e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 |
|
|
|
For the quarterly period ended June 30, 2005 |
or |
|
o
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|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 |
|
|
|
For the transition period
from to . |
Commission File No. 1-14880
Lions Gate Entertainment Corp.
(Exact name of registrant as specified in its charter)
|
|
|
British Columbia, Canada
|
|
|
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
555 Brooksbank Avenue
North Vancouver
British Columbia V7J 3S5
and
2700 Colorado Avenue, Suite 200
Santa Monica, California 90404
(Address of principal executive offices)
Registrants telephone number, including area code:
(604) 983-5555
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 an accelerated
filer (as defined in Rule 12b-2 of the Exchange
Act). Yes þ No o
As of August 1, 2005, 101,875,620 shares of the
registrants no par value common stock were outstanding.
TABLE OF CONTENTS
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, should, 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.
Factors that could cause actual results to differ materially
from those expressed or implied by the forward-looking
statements include, but are not limited to, those risk factors
found in our Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 29, 2005, which
is incorporated herein by reference.
2
PART I
|
|
Item 1. |
Financial Statements. |
LIONS GATE ENTERTAINMENT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
March 31, | |
|
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
(Note 2) | |
|
|
(Amounts in thousands, | |
|
|
except share amounts) | |
ASSETS |
Cash and cash equivalents
|
|
$ |
138,272 |
|
|
$ |
112,839 |
|
Restricted cash
|
|
|
968 |
|
|
|
2,913 |
|
Accounts receivable, net of reserve for video returns of $51,208
(March 31, 2005 $58,449) and provision for
doubtful accounts of $6,133 (March 31, 2005
$6,102)
|
|
|
102,439 |
|
|
|
150,019 |
|
Investment in films and television programs
|
|
|
365,595 |
|
|
|
367,376 |
|
Property and equipment
|
|
|
30,188 |
|
|
|
30,842 |
|
Goodwill
|
|
|
161,182 |
|
|
|
161,182 |
|
Other assets
|
|
|
31,417 |
|
|
|
29,458 |
|
|
|
|
|
|
|
|
|
|
$ |
830,061 |
|
|
$ |
854,629 |
|
|
|
|
|
|
|
|
|
LIABILITIES |
Bank loans
|
|
$ |
|
|
|
$ |
1,162 |
|
Accounts payable and accrued liabilities
|
|
|
139,605 |
|
|
|
134,200 |
|
Film obligations
|
|
|
144,188 |
|
|
|
130,770 |
|
Subordinated notes
|
|
|
385,000 |
|
|
|
390,000 |
|
Mortgages payable
|
|
|
18,109 |
|
|
|
18,640 |
|
Deferred revenue
|
|
|
48,286 |
|
|
|
62,459 |
|
Minority interests
|
|
|
|
|
|
|
259 |
|
|
|
|
|
|
|
|
|
|
|
735,188 |
|
|
|
737,490 |
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY |
Common shares, no par value, 500,000,000 shares authorized,
101,873,874 at June 30, 2005 and 101,843,708 at
March 31, 2005 shares issued and outstanding
|
|
|
305,812 |
|
|
|
305,662 |
|
Series B preferred shares (10 shares issued and
outstanding)
|
|
|
|
|
|
|
|
|
Restricted common share units
|
|
|
2,099 |
|
|
|
|
|
Unearned compensation
|
|
|
(2,099 |
) |
|
|
|
|
Accumulated deficit
|
|
|
(205,045 |
) |
|
|
(183,226 |
) |
Accumulated other comprehensive loss
|
|
|
(5,894 |
) |
|
|
(5,297 |
) |
|
|
|
|
|
|
|
|
|
|
94,873 |
|
|
|
117,139 |
|
|
|
|
|
|
|
|
|
|
$ |
830,061 |
|
|
$ |
854,629 |
|
|
|
|
|
|
|
|
See accompanying notes.
3
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Three Months Ended | |
|
|
June 30, 2005 | |
|
June 30, 2004 | |
|
|
| |
|
| |
|
|
(Amounts in thousands, except | |
|
|
per share amounts) | |
Revenues
|
|
$ |
194,229 |
|
|
$ |
188,724 |
|
Expenses:
|
|
|
|
|
|
|
|
|
|
Direct operating
|
|
|
100,264 |
|
|
|
80,810 |
|
|
Distribution and marketing
|
|
|
93,481 |
|
|
|
98,066 |
|
|
General and administration
|
|
|
17,329 |
|
|
|
17,127 |
|
|
Depreciation
|
|
|
748 |
|
|
|
675 |
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
211,822 |
|
|
|
196,678 |
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(17,593 |
) |
|
|
(7,954 |
) |
|
|
|
|
|
|
|
Other Expense (Income):
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
4,884 |
|
|
|
5,461 |
|
|
Interest rate swaps mark-to-market
|
|
|
337 |
|
|
|
(2,060 |
) |
|
Interest income
|
|
|
(1,065 |
) |
|
|
(37 |
) |
|
Minority interests
|
|
|
|
|
|
|
(123 |
) |
|
|
|
|
|
|
|
|
|
Total other expenses, net
|
|
|
4,156 |
|
|
|
3,241 |
|
|
|
|
|
|
|
|
Loss Before Income Taxes
|
|
|
(21,749 |
) |
|
|
(11,195 |
) |
Income tax provision
|
|
|
(70 |
) |
|
|
(267 |
) |
|
|
|
|
|
|
|
Net Loss
|
|
$ |
(21,819 |
) |
|
$ |
(11,462 |
) |
|
|
|
|
|
|
|
Basic and Diluted Loss Per Common Share
|
|
$ |
(0.21 |
) |
|
$ |
(0.12 |
) |
|
|
|
|
|
|
|
See accompanying notes.
4
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted | |
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
Common Shares | |
|
|
|
|
|
Common | |
|
|
|
|
|
Comprehensive | |
|
Other | |
|
|
|
|
| |
|
|
|
|
|
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, 2004
|
|
|
93,615,896 |
|
|
$ |
280,501 |
|
|
|
10 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
$ |
(203,507 |
) |
|
|
|
|
|
$ |
(7,385 |
) |
|
$ |
69,609 |
|
Exercise of stock options
|
|
|
4,991,141 |
|
|
|
13,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,871 |
|
Exercise of warrants
|
|
|
3,220,867 |
|
|
|
10,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,842 |
|
Issuance to directors for services
|
|
|
15,804 |
|
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137 |
|
Modification of stock options
|
|
|
|
|
|
|
311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
311 |
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,281 |
|
|
$ |
20,281 |
|
|
|
|
|
|
|
20,281 |
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,374 |
|
|
|
2,374 |
|
|
|
2,374 |
|
|
Net unrealized loss on foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(286 |
) |
|
|
(286 |
) |
|
|
(286 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
22,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2005
|
|
|
101,843,708 |
|
|
$ |
305,662 |
|
|
|
10 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
$ |
(183,226 |
) |
|
|
|
|
|
$ |
(5,297 |
) |
|
$ |
117,139 |
|
Exercise of stock options
|
|
|
23,916 |
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61 |
|
Issuance to directors for services
|
|
|
6,250 |
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62 |
|
Modification of stock options
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27 |
|
Issuance of restricted share units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,099 |
|
|
$ |
(2,099 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,819 |
) |
|
|
(21,819 |
) |
|
|
|
|
|
|
(21,819 |
) |
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(831 |
) |
|
|
(831 |
) |
|
|
(831 |
) |
|
Net unrealized gain on foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234 |
|
|
|
234 |
|
|
|
234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(22,416 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2005
|
|
|
101,873,874 |
|
|
$ |
305,812 |
|
|
|
10 |
|
|
$ |
|
|
|
$ |
2,099 |
|
|
$ |
(2,099 |
) |
|
$ |
(205,045 |
) |
|
|
|
|
|
$ |
(5,894 |
) |
|
$ |
94,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
5
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Three Months Ended | |
|
|
June 30, 2005 | |
|
June 30, 2004 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(21,819 |
) |
|
$ |
(11,462 |
) |
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
|
748 |
|
|
|
675 |
|
|
Amortization of deferred financing costs
|
|
|
898 |
|
|
|
838 |
|
|
Amortization of films and television programs
|
|
|
65,376 |
|
|
|
60,225 |
|
|
Amortization of intangible assets
|
|
|
548 |
|
|
|
548 |
|
|
Non-cash stock-based compensation
|
|
|
89 |
|
|
|
|
|
|
Interest rate swaps mark-to-market
|
|
|
337 |
|
|
|
(2,060 |
) |
|
Minority interests
|
|
|
|
|
|
|
(123 |
) |
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Decrease in restricted cash
|
|
|
1,945 |
|
|
|
|
|
|
Accounts receivable, net
|
|
|
40,774 |
|
|
|
24,767 |
|
|
Increase in investment in films and television programs
|
|
|
(69,195 |
) |
|
|
(45,790 |
) |
|
Other assets
|
|
|
(140 |
) |
|
|
87 |
|
|
Accounts payable and accrued liabilities
|
|
|
9,114 |
|
|
|
(17,372 |
) |
|
Film obligations
|
|
|
15,247 |
|
|
|
22,412 |
|
|
Deferred revenue
|
|
|
(13,755 |
) |
|
|
6,662 |
|
|
|
|
|
|
|
|
Net Cash Flows Provided By Operating Activities
|
|
|
30,167 |
|
|
|
39,407 |
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Cash received from sale of investment
|
|
|
2,011 |
|
|
|
|
|
Purchases of property and equipment
|
|
|
(629 |
) |
|
|
(45 |
) |
|
|
|
|
|
|
|
Net Cash Flows Provided By (Used In) Investing Activities
|
|
|
1,382 |
|
|
|
(45 |
) |
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Issuance of common shares
|
|
|
61 |
|
|
|
10,651 |
|
Financing fees
|
|
|
|
|
|
|
(346 |
) |
Repayment of subordinated notes
|
|
|
(5,000 |
) |
|
|
|
|
Decrease in bank loans
|
|
|
|
|
|
|
(34,285 |
) |
Repayment of mortgages payable
|
|
|
(285 |
) |
|
|
(241 |
) |
|
|
|
|
|
|
|
Net Cash Flows Used In Financing Activities
|
|
|
(5,224 |
) |
|
|
(24,221 |
) |
|
|
|
|
|
|
|
Net Change In Cash And Cash Equivalents
|
|
|
26,325 |
|
|
|
15,141 |
|
Foreign Exchange Effects On Cash
|
|
|
(892 |
) |
|
|
(171 |
) |
Cash And Cash Equivalents Beginning Of Period
|
|
|
112,839 |
|
|
|
7,089 |
|
|
|
|
|
|
|
|
Cash And Cash Equivalents End Of Period
|
|
$ |
138,272 |
|
|
$ |
22,059 |
|
|
|
|
|
|
|
|
See accompanying notes.
6
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Lions Gate Entertainment Corp. (the Company or
Lions Gate or we) is an integrated
entertainment company engaged in the development, production and
distribution of feature films, television series, television
movies and mini-series, non-fiction programming and animated
programming. As an independent distribution company, the Company
also acquires distribution rights from a wide variety of
studios, production companies and independent producers.
On December 15, 2003, the Company acquired Film Holdings
Co., the parent company of Artisan Entertainment Inc.
(Artisan) as described in note 8. The
acquisition is included in the consolidated balance sheet and
all operating results and cash flows have been included in the
consolidated statements of operations and cash flows from the
acquisition date.
|
|
2. |
Basis of Presentation and Use of Estimates |
The accompanying unaudited condensed consolidated financial
statements include the accounts of Lions Gate and all of its
majority-owned and controlled subsidiaries and consolidated
variable interest entities, with a provision for minority
interests.
The condensed consolidated financial statements of the Company
have been prepared in accordance with accounting principles
generally accepted in the United States
(U.S. GAAP) which conforms, in all material
respects, with the accounting principles generally accepted in
Canada (Canadian GAAP), except as described in
note 15.
The unaudited condensed consolidated financial statements have
been prepared in accordance with 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. or Canadian 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 months ended June 30, 2005 are not necessarily
indicative of the results that may be expected for the year
ended March 31, 2006. The balance sheet at March 31,
2005 has been derived from the audited financial statements at
that date but does not include all the information and footnotes
required by generally accepted accounting principles 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
year ended March 31, 2005.
Certain amounts presented for fiscal 2005 have been reclassified
to conform to the fiscal 2006 presentation.
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.
