Lions Gate Entertainment Corp.
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
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For the quarterly period ended
December 31, 2006
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
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For the transition period
from to
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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
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N/A
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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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 is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act.
Large accelerated
Filer þ Accelerated
Filer o Non-accelerated
Filer o
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
issuers 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, 2007
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Common Shares, no par value per
share
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116,755,446 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,
expects, believe, estimate,
or the negative of these terms, and similar expressions intended
to identify forward-looking statements.
These forward-looking statements reflect our 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 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 under the heading Risk Factors in our
Annual Report on
Form 10-K
filed with the Securities and Exchange Commission
(SEC) on June 14, 2006, which risk factors are
incorporated herein by reference.
2
PART I
FINANCIAL INFORMATION
Item 1. Financial
Statements.
LIONS
GATE ENTERTAINMENT CORP.
CONDENSED
CONSOLIDATED BALANCE SHEETS
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December 31,
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March 31,
|
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|
|
2006
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|
2006
|
|
|
|
(Unaudited)
|
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(Note 1)
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|
(Amounts in thousands, except share amounts)
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|
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ASSETS
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Cash and cash equivalents
|
|
$
|
39,473
|
|
|
$
|
46,978
|
|
Restricted cash
|
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9,970
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|
|
|
820
|
|
Investments auction
rate securities
|
|
|
206,643
|
|
|
|
167,081
|
|
Investments equity
securities
|
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|
14,080
|
|
|
|
14,921
|
|
Accounts receivable, net of
reserve for video returns and allowances of $71,252
(March 31, 2006 $73,366) and provision for
doubtful accounts of $9,455 (March 31, 2006
$10,934)
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|
117,040
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|
|
|
182,659
|
|
Investment in films and television
programs
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|
535,452
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417,750
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Property and equipment
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13,319
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|
7,218
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Goodwill
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197,805
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185,117
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Other assets
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23,869
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30,705
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|
|
|
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$
|
1,157,651
|
|
|
$
|
1,053,249
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|
|
|
|
|
|
|
|
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LIABILITIES
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Accounts payable and accrued
liabilities
|
|
$
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168,391
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$
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188,793
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|
Unpresented bank drafts
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|
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|
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14,772
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|
Participation and residuals
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170,710
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164,326
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Film obligations
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194,359
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120,661
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Subordinated notes
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|
325,000
|
|
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|
385,000
|
|
Deferred revenue
|
|
|
81,184
|
|
|
|
30,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
939,644
|
|
|
|
903,979
|
|
|
|
|
|
|
|
|
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Commitments and contingencies
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|
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SHAREHOLDERS
EQUITY
|
Common shares, no par value,
500,000,000 shares authorized, 116,750,808 at
December 31, 2006 and 104,422,765 at March 31,
2006 shares issued and outstanding
|
|
|
395,444
|
|
|
|
328,771
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|
Series B preferred shares
(10 shares issued and outstanding)
|
|
|
|
|
|
|
|
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Restricted share units
|
|
|
|
|
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5,178
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|
Unearned compensation
|
|
|
|
|
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(4,032
|
)
|
Accumulated deficit
|
|
|
(174,671
|
)
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|
(177,130
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)
|
Accumulated other comprehensive
loss
|
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|
(2,766
|
)
|
|
|
(3,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
218,007
|
|
|
|
149,270
|
|
|
|
|
|
|
|
|
|
|
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|
$
|
1,157,651
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|
|
$
|
1,053,249
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|
|
|
|
|
|
|
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See accompanying notes.
3
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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|
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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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|
2006
|
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2005
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2006
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2005
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|
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|
(Amounts in thousands, except per share amounts)
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|
Revenues
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|
$
|
254,531
|
|
|
$
|
229,313
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$
|
645,156
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|
$
|
633,130
|
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|
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|
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Expenses:
|
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Direct operating
|
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|
110,921
|
|
|
|
110,128
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|
|
|
274,189
|
|
|
|
318,352
|
|
Distribution and marketing
|
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|
95,803
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|
|
|
99,486
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|
|
|
296,194
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|
|
|
290,655
|
|
General and administration
|
|
|
23,347
|
|
|
|
12,887
|
|
|
|
64,307
|
|
|
|
45,229
|
|
Depreciation
|
|
|
824
|
|
|
|
416
|
|
|
|
1,949
|
|
|
|
1,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
230,895
|
|
|
|
222,917
|
|
|
|
636,639
|
|
|
|
655,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Operating Income
(Loss)
|
|
|
23,636
|
|
|
|
6,396
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|
|
|
8,517
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|
(22,454
|
)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Other Expense
(Income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
4,601
|
|
|
|
4,698
|
|
|
|
14,181
|
|
|
|
13,954
|
|
Interest rate swaps
mark-to-market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123
|
|
Interest income
|
|
|
(2,906
|
)
|
|
|
(1,046
|
)
|
|
|
(7,753
|
)
|
|
|
(2,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
1,695
|
|
|
|
3,652
|
|
|
|
6,428
|
|
|
|
11,115
|
|
Income (Loss) Before Equity
Interests and Income Taxes
|
|
|
21,941
|
|
|
|
2,744
|
|
|
|
2,089
|
|
|
|
(33,569
|
)
|
Equity interests
|
|
|
(425
|
)
|
|
|
(44
|
)
|
|
|
(802
|
)
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income
Taxes
|
|
|
21,516
|
|
|
|
2,700
|
|
|
|
1,287
|
|
|
|
(33,667
|
)
|
Income tax provision (benefit)
|
|
|
1,061
|
|
|
|
(221
|
)
|
|
|
(1,172
|
)
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before
discontinued operations
|
|
|
20,455
|
|
|
|
2,921
|
|
|
|
2,459
|
|
|
|
(33,907
|
)
|
Income from discontinued
operations, net of tax of $579 (Note 1)
|
|
|
|
|
|
|
221
|
|
|
|
|
|
|
|
1,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
20,455
|
|
|
$
|
3,142
|
|
|
$
|
2,459
|
|
|
$
|
(32,783
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Income (Loss) Per Common
Share From Continuing Operations
|
|
$
|
0.19
|
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
$
|
(0.33
|
)
|
Basic Income Per Common Share From
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Net Income (Loss) per
Common Share
|
|
$
|
0.19
|
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Per Share
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) Per Common
Share From Continuing Operations
|
|
$
|
0.17
|
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
$
|
(0.33
|
)
|
Diluted Earnings Per Common Share
From Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Net Income (Loss) per
Common Share
|
|
$
|
0.17
|
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
4
LIONS
GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B
|
|
|
Restricted
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
Other
|
|
|
|
|
|
|
Common Shares
|
|
|
Preferred Shares
|
|
|
Share
|
|
|
Unearned
|
|
|
Accumulated
|
|
|
Income
|
|
|
Comprehensive
|
|
|
|
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
Units
|
|
|
Compensation
|
|
|
Deficit
|
|
|
(Loss)
|
|
|
Loss
|
|
|
Total
|
|
|
|
(Amounts in thousands, except share amounts)
|
|
|
Balance at March 31, 2005
|
|
|
101,843,708
|
|
|
$
|
305,662
|
|
|
|
10
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(183,226
|
)
|
|
|
|
|
|
$
|
(5,297
|
)
|
|
$
|
117,139
|
|
Exercise of stock options
|
|
|
361,310
|
|
|
|
1,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,408
|
|
Issuance of common shares to
directors for services
|
|
|
20,408
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203
|
|
Impact of previously modified stock
options
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
Issuance of common shares in
connection with acquisition of film assets
|
|
|
399,042
|
|
|
|
3,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,775
|
|
Issuance of common shares in
connection with acquisition of common shares of Image
Entertainment
|
|
|
1,104,004
|
|
|
|
11,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,537
|
|
Issuance of common shares in
connection with acquisition of Redbus
|
|
|
643,460
|
|
|
|
5,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,643
|
|
Issuance of restricted share units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,694
|
|
|
|
(5,694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted share
units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,662
|
|
Vesting of restricted share units
|
|
|
50,833
|
|
|
|
516
|
|
|
|
|
|
|
|
|
|
|
|
(516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,096
|
|
|
$
|
6,096
|
|
|
|
|
|
|
|
6,096
|
|
Foreign currency translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,223
|
|
|
|
2,223
|
|
|
|
2,223
|
|
Net unrealized loss on foreign
exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(356
|
)
|
|
|
(356
|
)
|
|
|
(356
|
)
|
Unrealized loss on
investments available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87
|
)
|
|
|
(87
|
)
|
|
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2006
|
|
|
104,422,765
|
|
|
|
328,771
|
|
|
|
10
|
|
|
|
|
|
|
|
5,178
|
|
|
|
(4,032
|
)
|
|
|
(177,130
|
)
|
|
|
|
|
|
|
(3,517
|
)
|
|
|
149,270
|
|
Reclassification of unearned
compensation and restricted share common units upon adoption of
SFAS No. 123(R)
|
|
|
|
|
|
|
1,146
|
|
|
|
|
|
|
|
|
|
|
|
(5,178
|
)
|
|
|
4,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
1,097,387
|
|
|
|
3,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,280
|
|
Stock based compensation, net of
share units withholding tax obligations of $440
|
|
|
99,424
|
|
|
|
4,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,117
|
|
Issuance of common shares to
directors for services
|
|
|
25,568
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
238
|
|
Conversion of 4.875% notes,
net of unamortized issuance costs
|
|
|
11,105,664
|
|
|
|
57,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,892
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,459
|
|
|
$
|
2,459
|
|
|
|
|
|
|
|
2,459
|
|
Foreign currency translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,791
|
|
|
|
1,791
|
|
|
|
1,791
|
|
Net unrealized loss on foreign
exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200
|
)
|
|
|
(200
|
)
|
|
|
(200
|
)
|
Unrealized loss on
investments available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(840
|
)
|
|
|
(840
|
)
|
|
|
(840
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
116,750,808
|
|
|
$
|
395,444
|
|
|
|
10
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(174,671
|
)
|
|
|
|
|
|
$
|
(2,766
|
)
|
|
$
|
218,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
5
LIONS
GATE ENTERTAINMENT CORP.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,459
|
|
|
$
|
(32,783
|
)
|
Income from discontinued operations
|
|
|
|
|
|
|
1,124
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
|
2,459
|
|
|
|
(33,907
|
)
|
Adjustments to reconcile net income
(loss) to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation of property and
equipment
|
|
|
1,949
|
|
|
|
1,348
|
|
Amortization of deferred financing
costs
|
|
|
2,915
|
|
|
|
2,814
|
|
Amortization of films and
television programs
|
|
|
142,982
|
|
|
|
191,337
|
|
Amortization of intangible assets
|
|
|
702
|
|
|
|
1,760
|
|
Non-cash stock-based compensation
|
|
|
4,795
|
|
|
|
1,403
|
|
Interest rate swaps
mark-to-market
|
|
|
|
|
|
|
123
|
|
Equity interests
|
|
|
802
|
|
|
|
98
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
(9,150
|
)
|
|
|
2,117
|
|
Accounts receivable, net
|
|
|
76,829
|
|
|
|
13,076
|
|
Investment in films and television
programs
|
|
|
(246,567
|
)
|
|
|
(215,192
|
)
|
Other assets
|
|
|
5,079
|
|
|
|
(3,511
|
)
|
Accounts payable and accrued
liabilities
|
|
|
(23,733
|
)
|
|
|
43,083
|
|
Unpresented bank drafts
|
|
|
(14,772
|
)
|
|
|
|
|
Participation and residuals
|
|
|
1,048
|
|
|
|
39,203
|
|
Film obligations
|
|
|
70,134
|
|
|
|
33,840
|
|
Deferred revenue
|
|
|
50,233
|
|
|
|
(20,467
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Provided By
Operating Activities continuing operations
|
|
|
65,705
|
|
|
|
57,125
|
|
Net Cash Flows Provided By
Operating Activities discontinued
operations
|
|
|
|
|
|
|
1,808
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Provided By
Operating Activities
|
|
|
65,705
|
|
|
|
58,933
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of
investments auction rate securities
|
|
|
(575,789
|
)
|
|
|
(163,400
|
)
|
Sales of investments
auction rate securities
|
|
|
536,226
|
|
|
|
82,500
|
|
Purchases of
investments equity securities
|
|
|
|
|
|
|
(3,470
|
)
|
Funding of joint
venture FEARnet
|
|
|
(5,000
|
)
|
|
|
|
|
Cash received from sale of
investment
|
|
|
|
|
|
|
2,945
|
|
Acquisition of Debmar, net of cash
acquired
|
|
|
(24,137
|
)
|
|
|
|
|
Acquisition of Redbus, net of cash
acquired
|
|
|
|
|
|
|
(27,122
|
)
|
Purchases of property and equipment
|
|
|
(7,737
|
)
|
|
|
(4,173
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Used In Investing
Activities continuing operations
|
|
|
(76,437
|
)
|
|
|
(112,720
|
)
|
Net Cash Flows Provided By
Investing Activities discontinued
operations
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Used In Investing
Activities
|
|
|
(76,437
|
)
|
|
|
(112,606
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Issuance of common shares
|
|
|
3,280
|
|
|
|
779
|
|
Financing fees
|
|
|
|
|
|
|
(240
|
)
|
Repayment of subordinated notes
|
|
|
|
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Provided By (Used
In) Financing Activities continuing
operations
|
|
|
3,280
|
|
|
|
(4,461
|
)
|
Net Cash Flows Used In Financing
Activities discontinued operations
|
|
|
|
|
|
|
(2,523
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Provided By (Used
In) Financing Activities
|
|
|
3,280
|
|
|
|
(6,984
|
)
|
|
|
|
|
|
|
|
|
|
Net Change In Cash And Cash
Equivalents
|
|
|
(7,452
|
)
|
|
|
(60,657
|
)
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Effects on
Cash continuing operations
|
|
|
(53
|
)
|
|
|
(1,774
|
)
|
Foreign Exchange Effects on
Cash discontinued operations
|
|
|
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Effects on
Cash
|
|
|
(53
|
)
|
|
|
(1,634
|
)
|
|
|
|
|
|
|
|
|
|
Cash and Cash
Equivalents Beginning Of Period
|
|
|
46,978
|
|
|
|
112,839
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash
Equivalents End Of Period
|
|
$
|
39,473
|
|
|
$
|
50,548
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
6
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nature
of Operations
Lions Gate Entertainment Corp. (the Company,
Lionsgate, we, us or
our) is a diversified independent producer and
distributor of motion pictures, television programming, home
entertainment,
video-on-demand
and music content. The Company also acquires distribution rights
from a wide variety of studios, production companies and
independent producers.
Basis
of Presentation
The accompanying unaudited condensed consolidated financial
statements include the accounts of Lionsgate and all of its
wholly owned and controlled subsidiaries.
The unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States (U.S. GAAP) for
interim financial information and the instructions to
Form 10-Q
and Article 10 of
Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by U.S. GAAP for complete financial
statements. In the opinion of 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,
2006 are not necessarily indicative of the results that may be
expected for the fiscal year ended March 31, 2007. The
balance sheet at March 31, 2006 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, 2006.
Certain amounts presented for fiscal 2006 have been reclassified
to conform to the fiscal 2007 presentation.
Sale
of Studio Facility and Revised Prior Year
Presentation
As a result of the Companys sale of the studio facilities
on March 15, 2006, the Companys consolidated
statements of operations for the three and nine months ended
December 31, 2005 have been revised to reflect total
revenues of $1.7 million and $4.7 million and total
expenses of $1.5 million and $3.6 million of the
studio facilities for the three and nine months ended
December 31, 2005, respectively, net within the
discontinued operations section of the consolidated statements
of operations.
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, provision 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, goodwill and
intangible assets. Actual results could differ from such
estimates.
Recent
Accounting Pronouncements
Statement of Financial Accounting Standards
No. 123(R). In December 2004, the FASB
issued SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS No. 123(R)).
SFAS No. 123(R) revises SFAS No. 123 and
7
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
eliminates the alternative to use the intrinsic method of
accounting under APB No. 25. SFAS No. 123(R)
requires all public companies accounting for share-based payment
transactions in which an enterprise receives employee services
in exchange for (a) equity instruments of the enterprise or
(b) liabilities that are based on the fair value of the
enterprises equity instruments or that may be settled by
the issuance of such equity instruments, to account for these
types of transactions using a fair-value-based method. Effective
April 1, 2006, the Company adopted the fair value
recognition provisions of SFAS No. 123(R),
Share-Based Payment, (SFAS No. 123(R))
using the modified-prospective transition method. Under such
transition method, compensation cost recognized in the three and
nine months ended December 31, 2006 includes:
(a) compensation cost for all stock options granted prior
to, but not yet vested as of, April 1, 2006, based on the
grant date fair value estimated in accordance with the original
provisions of SFAS No. 123, and (b) compensation
cost for all share-based payments granted on or after
April 1, 2006, based on the grant-date fair value estimated
in accordance with the provisions of SFAS No. 123(R).
See note 12 for further discussion of the Companys
stock-based compensation in accordance with
SFAS No. 123(R).
FASB Issued Interpretation No. 48. In
July 2006, the FASB issued Interpretation No. (FIN)
48, Accounting for Uncertainty in Income Taxes
An Interpretation of SFAS No. 109, which
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. In
particular, this interpretation requires uncertain tax positions
to be recognized only if they are
more-likely-than-not to be upheld based on their
technical merits. Additionally, the measurement of the tax
position will be based on the largest amount that is determined
to have greater than a 50% likelihood of realization upon
ultimate settlement. Any resulting cumulative effect of applying
the provisions of FIN 48 upon adoption would be reported as
an adjustment to the beginning balance of retained earnings in
the period of adoption. FIN 48 will be effective as of the
beginning of fiscal year 2008. We have not yet evaluated the
impact of this interpretation on the Companys consolidated
financial statements.
|
|
2.
|
Investments
Available-For-Sale
|
Investments classified as
available-for-sale
are reported at fair value based on quoted market prices, with
unrealized gains and losses excluded from earnings and reported
as other comprehensive income or loss (see note 10). The
cost of investments sold is determined in accordance with the
specific identification method. As of December 31, 2006,
the cost, unrealized losses and carrying value of the
Companys
available-for-sale
investments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
Holding
|
|
|
Carrying
|
|
|
|
Cost
|
|
|
Losses
|
|
|
Value
|
|
|
|
(Amounts in thousands)
|
|
|
Auction Rate
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate notes
|
|
$
|
206,643
|
|
|
$
|
|
|
|
$
|
206,643
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
15,007
|
|
|
|
(927
|
)
|
|
|
14,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
221,650
|
|
|
$
|
(927
|
)
|
|
$
|
220,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company began investing in Auction Rate Securities
(ARS) during the fiscal year ended March 31,
2006. The ARS carry interest rates or dividend yields that are
periodically re-set through auctions, typically every 7,
14, 28, or 35 days. ARS are usually issued with
long-term maturities or in perpetuity and are auctioned at par.
