other motion picture and television productions pledged by

the Company, including a minimum pledge of such receivables of $25 million. Receivables pledged to the Film Credit Facility must be excluded from the borrowing base calculation under the Company’s senior revolving credit facility, as described in Note 6.

10. Subordinated Notes and Other Financing Obligations

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

     Outstanding Amount. The following table sets forth the subordinated notes and other financing obligations outstanding at December 31, 2010 and March 31, 2010:

		December 31, 2010
						Unamortized				Net Carrying
		Principal				Discount				Amount
		(Amounts in thousands)
Convertible Senior Subordinated Notes
October 2004 2.9375% (Equity Component $48,080)		$	46,326			$	(2,334	)		$	43,992
February 2005 3.625% (Equity Component $50,855)			23,470				(1,709	)			21,761
April 2009 3.625% (Equity Component $16,085)			66,581				(27,312	)			39,269
		$	136,377			$	(31,355	)			105,022
Other financing obligations											3,718
										$	108,740

		March 31, 2010
						Unamortized				Net Carrying
		Principal				Discount				Amount
		(Amounts in thousands)
Convertible Senior Subordinated Notes
October 2004 2.9375% (Equity Component $48,080)		$	110,035			$	(10,564	)		$	99,471
February 2005 3.625% (Equity Component $50,855)			59,479				(6,804	)			52,675
April 2009 3.625% (Equity Component $16,085)			66,581				(30,409	)			36,172
		$	236,095			$	(47,777	)			188,318
Other financing obligations											3,718
										$	192,036

     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, 2010 and 2009 are presented below.

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		December 31,				December 31,				December 31,				December 31,
		2010				2009				2010				2009
		(Amounts in thousands)
October 2004 2.9375% Convertible Senior Subordinated Notes:
Effective interest rate of liability component (9.65%)
Interest Expense
Contractual interest coupon		$	340			$	868			$	1,574			$	3,071
Amortization of discount on liability component			721				2,092				3,261				6,141
Amortization of debt issuance costs			51				129				227				390
		$	1,112			$	3,089			$	5,062			$	9,602
February 2005 3.625% Convertible Senior Subordinated Notes:
Effective interest rate of liability component (10.03%)
Interest Expense
Contractual interest coupon		$	213			$	497			$	1,025			$	2,426
Amortization of discount on liability component			330				1,393				1,572				4,304
Amortization of debt issuance costs			25				75				109				246
		$	568			$	1,965			$	2,706			$	6,976
April 2009 3.625% Convertible Senior Subordinated Notes:
Effective interest rate of liability component (17.26%)
Interest Expense
Contractual interest coupon		$	603			$	604			$	1,810			$	1,683
Amortization of discount on liability component			1,073				902				3,097				2,305
Amortization of debt issuance costs			4				2				10				5
		$	1,680			$	1,508			$	4,917			$	3,993

Subordinated Notes Transactions

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

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

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

     December 2009 Repurchase of a Portion of October 2004 2.9375% Notes and February 2005 3.625% Notes: 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 $37.7 million to repurchase $39.9 million of aggregate principal amount (carrying value — $35.0 million) of the February 2005 3.625% Notes. The Company recorded a loss on extinguishment in the quarter ended December 31, 2009 of $1.7 million, which includes $0.7 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 and February 2005 3.625% Notes, repurchased over their carrying values, plus the deferred financing costs written off. The excess of the amounts paid over the fair values of the October 2004 2.9375% Notes and February 2005 3.625% Notes repurchased, was recorded as a reduction of shareholders’ equity reflecting the repurchases of the equity components of the October 2004 2.9375% Notes and February 2005 3.625% Notes repurchased.

     The October 2004 2.9375% Notes and February 2005 3.625% Notes repurchased in December 2009 are being held as collateral under the Company’s senior revolving credit facility and may be resold at the prevailing market value.