7
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Restricted Cash
Restricted cash represents an amount on deposit with a financial
institution that is contractually designated for theatrical
marketing expenses for a specific title. Refer to note 6
for the theatrical marketing obligation.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards
No. 123R. In December 2004, the FASB issued
SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS 123(R)). SFAS 123(R) revises
SFAS No. 123 and eliminates the alternative to use the
intrinsic method of accounting under APB No. 25.
SFAS 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. The Company currently accounts for share-based payments
to employees using the intrinsic value method as set forth in
APB No. 25 Accounting for Stock Issued to
Employees. As such, the Company generally recognizes no
compensation cost for employee stock options.
SFAS No. 123(R) eliminates the alternative to use APB
No. 25s intrinsic value method of accounting.
Accordingly, the adoption of SFAS No. 123(R)s
fair value method will have an impact on our results of
operations, although it will have no impact on our overall
financial position. The impact of adoption of
SFAS No. 123(R) cannot be predicted at this time
because it will depend on levels of share-based payments granted
in the future. However, had we adopted SFAS No. 123(R)
in prior periods, the impact would have approximated the impact
of SFAS No. 123 as described in the disclosure of pro
forma net income (loss) and basic and diluted income (loss) per
share in note 12. SFAS No. 123(R) permits
companies to adopt its requirements using either a modified
prospective method or a modified retrospective method. The
Company has not yet determined which method it will utilize. The
provisions of SFAS No. 123(R) are effective for
financial statements with the first interim or annual reporting
period beginning after June 15, 2005. However, the SEC
announced on April 14, 2005 that it would provide for a
phased-in implementation process for SFAS No. 123(R).
As a result, the Company will not be required to apply
SFAS No. 123(R) until the period beginning
April 1, 2006.
|
|
3. |
Investment in Films and Television Programs |
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
March 31, | |
|
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Theatrical and Non-Theatrical Films
|
|
|
|
|
|
|
|
|
Released, net of accumulated amortization
|
|
$ |
105,229 |
|
|
$ |
113,536 |
|
Acquired libraries, net of accumulated amortization
|
|
|
107,465 |
|
|
|
109,805 |
|
Completed and not released
|
|
|
19,649 |
|
|
|
12,083 |
|
In progress
|
|
|
43,401 |
|
|
|
42,581 |
|
In development
|
|
|
2,613 |
|
|
|
2,302 |
|
Product inventory
|
|
|
25,289 |
|
|
|
26,029 |
|
|
|
|
|
|
|
|
|
|
|
303,646 |
|
|
|
306,336 |
|
|
|
|
|
|
|
|
Direct-to-Television Programs
|
|
|
|
|
|
|
|
|
Released, net of accumulated amortization
|
|
|
24,069 |
|
|
|
21,098 |
|
In progress
|
|
|
37,094 |
|
|
|
39,221 |
|
In development
|
|
|
786 |
|
|
|
721 |
|
|
|
|
|
|
|
|
|
|
|
61,949 |
|
|
|
61,040 |
|
|
|
|
|
|
|
|
|
|
$ |
365,595 |
|
|
$ |
367,376 |
|
|
|
|
|
|
|
|
8
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Acquired libraries of $107.5 million at June 30, 2005
(March 31, 2005 $109.8 million) include
the Trimark library acquired October 2000 and the Artisan
library acquired December 2003 (refer to note 8). 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
June 30, 2005 is 15.25 years on unamortized costs of
$21.8 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 up to
20 years from the date of acquisition. The remaining
amortization period on the Artisan library at June 30, 2005
is 18.5 years on unamortized costs of $85.7 million.
The Company expects approximately 37% of completed films and
television programs, net of accumulated amortization, will be
amortized during the one-year period ending June 30, 2006.
Additionally, the Company expects approximately 81% of completed
and released films and television programs, net of accumulated
amortization and excluding acquired libraries, will be amortized
during the three year period ending June 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
March 31, | |
|
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Deferred financing costs, net
|
|
$ |
18,024 |
|
|
$ |
18,882 |
|
Prepaid expenses and other
|
|
|
7,412 |
|
|
|
8,148 |
|
Other investments
|
|
|
3,197 |
|
|
|
250 |
|
Intangible assets, net
|
|
|
2,784 |
|
|
|
2,178 |
|
|
|
|
|
|
|
|
|
|
$ |
31,417 |
|
|
$ |
29,458 |
|
|
|
|
|
|
|
|
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) and are deferred and
amortized to interest expense.
Intangible Assets. Intangible assets acquired in
connection with the purchase of Artisan of $5.1 million
represent distribution and personal service agreements and are
amortized over a period of two to four years from the date of
acquisition. Amortization expense of $0.5 million
amortization was recorded for the three months ended
June 30, 2005 (2004 $0.5 million). In June
2005, the Company acquired all of the publishing assets of a
music publishing company, for a total purchase price of
$1.2 million in cash. The publishing rights are amortized
over a three-year period from the date of acquisition. Based on
the current amount of intangibles subject to amortization, the
estimated amortization expense for each of the succeeding years
is $1.6 million, $0.7 million and $0.5 million
for the years ending June 30, 2006, 2007 and 2008,
respectively.
Maple Pictures Corp: On April 8, 2005, Lions Gate
entered into library and output agreements with Maple Pictures
Corp. (Maple Pictures), a Canadian corporation, for
the distribution of Lions Gates 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 Lions Gate distribution assets in Canada.
Maple Pictures was formed by two former Lions Gate executives
and a third-party equity investor. Lions Gate also acquired a
minority interest in Maple Pictures.
9
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
As a result of these transactions with Maple Pictures, Lions
Gate recorded an investment in Maple Pictures of
$2.2 million as of June 30, 2005 in other assets in
the condensed consolidated balance sheet. The Company is
accounting for the investment in Maple Pictures using the equity
method.
Christal: At March 31, 2005, the Company had a 75%
economic interest and a 30% voting interest in Christal
Distribution (Christal), a film distributor and
sub-distributor in Quebec, Canada. Through March 31, 2005
the Company was the primary beneficiary of Christal under
FIN 46 and accordingly the Company consolidated Christal as
at March 31, 2005. In connection with the Maple Pictures
transaction discussed above, the Company sold the majority of
its interest in Christal to Maple Pictures and the remainder of
its interest was repurchased by Christal. As a result of the
sale and repurchase of the interests, effective April 8,
2005, the Company no longer consolidated Christal and recorded
amounts owing from Christal of $0.5 million, net of amounts
payable to Christal, as of June 30, 2005 in other assets in
the condensed consolidated balance sheet.
The Company entered into a $350 million credit facility in
December 2003 consisting of a $200 million
U.S. dollar-denominated revolving credit facility, a
$15 million Canadian dollar-denominated revolving credit
facility and a $135 million U.S. dollar-denominated
term-loan. By December 31, 2004, the Company had repaid the
term loan in full, thereby reducing the credit facility to
$215 million at March 31, 2005. Effective
March 31, 2005, the credit facility was amended to
eliminate the $15 million Canadian dollar-denominated
revolving credit facility and increase the
U.S. dollar-denominated revolving credit facility by the
same amount. At June 30, 2005, the Company had no
borrowings (March 31, 2005 nil) under the
credit facility. The credit facility expires December»31,
2008 and bears interest at 2.75% over the Adjusted LIBOR or
1.75% over the U.S. prime rate. The availability of funds
under the credit facility is limited by the borrowing base,
which is calculated on a monthly basis. The borrowing base
assets at June 30, 2005 totaled $388.6»million
(March 31, 2005 $405.1 million) and
therefore the full $215 million is available under the
credit facility at June 30, 2005. 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., the Companys wholly-owned subsidiary, is being
pledged as security for the credit facility. The credit facility
is senior to the Companys film obligations, subordinated
notes and mortgages payable. The credit facility restricts the
Company from paying cash dividends on its common shares.
The Company entered into a $100 million interest rate swap
at an interest rate of 3.08%, commencing January 2003 and ending
September 2005. The swap is in effect as long as three month
LIBOR is less than 5.0%. Fair market value of the interest rate
swap at June 30, 2005 is negative $0.1 million
(March 31, 2005 negative $0.1 million).
Changes in the fair value representing a fair valuation loss on
the interest rate swap during the three months ended
June 30, 2005 amount to less than $0.1 million
(2004 gain of $1.6 million) and are included in
the condensed consolidated statements of operations.
10
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
March 31, | |
|
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Minimum guarantees
|
|
$ |
7,014 |
|
|
$ |
5,210 |
|
Minimum guarantees initially incurred for a term of more than
one year
|
|
|
16,081 |
|
|
|
18,081 |
|
Participation and residual costs
|
|
|
104,866 |
|
|
|
95,650 |
|
Theatrical marketing
|
|
|
1,605 |
|
|
|
1,665 |
|
Film productions
|
|
|
14,622 |
|
|
|
10,164 |
|
|
|
|
|
|
|
|
|
|
$ |
144,188 |
|
|
$ |
130,770 |
|
|
|
|
|
|
|
|
The Company expects approximately 63% of accrued
participants shares will be paid during the one-year
period ending June 30, 2006.
Refer to note 2 for restricted cash contractually
designated for the theatrical marketing obligation.
3.625% Notes. In February 2005, Lions Gate
Entertainment Inc. sold $150.0 million of
3.625% Convertible Senior Subordinated Notes. In connection
with this sale, Lions Gate Entertainment Inc. granted the
initial purchasers of the 3.625% Notes an option to
purchase up to an additional $25.0 million of the
3.625% Notes for 13 days. The fair value of this
option was not significant. The initial purchasers exercised
this option in February 2005 and purchased an additional
$25 million of 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 holders 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 holders require 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
the common shares of the Company on the effective date of
the change in control. No make whole premium will be paid if the
price of the common shares of the Company 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 of the Company 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 common
shares of the Company. The holder may convert the
3.625% Notes into common shares of the Company prior to
maturity if the notes have been called for redemption, a change
in control occurs or certain corporate transactions occur. In
addition, under certain
11
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
circumstances, if the holder converts their notes upon a change
in control they will be entitled to receive a make whole premium.
2.9375% Notes. In October 2004, Lions Gate
Entertainment Inc. sold $150.0 million of
2.9375% Convertible Senior Subordinated 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 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 holders 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 holders require 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
the common shares of the Company on the effective date of the
change in control. No make whole premium will be paid if the
price of the common shares of the Company is less than
$8.79 per share or if the price of the common shares of the
Company exceeds $50.00 per share.
The holder may convert the 2.9375% Notes into common shares
of the Company prior to maturity only if the price of the common
shares of the Company 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 they 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 common shares of the Company 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 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. Interest on the 4.875% Notes is
due semi-annually on June 15 and December 15 commencing on
June 15, 2004 and the 4.875% Notes mature on
December 15, 2010. Lions Gate Entertainment Inc. may redeem
all or a portion of the 4.875% Notes at its option on or
after December 15, 2006 at 100% of their principal amount,
together with accrued and unpaid interest through the date of
redemption; provided, however, that the 4.875% Notes will
only be redeemable if the closing price of the Companys
common shares equals or exceeds 175% of the conversion price
then in effect for at least 20 trading days within a period of
30 consecutive trading days ending on the day before the date of
the notice of optional redemption.
The 4.875% 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 185.0944 shares of the Company 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. Upon
conversion of the 4.875% Notes, the Company has the option
to deliver, in lieu of common shares, cash or a combination of
cash and common shares of the Company. The holder may
12
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
convert the 4.875% Notes into common shares of the Company
prior to maturity if the notes have been called for redemption,
a change in control occurs or certain corporate transactions
occur.
Promissory Note. On December 15, 2003, the Company
assumed, as part of the purchase of Artisan, a $5.0 million
subordinated promissory note to Vialta, Inc (Promissory
Note) issued by Artisan which bears interest at
7.5% per annum compounded quarterly. The Promissory Note
matured and was paid during April 2005.
On December 15, 2003, the Company completed its acquisition
of Film Holdings Co., the parent company of Artisan, an
independent distributor and producer of film and entertainment
content, for a total purchase price of $168.9 million
consisting of $160.0 million in cash and direct transaction
costs of $8.9 million. In addition, the Company assumed
debt of $59.9 million and other obligations (including
accounts payable and accrued liabilities, film obligations and
other advances) of $144.0 million. Direct transaction costs
are considered liabilities assumed in the acquisition, and as
such, are included in the purchase price. Direct transaction
costs include: amounts totaling $3.9 million paid to
lawyers, accountants and other consultants; involuntary
termination benefits totaling $4.9 million payable to
certain Artisan employees terminated under a severance plan and
various other amounts totaling $0.1 million. At
June 30, 2005 and March 31, 2005, the remaining
liabilities under the severance plan were nil and
$0.2 million, respectively, and included in accounts
payable and accrued liabilities in the condensed consolidated
balance sheets.