Thus, the return on the investment between auction dates is
determined by the interest rate or dividend yield set through
the auctions. Accordingly, dividends and interest earned on
auction rate investments are computed as a percentage of the
principal amount of the security. Interest and dividend income
earned during the three- and nine-month periods ended
December 31, 2006 on ARS was $2.1 million and
$5.7 million, respectively. There was no interest or
dividend income earned on ARS during the three- and nine-month
periods ended December 31, 2005. The
8
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company minimizes its credit risk associated with investments by
investing primarily in investment grade, highly liquid
securities.
In accordance with SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities, and
based on our ability to market and sell these instruments, we
classify ARS as
available-for-sale
securities and carry them at fair value.
Equity securities are comprised of the Companys investment
in the common shares of Image Entertainment, Inc.
(Image), a distributor of DVDs and entertainment
programming. During the fiscal year ended March 31, 2006,
the Company purchased in the open market 1,150,000 common shares
of Image for $3.5 million in cash, representing an average
cost per share of $3.02. Also during the fiscal year ended
March 31, 2006, the Company completed a negotiated exchange
with certain shareholders of Image in which the Company
exchanged 1,104,004 of its common shares (at $10.45 per
share) in return for 2,883,996 common shares of Image (at
$4.00 per share). The cost on an exchanged basis of the
additional 2,883,996 common shares of Image is
$11.5 million. As of December 31, 2006 and
March 31, 2006, the Company held 4,033,996 common shares of
Image acquired at an average cost per share of $3.72; the shares
held by the Company represent approximately 18.7% of
Images outstanding common shares as of January 31,
2007. The closing price of Images common shares on
December 31, 2006 was $3.49 per common share
(March 31, 2006 $3.70 per common share).
As a result, the Company had unrealized losses of
$0.9 million and $0.1 million on its investment in
Image common shares as of December 31, 2006 and
March 31, 2006, respectively. The Company has reported the
increase in the unrealized loss of $0.8 million as other
comprehensive loss in the condensed consolidated statement of
shareholders equity for the nine months ended
December 31, 2006.
|
|
3.
|
Investment
in Films and Television Programs
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2006
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Motion Picture
Segment Theatrical and Non-Theatrical
Films
|
|
|
|
|
|
|
|
|
Released, net of accumulated
amortization
|
|
$
|
161,249
|
|
|
$
|
154,574
|
|
Acquired libraries, net of
accumulated amortization
|
|
|
94,974
|
|
|
|
105,144
|
|
Completed and not released
|
|
|
27,576
|
|
|
|
30,444
|
|
In progress
|
|
|
99,400
|
|
|
|
47,487
|
|
In development
|
|
|
4,237
|
|
|
|
3,104
|
|
Product inventory
|
|
|
33,558
|
|
|
|
28,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
420,994
|
|
|
|
368,932
|
|
|
|
|
|
|
|
|
|
|
Television Segment
Direct-to-Television
Programs
|
|
|
|
|
|
|
|
|
Released, net of accumulated
amortization
|
|
|
55,516
|
|
|
|
36,003
|
|
In progress
|
|
|
58,505
|
|
|
|
12,311
|
|
In development
|
|
|
437
|
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,458
|
|
|
|
48,818
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
535,452
|
|
|
$
|
417,750
|
|
|
|
|
|
|
|
|
|
|
Acquired libraries of $95.0 million at December 31,
2006 (March 31, 2006 $105.1 million)
include the Trimark library acquired October 2000, the Artisan
library acquired December 2003, the Modern Entertainment, Ltd.
(Modern) library acquired in August 2005, and the
Redbus library acquired in October 2005 (refer to note 8).
On August 17, 2005, the Company acquired certain of the
film assets and accounts receivable of Modern, a licensor of
film rights to DVD distributors, broadcasters and cable networks
for total consideration of $7.3 million,
9
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
comprised of $3.5 million in cash and 399,042 shares
of the Companys common shares valued at $3.8 million.
In addition, the Company recorded $0.2 million in direct
transaction costs comprised primarily of legal costs incurred in
connection with the purchased assets. The allocation of the
Modern purchase price to the assets acquired was
$5.3 million to investment in films and television programs
and $2.2 million to accounts receivable. The Trimark
library is amortized over its expected revenue stream for a
period of 20 years from the acquisition date. The remaining
amortization period on the Trimark library at December 31,
2006 is 13.75 years on unamortized costs of
$16.2 million. The Artisan library includes titles released
at least three years prior to the date of acquisition and is
amortized over its expected revenue stream for a period of
20 years from the date of acquisition. The remaining
amortization period on the Artisan library at December 31,
2006 is 17.0 years on unamortized costs of
$71.7 million. The Modern library is amortized over its
expected revenue stream for a period of 20 years from the
acquisition date. The remaining amortization period on the
Modern library at December 31, 2006 is 18.5 years on
unamortized costs of $4.9 million. The Redbus library
includes titles released at least three years prior to the date
of acquisition and is amortized over its expected revenue stream
for a period of 20 years from the date of acquisition. The
remaining amortization period on the Redbus library at
December 31, 2006 is 18.75 years on unamortized costs
of $2.1 million. The preliminary estimate of the fair value
of the individual film and television titles acquired as part of
the acquisition of Debmar-Mercury LLC (note 8) were
included in released, net of accumulated amortization in the
direct-to-television
category above.
The Company expects approximately 39.5% of completed films and
television programs, net of accumulated amortization, will be
amortized during the one-year period ending December 31,
2007. Additionally, the Company expects approximately 80.1% 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, 2009.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2006
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Deferred financing costs, net of
accumulated amortization
|
|
$
|
10,927
|
|
|
$
|
15,626
|
|
Prepaid expenses and other
|
|
|
11,986
|
|
|
|
13,037
|
|
Intangible assets, net
|
|
|
956
|
|
|
|
1,478
|
|
Deferred print costs
|
|
|
|
|
|
|
564
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,869
|
|
|
$
|
30,705
|
|
|
|
|
|
|
|
|
|
|
Deferred Financing Costs. Deferred financing
costs primarily include costs incurred in connection with the
credit facility (see note 5) and the issuance of the
4.875% Notes, the 2.9375% Notes and the
3.625% Notes (see note 7) that are deferred and
amortized to interest expense.
Other
Investments.
Maple: On April 8, 2005, Lionsgate
entered into library and output agreements with Maple Pictures,
a Canadian corporation, for the distribution of Lionsgates
motion picture, television and home video product in Canada. As
part of this transaction, Maple Pictures purchased a majority of
the Companys interest in Christal Distribution, a number
of production entities and other Lionsgate distribution assets
in Canada. Maple Pictures was formed by two former Lionsgate
executives and a third-party equity investor. Lionsgate also
acquired and currently owns a 10% minority interest in Maple
Pictures.
As a result of these transactions with Maple Pictures, Lionsgate
recorded an investment in Maple Pictures of $2.1 million in
other assets in the consolidated balance sheet. The Company is
accounting for the investment in Maple Pictures using the equity
method because of the Companys ownership percentage and
Board representation.
10
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the three and nine months ended December 31, 2006, a
loss of $0.1 million is recorded in equity interests in the
consolidated statements of operations. For the three and nine
months ended December 31, 2005, a loss of $0.1 million
is recorded in equity interests in the consolidated statements
of operations. For the three and nine months ended
December 31, 2006, the Company received dividends of
$0.1 million. No dividends were received for the three and
nine months ended December 31, 2005. The investment in
Maple Pictures is $1.7 million as of December 31, 2006
(March 31, 2006 $2.0 million).
CinemaNow: At March 31, 2006, the Company
had a 30% equity interest on an undiluted basis in CinemaNow,
Inc. (CinemaNow). The investment in CinemaNow was
accounted for using the equity method. The investment in
CinemaNow was nil at March 31, 2006. In June 2006, the
Company purchased $1.0 million Series E Preferred
Stock as part of a $20.3 million round of financing secured
by CinemaNow. At December 31, 2006, the Companys
equity interest in CinemaNow is 18.8% on a fully diluted basis
and 21.1% on an undiluted basis. For the three and nine months
ended December 31, 2006, a loss of $0.4 million and
$0.7 million, respectively, was recorded in equity
interests in the consolidated statements of operations. There
was no gain or loss recorded for the three and nine months ended
December 31, 2005 in equity interests in the consolidated
statements of operations. The investment in CinemaNow is
$0.3 million as of December 31, 2006 (March 31,
2006 nil).
Horror Entertainment, LLC. On October 10,
2006, the Company purchased 300 membership interests in Horror
Entertainment, LLC (FEARnet), a multiplatform
programming and content service provider of horror genre films
operating under the branding of FEARnet. In
addition, the Company entered into a
5-year
license agreement with FEARnet for the US territories and
possessions whereby the Company will license content to FEARnet
for VOD and broadband exhibition. The Company has agreed not to
compete in the area of a channel within the horror genre and the
Company cannot license to a horror genre competitor more than 25
titles in any year during the term of the license agreement. The
Company made a capital contribution to FEARnet of
$5.0 million at the date of acquisition and has committed
to a total capital contribution of $13.3 million, which is
expected to be fully funded over the next two-year period. Under
certain circumstances, if the Company defaults on any of its
funding obligations, then the Company could forfeit its equity
and its license agreement with FEARnet could be terminated. The
Company is accounting for the investment in FEARnet using the
equity method because of the Companys ownership percentage
of 33.33%. Due to the timing in availability of financial
statements from FEARnet, the Company will record its share of
the FEARnet results on a one quarter lag. Accordingly, the
Company has not recorded its equity interests in the earnings or
losses of FEARnet through December 31, 2006 in the
consolidated statements of operations. The investment in FEARnet
is $5.0 million as December 31, 2006 (March 31,
2006 nil).
At December 31, 2006, the Company had a $215 million
revolving line of credit, of which $10 million is available
for borrowing by Lions Gate UK in either U.S. dollars or
British pounds sterling. At December 31, 2006, the Company
had no borrowings (March 31, 2006 nil) under
the credit facility. The credit facility expires
December 31, 2008 and bears interest at 2.75% over the
Adjusted LIBOR or the Canadian Bankers
Acceptance rate (as defined in the credit facility), or
1.75% over the U.S. or Canadian prime rates. The
availability of funds under the credit facility is limited by
the borrowing base. Amounts available under the credit facility
are also limited by outstanding letters of credit, which
amounted to $0.3 million at December 31, 2006. At
December 31, 2006 there was $214.7 million available
under the credit facility. The Company is required to pay a
monthly commitment fee based upon 0.50% per annum on the
total credit facility of $215 million less the amount
drawn. Right, title and interest in and to all personal property
of Lions Gate Entertainment Corp. and Lions Gate Entertainment
Inc. is pledged as security for the credit facility. The credit
facility is senior to the Companys film obligations and
subordinated notes. The credit facility restricts the Company
from paying cash dividends on its common shares.
11
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Film
Obligations and Participation and Residuals
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2006
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Minimum guarantees
|
|
$
|
36,113
|
|
|
$
|
22,865
|
|
Minimum guarantees and production
obligations initially incurred for a term of more than one year
|
|
|
125,071
|
|
|
|
76,821
|
|
Theatrical marketing
|
|
|
9,908
|
|
|
|
1,770
|
|
Film productions
|
|
|
23,267
|
|
|
|
19,205
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
194,359
|
|
|
$
|
120,661
|
|
|
|
|
|
|
|
|
|
|
Participation and residuals
|
|
$
|
170,710
|
|
|
$
|
164,326
|
|
|
|
|
|
|
|
|
|
|
The Company expects approximately 63% of accrued participations
and residuals will be paid during the one-year period ending
December 31, 2007.
3.625% Notes. In February 2005, Lions
Gate Entertainment Inc. sold $175.0 million of
3.625% Convertible Senior Subordinated Notes (the
3.625% Notes). The Company received
$170.2 million of net proceeds after paying placement
agents fees from the sale of $175.0 million of the
3.625% Notes. The Company also paid $0.6 million of
offering expenses incurred in connection with the
3.625% Notes. Interest on the 3.625% Notes is payable
semi-annually on March 15 and September 15, commencing on
September 15, 2005. After March 15, 2012, interest
will be 3.125% per annum on the principal amount of the
3.625% Notes, payable semi-annually on March 15 and
September 15 of each year. The 3.625% Notes mature on
March 15, 2025. Lions Gate Entertainment Inc. may redeem
all or a portion of the 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.
The holder may require Lions Gate Entertainment Inc. to
repurchase the 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. Under certain circumstances, if
the holder requires Lions Gate Entertainment Inc. 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 is less than $10.35 per share or if the price
of the common shares of the Company exceeds $75.00 per
share.
The 3.625% Notes are convertible, at the option of the
holder, at any time before the close of business on or prior to
the trading day immediately before the maturity date, if the
notes have not been previously redeemed or repurchased, at a
conversion rate of 70.0133 shares per $1,000 principal
amount of the 3.625% Notes, subject to adjustment in
certain circumstances, which is equal to a conversion price of
approximately $14.28 per share. Upon conversion of the
3.625% Notes, the Company has the option to deliver, in
lieu of common shares, cash or a combination of cash and our
common shares. The holder may convert the 3.625% Notes into
our common shares prior to maturity if the notes have been
called for redemption, a change in control occurs or certain
corporate transactions occur.
2.9375% Notes. In October 2004, Lions
Gate Entertainment Inc. sold $150.0 million of
2.9375% Convertible Senior Subordinated Notes (the
2.9375% Notes). The Company received
$146.0 million of net proceeds after paying placement
agents fees from the sale of $150.0 million of the
2.9375% Notes. The Company also paid $0.7 million of
offering expenses incurred in connection with the
2.9375% Notes. Interest on the 2.9375% Notes is
payable semi-annually on April 15 and October 15,
commencing on April 15, 2005, and the 2.9375% Notes
mature
12
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
on October 15, 2024. From October 15, 2009 to
October 14, 2010, Lions Gate Entertainment Inc. may redeem
the 2.9375% Notes at 100.839%; from October 15, 2010
to October 14, 2011, Lions Gate Entertainment Inc. may
redeem the 2.9375% Notes at 100.420%; and thereafter at 100%.
The holder may require Lions Gate Entertainment Inc. to
repurchase the 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. Under certain circumstances, if
the holder requires Lions Gate Entertainment Inc. 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 is less than $8.79 per share or if the price
of our common shares exceeds $50.00 per share.
The holder may convert the 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 a specified threshold
over a specified period, the trading price of the notes falls
below certain thresholds, the notes have been called for
redemption, a change in control occurs or certain corporate
transactions occur. In addition, under certain circumstances, if
the holder converts their notes upon a change in control, such
holder will be entitled to receive a make whole premium. Before
the close of business on or prior to the trading day immediately
before the maturity date, if the notes have not been previously
redeemed or repurchased, the holder may convert the notes into
our common shares at a conversion rate of 86.9565 shares
per $1,000 principal amount of the 2.9375% Notes, subject
to adjustment in certain circumstances, which is equal to a
conversion price of approximately $11.50 per share.
4.875% Notes. In December 2003, Lions
Gate Entertainment Inc. sold $60.0 million of
4.875% Convertible Senior Subordinated Notes (the
4.875% Notes). The Company received
$57.0 million of net proceeds after paying placement
agents fees from the sale of $60.0 million of the
4.875% Notes. The Company also paid $0.7 million of
offering expenses incurred in connection with the
4.875% Notes.
The 4.875% Notes were convertible, at the option of the
holder, at any time before the close of business on or prior to
the trading day immediately before the maturity date if the
notes had not been previously redeemed or repurchased at a
conversion rate of 185.0944 shares per $1,000 principal
amount of the 4.875% Notes, subject to adjustment in
certain circumstances, which is equal to a conversion price of
approximately $5.40 per share. Lions Gate Entertainment
Inc. had the option to redeem the 4.875% Notes at its
option on or after December 15, 2006 at 100% of their
principal amount plus accrued and unpaid interest if the closing
price of our common shares had exceeded $9.45 per share for at
least 20 trading days within a period of 30 consecutive trading
days ending on the trading day before the date of notice of
redemption.
Upon conversion of the 4.875% Notes, the Company had the
option to deliver, in lieu of common shares, cash or a
combination of cash and our common shares.
On December 15, 2006, in response to our optional
redemption notice, all of the noteholders of the
4.875% Notes voluntarily elected to convert their notes
into the Companys common shares. A total of
$60 million of principal was converted into 11,105,664
common shares at a conversion price of $5.40 per share. In
connection with this conversion, the principal amount net of the
unamortized portion of the financing costs associated with the
original conversion of the 4.875% Notes of approximately
$2.1 million was recorded as an increase to common shares.
The shares issued pursuant to the conversion were previously
reserved for such issuance pursuant to the conversion.
|
|
8.
|
Acquisitions
and Divestitures
|
Acquisition
of Debmar-Mercury LLC
On July 3, 2006, the Company acquired all of the capital
stock of Debmar-Mercury LLC (Debmar), an independent
distributor of film and television packages. Consideration for
the Debmar acquisition was
13
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$27.5 million, comprised of a combination of
$24.5 million in cash paid on July 3, 2006 and up to
$3.0 million in common shares of the Company to be issued
as of January 1, 2008 if there are no breaches requiring
indemnification by the seller of certain representations and
warranties made by the seller. An additional $0.2 million
has been incurred in acquisition costs. The $3.0 million of
shares to be issued has been recorded as part of the purchase
consideration and reflected as a liability. If no incremental
liabilities become known by January 1, 2008 then the shares
will be issued and the $3.0 million will be reclassified to
equity. The purchase price may be adjusted for the payment of
additional consideration contingent on the financial performance
of Debmar for the five-year period ending June 30, 2011.
The Debmar acquisition provides the Company with the rights to
distribute certain television properties such as the television
series, South Park, and provides the Company with an
experienced management team to further enhance its capacity to
syndicate its own television programming and feature film
packages.
The Debmar acquisition was accounted for as a purchase, with the
results of operations of Debmar consolidated from July 3,
2006. Goodwill of $13.8 million represents the excess of
the purchase price over the fair value of the net identifiable
tangible and intangible assets acquired. The preliminary
allocation of the purchase price to the tangible and intangible
assets acquired and liabilities assumed based on their fair
values is as follows:
|
|
|
|
|
|
|
Preliminary
|
|
|
|
Balance Sheet
|
|
|
|
(Amounts in
|
|
|
|
thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
603
|
|
Accounts receivable, net
|
|
|
10,113
|
|
Investment in films and television
programs
|
|
|
12,200
|
|
Other assets acquired
|
|
|
522
|
|
Goodwill
|
|
|
13,849
|
|
Other liabilities assumed
|
|
|
(9,547
|
)
|
|
|
|
|
|
Total
|
|
$
|
27,740
|
|
|
|
|
|
|
The allocation above is preliminary until completion and receipt
of final appraisals of the net assets acquired. The
$13.8 million of goodwill was assigned to the television
reporting segment. Pro forma information for the Debmar
acquisition is not presented because the assets acquired and the
results of operations were not material to the Companys
condensed consolidated balance sheets or consolidated statement
of operations, respectively.
