e10vk
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
March 31, 2007
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File
No. 1-14880
LIONS GATE ENTERTAINMENT
CORP.
(Exact Name of Registrant as
Specified in Its Charter)
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British Columbia,
Canada
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N/A
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(State or Other Jurisdiction
of
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(I.R.S. Employer
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Incorporation or
Organization)
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Identification
No.)
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1055 West Hastings Street,
Suite 2200
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2700 Colorado Avenue,
Suite 200
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Vancouver, British Columbia V6E
2E9
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Santa Monica, California
90404
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(877) 848-3866
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(310)
449-9200
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(Address of Principal Executive
Offices, Zip Code)
Registrants telephone
number, including area code:
(877) 848-3866
Securities registered pursuant
to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Shares, without par value
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New York Stock Exchange
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Securities registered pursuant
to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No
o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Securities Exchange
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or
Section 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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act.
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act. Yes o No þ
The aggregate market value of the voting stock held by
non-affiliates of the registrant as of September 30, 2006
(the last business day of the Companys most recently
completed second fiscal quarter) was approximately
$1,055,222,564, based on the closing sale price as reported on
the New York Stock Exchange.
As of May 15, 2007, 116,988,567 shares of the
registrants no par value common shares were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive proxy statement
to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A and relating to its 2007 annual meeting
of shareholders are incorporated by reference into
Part III.
FORWARD-LOOKING
STATEMENTS
This report contains forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. In some cases you can identify forward-looking
statements by terms such as may, intend,
will, could, would,
expects, believe, estimate,
or the negative of these terms, and similar expressions intended
to identify forward-looking statements.
These forward-looking statements reflect our current views with
respect to future events and are based on assumptions and are
subject to risks and uncertainties. Also, these forward-looking
statements present our estimates and assumptions only as of the
date of this report. Except for our ongoing obligation to
disclose material information as required by federal securities
laws, we do not intend to update you concerning any future
revisions to any forward-looking statements to reflect events or
circumstances occurring after the date of this report.
Actual results in the future could differ materially and
adversely from those described in the forward-looking statements
as a result of various important factors, including the
substantial investment of capital required to produce and market
films and television series, increased costs for producing and
marketing feature films, budget overruns, limitations imposed by
our credit facilities, unpredictability of the commercial
success of our motion pictures and television programming, the
cost of defending our intellectual property, difficulties in
integrating acquired businesses, technological changes and other
trends affecting the entertainment industry, and the risk
factors found under the heading Risk Factors found
elsewhere in this report.
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PART I
Overview
Lions Gate Entertainment Corp. (Lionsgate, the
Company, we, us or
our) is a diversified independent producer and
distributor of motion pictures, television programming, home
entertainment, family entertainment,
video-on-demand
and music content. We release approximately 18 to 22 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 77 hours of
television programming on average each of the last three years.
Our disciplined approach to acquisition, production 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 8,100 motion picture titles and approximately
3,800 television episodes and programs directly to retailers,
video rental stores, and pay and free television channels in the
US, UK and Ireland, and indirectly to other international
markets through third parties. We own a minority interest in
CinemaNow, Inc. (CinemaNow), an internet
video-on-demand
provider. We also own a minority interest in Maple Pictures
Corp. (Maple Pictures), a Canadian film and
television distributor based in Toronto, Canada. We have an
output arrangement with Maple Pictures through which we
distribute our library and titles in Canada.
A key element of our strategy is to acquire individual
properties, including films and television programs, libraries,
and entertainment studios and companies, to enhance our
competitive position and generate significant financial returns.
During previous periods, we acquired and integrated into our
business: Lionsgate UK (formerly Redbus) (October 2005), an
independent United Kingdom film distributor, which provided us
the ability to self-distribute our motion pictures in the UK and
Ireland and included the acquisition of the Redbus library of
approximately 130 films; certain of the film assets and accounts
receivable of Modern Entertainment, Ltd. (August 2005), a
licensor of film rights to DVD distributors, broadcasters and
cable networks; Artisan Entertainment Inc. (December 2003), a
diversified motion picture, family and home entertainment
company; and Trimark Holdings, Inc. (October 2000), a worldwide
distributor of entertainment content that distributed directly
in the US and through third parties to the rest of the world.
During fiscal 2007 (in July 2006), we acquired Debmar-Mercury,
an independent syndicator of film and television packages.
The Companys annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to reports filed pursuant to Sections 13(a)
and 15(d) of the Securities Exchange Act of 1934, as amended,
are available free of charge on the Companys website at
http://www.lionsgate.com. The Companys Corporate
Governance Guidelines, Standards for Director Independence, Code
of Business Conduct and Ethics for Directors, Officers and
Employees, Code of Ethics for Senior Financial Officers, Charter
of Audit Committee, Charter of Compensation Committee and
Charter of the Nominating and Corporate Governance Committee
are also available on the Companys website, as well as
in print to any stockholder who requests them.
Our
Industry
Motion
Pictures
General. According to the Motion Picture
Associations U.S. Theatrical Market: 2006
Statistics, overall domestic box office grew to
approximately $9.5 billion in 2006, compared to
approximately $9.0 billion in 2005 (a 5.5% increase).
Although it fluctuates from year to year, the domestic motion
picture exhibition industry has grown in revenues and attendance
over the past ten years, with box office receipts up 60.5% and
admissions up 8.2% from 1996 to 2006. In 2006, domestic
admissions rose to approximately 1.45 billion, ending a
three year downward trend in ticket sales. Worldwide box office
reached an all time high of approximately $25.8 billion in
2006, compared to approximately $23.3 billion in 2005 (an
11% increase).
Competition. Major studios have historically
dominated the motion picture industry. The term major studios is
generally regarded in the entertainment industry to mean:
Universal Pictures; Warner Bros.; Twentieth Century Fox; Sony
Pictures Entertainment (Sony); Paramount Pictures;
and The Walt Disney Company. Competitors less
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diversified than the major studios include DreamWorks Pictures
and DreamWorks Animation SKG,
Metro-Goldwyn-Mayer
Studios Inc. and New Line Cinema.
Independent films have gained wider market approval and
increased share of overall box office receipts in recent years.
Past successful independent films such as My Big Fat Greek
Wedding, Bend It Like Beckham and Crash highlight
moviegoers willingness to support high quality motion
pictures despite limited pre-marketing and production budgets.
Product Life Cycle. Successful motion pictures
may continue to play in theaters for more than three months
following their initial release. Concurrent with their release
in the United States, motion pictures are generally released in
Canada and may also be released in one or more other foreign
markets. After the initial theatrical release, distributors seek
to maximize revenues by releasing movies in sequential release
date windows, which are generally exclusive against other
non-theatrical distribution channels:
Typical
Film Release Windows*
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Months After
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Approximate
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Release Period
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Initial Release
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Release Period
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Theatrical
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0-3 months
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Home video/DVD
(1st cycle)
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3-6 months
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1-3 months
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Pay-per-transaction
(pay-per-view
and
video-on-demand)
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4-8 months
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3-4 months
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Pay television
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9-12 months
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18 months
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Network (free and basic)
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27-30 months
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48-72 months
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Licensing and merchandising
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Concurrent
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Ongoing
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All international releasing
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Concurrent
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Ongoing
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These patterns may not be applicable to every film, and may
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First pay television window. |
Home
Video
Growth in the home video sector has been driven by increased DVD
penetration. According to estimates from the DVD Entertainment
Group (DEG), a non-profit trade consortium, of the
$24.2 billion in overall home video industry revenues
during 2006, about $24.1 billion came from DVD sales and
rentals (with the remainder being VHS sales and rentals).
According to the Motion Picture Associations US
Entertainment Industry: 2006 Market Statistics, DVD players
were in 95.7 million U.S. households in 2006, an 85.9%
penetration of the television households (up from 82.8% in 2005
and 76.9% in 2004). Declining prices of DVD players, enhanced
video and audio quality and special features such as inclusion
of previously-deleted scenes, film commentaries and behind
the scenes footage have all helped increase the popularity
of the DVD format, sparking increased home video sales and
rentals in recent years.
Television
Programming
Continued growth in the cable and satellite television markets
has driven increased demand for nearly all genres of television
programming. Veronis Suhler Stevenson (VSS)
forecasted that overall consumer and advertiser spending on
cable and satellite television will grow at 9.9% in 2006 (to
$124.3 billion). This segment is forecast to grow at a
compound annual growth rate of 8.4% from 2005 to 2010 (to
$169.4 billion). Key drivers will include the success of
the cable industrys bundled services, increased average
revenue per user, reduced number of participants discontinuing
services and accelerated ad spend growth. Increased capacity for
channels on upgraded digital cable systems and satellite
television has led to the launch of new networks seeking
programming to compete with traditional broadcast networks as
well as other existing networks.
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The
Company
Recent
Developments
Theatrical Slate Financing. On May 25,
2007, the Company, through a series of agreements, closed a
theatrical slate funding arrangement. Under this arrangement
Pride Pictures LLC, an unrelated entity, will fund, generally,
50% of the Companys production, acquisition, marketing and
distribution costs of theatrical feature films up to an
aggregate of approximately $204 million before transaction
costs (consisting of $35 million of debt instruments,
$35 million of equity and $134 million from a senior
credit facility, which is subject to a borrowing base). The
percentage of the contribution may vary on certain pictures. The
slate of films covered by the arrangement is expected to be
comprised of 23 films over the next three years. Pride Pictures
LLC will participate in a pro rata portion of the pictures net
profits or losses similar to a co production arrangement based
on the portion of costs funded. The Company continues to
distribute the pictures covered by the arrangement with a
portion of net profits after all costs and the Companys
distribution fee being distributed to Pride Pictures LLC based
on their pro rata contribution to the applicable costs similar
to a back-end participation on a film.
Production
Motion Pictures. Historically, we have
primarily produced
English-language
motion pictures with production budgets of $35 million or
less. Most of our productions have budgets of $20 million
or less. Films intended for theatrical release are generally
budgeted between $8 million and $35 million (although
we are willing to consider larger budgets), and films intended
for release directly to video or cable television are generally
budgeted between $2.5 million and $5 million. We take
a disciplined approach to film production with the goal of
producing content that we can distribute to theatrical and
ancillary markets, which include home video, pay and free
television and on-demand services, both domestically and
internationally. In fiscal 2007, we produced, participated in
the production of or completed or substantially completed
principal photography (the phase of film production during which
most of the filming takes place) on the following motion
pictures:
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War (formerly Rogue) An FBI agent
(Jason Statham) hot on the trail of a mysterious and deadly
assassin (Jet Li) is thrown into the world of warring Asian
mobs.
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Pride Bernie Mac and Academy
Award®
nominee Terrence Howard star in the inspirational story of
Jim Ellis, who in the early 1970s overcame racism to create
a world-class swim team out of a group of inner city youths.
(Released March 2007)
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Tyler Perrys Daddys Little Girls
A single father struggles to make ends meet as he raises his
three young daughters on his own but when the courts
award custody to his corrupt, drug-dealing ex-wife, he enlists
the help of a beautiful and hard-nosed attorney to win them
back. (Released February 2007)
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Good Luck, Chuck Starring Dane Cook and
Jessica Alba, a man breaks up with his girlfriends only to see
them engaged to the next guy they date each time. As word
travels, he suddenly finds himself becoming a lucky charm for
women, who all want to date him (but only as a stepping stone).
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The Eye A blind woman (Jessica Alba)
undergoes a corneal transplant that restores her sight. When she
is haunted by the sight of ghosts, she sets out to uncover the
origins of her cornea and the mysterious history of its donor.
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Saw 3 The third installment of the successful
Saw franchise. The game continues. (Released October 2006)
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Tyler Perrys Why Did I Get Married? A
number of couples who go away every year to examine their
marriages in a group setting find trouble when one of the wives
brings along a sexy young temptress.
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The following motion pictures are currently in or slated for
production in fiscal 2008:
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Thomas Kinkades The Christmas Cottage
Inspiring true story of Thomas Kinkade, one of the most famous
American painters, who was motivated to become an artist when
his mother fell in danger of losing the family home. With
Academy
Award®
winner Marcia Gay Harden and featuring Peter OToole.
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Saw 4 The next installment in one of the most
successful horror franchises of all time.
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Tyler Perrys Meet the Browns When the
kooky Brown family gathers to bury Browns
107-year-old
father, its a foot-stomping, soul-stirring send-off and a
great reminder that in the end, there is nothing like family.
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Punisher 2 The sequel to The Punisher
brings Frank Castle face to face with a lethal mobster in
the form of Jigsaw.
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Burrowers After finding a family brutally
killed in their home, a group of cowboys in the Dakota Territory
set out to hunt down those they believe responsible. They slowly
come to realize that the plains are infested by creatures that
bury and eat their victims alive.
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Bachelor Number 2 A man who specializes in
taking recently
broken-up
women on the worst date of their lives so they will run back to
their ex-boyfriends offers to provide this service for his best
friend, but ends up falling in love with the girl.
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Meatballs Nick and Goods, two slacker
friends, return to their childhood camp only to see that it has
been modernized and consequently stripped of all of
its fun. Together with a group of kids, they work to bring the
old spirit of the camp back.
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Tulia Based on the true story of a Texas town
where a crooked cop has put more than 10% of the towns
African-American
population behind bars on
trumped-up
drug charges.
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Zanes Addicted A successful
African-American
woman has a series of affairs, threatening her marriage and
motherhood.
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Crank 2 When he is implanted with a fake
heart, Chev Chelios twin brother must recover his old
organ without causing his new one to blow up.
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Bernie Mac Concert Documentary-style behind
the scenes look at the making of a Bernie Mac comedy show.
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Our production team has developed a track record for producing
reasonably budgeted films with commercial potential. Our
production division reviews hundreds of scripts, looking for
material that will attract top talent (primarily actors and
directors). We then actively develop such scripts, working with
the major talent agencies and producers to recruit talent that
appeals to the films target audience. We believe the
commercial
and/or
critical success of our films should enhance our reputation and
continue to give us access to top talent, scripts and projects.
We often develop films in targeted niche markets in which we can
achieve a sustainable competitive advantage, as evidenced by the
successes of our horror films, including the Saw
franchise, and our urban films, such as Madeas Family
Reunion.
The decision whether to greenlight (or proceed with
production of) a film is a diligent process that involves
numerous key executives of the Company. Generally, the
production division presents projects to a committee comprised
of the heads of our production, theatrical distribution, home
entertainment, international distribution, legal and finance
departments. In this process, scripts are discussed for both
artistic merit and commercial viability. The committee considers
the entire package, including the script, the talent that may be
attached or pursued and the production divisions initial
budget. They also discuss talent and story elements that could
make the project more successful. Next, the heads of domestic
and international distribution prepare estimates of projected
revenues and the costs of marketing and distributing the film.
Our finance and legal professionals review the projections and
financing options, and the committee decides whether the picture
is worth pursuing by balancing the risk of a production against
its potential for financial success or failure. The final
greenlight decision is made by our corporate senior management
team, headed by our Chief Executive Officer.
We typically seek to mitigate the financial risk associated with
film production by negotiating co-production agreements (which
provide for joint efforts and cost-sharing between Lionsgate and
one or more third-party production companies) and pre-selling
international distribution rights on a selective basis (which
refers to licensing the rights to distribute a film in one or
more media, in one or more specific territories prior to
completion of the film). We often attempt to minimize our
production exposure by structuring deals with talent that
provide for
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them to participate in the financial success of the motion
picture in exchange for reducing guaranteed amounts to be paid
regardless of the films success (which we refer to as
up-front payments). In addition, we use certain
Canadian tax credits, German tax structures, United Kingdom
subsidy programs, U.S. domestic tax incentives and other
structures that may help reduce our financial risk.
Television. During fiscal 2007, we delivered
approximately 74 episodes of domestic television programming,
one movie of the week and three episodes of the sci-fi
mini-series The Lost Room, which aired on The Sci-fi
Network. Domestic television programming included
one-hour and
half-hour
dramas, mini-series, animated series and reality and non-fiction
programming. We remain a leading
non-network
affiliated independent producer of television product in the
U.S. In fiscal 2008, we intend to have at least seven
series on the air, and several mini-series and limited series
slated for production.
Series. In fiscal 2007 we delivered:
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13 episodes of the comedy series Lovespring
International to Lifetime Network;
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6 episodes of the reality series I Pity The
Fool, starring Mr. T, which aired on TV Land;
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14 episodes of the teen drama Wildfire, which airs on the
ABC Family Network;
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12 episodes of the comedy series Weeds on Showtime;
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13 episodes of the sci-fi thriller Dresden Files, a
one-hour
drama airing on The Sci-fi Network;
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8 episodes of the reality series Dirty Dancing,
which aired on the WE Network; and
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8 episodes of the drama series Hidden Palms, a Kevin
Williamson produced
one-hour
drama for the CW Network.
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In addition to continuing to deliver Weeds (15 episodes)
and Wildfire (13 episodes), in fiscal 2008 we intend
to deliver the following projects:
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13 episodes of Dead Zone, which is shown on
USA Network in the United States and is delivered by
Paramount International Television internationally;
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12 episodes of Mad Men, a
one-hour
drama for the AMC Network; and
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8 episodes of The Kill Point, an
eight-hour
drama limited series for Spike Network starring John Leguizamo.
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Animation. We are involved in the development,
acquisition, production and distribution of a number of
animation projects for full theatrical release, television and
DVD release.
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DVD Production We have delivered three
direct-to-home
video animated movies with Marvel Characters Inc. (Ultimate
Avengers 1, Ultimate Avengers 2 and The Invincible
Iron Man). We are currently producing three additional
titles targeted to be released during fiscal 2008, 2009 and 2010.
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Television Production We are in production on
a new comedic action adventure series (based on a well-known
franchise) for the Nickelodeon Networks for 26
half-hours
and five films. We will be handling international sales,
overseeing merchandising and licensing and distributing DVD and
video. The series will be produced by Animation Collective of
New York City.
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Theatrical Films During fiscal 2007, we
released our first computer-generated animated project for full
theatrical release, Happily NEver After. Happily
NEver After, an acquisition, stars Sarah Michelle
Geller, Freddie Prinze, Jr. and Sigourney Weaver. Our
second computer-generated animated acquisition, Foodfight!
(starring Eva Longoria, Hilary Duff, Charlie Sheen and Wayne
Brady) is targeted for release in fiscal 2008. In addition, we
are developing with our partners at Crest Animation (Los Angeles
and Mumbai, India) on a computer-generated animated project
tentatively entitled Alpha and Omega. This project hails
from Steve Moore, the creator of the Sony CGI domestic and
international hit Open Season and the In the
Bleachers comic strip. We are also working on Sylvester
and the Magic Pebble, from the creator of Shrek,
which is currently in development.
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Television Movies, Mini-Series and
Specials. We are actively involved in the
development, acquisition, production and distribution of
television content in the
movie-of-the-week,
mini-series and reality special formats. During fiscal 2007, we
produced and distributed one
movie-of-the-week,
The Staircase Murders, for Lifetime Network and three
episodes of the sci-fi mini-series The Lost Room, which
aired on The Sci-fi Network. In fiscal 2008, we plan to
distribute a number of projects, including four celebrity roasts
starring Bernie Mac for Comedy Central and Papillon, a
four-hour
mini-series remake of the classic film. We plan to continue to
produce high quality television movies for various outlets, but
we intend to focus on limited and mini-series going forward, as
we believe that broadcast and cable outlets are re-directing
development funds to those formats.
Music. We have recently undertaken to grow the
music portion of our business. We actively assess potential
music copyright acquisitions. In addition, we service the music
needs of other departments within the Company, including
assistance with creative matters and licensing. We do not
currently generate a significant amount of revenue from our
music operations.
Distribution
Domestic Theatrical Distribution. We
distribute motion pictures directly to U.S. movie theaters.
Over the past eight years our releases have included the
following in-house productions: Monsters Ball,
starring Halle Berry and Billy Bob Thornton; The
Punisher, starring John Travolta and Thomas Jane;
Godsend, starring Robert DeNiro, Greg Kinnear and Rebecca
Romijn Stamos; Tyler Perrys Diary of a Mad Black Woman
and Madeas Family Reunion; the horror film
sequels Saw II and Saw III; Akeelah and the
Bee, starring Keke Palmer, Laurence Fishburne and
Angela Bassett; the documentary Grizzly Man; Crank,
starring Jason Statham and Amy Smart; Employee of the
Month, starring Dane Cook, Jessica Simpson and Dax Shepherd;
the documentary The U.S. vs. John Lennon; and
Pride, starring Bernie Mac and Terrence Howard.
Motion pictures that we have acquired and distributed in this
same time period include: Dogma, starring Ben Affleck,
Matt Damon and Chris Rock; O, starring Julia Stiles and
Mekhi Phifer; The Cooler, starring Alec Baldwin, William
H. Macy and Maria Bello; Girl With A Pearl Earring,
starring Scarlett Johannson and Colin Firth; the highly
successful horror film Saw; Michael Moores
Fahrenheit 9/11, the
highest-grossing
documentary of all time; Open Water; Lord of War,
starring Nicholas Cage; Hostel; Hard Candy; The
Descent; and Paul Haggis Best Picture Academy
Award®
winning tale of race relations in post-9/11 Los Angeles,
Crash, starring Don Cheadle, Sandra Bullock, Matt
Dillon and Brendan Fraser, among others.