The purchase price may be adjusted for the payment of additional
consideration of up to $7.5 million contingent upon the
results of specified feature films. At June 30, 2005, the
contingent consideration cannot be reasonably estimated. When
the contingency is resolved and if additional consideration
becomes payable, the consideration will be recognized as an
additional cost of the purchase.
Severance and relocation costs incurred by Lions Gate,
associated with the acquisition of Artisan, are not included in
the purchase price and, as such, were recorded in the
consolidated statement of operations for the year ended
March 31, 2004. Severance and relocation costs of
$5.6 million included property lease abandonment costs of
$2.5 million, the write-off of capital assets no longer in
use of $2.1 million and severance of $1.0 million. At
June 30, 2005 and March 31, 2005, the remaining
liabilities under the severance plan are nil. At June 30,
2005, the remaining liabilities for the property lease
abandonment are $1.7 million (March 31,
2005 $1.7 million) and are included in accounts
payable and accrued liabilities in the condensed consolidated
balance sheets.
|
|
9. |
Direct Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Three Months Ended | |
|
|
June 30, 2005 | |
|
June 30, 2004 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Amortization of films and television programs
|
|
$ |
65,376 |
|
|
$ |
60,225 |
|
Participation and residual expense
|
|
|
33,076 |
|
|
|
20,887 |
|
Amortization of acquired intangible assets
|
|
|
548 |
|
|
|
548 |
|
Other expenses
|
|
|
1,264 |
|
|
|
(850 |
) |
|
|
|
|
|
|
|
|
|
$ |
100,264 |
|
|
$ |
80,810 |
|
|
|
|
|
|
|
|
13
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Other expenses include direct operating expenses related to the
studio facility and provision for doubtful accounts. Other
expenses for the three months ended June 30, 2004 include a
reduction in the provision for doubtful accounts.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Three Months Ended | |
|
|
June 30, 2005 | |
|
June 30, 2004 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Net loss
|
|
$ |
(21,819 |
) |
|
$ |
(11,462 |
) |
Less: Foreign currency translation adjustments
|
|
|
(831 |
) |
|
|
(1,153 |
) |
Less: Net unrealized gain (loss) on foreign exchange contracts
|
|
|
234 |
|
|
|
(645 |
) |
|
|
|
|
|
|
|
Comprehensive loss
|
|
$ |
(22,416 |
) |
|
$ |
(13,260 |
) |
|
|
|
|
|
|
|
The Company calculates earnings per share in accordance with
SFAS No. 128, Earnings Per Share. Basic
loss per share is calculated based on the weighted average
common shares outstanding for the period. Diluted earnings per
share includes the impact of the convertible senior subordinated
notes, share purchase warrants, stock options and restricted
share units, if dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Three Months Ended | |
|
|
June 30, 2005 | |
|
June 30, 2004 | |
|
|
| |
|
| |
|
|
(Amounts in thousands, except | |
|
|
per share amounts) | |
Basic loss per common share is calculated as follows:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(21,819 |
) |
|
$ |
(11,462 |
) |
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
101,852 |
|
|
|
94,921 |
|
|
|
|
|
|
|
|
Basic and diluted loss per common share
|
|
$ |
(0.21 |
) |
|
$ |
(0.12 |
) |
|
|
|
|
|
|
|
Basic loss per share is calculated using the weighted average
number of common shares outstanding during the three months
ended June 30, 2005 and 2004 of 101,852,000 shares and
94,921,000 shares, respectively. The exercise of common
share equivalents including stock options, share purchase
warrants, the conversion features of the 4.875% Notes,
2.9375% Notes and 3.625% Notes and restricted share
units could potentially dilute income (loss) per share in the
future, but were not reflected in diluted loss per share during
the periods presented because to do so would be anti-dilutive.
Under the if converted method of calculating diluted
earnings per share, the share purchase options, the restricted
share units, the share purchase warrants and the convertible
senior subordinated notes, if outstanding, were anti-dilutive in
each of the periods presented and were not reflected in diluted
loss per common share.
|
|
12. |
Accounting for Stock Based Compensation |
The Company elected to use the intrinsic value method in
accounting for stock based compensation set forth in APB
No. 25, Accounting for Stock Issued to
Employees. In accordance with SFAS No. 148,
Accounting for Stock-Based Compensation
Transition and Disclosure an amendment of
SFAS No. 123 the following disclosures are
provided about the costs of stock-based compensation awards
14
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
using the fair value method for companies that elect to use the
intrinsic value method. See Recent Accounting Pronouncements for
SFAS 123(R).
The weighted average estimated fair value of each stock option
granted in the three months ended June 30, 2005 was $3.61.
No stock options were granted during the three months ended
June 30, 2004. The total stock-based compensation expense
for disclosure purposes for the three months ended June 30,
2005, based on the fair value of the stock options granted, was
$0.6 million (2004 $0.2 million) and the
fair value of stock option modifications was less than
$0.1 million (2004 nil).
For disclosure purposes the fair value of each stock option
grant was estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions used for
stock options granted: a dividend yield of 0%, expected
volatility of 33% (2004 30%), risk-free interest
rate of 4.0% (2004 3.8%) and expected life of five
years.
The following pro forma basic and diluted income (loss) per
common share includes stock-based compensation expense for stock
options issued and modified, as described above:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Three Months Ended | |
|
|
June 30, 2005 | |
|
June 30, 2004 | |
|
|
| |
|
| |
|
|
(Amounts in thousands, except | |
|
|
per share amounts) | |
The resulting pro forma basic loss per common share is
calculated as follows:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(21,819 |
) |
|
$ |
(11,462 |
) |
|
Add: stock-based compensation expense calculated using intrinsic
value method
|
|
|
27 |
|
|
|
|
|
|
Less: stock-based compensation expense calculated using fair
value method
|
|
|
(602 |
) |
|
|
(238 |
) |
|
|
|
|
|
|
|
|
Adjusted net loss
|
|
$ |
(22,394 |
) |
|
$ |
(11,700 |
) |
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
101,852 |
|
|
|
94,921 |
|
|
|
|
|
|
|
|
Adjusted basic and diluted loss per common share
|
|
$ |
(0.22 |
) |
|
$ |
(0.12 |
) |
|
|
|
|
|
|
|
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 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 $5.00 multiplied by the number
of options exercised. Any twenty-day average trading price of
common shares prior to the exercise notice date has 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. The Company measures
compensation expense as the amount by which the market value of
common shares exceeds the SARs price. At June 30,
2005, the market price of common shares was $10.26
(March 31, 2005 $11.05; June 30,
2004 $6.98) and the SARs had all vested. Due to the
reduction in the market price of its common shares, the Company
recorded a reduction in stock-based compensation expense in the
amount of $0.6 million in general and administration
expenses in the condensed consolidated statement of operations
for the three months ended June 30, 2005 (June 30,
2004 expense of $0.5 million). The expense is
calculated by using the market price of common shares on
June 30, 2005 less the SARs price, multiplied by the
750,000 SARs vested. At June 30, 2005, the Company has a
stock-based compensation
15
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
accrual in the amount of $3.9 million (March 31,
2005 $4.5 million) included in accounts payable
and accrued liabilities on the condensed consolidated balance
sheets relating to these SARs.
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 vest 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 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 and measures compensation cost as the amount by which
the market value of common shares exceeds the SARs price
times the SARs assumed to have vested under the graded approach.
At June 30, 2005, the market price of common shares was
$10.26 (March 31, 2005 $11.05; June 30,
2004 $6.98). Due to the reduction in the market
price of its common shares, the Company recorded a reduction in
stock-based compensation expense in the amount of
$0.2 million in general and administration expenses in the
condensed consolidated statement of operations for the three
months ended June 30, 2005 (June 30, 2004
expense of $0.8 million). During the year ended
March 31, 2005 the officer exercised 150,000 of the vested
SARs and the Company paid $0.9 million. The total expense
is calculated by using the market price of common shares on
June 30, 2005 less the SARs price, multiplied by the
remaining 793,032 SARs assumed to have vested less the 150,000
SARs exercised. At June 30, 2005, the Company has a
stock-based compensation accrual in the amount of
$3.3 million (March 31, 2005
$3.5 million) included in accounts payable and accrued
liabilities on the condensed consolidated balance sheets
relating to these SARs.
Effective June 27, 2005, the Company entered into
restricted share unit agreements with certain employees and
awarded 198,000 restricted common share units. Upon issuance of
the restricted common share units, an unamortized compensation
expense equivalent to the market value of the common shares on
the date of grant was charged to shareholders equity as
unearned compensation. This unearned compensation will be
amortized over the three-year vesting period. The market value
of the units granted was $10.60 per unit on the date of
grants. Compensation expense related to these restricted common
share units was insignificant to our condensed consolidated
statement of operations for the three months ended June 30,
2005.
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 three reportable business
segments: Motion Pictures, Television and Studio Facilities.
Motion Pictures consists of the development and production of
feature films; acquisition of North American and worldwide
distribution rights; North American theatrical, home
entertainment and television distribution of feature films
produced and acquired and worldwide licensing of distribution
rights to feature films produced and acquired.
Television consists of the development, production and worldwide
distribution of television productions including television
series, television movies and mini-series and non-fiction
programming.
Studio Facilities consists of ownership and management of an
eight-soundstage studio facility in Vancouver, Canada. Rental
revenue is earned from soundstages, office and other equipment
and services to
16
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
tenants that produce or support the production of feature films,
television series, movies and commercials. Tenancies vary from a
few days to five years depending on the nature of the project
and the tenant.
Segmented information by business unit is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Three Months Ended | |
|
|
June 30, 2005 | |
|
June 30, 2004 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Segment revenues
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$ |
146,982 |
|
|
$ |
159,066 |
|
|
Television
|
|
|
45,858 |
|
|
|
28,647 |
|
|
Studio Facilities
|
|
|
1,389 |
|
|
|
1,011 |
|
|
|
|
|
|
|
|
|
|
$ |
194,229 |
|
|
$ |
188,724 |
|
|
|
|
|
|
|
|
Segment profit (loss)
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$ |
(9,220 |
) |
|
$ |
(2,866 |
) |
|
Television
|
|
|
2,377 |
|
|
|
4,232 |
|
|
Studio Facilities
|
|
|
811 |
|
|
|
450 |
|
|
|
|
|
|
|
|
|
|
$ |
(6,032 |
) |
|
$ |
1,816 |
|
|
|
|
|
|
|
|
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 Ended | |
|
Three Months Ended | |
|
|
June 30, 2005 | |
|
June 30, 2004 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Companys total segment profit (loss)
|
|
$ |
(6,032 |
) |
|
$ |
1,816 |
|
Less:
|
|
|
|
|
|
|
|
|
|
Corporate general and administration
|
|
|
(10,813 |
) |
|
|
(9,095 |
) |
|
Depreciation
|
|
|
(748 |
) |
|
|
(675 |
) |
|
Interest expense
|
|
|
(4,884 |
) |
|
|
(5,461 |
) |
|
Interest rate swaps mark-to-market
|
|
|
(337 |
) |
|
|
2,060 |
|
|
Interest income
|
|
|
1,065 |
|
|
|
37 |
|
|
Minority interests
|
|
|
|
|
|
|
123 |
|
|
|
|
|
|
|
|
|
|
$ |
(21,749 |
) |
|
$ |
(11,195 |
) |
|
|
|
|
|
|
|
|
|
14. |
Commitments and 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
June 30, 2005, in accordance with FAS 5
Accounting for Contingencies.
17
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
15. |
Reconciliation to Canadian GAAP |
The condensed consolidated financial statements of the Company
have been prepared in accordance with U.S. GAAP. The
material differences between the accounting policies used by the
Company under U.S. GAAP and Canadian GAAP are disclosed
below in accordance with the provisions of the Securities and
Exchange Commission (SEC) and the National
Instrument adopted by certain securities authorities in Canada.