Sale
of Studio Facilities
On March 15, 2006, the Company sold its studio facility
located in Vancouver, British Columbia. The purchase price of
$35.3 million (net of commissions) was paid in cash. As a
result of the sale of the studio facility, the Company
recognized a gain, net of tax, of $4.9 million in the
fiscal year ended March 31, 2006. Studio facilities
previously comprised the Companys studio facilities
reporting segment.
As a result of the Companys sale of the studio facilities,
the Companys consolidated financial statements for all
previous periods presented have been revised to reflect the
studio facilities operations, net of tax, as discontinued
operations, in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets.
14
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Summarized financial information for the discontinued studio
facilities operations is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Statements of Operations Data
|
|
2005
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
(Amounts in millions)
|
|
|
Revenue
|
|
$
|
1.7
|
|
|
$
|
4.7
|
|
Total expenses
|
|
|
1.5
|
|
|
|
3.6
|
|
Acquisition
of Lions Gate UK, formerly Redbus Group Limited
On October 17, 2005, the Company acquired all outstanding
shares of Redbus, an independent film distributor located in the
United Kingdom. Consideration for the Redbus acquisition was
$35.5 million, comprised of a combination of
$28.0 million in cash, $6.4 million in Lionsgate
common shares and direct transaction costs of $1.1 million.
In addition, the Company assumed other obligations (including
accounts payable and accrued liabilities and film obligations)
of $19.4 million. At the closing of the transaction the
Company issued 643,460 common shares to Redbus Group Limited
(RGL) valued at approximately $5.6 million, or
$8.77 per share, and will issue up to an additional 94,937
common shares to RGL upon satisfaction of the terms of the
escrow agreement, valued at approximately $0.8 million and
recorded as a liability until satisfaction of the terms of the
escrow agreement. Assuming no incremental liabilities become
known at the end of the escrow period, the additional shares
will be issued to the sellers and the $0.8 million will be
reclassified to equity. Direct transaction costs are considered
liabilities assumed in the acquisition, and as such, are
included in the purchase price. Direct transaction costs consist
primarily of legal and accounting fees.
The goodwill arising from the acquisition of Redbus is included
in the goodwill of the motion pictures segment as disclosed in
note 13. Pro forma information for the Redbus acquisition
is not presented because the assets acquired and the results of
operations were not material to the Companys condensed
consolidated balance sheets or consolidated statement of
operations, respectively.
|
|
9.
|
Direct
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Amortization of films and
television programs
|
|
$
|
60,984
|
|
|
$
|
56,928
|
|
|
$
|
142,982
|
|
|
$
|
191,337
|
|
Participation and residual expense
|
|
|
51,183
|
|
|
|
48,003
|
|
|
|
132,205
|
|
|
|
118,221
|
|
Amortization of acquired
intangible assets
|
|
|
214
|
|
|
|
520
|
|
|
|
702
|
|
|
|
1,760
|
|
Other expenses
|
|
|
(1,460
|
)
|
|
|
4,677
|
|
|
|
(1,700
|
)
|
|
|
7,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
110,921
|
|
|
$
|
110,128
|
|
|
$
|
274,189
|
|
|
$
|
318,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses include the provision for doubtful accounts. The
negative other expenses for the three and nine months ended
December 31, 2006 are due to the reversal of the provision
for doubtful accounts associated with the collection of a
portion of accounts receivable previously reserved.
15
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Comprehensive
Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Net Income (Loss)
|
|
$
|
20,455
|
|
|
$
|
3,142
|
|
|
$
|
2,459
|
|
|
$
|
(32,783
|
)
|
Add: Foreign currency translation
adjustments
|
|
|
111
|
|
|
|
228
|
|
|
|
1,791
|
|
|
|
1,476
|
|
Deduct: Net unrealized gain (loss)
on foreign exchange contracts
|
|
|
(186
|
)
|
|
|
(286
|
)
|
|
|
(200
|
)
|
|
|
(315
|
)
|
Add (deduct): Unrealized gain
(loss) on investments available for sale
|
|
|
40
|
|
|
|
(3,324
|
)
|
|
|
(840
|
)
|
|
|
(1,537
|
)
|
Add (deduct): Fair value
adjustment of common shares to be acquired in exchange agreement
with Image Entertainment
|
|
|
|
|
|
|
(440
|
)
|
|
|
|
|
|
|
(440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (loss)
|
|
$
|
20,420
|
|
|
$
|
(680
|
)
|
|
$
|
3,210
|
|
|
$
|
(33,599
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Earnings
(Loss) Per Share
|
The Company calculates earnings (loss) per share in accordance
with SFAS No. 128, Earnings Per Share.
Basic earnings (loss) per share is calculated based on the
weighted average common shares outstanding for the period. The
weighted average number of common shares outstanding during the
three and nine months ended December 31, 2006 were
107,583,000 shares and 105,639,000 shares,
respectively (2005 103,936,000 and
102,724,000 shares, respectively). Basic earnings (loss)
per share for the three and nine months ended December 31,
2006 and 2005 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Basic Earnings (Loss) Per
Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before discontinued
operations
|
|
$
|
20,455
|
|
|
$
|
2,921
|
|
|
$
|
2,459
|
|
|
$
|
(33,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
107,583
|
|
|
|
103,936
|
|
|
|
105,639
|
|
|
|
102,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Income (Loss) Per Common
Share From Continuing Operations
|
|
$
|
0.19
|
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
$
|
(0.33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
|
|
|
$
|
221
|
|
|
$
|
|
|
|
$
|
1,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
107,583
|
|
|
|
103,936
|
|
|
|
105,639
|
|
|
|
102,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Income Per Common Share From
Discontinued Operations
|
|
$
|
|
|
|
$
|
0.00
|
|
|
$
|
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) per Common Share
|
|
$
|
0.19
|
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Diluted earnings per share includes the dilutive effect, if any,
of the share purchase options, the restricted share units, and
the conversion of the 4.875% Notes, the 2.9375% Notes,
the 3.625% Notes. Diluted income per common share for the
three and nine months ended December 31, 2006 and the three
months ended December 31, 2005 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Diluted Earnings Per
Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before discontinued
operations
|
|
$
|
20,455
|
|
|
$
|
2,459
|
|
|
$
|
2,921
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on convertible notes, net
of tax
|
|
|
3,132
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing
costs, net of tax
|
|
|
450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proforma Income before
discontinued operations
|
|
|
24,037
|
|
|
|
2,459
|
|
|
|
2,921
|
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proforma Net Income
|
|
$
|
24,037
|
|
|
$
|
2,459
|
|
|
$
|
3,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
107,583
|
|
|
|
105,639
|
|
|
|
103,936
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of 4.875% notes,
net of unamortized issuance costs
|
|
|
34,349
|
|
|
|
|
|
|
|
|
|
Share purchase options
|
|
|
2,346
|
|
|
|
2,551
|
|
|
|
2,876
|
|
Restricted share units
|
|
|
341
|
|
|
|
197
|
|
|
|
413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average common
shares outstanding
|
|
|
144,619
|
|
|
|
108,387
|
|
|
|
107,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Income Per Common Share
From Continuing Operations
|
|
$
|
0.17
|
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Income Per Common Share
From Discontinued Operations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Net Income per Common Share
|
|
$
|
0.17
|
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per common share for the nine months ended
December 31, 2005 was not included above because the
dilutive effect of the share purchase options, the restricted
share units and convertible notes were anti-dilutive.
Additionally, the dilutive effect of the convertible notes are
not included in diluted income per common share for the nine
months ended December 31, 2006 and three months ended
December 31, 2005 as they are anti-dilutive.
|
|
12.
|
Accounting
for Stock-Based Compensation
|
Share-Based
Compensation
Adoption
of SFAS No. 123(R)
As of December 31, 2006, the Company had two stock option
and long-term incentive plans that permit the grant of stock
options and other equity awards to certain employees, officers
and non-employee directors, which are
18
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
described more fully below. Prior to April 1, 2006, the
Company accounted for stock-based compensation under the
intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees (APB Opinion No. 25), and related
Interpretations, as permitted under SFAS No. 123,
Accounting for Stock-Based Compensation
(SFAS No. 123). The intrinsic value method requires
recognition of compensation expense over the applicable vesting
period for the difference between the exercise price of the
stock option and the market value of the underlying stock on the
date of grant. Since the exercise price of our stock options is
equal to the market value of the underlying stock at the date of
grant, the Company has not historically recognized compensation
costs associated with share based awards, with the exception of
stock appreciation rights (SARs) and restricted
share units discussed below and to a very limited extent the
modification of awards previously issued.
Effective April 1, 2006, the Company adopted the fair value
recognition provisions of SFAS No. 123(R),
Share-Based Payment (SFAS No. 123(R)),
using the modified-prospective transition method. Under such
transition method, compensation cost recognized in the three and
nine months ended December 31, 2006 includes:
(a) compensation cost for all stock options granted prior
to, but not yet vested as of April 1, 2006, based on the
grant-date fair value estimated in accordance with the original
provisions of SFAS No. 123, and (b) compensation
cost for all share-based payments granted on or after
April 1, 2006, based on the grant-date fair value estimated
in accordance with the provisions of SFAS No. 123(R).
Results for prior periods have not been restated. As a result of
adopting SFAS No. 123(R) on April 1, 2006, the
Companys income from operations before income taxes and
net income for the three and nine months ended December 31,
2006 are both $0.7 million and $2.4 million,
respectively, lower than if the Company had continued to account
for share-based compensation under APB Opinion No. 25. The
$0.7 million charge for the three months ended
December 31, 2006 consisted of the recognition of
compensation expense of $0.9 million associated with stock
options granted offset by a $0.2 million change in the fair
value as compared to the change in the intrinsic value of stock
appreciation rights. The $2.4 million charge for the nine
months ended December 31, 2006 consisted of the recognition
of compensation expense of $1.7 million associated with
stock options granted in previous years and $0.7 million
attributable to the valuation of stock appreciation rights at
fair value rather than intrinsic value as previously required.
For the three and nine months ended December 31, 2006, the
Companys basic income per share would have been $0.01 and
$0.03 higher, respectively, and diluted income per share would
have not changed for the three months ended and would have been
$0.03 higher for the nine months if the Company had not adopted
SFAS No. 123(R).
SFAS No. 123(R) requires the cash flows resulting from
the tax benefits from tax deductions in excess of the
compensation cost recognized for those options (excess tax
benefits) to be classified as financing cash flows. There were
no tax benefits realized from the deduction of amounts related
to share based payments in the three and nine months ended
December 31, 2006 and 2005. Prior to the adoption of
SFAS No. 123(R) and upon issuance of the restricted
share units pursuant to the agreements, an unamortized
compensation expense equivalent to the market value of the
shares on the date of grant was charged to stockholders
equity as unearned compensation and amortized over the
applicable vested periods. As a result of adopting
SFAS No. 123(R) on April 1, 2006, the Company
transferred the remaining unearned compensation balance in its
stockholders equity to common share capital. Prior to the
adoption of SFAS No. 123(R), the Company recorded
forfeitures of restricted share units, if any, and any
compensation cost previously recognized for unvested restricted
share units was reversed in the period of forfeiture. Beginning
April 1, 2006, the Company records forfeitures in
accordance with SFAS No. 123(R) by estimating the
forfeiture rates for share-based awards upfront and recording a
true-up
adjustment for the actual forfeitures. In the three and nine
months ended December 31, 2006, the calculation of
forfeitures did not have a material effect on the Companys
results of operations, financial position or cash flows.
19
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of each option award is estimated on the date of
grant using a closed-form option valuation model (Black-Scholes)
based on the assumptions noted in the following table. Expected
volatilities are based on implied volatilities from traded
options on our stock, historical volatility of Lionsgate stock
and other factors. The expected term of options granted
represents the period of time that options granted are expected
to be outstanding. During the nine months ended
December 31, 2006, two officers were each granted options
to purchase 1.1 million shares of common stock. The
following table represents the assumptions used in the
Black-Scholes option-pricing model for options granted during
the nine months ended December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Risk-free interest rate
|
|
|
4.7
|
%
|
|
|
4.0
|
%
|
Expected option lives (in years)
|
|
|
6
|
|
|
|
5
|
|
Expected volatility for options
|
|
|
31
|
%
|
|
|
33
|
%
|
Expected dividend yield
|
|
|
None
|
|
|
|
None
|
|
The weighted-average grant-date fair values for options granted
during the nine months ended December 31, 2006 and 2005
were $3.92 and $3.61, respectively.
The following table illustrates the effect on net loss and loss
per common share if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock
options issued and modified under the Companys stock
option plans to the three and nine months ended
December 31, 2005. For purposes of this pro forma
disclosure, the value of the options is estimated using a
Black-Scholes option-pricing model and amortized to expense over
the options vesting periods.
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2005
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income (loss), as reported
|
|
$
|
3,142
|
|
|
$
|
(32,783
|
)
|
Add: stock-based compensation
expense calculated using intrinsic value method and included in
reported net income (loss)
|
|
|
|
|
|
|
27
|
|
Deduct: stock-based compensation
expense calculated using fair value method
|
|
|
(419
|
)
|
|
|
(1,553
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss), pro forma
|
|
$
|
2,723
|
|
|
$
|
(34,309
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
103,936
|
|
|
|
102,724
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share:
|
|
|
|
|
|
|
|
|
Basic and diluted as
reported
|
|
$
|
0.03
|
|
|
$
|
(0.33
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted pro
forma
|
|
$
|
0.03
|
|
|
$
|
(0.33
|
)
|
|
|
|
|
|
|
|
|
|
The compensation cost under all of our various stock option and
long-term incentive plans during the three and nine months ended
December 31, 2006 resulted in compensation expense of
$2.9 million and $5.7 million respectively
(2005 reduction in expense of $2.1 and
$2.9 million, respectively). There was no income tax
benefit recognized in the statement of operations for
share-based compensation arrangements for the three and nine
months ended December 31, 2006 and 2005.
20
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Option and Long-Term Incentive Plans
The Company has two stock option and long-term incentive plans
that permit the grant of stock options and other equity awards
to certain employees, officers and non-employee directors for up
to 16.0 million shares of common stock.
The shareholders approved an Employees and Directors
Equity Incentive Plan (the Plan) that provides for
the issue of up to 8.0 million common shares of the Company
to eligible employees, directors and service providers of the
Company and its affiliates. On July 25, 2003, the Board of
Directors increased the number of shares authorized for stock
options from 8.0 million to 9.0 million. Of the
9.0 million common shares allocated for issuance, up to a
maximum of 250,000 common shares may be issued as discretionary
bonuses in accordance with the terms of a share bonus plan. At
December 31, 2006, 69,098 common shares were available for
grant under the Plan.
With the approval of the 2004 Performance Incentive Plan (the
2004 Plan), no new awards were granted under the
Plan subsequent to the 2004 Annual General Meeting of
Shareholders. Any remaining shares available for additional
grant purposes under the Plan may be issued under the 2004 Plan.
The 2004 Plan provided for the issue of up to an additional
2.0 million common shares of the Company to eligible
employees, directors, officers and other eligible persons
through the grant of awards and incentives for high levels of
individual performance and improved financial performance of the
Company. On September 12, 2006, the Companys
shareholders approved an increase of 5.0 million common
shares under the 2004 Plan. The 2004 Plan authorizes stock
options, share appreciation rights, restricted shares, share
bonuses and other forms of awards granted or denominated in the
Companys common shares. The per share exercise price of an
option granted under the 2004 Plan generally may not be less
than the fair market value of a common share of the Company on
the date of grant. The maximum term of an option granted under
the 2004 Plan is ten years from the date of grant. At
December 31, 2006, 1,978,158 common shares were available
for grant under the 2004 Plan.
A summary of option activity under the various plans as of
December 31, 2006, and changes during the nine months then
ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
Options
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
Outstanding at April 1, 2006
|
|
|
5,170,104
|
|
|
$
|
4.19
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(123,633
|
)
|
|
|
2.87
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(16,841
|
)
|
|
|
8.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2006
|
|
|
5,029,630
|
|
|
$
|
4.21
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,100,000
|
|
|
|
9.68
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(773,755
|
)
|
|
|
2.68
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(10,998
|
)
|
|
|
7.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30,
2006
|
|
|
6,344,877
|
|
|
$
|
6.20
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(199,999
|
)
|
|
|
4.25
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(7,499
|
)
|
|
|
8.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2006
|
|
|
6,137,379
|
|
|
$
|
6.26
|
|
|
|
4.32
|
|
|
$
|
27,451,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options as of
December 31, 2006, vested or expected to vest in the future
|
|
|
5,830,510
|
|
|
$
|
6.26
|
|
|
|
4.11
|
|
|
$
|
26,078,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31,
2006
|
|
|
3,525,378
|
|
|
$
|
3.86
|
|
|
|
0.77
|
|
|
$
|
24,219,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The total intrinsic value of options exercised during the three
and nine months ended December 31, 2006 were
$1.4 million and $7.4 million, respectively
(2005 $0.3 million and $1.6 million,
respectively).
Restricted Share Units. Effective
June 27, 2005 the Company, pursuant to the 2004 Plan,
entered into restricted share unit agreements with certain
employees and directors. During the three and nine months ended
December 31, 2006, the Company awarded 64,875 and 1,329,833
restricted share units, respectively, under these agreements
(2005 158,125 share units and
518,000 share units, respectively).
A summary of the status of the Companys restricted share
units as of December 31, 2006, and changes during the nine
months ended December 31, 2006, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Outstanding at April 1, 2006
|
|
|
508,667
|
|
|
$
|
10.18
|
|
Granted
|
|
|
352,875
|
|
|
|
8.96
|
|
Vested
|
|
|
(85,766
|
)
|
|
|
10.60
|
|
Forfeited
|
|
|
(4,625
|
)
|
|
|
10.44
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2006
|
|
|
771,151
|
|
|
$
|
9.56
|
|
Granted
|
|
|
912,083
|
|
|
|
9.56
|
|
Vested
|
|
|
(27,170
|
)
|
|
|
10.11
|
|
Forfeited
|
|
|
(8,859
|
)
|
|
|
9.64
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30,
2006
|
|
|
1,647,205
|
|
|
$
|
9.56
|
|
Granted
|
|
|
64,875
|
|
|
|
10.41
|
|
Vested
|
|
|
(34,545
|
)
|
|
|
10.07
|
|
Forfeited
|
|
|
(9,874
|
)
|
|
|
9.08
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2006
|
|
|
1,667,661
|
|
|
$
|
9.59
|
|
|
|
|
|
|
|
|
|
|
The fair values of restricted share units are determined based
on the market value of the shares on the date of grant. The
weighted-average grant-date fair values of restricted share
units granted during the nine months ended December 31,
2006 and 2005 were $9.44 and $10.30, respectively. The total
fair value of shares vested during the nine months ended
December 31, 2006 and 2005 were $1.5 million and
$0.4 million, respectively. Compensation expense recorded
for these restricted share units was $1.4 million and
$2.8 million during the three and nine months ended
December 31, 2006, respectively (2005
$0.4 million and $1.2 million, respectively). As of
December 31, 2006, the total remaining unrecognized
compensation cost related to nonvested stock options and
restricted share units was $8.4 million and
$13.5 million, respectively, which is expected to be
recognized over a weighted-average period of 2.6 years and
2.6 years, respectively.