In the last nine years, films we have distributed have earned 27
Academy
Award®
nominations and won seven Academy
Awards®,
and have been nominated for and won numerous Golden Globe,
Screen Actors Guild, BAFTA and Independent Spirit Awards.
Our strategy is to release approximately 18 to 22 titles per
year in theaters, which includes our in-house productions,
co-productions and acquisitions. Our approach to acquiring films
for theatrical release is similar to our approach to film
production in that we generally seek to limit our financial
exposure while adding films of quality and commercial viability
to our release schedule and our video library. The decision to
acquire a motion picture for theatrical release entails a
process involving key executives at the Company, including those
from the releasing, home entertainment and acquisitions
departments as well as corporate senior management. The team
meets to discuss a films expected critical reaction,
marketability, and potential for commercial success, as well as
the cost to acquire the picture, the estimated distribution and
marketing expenses (typically called P&A or
prints and advertising) required to bring the film
to its widest possible target audience and the ancillary market
potential for the film after its theatrical release. We have
recently begun to release more films on a wider basis, as
demonstrated by the theatrical releases of such films as
Fahrenheit 9/11, Open Water, the Saw franchise,
Madeas Family Reunion, Lord of War, Crash, Employee of the
Month and Crank.
We generally prepare our marketing campaign and release
schedules to minimize financial exposure while maximizing
revenue potential. We construct release schedules taking into
account moviegoer attendance patterns and competition from other
studios scheduled theatrical releases. We use either wide
or limited initial releases depending on the film. We generally
spend less on P&A for a given film than a major studio and
we design our marketing plan to cost effectively reach a large
audience.
8
Our remaining fiscal 2008 theatrical release schedule may
include (in anticipated order of release):
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Produced*
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Title
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Summary
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Principal Actors
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or Acquired
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Release Date
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Hostel: Part II
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While studying art in Rome for the
summer, three young American women are lured away to a grim
Slovakian hostel by a model from their class.
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Jay Hernandez
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Produced
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June 2007
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Sicko
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A Michael Moore documentary about
45 million people with no health care in the richest
country on earth.
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Documentary
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Acquired
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June 2007
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Bratz
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Live-action adventure based on the
popular line of dolls.
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Skyler Shaye, Janel Parrish
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Acquired
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August 2007
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Good Luck, Chuck
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A guy who breaks up with his
longtime girlfriend is shocked to hear that she gets engaged to
her next boyfriend. He finds himself repeating this pattern.
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Jessica Alba, Dane Cook
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Produced
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August 2007
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Ladron Que Roba A Ladron
(Spanish Language)
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Professional thieves are forced to
use a motley group of immigrants on their next job.
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Fernando Colunga, Miguel Varoni,
Saul Lizaso Julie Gonzalo, Gabriel Soto
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Acquired
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August 2007
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War
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An FBI agent seeks vengeance on a
mysterious assassin known as Rogue who
murdered his partner.
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Jet Li, Jason Statham
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Produced
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September 2007
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3:10 to Yuma
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A small-time rancher agrees to hold
a captured outlaw who is awaiting a train to go to court in
Yuma. A battle of wills ensues.
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Russell Crowe, Christian Bale
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Acquired
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October 2007
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The Eye
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The remake of a popular Hong Kong
film about a woman who receives an eye transplant that allows
her to see into the supernatural world.
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Jessica Alba
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Produced
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October 2007
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Saw 4
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The latest chapter in one of the
most successful horror franchises of all time.
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Tobin Bell
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Produced
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October 2007
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Tyler Perrys Why Did I Get
Married
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Big screen adaptation of
Perrys stage play about the trials of marriage, and what
happens to one family when a sexy young temptress arrives on the
scene.
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Tyler Perry, Janet Jackson
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Produced
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November 2007
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Thomas Kinkades The
Christmas Cottage
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A look at the inspiration behind
Thomas Kinkades painting The Christmas Cottage, and how
the artist was motivated to begin his career after discovering
his mother was in danger of losing their family home.
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Peter OToole, Marcia Gay
Harden, Jared Padalecki
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Produced
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December 2007
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9
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Produced*
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Title
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Summary
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Principal Actors
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or Acquired
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Release Date
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College
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A wild weekend is in store for
three high school seniors who visit a local college campus as
prospective freshmen.
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Drake Bell, Andrew Caldwell, Kevin
Covais
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Acquired
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March 2008
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Includes significant participation in production. |
We may revise the release date of a motion picture as the
production schedule changes or in such a manner as we believe is
likely to maximize revenues. Additionally, there can be no
assurance that any of the motion pictures scheduled for release
will be completed, that completion will occur in accordance with
the anticipated schedule or budget, that the film will ever be
released, or that the motion pictures will necessarily involve
any of the creative talent listed above.
International Distribution. Our international
division, Lions Gate International (LGI),
distributes our in-house productions and third party
acquisitions to the international marketplace, both on a
territory by territory basis through third parties, and directly
in the United Kingdom and Ireland through Lionsgate UK.
International territories are often pre-sold to cover a
significant portion of the production budget or acquisition cost
on new releases, and we have licensed international rights for
approximately 1,200 of the motion picture titles and television
episodes in our library.
The primary components of our international business are
(1) the licensing of rights in all media to our in-house
theatrical titles on a territory by territory basis, and
(2) the licensing of catalogue product or libraries of
acquired titles (such as Modern). We have also leveraged our
infrastructure to generate revenue through a sales agency
business for third party product, and we have expanded our sales
and distribution of original Lionsgate television series such as
Weeds, Wildfire and Dresden Files.
As part of our ongoing effort to expand our global footprint in
certain strategic markets, LGI now includes Lionsgate UK, a
self-sustaining, full service distribution company serving the
United Kingdom and Ireland. In addition to gaining greater
control over releases and capturing incremental margin on our
direct-to-video
product such as Marvels The Invincible Iron Man,
Lionsgate UK is expected to release
15-16 films
theatrically in fiscal 2008, with titles including Best Foreign
Picture Academy
Award®
Winner The Lives of Others and the documentary
Earth. Lionsgate UK and Optimum Releasing/StudioCanal
recently announced an executed letter of understanding to
jointly acquire British home entertainment sales house Elevation
Sales. Elevation Sales will handle the joint sales and
distribution of DVD product for both Lionsgate UK and Optimum
Home Entertainment.
Home Video Distribution. Our U.S. video
distribution operation aims to exploit our filmed and television
content library of more than 10,000 motion picture titles and
television episodes and programs. We have established a track
record for building on the awareness generated from our
theatrical releases and have developed strong positions in
childrens, fitness, horror, urban, teen comedy and
faith-based product. We increased our overall market share of
combined sell-through and rental consumer spend to approximately
5.5%. In fiscal 2007, Lionsgate had two theatrical releases
debut at number one with Crank and Saw III,
along with the top two fitness releases of the year (Dancing
With The Stars: Cardio Dance and The Biggest
Loser The Workout, Vol. 2). Additionally, over
the past year, our Saw franchise became the number one
horror franchise in DVD history, and Lionsgate is currently the
top studio in the genre with a horror DVD market share of
approximately 33%.
Furthermore, Lionsgate is a part of the Blu-ray consortium, and
during fiscal 2007 we held an 11.6% market share of Blu-ray
revenue. Among the highlights for our Blu-ray product are the 50
gigabyte releases for The Descent and Crank, the
latter being the top-selling Blu-ray title its opening week and
at the time the second largest Blu-ray debut ever (subsequently
surpassed).
In addition to our approximately 18 to 22 theatrical
releases each year, we also acquire approximately 65 titles
annually that have commercial potential in video and ancillary
markets, adding a total of approximately 80 films to our library
each year including National Lampoons Dorm Daze
2 College @ Sea starring Vida Guerra,
Stephen Kings Desperation, the sequel to the
original Japanese horror classic, Ju-On 2, and Man
About Town
10
starring Ben Affleck and Rebecca Romijn. We distribute
successful television product on video, including the
Saturday Night Live product currently in our library, the
first season of the popular Showtime series Weeds,
starring Mary-Louise Parker, Elizabeth Perkins and Kevin Nealon,
the fourth and fifth seasons of the Bruce Willis and Cybill
Shepherd hit comedy series Moonlighting, and the
fifth and sixth seasons of the NBC hit comedy
series Will and Grace. We also released a
15th Anniversary edition of Quentin Tarantinos
Reservoir Dogs, starring Michael Madsen and Harvey
Keitel, special editions of the top-selling Saw I and
Saw II releases, and a remastered Alfred
Hitchcock Box Set from our recently acquired
StudioCanal library.
In 2004, we entered into an agreement with Marvel Characters,
Inc. to distribute up to eight original animated DVD features
based on certain Marvel characters. We also have the right to
exploit the pictures in other entertainment media domestically
and internationally, including pay and free television and
video-on-demand.
In the past 12 months we released the second and third
titles in the series Ultimate Avengers 2 and
The Invincible Iron Man which have sold
approximately 1.3 million units.
We directly distribute to the rental market through Blockbuster,
Inc., Netflix, Inc., Movie Gallery, Inc., and Rentrak
Corporation. We also distribute or sell directly to mass
merchandisers, such as Wal-Mart, K-Mart, Best Buy Co Inc.,
Target Corporation and Costco Wholesale Corporation, and others
who buy large volumes of our videos and DVDs to sell directly to
consumers. Sales to Wal-Mart account for over 10% of our gross
revenues, the loss of which could have a material adverse effect
on our financial results. This customer represented
approximately 22% of the Companys Consolidated Net Revenue
for fiscal 2007.
Our Family Entertainment division, which targets the youth
audience, recently acquired the home entertainment rights to the
popular Bratz brand. In February we released the first
title Bratz Fashion Pixiez which
outsold the previous two Bratz releases. We also continue
to distribute the PBS series Clifford the Big Red Dog
from Scholastic Entertainment, The Doodlebops, the
popular childrens band featured in its own series on the
Disney Channel, along with a catalog of Care Bears and
Teenage Mutant Ninja Turtles releases.
In the past year, Lionsgate has significantly increased its
market share in faith-based product, buoyed by the successful
Tyler Perry franchise, which has sold over
18 million DVDs in the past two years. In March, we
increased our influence in this area through distribution deals
with the worlds leading Christian publisher, Thomas
Nelson, and leading Christian non-fiction author Lee
Strobel.
With over 12% market share in fitness DVD revenue, Lionsgate has
a lineup that includes top-sellers Denise Austin, The
Biggest Loser and Dancing With The Stars.
Pay and Free Television Distribution. We have
approximately 480 titles in active distribution in the domestic
cable, free and pay television markets. We sell our library
titles and new product to major cable channels such as Lifetime,
Showtime, HBO, FX, Turner Networks, Starz, Family Channel,
Disney Channel, Cartoon Network and IFC. Commencing
August 1, 2006, we began direct distribution of
pay-per-view
and
video-on-demand
to cable, satellite and internet providers. We also have an
output contract with Showtime for pay television.
Canadian Distribution. In April 2005, we
entered into a library output and new picture output arrangement
with Maple Pictures. When the 18 year term ends for titles
which were distributed under the Motion Picture Distribution LP
output agreement, we intend to distribute titles previously
distributed in Canada by Motion Picture Distribution LP through
Maple Pictures.
Electronic Distribution. We own a minority
interest in CinemaNow, a broadband
video-on-demand
company founded in 1999. CinemaNow offers licensed content from
a library of more than 7,500 new and classic movies, television
programs, music concerts and music videos via downloading or
streaming. In 2006, CinemaNow introduced electronic-sell-through
of media content, meaning users can purchase and take delivery
of the content online. Lionsgate content is also available for
electronic-sell-through on the Apple iTunes, Microsoft Xbox
LIVE, Amazon, Fox Interactive, Direct2Drive, MovieLink,
BitTorrent and Wal-Mart Online services. In October 2006, the
Company, Sony and Comcast each purchased one-third of the
membership interests in Horror Entertainment, LLC, a
multiplatform programming and content service provider of horror
genre films operating under the brand name of
FEARnet. In addition, we entered into a five-year
license agreement with FEARnet for the US territories and
possessions, whereby the Company will license content to FEARnet
for
video-on-demand
and broadband exhibition.
11
Studio
Facilities
We rent studio space on an as-needed basis. We previously owned
and operated Lions Gate Studios, a film and television
production studio in North Vancouver, British Columbia, but sold
such interest in March 2006. We may own and operate studio
facilities in the future.
Intellectual
Property
We are currently using a number of trademarks including
LIONS GATE ENTERTAINMENT, LIONS GATE HOME
ENTERTAINMENT, ARTISAN HOME ENTERTAINMENT,
FAMILY HOME ENTERTAINMENT, TRIMARK HOME
VIDEO, DIRTY DANCING, THE BLAIR WITCH
PROJECT and RESERVOIR DOGS in connection with
our domestic home video distribution, LIONS GATE
FILMS, LGF FILMS, ARTISAN
ENTERTAINMENT and TRIMARK PICTURES in
connection with films distributed domestically and licensed
internationally and LIONS GATE TELEVISION,
TRIMARK TELEVISION and DEBMAR/MERCURY in
connection with licenses to free, pay and cable television.
The trademarks LIONS GATE HOME ENTERTAINMENT,
LIONS GATE SIGNATURE SERIES, ARTISAN
ENTERTAINMENT, FAMILY HOME ENTERTAINMENT
F.H.E. FAMILY HOME ENTERTAINMENT KIDS, TRIMARK
PICTURES, DIRTY DANCING, THE BLAIR WITCH
PROJECT and RESERVOIR DOGS, among others, are
registered with the United States Patent and Trademark Office.
The trademarks LIONS GATE ENTERTAINMENT
LIONSGATE FAMILY ENTERTAINMENT
LIONSGATE, and ARTISAN HOME
ENTERTAINMENT have been filed with the United States
Patent and Trademark Office. We regard our trademarks as
valuable assets and believe that our trademarks are an important
factor in marketing our products.
Copyright protection is a serious problem in the videocassette
and DVD distribution industry because of the ease with which
cassettes and DVDs may be duplicated. In the past, certain
countries permitted video pirating to such an extent that we did
not consider these markets viable for distribution. Video piracy
continues to be prevalent across the entertainment industry. We
and other video distributors have taken legal actions to enforce
copyright protection when necessary.
Competition
Television and motion picture production and distribution are
highly competitive businesses. We face competition from
companies within the entertainment business and from alternative
forms of leisure entertainment, such as travel, sporting events,
outdoor recreation, video games, the internet and other cultural
and computer-related activities. We compete with the major
studios, numerous independent motion picture and television
production companies, television networks and pay television
systems for the acquisition of literary and film properties, the
services of performing artists, directors, producers and other
creative and technical personnel and production financing, all
of which are essential to the success of our entertainment
businesses. In addition, our motion pictures compete for
audience acceptance and exhibition outlets with motion pictures
produced and distributed by other companies. Likewise, our
television product faces significant competition from
independent distributors as well as major studios. As a result,
the success of any of our motion pictures and television product
is dependent not only on the quality and acceptance of a
particular film or program, but also on the quality and
acceptance of other competing motion pictures or television
programs released into the marketplace at or near the same time.
Employees
As of May 15, 2007 we had 400 full-time employees in
our worldwide operations. We also hire additional employees on a
picture-by-picture
basis in connection with the production of our motion pictures
and television programming. We believe that our employee and
labor relations are good.
None of our full-time employees are members of unions.
12
RISK
FACTORS
You should carefully consider the following risks and other
information in this
Form 10-K
before making an investment decision with respect to our common
shares. The following risks and uncertainties could materially
adversely affect our business, results of operations and
financial condition. The risks described below are not the only
ones facing the Company. Additional risks that we are not
presently aware of or that we currently believe are immaterial
may also impair our business operations.
We
have had losses, and we cannot assure future
profitability.
We have reported operating income for fiscal years 2003, 2005,
2006 and 2007 and operating losses for fiscal years 2002 and
2004. We have reported net income for fiscal 2005, 2006 and 2007
and net losses for the fiscal years 2002 through 2004. Our
accumulated deficit was $149.7 million at March 31,
2007. We cannot assure you that we will operate profitably and,
if we do not, we may not be able to meet our debt service
requirements, working capital requirements, capital expenditure
plans, anticipated production slate, acquisition and releasing
plans or other cash needs. Our inability to meet those needs
could have a material adverse effect on our business, results of
operations and financial condition.
We
face substantial capital requirements and financial
risks.
Our business requires a substantial investment of
capital. The production, acquisition and
distribution of motion pictures and television programs require
a significant amount of capital. A significant amount of time
may elapse between our expenditure of funds and the receipt of
commercial revenues from or government contributions to our
motion pictures or television programs. This time lapse requires
us to fund a significant portion of our capital requirements
from our revolving credit facility and from other financing
sources. Although we intend to continue to reduce the risks of
our production exposure through financial contributions from
broadcasters and distributors, tax shelters, government and
industry programs, other studios and other sources, we cannot
assure you that we will continue to implement successfully these
arrangements or that we will not be subject to substantial
financial risks relating to the production, acquisition,
completion and release of future motion pictures and television
programs. If we increase (through internal growth or
acquisition) our production slate or our production budgets, we
may be required to increase overhead
and/or make
larger up-front payments to talent and consequently bear greater
financial risks. Any of the foregoing could have a material
adverse effect on our business, results of operations and
financial condition.
The costs of producing and marketing feature films have
steadily increased and may further increase in the future, which
may make it more difficult for a film to generate a profit or
compete against other films. The costs of
producing and marketing feature films have generally increased
in recent years. These costs may continue to increase in the
future, which may make it more difficult for our films to
generate a profit or compete against other films. Historically,
production costs and marketing costs have risen at a higher rate
than increases in either the number of domestic admissions to
movie theaters or admission ticket prices. A continuation of
this trend would leave us more dependent on other media, such as
home video, television, international markets and new media for
revenue, and the revenues from such sources may not be
sufficient to offset an increase in the cost of motion picture
production. If we cannot successfully exploit these other media,
it could have a material adverse effect on our business, results
of operations and financial condition.
Budget overruns may adversely affect our
business. Our business model requires that we be
efficient in the production of our motion pictures and
television programs. Actual motion picture and television
production costs often exceed their budgets, sometimes
significantly. The production, completion and distribution of
motion pictures and television productions are subject to a
number of uncertainties, including delays and increased
expenditures due to creative differences among key cast members
and other key creative personnel or other disruptions or events
beyond our control. Risks such as death or disability of star
performers, technical complications with special effects or
other aspects of production, shortages of necessary equipment,
damage to film negatives, master tapes and recordings or adverse
weather conditions may cause cost overruns and delay or
frustrate completion of a production. If a motion picture or
television production incurs substantial budget overruns, we may
have to seek additional
13
financing from outside sources to complete production. We cannot
make assurances regarding the availability of such financing on
terms acceptable to us, and the lack of such financing could
have a material adverse effect on our business, results of
operations and financial condition.
In addition, if a motion picture or television production incurs
substantial budget overruns, we cannot assure you that we will
recoup these costs, which could have a material adverse effect
on our business, results of operations and financial condition.
Increased costs incurred with respect to a particular film may
result in any such film not being ready for release at the
intended time and the postponement to a potentially less
favorable time, all of which could cause a decline in box office
performance, and thus the overall financial success of such
film. Budget overruns could also prevent a picture from being
completed or released. Any of the foregoing could have a
material adverse effect on our business, results of operations
and financial condition.
Our credit facility contains certain covenants and financial
tests that limit the way we conduct business. Our
$215 million credit facility with J.P. Morgan Chase
Bank, National Association contains various covenants limiting
our ability to incur or guarantee additional indebtedness, pay
dividends and make other distributions, pre-pay any subordinated
indebtedness, make investments and other restricted payments,
make capital expenditures, make acquisitions and sell assets.
These covenants may prevent us from raising additional
financing, competing effectively or taking advantage of new
business opportunities. Under our credit facility, we are also
required to maintain specified financial ratios and satisfy
certain financial tests. If we cannot comply with these
covenants or meet these ratios and other tests, it could result
in a default under our credit facility, and unless we are able
to negotiate an amendment, forbearance or waiver, we could be
required to repay all amounts then outstanding, which could have
a material adverse effect on our business, results of operations
and financial condition depending upon our outstanding balance
at the time.
Borrowings under our credit facility also are secured by liens
on substantially all of our assets and the assets of our
subsidiaries. If we are in default under our credit facility,
the lenders could foreclose upon all or substantially all of our
assets and the assets of our subsidiaries. We cannot assure you
that we will generate sufficient cash flow to repay our
indebtedness, and we further cannot assure you that, if the need
arises, we will be able to obtain additional financing or to
refinance our indebtedness on terms acceptable to us, if at all.
Any such failure to obtain financing could have a material
adverse effect on our business, results of operations and
financial condition.