     April 20, 2009 Refinancing Exchange of a Portion of February 2005 3.625% Notes: On April 20, 2009, LGEI entered into Refinancing Exchange Agreements (the “2009 Refinancing Exchange Agreements”) with certain existing holders of the February 2005 3.625% Notes. Pursuant to the terms of the 2009 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 during the quarter ended June 30, 2009. The gain represented the excess of the carrying value of the liability component of the February 2005 3.625% Notes over the fair value, net of the deferred financing costs written off. 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 2008 Repurchase of a Portion of February 2005 3.625% Notes: 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 during the quarter ended December 31, 2008, 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.

Subordinated Notes Terms

     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”).

     Outstanding Amount: As of December 31, 2010, $46.3 million of aggregate principal amount (carrying value — $44.0 million) of the October 2004 2.9375% Notes remain outstanding.

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

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

     Redeemable by LGEI: From October 15, 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 Company’s common shares prior to maturity only if the price of the Company’s common shares issuable upon conversion of a note reaches or falls below a certain

specific threshold over a specified period, the notes have been called for redemption, a change in control occurs or certain other corporate transactions occur. Before the close of business on or prior to the trading day immediately before the maturity date, the holder may convert the notes into the Company’s common shares at a conversion rate equal to 86.9565 shares per $1,000 principal amount of the October 2004 2.9375% Notes, subject to adjustment in certain circumstances, which represents a conversion price of approximately $11.50 per share. Upon conversion of the October 2004 2.9375% Notes, the Company has the option to deliver, in lieu of common shares, cash or a combination of cash and common shares of the Company.

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

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

     Outstanding Amount: As of December 31, 2010, $23.5 million of aggregate principal amount (carrying value — $21.8 million) of the February 2005 3.625% Notes remain outstanding.

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

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

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

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

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

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

     April 2009 3.625% Notes. 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”).

     Outstanding Amount: As of December 31, 2010, $66.6 million of aggregate principal amount (carrying value — $39.3 million) of the April 2009 3.625% Notes remain outstanding.

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

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

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

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

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

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

     The following table sets forth future three-month and annual contractual principal payment commitments under convertible senior subordinated notes as of December 31, 2010:

		Three Months
		Ended
		March 31,		Year Ended March 31,
		2011				2012				2013				2014				2015				Thereafter				Total
		(Amounts in thousands)
Future annual repayment of Convertible Senior Subordinated Notes recorded as of December 31, 2010 (1)
October 2004 2.9375% Notes		$	—			$	46,326			$	—			$	—			$	—			$	—			$	46,326
February 2005 3.625% Notes			—				23,470				—				—				—				—				23,470
April 2009 3.625% Notes			—				—				—				—				66,581				—				66,581
		$	—			$	69,796			$	—			$	—			$	66,581			$	—			$	136,377

     Other Financing Obligations

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

11. Fair Value Measurements

     Fair Value

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

     Fair Value Hierarchy

     Accounting guidance and standards about fair value establish a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization

within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The accounting guidance and standards establish three levels of inputs that may be used to measure fair value:

	•		Level 1 — Quoted prices in active markets for identical assets or liabilities.
	•		Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 liabilities that are measured at fair value on a recurring basis include the Company’s senior revolving credit facility 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 Company’s outstanding debt at December 31, 2010:

		Carrying Value				Fair Value
						(Level 2)
		(Amounts in thousands)
Senior revolving credit facility		$	224,250			$	224,250
October 2004 2.9375% Convertible Senior Subordinated Notes			43,992				45,393
February 2005 3.625% Convertible Senior Subordinated Notes			21,761				22,921
April 2009 3.625% Convertible Senior Subordinated Notes			39,269				54,960
Senior Secured Second-Priority Notes			226,005				240,425
		$	555,277			$	587,949

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

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

          The February 28, 2009 acquisition was accounted for as a purchase, with the results of operations of TV Guide Network included in the Company’s consolidated results from February 28, 2009 through May 27, 2009 when a portion of the entity was sold. Subsequent to the sale of TV Guide Network, and pursuant to the new accounting guidance on accounting for VIEs effective April 1, 2010, which the Company has retrospectively applied, the Company’s interest in TV Guide Network is being accounted for under the equity method of accounting (see Note 4).

          The final allocation of the February 28, 2009 acquisition purchase price to the assets acquired and liabilities assumed was recorded in the separate financial statements of TV Guide Network and was 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