Under the Companys two stock option and long term
incentive plans, the Company withholds shares to satisfy minimum
statutory federal, state and local tax withholding obligations
arising from the vesting of restricted share units. During the
nine months ended December 31, 2006, 48,057 shares
were withheld upon the vesting of restricted share units.
The Company becomes entitled to an income tax deduction in an
amount equal to the taxable income reported by the holders of
the stock options and restricted share units when vesting
occurs, the restrictions are released and the shares are issued.
Restricted share units are forfeited if the employees terminate
prior to vesting.
Stock Appreciation Rights. On
November 13, 2001, the Board of Directors of the Company
resolved that 750,000 options, granted to certain officers of
the Company to purchase common shares of the Company, be revised
as stock appreciation rights (SARs) which entitle
the holders to receive cash only and not common shares. The
22
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
amount of cash received was to be equal to the amount by which
the trading price of common shares on the exercise notice date
exceeds the SARs price of $5.00 multiplied by the number
of options exercised. Any
twenty-day
average trading price of common shares prior to the exercise
notice date had to be $6.00 or above in order for the officers
to exercise their SARs. These SARs are not considered part of
the Employees and Directors Equity Incentive Plan.
Through March 31, 2006, the Company measured compensation
expense as the amount by which the market value of common shares
exceeded the SARs price. The SARs were fully vested prior
to the adoption of SFAS No. 123(R). Effective
April 1, 2006, upon the adoption of
SFAS No. 123(R), the Company measured compensation
expense based on the fair value of the SARs determined by using
the Black-Scholes option-pricing model. For the three and nine
months ended December 31, 2006, the following assumptions
were used in the Black-Scholes option-pricing model: Volatility
of 41.8%, Risk Free Rate of 5.0%-5.2%, Expected Term of
0.17-1.25 years, and Dividend of 0%. On August 11,
2006, an officer exercised 375,000 SARs and received
$1.6 million in cash. The trading price of common shares at
the exercise date was $9.27. The Company recorded nil and a
reduction of $0.3 million in stock-based compensation
expense for the three and nine months ended December 31,
2006, (2005 reduction of expense of
$0.7 million and $1.3 million, respectively), in the
unaudited condensed consolidated statements of operations. The
Company has no stock-based compensation accrual at
December 31, 2006 related to this award (March 31,
2006 $1.9 million). On September 20, 2006,
another officers 375,000 fully vested and outstanding SARs
were cancelled in exchange for $2.1 million in cash. The
Company recorded nil and $0.1 million in stock-based
compensation expense for the three and nine months ended
December 31, 2006 (2005 reduction of expense of
$0.7 million and $1.3 million, respectively). During
the quarter ended December 31, 2006, the $2.1 million
cash consideration was paid to the officer and therefore the
Company has no stock-based compensation accrual at
December 31, 2006 related to this award (March 31,
2006 $1.9 million).
On February 2, 2004, an officer of the Company was granted
1,000,000 SARs, which entitle the officer to receive cash only,
and not common shares. The amount of cash received will be equal
to the amount by which the trading price of common shares on the
exercise notice date exceeds the SARs price of $5.20
multiplied by the number of SARs exercised. The SARs vested one
quarter immediately on the award date and one quarter on each of
the first, second and third anniversaries of the award date.
These SARs are not considered part of the Employees and
Directors Equity Incentive Plan. Applying
FIN No. 28 Accounting for Stock Appreciation
Rights and Other Variable Stock Option or Award Plans, the
Company is accruing compensation expense over the service
period, which is assumed to be the three-year vesting period,
using a graded approach. Through March 31, 2006, the
Company measured compensation expense as the amount by which the
market value of common shares exceeded the SARs price.
Effective April 1, 2006, upon the adoption of
SFAS No. 123(R), the Company measures compensation
expense based on the fair value of the SARs which is determined
by using the Black-Scholes option-pricing model. For the three
and nine months ended December 31, 2006, the following
assumptions were used in the Black-Scholes option-pricing model:
Volatility of 37.8%, Risk Free Rate of 4.9%, Expected Term of
2.1 years, and Dividend of 0%. At December 31, 2006,
the market price of our common shares was $10.73, the weighted
average fair value of the SAR was $6.13, and 992,473 of the SARs
had vested. Due to the increase in the market price of its
common shares, the Company recorded additional stock-based
compensation expense in the amount of $0.6 million and
$1.3 million in general and administration expenses in the
unaudited condensed consolidated statement of operations for the
three and nine months ended December 31, 2006
(2005 reduction in expense of $1.2 million and
$1.6 million, respectively). During the year ended
March 31, 2005 the officer exercised 150,000 of the vested
SARs and the Company paid $0.9 million. The compensation
expense amount in the period is calculated by using the fair
value of the SAR, multiplied by the remaining 992,473 SARs
assumed to have vested under the graded methodology less the
150,000 SARs exercised less the amount previously recorded. At
December 31, 2006, the Company has a stock-based
compensation accrual in the amount of $5.2 million
(March 31, 2006 $3.9 million) included in
accounts payable and accrued liabilities on the condensed
consolidated balance sheets relating to these SARs.
23
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information requires 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 two reportable business segments:
Motion Pictures and Television.
Motion Pictures consists of the development and production of
feature films, acquisition of North American and worldwide
distribution rights, North American theatrical, video and
television distribution of feature films produced and acquired
and worldwide licensing of distribution rights to feature films
produced and acquired.
Television consists of the development, production and worldwide
distribution of television productions, including television
series, television movies and mini-series and non-fiction
programming.
As a result of the Companys sale of the studio facilities
on March 15, 2006, the Company no longer discloses its
studio operations as a reportable segment.
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,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Segment revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
221,592
|
|
|
$
|
203,314
|
|
|
$
|
573,376
|
|
|
$
|
518,579
|
|
Television
|
|
|
32,939
|
|
|
|
25,999
|
|
|
|
71,780
|
|
|
|
114,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
254,531
|
|
|
$
|
229,313
|
|
|
$
|
645,156
|
|
|
$
|
633,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
81,282
|
|
|
$
|
86,520
|
|
|
$
|
212,784
|
|
|
$
|
214,658
|
|
Television
|
|
|
29,639
|
|
|
|
23,608
|
|
|
|
61,405
|
|
|
|
103,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
110,921
|
|
|
$
|
110,128
|
|
|
$
|
274,189
|
|
|
$
|
318,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution and marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
93,691
|
|
|
$
|
98,897
|
|
|
$
|
289,348
|
|
|
$
|
288,685
|
|
Television
|
|
|
2,112
|
|
|
|
589
|
|
|
|
6,846
|
|
|
|
1,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
95,803
|
|
|
$
|
99,486
|
|
|
$
|
296,194
|
|
|
$
|
290,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
8,493
|
|
|
$
|
6,758
|
|
|
$
|
21,685
|
|
|
$
|
19,178
|
|
Television
|
|
|
1,021
|
|
|
|
243
|
|
|
|
2,071
|
|
|
|
468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,514
|
|
|
$
|
7,001
|
|
|
$
|
23,756
|
|
|
$
|
19,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
38,126
|
|
|
$
|
11,139
|
|
|
$
|
49,559
|
|
|
$
|
(3,942
|
)
|
Television
|
|
|
167
|
|
|
|
1,559
|
|
|
|
1,458
|
|
|
|
8,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
38,293
|
|
|
$
|
12,698
|
|
|
$
|
51,017
|
|
|
$
|
4,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of investment in films
and television programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
41,518
|
|
|
$
|
31,952
|
|
|
$
|
141,381
|
|
|
$
|
114,796
|
|
Television
|
|
|
40,978
|
|
|
|
25,829
|
|
|
|
105,186
|
|
|
|
100,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82,496
|
|
|
$
|
57,781
|
|
|
$
|
246,567
|
|
|
$
|
215,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Purchases of property and equipment amounted to
$4.2 million and $7.7 million for the three and nine
months ending December 31, 2006, respectively, and
$2.0 million and $4.2 million for the three and nine
months ending December 31, 2005, respectively, all
primarily pertaining to the corporate headquarters.
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,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Companys total segment profit
|
|
$
|
38,293
|
|
|
$
|
12,698
|
|
|
$
|
51,017
|
|
|
$
|
4,477
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate general and
administration
|
|
|
(13,833
|
)
|
|
|
(5,886
|
)
|
|
|
(40,551
|
)
|
|
|
(25,583
|
)
|
Depreciation
|
|
|
(824
|
)
|
|
|
(416
|
)
|
|
|
(1,949
|
)
|
|
|
(1,348
|
)
|
Interest expense
|
|
|
(4,601
|
)
|
|
|
(4,698
|
)
|
|
|
(14,181
|
)
|
|
|
(13,954
|
)
|
Interest rate swaps
mark-to-market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(123
|
)
|
Interest income
|
|
|
2,906
|
|
|
|
1,046
|
|
|
|
7,753
|
|
|
|
2,962
|
|
Equity interests
|
|
|
(425
|
)
|
|
|
(44
|
)
|
|
|
(802
|
)
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) Before Income Taxes
|
|
$
|
21,516
|
|
|
$
|
2,700
|
|
|
$
|
1,287
|
|
|
$
|
(33,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth significant assets as broken down
by segment and other unallocated assets as of December 31,
2006 and March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
March 31, 2006
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Significant assets by segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
76,221
|
|
|
$
|
40,819
|
|
|
$
|
117,040
|
|
|
$
|
155,318
|
|
|
$
|
27,341
|
|
|
$
|
182,659
|
|
Investment in films and television
programs
|
|
|
420,994
|
|
|
|
114,458
|
|
|
|
535,452
|
|
|
|
368,932
|
|
|
|
48,818
|
|
|
|
417,750
|
|
Goodwill
|
|
|
178,685
|
|
|
|
19,120
|
|
|
|
197,805
|
|
|
|
179,847
|
|
|
|
5,270
|
|
|
|
185,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
675,900
|
|
|
$
|
174,397
|
|
|
$
|
850,297
|
|
|
$
|
704,097
|
|
|
$
|
81,429
|
|
|
$
|
785,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other unallocated assets
|
|
|
|
|
|
|
|
|
|
|
307,354
|
|
|
|
|
|
|
|
|
|
|
|
267,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
$
|
1,157,651
|
|
|
|
|
|
|
|
|
|
|
$
|
1,053,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.
|
Commitments &
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. The Company has provided an
accrual for estimated losses under the above matters as of
December 31, 2006, in accordance with SFAS No. 5,
Accounting for Contingencies.
The Company has entered into an agreement to guarantee a
production loan limited to $27 million, for the production
of a television series produced by a third party. The fair value
of this guarantee was not significant due to remote likelihood
of default by the third party, and the underlying collateral
retained by the Company.
25
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
15.
|
Consolidating
Financial Information
|
In October 2004, the Company sold $150.0 million of the
2.9375% Notes, through its wholly owned
U.S. subsidiary Lions Gate Entertainment Inc. (the
Issuer). The 2.9375% Notes, by their terms, are
fully and unconditionally guaranteed by the Company. On
February 4, 2005, the Company filed a registration
statement on
Form S-3
to register the resale of the 2.9375% Notes and common
shares issuable on conversion of the 2.9375% Notes. On
March 3, 2005, the registration statement was declared
effective by the SEC.
In February 2005, the Company sold $175.0 million of the
3.625% Notes, through the Issuer. The 3.625% Notes, by
their terms, are fully and unconditionally guaranteed by the
Company. On March 29, 2005, and as amended April 6,
2005, the Company filed a registration statement on
Form S-3
to register the resale of the 3.625% Notes and common
shares issuable on conversion of the 3.625% Notes. On
April 13, 2005, the registration statement was declared
effective by the SEC.
The following tables present condensed consolidating financial
information as of December 31, 2006 and March 31, 2006
and for the nine months ended December 31, 2006 and 2005
for (1) the Company, on a stand-alone basis, (2) the
Issuer, on a stand-alone basis, (3) the non-guarantor
subsidiaries of the Company (including the subsidiaries of the
Issuer) on a combined basis (collectively, the Other
Subsidiaries) and (4) the Company on a consolidated
basis.
BALANCE
SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006
|
|
|
|
Lions Gate
|
|
|
Lions Gate
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Entertainment
|
|
|
Other
|
|
|
Consolidating
|
|
|
Lions Gate
|
|
|
|
Corp.
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
1,991
|
|
|
$
|
|
|
|
$
|
37,482
|
|
|
$
|
|
|
|
$
|
39,473
|
|
Restricted cash
|
|
|
|
|
|
|
2,196
|
|
|
|
7,774
|
|
|
|
|
|
|
|
9,970
|
|
Investments auction
rate securities
|
|
|
|
|
|
|
206,643
|
|
|
|
|
|
|
|
|
|
|
|
206,643
|
|
Investments equity
securities
|
|
|
|
|
|
|
14,080
|
|
|
|
|
|
|
|
|
|
|
|
14,080
|
|
Accounts receivable, net
|
|
|
287
|
|
|
|
434
|
|
|
|
116,319
|
|
|
|
|
|
|
|
117,040
|
|
Investment in films and television
programs
|
|
|
|
|
|
|
6,632
|
|
|
|
528,820
|
|
|
|
|
|
|
|
535,452
|
|
Property and equipment
|
|
|
|
|
|
|
13,319
|
|
|
|
|
|
|
|
|
|
|
|
13,319
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
197,805
|
|
|
|
|
|
|
|
197,805
|
|
Other assets
|
|
|
38
|
|
|
|
11,986
|
|
|
|
11,845
|
|
|
|
|
|
|
|
23,869
|
|
Investment in subsidiaries
|
|
|
276,915
|
|
|
|
525,233
|
|
|
|
|
|
|
|
(802,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
279,231
|
|
|
$
|
780,523
|
|
|
$
|
900,045
|
|
|
$
|
(802,148
|
)
|
|
$
|
1,157,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY (DEFICIENCY)
|
Accounts payable and accrued
liabilities
|
|
$
|
489
|
|
|
$
|
25,886
|
|
|
$
|
142,016
|
|
|
$
|
|
|
|
$
|
168,391
|
|
Participation and residuals
|
|
|
|
|
|
|
|
|
|
|
170,710
|
|
|
|
|
|
|
|
170,710
|
|
Film obligations
|
|
|
|
|
|
|
5,000
|
|
|
|
189,359
|
|
|
|
|
|
|
|
194,359
|
|
Subordinated notes
|
|
|
|
|
|
|
325,000
|
|
|
|
|
|
|
|
|
|
|
|
325,000
|
|
Deferred revenue
|
|
|
|
|
|
|
|
|
|
|
81,184
|
|
|
|
|
|
|
|
81,184
|
|
Intercompany payables (receivables)
|
|
|
(229,250
|
)
|
|
|
365,335
|
|
|
|
(37,443
|
)
|
|
|
(98,642
|
)
|
|
|
|
|
Intercompany equity
|
|
|
289,985
|
|
|
|
93,217
|
|
|
|
335,089
|
|
|
|
(718,291
|
)
|
|
|
|
|
Shareholders equity
(deficiency)
|
|
|
218,007
|
|
|
|
(33,915
|
)
|
|
|
19,130
|
|
|
|
14,785
|
|
|
|
218,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
279,231
|
|
|
$
|
780,523
|
|
|
$
|
900,045
|
|
|
$
|
(802,148
|
)
|
|
$
|
1,157,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
STATEMENT
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, 2006
|
|
|
|
Lions Gate
|
|
|
Lions Gate
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Entertainment
|
|
|
Other
|
|
|
Consolidating
|
|
|
Lions Gate
|
|
|
|
Corp.
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
12,199
|
|
|
$
|
636,564
|
|
|
$
|
(3,607
|
)
|
|
$
|
645,156
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating
|
|
|
|
|
|
|
|
|
|
|
274,189
|
|
|
|
|
|
|
|
274,189
|
|
Distribution and marketing
|
|
|
86
|
|
|
|
539
|
|
|
|
295,569
|
|
|
|
|
|
|
|
296,194
|
|
General and administration
|
|
|
1,233
|
|
|
|
39,306
|
|
|
|
23,768
|
|
|
|
|
|
|
|
64,307
|
|
Depreciation
|
|
|
|
|
|
|
25
|
|
|
|
1,924
|
|
|
|
|
|
|
|
1,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,319
|
|
|
|
39,870
|
|
|
|
595,450
|
|
|
|
|
|
|
|
636,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
|
|
(1,319
|
)
|
|
|
(27,671
|
)
|
|
|
41,114
|
|
|
|
(3,607
|
)
|
|
|
8,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expense (Income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
116
|
|
|
|
13,897
|
|
|
|
168
|
|
|
|
|
|
|
|
14,181
|
|
Interest income
|
|
|
(136
|
)
|
|
|
(8,001
|
)
|
|
|
384
|
|
|
|
|
|
|
|
(7,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(20
|
)
|
|
|
5,896
|
|
|
|
552
|
|
|
|
|
|
|
|
6,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE EQUITY
INTERESTS AND INCOME TAXES
|
|
|
(1,299
|
)
|
|
|
(33,567
|
)
|
|
|
40,562
|
|
|
|
(3,607
|
)
|
|
|
2,089
|
|
Equity interests
|
|
|
3,485
|
|
|
|
40,542
|
|
|
|
(801
|
)
|
|
|
(44,028
|
)
|
|
|
(802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
2,186
|
|
|
|
6,975
|
|
|
|
39,761
|
|
|
|
(47,635
|
)
|
|
|
1,287
|
|
Income tax provision (benefit)
|
|
|
(273
|
)
|
|
|
611
|
|
|
|
(1,510
|
)
|
|
|
|
|
|
|
(1,172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
2,459
|
|
|
$
|
6,364
|
|
|
$
|
41,271
|
|
|
$
|
(47,635
|
)
|
|
$
|
2,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
STATEMENT
OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, 2006
|
|
|
|
Lions Gate
|
|
|
Lions Gate
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Entertainment
|
|
|
Other
|
|
|
Consolidating
|
|
|
Lions Gate
|
|
|
|
Corp.