Substantial leverage could adversely affect our financial
condition. Historically, we have been highly
leveraged and may be highly leveraged in the future. We have
access to capital through our $215 million credit facility
with J.P. Morgan Chase Bank, National Association. In
addition, we have $325 million Convertible Senior
Subordinated Notes outstanding, with $150 million maturing
October 15, 2024 and $175 million maturing
March 15, 2025. At March 31, 2007, we had
approximately $51.5 million in cash and cash equivalents
and $237.4 million in highly liquid investments,
principally auction rate preferreds. While the outstanding
balance under our credit facility is currently zero, we could
borrow some or all of the permitted amount in the future. The
amount we have available to borrow under this facility depends
upon our borrowing base, which in turn depends on the value of
our existing library of films and television programs, as well
as accounts receivable and cash held in collateral accounts. If
several of our larger motion picture releases are commercial
failures or our library declines in value, our borrowing base
could decrease. Such a decrease could have a material adverse
effect on our business, results of operations and financial
condition. For example, it could:
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require us to dedicate a substantial portion of our cash flow to
the repayment of our indebtedness, reducing the amount of cash
flow available to fund motion picture and television production,
distribution and other operating expenses;
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limit our flexibility in planning for or reacting to downturns
in our business, our industry or the economy in general;
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limit our ability to obtain additional financing, if necessary,
for operating expenses, or limit our ability to obtain such
financing on terms acceptable to us; and
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limit our ability to pursue strategic acquisitions and other
business opportunities that may be in our best interests.
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14
Our
revenues and results of operations may fluctuate
significantly.
Revenues and results of operations are difficult to predict
and depend on a variety of factors. Our revenues
and results of operations depend significantly upon the
commercial success of the motion pictures and television
programming that we distribute, which cannot be predicted with
certainty. Accordingly, our revenues and results of operations
may fluctuate significantly from period to period, and the
results of any one period may not be indicative of the results
for any future periods. Furthermore, largely as a result of
these predictive difficulties, we may not be able to achieve our
publicly projected earnings. In fiscal 2006, we revised our
projected earnings downward twice. Future revisions to projected
earnings could cause investors to lose confidence in us, which
in turn could materially and adversely affect our business, our
financial condition and the market value of our securities.
In addition, historically, our revenues and results of
operations have been significantly impacted by the success of
critically acclaimed and award winning films, including Academy
Award winners and nominees. We cannot assure you that we will
manage the production, acquisition and distribution of future
motion pictures (including any films in the Saw or Tyler
Perry franchises) as successfully as we have done with these
recent critically acclaimed, award winning
and/or
commercially popular films or that we will produce or acquire
motion pictures that will receive similar critical acclaim or
perform as well commercially. Any inability to achieve such
commercial success could have a material adverse effect on our
business, results of operations and financial condition.
We lack output agreements with cable and broadcast
channels. We had an agreement with one cable
broadcast channel to exhibit our films, but that agreement does
not cover films released theatrically after 2003. We have an
output arrangement with another cable broadcast channel that
covers some but not all of our films that are theatrically
released through December 31, 2008. While similar
broadcasters exhibit our films, they license such rights on a
film-by-film,
rather than an output, basis. We cannot assure you that we will
be able to secure other output agreements on acceptable terms,
if at all. Without multiple output agreements that typically
contain guaranteed minimum payments, our revenues may be subject
to greater volatility, which could have a material adverse
effect on our business, results of operations and financial
condition.
We rely on a few major retailers and distributors for a
material portion of our business and the loss of any of those
retailers or distributors could reduce our revenues and
operating results. Wal-Mart represented over 10%
of our revenues in fiscal 2007. In addition, a small number of
other retailers and distributors account for a significant
percentage of our revenues. We do not have long-term agreements
with the retailers. We cannot assure you that we will continue
to maintain favorable relationships with our retailers and
distributors or that they will not be adversely affected by
economic conditions. If any of these retailers or distributors
reduces or cancels a significant order, it could have a material
adverse effect on our business, results of operations and
financial condition.
Our revenues and results of operations are vulnerable to
currency fluctuations. We report our revenues and
results of operations in U.S. dollars, but a significant
portion of our revenues is earned outside of the United States.
Our principal currency exposure is between Canadian and
U.S. dollars. We enter into forward foreign exchange
contracts to hedge future production expenses. We cannot
accurately predict the impact of future exchange rate
fluctuations on revenues and operating margins, and fluctuations
could have a material adverse effect on our business, results of
operations and financial condition.
From time to time we may experience currency exposure on
distribution and production revenues and expenses from foreign
countries, which could have a material adverse effect on our
business, results of operations and financial condition.
Accounting practices used in our industry may accentuate
fluctuations in operating results. In addition to
the cyclical nature of the entertainment industry, our
accounting practices (which are standard for the industry) may
accentuate fluctuations in our operating results. In accordance
with U.S. generally accepted accounting principles and
industry practice, we amortize film and television programming
costs using the individual-film-forecast method.
Under this accounting method, we amortize film and television
programming costs for each film or television program based on
the following ratio:
Revenue earned by title in the current period
Estimated total revenues by title
15
We regularly review, and revise when necessary, our total
revenue estimates on a
title-by-title
basis. This review may result in a change in the rate of
amortization
and/or a
write-down of the film or television asset to its estimated fair
value. Results of operations in future years depend upon our
amortization of our film and television costs. Periodic
adjustments in amortization rates may significantly affect these
results. In addition, we are required to expense film
advertising costs as incurred, but are also required to
recognize the revenue from any motion picture or television
program over the entire revenue stream expected to be generated
by the individual picture or television program.
Failure
to manage future growth may adversely affect our
business.
We are subject to risks associated with possible
acquisitions, business combinations, or joint
ventures. From time to time we engage in
discussions and activities with respect to possible
acquisitions, business combinations, or joint ventures intended
to complement or expand our business. We may not realize the
anticipated benefit from any of the transactions we pursue.
Regardless of whether we consummate any such transaction, the
negotiation of a potential transaction (including associated
litigation and proxy contests), as well as the integration of
the acquired business, could require us to incur significant
costs and cause diversion of managements time and
resources. Any such transaction could also result in impairment
of goodwill and other intangibles, development write-offs and
other related expenses. Any of the foregoing could have a
material adverse effect on our business, results of operations
and financial condition.
We may be unable to integrate any business that we acquire or
have acquired or with which we combine or have
combined. Integrating any business that we
acquire or have acquired or with which we combine or have
combined is distracting to our management and disruptive to our
business and may result in significant costs to us. We could
face challenges in consolidating functions and integrating
procedures, information technology and accounting systems,
personnel and operations in a timely and efficient manner. If
any such integration is unsuccessful, or if the integration
takes longer than anticipated, there could be a material adverse
effect on our business, results of operations and financial
condition. We may have difficulty managing the combined entity
in the short term if we experience a significant loss of
management personnel during the transition period after the
significant acquisition.
Claims against us relating to any acquisition or business
combination may necessitate our seeking claims against the
seller for which the seller may not indemnify us or that may
exceed the sellers indemnification
obligations. There may be liabilities assumed in
any acquisition or business combination that we did not discover
or that we underestimated in the course of performing our due
diligence investigation. Although a seller generally will have
indemnification obligations to us under an acquisition or merger
agreement, these obligations usually will be subject to
financial limitations, such as general deductibles and maximum
recovery amounts, as well as time limitations. We cannot assure
you that our right to indemnification from any seller will be
enforceable, collectible or sufficient in amount, scope or
duration to fully offset the amount of any undiscovered or
underestimated liabilities that we may incur. Any such
liabilities, individually or in the aggregate, could have a
material adverse effect on our business, results of operations
and financial condition.
We may not be able to obtain additional funding to meet our
requirements. Our ability to grow through
acquisitions, business combinations and joint ventures, to
maintain and expand our development, production and distribution
of motion pictures and television programs and to fund our
operating expenses depends upon our ability to obtain funds
through equity financing, debt financing (including credit
facilities) or the sale or syndication of some or all of our
interests in certain projects or other assets. If we do not have
access to such financing arrangements, and if other funding does
not become available on terms acceptable to us, there could be a
material adverse effect on our business, results of operations
and financial condition.
We
face risks related to our theatrical slate financing
arrangement.
On May 25, 2007, the Company, through a series of
agreements, closed a theatrical slate financing arrangement
whereby Pride Pictures LLC, an unrelated entity, will provide
the Company with an aggregate of up to $204 million before
transaction costs (consisting of $35 million of debt
instruments, $35 million of equity and $134 million
from a senior credit facility, which is subject to a borrowing
base) of the production, acquisition,
16
marketing and distribution costs of certain theatrical feature
films. The slate covered by the arrangement is expected to be
comprised of 23 films over the next three years. Amounts
contributed by Pride Pictures LLC will generally represent
approximately 50% of the production, acquisition, marketing and
distribution costs of each qualifying theatrical feature film.
The percentage of the contribution may vary on certain pictures.
Pride Pictures LLC will participate in a pro rata portion of the
pictures net profits or losses similar to a co-production
arrangement based on the portion of costs funded.
The funding obligations are subject to a borrowing base
calculation and certain conditions precedent. In addition, the
fund may have insufficient capacity to finance its share of all
pictures in the slate. Some of the investors may default. If for
any reason Pride Pictures LLC does not meeting its funding
requirements under the arrangement, the Company will have to use
other financial resources to satisfy the shortfall, which could
have a material adverse effect on our business, results of
operations and financial condition.
A
significant portion of our filmed and television content library
revenues comes from a small number of titles.
We depend on a limited number of titles for the majority of the
revenues generated by our filmed and television content library.
In addition, many of the titles in our library are not presently
distributed and generate substantially no revenue. If we cannot
acquire new product and the rights to popular titles through
production, distribution agreements, acquisitions, mergers,
joint ventures or other strategic alliances, it could have a
material adverse effect on our business, results of operations
and financial condition.
We are
limited in our ability to exploit a portion of our filmed and
television content library.
Our rights to the titles in our filmed and television content
library vary; in some cases we have only the right to distribute
titles in certain media and territories for a limited term. We
cannot assure you that we will be able to renew expiring rights
on acceptable terms and that any failure to renew titles
generating a significant portion of our revenue would not have a
material adverse effect on our business, results of operations
or financial condition.
Our
success depends on external factors in the motion picture and
television industry.
Our success depends on the commercial success of motion
pictures and television programs, which is
unpredictable. Operating in the motion picture
and television industry involves a substantial degree of risk.
Each motion picture and television program is an individual
artistic work, and inherently unpredictable audience reactions
primarily determine commercial success. Generally, the
popularity of our motion pictures or programs depends on many
factors, including the critical acclaim they receive, the format
of their initial release, for example, theatrical or
direct-to-video,
the actors and other key talent, their genre and their specific
subject matter. The commercial success of our motion pictures or
television programs also depends upon the quality and acceptance
of motion pictures or programs that our competitors release into
the marketplace at or near the same time, critical reviews, the
availability of alternative forms of entertainment and leisure
activities, general economic conditions and other tangible and
intangible factors, many of which we do not control and all of
which may change. We cannot predict the future effects of these
factors with certainty, any of which factors could have a
material adverse effect on our business, results of operations
and financial condition.
In addition, because a motion pictures or television
programs performance in ancillary markets, such as home
video and pay and free television, is often directly related to
its box office performance or television ratings, poor box
office results or poor television ratings may negatively affect
future revenue streams. Our success will depend on the
experience and judgment of our management to select and develop
new investment and production opportunities. We cannot make
assurances that our motion pictures and television programs will
obtain favorable reviews or ratings, that our motion pictures
will perform well at the box office or in ancillary markets or
that broadcasters will license the rights to broadcast any of
our television programs in development or renew licenses to
broadcast programs in our library. The failure to achieve any of
the foregoing could have a material adverse effect on our
business, results of operations and financial condition.
Licensed distributors failure to promote our programs
may adversely affect our business. Licensed
distributors decisions regarding the timing of release and
promotional support of our motion pictures, television
17
programs and related products are important in determining the
success of these pictures, programs and products. We do not
control the timing and manner in which our licensed distributors
distribute our motion pictures or television programs. Any
decision by those distributors not to distribute or promote one
of our motion pictures, television programs or related products
or to promote our competitors motion pictures, television
programs or related products to a greater extent than they
promote ours could have a material adverse effect on our
business, results of operations and financial condition.
We could be adversely affected by strikes or other union job
actions. We are directly or indirectly dependent
upon highly specialized union members who are essential to the
production of motion pictures and television programs. A strike
by, or a lockout of, one or more of the unions that provide
personnel essential to the production of motion pictures or
television programs could delay or halt our ongoing production
activities. Such a halt or delay, depending on the length of
time, could cause a delay or interruption in our release of new
motion pictures and television programs, which could have a
material adverse effect on our business, results of operations
and financial condition.
We
face substantial competition in all aspects of our
business.
We are smaller and less diversified than many of our
competitors. As an independent distributor and
producer, we constantly compete with major U.S. and
international studios. Most of the major U.S. studios are
part of large diversified corporate groups with a variety of
other operations, including television networks and cable
channels, that can provide both the means of distributing their
products and stable sources of earnings that may allow them
better to offset fluctuations in the financial performance of
their motion picture and television operations. In addition, the
major studios have more resources with which to compete for
ideas, storylines and scripts created by third parties as well
as for actors, directors and other personnel required for
production. The resources of the major studios may also give
them an advantage in acquiring other businesses or assets,
including film libraries, that we might also be interested in
acquiring. Our inability to compete successfully could have a
material adverse effect on our business, results of operations
and financial condition.
The motion picture industry is highly competitive and at
times may create an oversupply of motion pictures in the
market. The number of motion pictures released by
our competitors, particularly the major U.S. studios, may
create an oversupply of product in the market, reduce our share
of box office receipts and make it more difficult for our films
to succeed commercially. Oversupply may become most pronounced
during peak release times, such as school holidays and national
holidays, when theater attendance is expected to be highest. For
this reason, and because of our more limited production and
advertising budgets, we typically do not release our films
during peak release times, which may also reduce our potential
revenues for a particular release. Moreover, we cannot guarantee
that we can release all of our films when they are otherwise
scheduled. In addition to production or other delays that might
cause us to alter our release schedule, a change in the schedule
of a major studio may force us to alter the release date of a
film because we cannot always compete with a major studios
larger promotion campaign. Any such change could adversely
impact a films financial performance. In addition, if we
cannot change our schedule after such a change by a major studio
because we are too close to the release date, the major
studios release and its typically larger promotion budget
may adversely impact the financial performance of our film. The
foregoing could have a material adverse effect on our business,
results of operations and financial condition.
The limited supply of motion picture screens compounds this
product oversupply problem. Currently, a substantial majority of
the motion picture screens in the U.S. typically are
committed at any one time to only ten to 15 films distributed
nationally by major studio distributors. In addition, as a
result of changes in the theatrical exhibition industry,
including reorganizations and consolidations and the fact that
major studio releases occupy more screens, the number of screens
available to us when we want to release a picture may decrease.
If the number of motion picture screens decreases, box office
receipts, and the correlating future revenue streams, such as
from home video and pay and free television, of our motion
pictures may also decrease, which could have a material adverse
effect on our business, results of operations and financial
condition.
18
We
must successfully respond to rapid technological changes and
alternative forms of delivery or storage to remain
competitive.
The entertainment industry in general and the motion picture and
television industries in particular continue to undergo
significant technological developments. Advances in technologies
or alternative methods of product delivery or storage or certain
changes in consumer behavior driven by these or other
technologies and methods of delivery and storage could have a
negative effect on our business. Examples of such advances in
technologies include
video-on-demand,
new video formats and downloading and streaming from the
internet. An increase in
video-on-demand
could decrease home video rentals. In addition, technologies
that enable users to fast-forward or skip advertisements, such
as Digital Video Recorders (DVRs), may cause changes in consumer
behavior that could affect the attractiveness of our products to
advertisers, and could therefore adversely affect our revenues.
Similarly, further increases in the use of portable digital
devices that allow users to view content of their own choosing
while avoiding traditional commercial advertisements could
adversely affect our revenues. Other larger entertainment
distribution companies will have larger budgets to exploit these
growing trends. While we have a minority interest in CinemaNow,
its commercial success is impossible to predict. We cannot
predict how we will financially participate in the exploitation
of our motion pictures and television programs through these
emerging technologies or whether we have the right to do so for
certain of our library titles. If we cannot successfully exploit
these and other emerging technologies, it could have a material
adverse effect on our business, results of operations and
financial condition.
In addition, the technologies we choose to invest in could prove
to be less successful than we expect. For example, we have
released and will continue to release titles in high-definition
Blu-ray Disc format, which could negatively impact our business
if that format is not generally accepted by the public.
We
face risks from doing business internationally.
We distribute motion picture and television productions outside
the United States directly in the UK and Ireland through
Lionsgate UK and through third party licensees elsewhere and
derive revenues from these sources. As a result, our business is
subject to certain risks inherent in international business,
many of which are beyond our control. These risks include:
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laws and policies affecting trade, investment and taxes,
including laws and policies relating to the repatriation of
funds and withholding taxes, and changes in these laws;
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changes in local regulatory requirements, including restrictions
on content;
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differing cultural tastes and attitudes;
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differing degrees of protection for intellectual property;
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financial instability and increased market concentration of
buyers in foreign television markets, including in European pay
television markets;
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the instability of foreign economies and governments;
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fluctuating foreign exchange rates;
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the spread of communicable diseases; and
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war and acts of terrorism.
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Events or developments related to these and other risks
associated with international trade could adversely affect our
revenues from
non-U.S. sources,
which could have a material adverse effect on our business,
financial condition and results of operations.
Protecting
and defending against intellectual property claims may have a
material adverse effect on our business.
Our ability to compete depends, in part, upon successful
protection of our intellectual property. We do not have the
financial resources to protect our rights to the same extent as
major studios. We attempt to protect proprietary and
intellectual property rights to our productions through
available copyright and trademark laws and licensing and
19
distribution arrangements with reputable international companies
in specific territories and media for limited durations. Despite
these precautions, existing copyright and trademark laws afford
only limited practical protection in certain countries. We also
distribute our products in other countries in which there is no
copyright or trademark protection. As a result, it may be
possible for unauthorized third parties to copy and distribute
our productions or certain portions or applications of our
intended productions, which could have a material adverse effect
on our business, results of operations and financial condition.
Litigation may also be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets, or
to determine the validity and scope of the proprietary rights of
others or to defend against claims of infringement or
invalidity. Any such litigation could result in substantial
costs and the diversion of resources and could have a material
adverse effect on our business, results of operations and
financial condition. We cannot assure you that infringement or
invalidity claims will not materially adversely affect our
business, results of operations and financial condition.
Regardless of the validity or the success of the assertion of
these claims, we could incur significant costs and diversion of
resources in enforcing our intellectual property rights or in
defending against such claims, which could have a material
adverse effect on our business, results of operations and
financial condition.
Others
may assert intellectual property infringement claims against
us.
One of the risks of the film production business is the
possibility that others may claim that our productions and
production techniques misappropriate or infringe the
intellectual property rights of third parties with respect to
their previously developed films, stories, characters, other
entertainment or intellectual property. We are likely to receive
in the future claims of infringement or misappropriation of
other parties proprietary rights. Any such assertions or
claims may materially adversely affect our business, financial
condition or results of operations. Irrespective of the validity
or the successful assertion of such claims, we could incur
significant costs and diversion of resources in defending
against them, which could have a material adverse effect on our
business, financial condition or results of operations. If any
claims or actions are asserted against us, we may seek to settle
such claim by obtaining a license from the plaintiff covering
the disputed intellectual property rights. We cannot provide any
assurances, however, that under such circumstances a license, or
any other form of settlement, would be available on reasonable
terms or at all.
Our
business involves risks of liability claims for media content,
which could adversely affect our business, results of operations
and financial condition.
As a distributor of media content, we may face potential
liability for:
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defamation;
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invasion of privacy;
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negligence;
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copyright or trademark infringement (as discussed
above); and
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other claims based on the nature and content of the materials
distributed.
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These types of claims have been brought, sometimes successfully,
against producers and distributors of media content. Any
imposition of liability that is not covered by insurance or is
in excess of insurance coverage could have a material adverse
effect on our business, results of operations and financial
condition.
Piracy
of motion pictures, including digital and internet piracy, may
reduce the gross receipts from the exploitation of our
films.
Motion picture piracy is extensive in many parts of the world,
including South America, Asia, the countries of the former
Soviet Union and other former Eastern bloc countries, and is
made easier by technological advances and the conversion of
motion pictures into digital formats. This trend facilitates the
creation, transmission and sharing of high quality unauthorized
copies of motion pictures in theatrical release, on videotapes
and DVDs, from
pay-per-view
through set top boxes and other devices and through unlicensed
broadcasts on free television and the internet. The
proliferation of unauthorized copies of these products has had
and will likely continue to have an
20
adverse effect on our business, because these products reduce
the revenue we received from our products. Additionally, in
order to contain this problem, we may have to implement
elaborate and costly security and anti-piracy measures, which
could result in significant expenses and losses of revenue. We
cannot assure you that even the highest levels of security and
anti-piracy measures will prevent piracy.
In particular, unauthorized copying and piracy are prevalent in
countries outside of the U.S., Canada and Western Europe, whose
legal systems may make it difficult for us to enforce our
intellectual property rights. While the U.S. government has
publicly considered implementing trade sanctions against
specific countries that, in its opinion, do not make appropriate
efforts to prevent copyright infringements of U.S. produced
motion pictures, there can be no assurance that any such
sanctions will be enacted or, if enacted, will be effective. In
addition, if enacted, such sanctions could impact the amount of
revenue that we realize from the international exploitation of
motion pictures. If no embargoes or sanctions are enacted, or if
other measures are not taken, we may lose revenue as a result of
motion picture piracy.