Under Canadian GAAP, the net loss and loss per share figures for
the three months ended June 30, 2005 and 2004, and the
shareholders equity as at June 30, 2005 and
March 31, 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss | |
|
|
|
|
| |
|
Shareholders Equity | |
|
|
Three Months Ended | |
|
Three Months Ended | |
|
| |
|
|
June 30, 2005 | |
|
June 30, 2004 | |
|
June 30, 2005 | |
|
March 31, 2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands, except per share amounts) | |
As reported under U.S. GAAP
|
|
$ |
(21,819 |
) |
|
$ |
(11,462 |
) |
|
$ |
94,873 |
|
|
$ |
117,139 |
|
Adjustment for interest rate swaps(a)
|
|
|
(158 |
) |
|
|
(158 |
) |
|
|
2,167 |
|
|
|
2,325 |
|
Accounting for business combinations(b)
|
|
|
|
|
|
|
|
|
|
|
1,145 |
|
|
|
1,145 |
|
Accounting for income taxes(c)
|
|
|
|
|
|
|
|
|
|
|
(1,900 |
) |
|
|
(1,900 |
) |
Accounting for stock-based compensation(g)
|
|
|
(575 |
) |
|
|
(238 |
) |
|
|
|
|
|
|
|
|
Adjustment for accretion on subordinated notes(d)
|
|
|
(3,158 |
) |
|
|
(618 |
) |
|
|
(9,582 |
) |
|
|
(6,424 |
) |
Adjustment for amortization of subordinated notes issue costs(d)
|
|
|
227 |
|
|
|
36 |
|
|
|
709 |
|
|
|
482 |
|
Adjustment for amortization and write-off of deferred bank loan
financing costs(e)
|
|
|
|
|
|
|
84 |
|
|
|
|
|
|
|
|
|
Reclassification of conversion feature of subordinated notes
outside shareholders equity(d)
|
|
|
|
|
|
|
|
|
|
|
74,854 |
|
|
|
74,854 |
|
Other comprehensive income (loss) (net of tax of nil)(f)
|
|
|
|
|
|
|
|
|
|
|
(538 |
) |
|
|
(304 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss/ Shareholders Equity under Canadian GAAP
|
|
$ |
(25,483 |
) |
|
$ |
(12,356 |
) |
|
$ |
161,728 |
|
|
$ |
187,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss per Common Share under Canadian
GAAP
|
|
$ |
(0.25 |
) |
|
$ |
(0.13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Reconciliation of movement in Shareholders Equity under
Canadian GAAP:
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
March 31, | |
|
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Balance at beginning of the year
|
|
$ |
187,317 |
|
|
$ |
86,827 |
|
Increase in common shares
|
|
|
123 |
|
|
|
24,850 |
|
Increase in contributed surplus(d)(g)
|
|
|
602 |
|
|
|
60,842 |
|
Net loss under Canadian GAAP
|
|
|
(25,483 |
) |
|
|
12,424 |
|
Adjustment to cumulative translation adjustments account(f)
|
|
|
(831 |
) |
|
|
2,374 |
|
|
|
|
|
|
|
|
Balance at end of the period
|
|
$ |
161,728 |
|
|
$ |
187,317 |
|
|
|
|
|
|
|
|
|
|
(a) |
Interest Rate Swaps Mark-to-Market |
Under U.S. GAAP, the interest swaps do not meet the
criteria of effective hedges and therefore the fair valuation
loss of less than $0.1 million for the three months ended
June 30, 2005 (2004 gain of $1.6 million)
on the Companys interest swap and fair valuation loss of
$0.3 million for the three months ended June 30, 2005
(2004 gain of $0.5 million) on a subsidiary
companys interest swap are recorded in the condensed
consolidated statement of operations.
Under Canadian GAAP, until April 1, 2004, the interest rate
swaps were determined to be effective hedges under Canadian
Institute of Chartered Accountants (CICA)
Section 3860, Financial Instruments
Disclosure and Presentation, and no fair valuation
adjustments were recorded. In December 2001, the CICA released
Accounting Guideline (AcG-13), Hedging
Relationships, to be applied by companies for periods
beginning on or after July 1, 2003. The standard
establishes criteria to identify, designate, document and
determine the effectiveness of hedging relationships, for the
purpose of applying hedge accounting and provides guidance on
the discontinuance of hedge accounting. Under Canadian GAAP the
Company has adopted AcG-13 effective April 1, 2004 and
determined the interest rate swaps do not meet the criteria of
effective hedges and therefore the fair valuation loss of less
than $0.1 million for the three months ended June 30,
2005 (2004 gain of $1.6 million) on the
Companys interest swap and fair valuation loss of
$0.3 million for the three months ended June 30, 2005
(2004 gain of $0.5 million) on a subsidiary
companys interest swap are recorded in the condensed
consolidated statement of operations, which is consistent with
U.S. GAAP.
The transitional provisions of AcG-13 provide that when an
entity terminates its designation of a hedging relationship or a
hedging relationship ceases to be effective, hedge accounting is
not applied to gains, losses, revenues or expenses arising
subsequently. However, the hedge accounting applied to the
hedging relationship in prior periods is not reversed. Any
gains, losses, revenues or expenses deferred previously as a
result of applying hedge accounting continue to be carried
forward for subsequent recognition in income in the same period
as the corresponding gains, losses, revenues or expenses
associated with the hedged item. Accordingly, under Canadian
GAAP at April 1, 2004 the Company recorded the fair values
of the interest rate swaps totaling $3.0 million on the
consolidated balance sheet and recorded the off-setting entry to
deferred assets which is being amortized straight-line to
interest expense over the terms of the interest rate swaps. This
results in an additional interest expense in the three months
ended June 30, 2005 of $0.2 million (2004
$0.2 million).
|
|
(b) |
Accounting for Business Combinations |
Under U.S. GAAP, costs related to the acquiring company
must be expensed as incurred. Under Canadian GAAP, prior to
January 1, 2001, costs related to restructuring activities
of an acquiring company
19
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
were considered in the purchase price allocation. In fiscal
2001, the Company included $1.4 million of such costs in
the purchase price for an acquired company under Canadian GAAP.
The amount is presented net of income taxes of $0.3 million.
|
|
(c) |
Accounting for Income Taxes |
SFAS 109 requires deferred tax assets and liabilities be
recognized for temporary differences, other than non-deductible
goodwill, arising in a business combination. In the year ended
March 31, 2000, under U.S. GAAP, goodwill was
increased to reflect the additional deferred tax liability
resulting from temporary differences arising on the acquisition
of Lions Gate Studios in fiscal 1999. Under Canadian GAAP, the
Company recorded a charge to retained earnings when the deferred
tax liability was established upon adoption of the applicable
accounting standard in 2001; accordingly, there is a difference
in the carrying amount of goodwill arising in the business
combination of $1.9 million as at June 30, 2005
(March 31, 2005 $1.9 million).
|
|
(d) |
Reclassification of Conversion Feature of Subordinated
Notes, Accretion on Subordinated Notes and Amortization of
Subordinated Notes Issue Costs |
Under U.S. GAAP, the conversion feature of the
4.875% Notes, as explained in note 7, is not accounted
for separately. Under Canadian GAAP, the conversion feature of
the 4.875% Notes is valued at $16.3 million, net of
placement agents fees and offering expenses of
$1.0 million and, accordingly, shareholders equity is
increased by $16.3 million. Under U.S. GAAP the
principal amount and the carrying amount of the
4.875% Notes are the same and therefore no accretion is
required whereas, under Canadian GAAP, the difference between
the principal amount of $60.0 million and the original net
carrying amount of $42.7 million is being accreted on a
straight-line basis over seven years as a charge to interest.
Under U.S. GAAP all of the placement agents fees and
offering expenses are capitalized and amortized over seven years
as a charge to interest expense whereas, under Canadian GAAP,
the placement agents fees and offering expenses have been
allocated to the conversion feature and to debt. The portion
allocated to debt is being amortized on a straight-line basis
over seven years as a charge to interest expense.
Under U.S. GAAP, the conversion feature of the
2.9375% Notes, as explained in note 7, is not
accounted for separately. Under Canadian GAAP, the conversion
feature of the 2.9375% Notes is valued at
$25.7 million, net of placement agents fees and
offering expenses of $0.8 million and, accordingly,
shareholders equity is increased by $25.7 million.
Under U.S. GAAP the principal amount and the carrying
amount of 2.9375% Notes are the same and therefore no
accretion is required whereas, under Canadian GAAP, the
difference between the principal amount of $150.0 million
and the original net carrying amount of $123.5 million is
being accreted on a straight-line basis over five years, the
time to the first potential redemption date by the Company, as a
charge to interest. Under U.S. GAAP all of the placement
agents fees and offering expenses are capitalized and
amortized through the earliest redemption date of seven years as
a charge to interest expense whereas, under Canadian GAAP, the
placement agents fees and offering expenses have been
allocated to the conversion feature and to debt. The portion
allocated to debt is being amortized on a straight-line basis
through the scheduled maturity date of twenty years as a charge
to interest expense.
Under U.S. GAAP, the conversion feature of the
3.625% Notes, as explained in note 7, is not accounted
for separately. Under Canadian GAAP, the conversion feature of
the 3.625% Notes is valued at $32.9 million, net of
placement agents fees and offering expenses of
$1.0 million and, accordingly, shareholders equity is
increased by $32.9 million. Under U.S. GAAP the
principal amount and the carrying amount of 3.625% Notes
are the same and therefore no accretion is required whereas,
under Canadian GAAP, the difference between the principal amount
of $175.0 million and the original net carrying amount of
$141.1 million is being accreted on a straight-line basis
over seven years, the time to the first potential redemption
date by the Company, as a charge to interest. Under
U.S. GAAP all of the placement agents fees and
offering expenses are capitalized and amortized through the
earliest redemption date of seven years as a charge to interest
expense whereas,
20
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
under Canadian GAAP, the placement agents fees and
offering expenses have been allocated to the conversion feature
and to debt. The portion allocated to debt is being amortized on
a straight-line basis through the scheduled maturity date of
twenty years as a charge to interest expense.
|
|
(e) |
Accounting for Amortization and Write-Off of Deferred Bank
Loan Financing Costs |
Under U.S. GAAP, deferred financing costs in the amount of
$4.3 million allocated to the Companys term loan was
being amortized using the effective interest method over the
term of the loan as a charge to interest expense whereas, under
Canadian GAAP, the same amount was being amortized on a
straight-line basis over the term of the loan. On
December 31, 2004, the Company repaid its term loan and
wrote off the deferred financing costs related to the term loan.
|
|
(f) |
Comprehensive Income (Loss) |
Comprehensive loss consists of net income (loss) and other gains
and losses affecting shareholders equity that, under
U.S. GAAP are excluded from the determination of net income
(loss). Under U.S. GAAP, comprehensive income (loss)
includes cumulative translation adjustments and unrealized gains
(losses) on foreign exchange contracts, net of income taxes of
nil. Under Canadian GAAP, cumulative translation adjustments are
included as a separate component of shareholders equity
and unrealized gains (losses) on foreign exchange contracts are
not recorded.
|
|
(g) |
Accounting for Stock Based Compensation |
In December 2003, the Canadian Institute of Chartered
Accountants (CICA) amended Section 3870 to
require companies to account for stock options using the fair
value based method for fiscal years beginning on or after
January 1, 2004. In accordance with the transitional
alternatives permitted under amended Section 3870, the
Company retroactively adopted the fair value based method of
accounting for stock options and accordingly, the years ended
March 31, 2004 and March 31, 2003 have been restated.
The impact of this change for the three-months ended
June 30, 2005 was to decrease net income and increase
contributed surplus by $0.6 million (2004
$0.2 million) and to increase basic loss per share by
$0.01, respectively (2004 nil).
In accordance with CICA Section 3870, the following
disclosures are provided about the costs of stock-based
compensation awards using the fair value method. The weighted
average estimated fair value of each stock option granted in the
three months ended June 30, 2005 was $3.61. No stock
options were granted during the three months ended June 30,
2004. The fair value of each stock option grant was estimated on
the date of grant using the Black-Scholes option pricing model
with the following assumptions used for stock options granted
during the three months ended June 30, 2005: a dividend
yield of 0%, expected volatility of 33% (2004 30%),
risk-free interest rate of 4.0% (2004 3.8%) and
expected life of five years (2004 five years).
|
|
16. |
Consolidating Financial Information |
In December 2003, the Company sold $60.0 million of the
4.875% Notes, through its wholly owned U.S. subsidiary
Lions Gate Entertainment Inc. (the Issuer). The
4.875% Notes, by their terms, are fully and unconditionally
guaranteed by the Company. On April 2, 2004, the Company
filed a registration statement on Form S-3 to register the
resale of the 4.875% Notes and common shares issuable on
conversion of the 4.875% Notes. On April 29, 2004, the
registration statement was declared effective by the Securities
and Exchange Commission (SEC).