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) OPERATING ACTIVITIES
|
|
$
|
(9,328
|
)
|
|
$
|
79,248
|
|
|
$
|
(6,275
|
)
|
|
$
|
2,060
|
|
|
$
|
65,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of
investments auction rate securities
|
|
|
|
|
|
|
(575,789
|
)
|
|
|
|
|
|
|
|
|
|
|
(575,789
|
)
|
Sales of investments
auction rate securities
|
|
|
|
|
|
|
536,226
|
|
|
|
|
|
|
|
|
|
|
|
536,226
|
|
Acquisition of Redbus, net of cash
acquired
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
45
|
|
|
|
|
|
Acquisition of Debmar, net of cash
acquired
|
|
|
|
|
|
|
(24,740
|
)
|
|
|
603
|
|
|
|
|
|
|
|
(24,137
|
)
|
Funding of joint
venture FEARnet
|
|
|
|
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,000
|
)
|
Purchases of property and equipment
|
|
|
|
|
|
|
(5,264
|
)
|
|
|
(2,473
|
)
|
|
|
|
|
|
|
(7,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) INVESTING ACTIVITIES
|
|
|
|
|
|
|
(74,612
|
)
|
|
|
(1,870
|
)
|
|
|
45
|
|
|
|
(76,437
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares
|
|
|
3,235
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
3,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES
|
|
|
3,235
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
3,280
|
|
NET CHANGE IN CASH AND CASH
EQUIVALENTS
|
|
|
(6,093
|
)
|
|
|
4,636
|
|
|
|
(8,145
|
)
|
|
|
2,150
|
|
|
|
(7,452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN EXCHANGE EFFECT ON
CASH
|
|
|
1,365
|
|
|
|
1,611
|
|
|
|
(1,155
|
)
|
|
|
(1,874
|
)
|
|
|
(53
|
)
|
CASH AND CASH
EQUIVALENTS BEGINNING OF PERIOD
|
|
|
6,370
|
|
|
|
|
|
|
|
40,446
|
|
|
|
162
|
|
|
|
46,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS END OF PERIOD
|
|
$
|
1,642
|
|
|
$
|
6,247
|
|
|
$
|
31,146
|
|
|
$
|
438
|
|
|
$
|
39,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
BALANCE
SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2006
|
|
|
|
Lions Gate
|
|
|
Lions Gate
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Entertainment
|
|
|
Other
|
|
|
Consolidating
|
|
|
Lions Gate
|
|
|
|
Corp.
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
6,541
|
|
|
$
|
|
|
|
$
|
40,437
|
|
|
$
|
|
|
|
$
|
46,978
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
820
|
|
|
|
|
|
|
|
820
|
|
Investments auction
rate preferreds and municipal bonds
|
|
|
|
|
|
|
167,081
|
|
|
|
|
|
|
|
|
|
|
|
167,081
|
|
Investments equity
securities
|
|
|
|
|
|
|
14,921
|
|
|
|
|
|
|
|
|
|
|
|
14,921
|
|
Accounts receivable, net
|
|
|
299
|
|
|
|
829
|
|
|
|
181,531
|
|
|
|
|
|
|
|
182,659
|
|
Investment in films and television
programs
|
|
|
|
|
|
|
5,245
|
|
|
|
412,505
|
|
|
|
|
|
|
|
417,750
|
|
Property and equipment
|
|
|
|
|
|
|
7,131
|
|
|
|
87
|
|
|
|
|
|
|
|
7,218
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
185,117
|
|
|
|
|
|
|
|
185,117
|
|
Other assets
|
|
|
27
|
|
|
|
16,377
|
|
|
|
14,301
|
|
|
|
|
|
|
|
30,705
|
|
Investment in subsidiaries
|
|
|
228,573
|
|
|
|
312,011
|
|
|
|
|
|
|
|
(540,584
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
235,440
|
|
|
$
|
523,595
|
|
|
$
|
834,798
|
|
|
$
|
(540,584
|
)
|
|
$
|
1,053,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
(DEFICIENCY)
|
Accounts payable and accrued
liabilities
|
|
$
|
742
|
|
|
$
|
4,087
|
|
|
$
|
183,964
|
|
|
$
|
|
|
|
$
|
188,793
|
|
Unpresented bank drafts
|
|
|
|
|
|
|
14,772
|
|
|
|
|
|
|
|
|
|
|
|
14,772
|
|
Participation and residuals
|
|
|
|
|
|
|
|
|
|
|
164,326
|
|
|
|
|
|
|
|
164,326
|
|
Film obligations
|
|
|
|
|
|
|
|
|
|
|
120,661
|
|
|
|
|
|
|
|
120,661
|
|
Subordinated notes
|
|
|
|
|
|
|
385,000
|
|
|
|
|
|
|
|
|
|
|
|
385,000
|
|
Deferred revenue
|
|
|
|
|
|
|
|
|
|
|
30,427
|
|
|
|
|
|
|
|
30,427
|
|
Intercompany payables (receivables)
|
|
|
(168,726
|
)
|
|
|
188,859
|
|
|
|
(5,927
|
)
|
|
|
(14,206
|
)
|
|
|
|
|
Intercompany equity
|
|
|
254,154
|
|
|
|
93,217
|
|
|
|
329,948
|
|
|
|
(677,319
|
)
|
|
|
|
|
Shareholders equity
(deficiency)
|
|
|
149,270
|
|
|
|
(162,340
|
)
|
|
|
11,399
|
|
|
|
150,941
|
|
|
|
149,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
235,440
|
|
|
$
|
523,595
|
|
|
$
|
834,798
|
|
|
$
|
(540,584
|
)
|
|
$
|
1,053,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
STATEMENT
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, 2005
|
|
|
|
Lions Gate
|
|
|
Lions Gate
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Entertainment
|
|
|
Other
|
|
|
Consolidating
|
|
|
Lions Gate
|
|
|
|
Corp.
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
Revenues
|
|
$
|
513
|
|
|
$
|
964
|
|
|
$
|
632,098
|
|
|
$
|
(445
|
)
|
|
$
|
633,130
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating
|
|
|
|
|
|
|
|
|
|
|
318,352
|
|
|
|
|
|
|
|
318,352
|
|
Distribution and marketing
|
|
|
|
|
|
|
275
|
|
|
|
290,380
|
|
|
|
|
|
|
|
290,655
|
|
General and administration
|
|
|
1,407
|
|
|
|
24,180
|
|
|
|
20,087
|
|
|
|
(445
|
)
|
|
|
45,229
|
|
Depreciation
|
|
|
|
|
|
|
71
|
|
|
|
1,277
|
|
|
|
|
|
|
|
1,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,407
|
|
|
|
24,526
|
|
|
|
630,096
|
|
|
|
(445
|
)
|
|
|
655,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
|
|
(894
|
)
|
|
|
(23,562
|
)
|
|
|
2,002
|
|
|
|
|
|
|
|
(22,454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses (Income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1
|
|
|
|
13,861
|
|
|
|
92
|
|
|
|
|
|
|
|
13,954
|
|
Interest rate swaps
mark-to-market
|
|
|
|
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
|
123
|
|
Interest income
|
|
|
|
|
|
|
(2,863
|
)
|
|
|
(99
|
)
|
|
|
|
|
|
|
(2,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses (income), net
|
|
|
1
|
|
|
|
11,121
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
11,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE EQUITY
INTERESTS AND INCOME TAXES
|
|
|
(895
|
)
|
|
|
(34,683
|
)
|
|
|
2,009
|
|
|
|
|
|
|
|
(33,569
|
)
|
Equity interests
|
|
|
(31,863
|
)
|
|
|
(11,584
|
)
|
|
|
(98
|
)
|
|
|
43,447
|
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
(32,758
|
)
|
|
|
(46,267
|
)
|
|
|
1,911
|
|
|
|
43,447
|
|
|
|
(33,667
|
)
|
Income tax provision
|
|
|
25
|
|
|
|
310
|
|
|
|
(95
|
)
|
|
|
|
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) BEFORE
DISCONTINUED OPERATIONS
|
|
|
(32,783
|
)
|
|
|
(46,577
|
)
|
|
|
2,006
|
|
|
|
43,447
|
|
|
|
(33,907
|
)
|
Income (loss) from discontinued
operations, net of tax of $579
|
|
|
|
|
|
|
|
|
|
|
1,124
|
|
|
|
|
|
|
|
1,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
(32,783
|
)
|
|
$
|
(46,577
|
)
|
|
$
|
3,130
|
|
|
$
|
43,447
|
|
|
$
|
(32,783
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
STATEMENT
OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, 2005
|
|
|
|
Lions Gate
|
|
|
Lions Gate
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Entertainment
|
|
|
Other
|
|
|
Consolidating
|
|
|
Lions Gate
|
|
|
|
Corp.
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) OPERATING ACTIVITIES CONTINUING
OPERATIONS
|
|
$
|
2,250
|
|
|
$
|
(15,636
|
)
|
|
$
|
70,511
|
|
|
$
|
|
|
|
$
|
57,125
|
|
NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES DISCONTINUED
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
1,808
|
|
|
|
|
|
|
|
1,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) OPERATING ACTIVITIES
|
|
|
2,250
|
|
|
|
(15,636
|
)
|
|
|
72,319
|
|
|
|
|
|
|
|
58,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of
investments auction rate preferreds and municipal
bonds
|
|
|
|
|
|
|
(163,400
|
)
|
|
|
|
|
|
|
|
|
|
|
(163,400
|
)
|
Purchases of
investments equity securities
|
|
|
|
|
|
|
(3,470
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,470
|
)
|
Sales of investments
auction rate preferreds
|
|
|
|
|
|
|
82,500
|
|
|
|
|
|
|
|
|
|
|
|
82,500
|
|
Cash received from sale of
investment
|
|
|
|
|
|
|
|
|
|
|
2,945
|
|
|
|
|
|
|
|
2,945
|
|
Acquisition of Redbus, net of cash
acquired
|
|
|
|
|
|
|
(27,122
|
)
|
|
|
|
|
|
|
|
|
|
|
(27,122
|
)
|
Purchases of property and equipment
|
|
|
|
|
|
|
(4,133
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
(4,173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) INVESTING ACTIVITIES CONTINUING
OPERATIONS
|
|
|
|
|
|
|
(115,625
|
)
|
|
|
2,905
|
|
|
|
|
|
|
|
(112,720
|
)
|
NET CASH FLOWS PROVIDED BY
INVESTING ACTIVITIES DISCONTINUED
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) INVESTING ACTIVITIES
|
|
|
|
|
|
|
(115,625
|
)
|
|
|
3,019
|
|
|
|
|
|
|
|
(112,606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares
|
|
|
779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
779
|
|
Financing fees
|
|
|
|
|
|
|
(240
|
)
|
|
|
|
|
|
|
|
|
|
|
(240
|
)
|
Repayment of subordinated notes
|
|
|
|
|
|
|
|
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) FINANCING ACTIVITIES CONTINUING
OPERATIONS
|
|
|
779
|
|
|
|
(240
|
)
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
(4,461
|
)
|
NET CASH FLOWS USED IN
FINANCING ACTIVITIES DISCONTINUED
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
(2,523
|
)
|
|
|
|
|
|
|
(2,523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) FINANCING ACTIVITIES
|
|
|
779
|
|
|
|
(240
|
)
|
|
|
(7,523
|
)
|
|
|
|
|
|
|
(6,984
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, 2005
|
|
|
|
Lions Gate
|
|
|
Lions Gate
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Entertainment
|
|
|
Other
|
|
|
Consolidating
|
|
|
Lions Gate
|
|
|
|
Corp.
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
NET CHANGE IN CASH AND CASH
EQUIVALENTS
|
|
|
3,029
|
|
|
|
(131,501
|
)
|
|
|
67,815
|
|
|
|
|
|
|
|
(60,657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN EXCHANGE EFFECT ON
CASH CONTINUING OPERATIONS
|
|
|
(3,045
|
)
|
|
|
1,829
|
|
|
|
(558
|
)
|
|
|
|
|
|
|
(1,774
|
)
|
FOREIGN EXCHANGE EFFECT ON
CASH DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
140
|
|
|
|
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN EXCHANGE EFFECT ON
CASH
|
|
|
(3,045
|
)
|
|
|
1,829
|
|
|
|
(418
|
)
|
|
|
|
|
|
|
(1,634
|
)
|
CASH AND CASH
EQUIVALENTS BEGINNING OF PERIOD
|
|
|
943
|
|
|
|
106,356
|
|
|
|
5,540
|
|
|
|
|
|
|
|
112,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS END OF PERIOD
|
|
$
|
927
|
|
|
$
|
(23,316
|
)
|
|
$
|
72,937
|
|
|
$
|
|
|
|
$
|
50,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On February 1, 2007, the Company announced that its
wholly-owned subsidiary, Lionsgate Australia Pty Ltd, intends to
make a takeover offer for all of the ordinary shares issued in
the Australian Securities Exchange listed Magna Pacific
(Holdings) Limited, an independent DVD distributor in Australia
and New Zealand. The offer price is approximately
US$0.25 per share, or a total of approximately
US$27,000,000 if all of the outstanding shares are acquired
(including shares already owned by the Company).
32
|
|
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 a diversified independent producer and
distributor of motion pictures, television programming, home
entertainment, family entertainment,
video-on-demand
and music content. We release approximately 15 to 18 motion
pictures theatrically per year. Our theatrical releases include
films we produce in-house and films we acquire from third
parties. We also have produced approximately 97 hours of
television programming on average each of the last three years.
Our disciplined approach to production, acquisition and
distribution is designed to maximize our profit by balancing our
financial risks against the probability of commercial success of
each project. We currently distribute our library of more than
10,000 motion picture titles and television episodes and
programs directly to retailers, video rental stores, and pay and
free television channels in the U.S., UK and Ireland and
indirectly to other international markets through third parties.
We own a minority interest in CinemaNow, Inc.
(CinemaNow), an internet
video-on-demand
provider. We also own a minority interest in Maple Pictures
Corp. (Maple Pictures), a Canadian film and
television distributor based in Toronto, Canada. We have
distribution agreements with Maple Pictures through which we
distribute our library and other titles in Canada.
Our revenues are derived from the following business segments:
|
|
|
|
|
Motion Pictures, which includes Theatrical, Home Entertainment,
Television and International Distribution. Theatrical revenues
are derived from the theatrical release of motion pictures in
the United States 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 are derived primarily from the sale of video and DVD
releases of our own productions and acquired films, including
theatrical releases and
direct-to-video
releases, to retail stores. 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 UK subsidiary and from the
licensing of our productions and acquired films to international
markets on a
territory-by-territory
basis. Our revenues are derived from the United States, Canada
and other foreign countries; none of the foreign countries
individually comprised greater than 10% of total revenue.
|
|
|
|
Television Productions, which includes the licensing to domestic
and international markets of
one-hour and
half-hour
drama series, television movies and mini-series and non-fiction
programming and revenues from the sale of television production
movies or series in other media including home entertainment.
|
|
|
|
Studio Facilities, which included Lions Gate Studios and the
leased facility Eagle Creek Studios, and which derived revenue
from rental of sound stages, production offices, construction
mills, storage facilities and lighting equipment to film and
television producers. We sold our studio facilities located in
Vancouver, British Columbia on March 15, 2006. Studio
facilities previously comprised the Companys studio
facilities reporting segment. Therefore, the Company is not
reporting this segment in fiscal 2007. Total revenues and
expenses of the Studio Facilities are reported net within
discontinued operations in the statements of operations for all
periods prior to the sale.
|
Our primary operating expenses include the following:
|
|
|
|
|
Direct Operating Expenses, which include amortization of
production or acquisition costs, participation and residual
expenses and provision for doubtful accounts. Participations
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, 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.
|
33
|
|
|
|
|
Distribution and Marketing Expenses, which primarily include the
costs of theatrical prints and advertising and of
video and DVD duplication and marketing. Theatrical print and
advertising represent 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. Video and DVD duplication represent the
cost of the video and DVD product and the manufacturing costs
associated with creating the physical products. Video and DVD
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, which include salaries and
other overhead.
|
Recent
Developments
Horror Entertainment, LLC. On October 10,
2006, the Company purchased 300 membership interests in Horror
Entertainment, LLC (FEARnet), a multiplatform
programming and content service provider of horror genre films
operating under the branding of FEARnet. In
addition, the Company entered into a
5-year
license agreement with FEARnet for the US territories and
possessions whereby the Company will license content to FEARnet
for VOD and broadband exhibition. The Company has agreed not to
compete in the area of a channel within the horror genre and the
Company cannot license to a horror genre competitor more than 25
titles in any year during the term of the license agreement. The
Company made a capital contribution to FEARnet of
$5.0 million at the date of acquisition and has committed
to a total capital contribution of $13.3 million, which is
expected to be fully funded over the next two-year period. Under
certain circumstances, if the Company defaults on any of its
funding obligations, then the Company could forfeit its equity
and its license agreement with FEARnet could be terminated. The
Company is accounting for the investment in FEARnet using the
equity method because of the Companys ownership percentage
of 33.33%. Due to the timing in availability of financial
statements from FEARnet, the Company will record its share of
the FEARnet results on a one quarter lag. Accordingly, the
Company has not recorded its equity interests in the earnings or
losses of FEARnet through December 31, 2006 in the
consolidated statements of operations. The investment in FEARnet
is $5.0 million as December 31, 2006 (March 31,
2006 nil).
4.875% Notes Conversion. On
December 15, 2006, in response to our optional redemption
notice, all of the noteholders of the 4.875% Notes
voluntarily elected to convert their notes into the
Companys common shares. A total of $60 million of
principal was converted into 11,105,664 common shares at a
conversion price of $5.40 per share. In connection with
this conversion, the principal amount net of the unamortized
portion of the financing costs associated with the original
conversion of the 4.875% Notes of approximately
$2.1 million was recorded as an increase to common shares.
The shares issued pursuant to the conversion were previously
reserved for such issuance pursuant to the conversion.
Debmar. On July 3, 2006, the Company
acquired all of the capital stock of Debmar-Mercury LLC
(Debmar), an independent distributor of film and
television packages. Consideration for the Debmar acquisition
was $27.5 million, comprised of a combination of
$24.5 million in cash paid on July 3, 2006 and up to
$3.0 million in common shares of the Company to be issued
on January 1, 2008 if there are no breaches requiring
indemnification by the seller of certain representations and
warranties made by the seller. An additional $0.2 million
has been incurred in acquisition costs. The $3.0 million of
shares to be issued has been recorded as part of the purchase
consideration and reflected as a liability. If no incremental
liabilities become known by January 1, 2008 then the shares
will be issued and the $3.0 million will be reclassified to
equity. The purchase price may be adjusted for the payment of
additional consideration contingent on the financial performance
of Debmar for the five-year period ending June 30, 2011.
The Debmar acquisition provides the Company with the rights to
distribute certain television properties, such as the television
series South Park, and provides the Company with an
experienced management team to further enhance its capacity to
syndicate its own and others television programming and feature
film packages.
Image. During the year ended March 31,
2006, the Company purchased in the open market 1,150,000 common
shares of Image for $3.5 million in cash, representing an
average cost per share of $3.02. Also during the year ended
March 31, 2006, the Company completed a negotiated exchange
with certain shareholders of Image in which the Company
exchanged 1,104,004 of its common shares (at $10.45 per
share) in return for 2,883,996
34
common shares of Image (at $4.00 per share). The cost on an
exchanged basis of the additional 2,883,996 common shares of
Image is $11.5 million. As of December 31, 2006 and
March 31, 2006, the Company held 4,033,996 common shares of
Image acquired at an average cost per share of $3.72; the shares
held by the Company represent approximately 18.7% of
Images outstanding common shares as of January 31,
2007. The closing price of Images common shares on
December 31, 2006 was $3.49 per common share
(March 31, 2006 $3.70 per common share).
As a result, the Company had unrealized losses of
$0.9 million and $0.1 million on its investment in
Image common shares as of December 31, 2006 and
March 31, 2006, respectively. The Company has reported the
increase in the unrealized loss of $0.8 million as other
comprehensive loss in the consolidated statement of
shareholders equity for the nine months ended
December 31, 2006.