An
investment by non-Canadians in our business is potentially
reviewable under the ICA, which could adversely affect our
results.
The Investment Canada Act (Canada) or ICA is administered
by the Minister of Industry and, in the case of investments in a
Canadian cultural business, by the Minister of Canadian Heritage
(both referred to herein as the Minister). A
Canadian cultural business is defined in the ICA as
a business activity relating to Canadas cultural heritage
or national identity, and includes a business engaged in the
production, distribution, sale or exhibition of film or video
products.
The ICA contains rules, the application of which determines
whether an entity (as the term is defined in the ICA) is
Canadian-controlled and whether it carries on a Canadian
cultural business. We may or may not be operating a Canadian
cultural business for the purposes of the ICA. Under the ICA,
the Minister has discretion to determine, after considering any
information or evidence submitted by the entity or otherwise
made available to the Minister or the Director of Investments,
that an investment by a non-Canadian in a Canadian cultural
business may constitute an acquisition of control by that
non-Canadian, notwithstanding the provisions in the ICA that
state that certain investments do not or may not constitute an
acquisition of control that would require notification or review
under the ICA.
If the Minister exercises such discretion and deems an
investment by a non-Canadian in a cultural business to be an
acquisition of control, the investment is potentially subject to
notification
and/or
review. If the investment is subject to review, the Minister
must be satisfied that the investment is likely to be of net
benefit to Canada. Such a determination is often accompanied by
requests that the non-Canadian provide undertakings supportive
of Canadian cultural policy. These undertakings may, in some
circumstances, include a request for financial support of
certain initiatives. The determination by the Minister of
whether a proposed investment is of net benefit to Canada also
includes consideration of sector specific policies of the
Canadian federal government, some of which restrict or prohibit
investments by non-Canadians in certain types of Canadian
cultural businesses.
Our
success depends on certain key employees.
Our success depends to a significant extent on the performance
of a number of senior management personnel and other key
employees, including production and creative personnel. We do
not currently have significant key person life
insurance policies for any of our employees. We have entered
into employment agreements with many (but not all) of our top
executive officers and production executives. However, although
it is standard in the motion picture industry to rely on
employment agreements as a method of retaining the services of
key employees, these agreements cannot assure us of the
continued services of such employees. In addition, competition
for the limited number of business, production and creative
personnel necessary to create and distribute our entertainment
content is intense and may grow in the future. Our inability to
retain or successfully replace where necessary members of our
senior management and other key employees could have a material
adverse effect on our business, results of operations and
financial condition.
21
To be
successful, we need to attract and retain qualified
personnel.
Our success continues to depend to a significant extent on our
ability to identify, attract, hire, train and retain qualified
professional, creative, technical and managerial personnel.
Competition for the caliber of talent required to produce our
motion pictures and television programs continues to increase.
We cannot assure you that we will be successful in identifying,
attracting, hiring, training and retaining such personnel in the
future. If we were unable to hire, assimilate and retain
qualified personnel in the future, such inability would have a
material adverse effect on our business, results of operations
and financial condition.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS.
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Not applicable.
Our corporate head office is located at 1055 West Hastings
Street, Suite 2200, Vancouver, British Columbia V6E 2E9.
Our principal executive offices are located at 1055 West
Hastings Street, Suite 2200 and 2700 Colorado Avenue,
Suite 200, Santa Monica, California, 90404. At the Santa
Monica address, we occupy approximately 48,000 square feet,
including an approximately 4,000 square foot screening room.
In March 2006, the Company sold its studio facilities located at
555 Brooksbank Avenue, North Vancouver, British Columbia.
We believe that our current facilities are adequate to conduct
our business operations for the foreseeable future. We believe
that we will be able to renew these leases on similar terms upon
expiration. If we cannot renew, we believe that we could find
other suitable premises without any material adverse impact on
our operations.
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ITEM 3.
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LEGAL
PROCEEDINGS.
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The Company is involved in certain claims and legal proceedings
which have arisen in the normal course of business. Management
does not believe that the outcome of any currently pending
claims or legal proceedings in which the Company is currently
involved will have a material adverse effect on the
Companys consolidated financial position, results of
operations or cash flow.
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ITEM 4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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No matters were submitted to a vote of security holders during
the fourth quarter of fiscal 2007.
PART II
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ITEM 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
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Our common shares are listed on the New York Stock Exchange, or
NYSE, and trades under the symbol LGF.
22
New York
Stock Exchange
The following table sets forth the range of high and low closing
sale prices for our Common Shares, as reported by the NYSE in
U.S. dollars, for our two most recent fiscal years:
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High
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Low
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Year ended March 31, 2007
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Fourth Quarter
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$
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12.01
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$
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10.23
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Third Quarter
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11.47
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9.71
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Second Quarter
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10.44
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8.52
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First Quarter
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10.17
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8.55
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Year ended March 31, 2006
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Fourth Quarter
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$
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10.29
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$
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7.79
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Third Quarter
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10.07
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7.56
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Second Quarter
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10.55
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9.10
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First Quarter
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11.20
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9.23
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Holders
As of May 15, 2007, there were 116,988,567 shares
issued and outstanding and 430 registered holders of our common
shares.
Dividend
Policy
We have not paid any dividends on our outstanding common shares
since our inception and do not anticipate doing so in the
foreseeable future. The declaration of dividends on our common
shares is restricted by our amended credit facility and is
within the discretion of our board of directors and will depend
upon the assessment of, among other things, our earnings,
financial requirements and operating and financial condition. At
the present time, given our anticipated capital requirements we
intend to follow a policy of retaining earnings in order to
finance further development of our business. We may be limited
in our ability to pay dividends on our common shares by
restrictions under the Business Corporations Act (British
Columbia) relating to the satisfaction of solvency tests.
Securities
Authorized for Issuance Under Equity Compensation
Plans
The information required by this item is contained under the
caption Equity Compensation Plan Information for
2007 in a definitive Proxy Statement, which we will file
with the Securities and Exchange Commission no later than
120 days after March 31, 2007 (the Proxy
Statement), and such information is incorporated herein by
reference.
Recent
Sales of Unregistered Securities
On March 31, 2006, Lionsgate completed a private exchange
with certain shareholders of Image Entertainment, Inc. whereby
Lionsgate issued 218,746 common shares with a value as of
March 31, 2006 of approximately $2,220,272, or
$10.15 per share (the IM Shares), in
consideration of the purchase of certain of their shares in
Image Entertainment, Inc. The IM Shares were not registered
under the Securities Act and were issued in reliance on an
exemption from registration provided by Rule 506 of
Regulation D of the Securities Act.
Taxation
The following is a general summary of certain Canadian income
tax consequences to U.S. Holders (who deal at arms
length with the Company) of the purchase, ownership and
disposition of common shares. For the purposes of this Canadian
income tax discussion, a U.S. Holder means a
holder of common shares who (1) for the purposes of the
Income Tax Act (Canada) is not, has not, and will not be
resident in Canada at any time while he, she holds common
shares, (2) at all relevant times is a resident of the
United States under the
Canada-United
States Income Tax Convention (1980) (the
Convention), and (3) does not and will not use
or be deemed to use the common
23
shares in carrying on a business in Canada. This summary does
not apply to U.S. Holders who are insurers. Such
U.S. Holders should seek tax advice from their advisors. An
actual or prospective investor that is a United States limited
liability company in some circumstances may not be considered to
be a resident of the United States for the purposes of the
Convention and therefore may not be entitled to benefits
thereunder.
This summary is not intended to be, and should not be construed
to be, legal or tax advice to any prospective investor and no
representation with respect to the tax consequences to any
particular investor is made. The summary does not address any
aspect of any provincial, state or local tax laws or the tax
laws of any jurisdiction other than Canada or the tax
considerations applicable to
non-U.S. Holders.
Accordingly, prospective investors should consult with their own
tax advisors for advice with respect to the income tax
consequences to them having regard to their own particular
circumstances, including any consequences of an investment in
common shares arising under any provincial, state or local tax
laws or the tax laws of any jurisdiction other than Canada.
This summary is based upon the current provisions of the
Income Tax Act (Canada), the regulations thereunder and
the proposed amendments thereto publicly announced by the
Department of Finance, Canada before the date hereof and our
understanding of the current published administrative and
assessing practices of the Canada Revenue Agency. It does not
otherwise take into account or anticipate any changes in law,
whether by legislative, governmental or judicial action.
The following summary applies only to U.S. Holders who hold
their common shares as capital property. In general, common
shares will be considered capital property of a holder where the
holder is neither a trader nor dealer in securities, does not
hold the common shares in the course of carrying on a business
and is not engaged in an adventure in the nature of trade in
respect thereof. This summary does not apply to holders who are
financial institutions within the meaning of the
mark-to-market
rules contained in the Income Tax Act (Canada).
Amounts in respect of common shares paid or credited or deemed
to be paid or credited as, on account or in lieu of payment of,
or in satisfaction of, dividends to a shareholder who is not a
resident of Canada within the meaning of the Income Tax Act
(Canada) will generally be subject to Canadian non-resident
withholding tax. Canadian withholding tax applies to dividends
that are formally declared and paid by the Company and also to
deemed dividends that may be triggered by a cancellation of
common shares if the cancellation occurs otherwise than as a
result of a simple open market transaction. For either deemed or
actual dividends, withholding tax is levied at a basic rate of
25%, which may be reduced pursuant to the terms of an applicable
tax treaty between Canada and the country of residence of the
non-resident shareholder. Under the Convention, the rate of
Canadian non-resident withholding tax on the gross amount of
dividends received by a U.S. Holder is generally 15%.
However, where such beneficial owner is a company that owns at
least 10% of the voting shares of the company paying the
dividends, the rate of such withholding is 5%.
In addition to the Canadian withholding tax on actual or deemed
dividends, a U.S. holder also needs to consider the
potential application of Canadian capital gains tax. A
U.S. Holder will generally not be subject to tax under the
Income Tax Act (Canada) in respect of any capital gain
arising on a disposition of common shares (including on a
purchase by the Company on the open market) unless at the time
of disposition such shares constitute taxable Canadian property
of the holder for purposes of the Income Tax Act (Canada)
and such U.S. Holder is not entitled to relief under the
Convention. If the common shares are listed on a prescribed
stock exchange at the time they are disposed of, they will
generally not constitute taxable Canadian property of a
U.S. Holder unless, at any time during the five year period
immediately preceding the disposition of the common shares, the
U.S. Holder, persons with whom he, she or it does not deal
at arms length, or the U.S. Holder together with
non-arms length persons, owned 25% or more of the issued
shares of any class or series of the capital stock of the
Company. In any event, under the Convention, gains derived by a
U.S. Holder from the disposition of common shares will
generally not be subject to tax in Canada unless the value of
the companys shares is derived principally from real
property or certain other immovable property situated in Canada.
24
Comparison
of 5 Year Cumulative Total Shareholder Return
The following graph compares our cumulative total shareholder
return with those of the NYSE Composite Index and the S&P
Movies & Entertainment Index for the period commencing
March 31, 2002 and ending March 31, 2007. All values
assume that $100 was invested on March 31, 2002 in our
common shares and each applicable index and all dividends were
reinvested.
The comparisons shown in the graph below are based on historical
data and we caution that the stock price performance shown in
the graph below is not indicative of, and is not intended to
forecast, the potential future performance of our common shares.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN**
Among Lions Gate Entertainment Corp., The NYSE Composite
Index
and the S&P Movies & Entertainment
Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company/Index
|
|
|
3/31/02
|
|
|
3/31/03
|
|
|
3/31/04
|
|
|
3/31/05
|
|
|
3/31/06
|
|
|
3/31/07
|
Lions Gate Entertainment
Corp.
|
|
|
|
100.00
|
|
|
|
|
76.10
|
|
|
|
|
249.00
|
|
|
|
|
440.24
|
|
|
|
|
404.38
|
|
|
|
|
454.98
|
|
NYSE Composite Index**
|
|
|
|
100.00
|
|
|
|
|
79.61
|
|
|
|
|
117.94
|
|
|
|
|
135.71
|
|
|
|
|
164.25
|
|
|
|
|
196.85
|
|
S&P Movies &
Entertainment Index**
|
|
|
|
100.00
|
|
|
|
|
62.25
|
|
|
|
|
82.77
|
|
|
|
|
83.47
|
|
|
|
|
80.15
|
|
|
|
|
98.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The following graph and related information is being furnished
solely to accompany this
Form 10-K
pursuant to Item 201(e) of
Regulation S-K.
It shall not be deemed soliciting materials or to be
filed with the Securities and Exchange Commission
(other than as provided in Item 201), nor shall such
information be incorporated by reference into any future filing
under the Securities Act of 1933 or the Securities Exchange Act
of 1934, except to the extent that we specifically incorporate
it by reference into such filing. |
|
** |
|
The Companys common shares ceased trading on the Toronto
Stock Exchange effective July 31, 2006, and the common
shares now trade solely on the NYSE. Therefore, we have
discontinued using the S&P/TSX Composite Index and the
S&P/TSX Movies & Entertainment Index in our
performance graph. We continue to include two NYSE indices. |
25
|
|
ITEM 6.
|
SELECTED
CONSOLIDATED FINANCIAL DATA.
|
The consolidated financial statements for all periods presented
in this
Form 10-K
are prepared in conformity with U.S. generally accepted
accounting principles.
The Selected Consolidated Financial Data below include the
results of Artisan, Lionsgate UK (formerly Redbus) and Debmar
from their acquisition dates of December 16, 2003,
October 17, 2005 and July 3, 2006, respectively,
onwards. Due to the acquisitions, the Companys results of
operations for the year ended March 31, 2007, 2006 and 2005
and financial positions as at March 31, 2007, 2006, 2005
and 2004 are not directly comparable to prior reporting periods.
The information presented in the table below has been adjusted
to reflect the Studio Facility as a discontinued operation as
described in note 12 of our Notes to the Financial
Statements included in this
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
|
Statement of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
976,740
|
|
|
$
|
945,385
|
|
|
$
|
838,097
|
|
|
$
|
369,636
|
|
|
$
|
259,508
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating
|
|
|
436,818
|
|
|
|
458,990
|
|
|
|
353,790
|
|
|
|
179,268
|
|
|
|
132,225
|
|
Distribution and marketing
|
|
|
404,410
|
|
|
|
399,299
|
|
|
|
364,281
|
|
|
|
207,045
|
|
|
|
87,403
|
|
General and administration
|
|
|
90,782
|
|
|
|
69,936
|
|
|
|
69,258
|
|
|
|
42,603
|
|
|
|
29,089
|
|
Severance and relocation costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,575
|
|
|
|
|
|
Write-down of other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,686
|
|
|
|
|
|
Depreciation
|
|
|
2,786
|
|
|
|
1,817
|
|
|
|
2,370
|
|
|
|
2,451
|
|
|
|
1,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
934,796
|
|
|
|
930,042
|
|
|
|
789,699
|
|
|
|
448,628
|
|
|
|
249,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
41,944
|
|
|
|
15,343
|
|
|
|
48,398
|
|
|
|
(78,992
|
)
|
|
|
9,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses (Income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
17,832
|
|
|
|
18,860
|
|
|
|
25,318
|
|
|
|
13,154
|
|
|
|
8,126
|
|
Interest rate swaps
mark-to-market
|
|
|
|
|
|
|
123
|
|
|
|
(2,453
|
)
|
|
|
(833
|
)
|
|
|
3,163
|
|
Interest and other income
|
|
|
(11,930
|
)
|
|
|
(4,304
|
)
|
|
|
(3,440
|
)
|
|
|
(136
|
)
|
|
|
(77
|
)
|
Gain on sale of equity securities
|
|
|
(1,722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses, net
|
|
|
4,180
|
|
|
|
14,679
|
|
|
|
19,532
|
|
|
|
12,185
|
|
|
|
11,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before
Items Related to Equity Method Investees and Income Taxes
|
|
|
37,764
|
|
|
|
664
|
|
|
|
28,866
|
|
|
|
(91,177
|
)
|
|
|
(1,623
|
)
|
Gain on sale of equity interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,131
|
|
Equity interests
|
|
|
(2,605
|
)
|
|
|
(74
|
)
|
|
|
(200
|
)
|
|
|
(2,169
|
)
|
|
|
(2,112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
|
|
35,159
|
|
|
|
590
|
|
|
|
28,666
|
|
|
|
(93,346
|
)
|
|
|
(1,604
|
)
|
Income tax provision (benefit)
|
|
|
7,680
|
|
|
|
(1,030
|
)
|
|
|
8,747
|
|
|
|
(203
|
)
|
|
|
1,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before discontinued
operations
|
|
|
27,479
|
|
|
|
1,620
|
|
|
|
19,919
|
|
|
|
(93,143
|
)
|
|
|
(2,714
|
)
|
Income from discontinued operations
(including gain on sale in 2006 of $4,872), net of tax of nil,
$2,464, $200, $576 and $711
|
|
|
|
|
|
|
4,476
|
|
|
|
362
|
|
|
|
1,047
|
|
|
|
1,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
27,479
|
|
|
|
6,096
|
|
|
|
20,281
|
|
|
|
(92,096
|
)
|
|
|
(1,423
|
)
|
Modification of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,031
|
)
|
|
|
|
|
Dividends on Series A
preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(387
|
)
|
|
|
(1,584
|
)
|
Accretion and amortization on
Series A preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(643
|
)
|
|
|
(1,383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Available to
Common Shareholders
|
|
$
|
27,479
|
|
|
$
|
6,096
|
|
|
$
|
20,281
|
|
|
$
|
(95,157
|
)
|
|
$
|
(4,390
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Income (Loss) Per Common
Share From Continuing Operations
|
|
$
|
0.25
|
|
|
$
|
0.02
|
|
|
$
|
0.20
|
|
|
$
|
(1.36
|
)
|
|
$
|
(0.13
|
)
|
Basic Income Per Common Share From
Discontinued Operations
|
|
|
|
|
|
|
0.04
|
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Net Income (Loss) per
Common Share
|
|
$
|
0.25
|
|
|
$
|
0.06
|
|
|
$
|
0.21
|
|
|
$
|
(1.35
|
)
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
|
Diluted Per Share
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Income (Loss) Per Common
Share From Continuing Operations
|
|
$
|
0.25
|
|
|
$
|
0.02
|
|
|
$
|
0.19
|
|
|
$
|
(1.36
|
)
|
|
$
|
(0.13
|
)
|
Diluted Income Per Common Share
From Discontinued Operations
|
|
|
|
|
|
|
0.04
|
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Net Income (Loss) per
Common Share
|
|
$
|
0.25
|
|
|
$
|
0.06
|
|
|
$
|
0.20
|
|
|
$
|
(1.35
|
)
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
shares used in the computation of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
|
|
108,398
|
|
|
|
103,066
|
|
|
|
97,610
|
|
|
|
70,656
|
|
|
|
43,232
|
|
Diluted income (loss) per share
|
|
|
111,164
|
|
|
|
106,102
|
|
|
|
103,375
|
|
|
|
70,656
|
|
|
|
43,232
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used in)
operating activities
|
|
$
|
107,817
|
|
|
$
|
123,012
|
|
|
$
|
95,496
|
|
|
$
|
(116,411
|
)
|
|
$
|
17,490
|
|
Cash flow provided by (used in)
investing activities
|
|
|
(107,617
|
)
|
|
|
(165,334
|
)
|
|
|
(1,312
|
)
|
|
|
(149,730
|
)
|
|
|
4,840
|
|
Cash flow provided by (used in)
financing activities
|
|
|
4,277
|
|
|
|
(23,065
|
)
|
|
|
10,918
|
|
|
|
267,171
|
|
|
|
(22,848
|
)
|
Balance Sheet Data (at end of
period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
51,497
|
|
|
|
46,978
|
|
|
|
112,839
|
|
|
|
7,089
|
|
|
|
6,851
|
|
Investments auction
rate securities
|
|
|
237,379
|
|
|
|
167,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in films and television
programs
|
|
|
493,140
|
|
|
|
417,750
|
|
|
|
367,376
|
|
|
|
406,170
|
|
|
|
177,689
|
|
Total assets
|
|
|
1,137,095
|
|
|
|
1,053,249
|
|
|
|
854,629
|
|
|
|
762,683
|
|
|
|
340,691
|
|
Bank loans
|
|
|
|
|
|
|
|
|
|
|
1,162
|
|
|
|
326,174
|
|
|
|
125,345
|
|
Subordinated notes
|
|
|
325,000
|
|
|
|
385,000
|
|
|
|
390,000
|
|
|
|
65,000
|
|
|
|
|
|
Total liabilities
|
|
|
889,205
|
|
|
|
903,979
|
|
|
|
737,490
|
|
|
|
693,074
|
|
|
|
269,028
|
|
Redeemable preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,031
|
|
Shareholders equity
|
|
|
247,890
|
|
|
|
149,270
|
|
|
|
117,139
|
|
|
|
69,609
|
|
|
|
43,632
|
|
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
Revision
to Present the Studio Facility as a Discontinued
Operation
The Companys consolidated statements of income for all
years presented have been revised to reflect the gain on sale of
the studio facility and all revenues and expenses of the studio
facility net within the discontinued operations section of the
consolidated statements of income. Similarly, the Companys
statements of cash flows have been revised to distinguish the
cash flows of continuing operations from cash flows from
discontinued operations.