In October 2004, the Company sold $150.0 million of the
2.9375% Notes, through 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
21
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
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 June 30, 2005 and March 31, 2005 and
for the three months ended June 30, 2005 and 2004 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2005 | |
|
|
| |
|
|
Lions Gate | |
|
Lions Gate | |
|
|
|
|
Entertainment | |
|
Entertainment | |
|
Other | |
|
Consolidating | |
|
Lions Gate | |
|
|
Corp. | |
|
Inc. | |
|
Subsidiaries | |
|
Adjustments | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
4,004 |
|
|
$ |
19,603 |
|
|
$ |
114,665 |
|
|
$ |
|
|
|
$ |
138,272 |
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
968 |
|
|
|
|
|
|
|
968 |
|
Accounts receivable, net
|
|
|
34 |
|
|
|
|
|
|
|
102,405 |
|
|
|
|
|
|
|
102,439 |
|
Investment in films and television programs
|
|
|
|
|
|
|
|
|
|
|
365,595 |
|
|
|
|
|
|
|
365,595 |
|
Property and equipment
|
|
|
|
|
|
|
3,174 |
|
|
|
27,014 |
|
|
|
|
|
|
|
30,188 |
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
161,182 |
|
|
|
|
|
|
|
161,182 |
|
Other assets
|
|
|
77 |
|
|
|
19,215 |
|
|
|
12,125 |
|
|
|
|
|
|
|
31,417 |
|
Investment in subsidiaries
|
|
|
220,334 |
|
|
|
273,515 |
|
|
|
|
|
|
|
(493,849 |
) |
|
|
|
|
Deferred income taxes
|
|
|
1,896 |
|
|
|
|
|
|
|
(1,896 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
226,345 |
|
|
$ |
315,507 |
|
|
$ |
782,058 |
|
|
$ |
(493,849 |
) |
|
$ |
830,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS
EQUITY (DEFICIENCY) |
Accounts payable and accrued liabilities
|
|
$ |
192 |
|
|
$ |
19,726 |
|
|
$ |
119,687 |
|
|
$ |
|
|
|
$ |
139,605 |
|
Film obligations
|
|
|
|
|
|
|
|
|
|
|
144,188 |
|
|
|
|
|
|
|
144,188 |
|
Subordinated notes
|
|
|
|
|
|
|
385,000 |
|
|
|
|
|
|
|
|
|
|
|
385,000 |
|
Mortgages payable
|
|
|
|
|
|
|
|
|
|
|
18,109 |
|
|
|
|
|
|
|
18,109 |
|
Deferred revenue
|
|
|
|
|
|
|
|
|
|
|
48,286 |
|
|
|
|
|
|
|
48,286 |
|
Intercompany payables (receivables)
|
|
|
(130,990 |
) |
|
|
(51,540 |
) |
|
|
198,090 |
|
|
|
(15,560 |
) |
|
|
|
|
Intercompany equity
|
|
|
262,270 |
|
|
|
93,217 |
|
|
|
306,513 |
|
|
|
(662,000 |
) |
|
|
|
|
Shareholders equity (deficiency)
|
|
|
94,873 |
|
|
|
(130,896 |
) |
|
|
(52,815 |
) |
|
|
183,711 |
|
|
|
94,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
226,345 |
|
|
$ |
315,507 |
|
|
$ |
782,058 |
|
|
$ |
(493,849 |
) |
|
$ |
830,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2005 | |
|
|
| |
|
|
Lions Gate | |
|
Lions Gate | |
|
|
|
|
Entertainment | |
|
Entertainment | |
|
Other | |
|
Consolidating | |
|
Lions Gate | |
|
|
Corp. | |
|
Inc. | |
|
Subsidiaries | |
|
Adjustments | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
172 |
|
|
$ |
|
|
|
$ |
194,201 |
|
|
$ |
(144 |
) |
|
$ |
194,229 |
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating
|
|
|
|
|
|
|
|
|
|
|
100,264 |
|
|
|
|
|
|
|
100,264 |
|
|
Distribution and marketing
|
|
|
|
|
|
|
|
|
|
|
93,481 |
|
|
|
|
|
|
|
93,481 |
|
|
General and administration
|
|
|
351 |
|
|
|
10,432 |
|
|
|
6,690 |
|
|
|
(144 |
) |
|
|
17,329 |
|
|
Depreciation
|
|
|
|
|
|
|
26 |
|
|
|
722 |
|
|
|
|
|
|
|
748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
351 |
|
|
|
10,458 |
|
|
|
201,157 |
|
|
|
(144 |
) |
|
|
211,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(179 |
) |
|
|
(10,458 |
) |
|
|
(6,956 |
) |
|
|
|
|
|
|
(17,593 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses (Income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
17 |
|
|
|
4,564 |
|
|
|
303 |
|
|
|
|
|
|
|
4,884 |
|
|
Interest rate swaps mark-to-market
|
|
|
|
|
|
|
19 |
|
|
|
318 |
|
|
|
|
|
|
|
337 |
|
|
Interest income
|
|
|
|
|
|
|
(1,065 |
) |
|
|
|
|
|
|
|
|
|
|
(1,065 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
17 |
|
|
|
3,518 |
|
|
|
621 |
|
|
|
|
|
|
|
4,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Equity Interests and Income Taxes
|
|
|
(196 |
) |
|
|
(13,976 |
) |
|
|
(7,577 |
) |
|
|
|
|
|
|
(21,749 |
) |
Equity interests
|
|
|
21,623 |
|
|
|
8,955 |
|
|
|
|
|
|
|
(30,578 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
|
|
(21,819 |
) |
|
|
(22,931 |
) |
|
|
(7,577 |
) |
|
|
30,578 |
|
|
|
(21,749 |
) |
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
(70 |
) |
|
|
|
|
|
|
(70 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$ |
(21,819 |
) |
|
$ |
(22,931 |
) |
|
$ |
(7,647 |
) |
|
$ |
30,578 |
|
|
$ |
(21,819 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2005 | |
|
|
| |
|
|
Lions Gate | |
|
Lions Gate | |
|
|
|
|
Entertainment | |
|
Entertainment | |
|
Other | |
|
Consolidating |
|
Lions Gate | |
|
|
Corp. | |
|
Inc. | |
|
Subsidiaries | |
|
Adjustments |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
|
|
| |
|
|
(Amounts in thousands) | |
STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) operating activities
|
|
$ |
3,916 |
|
|
$ |
(85,958 |
) |
|
$ |
112,209 |
|
|
$ |
|
|
|
$ |
30,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received from sale of investment
|
|
|
|
|
|
|
|
|
|
|
2,011 |
|
|
|
|
|
|
|
2,011 |
|
|
Purchases of property and equipment
|
|
|
|
|
|
|
(758 |
) |
|
|
129 |
|
|
|
|
|
|
|
(629 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) investing activities
|
|
|
|
|
|
|
(758 |
) |
|
|
2,140 |
|
|
|
|
|
|
|
1,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61 |
|
|
Repayment of subordinated notes
|
|
|
|
|
|
|
|
|
|
|
(5,000 |
) |
|
|
|
|
|
|
(5,000 |
) |
|
Repayment of mortgages payable
|
|
|
|
|
|
|
|
|
|
|
(285 |
) |
|
|
|
|
|
|
(285 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) financing activities
|
|
|
61 |
|
|
|
|
|
|
|
(5,285 |
) |
|
|
|
|
|
|
(5,224 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
3,977 |
|
|
|
(86,716 |
) |
|
|
109,064 |
|
|
|
|
|
|
|
26,325 |
|
Foreign exchange effect on cash
|
|
|
(916 |
) |
|
|
(37 |
) |
|
|
61 |
|
|
|
|
|
|
|
(892 |
) |
Cash and cash equivalents beginning of period
|
|
|
943 |
|
|
|
106,356 |
|
|
|
5,540 |
|
|
|
|
|
|
|
112,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$ |
4,004 |
|
|
$ |
19,603 |
|
|
$ |
114,665 |
|
|
$ |
|
|
|
$ |
138,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2005 | |
|
|
| |
|
|
Lions Gate | |
|
Lions Gate | |
|
|
|
|
Entertainment | |
|
Entertainment | |
|
Other | |
|
Consolidating | |
|
Lions Gate | |
|
|
Corp. | |
|
Inc. | |
|
Subsidiaries | |
|
Adjustments | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
RECONCILIATION OF NET INCOME (LOSS) TO CANADIAN GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported under U.S. GAAP
|
|
$ |
(21,819 |
) |
|
$ |
(22,931 |
) |
|
$ |
(7,647 |
) |
|
$ |
30,578 |
|
|
$ |
(21,819 |
) |
Interest rate swaps mark-to-market
|
|
|
(158 |
) |
|
|
(123 |
) |
|
|
(35 |
) |
|
|
158 |
|
|
|
(158 |
) |
Accounting for stock-based compensation
|
|
|
(575 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(575 |
) |
Adjustment for accretion on subordinated notes
|
|
|
(3,158 |
) |
|
|
(3,158 |
) |
|
|
|
|
|
|
3,158 |
|
|
|
(3,158 |
) |
Adjustment for amortization of subordinated notes issue costs
|
|
|
227 |
|
|
|
227 |
|
|
|
|
|
|
|
(227 |
) |
|
|
227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) under Canadian GAAP
|
|
$ |
(25,483 |
) |
|
$ |
(25,985 |
) |
|
$ |
(7,682 |
) |
|
$ |
33,667 |
|
|
$ |
(25,483 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2005 | |
|
|
| |
|
|
Lions Gate | |
|
Lions Gate | |
|
|
|
|
Entertainment | |
|
Entertainment | |
|
Other | |
|
Consolidating | |
|
Lions Gate | |
|
|
Corp. | |
|
Inc. | |
|
Subsidiaries | |
|
Adjustments | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
RECONCILIATION OF SHAREHOLDERS EQUITY
(DEFICIENCY) TO CANADIAN GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported under U.S. GAAP
|
|
$ |
94,873 |
|
|
$ |
(130,896 |
) |
|
$ |
(52,815 |
) |
|
$ |
183,711 |
|
|
$ |
94,873 |
|
Interest rate swaps mark-to-market
|
|
|
2,167 |
|
|
|
1,682 |
|
|
|
485 |
|
|
|
(2,167 |
) |
|
|
2,167 |
|
Accounting for business combinations
|
|
|
1,145 |
|
|
|
|
|
|
|
1,145 |
|
|
|
(1,145 |
) |
|
|
1,145 |
|
Accounting for income taxes
|
|
|
(1,900 |
) |
|
|
|
|
|
|
(1,900 |
) |
|
|
1,900 |
|
|
|
(1,900 |
) |
Adjustment for accretion on subordinated notes
|
|
|
(9,582 |
) |
|
|
(9,582 |
) |
|
|
|
|
|
|
9,582 |
|
|
|
(9,582 |
) |
Adjustment for amortization of subordinated notes issue costs
|
|
|
709 |
|
|
|
709 |
|
|
|
|
|
|
|
(709 |
) |
|
|
709 |
|
Reclassification of conversion feature of subordinated notes
outside shareholders equity
|
|
|
74,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,854 |
|
Other comprehensive income (loss)
|
|
|
(538 |
) |
|
|
(538 |
) |
|
|
(538 |
) |
|
|
1,076 |
|
|
|
(538 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity (deficiency) under Canadian
GAAP
|
|
$ |
161,728 |
|
|
$ |
(138,625 |
) |
|
$ |
(53,623 |
) |
|
$ |
192,248 |
|
|
$ |
161,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2005 | |
|
|
| |
|
|
Lions Gate | |
|
Lions Gate | |
|
|
|
|
Entertainment | |
|
Entertainment | |
|
Other | |
|
Consolidating | |
|
Lions Gate | |
|
|
Corp. | |
|
Inc. | |
|
Subsidiaries | |
|
Adjustments | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
943 |
|
|
$ |
106,356 |
|
|
$ |
5,540 |
|
|
$ |
|
|
|
$ |
112,839 |
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
2,913 |
|
|
|
|
|
|
|
2,913 |
|
Accounts receivable, net
|
|
|
35 |
|
|
|
69 |
|
|
|
149,915 |
|
|
|
|
|
|
|
150,019 |
|
Investment in films and television programs
|
|
|
|
|
|
|
|
|
|
|
367,376 |
|
|
|
|
|
|
|
367,376 |
|
Property and equipment
|
|
|
|
|
|
|
2,544 |
|
|
|
28,298 |
|
|
|
|
|
|
|
30,842 |
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
161,182 |
|
|
|
|
|
|
|
161,182 |
|
Other assets
|
|
|
92 |
|
|
|
19,517 |
|
|
|
9,849 |
|
|
|
|
|
|
|
29,458 |
|
Investment in subsidiaries
|
|
|
250,701 |
|
|
|
291,206 |
|
|
|
|
|
|
|
(541,907 |
) |
|
|
|
|
Deferred income taxes
|
|
|
1,896 |
|
|
|
|
|
|
|
(1,896 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
253,667 |
|
|
$ |
419,692 |
|
|
$ |
723,177 |
|
|
$ |
(541,907 |
) |
|
$ |
854,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loans
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,162 |
|
|
$ |
|
|
|
$ |
1,162 |
|
Accounts payable and accrued liabilities
|
|
|
143 |
|
|
|
21,074 |
|
|
|
112,983 |
|
|
|
|
|
|
|
134,200 |
|
Film obligations
|
|
|
|
|
|
|
|
|
|
|
130,770 |
|
|
|
|
|
|
|
130,770 |
|
Subordinated notes
|
|
|
|
|
|
|