CinemaNow. At March 31, 2006, the Company
had a 30% equity interest on an undiluted basis in CinemaNow,
Inc. (CinemaNow). The investment in CinemaNow is
accounted for using the equity method. The investment in
CinemaNow on our consolidated balance sheet was nil at
March 31, 2006. In June 2006, the Company purchased
$1.0 million Series E Preferred Stock as part of a
$20.3 million round of financing secured by CinemaNow. At
December 31, 2006, the Companys equity interest in
CinemaNow is 18.8% on a fully diluted basis and 21.1% on an
undiluted basis. The investment in CinemaNow on our consolidated
balance sheet was $0.3 million as of December 31, 2006.
Redbus. On October 17, 2005, the Company
acquired all outstanding shares of Redbus, an independent film
distributor located in the United Kingdom. Consideration for the
Redbus acquisition was $35.5 million, comprised of a
combination of $28.0 million in cash, $6.4 million in
Lionsgate common shares and direct transaction costs of
$1.1 million. In addition, the Company assumed other
obligations (including accounts payable and accrued liabilities
and film obligations) of $19.4 million. At the closing of
the transaction the Company issued 643,460 common shares to
Redbus Group Limited (RGL) valued at approximately
$5.6 million, or $8.77 per share, and will issue up to
an expected additional 94,937 common shares to RGL upon
satisfaction of the terms of the escrow agreement to terminate
on May 17, 2007. Direct transaction costs are considered
liabilities assumed in the acquisition and, as such, are
included in the purchase price. Direct transaction costs consist
primarily of legal and accounting fees.
The Redbus acquisition was accounted for as a purchase, with the
results of operations of Redbus consolidated from
October 17, 2005. Goodwill of $27.1 million represents
the excess of purchase price over the fair value of the net
identifiable tangible and intangible assets acquired.
Lionsgate Studios. On March 15, 2006, the
Company sold its studio facilities located in Vancouver, British
Columbia.
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 March 31, 2006 audited
consolidated financial statements.
Generally Accepted Accounting Principles. Our
consolidated financial statements have been prepared in
accordance with U.S. GAAP.
Accounting for Films and Television
Programs. In June 2000, the Accounting Standards
Executive Committee of the American Institute of Certified
Public Accountants issued Statement of Position
00-2
Accounting by Producers or Distributors of Films
(SoP
00-2).
SoP 00-2
establishes accounting standards for producers or distributors
of films, including changes in revenue recognition,
capitalization and amortization of costs of acquiring films and
television programs and accounting for exploitation costs,
including advertising and marketing expenses.
We capitalize costs of production and acquisition, including
financing costs and production overhead, to investment in films
and television programs. These costs are amortized to direct
operating expenses in accordance
35
with SoP
00-2. These
costs are stated at the lower of unamortized films or television
program costs or estimated fair value. These costs for an
individual film or television program are amortized and
participation and residual costs are accrued 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 twenty years from the date of acquisition.
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.
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 video
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 sale or
licensing of films and television programs is recognized upon
meeting all recognition requirements of SoP
00-2.
Revenue from the theatrical release of feature films is
recognized at the time of exhibition based on the Companys
participation in box office receipts. Revenue from the sale of
videocassettes and DVDs 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 the Company is entitled to receipts and such
receipts are determinable. Revenues from television licensing
are recognized when the feature film or television program is
available to the licensee for telecast. For television licenses
that include separate availability windows during
the license period, revenue is allocated over the
windows. Revenue from sales to international
territories are recognized when access to the feature film or
television program has been granted or delivery has occurred, as
required under the sales contract, and the right to exploit the
feature film or television program has commenced. For multiple
media rights contracts with a fee for a single film or
television program where the contract provides for media
holdbacks (defined as contractual media release restrictions),
the fee is allocated to the various media based on
managements 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 managements assessment of the relative
fair value of each title.
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
video 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 video businesses. Factors affecting actual
returns include limited retail shelf space at various times of
the year, success of advertising or other sales promotions, the
near term release of competing titles, among other factors. 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
36
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. The Company is subject to
federal and state income taxes in the United States, and in
several foreign jurisdictions in which we operate. We account
for income taxes according to SFAS No. 109,
Accounting for Income Taxes
(SFAS No. 109). SFAS No. 109 requires the
recognition of deferred tax assets, net of applicable reserves,
related to net operating loss carryforwards and certain
temporary differences. The standard requires recognition of 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 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.
Goodwill. On April 1, 2001, the Company
adopted SFAS No. 142, Goodwill and Other
Intangible Assets. 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. The Company performs its annual
impairment test as of December 31 in each fiscal year. The
Company performed its annual impairment test on its goodwill as
of December 31, 2005. No goodwill impairment was identified
in any of the Companys reporting units. Determining the
fair value of reporting units requires various assumptions and
estimates. The estimates of fair value include consideration of
the future projected operating results and cash flows of the
reporting unit. Such projections could be different than actual
results. Should actual results be significantly less than
estimates, the value of our goodwill could be impaired in the
future.
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 the allocation
period allowed under SFAS No. 141. The changes in
these estimates could impact the amount of assets, including
goodwill and liabilities, ultimately recorded on our balance
sheet as a result of an acquisition 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
Statement of Financial Accounting Standards
No. 123(R). In December 2004, the FASB
issued SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS No. 123(R)).
SFAS No. 123(R) revises SFAS No. 123 and
eliminates the alternative to use the intrinsic method of
accounting under APB No. 25. SFAS No. 123(R)
requires all public companies accounting for share-based payment
transactions in which an enterprise receives employee services
in exchange for (a) equity instruments of the enterprise or
(b) liabilities that are based on the fair value of the
enterprises equity instruments or (c) that may be
settled by the issuance of such equity instruments, to account
for these types of transactions using a fair-value-based method.
Effective April 1, 2006, the Company adopted the fair value
recognition provisions of SFAS No. 123(R),
Share-Based Payment (SFAS No. 123(R)),
using the modified-prospective transition method. Under such
transition method, compensation cost recognized in the three and
nine months ended December 31, 2006 includes:
(a) compensation cost for all stock options granted prior
to, but not yet vested as of April 1, 2006, based on the
grant date fair value estimated in accordance with the original
provisions of SFAS No. 123, and (b) compensation
cost for all share-based payments granted on or after
April 1, 2006, based on the grant-date fair value estimated
in accordance with the provisions of SFAS No. 123(R).
See note 12 for further discussion of the Companys
stock-based compensation in accordance with
SFAS No. 123(R).
FASB Issued Interpretation No. 48. In
July 2006, the FASB issued Interpretation No. (FIN) 48,
Accounting for Uncertainty in Income Taxes An
Interpretation of SFAS No. 109, which prescribes
a recognition threshold
37
and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. In particular, this interpretation
requires uncertain tax positions to be recognized only if they
are more-likely-than-not to be upheld based on their
technical merits. Additionally, the measurement of the tax
position will be based on the largest amount that is determined
to have greater than a 50% likelihood of realization upon
ultimate settlement. Any resulting cumulative effect of applying
the provisions of FIN 48 upon adoption would be reported as
an adjustment to the beginning balance of retained earnings in
the period of adoption. FIN 48 will be effective beginning
fiscal 2007. We have not yet evaluated the impact of this
interpretation on the Companys consolidated financial
statements.
Results
of Operations
Three
Months Ended December 31, 2006 Compared to Three Months
Ended December 31, 2005
Consolidated revenues this quarter of $254.5 million
increased $25.2 million, or 11.0%, compared to
$229.3 million in the prior years quarter. Motion
pictures revenue of $221.6 million this quarter increased
$18.3 million, or 9.0%, compared to $203.3 million in
the prior years quarter. Television revenues of
$32.9 million this quarter increased $6.9 million, or
26.5%, compared to $26.0 million in the prior years
quarter.
Motion
Pictures Revenue
The increase in motion pictures revenue this quarter was mainly
attributable to increases in television and international
revenue, offset by decreases in video and theatrical revenue.
The following table sets forth the components of revenue for the
motion pictures reporting segment for the three-month periods
ended December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Increase (Decrease)
|
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Amounts in millions)
|
|
|
Motion Pictures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical
|
|
$
|
46.0
|
|
|
$
|
49.9
|
|
|
$
|
(3.9
|
)
|
|
|
(7.8
|
)%
|
Video
|
|
|
113.6
|
|
|
|
115.9
|
|
|
|
(2.3
|
)
|
|
|
(2.0
|
)%
|
Television
|
|
|
31.2
|
|
|
|
20.2
|
|
|
|
11.0
|
|
|
|
54.5
|
%
|
International
|
|
|
27.6
|
|
|
|
14.5
|
|
|
|
13.1
|
|
|
|
90.3
|
%
|
Other
|
|
|
3.2
|
|
|
|
2.8
|
|
|
|
0.4
|
|
|
|
14.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
221.6
|
|
|
$
|
203.3
|
|
|
$
|
18.3
|
|
|
|
9.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
The following table sets forth the titles contributing
significant motion pictures revenue for the three-month periods
ended December 31, 2006 and 2005:
|
|
|
|
|
|
|
Three Months Ended December 31,
|
2006
|
|
2005
|
|
|
Theatrical and Video
|
|
|
|
Theatrical and Video
|
Title
|
|
Release Date
|
|
Title
|
|
Release Date
|
|
|
|
|
|
|
|
|
Theatrical:
|
|
|
|
Theatrical:
|
|
|
Employee of the Month
|
|
October 2006
|
|
In The Mix
|
|
November 2005
|
Saw 3
|
|
October 2006
|
|
Saw 2
|
|
October 2005
|
|
|
|
|
Waiting
|
|
October 2005
|
|
|
|
|
|
|
|
Video:
|
|
|
|
Video:
|
|
|
Akeelah and the Bee
|
|
August 2006
|
|
Barbie and the Magic
of Pegasus
|
|
September 2005
|
An American Haunting
|
|
October 2006
|
|
Care Bears Big
Wish
|
|
October 2005
|
Reservoir Dogs
Special
|
|
October 2006
|
|
Crash
|
|
September 2005
|
Saw 2
|
|
February 2006
|
|
High Tension
|
|
October 2005
|
See No Evil
|
|
November 2006
|
|
Its a
Wonderful Life
|
|
Promotional Release
|
The Descent
|
|
December 2006
|
|
Saw
|
|
February 2005
|
|
|
|
|
The Devils
Rejects
|
|
November 2005
|
|
|
|
Television:
Hostel
Madeas Family Reunion
The Punisher
|
|
Television:
Beyond the Sea
Diary of a Mad Black Woman
Saw
|
|
|
|
International:
Crank
Saw 2
Saw 3
The Lost City
|
|
International:
Happy Endings
Saw 2
|
Theatrical revenue of $46.0 million decreased
$3.9 million or 7.8% in this quarter as compared to the
prior years quarter due to the performance during the
quarter of the theatrical releases listed in the above table. In
this quarter, the titles listed in the above table as
contributing significant theatrical revenue in the current
quarter represented approximately 98% of total theatrical
revenue. In the prior years quarter, the titles listed in
the above table as contributing significant theatrical revenue
in the prior years quarter represented approximately 96%
of total theatrical revenue.
Video revenue of $113.6 million decreased $2.3 million
or 2.0% in this quarter as compared to the prior years
quarter. The decrease is due to a decrease in revenue
contributed by titles that individually make up less than 2% of
total video revenue as compared to the prior years
quarter, which was partially offset by revenue generated from
the titles listed in the above table. In the current quarter
$65.5 million, or 58%, of total video revenue was
contributed by titles that individually make up less than 2% of
total video revenue, and in the prior quarter this amounted to
$76.1 million or 66% of total video revenue. The titles
listed above as contributing significant video revenue in the
current quarter represented individually between 2% to 16% of
total video revenue and in the aggregate 42% or
$48.1 million of total video revenue for the quarter. In
the prior years quarter, the titles listed above as
contributing significant video revenue represented individually
between 2% to 13% of total video revenue and in the aggregate
34% or $39.8 million of total video revenue for the quarter.
Television revenue included in motion pictures revenue of
$31.2 million in this quarter increased $11.0 million,
or 54.5%, compared to the prior years quarter. The
increase is due to more theatrical titles with television
windows opening in the current quarter as compared to the prior
years quarter. In this quarter, the titles listed above as
contributing significant television revenue in the quarter
represented individually between 12% to 37% of total
39
television revenue and in the aggregate 77% of total television
revenue for the quarter. In the prior years quarter the
titles listed above as contributing significant television
revenue in the prior years quarter represented
individually between 7% to 44% of total television revenue and
in the aggregate 62% of total television revenue for the quarter.
International revenue of $27.6 million increased
$13.1 million or 90.3% in this quarter as compared to the
prior years quarter. Lions Gate UK, established from the
acquisition of Redbus in fiscal 2006, contributed
$12.0 million, or 43.5% of international revenue, which
included revenues from Saw III, Hard Candy and Dirty
Dancing: Havana Nights, compared to $1.2 million in the
prior years quarter or 8.3%. In this quarter, the titles
listed in the table above as contributing significant
international revenue in the quarter, which does not include
revenue generated from Lions Gate UK, represented individually
between 6% to 9% of total international revenue and in the
aggregate 28% of total international revenue for the quarter. In
the prior years quarter the titles listed in the table
above as contributing significant revenue in the prior
years quarter represented individually between 16% to 21%
of total international revenue and in the aggregate 37% of total
international revenue for the quarter.
Television
Revenue
The following table sets forth the components of revenue that
make up television production revenue for the three-month
periods ended December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Increase (Decrease)
|
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Amounts in millions)
|
|
|
Television Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic series licensing
|
|
$
|
15.2
|
|
|
$
|
18.0
|
|
|
$
|
(2.8
|
)
|
|
|
(15.6
|
)%
|
International and other
|
|
|
2.0
|
|
|
|
4.2
|
|
|
|
(2.2
|
)
|
|
|
(52.4
|
)%
|
Television movies and miniseries
|
|
|
12.8
|
|
|
|
3.1
|
|
|
|
9.7
|
|
|
|
312.9
|
%
|
Video releases of television
production
|
|
|
2.4
|
|
|
|
0.3
|
|
|
|
2.1
|
|
|
|
700.0
|
%
|
Other
|
|
|
0.5
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
25.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32.9
|
|
|
$
|
26.0
|
|
|
$
|
6.9
|
|
|
|
26.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the number of television episodes
delivered in the three months ended December 31, 2006 and
2005, respectively:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Domestic Series Licensing
|
|
|
|
|
|
|
|
|
One Hour Series
|
|
|
11
|
|
|
|
17
|
|
Half Hour Series
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Television revenue of $32.9 million in this quarter
increased by $6.9 million, or 26.5%, compared to
$26.0 million in the prior years quarter, due
primarily to higher revenue from television movies and
miniseries offset by lower domestic series licensing revenue and
lower international and other revenue. Television movies and
miniseries revenue increased this quarter mainly due to the
delivery of The Lost Room miniseries, as compared to the
delivery of Three Wise Guys movie in the prior quarter.
Domestic series licensing for the current quarter includes
$4.7 million of revenue from the July 3, 2006
acquisition of Debmar. Domestic series deliveries of
one-hour
drama series in this quarter included 3 hour episodes of
Dirty Dancing Reality TV Series, 8 hour episodes of
Wildfire Season 3, and 3
half-hour
episodes of I Pity the Fool. In the prior years
quarter, domestic series deliveries of
one-hour
drama series included Wildfire, Missing and The Dead
Zone.
40
Direct
Operating Expenses
The following table sets forth direct operating expenses by
segment for the three months ended December 31, 2006 and
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
|
(Amounts in millions)
|
|
|
Direct operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of films and
television programs
|
|
$
|
35.4
|
|
|
$
|
25.6
|
|
|
$
|
61.0
|
|
|
$
|
33.9
|
|
|
$
|
23.0
|
|
|
$
|
56.9
|
|
Participation and residual expense
|
|
|
47.6
|
|
|
|
3.6
|
|
|
|
51.2
|
|
|
|
48.0
|
|
|
|
|
|
|
|
48.0
|
|
Amortization of acquired
intangible assets
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
|
|
0.5
|
|
|
|
|
|
|
|
0.5
|
|
Other expenses
|
|
|
(1.9
|
)
|
|
|
0.4
|
|
|
|
(1.5
|
)
|
|
|
4.1
|
|
|
|
0.6
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
81.3
|
|
|
$
|
29.6
|
|
|
$
|
110.9
|
|
|
$
|
86.5
|
|
|
$
|
23.6
|
|
|
$
|
110.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses as a
percentage of segment revenues
|
|
|
36.7
|
%
|
|
|
89.9
|
%
|
|
|
43.6
|
%
|
|
|
42.6
|
%
|
|
|
90.8
|
%
|
|
|
48.0
|
%
|
Direct operating expenses include amortization, participation
and residual expenses and other expenses. Direct operating
expenses of the motion pictures segment of $81.3 million
for this quarter were 36.7% of motion pictures revenue, compared
to $86.5 million, or 42.6% of motion pictures revenue for
the prior years quarter. The decrease in direct operating
expense of the motion pictures segment in the quarter as a
percent of revenue is due to the change in the mix of titles
generating revenue compared to prior years quarter and the
benefit in other expense in the current quarter, as compared to
a $4.1 million charge in other expense for the prior
years quarter. The benefit in other expense in the current
period resulted from the collection of accounts receivable
previously reserved and foreign exchange gains of
$0.5 million, as compared to a charge in other expense for
the prior period primarily related to bad debt expense
associated with the bankruptcy of a large retail customer.
Direct operating expenses of the motion pictures segment
included charges for write downs of investment in film costs of
$3.3 million and $2.5 million in the current quarter
and prior year quarter, respectively, due to the lower than
anticipated actual performance or previously expected
performance of certain titles. Direct operating expenses of the
television segment of $29.6 million for this quarter were
89.9% of television revenue, compared to $23.6 million, or
90.8% of television revenue for the prior years quarter.
The increase in direct operating expense of the television
segment in the quarter is due to the increase in television
production revenue in this quarter compared to prior years
quarter.
41
Distribution
and Marketing Expenses
The following table sets forth distribution and marketing
expenses by segment for the three months ended December 31,
2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
|
(Amounts in millions)
|
|
|
Distribution and marketing expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical
|
|
$
|
32.7
|
|
|
$
|
|
|
|
$
|
32.7
|
|
|
$
|
44.9
|
|
|
$
|
|
|
|
$
|
44.9
|
|
Home Entertainment
|
|
|
49.3
|
|
|
|
0.4
|
|
|
|
49.7
|
|
|
|
48.0
|
|
|
|
0.3
|
|
|
|
48.3
|
|
Television
|
|
|
0.2
|
|
|
|
1.2
|
|
|
|
1.4
|
|
|
|
1.0
|
|
|
|
|
|
|
|
1.0
|
|
International
|
|
|
9.9
|
|
|
|
0.5
|
|
|
|
10.4
|
|
|
|
2.1
|
|
|
|
0.3
|
|
|
|
2.4
|
|
Other
|
|
|
1.6
|
|
|
|
|
|
|
|
1.6
|
|
|
|
2.9
|
|
|
|
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
93.7
|
|
|
$
|
2.1
|
|
|
$
|
95.8
|
|
|
$
|
98.9
|
|
|
$
|
0.6
|
|
|
$
|
99.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 this
quarter of $32.7 million decreased $12.2 million, or
27.2%, compared to $44.9 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 titles such as Employee of the Month and
Saw III, which combined accounted for 89% of the
total theatrical P&A. Theatrical P&A in the prior
years quarter included P&A incurred on the release of
titles such as Saw II, In the Mix and
Waiting, representing approximately 95% of total
theatrical P&A.