There is no change to reported net income or loss, retained
earnings or equity as previously reported for any period
presented.
Overview
Lions Gate Entertainment Corp. (Lionsgate, the
Company, we, us or
our) is a diversified independent producer and
distributor of motion pictures, television programming, home
entertainment, family entertainment,
video-on-demand
and music content. We release approximately 18 to 22 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 77 hours of
television programming on average each of the last three years.
Our disciplined approach to acquisition, production and
distribution is designed to maximize our profit by balancing our
financial risks against the probability of commercial success of
each project. We currently distribute our library of more than
10,000 motion picture titles and television episodes and
programs directly to retailers, video rental stores, and pay and
free television channels in the US, UK and Ireland, and
indirectly to other international markets through third parties.
We own a minority interest in CinemaNow, Inc.
(CinemaNow), an internet
video-on-demand
provider. We also own a minority interest in Maple Pictures
Corp. (Maple Pictures), a Canadian film and
television distributor based in Toronto, Canada. We have an
output arrangement with Maple Pictures through which we
distribute our library and titles in Canada.
27
A key element of our strategy is to acquire individual
properties, including films and television programs, libraries,
and entertainment studios and companies, to enhance our
competitive position and generate significant financial returns.
During previous periods, we acquired and integrated into our
business: Lionsgate UK (formerly Redbus) (October 2005), an
independent United Kingdom film distributor, which provided us
the ability to self-distribute our motion pictures in the UK and
Ireland and included the acquisition of the Redbus library of
approximately 130 films; certain of the film assets and accounts
receivable of Modern Entertainment, Ltd. (August 2005), a
licensor of film rights to DVD distributors, broadcasters and
cable networks; Artisan Entertainment Inc. (December 2003), a
diversified motion picture, family and home entertainment
company; and Trimark Holdings, Inc. (October 2000), a worldwide
distributor of entertainment content that distributed directly
in the US and through third parties to the rest of the world.
During fiscal 2007 (in July 2006), we acquired Debmar-Mercury,
an independent syndicator of film and television packages.
Our revenues are derived from the following business segments:
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Motion Pictures, which includes Theatrical, Home Entertainment,
Television and International Distribution. Theatrical revenues
are derived from the theatrical release of motion pictures in
the United States which are distributed to theatrical exhibitors
on a picture by picture basis. The financial terms that we
negotiate with our theatrical exhibitors generally provide that
we receive a percentage of the box office results and are
negotiated on a picture by picture basis. Home entertainment
revenues are derived primarily from the sale of video and DVD
releases of our own productions and acquired films, including
theatrical releases and
direct-to-video
releases, to retail stores. In addition, we have revenue sharing
arrangements with certain rental stores which generally provide
that in exchange for a nominal or no upfront sales price we
share in the rental revenues generated by each such store on a
title by title basis. Television revenues are primarily derived
from the licensing of our productions and acquired films to the
domestic cable, free and pay television markets. International
revenues include revenues from our UK subsidiary and from the
licensing of our productions and acquired films to international
markets on a
territory-by-territory
basis. Our revenues are derived from the United States, Canada
and other foreign countries; none of the foreign countries
individually comprised greater than 10% of total revenue. (See
note 16 of our accompanying consolidated financial
statements.)
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|
Television Productions includes the licensing to domestic and
international markets of
one-hour and
half-hour
drama series, television movies and mini-series and non-fiction
programming and revenues from the sale of television production
movies or series in other media including home entertainment.
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Studio Facilities, which was sold on March 15, 2006. (See
note 12 of our accompanying consolidated financial
statements.)
|
Our primary operating expenses include the following:
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|
|
Direct Operating Expenses, which include amortization of
production or acquisition costs, participation and residual
expenses and provision for doubtful accounts. Participation
costs represent contingent consideration payable based on the
performance of the film to parties associated with the film,
including producers, writers, directors or actors, etc.
Residuals represent amounts payable to various unions or
guilds such as the Screen Actors Guild, Directors
Guild of America, Writers Guild of America, based on the
performance of the film in certain ancillary markets or based on
the individuals (i.e. actor, director, writer) salary
level in the television market.
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Distribution and Marketing Expenses, which primarily include the
costs of theatrical prints and advertising and of
video and DVD duplication and marketing. Theatrical print and
advertising represent the costs of the theatrical prints
delivered to theatrical exhibitors and advertising includes the
advertising and marketing cost associated with the theatrical
release of the picture. Video and DVD duplication represent the
cost of the video and DVD product and the manufacturing costs
associated with creating the physical products. Video and DVD
marketing costs represent the cost of advertising the product at
or near the time of its release or special promotional
advertising.
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General and Administration Expenses, which include salaries and
other overhead.
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28
Our financial results include the results of Artisan, Lionsgate
UK (formerly Redbus) and Debmar from their acquisition dates of
December 16, 2003, October 17, 2005 and July 3,
2006, respectively, onwards. Due to the acquisitions, the
Companys results of operations for the years ended
March 31, 2007, 2006 and 2005 and financial positions as at
March 31, 2007 and 2006 are not directly comparable to
prior reporting periods.
Recent
Developments
Theatrical Slate Financing. On May 25,
2007, the Company, through a series of agreements, closed a
theatrical slate funding arrangement. Under this arrangement
Pride Pictures LLC, an unrelated entity, will fund, generally,
50% of the Companys production, acquisition, marketing and
distribution costs of theatrical feature films up to an
aggregate of approximately $204 million before transaction
costs (consisting of $35 million of debt instruments,
$35 million of equity and $134 million from a senior
credit facility, which is subject to a borrowing base). The
percentage of the contribution may vary on certain pictures. The
slate of films covered by the arrangement is expected to be
comprised of 23 films over the next three years. Pride Pictures
LLC will participate in a pro rata portion of the pictures net
profits or losses similar to a co production arrangement based
on the portion of costs funded. The Company continues to
distribute the pictures covered by the arrangement with a
portion of net profits after all costs and the Companys
distribution fee being distributed to Pride Pictures LLC based
on their pro rata contribution to the applicable costs similar
to a back-end participation on a film.
Horror Entertainment, LLC. On October 10,
2006, the Company purchased 300 membership interests in Horror
Entertainment, LLC (FEARnet), a multiplatform
programming and content service provider of horror genre films
operating under the branding of FEARnet. In
addition, the Company entered into a five-year license agreement
with FEARnet for the US territories and possessions whereby the
Company will license content to FEARnet for
video-on-demand
and broadband exhibition. The Company has agreed not to compete
in the area of a channel within the horror genre and the Company
cannot license to a horror genre competitor more than 25 titles
in any year during the term of the license agreement. The
Company made a capital contribution to FEARnet of
$5.1 million at the date of acquisition, which includes
direct transaction costs of $0.1 million, and has committed
to a total capital contribution of $13.3 million, which is
expected to be fully funded over the next two-year period. Under
certain circumstances, if the Company defaults on any of its
funding obligations, then the Company could forfeit its equity
and its license agreement with FEARnet could be terminated. The
Company is accounting for the investment in FEARnet using the
equity method because of the Companys ownership percentage
of 33.33%. Due to the timing in availability of financial
statements from FEARnet, the Company will record its share of
the FEARnet results on a one quarter lag. The Company recorded a
$1.5 million loss in its equity interests associated with
FEARnets operations through December 31, 2006 in the
consolidated statement of operations for the fiscal year ended
March 31, 2007. The investment in FEARnet is
$3.6 million as of March 31, 2007.
4.875% Notes Conversion. On
December 15, 2006, in response to our optional redemption
notice, all of the noteholders of the 4.875% Convertible
Senior Subordinated Notes (4.875% Notes) voluntarily
elected to convert their notes into the Companys common
shares. A total of $60 million of principal was converted
into 11,111,108 common shares at a conversion price of
$5.40 per share. In connection with this conversion, the
principal amount net of the unamortized portion of the financing
costs of approximately $2.1 million associated with the
original issuance of the 4.875% Convertible Senior
Subordinated Notes was recorded as an increase to common shares.
The shares issued pursuant to the conversion were previously
reserved for such issuance pursuant to the conversion.
Debmar. On July 3, 2006, the Company
acquired all of the capital stock of Debmar-Mercury LLC
(Debmar), an independent distributor of film and
television packages. Consideration for the Debmar acquisition
was $27.0 million, comprised of a combination of
$24.5 million in cash paid on July 3, 2006 and up to
$2.5 million in common shares of the Company to be issued
on January 1, 2008 if there are no breaches requiring
indemnification by the seller of certain representations and
warranties made by the seller. An additional $0.2 million
has been incurred in acquisition costs. In addition, the Company
assumed other obligations (including accounts payable and
accrued liabilities and film obligations) of $10.5 million.
The $2.5 million of shares to be issued has been recorded
as part of the purchase consideration and reflected as a
liability. If no incremental liabilities become known by
January 1, 2008, then the shares will be issued and the
$2.5 million will be reclassified to equity. The purchase
price may be adjusted for the payment of additional
consideration contingent on the financial performance of Debmar
for the five-year period ending June 30, 2011. The Debmar
acquisition provides the Company with the
29
rights to distribute certain television properties, such as the
television series South Park, and provides the
Company with an experienced management team to further enhance
its capacity to syndicate its own and others television
programming and feature film packages.
The Debmar acquisition was accounted for as a purchase, with the
results of operations of Debmar consolidated from July 3,
2006. Goodwill of $8.7 million represents the excess of
purchase price over the fair value of the net identifiable
tangible and intangible assets acquired.
CinemaNow. At March 31, 2006, the Company
had a 30% equity interest on an undiluted basis in CinemaNow,
Inc. (CinemaNow). The investment in CinemaNow is
accounted for using the equity method. The investment in
CinemaNow on our consolidated balance sheet was nil at
March 31, 2006. In June 2006, the Company purchased
$1.0 million Series E Preferred Stock as part of a
$20.3 million round of financing secured by CinemaNow. At
March 31, 2007, the Companys equity interest in
CinemaNow is 18.8% on a fully diluted basis and 21.1% on an
undiluted basis. The Company recorded a $1.0 million loss
in its equity interests associated with CinemaNows
operations through December 31, 2006. The investment in
CinemaNow on our consolidated balance sheet was nil as of
March 31, 2007.
Maple Pictures Corp. On April 8, 2005, we
entered into library and output agreements with Maple Pictures,
a Canadian corporation, for the distribution of Lionsgates
motion picture, television and home video product in Canada.
Maple Pictures was formed by two former Lionsgate executives and
a third-party equity investor. We also acquired a minority
interest in Maple Pictures. The investment in Maple Pictures on
our consolidated balance sheet was $1.8 million as of
March 31, 2007.
Modern Entertainment. On August 17, 2005,
the Company acquired certain of the film assets, which included
approximately 300 titles, and accounts receivable of Modern, a
licensor of film rights to DVD distributors, broadcasters and
cable networks, for total consideration of $7.3 million,
comprised of $3.5 million in cash and 399,042 of the
Companys common shares valued at $3.8 million. In
addition, the Company recorded $0.2 million in direct
transaction costs comprised primarily of legal costs incurred in
connection with the purchased assets. The allocation of the
Modern purchase price to the tangible assets acquired was
$5.3 million to investment in films and television programs
and $2.2 million to accounts receivable.
Image. During the fiscal year ended
March 31, 2006, the Company purchased 4,033,996 common
shares of Image Entertainment, Inc. (Image) at an
average cost of $3.72 and a total cost of $15.0 million. In
October 2005, the Company proposed to purchase 100% of
Images outstanding common shares for $4.00 per share
in cash. This proposal was rejected by a special committee of
Images board of directors. The Company also engaged in a
proxy contest with Image through its nomination of independent
nominees to replace Image board members. Images
stockholders did not elect the Companys independent
nominees. The Company subsequently made the following sales of
Image common shares, resulting in the sale of all 4,033,996
common shares: (1) on March 13, 2007, the Company sold
112,500 shares at an average price of $3.17; (2) on
March 14, 2007, the Company sold 11,000 shares at an
average price of $3.09; and (3) on March 30, 2007, the
Company sold 3,910,496 shares at an average price of $4.21.
The Companys total sale price for the Image common shares
was approximately $16.7 million, resulting in a gain of
approximately $1.7 million.
Redbus. On October 17, 2005, the Company
acquired all outstanding shares of Redbus, an independent film
distributor located in the United Kingdom. Consideration for the
Redbus acquisition was $35.5 million, comprised of a
combination of $28.0 million in cash, $6.4 million in
Lionsgate common shares and direct transaction costs of
$1.1 million. In addition, the Company assumed other
obligations (including accounts payable and accrued liabilities
and film obligations) of $18.1 million. At the closing of
the transaction the Company issued 643,460 common shares to the
seller, Redbus Group Limited (RGL), valued at
approximately $5.6 million, or $8.77 per share. The
Company issued an additional 94,937 common shares to RGL valued
at approximately $0.8 million upon satisfaction of the
terms of the escrow agreement, which terminated in May 2007.
This acquisition provided the Company with a library of
approximately 130 films. In addition the acquisition provided
the Company the capability to distribute its product directly to
each market in the United Kingdom and Ireland rather than
selling to distributors in those markets. Effective
October 17, 2005, the Companys credit facility was
amended in connection with the acquisition of Redbus, to make
available a portion of the credit facility for borrowing by
Redbus in either U.S. dollars or British pounds sterling.
30
The Redbus acquisition was accounted for as a purchase, with the
results of operations of Redbus consolidated from
October 17, 2005. Goodwill of $26.3 million represents
the excess of purchase price over the fair value of the net
identifiable tangible and intangible assets acquired.
Lionsgate Studios. On March 15, 2006, the
Company sold its studio facilities located in Vancouver, British
Columbia. The purchase price of $35.3 million (net of
commissions) was paid in cash. Certain assets, including, cash
and accounts receivable, were excluded from the transaction. At
March 15, 2006, the carrying value of studios
property and equipment sold in the agreement was
$28.3 million and was comprised primarily of land and
buildings, with carrying values of $12.6 million and
$14.8 million, respectively. At March 15, 2006, the
carrying value of the goodwill within the studios reporting unit
was $1.9 million. The agreement also required the Company
to repay the remaining balances of its mortgages payable at the
close of the transaction. On March 15, 2006, the Company
paid the remaining mortgages balances of $16.8 million. The
Company incurred mortgage penalty costs of less than
$0.1 million in connection with the repayment of the
mortgages which reduced the gain on sale of studio facilities
recorded during the year ended March 31, 2006 in the
consolidated statements of income. In connection with the
repayment of the remaining balances of its mortgages payable on
its studio facilities, the Company terminated its
CDN$20 million interest rate swap. The close-out value of
the CDN$20 million interest rate swap was approximately
$0.1 million, which the Company paid on March 15,
2006. The Company recorded a gain on the sale of the studio
facilities of $4.9 million, before tax effect of
approximately $1.7 million, during the year ended
March 31, 2006 included in the discontinued operations line
item within the consolidated statements of income. The studio
facilities had revenues of nil for the year ended March 31,
2007 (2006 $5.8 million; 2005
$4.5 million) and segment profit of nil for the year ended
March 31, 2007 (2006 $3.5 million;
2005 $2.2 million). The revenues and expenses
of the studio facilities are reported net within the
discontinued operations line item in the consolidated statements
of income.
CRITICAL
ACCOUNTING POLICIES
The application of the following accounting policies, which are
important to our financial position and results of operations,
requires significant judgments and estimates on the part of
management. As described more fully below, these estimates bear
the risk of change due to the inherent uncertainty attached to
the estimate. For example, accounting for films and television
programs requires the Company to estimate future revenue and
expense amounts which, due to the inherent uncertainties
involved in making such estimates, are likely to differ to some
extent from actual results. For a summary of all of our
accounting policies, including the accounting policies discussed
below, see note 2 to our audited consolidated financial
statements.
Generally Accepted Accounting Principles. Our
consolidated financial statements have been prepared in
accordance with U.S. GAAP.
Accounting for Films and Television
Programs. In June 2000, the Accounting Standards
Executive Committee of the American Institute of Certified
Public Accountants issued Statement of Position
00-2
Accounting by Producers or Distributors of Films
(SoP
00-2).
SoP 00-2
establishes accounting standards for producers or distributors
of films, including changes in revenue recognition,
capitalization and amortization of costs of acquiring films and
television programs and accounting for exploitation costs,
including advertising and marketing expenses.
We capitalize costs of production and acquisition, including
financing costs and production overhead, to investment in films
and television programs. These costs are amortized to direct
operating expenses in accordance with SoP
00-2. These
costs are stated at the lower of unamortized films or television
program costs or estimated fair value. These costs for an
individual film or television program are amortized and
participation and residual costs are accrued in the proportion
that current years revenues bear to managements
estimates of the ultimate revenue at the beginning of the year
expected to be recognized from exploitation, exhibition or sale
of such film or television program over a period not to exceed
ten years from the date of initial release. For previously
released film or television programs acquired as part of a
library, ultimate revenue includes estimates over a period not
to exceed twenty years from the date of acquisition.
Management regularly reviews and revises when necessary its
ultimate revenue and cost estimates, which may result in a
change in the rate of amortization of film costs and
participations and residuals
and/or
write-down of all or a portion of the unamortized costs of the
film or television program to its estimated fair value.
Management
31
estimates the ultimate revenue based on experience with similar
titles or title genre, the general public appeal of the cast,
actual performance (when available) at the box office or in
markets currently being exploited, and other factors such as the
quality and acceptance of motion pictures or programs that our
competitors release into the marketplace at or near the same
time, critical reviews, general economic conditions and other
tangible and intangible factors, many of which we do not control
and which may change. In the normal course of our business, some
films and titles are more successful than anticipated and some
are less successful. Accordingly, we update our estimates of
ultimate revenue and participation costs based upon the actual
results achieved or new information as to anticipated revenue
performance such as (for home video revenues) initial orders and
demand from retail stores when it becomes available. An increase
in the ultimate revenue will generally result in a lower
amortization rate while a decrease in the ultimate revenue will
generally result in a higher amortization rate and periodically
results in an impairment requiring a write down of the film cost
to the titles fair value. These write downs are included
in amortization expense within direct operating expenses in our
consolidated statements of income.
Revenue Recognition. Revenue from the sale or
licensing of films and television programs is recognized upon
meeting all recognition requirements of SoP
00-2.
Revenue from the theatrical release of feature films is
recognized at the time of exhibition based on the Companys
participation in box office receipts. Revenue from the sale of
videocassettes and DVDs in the retail market, net of an
allowance for estimated returns and other allowances, is
recognized on the later of receipt by the customer or
street date (when it is available for sale by the
customer). Under revenue sharing arrangements, rental revenue is
recognized when the Company is entitled to receipts and such
receipts are determinable. Revenues from television licensing
are recognized when the feature film or television program is
available to the licensee for telecast. For television licenses
that include separate availability windows during
the license period, revenue is allocated over the
windows. Revenue from sales to international
territories are recognized when access to the feature film or
television program has been granted or delivery has occurred, as
required under the sales contract, and the right to exploit the
feature film or television program has commenced. For multiple
media rights contracts with a fee for a single film or
television program where the contract provides for media
holdbacks (defined as contractual media release restrictions),
the fee is allocated to the various media based on
managements assessment of the relative fair value of the
rights to exploit each media and is recognized as each holdback
is released. For multiple-title contracts with a fee, the fee is
allocated on a
title-by-title
basis, based on managements assessment of the relative
fair value of each title.
Cash payments received are recorded as deferred revenue until
all the conditions of revenue recognition have been met.
Long-term, non-interest bearing receivables are discounted to
present value.
Reserves. Revenues are recorded net of
estimated returns and other allowances. We estimate reserves for
video returns based on previous returns and our estimated
expected future returns related to current period sales on a
title-by-title
basis in each of the video businesses. Factors affecting actual
returns include limited retail shelf space at various times of
the year, success of advertising or other sales promotions, the
near term release of competing titles, among other factors. We
believe that our estimates have been materially accurate in the
past; however, due to the judgment involved in establishing
reserves, we may have adjustments to our historical estimates in
the future.
We estimate provisions for accounts receivable based on
historical experience and relevant facts and information
regarding the collectability of the accounts receivable. In
performing this evaluation, significant judgments and estimates
are involved, including an analysis of specific risks on a
customer-by-customer
basis for our larger customers and an analysis of the length of
time receivables have been past due. The financial condition of
a given customer and its ability to pay may change over time and
could result in an increase or decrease to our allowance for
doubtful accounts, which, when the impact of such change is
material, is disclosed in our discussion on direct operating
expenses elsewhere in Managements Discussion and
Analysis of Financial Condition and Results of Operations.