385,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
390,000 |
|
Mortgages payable
|
|
|
|
|
|
|
|
|
|
|
18,640 |
|
|
|
|
|
|
|
18,640 |
|
Deferred revenue
|
|
|
|
|
|
|
|
|
|
|
62,459 |
|
|
|
|
|
|
|
62,459 |
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
259 |
|
|
|
|
|
|
|
259 |
|
Intercompany payables (receivables)
|
|
|
(134,932 |
) |
|
|
19,623 |
|
|
|
130,887 |
|
|
|
(15,578 |
) |
|
|
|
|
Intercompany equity
|
|
|
262,269 |
|
|
|
93,217 |
|
|
|
306,515 |
|
|
|
(662,001 |
) |
|
|
|
|
Shareholders equity (deficiency)
|
|
|
126,187 |
|
|
|
(99,222 |
) |
|
|
(45,498 |
) |
|
|
135,672 |
|
|
|
117,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
253,667 |
|
|
$ |
419,692 |
|
|
$ |
723,177 |
|
|
$ |
(541,907 |
) |
|
$ |
854,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2005 | |
|
|
| |
|
|
Lions Gate | |
|
Lions Gate | |
|
|
|
|
Entertainment | |
|
Entertainment | |
|
Other | |
|
Consolidating | |
|
Lions Gate | |
|
|
Corp. | |
|
Inc. | |
|
Subsidiaries | |
|
Adjustments | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
RECONCILIATION OF SHAREHOLDERS EQUITY
(DEFICIENCY) TO CANADIAN GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported under U.S. GAAP
|
|
$ |
126,187 |
|
|
$ |
(99,222 |
) |
|
$ |
(45,498 |
) |
|
$ |
135,672 |
|
|
$ |
117,139 |
|
Interest rate swaps mark-to-market
|
|
|
2,325 |
|
|
|
1,840 |
|
|
|
485 |
|
|
|
(2,325 |
) |
|
|
2,325 |
|
Accounting for business combinations
|
|
|
1,145 |
|
|
|
1,145 |
|
|
|
1,145 |
|
|
|
(2,290 |
) |
|
|
1,145 |
|
Accounting for income taxes
|
|
|
(1,900 |
) |
|
|
|
|
|
|
(1,900 |
) |
|
|
1,900 |
|
|
|
(1,900 |
) |
Adjustment for accretion on subordinated notes
|
|
|
(6,424 |
) |
|
|
(6,424 |
) |
|
|
|
|
|
|
6,424 |
|
|
|
(6,424 |
) |
Adjustment for amortization of subordinated note issue costs
|
|
|
482 |
|
|
|
482 |
|
|
|
|
|
|
|
(482 |
) |
|
|
482 |
|
Reclassification of conversion feature of subordinated notes to
shareholders equity
|
|
|
74,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,854 |
|
Other comprehensive loss
|
|
|
(304 |
) |
|
|
(304 |
) |
|
|
(304 |
) |
|
|
608 |
|
|
|
(304 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity (deficiency) under Canadian
GAAP
|
|
$ |
196,365 |
|
|
$ |
(102,483 |
) |
|
$ |
(46,072 |
) |
|
$ |
139,507 |
|
|
$ |
187,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2004 | |
|
|
| |
|
|
Lions Gate | |
|
Lions Gate | |
|
|
|
|
Entertainment | |
|
Entertainment | |
|
Other | |
|
Consolidating | |
|
Lions Gate | |
|
|
Corp. | |
|
Inc. | |
|
Subsidiaries | |
|
Adjustments | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
120 |
|
|
$ |
|
|
|
$ |
188,751 |
|
|
$ |
(147 |
) |
|
$ |
188,724 |
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating
|
|
|
|
|
|
|
|
|
|
|
80,810 |
|
|
|
|
|
|
|
80,810 |
|
|
Distribution and marketing
|
|
|
|
|
|
|
|
|
|
|
98,066 |
|
|
|
|
|
|
|
98,066 |
|
|
General and administration
|
|
|
1,467 |
|
|
|
7,628 |
|
|
|
8,179 |
|
|
|
(147 |
) |
|
|
17,127 |
|
|
Depreciation
|
|
|
11 |
|
|
|
31 |
|
|
|
633 |
|
|
|
|
|
|
|
675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,478 |
|
|
|
7,659 |
|
|
|
187,688 |
|
|
|
(147 |
) |
|
|
196,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
(1,358 |
) |
|
|
(7,659 |
) |
|
|
1,063 |
|
|
|
|
|
|
|
(7,954 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses (Income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
21 |
|
|
|
4,899 |
|
|
|
541 |
|
|
|
|
|
|
|
5,461 |
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
(37 |
) |
|
|
|
|
|
|
(37 |
) |
|
Interest rate swaps mark-to-market
|
|
|
|
|
|
|
(1,591 |
) |
|
|
(469 |
) |
|
|
|
|
|
|
(2,060 |
) |
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
(123 |
) |
|
|
|
|
|
|
(123 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses (income)
|
|
|
21 |
|
|
|
3,308 |
|
|
|
(88 |
) |
|
|
|
|
|
|
3,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Equity Interests and Income Taxes
|
|
|
(1,379 |
) |
|
|
(10,967 |
) |
|
|
1,151 |
|
|
|
|
|
|
|
(11,195 |
) |
Equity interests
|
|
|
(10,083 |
) |
|
|
(113 |
) |
|
|
|
|
|
|
10,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
|
|
(11,462 |
) |
|
|
(11,080 |
) |
|
|
1,151 |
|
|
|
10,196 |
|
|
|
(11,195 |
) |
Income tax provision
|
|
|
|
|
|
|
(241 |
) |
|
|
(26 |
) |
|
|
|
|
|
|
(267 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$ |
(11,462 |
) |
|
$ |
(11,321 |
) |
|
$ |
1,125 |
|
|
$ |
10,196 |
|
|
$ |
(11,462 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2004 | |
|
|
| |
|
|
Lions Gate | |
|
Lions Gate | |
|
|
|
|
Entertainment | |
|
Entertainment | |
|
Other | |
|
Consolidating |
|
Lions Gate | |
|
|
Corp. | |
|
Inc. | |
|
Subsidiaries | |
|
Adjustments |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
|
|
| |
|
|
(Amounts in thousands) | |
STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) operating activities
|
|
$ |
(3,513 |
) |
|
$ |
35,184 |
|
|
$ |
7,736 |
|
|
$ |
|
|
|
$ |
39,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
|
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in investing activities
|
|
|
|
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
10,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,651 |
|
|
Financing fees paid
|
|
|
|
|
|
|
(346 |
) |
|
|
|
|
|
|
|
|
|
|
(346 |
) |
|
Increase (decrease) in bank loans
|
|
|
|
|
|
|
(34,700 |
) |
|
|
415 |
|
|
|
|
|
|
|
(34,285 |
) |
|
Decrease in mortgages payable
|
|
|
|
|
|
|
|
|
|
|
(241 |
) |
|
|
|
|
|
|
(241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) financing activities
|
|
|
10,651 |
|
|
|
(35,046 |
) |
|
|
174 |
|
|
|
|
|
|
|
(24,221 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
7,138 |
|
|
|
93 |
|
|
|
7,910 |
|
|
|
|
|
|
|
15,141 |
|
Foreign exchange effect on cash
|
|
|
(3,778 |
) |
|
|
(84 |
) |
|
|
3,691 |
|
|
|
|
|
|
|
(171 |
) |
Cash and cash equivalents beginning of period
|
|
|
1,005 |
|
|
|
(9 |
) |
|
|
6,093 |
|
|
|
|
|
|
|
7,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$ |
4,365 |
|
|
$ |
|
|
|
$ |
17,694 |
|
|
$ |
|
|
|
$ |
22,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2004 | |
|
|
| |
|
|
Lions Gate | |
|
Lions Gate | |
|
|
|
|
Entertainment | |
|
Entertainment | |
|
Other | |
|
Consolidating | |
|
Lions Gate | |
|
|
Corp. | |
|
Inc. | |
|
Subsidiaries | |
|
Adjustments | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
RECONCILIATION OF NET INCOME (LOSS) TO CANADIAN GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported under U.S. GAAP
|
|
$ |
(11,462 |
) |
|
$ |
(11,321 |
) |
|
$ |
1,125 |
|
|
$ |
10,196 |
|
|
$ |
(11,462 |
) |
Interest rate swaps mark-to-market
|
|
|
(158 |
) |
|
|
(123 |
) |
|
|
(35 |
) |
|
|
158 |
|
|
|
(158 |
) |
Accounting for stock-based compensation
|
|
|
(238 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(238 |
) |
Adjustment for accretion on subordinated notes
|
|
|
(618 |
) |
|
|
(618 |
) |
|
|
|
|
|
|
618 |
|
|
|
(618 |
) |
Adjustment for amortization of subordinated notes issue costs
|
|
|
36 |
|
|
|
36 |
|
|
|
|
|
|
|
(36 |
) |
|
|
36 |
|
Adjustment for amortization of debt financing costs
|
|
|
84 |
|
|
|
84 |
|
|
|
|
|
|
|
(84 |
) |
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) under Canadian GAAP
|
|
$ |
(12,356 |
) |
|
$ |
(11,942 |
) |
|
$ |
1,090 |
|
|
$ |
10,852 |
|
|
$ |
(12,356 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
Item 2. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations. |
We are a diversified independent producer and distributor of
motion pictures, television programming, home entertainment,
family entertainment and video-on-demand 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 122 hours of television programming on
average each of the last three fiscal 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 approximately 6,200
motion picture titles and 1,800 television episodes and programs
directly to retailers, video rental stores, and pay and free
television channels and indirectly to international markets
through third parties. We also own a minority interest in
CinemaNow, Inc., or CinemaNow, an internet video-on-demand
provider, and own and operate a film and television production
studio in Vancouver, British Columbia. Effective April 2005, we
also own a minority interest in Maple Pictures, a Canadian film
and television distributor based in Toronto, 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 domestic theatrical release of motion
pictures in North America. Home entertainment revenues are
derived from the sale of video and DVD releases of our own
productions and acquired films, including theatrical releases
and direct-to-video releases. 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 are derived from the licensing of our
productions and acquired films to international markets on a
territory-by-territory basis. |
|
|
|
Television, which includes the licensing to domestic and
international markets of one-hour drama series, television
movies and mini-series and non-fiction programming. |
|
|
|
Studio Facilities, which includes Lions Gate Studios and the
leased facility Eagle Creek Studios, which derive revenue from
rental of sound stages, production offices, construction mills,
storage facilities and lighting equipment to film and television
producers. |
Our primary operating expenses include the following:
|
|
|
|
|
Direct Operating Expenses, which include amortization of
production or acquisition costs, participation and residual
expenses. |
|
|
|
Distribution and Marketing Expenses, which primarily include the
costs of theatrical prints and advertising and of
video and DVD duplication and marketing. |
|
|
|
General and Administration Expenses, which include salaries and
other overhead. |
Recent Developments
Maple Pictures Corp. On April 8, 2005, we entered
into library and output agreements with Maple Pictures, a
Canadian corporation, for the distribution of Lions Gates
motion picture, television and home video product in Canada. As
part of this transaction, Maple Pictures purchased a majority of
our interest in Christal Distribution, a number of production
entities and other Lions Gate distribution assets in Canada.
Maple Pictures was formed by two former Lions Gate executives
and a third-party equity investor. We also acquired a minority
interest in Maple Pictures. As a result of these transactions
with Maple Pictures, Lions Gate recorded an investment in Maple
Pictures of $2.2 million as of June 30, 2005 in other
assets in the condensed consolidated balance sheet.