Video distribution and marketing costs on motion pictures and
television product in this quarter of $49.7 million
increased $1.4 million, or 2.9%, compared to
$48.3 million in the prior years quarter. Video
distribution and marketing costs as a percentage of video
revenues was 43.7% and 41.6% in the current quarter and prior
years quarter, respectively. This increase is mainly due
to the significant releases in the quarter noted in the table
above and the timing of the video releases in the current
quarter compared to the prior years quarter.
International distribution and marketing expenses in this
quarter includes $7.2 million of distribution and marketing
costs from Lions Gate UK as a result of the acquisition of
Redbus, compared to $0.7 million in the prior years
quarter. Distribution and marketing expenses of the television
segment includes $1.1 million from the July 3, 2006
acquisition of Debmar in the current quarter.
General
and Administrative Expenses
The following table sets forth general and administrative
expenses by segment for the three months ended December 31,
2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Increase (Decrease)
|
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Amounts in millions)
|
|
|
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
8.5
|
|
|
$
|
6.8
|
|
|
$
|
1.7
|
|
|
|
25.0
|
%
|
Television
|
|
|
1.0
|
|
|
|
0.2
|
|
|
|
0.8
|
|
|
|
400.0
|
%
|
Corporate
|
|
|
13.8
|
|
|
|
5.9
|
|
|
|
7.9
|
|
|
|
133.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23.3
|
|
|
$
|
12.9
|
|
|
$
|
10.4
|
|
|
|
80.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in general and administrative expenses is primarily
due to corporate general and administration expenses of
$13.8 million which increased by $7.9 million or
133.9% compared to $5.9 million in the prior years
quarter. The increase in corporate general and administrative
expenses is primarily due to an increase in stock based
42
compensation of approximately $4.8 million, an increase in
salaries and related expenses of approximately
$2.5 million, and an increase in professional fees of $1.6,
offset by a decrease in other general overhead costs.
Compensation from our restricted share units amounted to
$1.2 million and $0.4 million for the three months
ended December 31, 2006 and 2005, respectively. In
addition, due to the adoption of SFAS No. 123(R) we
recorded additional compensation expense related to our stock
options amounting to $0.9 million in the three months ended
December 31, 2006 with no comparable expense in the prior
quarter. We incurred additional costs of $0.6 million
recorded in the three months ended December 31, 2006
compared to a benefit of $2.6 million recorded in the three
months ended December 31, 2005 related to stock
appreciation rights which are revalued each reporting period. In
this quarter, $1.3 million of production overhead was
capitalized compared to $1.2 million in the prior
years quarter. The increase in general and administrative
expenses of the motion pictures segment of $1.7 million or
25.0% is primarily due to general and administrative costs
associated with Lions Gate UK. The increase in general and
administrative expenses of the television segment is primarily
due to the July 3, 2006 acquisition of Debmar.
Depreciation
and Other Expenses (Income)
Depreciation of $0.8 million this quarter increased
$0.4 million, or 100% from $0.4 million in the prior
years quarter.
Interest expense of $4.6 million this quarter decreased
$0.1 million, or 2.1%, from prior years quarter of
$4.7 million.
Interest and other income of $2.9 million for the quarter
ended December 31, 2006, compared to $1.0 million in
the prior years quarter. Interest and other income this
quarter was earned on the cash balance and
available-for-sale
investments held during the three months ended December 31,
2006 which were higher than in the prior years quarter.
Equity interests of negative $0.4 million in this quarter
includes the equity interest in the loss of Maple Pictures
consisting of 10% of the loss of Maple Pictures and the equity
interest in the loss of CinemaNow consisting of 18.8% of the
loss of CinemaNow. Equity interests of nil in the prior
years quarter includes the equity interest in the loss of
Maple Pictures consisting of 10% of the losses of Maple Pictures.
The Company had an income tax provision of $1.1 million or
4.9% of income before income taxes in the three months ended
December 31, 2006, compared to a benefit of
$0.2 million in the three months ended December 31,
2005. The tax provision reflected in the current quarter is
attributable to non-cash federal deferred income tax expense
associated with the use of certain pre-acquisition net operating
loss carry-forwards, and state income taxes. The Companys
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, state and local income taxes and the utilization of
acquired net operating losses.
Income before discontinued operations for the three months ended
December 31, 2006 and 2005, respectively, was
$20.5 million and $2.9 million, or basic earnings per
common share from continuing operations of $0.19 and $0.03,
respectively, on 107.6 million and 103.9 million
weighted average common shares outstanding, respectively.
Diluted earnings per common share from continuing operations for
the three months ended December 31, 2006 and 2005,
respectively, was $0.17 and $0.03 on 144.6 million and
107.2 million adjusted weighted average common shares
outstanding, respectively.
Income from discontinued operations for the three months ended
December 31, 2006 and 2005, respectively, was nil and
$0.2 million, or basic earnings per common share from
discontinued operations of nil and nil, respectively, on
107.6 million and 103.9 million weighted average
common shares outstanding, respectively. Diluted earnings per
common share from discontinued operations for the three months
ended December 31, 2005 was nil on 107.2 million
adjusted weighted average common shares outstanding.
Net income for the three months ended December 31, 2006 was
$20.5 million, or basic net income per common share of
$0.19 on 107.6 million weighted average shares outstanding.
This compares to net income for the three months ended
December 31, 2005 of $3.1 million or basic net income
per common share from continuing operations of $0.03 on
103.9 million weighted average common shares outstanding.
Diluted net income per
43
common share for the three months ended December 31, 2006
and 2005, respectively, was $0.17 and $0.03 on
144.6 million and 107.2 million adjusted weighted
average common shares outstanding, respectively.
Nine
Months Ended December 31, 2006 Compared to Nine Months
Ended December 31, 2005
Consolidated revenues for the nine months ended
December 31, 2006 of $645.2 million increased
$12.1 million, or 1.9%, compared to $633.1 million for
the nine months ended December 31, 2005. Motion pictures
revenue of $573.4 million for the current nine-month period
increased $54.8 million, or 10.6%, compared to
$518.6 million in the prior years nine-month period.
Television revenue of $71.8 million in the current
nine-month period decreased $42.7 million or 37.3% compared
to $114.5 million in the prior nine-month period.
Motion
Pictures Revenue
The increase in motion pictures revenue this period was
primarily due to the theatrical and video performance of
theatrical releases during this period. The following table sets
forth the components of revenue for the motion pictures
reporting segment for the nine-month periods ended
December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Increase (Decrease)
|
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Amounts in millions)
|
|
|
Motion Pictures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical
|
|
$
|
85.0
|
|
|
$
|
91.0
|
|
|
$
|
(6.0
|
)
|
|
|
(6.6
|
)%
|
Video
|
|
|
343.4
|
|
|
|
333.2
|
|
|
|
10.2
|
|
|
|
3.1
|
%
|
Television
|
|
|
79.4
|
|
|
|
54.9
|
|
|
|
24.5
|
|
|
|
44.6
|
%
|
International
|
|
|
60.3
|
|
|
|
34.4
|
|
|
|
25.9
|
|
|
|
75.3
|
%
|
Other
|
|
|
5.3
|
|
|
|
5.1
|
|
|
|
0.2
|
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
573.4
|
|
|
$
|
518.6
|
|
|
$
|
54.8
|
|
|
|
10.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the titles contributing
significant motion pictures revenue for the nine-month periods
ended December 31, 2006 and 2005:
|
|
|
|
|
|
|
Nine Months Ended December 31,
|
2006
|
|
2005
|
|
|
Theatrical and Video
|
|
|
|
Theatrical and Video
|
Title
|
|
Release Date
|
|
Title
|
|
Release Date
|
|
|
|
|
|
|
|
|
Theatrical:
|
|
|
|
Theatrical:
|
|
|
Akeelah and the Bee
|
|
April 2006
|
|
Crash
|
|
May 2005
|
Crank
|
|
September 2006
|
|
Lord of War
|
|
September 2005
|
Employee of the Month
|
|
October 2006
|
|
Saw 2
|
|
October 2005
|
Saw 3
|
|
October 2006
|
|
The Devils
Rejects
|
|
July 2005
|
See No Evil
|
|
May 2006
|
|
Waiting
|
|
October 2005
|
The Descent
|
|
August 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video:
|
|
|
|
Video:
|
|
|
Akeelah and the Bee
|
|
August 2006
|
|
Alone in the Dark
|
|
May 2005
|
An American Haunting
|
|
October 2006
|
|
Barbie and the Magic
of Pegasus
|
|
September 2005
|
Crash
|
|
September 2005
|
|
Beyond the Sea
|
|
June 2005
|
Lord of War
|
|
January 2006
|
|
Crash
|
|
September 2005
|
Madea Goes to Jail
|
|
June 2006
|
|
Diary of a Mad Black
Woman
|
|
June 2005
|
Madeas Family
Reunion Feature
|
|
June 2006
|
|
Saw
|
|
February 2005
|
Saw 2
|
|
February 2006
|
|
The Devils
Rejects
|
|
November 2005
|
See No Evil
|
|
November 2006
|
|
|
|
|
The Descent
|
|
December 2006
|
|
|
|
|
Waiting
|
|
February 2006
|
|
|
|
|
Why Did I Get Married
|
|
June 2006
|
|
|
|
|
44
|
|
|
Television:
Hostel
Lord of War
Madeas Family Reunion
Saw 2
The Devils Rejects
The Punisher
Waiting
|
|
Television:
Diary of a Mad Black
Woman
Open Water
Saw
The Cookout
The Punisher
|
International:
Crank
Hard Candy
Saw 2
Saw 3
The Lost City
|
|
International:
Dirty Dancing:
Havana Nights
Happy Endings
Hotel Rwanda
Saw
Saw 2
The Devils
Rejects
|
Theatrical revenue of $85.0 million decreased
$6.0 million or 6.6% in this period as compared to the
prior years period due to the performance during the
period of the theatrical releases listed in the above table. In
this period, the titles listed in the above table as
contributing significant theatrical revenue in the period
represented individually between 7% to 39% of total theatrical
revenue and in the aggregate 93% of total theatrical revenue. In
the prior years period, the titles listed in the above
table as contributing significant theatrical revenue in the
prior years period represented individually between 7% to
41% of total theatrical revenue and in the aggregate 88% of
total theatrical revenue.
Video revenue of $343.4 million increased
$10.2 million or 3.1% in this period as compared to the
prior years period. The increase is driven by the revenue
generated from the titles in the above table offset by a
decrease in revenue from titles that individually contribute
less than 2% of revenue. In this period, the titles listed above
as contributing significant video revenue in the period
represented individually between 2% to 10% of total video
revenue and in the aggregate 44% or $151.3 million of total
video revenue for the period. In the prior years period
the titles listed above as contributing significant video
revenue in the prior years period represented individually
between 2% to 12% of total video revenue and in the aggregate
39% or $131.3 million of total video revenue for the
period. In the current period, $192.1 million or 56% of
total video revenue was contributed by titles which make up less
than 2% of total video revenue and in the prior period, this
amounted to $201.9 million or 61% of total video revenue.
Television revenue included in motion pictures revenue of
$79.4 million in this period increased $24.5 million,
or 44.6%, compared to the prior years period. The increase
is due to more successful theatrical titles with television
windows opening in the current nine months as compared to the
prior nine months. In this period, the titles listed above as
contributing significant television revenue in the period
represented individually between 5% to 16% of total television
revenue and in the aggregate 68% of total television revenue for
the period. In the prior years period the titles listed
above as contributing significant television revenue in the
prior years period represented individually between 4% to
21% of total television revenue and in the aggregate 64% of
total television revenue for the period.
International revenue of $60.3 million increased
$25.9 million or 75.3% in this period as compared to the
prior years period. Lions Gate UK, established from the
acquisition of Redbus in fiscal 2006, contributed
$24.0 million of international revenue or 39.8%, which
included significant revenues from An American Haunting,
Dirty Dancing: Havana Nights, Hard Candy, Revolver and
Saw III, compared to the prior years contribution
of $1.2 million or 3.5%. In this period, the titles listed
in the table above as contributing significant international
revenue in the period represented individually between 3% to 11%
of total international revenue and in the aggregate 26% of total
international revenue for the period. In the prior years
period the titles listed above as contributing significant
revenue in the prior years period represented individually
between 7% to 11% of total international revenue and in the
aggregate 52% of total international revenue for the period.
45
Television
Revenue
The following table sets forth the components of revenue that
make up television revenue for the nine-month periods ended
December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Increase (Decrease)
|
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Amounts in millions)
|
|
|
Television Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic series licensing
|
|
$
|
47.2
|
|
|
$
|
91.4
|
|
|
$
|
(44.2
|
)
|
|
|
(48.4
|
)%
|
International and other
|
|
|
3.9
|
|
|
|
14.7
|
|
|
|
(10.8
|
)
|
|
|
(73.5
|
)%
|
Television movies and miniseries
|
|
|
12.9
|
|
|
|
5.6
|
|
|
|
7.3
|
|
|
|
130.4
|
%
|
Video releases of television
production
|
|
|
7.1
|
|
|
|
1.9
|
|
|
|
5.2
|
|
|
|
273.7
|
%
|
Other
|
|
|
0.7
|
|
|
|
0.9
|
|
|
|
(0.2
|
)
|
|
|
(22.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
71.8
|
|
|
$
|
114.5
|
|
|
$
|
(42.7
|
)
|
|
|
(37.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the number of television episodes
delivered in the nine months ended December 31, 2006 and
2005, respectively:
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Domestic Series Licensing
|
|
|
|
|
|
|
|
|
One Hour Series
|
|
|
17
|
|
|
|
68
|
|
Half Hour Series
|
|
|
31
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
Television revenue of $71.8 million in this period
decreased by $42.7 million, or 37.3%, compared to
$114.5 million in the prior years period, due
primarily to lower domestic series licensing revenue. Domestic
series licensing for the current nine-month period includes
$9.0 million of revenue from the July 3, 2006
acquisition of Debmar. Domestic series deliveries of
one-hour
drama series in this period included 8
one-hour
episodes of Dirty Dancing Reality TV Series, 1
one-hour
episode of Wildfire Season 2, 8
one-hour
episodes of Wildfire Season 3, 12
half-hour
episodes of Weeds Season 2, 13
half-hour
episodes of Lovespring and 6
half-hour
episodes of I Pity the Fool. In the prior years
period, domestic series deliveries of
one-hour
drama series included The Cut, Wildfire, Missing and
Dead Zone and of the
half-hour
drama series Weeds. International television
production revenue decreased by $11.1 million mainly due to
decreases in international revenue from Dead Zone and
1-800
Missing in the current period as compared to the prior
years period. Television movies and miniseries revenue
increased this period mainly due to the delivery of The Lost
Room miniseries, as compared to the delivery of Three
Wise Guys movie in the prior period.
46
Direct
Operating Expenses
The following table sets forth direct operating expenses by
segment for the nine months ended December 31, 2006 and
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
|
(Amounts in millions)
|
|
|
Direct operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of films and
television programs
|
|
$
|
91.1
|
|
|
$
|
51.9
|
|
|
$
|
143.0
|
|
|
$
|
88.6
|
|
|
$
|
102.8
|
|
|
$
|
191.4
|
|
Participation and residual expense
|
|
|
122.9
|
|
|
|
9.3
|
|
|
|
132.2
|
|
|
|
118.0
|
|
|
|
0.2
|
|
|
|
118.2
|
|
Amortization of acquired
intangible assets
|
|
|
0.7
|
|
|
|
|
|
|
|
0.7
|
|
|
|
1.8
|
|
|
|
|
|
|
|
1.8
|
|
Other expenses
|
|
|
(1.9
|
)
|
|
|
0.2
|
|
|
|
(1.7
|
)
|
|
|
6.3
|
|
|
|
0.7
|
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
212.8
|
|
|
$
|
61.4
|
|
|
$
|
274.2
|
|
|
$
|
214.7
|
|
|
$
|
103.7
|
|
|
$
|
318.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses as a
percentage of segment revenues
|
|
|
37.1
|
%
|
|
|
85.6
|
%
|
|
|
42.5
|
%
|
|
|
41.4
|
%
|
|
|
90.5
|
%
|
|
|
50.3
|
%
|
Direct operating expenses include amortization, participation
and residual expenses and other expenses. Direct operating
expenses of the motion pictures segment of $212.8 million
for this period were 37.1% of motion pictures revenue, compared
to $214.7 million, or 41.4% 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 due to the mix of titles generating
revenue in the current period, lower write downs of investment
in film costs, the benefit in other expense in the current
period as compared to an other expense charge of
$6.3 million in the prior period. The benefit in other
expense in the current period resulted from the collection of
accounts receivable previously reserved and foreign exchange
gains of $0.9 million, as compared to a charge in other
expense for the prior period primarily related to bad debt
expense associated with the bankruptcy of a large retail
customer. Direct operating expenses of the motion pictures
segment included charges for write downs of investment in film
costs of $4.6 million and $9.2 million in the current
period and prior year period respectively due to the lower than
anticipated actual performance or previously expected
performance of certain titles. Approximately 32.1% of the prior
year write down related to the poor performance of the
theatrical release of one title. Direct operating expenses of
the television segment of $61.4 million for this period
were 85.6% of television revenue, compared to
$103.7 million, or 90.5% of television revenue for the
prior years period. The decrease in direct operating
expense of the television segment in the current period is due
to changes in the mix of titles generating revenues including
the successful Weeds television series.