Income Taxes. The Company is subject to
federal and state income taxes in the United States, and in
several foreign jurisdictions in which we operate. We account
for income taxes according to Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for
Income Taxes. SFAS No. 109 requires the
recognition of deferred tax assets, net of applicable reserves,
related to net operating loss carryforwards and certain
temporary differences. The standard requires recognition of a
future tax benefit to the extent that realization of such
benefit is more likely than not or a valuation allowance is
applied. Because of our historical operating losses, we have
32
provided a valuation allowance against our net deferred tax
assets. When we have a history of profitable operations
sufficient to demonstrate that it is more likely than not that
our deferred tax assets will be realized, the valuation
allowance will be reversed. However, this assessment of our
planned use of our deferred tax assets is an estimate which
could change in the future depending upon the generation of
taxable income in amounts sufficient to realize our deferred tax
assets.
Goodwill. On April 1, 2001, the Company
adopted SFAS No. 142, Goodwill and Other
Intangible Assets. Goodwill is reviewed annually for
impairment within each fiscal year or between the annual tests
if an event occurs or circumstances change that indicate it is
more likely than not that the fair value of a reporting unit is
less than its carrying value. The Company performs its annual
impairment test as of December 31 in each fiscal year. The
Company performed its annual impairment test on its goodwill as
of December 31, 2006. No goodwill impairment was identified
in any of the Companys reporting units. Determining the
fair value of reporting units requires various assumptions and
estimates. The estimates of fair value include consideration of
the future projected operating results and cash flows of the
reporting unit. Such projections could be different than actual
results. Should actual results be significantly less than
estimates, the value of our goodwill could be impaired in the
future.
Business Acquisitions. The Company accounts
for its business acquisitions as a purchase, whereby the
purchase price is allocated to the assets acquired and
liabilities assumed based on their estimated fair value. The
excess of the purchase price over estimated fair value of the
net identifiable assets is allocated to goodwill. Determining
the fair value of assets and liabilities requires various
assumptions and estimates. These estimates and assumptions are
refined with adjustments recorded to goodwill as information is
gathered and final appraisals are completed over the allocation
period allowed under SFAS No. 141. The changes in
these estimates could impact the amount of assets, including
goodwill and liabilities, ultimately recorded on our balance
sheet as a result of an acquisition and could impact our
operating results subsequent to such acquisition. We believe
that our estimates have been materially accurate in the past.
Recent
Accounting Pronouncements
Statement of Financial Accounting Standards
No. 123(R). In December 2004, the FASB
issued SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS No. 123(R)).
SFAS No. 123(R) revises SFAS No. 123 and
eliminates the alternative to use the intrinsic value method of
accounting under APB No. 25. SFAS No. 123(R)
requires accounting for share-based payment transactions in
which an enterprise receives employee services in exchange for
(a) equity instruments of the enterprise or
(b) liabilities that are based on the fair value of the
enterprises equity instruments or that may be settled by
the issuance of such equity instruments, to account for these
types of transactions using a fair-value-based method. Effective
April 1, 2006, the Company adopted the fair value
recognition provisions of SFAS No. 123(R),
Share-Based Payment, (SFAS No. 123(R))
using the modified-prospective transition method. Under such
transition method, compensation cost recognized in the year
ended March 31, 2007 includes: (a) compensation cost
for all stock options granted prior to, but not yet vested as
of, April 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of
SFAS No. 123, and (b) compensation cost for all
share-based payments granted on or after April 1, 2006,
based on the grant-date fair value estimated in accordance with
the provisions of SFAS No. 123(R). See note 11
for further discussion of the Companys stock-based
compensation in accordance with SFAS No. 123(R).
FASB Issued Interpretation No. 48. In
July 2006, the FASB issued Interpretation No. (FIN)
48, Accounting for Uncertainty in Income Taxes
An Interpretation of SFAS No. 109, which
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. In
particular, this interpretation requires uncertain tax positions
to be recognized only if they are
more-likely-than-not to be upheld based on their
technical merits. Additionally, the measurement of the tax
position will be based on the largest amount that is determined
to have greater than a 50% likelihood of realization upon
ultimate settlement. Any resulting cumulative effect of applying
the provisions of FIN 48 upon adoption would be reported as
an adjustment to the beginning balance of retained earnings in
the period of adoption. FIN 48 will be effective as of the
beginning of fiscal year 2008. The Company is evaluating the
impact, if any, the adoption of FIN 48 will have on our
operating income, net earnings or retained earnings.
33
Statement of Financial Accounting Standards
No. 157. In September 2006, the FASB issued
SFAS No. 157, Fair Value Measurements, which
addresses how companies should measure fair value when they are
required to use a fair value measure for recognition or
disclosure purposes under generally accepted accounting
principles. As a result of SFAS No. 157 there is now a
common definition of fair value to be used throughout GAAP. This
new standard will make the measurement for fair value more
consistent and comparable and improve disclosures about those
measures. The statement does not require any new fair value
measurement but will result in increased disclosures. This
interpretation is effective for fiscal years beginning after
November 15, 2007.
RESULTS
OF OPERATIONS
Fiscal
2007 Compared to Fiscal 2006
Consolidated revenues in fiscal 2007 of $976.7 million
represent an increase of $31.3 million, or 3.3%, compared
to $945.4 million in fiscal 2006. Motion pictures segment
revenue of $858.2 million in fiscal 2007 increased
$45.8 million, or 5.6%, compared to $812.4 million in
fiscal 2006. Television segment revenues of $118.5 million
in fiscal 2007 decreased by $14.4 million, or 10.8%,
compared to $132.9 million in fiscal 2006.
Motion
Pictures Revenue
The increase in motion pictures revenue in fiscal 2007 was
mainly attributable to increases in television and international
revenue, offset by a decrease in theatrical revenue. The
following table sets forth the components of revenue for the
motion pictures reporting segment for the fiscal year ended
March 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
Increase (Decrease)
|
|
|
|
2007
|
|
|
2006
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Amounts in millions)
|
|
|
Motion Pictures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical
|
|
$
|
107.9
|
|
|
$
|
145.5
|
|
|
$
|
(37.6
|
)
|
|
|
(25.8
|
)%
|
Video
|
|
|
528.3
|
|
|
|
527.2
|
|
|
|
1.1
|
|
|
|
0.2
|
%
|
Television
|
|
|
109.3
|
|
|
|
72.9
|
|
|
|
36.4
|
|
|
|
49.9
|
%
|
International
|
|
|
105.2
|
|
|
|
61.2
|
|
|
|
44.0
|
|
|
|
71.9
|
%
|
Other
|
|
|
7.5
|
|
|
|
5.6
|
|
|
|
1.9
|
|
|
|
33.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
858.2
|
|
|
$
|
812.4
|
|
|
$
|
45.8
|
|
|
|
5.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
The following table sets forth the titles contributing
significant motion pictures revenue for the fiscal year ended
March 31, 2007 and 2006:
|
|
|
|
|
|
|
Year Ended March 31,
|
2007
|
|
2006
|
|
|
Theatrical and Video
|
|
|
|
Theatrical and Video
|
Title
|
|
Release Date
|
|
Title
|
|
Release Date
|
|
Theatrical:
|
|
|
|
Theatrical:
|
|
|
Akeelah and the Bee
|
|
April 2006
|
|
Crash
|
|
May 2005
|
Crank
|
|
September 2006
|
|
Hostel
|
|
January 2006
|
Daddys Little
Girls
|
|
February 2007
|
|
Lord of War
|
|
September 2005
|
Employee of the Month
|
|
October 2006
|
|
Madeas Family
Reunion
|
|
February 2006
|
Happily NEver
After
|
|
January 2007
|
|
Saw 2
|
|
October 2005
|
Saw 3
|
|
October 2006
|
|
The Devils
Rejects
|
|
July 2005
|
See No Evil
|
|
May 2006
|
|
Waiting
|
|
October 2005
|
The Descent
|
|
August 2006
|
|
|
|
|
Video:
|
|
|
|
Video:
|
|
|
Akeelah and the Bee
|
|
August 2006
|
|
Barbie and the Magic
of Pegasus
|
|
September 2005
|
An American Haunting
|
|
October 2006
|
|
Barbie Mermaidia
|
|
March 2006
|
Crank
|
|
January 2007
|
|
Crash
|
|
September 2005
|
Crash
|
|
September 2005
|
|
Diary of a Mad Black
Woman
|
|
June 2005
|
Employee of the Month
|
|
January 2007
|
|
Lord of War
|
|
January 2006
|
Madea Goes to Jail
|
|
June 2006
|
|
Saw
|
|
February 2005
|
Madeas Family
Reunion
|
|
June 2006
|
|
Saw 2
|
|
February 2006
|
Saw 3
|
|
January 2007
|
|
The Devils
Rejects
|
|
November 2005
|
See No Evil
|
|
November 2006
|
|
Waiting
|
|
February 2006
|
The Descent
|
|
December 2006
|
|
|
|
|
|
|
|
Television:
|
|
Television:
|
Akeelah and the Bee
|
|
Crash
|
Hostel
|
|
Diary of a Mad Black
Woman
|
Larry the Cable Guy: Health
Inspector
|
|
Open Water
|
Lord of War
|
|
Saw
|
Madeas Family
Reunion
|
|
The Cookout
|
Saw 2
|
|
|
|
|
|
|
|
International:
|
|
International:
|
Crank
|
|
Dirty Dancing
|
Saw
|
|
Happy Endings
|
Saw 2
|
|
Hotel Rwanda
|
Saw 3
|
|
In the Mix
|
The Lost City
|
|
Saw
Saw 2
The Devils Rejects
|
Theatrical revenue of $107.9 million decreased
$37.6 million or 25.8% in fiscal 2007 as compared to fiscal
2006 primarily due to the performance during fiscal 2007 as
compared to the performance during fiscal 2006 of the theatrical
releases listed in the above table. In fiscal 2007, the titles
listed in the above table as contributing significant theatrical
revenue represented individually between 5% and 32% of total
theatrical revenue and in the aggregate approximately 92% of
total theatrical revenue. In fiscal 2006, the titles listed in
the above table as contributing significant theatrical revenue
represented individually between 5% and 26% of total theatrical
revenue and in the aggregate approximately 90% of total
theatrical revenue.
35
Video revenue of $528.3 million increased $1.1 million
or 0.2% in fiscal 2007 as compared to fiscal 2006. The increase
is primarily due to an increase in revenue contributed by titles
that individually make up less than 2% of total video revenue as
compared to fiscal 2006, which was partially offset by a
decrease in revenue generated from the titles listed in the
above table. In fiscal 2007, $300.4 million, or 57%, of
total video revenue was contributed by titles that individually
make up less than 2% of total video revenue, and in fiscal 2006
this amounted to $284.2 million or 54% of total video
revenue. The titles listed above as contributing significant
video revenue in fiscal 2007 represented individually between 2%
to 8% of total video revenue and in the aggregate 43% or
$227.9 million of total video revenue for the year. In
fiscal 2006, the titles listed above as contributing significant
video revenue represented individually between 2% to 9% of total
video revenue and in the aggregate 46% or $243.0 million of
total video revenue for the year.
Television revenue included in motion pictures revenue of
$109.3 million in fiscal 2007 increased $36.4 million,
or 49.9%, compared to fiscal 2006. The increase is due to more
theatrical titles with television windows opening in fiscal 2007
as compared to fiscal 2006. In fiscal 2007, the titles listed
above as contributing significant television revenue represented
individually between 5% to 12% of total television revenue and
in the aggregate 49% or $53.8 million of total television
revenue for the year. In fiscal 2006, the titles listed above as
contributing significant television revenue represented
individually between 5% to 16% of total television revenue and
in the aggregate 59% or $43.1 million of total television
revenue for the year.
International revenue of $105.2 million increased
$44.0 million or 71.9% in fiscal 2007 as compared to fiscal
2006. Lionsgate UK, established from the acquisition of Redbus
in fiscal 2006, contributed $45.0 million, or 42.8%, of
international revenue in fiscal 2007, which included revenues
from An American Haunting, Dirty Dancing, Hard Candy,
Revolver, Saw 3 and Wicker Man, compared to
$5.3 million, or 8.6%, of total international revenue in
fiscal 2006. In fiscal 2007, the titles listed in the table
above as contributing significant international revenue, which
does not include revenue generated from Lionsgate UK,
represented individually between 2% to 10% of total
international revenue and in the aggregate 29% of total
international revenue for the year. In fiscal 2006, the titles
listed in the table above as contributing significant revenue
represented individually between 4% to 14% of total
international revenue and in the aggregate 51% of total
international revenue for the year.
Television
Revenue
The following table sets forth the components of revenue that
make up television production revenue for the fiscal year ended
March 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
Increase (Decrease)
|
|
|
|
2007
|
|
|
2006
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Amounts in millions)
|
|
|
Television Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic series licensing
|
|
$
|
82.4
|
|
|
$
|
107.6
|
|
|
$
|
(25.2
|
)
|
|
|
(23.4
|
)%
|
Domestic television movies and
miniseries
|
|
|
16.0
|
|
|
|
3.9
|
|
|
|
12.1
|
|
|
|
310.3
|
%
|
International
|
|
|
11.0
|
|
|
|
19.0
|
|
|
|
(8.0
|
)
|
|
|
(42.1
|
)%
|
Video releases of television
production
|
|
|
8.4
|
|
|
|
2.4
|
|
|
|
6.0
|
|
|
|
250.0
|
%
|
Other
|
|
|
0.7
|
|
|
|
|
|
|
|
0.7
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
118.5
|
|
|
$
|
132.9
|
|
|
$
|
(14.4
|
)
|
|
|
(10.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
The following table sets forth the number of television episodes
and hours delivered in the fiscal year ended March 31, 2007
and 2006, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
March 31, 2007
|
|
|
March 31, 2006
|
|
|
|
Episodes
|
|
|
Hours
|
|
|
Episodes
|
|
|
Hours
|
|
|
Domestic Series Licensing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Hour Series
|
|
|
43
|
|
|
|
43.0
|
|
|
|
80
|
|
|
|
80.0
|
|
Half Hour Series
|
|
|
31
|
|
|
|
15.5
|
|
|
|
10
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
|
|
|
|
58.5
|
|
|
|
90
|
|
|
|
85.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television revenue of $118.5 million in fiscal 2007
decreased by $14.4 million, or 10.8%, compared to
$132.9 million in fiscal 2006, due primarily to decreases
in revenue from domestic series licensing and international
revenue offset by an increase in revenue from domestic
television movies and miniseries and video releases of
television production. Domestic series licensing decreased
mainly due to a decrease in the number of television episodes
delivered in fiscal 2007 as compared to fiscal 2006. Domestic
series licensing for fiscal 2007 includes $14.8 million of
revenue from the July 3, 2006 acquisition of Debmar.
Domestic series deliveries of
one-hour
series in fiscal 2007 included 13
one-hour
episodes of The Dresden Files, 8
one-hour
episodes of Hidden Palms, 8
one-hour
episodes of Dirty Dancing Reality TV Series, 13
one-hour
episodes of Wildfire Season 3, 1
one-hour
episode of Wildfire Season 2, 13
half-hour
episodes of Lovespring International, 12
half-hour
episodes of Weeds Season 2, and 6
half-hour
episodes of I Pity the Fool. In fiscal 2006, domestic
series deliveries of
one-hour
drama series included Wildfire, Missing, The Dead Zone,
and The Cut, and of
half-hour
series included Weeds.
Television movies and miniseries revenue increased in fiscal
2007 mainly due to the delivery of The Lost Room
miniseries and The Staircase Murders movie, as
compared to the delivery of Three Wise Guys movie in
fiscal 2006. Revenue from video releases of television
production of $8.4 million in fiscal 2007 increased by
$6.0 million or 250%, compared to revenue of
$2.4 million in fiscal 2006. The increase is primarily due
to the success of the release of Weeds Season 1 in fiscal
2007 which individually made up more than 75% of total video
revenue from television production.
International and other revenue of $11.0 million decreased
by $8.0 million or 42.1% in fiscal 2007 mainly due to
decreases in international revenue from Missing, The
Dead Zone, and The Cut offset by increases in
international revenue from The Lost Room, The Dresden
Files, and Wildfire, compared to international and
other revenue of $19.0 million in fiscal 2006.
Direct
Operating Expenses
The following table sets forth direct operating expenses by
segment for the fiscal year ended March 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
March 31, 2007
|
|
|
March 31, 2006
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
|
(Amounts in millions)
|
|
|
Direct operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of films and
television programs
|
|
$
|
147.9
|
|
|
$
|
93.7
|
|
|
$
|
241.6
|
|
|
$
|
135.7
|
|
|
$
|
117.6
|
|
|
$
|
253.3
|
|
Participation and residual expense
|
|
|
184.5
|
|
|
|
12.2
|
|
|
|
196.7
|
|
|
|
194.6
|
|
|
|
3.2
|
|
|
|
197.8
|
|
Amortization of acquired
intangible assets
|
|
|
0.9
|
|
|
|
|
|
|
|
0.9
|
|
|
|
2.0
|
|
|
|
|
|
|
|
2.0
|
|
Other expenses
|
|
|
(2.8
|
)
|
|
|
0.4
|
|
|
|
(2.4
|
)
|
|
|
5.2
|
|
|
|
0.7
|
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
330.5
|
|
|
$
|
106.3
|
|
|
$
|
436.8
|
|
|
$
|
337.5
|
|
|
$
|
121.5
|
|
|
$
|
459.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses as a
percentage of segment revenues
|
|
|
38.5
|
%
|
|
|
89.7
|
%
|
|
|
44.7
|
%
|
|
|
41.5
|
%
|
|
|
91.4
|
%
|
|
|
48.6
|
%
|
37
Direct operating expenses include amortization, participation
and residual expenses and other expenses. Direct operating
expenses of the motion pictures segment of $330.5 million
for fiscal 2007 were 38.5% of motion pictures revenue, compared
to $337.5 million, or 41.5% of motion pictures revenue for
fiscal 2006. The decrease in direct operating expense of the
motion pictures segment in fiscal 2007 as a percent of revenue
is due to the change in the mix of titles and performance of the
titles generating revenue compared to fiscal 2006 and to a
lesser extent the benefit in other expense in the current year,
as compared to a $5.2 million charge in other expense for
fiscal 2006. The benefit in other expense in fiscal 2007
resulted primarily from the collection of accounts receivable
previously reserved of approximately $1.5 million as
compared to a charge in other expense for the prior period
primarily related to bad debt expense associated with the
bankruptcy of a large retail customer. Direct operating expenses
of the motion pictures segment included charges for write downs
of investment in film costs of $13.1 million and
$14.8 million in fiscal 2007 and fiscal 2006, respectively,
due to the lower than anticipated actual performance or
previously expected performance of certain titles. In fiscal
2007, approximately $5.6 million of the write down related
to the unanticipated poor performance at the box office of one
motion picture and there were no other individual title write
downs in fiscal 2007 that exceeded $1.0 million. In fiscal
2006 there were four motion picture write downs which exceeded
$1.0 million and in the aggregate these four write downs
totaled $8.3 million.
Direct operating expenses of the television segment of
$106.3 million for fiscal 2007 were 89.7% of television
revenue, compared to $121.5 million, or 91.4% of television
revenue for fiscal 2006. The slight decrease in direct operating
expense of the television segment in fiscal 2007 is due to the
mix of television production revenue in fiscal 2007 compared to
fiscal 2006.
Distribution
and Marketing Expenses
The following table sets forth distribution and marketing
expenses by segment for the fiscal year ended March 31,
2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
March 31, 2007
|
|
|
March 31, 2006
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
|
|
|
|
|
|
|
Distribution and marketing expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical
|
|
$
|
149.7
|
|
|
$
|
|
|
|
$
|
149.7
|
|
|
$
|
170.0
|
|
|
$
|
0.3
|
|
|
$
|
170.3
|
|
Home Entertainment
|
|
|
202.0
|
|
|
|
2.8
|
|
|
|
204.8
|
|
|
|
209.4
|
|
|
|
2.0
|
|
|
|
211.4
|
|
Television
|
|
|
2.3
|
|
|
|
3.6
|
|
|
|
5.9
|
|
|
|
2.1
|
|
|
|
0.1
|
|
|
|
2.2
|
|
International
|
|
|
40.8
|
|
|
|
2.0
|
|
|
|
42.8
|
|
|
|
10.5
|
|
|
|
0.8
|
|
|
|
11.3
|
|
Other
|
|
|
1.2
|
|
|
|
|
|
|
|
1.2
|
|
|
|
4.1
|
|
|
|
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
396.0
|
|
|
$
|
8.4
|
|
|
$
|
404.4
|
|
|
|
396.1
|
|
|
|
3.2
|
|
|
|
399.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The majority of distribution and marketing expenses relate to
the motion pictures segment. Theatrical prints and advertising
(P&A) in the motion pictures segment in fiscal
2007 of $149.7 million decreased $20.3 million, or
11.9%, compared to $170.0 million in fiscal 2006. Domestic
theatrical P&A from the motion pictures segment in fiscal
2007 included P&A incurred on the release of titles such as
Akeelah and the Bee, Crank, Daddys Little Girls,
Employee of the Month, Saw III, See No Evil, and The
Descent, which individually represented between 7% and 16%
of total theatrical P&A and in the aggregate accounted for
91% of the total theatrical P&A. Theatrical P&A in
fiscal 2006 included P&A incurred on the release of titles
such as Saw II, Crash, Lord of War, Madeas Family
Reunion, In the Mix, The Devils Rejects, High Tension,
Rize, Undiscovered, and Waiting, which individually
represented between 3% and 15% of total theatrical P&A and
in the aggregate accounted for 92% of total theatrical P&A.