Our remaining interest in Christal Distribution was repurchased
by Christal Distribution. As a result of the sale and repurchase
of our interests, effective April 8, 2005, we no longer
consolidated Christal Distributions, previously consolidated as
a variable interest entity under FIN 46 and
$0.5 million owing from
31
Christal Distributions, net of amounts payable, was recorded, as
of June 30, 2005 in other assets in the condensed
consolidated balance sheet.
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. For a summary of all of our accounting policies,
including the accounting policies discussed below, see
note 2 to our audited consolidated financial statements.
Generally Accepted Accounting Principles. Our
consolidated financial statements have been prepared in
accordance with U.S. GAAP which conforms, in all material
respects, with Canadian GAAP, except as described in the notes
to the condensed consolidated financial statements.
On March 29, 2004, the new British Columbia Business
Corporations Act came into force, which allows the Company to
prepare its financial statements either under Canadian or
U.S. GAAP. The Company elected to prepare financial
statements under U.S. GAAP commencing April 1, 2004.
Prior to April 1, 2004, the Companys consolidated
financial statements were prepared under Canadian GAAP. Amounts
presented in prior years in the consolidated financial
statements have been converted to U.S. GAAP. The Company
must disclose and quantify material differences with Canadian
GAAP in its interim and annual financial statements through
March 31, 2006.
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 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.
No assurance can be given that unfavorable changes to revenue
and cost estimates will not occur, which may result in
significant write-downs affecting our results of operations and
financial condition.
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
digital video disks (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
32
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, 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.
Rental revenue from short-term operating leases of studio
facilities is recognized over the term of the lease.
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 in
the condensed consolidated financial statements 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. There may be differences between
actual returns and our historical experience. We estimate
provisions for accounts receivable based on historical
experience and relevant facts and information regarding the
collectability of the accounts receivable.
Income Taxes. The Company is subject to income taxes in
the United States, and in several states and foreign
jurisdictions in which we operate. We account for income taxes
according to Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes
(SFAS 109). SFAS 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.
Goodwill. On April 1, 2001, the Company adopted
Statement of Financial Accounting Standards (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, 2004. No goodwill impairment was identified in
any of the Companys reporting units. Determining the fair
value of reporting units requires various assumptions and
estimates.
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.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards
No. 123R. In December 2004, the FASB issued
SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS 123(R)). SFAS 123(R) revises
SFAS No. 123 and eliminates the alternative to use the
intrinsic method of accounting under APB No. 25.
SFAS 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. The Company currently accounts for share-based payments
to employees using the intrinsic value method as set forth in
APB No. 25 Accounting for Stock Issued to
Employees. As such, the Company generally recognizes no
compensation cost for employee stock options.
SFAS No. 123(R) eliminates the alternative to use APB
No. 25s intrinsic value method of accounting.
Accordingly, the adoption of SFAS No. 123(R)s
fair value method will have an impact on our results of
operations, although it will have no impact on our overall
33
financial position. The impact of adoption of
SFAS No. 123(R) cannot be predicted at this time
because it will depend on levels of share-based payments granted
in the future. However, had we adopted SFAS No. 123(R)
in prior periods, the impact would have approximated the impact
of SFAS No. 123 as described in the disclosure of pro
forma net income (loss) and basic and diluted income (loss) per
share in note 12 in the notes to the condensed consolidated
financial statements. SFAS No. 123(R) permits
companies to adopt its requirements using either a modified
prospective method or a modified retrospective method. The
Company has not yet determined which method it will utilize. The
provisions of SFAS No. 123(R) are effective for
financial statements with the first interim or annual reporting
period beginning after June 15, 2005. However, the SEC
announced on April 14, 2005 that it would provide for a
phased-in implementation process for SFAS No. 123(R).
As a result, the Company will not be required to apply
SFAS No. 123(R) until the period beginning
April 1, 2006.
Results of Operations
|
|
|
Three Months Ended June 30, 2005 Compared to Three
Months Ended June 30, 2004 |
Consolidated revenues this quarter of $194.2 million
increased $5.5 million, or 2.9%, compared to
$188.7 million in the prior years quarter.
Motion pictures revenue of $147.0 million this quarter
decreased $12.1 million, or 7.6%, compared to
$159.1 million in the prior years quarter. Theatrical
revenue included in motion picture revenue of $22.3 million
this quarter decreased $13.8 million, or 38.2%, compared to
$36.1 million in the prior years quarter. Significant
theatrical releases this quarter included Crash, High
Tension, Rize and State Property 2. Significant
theatrical releases in the prior years quarter included
Fahrenheit 9/11, The Punisher and Godsend. Video
revenue included in motion picture revenue of $97.4 million
this quarter increased $22.0 million, or 29.2%, compared to
$75.4 million in the prior years quarter. Significant
video releases this quarter included Diary of a Mad Black
Woman, Alone In the Dark, Beyond the Sea and the Tyler
Perry Plays. Previously released titles such as Saw,
Final Cut and Open Water also continued to generate
video revenues in the quarter. Significant video releases in the
prior years quarter included The Cooler, Girl With a
Pearl Earring, Saved By the Bell and Step Into
Liquid. International revenue included in motion picture
revenue of $10.0 million this quarter decreased
$30.7 million, or 75.4%, compared to $40.7 million in
the prior years quarter. Significant international sales
this quarter include Hotel Rwanda. Significant
international sales in the prior years quarter included
Punisher, Godsend and The Prince and Me.
Television revenue included in motion picture revenue of
$16.3 million this quarter increased $9.4 million, or
136.2%, compared to $6.9 million in the prior years
quarter. Significant television license fees this quarter
included Open Water.
Television production revenue of $45.9 million this quarter
increased by $17.3 million, or 60.5%, from
$28.6 million in the prior years quarter. This
quarter, 25 hours of one-hour drama series and 7 half-hours
of half-hour drama series were delivered contributing revenue of
$42.9 million and international and other revenue on
one-hour drama series was $1.7 million. This quarter,
revenue contributed from television movies, video releases of
television product and non-fiction programming totaled
$1.3 million. In the prior years quarter,
9 hours of one-hour drama series and mini-series were
delivered for revenue of $11.9 million and international
and other revenue on one-hour drama series was
$8.1 million, television movies contributed revenue of
$6.2 million, video releases of television product
contributed $1.5 million and non-fiction programming
contributed revenue of $1.3 million. Domestic deliveries of
one-hour drama series this quarter included The Cut,
Wildfire, Missing and The Dead Zone and of half-hour
drama series included Weeds. Domestic deliveries in the
prior years quarter included the one-hour drama
series The Dead Zone and the mini-series 5
Days to Midnight.
Studio facilities revenue of $1.4 million this quarter
increased $0.4 million, or 40%, compared to
$1.0 million in the prior years quarter due primarily
to an increase in occupancy rates this quarter compared to the
prior years quarter.
Direct operating expenses primarily include amortization of film
and television production or acquisition costs, participation
and residual expenses. Direct operating expenses of
$100.3 million for the quarter were 51.6% of revenue,
compared to direct operating expenses of $80.8 million,
which were 42.8% of revenue in the
34
prior years quarter. Direct operating expenses as a
percentage of revenue for the motion pictures and television
segments increased due to the margins on the mix of titles
released during the quarter. The television segment in
particular generated significant series revenue associated with
higher direct operating expenses as a percentage of revenue.
Distribution and marketing expenses of $93.5 million
decreased $4.6 million, or 4.7%, compared to
$98.1 million in the prior years quarter. Theatrical
prints and advertising (P&A) this quarter of
$50.0 million decreased $4.9 million, or 8.9%,
compared to $54.9 million in the prior years quarter.
Theatrical P&A this quarter included significant
expenditures on the release of titles such as Crash, High
Tension and Rize. Theatrical P&A in the prior
years quarter included significant expenditures on the
release of titles such as Godsend, The Punisher and
Fahrenheit 9/11. Video distribution and marketing costs
on motion picture and television product this quarter of
$40.3 million decreased $1.4 million, or 3.4%,
compared to $41.7 million in the prior years quarter.
Video expenditure this quarter included significant expenditure
on the release of titles such as Diary of a Mad Black Woman,
Alone In the Dark, Beyond the Sea and the Tyler Perry
Plays. Video expenditure in the prior years quarter
included significant expenditure on the release of titles such
as The Cooler, Girl With a Pearl Earring, Saved By the Bell
and Step Into Liquid.
General and administration expenses of $17.3 million this
quarter increased $0.2 million, or 1.2%, compared to
$17.1 million in the prior years quarter. The
increase was primarily due to an increase in professional fees
offset by a decrease in salaries and benefits. Professional fees
increased primarily due to fees associated with the
documentation, assessment and testing of our internal controls
as required by Section 404 of the Sarbanes Oxley Act and
due to the fees associated with our fiscal year end audit
services. Salaries and benefits decreased as the prior
years quarter included stock-price bonuses due under
employment contracts and stock-based compensation expense
related to share appreciation rights, whereas in the current
quarter a recovery of the stock-based compensation expense is
recorded. In the current quarter, $1.1 million of
production overhead was capitalized compared to
$0.6 million in the prior years quarter.
Depreciation and amortization of $0.7 million this quarter
increased $0.2 million, or 40.0%, from $0.5 million in
the prior years quarter.
Interest expense of $4.9 million this quarter decreased
$0.6 million, or 10.9%, from $5.5 million in the prior
years quarter primarily due to a decrease in interest and
amortization of deferred financing fees on the credit facility,
offset by an increase in interest and amortization of deferred
financing fees on the subordinated notes. The credit facility
had a nil balance during the three months ended June 30,
2005 resulting in a decrease in interest on the credit facility.
During the three months ended December 31, 2004, deferred
financing fees on the term loan portion of the credit facility
were written off resulting in a decrease in amortization of
deferred financing fees. The three months ended June 30,
2005 includes interest and amortization on the 4.875% Notes
issued December 2003, the 2.9375% Notes issued October 2004
and the 3.625% Notes issued February 2005, whereas the
three months ended June 30, 2004 includes interest and
amortization on the 4.875% Notes only.
Interest rate swaps do not meet the criteria of effective hedges
and therefore a fair valuation loss of $0.3 million was
recorded this quarter and a fair valuation gain of
$2.1 million was recorded in the prior years quarter.
This quarter included interest income of $1.1 million,
compared to an insignificant amount of interest income in the
prior years quarter. Interest income this quarter was
earned on the cash balance held during the three months ended
June 30, 2005.
Net loss for the three months ended June 30, 2005 was
$21.8 million, or loss per share of $0.21 on
101.9 million weighted average shares outstanding. This
compares to net loss for the three months ended June 30,
2004 of $11.5 million or loss per share of $0.12 on
94.9 million weighted average common shares outstanding.
EBITDA
EBITDA, defined as earnings before interest, interest rate swaps
mark-to-market, income tax provision, depreciation and minority
interests of negative $16.8 million for the three months
ended June 30, 2005
35
increased $9.5 million, or 130.1%, compared to negative
EBITDA $7.3 million for the three months ended
June 30, 2004.
EBITDA is a non-GAAP financial measure. Management believes
EBITDA to be a meaningful indicator of our performance that
provides useful information to investors regarding our financial
condition and results of operations. Presentation of EBITDA is
consistent with our past practice, and EBITDA is a non-GAAP
financial measure commonly used in the entertainment industry
and by financial analysts and others who follow the industry to
measure operating performance. While management considers EBITDA
to be an important measure of comparative operating performance,
it should be considered in addition to, but not as a substitute
for, net income and other measures of financial performance
reported in accordance with GAAP. EBITDA does not reflect cash
available to fund cash requirements. Not all companies calculate
EBITDA in the same manner and the measure as presented may not
be comparable to similarly-titled measures presented by other
companies.
The following table reconciles EBITDA to net loss:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
June 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
EBITDA, as defined
|
|
$ |
(16,845 |
) |
|
$ |
(7,279 |
) |
Depreciation
|
|
|
(748 |
) |
|
|
(675 |
) |
Interest expense
|
|
|
(4,884 |
) |
|
|
(5,461 |
) |
Interest rate swaps mark-to-market
|
|
|
(337 |
) |
|
|
2,060 |
|
Interest income
|
|
|
1,065 |
|
|
|
37 |
|
Minority interests
|
|
|
|
|
|
|
123 |
|
Income tax provision
|
|
|
(70 |
) |
|
|
(267 |
) |
|
|
|
|
|
|
|
Net loss
|
|
$ |
(21,819 |
) |
|
$ |
(11,462 |
) |
|
|
|
|
|
|
|
Refer to note 15 of the condensed consolidated financial
statements for reconciliation of net income (loss) reported
under U.S. GAAP to net income (loss) reported under
Canadian GAAP.