Distribution
and Marketing Expenses
The following table sets forth distribution and marketing
expenses by segment for the nine months ended December 31,
2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
|
(Amounts in millions)
|
|
|
Distribution and marketing expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical
|
|
$
|
125.9
|
|
|
$
|
0.7
|
|
|
$
|
126.6
|
|
|
$
|
145.4
|
|
|
$
|
0.1
|
|
|
$
|
145.5
|
|
Home Entertainment
|
|
|
131.9
|
|
|
|
2.0
|
|
|
|
133.9
|
|
|
|
132.7
|
|
|
|
1.3
|
|
|
|
134.0
|
|
Television
|
|
|
0.8
|
|
|
|
2.5
|
|
|
|
3.3
|
|
|
|
1.7
|
|
|
|
0.1
|
|
|
|
1.8
|
|
International
|
|
|
29.4
|
|
|
|
1.6
|
|
|
|
31.0
|
|
|
|
5.4
|
|
|
|
0.5
|
|
|
|
5.9
|
|
Other
|
|
|
1.4
|
|
|
|
|
|
|
|
1.4
|
|
|
|
3.5
|
|
|
|
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
289.4
|
|
|
$
|
6.8
|
|
|
$
|
296.2
|
|
|
$
|
288.7
|
|
|
$
|
2.0
|
|
|
$
|
290.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
The majority of distribution and marketing expenses relate to
the motion pictures segment. Theatrical P&A in the motion
pictures segment in this period of $125.9 million decreased
$19.5 million, or 13.4%, compared to $145.4 million in
the prior years period. Theatrical P&A in the motion
pictures segment in this period included $116.8 million
incurred on titles such as Saw III, Employee of the
Month, The Descent, Crank, Akeelah & the Bee and
See No Evil, domestically. Theatrical P&A in the
motion pictures segment in the prior years period included
$134.6 million on the release of titles such as
Saw II, Crash, Lord of War, In the Mix, The Devils
Rejects, High Tension, Rize, Undiscovered and Waiting.
High Tension, In the Mix, Undiscovered and Rize
represented $44.7 million of theatrical P&A in the
prior years period and did not generate significant
theatrical revenues.
Video distribution and marketing costs on motion pictures and
television product in this period of $133.9 million
decreased $0.1 million, or 0.1%, compared to
$134.0 million in the prior years period. Video
distribution and marketing costs as a percentage of video
revenues was 39.0% and 40.0% in the current period and prior
years period respectively. The decrease of video
distribution and marketing costs as a percent of video revenue
is mainly due to the timing of releases of home entertainment
titles in the current period compared to the prior years
period.
International distribution and marketing expenses in the current
period includes $22.6 million of distribution and marketing
costs from Lions Gate UK as a result of the acquisition of
Redbus, compared to $0.7 million in the prior years
period. Distribution and marketing expenses in the current
period from the television segment included $2.4 million
from the July 3, 2006 acquisition of Debmar.
General
and Administrative Expenses
The following table sets forth general and administrative
expenses by segment for the nine months ended December 31,
2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Increase (Decrease)
|
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Amounts in millions)
|
|
|
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
21.7
|
|
|
$
|
19.2
|
|
|
$
|
2.5
|
|
|
|
13.0
|
%
|
Television
|
|
|
2.1
|
|
|
|
0.4
|
|
|
|
1.7
|
|
|
|
425.0
|
%
|
Corporate
|
|
|
40.5
|
|
|
|
25.6
|
|
|
|
14.9
|
|
|
|
58.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
64.3
|
|
|
$
|
45.2
|
|
|
$
|
19.1
|
|
|
|
42.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in general and administrative expenses is primarily
due to corporate general and administration expenses of
$40.5 million which increased by $14.9 million or
58.2% compared to $25.6 million in the prior years
period. The increase in corporate general and administrative
expenses is primarily due to an increase in stock based
compensation of approximately $8.4 million, an increase in
salaries and related expenses of approximately
$4.4 million, and an increase in professional fees of
$2.1 million. Compensation from our restricted share units
amounted to $2.6 million and $1.2 million for the nine
months ended December 31, 2006 and 2005, respectively. In
addition, due to the adoption of SFAS No. 123(R) we
recorded additional compensation expense related to our stock
options amounting to $1.8 million in the nine months ended
December 31, 2006 with no comparable expense in the prior
period. We also incurred additional costs of $1.1 million
recorded in the nine months ended December 31, 2006
compared to a benefit of $4.1 million recorded in the nine
months ended December 31, 2005 related to stock
appreciation rights which are revalued each reporting period. In
this period, $4.2 million of production overhead was
capitalized compared to $3.5 million in the prior
years period. The increase in general and administrative
expenses of the motion pictures segment of $2.5 million or
13.0% is primarily due to general and administrative costs
associated with Lions Gate UK. The increase in general and
administrative expenses of the television segment is primarily
due to the July 3, 2006 acquisition of Debmar.
Depreciation
and Other Expenses (Income)
Depreciation of $1.9 million this period increased
$0.6 million, or 46.2%, from $1.3 million in the prior
years period.
48
Interest expense of $14.2 million this period increased
$0.2 million, or 1.4%, from the prior years period of
$14.0 million.
Interest rate swaps did not meet the criteria of effective
hedges and therefore a fair valuation gain of $0.1 million
was recorded in the nine months ended December 31, 2005.
The $100 million interest rate swap the Company had entered
into commencing January 2003 ended September 30, 2005. The
CDN$20 million interest rate swap a subsidiary of the
Company had entered into commencing September 2003 and ending
September 2008 was terminated on March 15, 2006 in
connection with the repayment of the remaining balances of the
mortgages payable on the studio facilities.
Interest and other income of $7.8 million for the nine
months ended December 31, 2006 increased compared to
$3.0 million in the prior years period. Interest and
other income this quarter was earned on the cash balance and
available-for-sale
investments held during the nine months ended December 31,
2006, which were higher than in the prior years period.
Equity interests of negative $0.8 million in this period
include the equity interest in the loss of Maple Pictures
consisting of 10% of the loss of Maple Pictures and the equity
interest in the loss of CinemaNow consisting of 18.8% of the
loss of CinemaNow. Equity interests of negative
$0.1 million in the prior years period includes the
equity interest in the loss of Maple Pictures consisting of 10%
of the losses of Maple Pictures.
The Company had an income tax benefit of $1.2 million or
91.1% of income before income taxes in the nine months ended
December 31, 2006, compared to a provision of
$0.2 million in the nine months ended December 31,
2005. The tax benefit reflected in the current period is
primarily attributable to foreign losses benefited to the extent
of existing deferred tax liabilities in the local jurisdiction
and the receipt of refunds of foreign and state taxes paid in
previous years, offset by U.S. federal and state taxes. The
Companys 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, state and local income taxes and the
utilization of acquired net operating losses.
Income before discontinued operations for the nine months ended
December 31, 2006 was $2.5 million, or basic earnings
per common share from continuing operations of $0.02 on
105.6 million weighted average common shares outstanding.
This compares to a loss before discontinued operations for the
nine months ended December 31, 2005 of $33.9 million,
or basic loss per common share from continuing operations of
$0.33 on 102.7 million weighted average common shares
outstanding. Diluted earnings per common share from continuing
operations for the nine months ended December 31, 2006 was
$0.02 on 108.4 million adjusted weighted average common
shares outstanding.
Income from discontinued operations for the nine months ended
December 31, 2006 and 2005, respectively, was nil and
$1.1 million, or basic earnings per common share from
discontinued operations of nil and $0.01, respectively, on
105.6 million and 102.7 million weighted average
common shares outstanding, respectively. Diluted earnings per
common share from discontinued operations for the nine months
ended December 31, 2005 was $0.01 on 102.7 million
adjusted weighted average common shares outstanding.
Net income for the nine months ended December 31, 2006 was
$2.5 million, or basic net income per common share of $0.02
on 105.6 million weighted average shares outstanding. This
compares to a net loss for the nine months ended
December 31, 2005 of $32.8 million or basic net loss
per common share from continuing operations of $0.32 on
102.7 million weighted average common shares outstanding.
Diluted net income per common share for the nine months ended
December 31, 2006 was $0.02 on 108.4 million adjusted
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 facility.
Convertible Senior Subordinated Notes. In
December 2003, Lions Gate Entertainment Inc. sold
$60.0 million of 4.875% Notes that mature on
December 15, 2010. We received $57.0 million of net
proceeds, after paying
49
placement agents fees. Offering expenses were
$0.7 million. The 4.875% Notes were convertible, at
the option of the holder, at any time before the close of
business on the business day immediately preceding the maturity
date of the 4.875% Notes, unless previously redeemed, into
our common shares at a conversion rate of 185.0944 shares
per $1,000 principal amount of the 4.875% Notes, which is equal
to a conversion price of approximately $5.40 per share. On
December 15, 2006, pursuant to our optional redemption, all
of the noteholders voluntarily elected to convert their notes
into the Companys common shares pursuant to the indenture.
A total of $60 million of principal was converted into
11,105,664 common shares at a conversion price of $5.40 per
share. In connection with this conversion, the principal amount
net of the unamortized portion of the financing costs associated
with the original conversion of the 4.875% Notes of
approximately $2.1 million was recorded as an increase to
common shares. The shares issued pursuant to the conversion were
previously reserved for such conversion.
In October 2004, Lions Gate Entertainment Inc. sold
$150.0 million of 2.9375% Notes that mature on
October 15, 2024. We received $146.0 million of net
proceeds after paying placement agents fees. Offering
expenses were $0.7 million. The 2.9375% Notes are
convertible at the option of the holder, at any time prior to
maturity, upon satisfaction of certain conversion contingencies,
into our common shares at a conversion rate of
86.9565 shares per $1,000 principal amount of the
2.9375% Notes, which is equal to a conversion price of
approximately $11.50 per share, subject to adjustment upon
certain events. From October 15, 2009 to October 14,
2010, Lions Gate Entertainment Inc. may redeem the
2.9375% Notes at 100.839%; from October 15, 2010 to
October 14, 2011, Lions Gate Entertainment Inc. may redeem
the 2.9375% Notes at 100.420%; and thereafter at 100%.
In February 2005, Lions Gate Entertainment Inc. sold
$175.0 million 3.625% Notes that mature on March 15,
2025. We received $170.2 million of net proceeds after
paying placement agents fees. Offering expenses were
approximately $0.6 million. The 3.625% Notes are
convertible at the option of the holder, at any time prior to
maturity into our common shares at a conversion rate of
70.0133 shares per $1,000 principal amount of the
3.625% Notes, which is equal to a conversion price of
approximately $14.28 per share, subject to adjustment upon
certain events. Lions Gate Entertainment Inc. may redeem the
3.625% Notes at its option on or after March 15, 2012
at 100% of their principal amount plus accrued and unpaid
interest.
Credit Facility. At December 31, 2006,
the Company had a $215 million revolving line of credit, of
which $10 million is available for borrowing by Lionsgate
UK in either U.S. dollars or British pounds sterling. At
December 31, 2006, the Company had no borrowings
(March 31, 2006 nil) under the credit facility.
The credit facility expires December 31, 2008 and bears
interest at 2.75% over the Adjusted LIBOR or the
Canadian Bankers Acceptance rate (as defined in the
credit facility), or 1.75% over the U.S. or Canadian prime
rates. The availability of funds under the credit facility is
limited by the borrowing base. Amounts available under the
credit facility are also limited by outstanding letters of
credit which amounted to $0.3 million at December 31,
2006. At December 31, 2006 there was $214.7 million
available under the credit facility. The Company is required to
pay a monthly commitment fee of 0.50% per annum on the
total credit facility of $215 million less the amount
drawn. Right, title and interest in and to all personal property
of Lions Gate Entertainment Corp. and Lions Gate Entertainment
Inc. is pledged as security for the credit facility. The credit
facility is senior to the Companys film obligations and
subordinated notes. The credit facility restricts the Company
from paying cash dividends on its common shares.
Filmed Entertainment Backlog. Backlog
represents the amount of future revenue not yet recorded from
executed contracts for the licensing of films and television
product for television exhibition and in international markets.
Backlog, which now includes the backlog from Debmar Mercury of
approximately $66.9 million, at December 31, 2006 and
March 31, 2006 is $347.4 million and
$143.9 million, respectively.
Cash Flows Provided by Operating
Activities. Cash flows provided by operating
activities for the nine months ended December 31, 2006 were
$65.7 million compared to cash flows provided by operating
activities in the nine months ended December 31, 2005 of
$58.9 million. The increase in cash provided by operating
activities was primarily due to the increase in income from
continuing operations as compared to the prior period and the
decrease in accounts receivable and an increase in deferred
revenue. This increase was offset by lower amortization of film
and television programs, decrease in accounts payable and
accrued expenses, and a lower increase in participation and
residuals, as compared to the prior period.
50
Cash Flows Used in Investing Activities. Cash
flows used in investing activities of $76.4 million for the
nine months ended December 31, 2006 consisted of net
purchases of $39.6 million of investments
available-for-sale,
$7.7 million for purchases of property and equipment,
$24.1 million for the acquisition of Debmar, net of cash
acquired and $5.0 million for the investment in FEARnet.
Cash flows used in investing activities of $112.6 million
in the nine months ended December 31, 2005 included the
acquisition of a net $84.4 million of investments
available-for-sale,
cash received from the sale of our investment in Christal
Distribution of $2.9 million, less $4.2 million for
purchases of property and equipment and $27.1 million for
the acquisition of Redbus, net of cash acquired.
Cash Flows Provided by/Used in Financing
Activities. Cash flows provided by financing
activities of $3.3 million in the nine months ended
December 31, 2006 consisted of cash received from the
issuance of common shares. Cash flows used in financing
activities of $7.0 million in the nine months ended
December 31, 2005 were primarily for repayment of a
promissory note and mortgages payable.
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, investments
available-for-sale,
credit facility availability, tax shelter and production
financing available 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 facility, 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.
Future commitments under contractual obligations as of
December 31, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Minimum guarantees and production
obligations initially incurred for a term of more than one
year(1)
|
|
$
|
508
|
|
|
$
|
66,614
|
|
|
$
|
12,985
|
|
|
$
|
|
|
|
$
|
29,975
|
|
|
$
|
14,989
|
|
|
$
|
125,071
|
|
Subordinated notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325,000
|
|
|
|
325,000
|
|
Operating leases and other material
contractual obligations
|
|
|
1,024
|
|
|
|
8,116
|
|
|
|
10,066
|
|
|
|
4,012
|
|
|
|
4,118
|
|
|
|
2,551
|
|
|
|
29,887
|
|
Employment and consulting contracts
|
|
|
5,660
|
|
|
|
19,388
|
|
|
|
9,252
|
|
|
|
5,795
|
|
|
|
4,076
|
|
|
|
501
|
|
|
|
44,672
|
|
Purchase obligations(2)
|
|
|
17,517
|
|
|
|
40,761
|
|
|
|
13,400
|
|
|
|
2,900
|
|
|
|
2,900
|
|
|
|
|
|
|
|
77,478
|
|
Distribution and marketing
commitments
|
|
|
824
|
|
|
|
56,004
|
|
|
|
30,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,528
|
|
Interest payments on Subordinated
notes
|
|
|
2,688
|
|
|
|
10,750
|
|
|
|
10,750
|
|
|
|
10,750
|
|
|
|
10,750
|
|
|
|
146,094
|
|
|
|
191,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,221
|
|
|
$
|
201,633
|
|
|
$
|
87,153
|
|
|
$
|
23,457
|
|
|
$
|
51,819
|
|
|
$
|
489,135
|
|
|
$
|
881,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Minimum guarantees and production obligations initially incurred
for a term of more than one year represent film obligations
recorded on the balance sheet as of December 31, 2006. |
|
(2) |
|
Purchase obligations represent contractual commitments for
minimum guarantees and production obligations related to the
purchase of film rights for future delivery, future film
production and development obligations. Amounts due during the
three months ending March 31, 2007 are expected to be paid
through cash generated from operations or from the available
borrowing capacity from our revolving credit facility. Includes
future interest payments on film obligations and film production
loans. |
51
|
|
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 incur certain operating
and production costs in foreign currencies and are subject to
market risks resulting from fluctuations in foreign currency
exchange rates. Our principal currency exposure is between
Canadian and U.S. dollars. The Company enters into forward
foreign exchange contracts to hedge foreign currency exposures
on future production expenses denominated in Canadian dollars.
As of December 31, 2006, we had outstanding contracts to
sell US$5.0 million in exchange for CDN$5.5 million
over a period of five weeks at a weighted average exchange rate
of CDN$1.1105. Changes in the fair value representing an
unrealized fair value loss on foreign exchange contracts
outstanding during the three and nine months ended
December 31, 2006 amounted to $0.2 million and
$0.2 million, respectively, and are included in accumulated
other comprehensive loss, a separate component of
shareholders equity. During the three and nine months
ended December 31, 2006, we completed foreign exchange
contracts denominated in Canadian dollars. The net losses
resulting from the completed contracts were $0.2 million
and $0.1 million, respectively. These contracts are entered
into with a major financial institution as counterparty. We are
exposed to credit loss in the event of nonperformance by the
counterparty, which is limited to the cost of replacing the
contracts, at current market rates. We do not require collateral
or other security to support these contracts.
Interest Rate Risk. Our principal risk with
respect to our debt is interest rate risk. We currently have
minimal exposure to cash flow risk due to changes in market
interest rates related to our outstanding debt and other
financing obligations. Our credit facility has a nil balance at
December 31, 2006. Other financing obligations subject to
variable interest rates include $76.7 million owed to film
production entities on delivery of titles.
The table below presents repayments and related weighted average
interest rates for our interest-bearing debt and other
obligations as of December 31, 2006.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Bank Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Film Obligations
Film productions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable(2)
|
|
|
11,401
|
|
|
|
65,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,718
|
|
Subordinated notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
150,000
|
|
Fixed(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,000
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,401
|
|
|
$
|
65,317
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
325,000
|
|
|
$
|
401,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Revolving credit facility, which expires December 31, 2008.
At December 31, 2006, the Company had no borrowings under
this facility. |
|
(2) |
|
Amounts owed to film production entities on delivery of titles.
The film production entities incurred average variable interest
rates at December 31, 2006 of U.S. prime minus 3.79%. |
|
(3) |
|
4.875% Notes with fixed interest rate equal to 4.875%. On
October 18, 2006, the Company announced its intention to
redeem the 4.875% Notes on the optional redemption date of
December 15, 2006 at 100% of their |
52
|
|
|
|
|
principle amount, plus accrued and unpaid interest, if any. As
of December 31, 2006, the notes were 100% converted. |
|
(4) |
|
2.9375% Notes with fixed interest rate equal to 2.9375%. |
|
(5) |
|
3.625% Notes with fixed interest rate equal to 3.625%. |
|
|
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 (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 under the Exchange Act is recorded, processed,
summarized and reported within required time periods.
As of December 31, 2006, 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, 2006.
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.
PART II
OTHER INFORMATION
Item 1. Legal
Proceedings.
None
None
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
None
|
|
Item 3.
|
Defaults
Upon Senior Securities.
|
None
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
None
|
|
Item 5.
|
Other
Information.
|
None
53
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Documents
|
|
|
3
|
.1(1)
|
|
Articles
|
|
3
|
.2(2)
|
|
Notice of Articles
|
|
3
|
.3(1)
|
|
Vertical Short
Form Amalgamation Application
|
|
3
|
.4(1)
|
|
Certificate of Amalgamation
|
|
31
|
.1
|
|
Certification of CEO Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31
|
.2
|
|
Certification of CFO Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.1
|
|
Certification of CEO and CFO
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
(1) |
|
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. |
|
(2) |
|
Incorporated by reference to the Companys Annual Report on
Form 10-K
for the fiscal year ended March 31, 2006 as filed on
June 14, 2006. |
54
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.
LIONS GATE ENTERTAINMENT CORP.
Name: James Keegan
|
|
|
|
Title:
|
Chief Financial Officer
|
Date: February 9, 2007
55