Undiscovered, Rize, High Tension and In the Mix,
released theatrically during fiscal 2006 represented
$44.8 million or 26% of theatrical P&A in fiscal 2006
and each individually contributed less than 3% and in the
aggregate approximately 5% of total theatrical revenue in fiscal
2006.
Video distribution and marketing costs on motion pictures and
television product in fiscal 2007 of $204.8 million
decreased $6.6 million, or 3.1% , compared to
$211.4 million in fiscal 2006. Video distribution and
marketing costs as a percentage of video revenues was 38.2% and
39.9% in fiscal 2007 and fiscal 2006, respectively. This
38
small decrease is mainly due to slightly higher performance in
relation to distribution and marketing cost of the video
releases in fiscal 2007 as compared to fiscal 2006.
International distribution and marketing expenses in fiscal 2007
includes $31.3 million of distribution and marketing costs
from Lionsgate UK as a result of the acquisition of Redbus,
compared to $3.9 million in fiscal 2006. Distribution and
marketing expenses of the television segment includes
$3.4 million as a result of the July 3, 2006
acquisition of Debmar in fiscal 2007.
General
and Administrative Expenses
The following table sets forth general and administrative
expenses by segment for the fiscal year ended March 31,
2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
Increase (Decrease)
|
|
|
|
2007
|
|
|
2006
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Amounts in millions)
|
|
|
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
30.8
|
|
|
$
|
26.5
|
|
|
$
|
4.3
|
|
|
|
16.2
|
%
|
Television
|
|
|
3.2
|
|
|
|
0.5
|
|
|
|
2.7
|
|
|
|
540.0
|
%
|
Corporate
|
|
|
56.8
|
|
|
|
42.9
|
|
|
|
13.9
|
|
|
|
32.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
90.8
|
|
|
$
|
69.9
|
|
|
$
|
20.9
|
|
|
|
29.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in general and administrative expenses is primarily
due to corporate general and administration expenses of
$56.8 million which increased by $13.9 million or
32.4% compared to $42.9 million in fiscal 2006. The
increase in corporate general and administrative expenses is
primarily due to an increase in stock based compensation of
approximately $7.0 million, an increase in salaries and
related expenses of approximately $4.8 million, and an
increase in professional fees of $1.5 million, offset by a
decrease in other general overhead costs. Compensation from our
restricted share units amounted to $4.2 million and
$1.7 million for the fiscal year ended March 31, 2007
and 2006, respectively. In addition, due to the adoption of
SFAS No. 123(R), we recorded additional compensation
expense related to our stock options amounting to
$2.6 million in the fiscal year ended March 31, 2007
with no comparable expense in fiscal 2006. We incurred
additional costs of $1.7 million recorded in the fiscal
year ended March 31, 2007 compared to a benefit of
$0.3 million recorded in the fiscal year ended
March 31, 2006 related to stock appreciation rights which
are revalued each reporting period. In fiscal 2007,
$5.9 million of production overhead was capitalized
compared to $5.2 million in fiscal 2006. At March 31,
2007, as disclosed in note 11 to the consolidated financial
statements, there was unrecognized compensation costs of
approximately $21.7 million related to stock options and
restricted stock units previously granted which will be expensed
over the remaining vesting periods. In addition, in fiscal 2007
the Company agreed to issue 653,332 shares of restricted
stock units to two key executive officers. These restricted
stock units will vest in four annual installments assuming
annual performance targets to be set by the Companys
compensation committee have been met. The fair value of all of
these shares as of March 31, 2007 was $7.5 million
based on the market price of the Companys common stock as
of March 31, 2007. The market value will be remeasured when
the performance criteria are set and the value will be expensed
over the remaining vesting periods once it becomes probable that
the performance targets will be satisfied.
The increase in general and administrative expenses of the
motion pictures segment of $4.3 million or 16.2% is
primarily due to general and administrative costs associated
with Lionsgate UK. The increase in general and administrative
expenses of the television segment is primarily due to the
July 3, 2006 acquisition of Debmar.
Depreciation
and Other Expenses (Income)
Depreciation of $2.8 million in fiscal 2007 increased
$1.0 million, or 55.6%, from $1.8 million in fiscal
2006.
Fiscal 2007 interest expense of $17.8 million decreased
$1.1 million, or 5.8%, from $18.9 million in fiscal
2006, mainly due to the conversion of the 4.875% senior
subordinated notes on December 15, 2006, which resulted in
$1.0 million less interest expense in the current fiscal
year compared to the prior fiscal year.
39
Interest rate swaps
mark-to-market
was nil in fiscal 2007 as compared to a charge of
$0.1 million in fiscal 2006. There were no interest rate
swaps outstanding during fiscal 2007.
Interest and other income of $11.9 million for the fiscal
year ended March 31, 2007 increased $7.6 million, or
176.7% compared to $4.3 million for the year ended
March 31, 2006. Interest and other income in fiscal 2007
was earned on the cash balance and
available-for-sale
investments held during the fiscal year ended March 31,
2007.
Gain on sale of equity securities of $1.7 million for the
fiscal year ended March 31, 2007 resulted from the sale of
the Companys investment of 4,033,996 common shares of
Image Entertainment, Inc., as compared to nil for the fiscal
year ended March 31, 2006.
The equity interests in fiscal 2007 included a $1.5 million
loss from the Companys 33.33% equity interests in Horror
Entertaiment, LLC, a $1.0 million loss from the
Companys 18.8% equity interests in CinemaNow, and a
$0.1 million loss from the Companys 10% equity
interest in Maple. The Companys equity interests from
Horror Entertainment, LLC related to its $5.1 million
investment during fiscal 2007, and the Companys equity
interests from CinemaNow related to its $1.0 million
investment during fiscal 2007. Equity interests of
$0.1 million for the fiscal year ended March 31, 2006
includes $0.1 million equity interest in the loss of Maple
Pictures consisting of 10% of the losses of Maple Pictures.
The Company had an income tax expense of $7.7 million in
fiscal 2007, compared to an income tax benefit of
$1.0 million in fiscal 2006. The tax expense reflected in
the current period is primarily attributable to
U.S. federal and state taxes. In fiscal 2007 the tax
provision includes a non-cash deferred tax charge of
$6.8 million resulting from the utilization of
pre-acquisition net operating losses. The valuation allowance
associated with the pre-acquisition net operating losses was
reduced with a corresponding reduction in goodwill. The
Companys actual annual effective tax rate will differ from
the statutory federal rate as a result of several factors,
including changes in the valuation allowance against net
deferred tax assets, non-temporary differences, foreign income
taxed at different rates, state and local income taxes and the
utilization of acquired net operating losses. Income tax loss
carryforwards amount to approximately $116.4 million for
U.S. federal income tax purposes available to reduce income
taxes over twenty years, $80.4 million for US state income
tax purposes available to reduce income taxes over future years
with varying expirations, $29.2 million for Canadian income
tax purposes available to reduce income taxes over eight years,
$13.7 million for United Kingdom income tax purposes
available indefinitely to reduce future income taxes and
$0.9 million for Australian income tax purposes available
indefinitely to reduce future income taxes.
Income before discontinued operations for the fiscal year ended
March 31, 2007 was $27.5 million, or basic earnings
per common share from continuing operations of $0.25 on
108.4 million weighted average common shares outstanding.
This compares to income before discontinued operations for the
fiscal year ended March 31, 2006 of $1.6 million, or
basic income per common share from continuing operations of
$0.02 on 103.1 million weighted average common shares.
Diluted earnings per common share from continuing operations for
the fiscal year ended March 31, 2007 was $0.25 on
111.2 million weighted average dilutive common shares.
Diluted earnings per common share from continuing operations for
the fiscal year ended March 31, 2006 was $0.02 on
106.1 million weighted average dilutive common shares.
Income from discontinued operations for the fiscal year ended
March 31, 2007 and 2006, respectively, was nil and
$4.5 million. Basic and dilutive income per share from
discontinued operations was $0.00 and $0.04, for the fiscal year
ended March 31, 2007 and 2006, respectively. Income from
discontinued operations for the year ended March 31, 2006
includes a gain of $4.9 million, before tax effect of
approximately $1.7 million, on the sale of its studio
facilities located in Vancouver, British Columbia. The
transaction was completed on March 15, 2006. Studio
facilities previously comprised the Companys studio
facilities reporting segment.
Net income for the fiscal year ended March 31, 2007 was
$27.5 million, or basic net income per share of $0.25, on
108.4 million weighted average common shares outstanding.
This compares to net income for the year ended March 31,
2006 of $6.1 million, or basic net income per share of
$0.06, on 103.1 million weighted average common shares
outstanding. Diluted net income per share for the year ended
March 31, 2007 was $0.25 on 111.2 million weighted
average dilutive common shares. Diluted net income per share for
the year ended March 31, 2006 was $0.06 on
106.1 million weighted average dilutive common shares.
40
Fiscal
2006 Compared to Fiscal 2005
Consolidated revenues in fiscal 2006 of $945.4 million
increased $107.3 million, or 12.8%, compared to
$838.1 million in fiscal 2005. Motion pictures revenue of
$812.4 million in fiscal 2006 increased $57.1 million,
or 7.6%, compared to $755.3 million in fiscal 2005.
Television revenues of $132.9 million in fiscal 2006
increased by $50.1 million, or 60.5%, compared to
$82.8 million in fiscal 2005.
Motion
Pictures Revenue
The increase in motion pictures revenue in fiscal 2006 was
mainly attributable to increases in video and television
revenue, offset by a decrease in international revenue. The
following table sets forth the components of revenue for the
motion pictures reporting segment for the fiscal year ended
March 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
Increase (Decrease)
|
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Amounts in millions)
|
|
|
Motion Pictures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical
|
|
$
|
145.5
|
|
|
$
|
142.8
|
|
|
$
|
2.7
|
|
|
|
1.9
|
%
|
Video
|
|
|
527.2
|
|
|
|
465.3
|
|
|
|
61.9
|
|
|
|
13.3
|
%
|
Television
|
|
|
72.9
|
|
|
|
61.6
|
|
|
|
11.3
|
|
|
|
18.3
|
%
|
International
|
|
|
61.2
|
|
|
|
79.5
|
|
|
|
(18.3
|
)
|
|
|
(23.0
|
)%
|
Other
|
|
|
5.6
|
|
|
|
6.1
|
|
|
|
(0.5
|
)
|
|
|
(8.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
812.4
|
|
|
$
|
755.3
|
|
|
$
|
57.1
|
|
|
|
7.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
The following table sets forth the titles contributing
significant motion pictures revenue for the fiscal year ended
March 31, 2006 and 2005:
|
|
|
|
|
|
|
Year Ended March 31,
|
2006
|
|
2005
|
|
|
Theatrical and Video
|
|
|
|
Theatrical and Video
|
Title
|
|
Release Date
|
|
Title
|
|
Release Date
|
|
Theatrical:
|
|
|
|
Theatrical:
|
|
|
Crash
|
|
May 2005
|
|
Diary of a Mad Black
Woman
|
|
February 2005
|
Hostel
|
|
January 2006
|
|
Fahrenheit 9/11
|
|
June 2004
|
Lord of War
|
|
September 2005
|
|
Godsend
|
|
April 2004
|
Madeas Family
Reunion
|
|
February 2006
|
|
Open Water
|
|
August 2004
|
Saw 2
|
|
October 2005
|
|
Saw
|
|
October 2004
|
The Devils
Rejects
|
|
July 2005
|
|
The Cookout
|
|
September 2004
|
Waiting
|
|
October 2005
|
|
The Punisher
|
|
April 2004
|
Video:
|
|
|
|
Video:
|
|
|
Barbie and the Magic of
Pegasus
|
|
September 2005
|
|
Barbie Fairytopia
|
|
March 2005
|
Barbie Mermaidia
|
|
March 2006
|
|
Barbie in the
Princess and the Pauper
|
|
September 2004
|
Crash
|
|
September 2005
|
|
Dirty Dancing:
Havana Nights
|
|
July 2004
|
Diary of a Mad Black
Woman
|
|
June 2005
|
|
Godsend
|
|
August 2004
|
Lord of War
|
|
January 2006
|
|
Open Water
|
|
December 2004
|
Saw
|
|
February 2005
|
|
Saw
|
|
February 2005
|
Saw 2
|
|
February 2006
|
|
The Cookout
|
|
January 2005
|
The Devils
Rejects
|
|
November 2005
|
|
The Punisher
|
|
September 2004
|
Waiting
|
|
February 2006
|
|
|
|
|
|
|
|
Television:
|
|
Television:
|
Crash
|
|
Cabin Fever
|
Diary of a Mad Black
Woman
|
|
Dirty Dancing: Havana
Nights
|
Open Water
|
|
Fahrenheit 9/11
|
Saw
|
|
Godsend
|
The Cookout
|
|
The Punisher
|
|
|
|
International:
|
|
International:
|
Dirty Dancing
|
|
Final Cut
|
Happy Endings
|
|
Godsend
|
Hotel Rwanda
|
|
Open Water
|
In the Mix
|
|
Prince and the
Freshman
|
Saw
|
|
Saw
|
Saw 2
|
|
The Punisher
|
The Devils
Rejects
|
|
|
|
|
Theatrical revenue of $145.5 million in fiscal 2006
increased $2.7 million, or 1.9%, compared to
$142.8 million in fiscal 2005 due to the performance during
fiscal 2006 of the theatrical releases listed in the above
table. In fiscal 2006, the titles listed in the above table as
contributing significant theatrical revenue represented
individually between 5% and 26% of total theatrical revenue and
in the aggregate approximately 90% of total theatrical revenue.
In fiscal 2005, the titles listed in the above table as
contributing significant theatrical revenue represented
individually between 3% and 34% of total theatrical revenue and
in the aggregate approximately 93% of total theatrical revenue.
Video revenue of $527.2 million increased
$61.9 million or 13.3% in fiscal 2006 as compared to fiscal
2005. The increase is due to the success of the top performing
titles for fiscal 2006 listed in the table above, including the
winner of the 2006 Best Picture Academy
Award®,
Crash and the continued success of the Saw
franchise. The titles listed above as contributing
significant video revenue in fiscal 2006 represented
individually between 2% to 9% of total video revenue and in the
aggregate 46% or $243.0 million of total video revenue for
fiscal 2006. In fiscal 2005, the titles listed above as
contributing significant video revenue represented individually
between 2% to 10% of total video revenue and in the aggregate
39% or $179.4 million of total video revenue for fiscal
2005. The success of the top performing titles in 2006 was
slightly offset by a small decrease in revenue contributed by
titles that individually make up less than 2% of total video
revenue in fiscal 2006 as compared to fiscal 2005. In fiscal
2006, $284.2 million,
42
or 54%, of total video revenue was contributed by titles that
individually make up less than 2% of total video revenue, and in
fiscal 2005 this amounted to $285.9 million or 61% of total
video revenue.
Television revenue included in motion pictures revenue of
$72.9 million in fiscal 2006 increased $11.3 million,
or 18.3%, compared to $61.6 million in fiscal 2005. The
increase is due to more successful theatrical titles with
television windows opening in fiscal 2006 as compared to fiscal
2005. In fiscal 2006, the titles listed above as contributing
significant television revenue represented individually between
5% to 16% of total television revenue and in the aggregate 59%
of total television revenue. In fiscal 2005, the titles listed
above as contributing significant television revenue in fiscal
2005 represented individually between 5% to 18% of total
television revenue and in the aggregate 47% of total television
revenue.
International revenue of $61.2 million decreased
$18.3 million or 23.0% in fiscal 2006 as compared to fiscal
2005. Lionsgate UK, established from the acquisition of Redbus
in fiscal 2006, contributed $5.3 million, or 8.6% of
international revenue in fiscal 2006 compared to nil in fiscal
2005 or 0.0%. The decrease in international revenue in fiscal
2006 is due to the performance of the significant titles listed
in the table above. Specifically, in fiscal 2005 one title
contributed individually 25% of international revenue, whereas
in fiscal 2006 the top performing title contributed individually
only 14% of international revenue. In fiscal 2006, the titles
listed in the table above as contributing significant
international revenue, represented individually between 4% to
14% of total international revenue and in the aggregate 51% of
total international revenue. In fiscal 2005, the titles listed
in the table above as contributing significant revenue
represented individually between 4% to 25% of total
international revenue and in the aggregate 74% of total
international revenue.
Television
Revenue
The following table sets forth the components of revenue that
make up television production revenue for the fiscal year ended
March 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
Increase (Decrease)
|
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Amounts in millions)
|
|
|
Television Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic series licensing
|
|
$
|
107.6
|
|
|
$
|
34.5
|
|
|
$
|
73.1
|
|
|
|
211.9
|
%
|
Domestic television movies and
miniseries
|
|
|
3.9
|
|
|
|
25.5
|
|
|
|
(21.6
|
)
|
|
|
(84.7
|
)%
|
International
|
|
|
19.0
|
|
|
|
19.6
|
|
|
|
(0.6
|
)
|
|
|
(3.1
|
)%
|
Video releases of television
production
|
|
|
2.4
|
|
|
|
2.9
|
|
|
|
(0.5
|
)
|
|
|
(17.2
|
)%
|
Other
|
|
|
|
|
|
|
0.3
|
|
|
|
(0.3
|
)
|
|
|
(100.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
132.9
|
|
|
$
|
82.8
|
|
|
$
|
50.1
|
|
|
|
60.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the number of television episodes
and hours delivered in the fiscal year ended March 31, 2006
and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
March 31, 2006
|
|
|
March 31, 2005
|
|
|
|
Episodes
|
|
|
Hours
|
|
|
Episodes
|
|
|
Hours
|
|
|
Domestic Series Licensing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Hour Series
|
|
|
80
|
|
|
|
80.0
|
|
|
|
48
|
|
|
|
48.0
|
|
Half Hour Series
|
|
|
10
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
|
|
|
|
85.0
|
|
|
|
48
|
|
|
|
48.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television revenue of $132.9 million in fiscal 2006
increased by $50.1 million, or 60.5%, compared to $82.8
million in fiscal 2005, due primarily to higher domestic series
licensing revenue, offset by lower revenue from domestic
television movies and miniseries. Domestic series licensing
revenue for fiscal 2006 increased mainly due to revenue from
The Cut, Weeds Season 1, Wildfire Seasons 1 &
2, Missing Season 3 and increased revenues from
The Dead Zone. Domestic series deliveries of
one-hour
drama series in fiscal 2006 included 25 hours of
Wildfire,
43
23 hours of The Dead Zone, 19 hours of
Missing, 13 hours of The Cut and of
half-hour
drama series included 10
half-hours
of Weeds. In fiscal 2005, domestic deliveries of
one-hour
series included 18 hours of Missing, 13 hours
of Second Verdict, 12 hours of The Dead Zone
and 5 hours of Five Days to Midnight. The
decrease in television movies and miniseries revenue in fiscal
2006 was due to the delivery of Three Wise Guys movie in
fiscal 2006, as compared to the delivery of Five Days to
Midnight, Widow on the Hill, Frankenstein, Baby for Sale,
Infidelity and Brave New Girl in fiscal 2005.
Direct
Operating Expenses
The following table sets forth direct operating expenses by
segment for the fiscal year ended March 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
March 31, 2006
|
|
|
March 31, 2005
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
|
(Amounts in millions)
|
|
|
Direct operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of films and
television programs
|
|
$
|
135.7
|
|
|
$
|
117.6
|
|
|
$
|
253.3
|
|
|
$
|
146.0
|
|
|
$
|
67.4
|
|
|
$
|
213.4
|
|
Participation and residual expense
|
|
|
194.6
|
|
|
|
3.2
|
|
|
|
197.8
|
|
|
|
143.2
|
|
|
|
0.1
|
|
|
|
143.3
|
|
Amortization of acquired
intangible assets
|
|
|
2.0
|
|
|
|
|
|
|
|
2.0
|
|
|
|
2.2
|
|
|
|
|
|
|
|
2.2
|
|
Other expenses
|
|
|
5.2
|
|
|
|
0.7
|
|
|
|
5.9
|
|
|
|
(4.0
|
)
|
|
|
(1.1
|
)
|
|
|
(5.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
337.5
|
|
|
$
|
121.5
|
|
|
$
|
459.0
|
|
|
$
|
287.4
|
|
|
$
|
66.4
|
|
|
$
|
353.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses as a
percentage of segment revenues
|
|
|
41.5
|
%
|
|
|
91.4
|
%
|
|
|
48.6
|
%
|
|
|
38.1
|
%
|
|
|
80.2
|
%
|
|
|
42.2
|
%
|
Direct operating expenses include amortization, participation
and residual expenses and other expenses. Direct operating
expenses of the motion pictures segment of $337.5 million
for fiscal 2006 were 41.5% of motion pictures revenue, compared
to $287.4 million, or 38.1% of motion pictures revenue for
fiscal 2005. Direct operating expenses as a percentage of
revenue for the motion pictures segment increased in fiscal 2006
as compared to fiscal 2005 due to the mix of titles and
performance of the titles generating revenue and due to a
provision for doubtful accounts recorded in fiscal 2006,
primarily for a video retail customer, of $4.4 million as
compared to a reversal in the prior year of a $4.6 million
provision for certain accounts receivable balances that had been
previously reserved. These amounts were collected during fiscal
2005. Direct operating expenses of the motion pictures segment
included charges for write downs of investment in film costs of
$14.8 million and $9.3 million in fiscal 2006 and
fiscal 2005, respectively, due to the lower than anticipated
actual performance or previously expected performance of certain
titles. In fiscal 2006 there were four motion picture write
downs which individually exceeded $1.0 million and in the
aggregate these four write downs totaled $8.3 million. In
fiscal 2005, approximately $1.8 million of the write down
related to the unanticipated poor performance at the box office
of one motion picture and there were no other write downs in
fiscal 2005 that exceeded $1.0 million.