Liquidity and Capital Resources
Our liquidity and capital resources are provided principally
through cash generated from operations, issuance of subordinated
notes and a credit facility with JP Morgan.
Issuance of 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 placement agents fees. Offering
expenses were $0.7 million. The 4.875% Notes are
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 common shares of the Company 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. Lions Gate Entertainment
Inc. may 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 exceeds 175% of the conversion price then in effect 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.
In October 2004, Lions Gate Entertainment Inc. sold the
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
$0.5 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 common
shares of the Company 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
36
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 the
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 common shares of the Company 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. The Company entered into a
$350 million credit facility in December 2003 consisting of
a $200 million U.S. dollar-denominated revolving
credit facility, a $15 million Canadian dollar-denominated
revolving credit facility and a $135 million
U.S. dollar-denominated term-loan. By December 31,
2004, the Company had repaid the term loan in full, thereby
reducing the credit facility to $215 million. Effective
March 31, 2005, the credit facility was amended to
eliminate the $15 million Canadian dollar-denominated
revolving credit facility and increase the
U.S. dollar-denominated revolving credit facility by the
same amount. At June 30, 2005, the Company had no
borrowings (March 31, 2005 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, 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, which is calculated
on a monthly basis. The borrowing base assets at June 30,
2005 totaled $388.6 million (March 31,
2005 $405.1 million) and therefore the full
$215 million is available under the credit facility at
June 30, 2005. 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 being
pledged as security for the credit facility. The credit facility
is senior to the Companys film obligations, subordinated
notes and mortgages payable. The credit facility restricts the
Company from paying cash dividends on its common shares. The
Company entered into a $100 million interest rate swap at
an interest rate of 3.08%, commencing January 2003 and ending
September 2005. The swap is in effect as long as three month
LIBOR is less than 5.0%. Fair market value of the interest rate
swap at June 30, 2005 is $0.1 million (March 31,
2005 $0.1 million). Changes in the fair value
representing a fair valuation loss on the interest rate swap
during the three months ended June 30, 2005 amount to less
than $0.1 million (2004 gain of
$1.6 million) and are included in the condensed
consolidated statements of operations.
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 at
June 30, 2005 and March 31, 2005 is
$138.5 million and $100.3 million, respectively. The
increase in backlog is primarily due to contracts entered into
on titles such as Saw, Diary of a Mad Black Woman, Missing
and Wildfire during the three months ended
June 30, 2005.
Cash Flows Provided by Operating Activities. Cash flows
provided by operating activities in the three months ended
June 30, 2005 were $30.2 million compared to cash
flows provided by operating activities in the three months ended
June 30, 2004 of $39.4 million. The decrease in cash
flows provided by operating activities resulted from an increase
in net loss this quarter, an increase in investment in films and
television programs expenditure, a decrease in cash received
from deferred revenue, offset by an increase in accounts payable
and accrued liabilities and an increase in cash provided by the
collection of accounts receivables in the current quarter.
Cash Flows Provided by/ Used in Investing Activities.
Cash flows provided by investing activities of $1.4 million
for the three months ended June 30, 2005 included cash
received from the sale of our investment in Christal
Distribution to Maple Pictures Corp. of $2.0 million, less
$0.6 million for purchases of property and equipment. Cash
flows used in investing activities in the three months ended
June 30, 2004 consisted of purchases of property and
equipment and were not significant.
37
Cash Flows Used in Financing Activities. Cash flows used
in financing activities in the three months ended June 30,
2005 of $5.2 million were primarily for repayment of a
promissory note. Cash flows used in financing activities of
$24.2 million in the three months ended June 30, 2004
were primarily due to the repayment of bank loans of
$34.3 million, offset by the issuance of common stock
mainly for the exercise of warrants of $10.7 million.
Anticipated Cash Requirements. The nature of our business
is such that significant initial expenditures are required to
produce, acquire, distribute and market films and television
programs, while revenues from these films and television
programs are earned over an extended period of time after their
completion or acquisition. We believe that cash flow from
operations, cash on hand, credit facility availability, tax
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
creditworthiness.
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 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 annual repayments on debt and other financing
obligations, initially incurred for a term of more than one
year, as of June 30, 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 |
|
Thereafter | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Bank loans
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Film obligations Minimum guarantees initially
incurred for a term of more than one year
|
|
|
24 |
|
|
|
3,620 |
|
|
|
12,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,081 |
|
Film obligations Film productions
|
|
|
2,609 |
|
|
|
7,933 |
|
|
|
|
|
|
|
4,080 |
|
|
|
|
|
|
|
|
|
|
|
14,622 |
|
Subordinated notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
385,000 |
|
|
|
385,000 |
|
Mortgages payable
|
|
|
2,401 |
|
|
|
897 |
|
|
|
1,656 |
|
|
|
13,155 |
|
|
|
|
|
|
|
|
|
|
|
18,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,034 |
|
|
$ |
12,450 |
|
|
$ |
14,093 |
|
|
$ |
17,235 |
|
|
$ |
|
|
|
$ |
385,000 |
|
|
$ |
433,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal debt and other financing obligation repayments due
during the nine months ending March 31, 2006 of
$5.0 million consists of $2.4 million of mortgages on
the studio facility and $2.6 million owed to film
production entities on delivery of titles. Principal repayments
due are expected to be paid through cash generated from
operations or from the available borrowing capacity from our
revolving credit facility with JP Morgan.
38
Future commitments under contractual obligations by expected
maturity date as of June 30, 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Thereafter |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
|
(Amounts in thousands) | |
Operating leases
|
|
$ |
1,727 |
|
|
$ |
1,999 |
|
|
$ |
2,042 |
|
|
$ |
454 |
|
|
$ |
42 |
|
|
$ |
|
|
|
$ |
6,264 |
|
Employment and consulting contracts
|
|
|
10,672 |
|
|
|
7,643 |
|
|
|
2,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,437 |
|
Purchase obligations
|
|
|
52,744 |
|
|
|
12,325 |
|
|
|
1,100 |
|
|
|
5,095 |
|
|
|
|
|
|
|
|
|
|
|
71,264 |
|
Distribution and marketing commitments
|
|
|
25,205 |
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
90,348 |
|
|
$ |
41,967 |
|
|
$ |
5,264 |
|
|
$ |
5,549 |
|
|
$ |
42 |
|
|
$ |
|
|
|
$ |
143,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase obligations relate to the purchase of film rights for
future delivery, future film production and development
obligations. Amounts due during the nine months ending
March 31, 2006 of $90.3 million are expected to be
paid through cash generated from operations or from the
available borrowing capacity from our revolving credit facility
with JP Morgan.
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
June 30, 2005, we had outstanding contracts to sell
US$11.6 million in exchange for CDN$14.9 million over
a period of fourteen weeks at a weighted average exchange rate
of CDN$1.2889. Changes in the fair value representing an
unrealized fair value gain on foreign exchange contracts
outstanding during the three months ended June 30, 2005
amounted to $0.2 million and are included in accumulated
other comprehensive income (loss), a separate component of
shareholders equity. During the three months ended
June 30, 2005, we completed foreign exchange contracts
denominated in Canadian dollars. The net losses resulting from
the completed contracts were $0.2 million. 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 and other financing obligations is interest rate risk,
to the extent not mitigated by interest rate swaps. 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
June 30, 2005 and any future balance up to
$100 million will be mitigated by interest rate swaps.
Other financing obligations subject to variable interest rates
include $14.6 million owed to film production entities on
delivery of titles.
The Company entered into a $100 million interest rate swap
at an interest rate of 3.08%, commencing January 2003 and ending
September 2005. The swap is in effect as long as three month
LIBOR is less than
39
5.0%. Fair value of the interest rate swap at June 30, 2005
is $0.1 million (March 31, 2005
$0.1 million). Changes in the fair value representing a
fair valuation loss on the interest rate swap during the three
months ended June 30, 2005 amount to less than
$0.1 million (2004 gain of $1.6 million)
and are included in the condensed consolidated statements of
operations. This contract is entered into with a major financial
institution as counterparty. The Company is exposed to credit
loss in the event of nonperformance by the counterparty, which
is limited to the cost of replacing the contract, at current
market rates. The Company does not require collateral or other
security to support this contract.
A subsidiary of the Company entered into a CDN$20 million
interest rate swap at a fixed interest rate of 5.62%, commencing
September 2003 and ending September 2008. The subsidiary entered
into the interest rate swap as a condition of its loan which
states the interest rates under the facility are to be fixed
either by way of a fixed rate term loan or by way of an interest
rate swap. During the three months ended June 30, 2005, the
subsidiary recorded interest expense of $0.3 million
(2004 $0.3 million), including amounts incurred
under the interest rate swap, that approximates the amount they
would have paid if they had entered into a fixed rate loan
agreement. Fair value of the interest rate swap at June 30,
2005 is negative $0.7 million (March 31,
2005 negative $0.3 million). Change in the fair
value representing a fair valuation loss on the interest rate
swap for the three months ended June 30, 2005 amount to
$0.3 million (2004 gain of $0.5 million)
and is included in the condensed consolidated statements of
operations. This contract is entered into with a major financial
institution as counterparty. The subsidiary is exposed to credit
loss in the event of nonperformance by the counterparty, which
is limited to the cost of replacing the contract, at current
market rates.
The table below presents repayments and related weighted average
interest rates for our interest-bearing debt and other
obligations as of June 30, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 |
|
Thereafter | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Film obligations Film productions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable(1)
|
|
$ |
2,609 |
|
|
$ |
7,933 |
|
|
$ |
|
|
|
$ |
4,080 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
14,622 |
|
Subordinated notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000 |
|
|
|
60,000 |
|
Fixed(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000 |
|
|
|
150,000 |
|
Fixed(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,000 |
|
|
|
175,000 |
|
Mortgages payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed(5)
|
|
|
2,401 |
|
|
|
897 |
|
|
|
1,656 |
|
|
|
13,155 |
|
|
|
|
|
|
|
|
|
|
|
18,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,010 |
|
|
$ |
8,830 |
|
|
$ |
1,656 |
|
|
$ |
17,235 |
|
|
$ |
|
|
|
$ |
385,000 |
|
|
$ |
417,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Amounts owed to film production entities on delivery of titles.
The film production entities incurred average variable interest
rates at June 30, 2005 of U.S. prime minus 1.76%. |
|
(2) |
4.875% Notes with fixed interest rate equal to 4.875%. |
|
(3) |
2.9375% Notes with fixed interest rate equal to 2.9375%. |
|
(4) |
3.625% Notes with fixed interest rate equal to 3.625%. |
|
(5) |
Mortgages payable on the studio facility. Fixed interest rate
equal to 5.62% to 7.51%. |
|
|
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
40
periods. As of June 30, 2005, 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. Based on that evaluation,
our Chief Executive Officer and Chief Financial Officer have
concluded that such controls and procedures were not effective
because we are still in the process of remediating the material
weaknesses described below.
As previously disclosed in our Annual Report on Form 10-K
for 2005, management identified material weaknesses in internal
controls over financial reporting related to the following areas:
|
|
|
|
|
Calculating participations expense and related liabilities for
financial reporting purposes |
|
|
|
Calculating amortization of investment in film and television
programs |
|
|
|
Monitoring certain charges billed to us by our outsourced home
entertainment distribution service provider |
|
|
|
Financial statement close process |
Notwithstanding these material weaknesses, there were no
restatements of any previously issued financial statements of
the Company as a result of these identified control deficiencies.
Changes in Internal Control over Financial Reporting
As disclosed in our Annual Report on Form 10K for 2005, the
Company has implemented an action plan to remediate the material
weaknesses described above. During the quarter we continued to
add accounting resources, implemented review procedures, and
continued to improve our processes and controls. Management
intends to further implement its action plan, remediate these
material weaknesses and improve our processes and control
procedures.
No other changes to internal control over financial reporting
have come to our managements attention during the three
months ended June 30, 2005 that have materially adversely
affected, or are reasonably likely to materially adversely
affect the Companys internal control over financial
reporting.
PART II
|
|
Item 1. |
Legal Proceedings |
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 |
On August 8, 2005 the Board of Directors: (1) granted
12,500 restricted share units to each of Harald Ludwig and
Hardwick Simmons, both of whom joined the Board on June 30,
2005 and each of whom is a non-employee director;
(2) granted 37,500 common shares to Harry Sloan our former
Chairman; and (3) cancelled options to purchase 150,000
common shares previously granted to Harry Sloan.
41
Exhibits filed for Lions Gate through the filing of this
Form 10-Q.
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Documents |
|
|
|
|
10 |
.6 |
|
Director Compensation Summary. |
|
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 |
42
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: August 9, 2005
43