Direct operating expenses of the television segment of
$121.5 million for fiscal 2006 were 91.4% of television
revenue, compared to $66.4 million, or 80.2% of television
revenue for fiscal 2005. The increase in direct operating
expense of the television segment as a percentage of revenue in
fiscal 2006 is due to the increase in television production
programs at lower overall margins associated with new
programming in fiscal 2006 compared to fiscal 2005.
44
Distribution
and Marketing Expenses
The following table sets forth distribution and marketing
expenses by segment for the fiscal year ended March 31,
2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
March 31, 2006
|
|
|
March 31, 2005
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
|
(Amounts in millions)
|
|
|
Distribution and marketing expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical
|
|
$
|
170.0
|
|
|
$
|
0.3
|
|
|
$
|
170.3
|
|
|
$
|
156.1
|
|
|
$
|
|
|
|
$
|
156.1
|
|
Home Entertainment
|
|
|
209.4
|
|
|
|
2.0
|
|
|
|
211.4
|
|
|
|
197.7
|
|
|
|
2.3
|
|
|
|
200.0
|
|
Television
|
|
|
2.1
|
|
|
|
0.1
|
|
|
|
2.2
|
|
|
|
1.0
|
|
|
|
0.2
|
|
|
|
1.2
|
|
International
|
|
|
10.5
|
|
|
|
0.8
|
|
|
|
11.3
|
|
|
|
5.8
|
|
|
|
0.2
|
|
|
|
6.0
|
|
Other
|
|
|
4.1
|
|
|
|
|
|
|
|
4.1
|
|
|
|
1.0
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
396.1
|
|
|
$
|
3.2
|
|
|
$
|
399.3
|
|
|
|
361.6
|
|
|
|
2.7
|
|
|
|
364.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The majority of distribution and marketing expenses relate to
the motion pictures segment. Theatrical prints and advertising
(P&A) in the motion pictures segment in fiscal
2006 of $170.0 million increased $13.9 million, or
8.9%, compared to $156.1 million in fiscal 2005. Domestic
theatrical P&A from the motion pictures segment in fiscal
2006 included P&A incurred on the release of titles such as
Saw II, Crash, Lord of War, Madeas Family Reunion,
In the Mix, The Devils Rejects, High Tension, Rize,
Undiscovered, and Waiting, which combined accounted
for 92% of the total theatrical P&A. Undiscovered, Rize,
High Tension and In the Mix, released theatrically
during fiscal 2006 represented $44.8 million or 26% of
theatrical P&A in fiscal 2006 and each individually
contributed less than 3% and in the aggregate approximately 5%
of total theatrical revenue in fiscal 2006. Theatrical P&A
in fiscal 2005 included P&A incurred on the release of
titles such as Saw, Open Water, Godsend, The Punisher, Diary
of a Mad Black Woman, Fahrenheit 9/11, The Cookout and
Beyond the Sea, representing approximately 86% of total
theatrical P&A. Beyond the Sea did not generate
significant theatrical revenues in fiscal 2005.
Video distribution and marketing costs on motion pictures and
television product in fiscal 2006 of $211.4 million
increased $11.4 million, or 5.7%, compared to
$200.0 million in fiscal 2005 due to an increase in
marketing and duplication costs related to the increase in video
revenues generated during the year, primarily due to the
significant releases in the table noted above. Video
distribution and marketing costs as a percentage of video
revenues was 39.9% and 42.8% in fiscal 2006 and fiscal 2005,
respectively. This decrease is mainly due to the increase in
revenues generated by the significant releases in fiscal 2006 as
noted in the table above and the performance of these releases
in relation to distribution and marketing costs in fiscal 2006
as compared to fiscal 2005.
International distribution and marketing expenses in fiscal 2006
includes $3.9 million of distribution and marketing costs
from Lionsgate UK as a result of the acquisition of Redbus,
compared to nil in fiscal 2005.
45
General
and Administrative Expense
The following table sets forth general and administrative
expenses by segment for the fiscal year ended March 31,
2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
Increase (Decrease)
|
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Amounts in millions)
|
|
|
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
26.5
|
|
|
$
|
26.2
|
|
|
$
|
0.3
|
|
|
|
1.1
|
%
|
Television
|
|
|
0.5
|
|
|
|
1.5
|
|
|
|
(1.0
|
)
|
|
|
(66.7
|
)%
|
Corporate
|
|
|
42.9
|
|
|
|
41.6
|
|
|
|
1.3
|
|
|
|
3.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
69.9
|
|
|
$
|
69.3
|
|
|
$
|
0.6
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in general and administrative expenses is primarily
due to corporate general and administration expenses of
$42.9 million which increased by $1.3 million or 3.1%
compared to $41.6 million in fiscal 2005. The increase in
corporate general and administrative expenses is primarily due
to an increase in professional fees of approximately
$3.0 million, an increase in other general overhead costs
of approximately $4.4 million, and an increase in salaries
and related expenses of approximately $0.4 million offset
by a decrease in stock based compensation of approximately
$6.5 million. The decrease in stock-based compensation
expense consists of a decrease in stock appreciation rights
expense of $8.2 million (fiscal 2006 included a recovery of
SARs expense of $0.3 million and fiscal 2005 included
an expense of $7.9 million), offset by an increase in
amortization of unearned compensation expense on restricted
share units granted during the year ended March 31, 2006 of
$1.7 million. The Company did not grant any restricted
share units in any period prior to the year ended March 31,
2006. The increase in professional fees is 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. Fiscal 2005 included general and
administration expenses for Christal of $1.7 million, a
variable interest entity no longer consolidated effective April
2005 due to the sale of our interest in Christal. In fiscal
2006, $5.2 million of production overhead was capitalized
compared to $2.8 million in fiscal 2005. The increase in
general and administrative expenses of the motion pictures
segment of $0.3 million or 1.1% is primarily due to general
and administrative costs associated with Lionsgate UK.
Depreciation
and Other Expenses (Income)
Depreciation of $1.8 million in fiscal 2006 decreased
$0.6 million, or 25.0%, from $2.4 million in fiscal
2005, primarily due to certain assets reaching the end of their
useful lives during fiscal 2006 and thus becoming fully
depreciated.
Fiscal 2006 interest expense of $18.9 million decreased
$6.4 million, or 25.3%, from $25.3 million in fiscal
2005, primarily due to a write-off of deferred financing costs
in the prior year and 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. No amounts were outstanding under the
credit facility during the year ended March 31, 2006,
resulting in a decrease in interest on the credit facility.
Fiscal 2006 includes a full years interest on the 4.875%
Notes issued December 2003, the 2.9375% Notes issued
October 2004 and the 3.625% Notes issued February 2005,
whereas fiscal 2005 includes a years interest on the
4.875% Notes, approximately six months of interest and
amortization on the 2.9375% Notes and approximately two
months of interest and amortization on the 3.625% Notes.
Fiscal 2005 includes amortization of increased deferred
financing fees on the amended credit facility and write-off of
increased deferred financing fees of $3.4 million on the
term loan portion of the amended credit facility which was
repaid December 31, 2004.
Interest rate swaps do not meet the criteria of effective hedges
and, therefore, a fair valuation loss of $0.1 million was
recorded in fiscal 2006 as compared to a fair valuation gain of
$2.5 million recorded in fiscal 2005. The $100 million
interest rate swap the Company had entered into commencing
January 2003 ended September 30, 2005. The
CDN$20 million interest rate swap a subsidiary of the
Company had entered into commencing
46
September 2003 and ending September 2008 was terminated on
March 15, 2006 in connection with the repayment of the
remaining balances of the mortgages payable on the studio
facilities.
Interest and other income of $4.3 million for the year
ended March 31, 2006 increased $0.9 million, or 26.5%
compared to $3.4 million for the year ended March 31,
2005. Interest income in fiscal 2006 was earned on the cash
balance and
available-for-sale
investments held during the year ended March 31, 2006.
Equity interests of $0.1 million for the year ended
March 31, 2006 period includes $0.1 million equity
interest in the loss of Maple Pictures consisting of 10% of the
losses of Maple Pictures. Equity interests of $0.2 million
in fiscal 2005 includes $0.2 million equity interest in the
loss of CinemaNow which consists of approximately 30% of the
losses of CinemaNow. The investment in CinemaNow made in July
2004 was reduced to nil by September 30, 2004 and,
therefore, we did not record any additional losses, as we had no
further funding requirements.
The Company had an income tax benefit of $1.0 million in
fiscal 2006, compared to an income tax provision of
$8.7 million in fiscal 2005. The Companys actual
income tax provision differs from these amounts as a result of
several factors, including non-temporary differences, foreign
income taxed at different rates, state and local income taxes
and the utilization of acquired net operating losses. For fiscal
2006, the release of $0.8 million of valuation allowance
was recorded as a reduction of goodwill for the initial
recognition of tax benefits related to acquired deductible
temporary differences and net operating losses, resulting in a
non-cash deferred tax expense upon the utilization of
pre-acquisition net operating losses. Income tax loss
carryforwards amount to approximately $180.8 million for
U.S. federal income tax purposes available to reduce income
taxes over twenty years, $88.4 million for US state income
tax purposes available to reduce income taxes over future years
with varying expirations, $38.5 million for Canadian income
tax purposes available to reduce income taxes over eight years
and $4.5 million for United Kingdom income tax purposes
available indefinitely to reduce future income taxes.
Income before discontinued operations for the fiscal year ended
March 31, 2006 was $1.6 million, or basic income per
common share from continuing operations of $0.02 on
103.1 million weighted average common shares. This compares
to income before discontinued operations for the fiscal year
ended March 31, 2005 of $19.9 million, or basic income
per common share from continuing operations of $0.20 on
97.6 million weighted average common shares. Diluted
earnings per common share from continuing operations for the
fiscal year ended March 31, 2006 was $0.02 on
106.1 million weighted average dilutive common shares.
Diluted earnings per common share from continuing operations for
the fiscal year ended March 31, 2005 was $0.19 on
103.4 million weighted average dilutive common shares.
Income from discontinued operations for the year ended
March 31, 2006 and 2005, respectively, was
$4.5 million and $0.4 million, or income per share
from discontinued operations of $0.04 and $0.01, respectively,
on 103.1 million and 97.6 million weighted average
common shares, respectively. Diluted earnings per common share
from discontinued operations for the fiscal year ended
March 31, 2006 was $0.04 on 106.1 million weighted
average dilutive common shares. Diluted earnings per common
share from discontinued operations for the fiscal year ended
March 31, 2005 was $0.01 on 103.4 million weighted
average dilutive common shares. Income from discontinued
operations for the year ended March 31, 2006 includes a
gain of $4.9 million, before tax effect of approximately
$1.7 million, on the sale of its studio facilities located
in Vancouver, British Columbia. The transaction was completed on
March 15, 2006. Studio facilities previously comprised the
Companys studio facilities reporting segment.
Net income for the fiscal year ended March 31, 2006 was
$6.1 million, or basic net income per share of $0.06, on
103.1 million weighted average common shares outstanding.
Diluted net income per share for the year ended March 31,
2006 was $0.06 on 106.1 adjusted weighted average common shares
outstanding. This compares to net income for the year ended
March 31, 2005 of $20.3 million, or basic net income
per share of $0.21, on 97.6 million weighted average common
shares. Diluted net income per share for the year ended
March 31, 2005 was $0.20 on 103.4 million weighted
average dilutive common shares.
Liquidity
and Capital Resources
Our liquidity and capital resources are provided principally
through cash generated from operations, issuance of subordinated
notes, and our credit facility.
47
Convertible Senior Subordinated Notes. In
December 2003, Lions Gate Entertainment Inc. sold
$60.0 million of 4.875% Notes that were to 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 were
convertible, at the option of the holder, at any time before the
close of business on the business day immediately preceding the
maturity date of the 4.875% Notes, unless previously
redeemed, into our common shares at a conversion rate of
185.0944 shares per $1,000 principal amount of the 4.875%
Notes, which is equal to a conversion price of approximately
$5.40 per share. On December 15, 2006, pursuant to our
optional redemption, all of the noteholders voluntarily elected
to convert their notes into the Companys common shares
pursuant to the indenture. A total of $60 million of
principal was converted into 11,111,108 common shares at a
conversion price of $5.40 per share. In connection with
this conversion, the principal amount net of the unamortized
portion of the financing costs associated with the original
conversion of the 4.875% Notes of approximately
$2.1 million was recorded as an increase to common shares.
In October 2004, Lions Gate Entertainment Inc. sold
$150 million of 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 $0.7 million. The 2.9375% Notes are
convertible at the option of the holder, at any time prior to
maturity, upon satisfaction of certain conversion contingencies,
into 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 October 14,
2010, Lions Gate Entertainment Inc. may redeem the
2.9375% Notes at 100.839%; from October 15, 2010 to
October 14, 2011, Lions Gate Entertainment Inc. may redeem
the 2.9375% Notes at 100.420%; and thereafter at 100%.
In February 2005, Lions Gate Entertainment Inc. sold
$175 million of 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. At March 31, 2007, the
Company had a $215 million revolving line of credit, of
which $10 million is available for borrowing by Lionsgate
UK in either U.S. dollars or British pounds sterling. At
March 31, 2007, the Company had no borrowings
(March 31, 2006 nil) under the credit facility.
The credit facility expires December 31, 2008 and bears
interest at 2.75% over the Adjusted LIBOR or the
Canadian Bankers Acceptance rate, or 1.75% over the
U.S. or Canadian prime rates. The availability of funds
under the credit facility is limited by the borrowing base.
Amounts available under the credit facility are also limited by
outstanding letters of credit which amounted to
$15.2 million at March 31, 2007. At March 31,
2007, there was $199.8 million available under the credit
facility. The Company is required to pay a monthly commitment
fee of 0.50% per annum on the total credit facility of
$215 million less the amount drawn. Right, title and
interest in and to all personal property of Lions Gate
Entertainment Corp. and Lions Gate Entertainment Inc. is pledged
as security for the credit facility. The credit facility is
senior to the Companys film obligations and senior
subordinated notes. The credit facility restricts the Company
from paying cash dividends on its common shares.
Filmed Entertainment Backlog. Backlog
represents the amount of future revenue not yet recorded from
executed contracts for the licensing of films and television
product for television exhibition and in international markets.
Backlog, which now includes the backlog from Debmar Mercury of
approximately $64.3 million, at March 31, 2007 and
2006 is $320.2 million and $143.9 million,
respectively. The increase in backlog is primarily due to
contracted sales on titles such as House of Payne,
South Park, Mad Men, Kill Point, Weeds
Season 3, Dead Zone Season 5, Saw III and
Employee Of The Month during the year ended
March 31, 2007.
Cash Flows Provided by Operating
Activities. Cash flows provided by operating
activities of continuing operations in the year ended
March 31, 2007 were $107.8 million compared to cash
flows provided by operating activities of continuing operations
in the year ended March 31, 2006 of $120.4 million and
cash flows provided by operating activities of continuing
operations in the year ended March 31, 2005 of
$94.8 million. The decrease in
48
cash flows provided by operating activities in fiscal 2007 as
compared to fiscal 2006 is primarily due to decreases in
accounts payable and accrued liabilities, unpresented bank
drafts, participations and residuals, and film obligations,
offset by an increase in cash provided by the decrease in
accounts receivable and deferred revenue. The increase in cash
flows provided by operating activities in fiscal 2006 as
compared to fiscal 2005 is primarily due to increases in
amortization of films and television programs, film obligations
and accounts payable and accrued liabilities, offset by an
increase in investment in films and television programs and
lower income from continuing operations in fiscal 2006 as
compared to fiscal 2005. Cash flows provided by operating
activities of discontinued operations in the year ended
March 31, 2007 were nil compared to cash flows provided by
operating activities of discontinued operations in the year
ended March 31, 2006 of $2.6 million and cash flows
provided by operating activities of discontinued operations in
the year ended March 31, 2005 of $0.7 million.
Cash Flows Used in Investing Activities. Cash
flows used in investing activities of continuing operations of
$107.6 million in the year ended March 31, 2007
consisted of net purchases of $70.0 million of investments
available-for-sale,
$8.3 million for purchases of property and equipment,
$24.1 million for the acquisition of Debmar, net of cash
acquired and $5.1 million for the investment in FEARnet.
Cash flows used in investing activities of continuing operations
of $165.4 million in the year ended March 31, 2006
included the purchase of a net $170.6 million of
investments
available-for-sale,
$27.1 million for our acquisition of Redbus, net of cash
acquired, $5.6 million for purchases of property and
equipment partially offset by cash received from the sale of our
studio facilities of $34.9 million and from the sale of our
investment in Christal Distribution of $2.9 million. Cash
flows used in investing activities of continuing operations of
$1.4 million in the year ended March 31, 2005 includes
cash received on the disposition of the assets and liabilities
of Termite Art, a division of the television segment, less
$2.6 million for purchases of property and equipment. Cash
flows provided by investing activities of discontinued
operations were nil for the year ended March 31, 2007 and
$0.1 million for the year ended March 31, 2006 and
2005.
Cash Flows Provided by/Used in Financing
Activities. Cash flows provided by financing
activities from continuing operations of $4.3 million in
the year ended March 31, 2007 consisted of cash received
from the issuance of common shares. Cash flows used in financing
activities of continuing operations in the year ended
March 31, 2006 of $20.4 million were comprised
primarily of $16.2 million used to pay off the remaining
mortgages payable in connection with the Companys sale of
its studio facility and $5.0 million for the repayment of a
promissory note. Cash flows provided by financing activities of
continuing operations in the year ended March 31, 2005 of
$12.8 million were primarily cash flows from the issuance
of common shares due to the exercise of stock options and
warrants and from the issuance of the 2.9375% and
3.625% Notes, offset by repayment of the credit facility.
Cash flows used in financing activities of discontinued
operations were nil for the year ended March 31, 2007,
$2.7 million for the year ended March 31, 2006 and
$1.9 million for the year ended March 31, 2005.
Anticipated Cash Requirements. The nature of
our business is such that significant initial expenditures are
required to produce, acquire, distribute and market films and
television programs, while revenues from these films and
television programs are earned over an extended period of time
after their completion or acquisition. We believe that cash flow
from operations, cash on hand, investments
available-for-sale,
credit facility availability, tax-efficient financing and
production financing available will be adequate to meet known
operational cash requirements for the foreseeable future,
including the funding of future film and television production,
film rights acquisitions and theatrical and video release
schedules. We monitor our cash flow liquidity, availability,
fixed charge coverage, capital base, film spending and leverage
ratios with the long-term goal of maintaining our credit
worthiness.
Our current financing strategy is to fund operations and to
leverage investment in films and television programs through our
cash flow from operations, our credit facility, single-purpose
production financing, government incentive programs, film funds,
and distribution commitments. In addition, we may acquire
businesses or assets, including individual films or libraries
that are complementary to our business. Any such transaction
could be financed through our cash flow from operations, credit
facilities, equity or debt financing.
49
Future commitments under contractual obligations as of
March 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Future annual repayment of debt
and other film obligations recorded as of March 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film obligations(1)
|
|
$
|
82,350
|
|
|
$
|
21,865
|
|
|
$
|
3,706
|
|
|
$
|
29,975
|
|
|
$
|
29,988
|
|
|
$
|
|
|
|
$
|
167,884
|
|
Subordinated notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325,000
|
|
|
|
325,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82,350
|
|
|
$
|
21,865
|
|
|
$
|
3,706
|
|
|
$
|
29,975
|
|
|
$
|
29,988
|
|
|
$
|
325,000
|
|
|
$
|
492,884
|
|
Contractual commitments by
expected repayment date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution and marketing
commitments(2)
|
|
$
|
51,919
|
|
|
$
|
70,223
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
122,142
|
|
Minimum guarantee commitments(3)
|
|
|
66,254
|
|
|
|
14,690
|
|
|
|
2,900
|
|
|
|
2,900
|
|
|
|
|
|
|
|
|
|
|
|
86,744
|
|
Production obligation commitments(3)
|
|
|
3,962
|
|
|
|
7,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,666
|
|
Operating lease commitments
|
|
|
4,556
|
|
|
|
4,745
|
|
|
|
4,444
|
|
|
|
4,118
|
|
|
|
1,841
|
|
|
|
710
|
|
|
|
20,414
|
|
Other contractual obligations
|
|
|
5,962
|
|
|
|
4,779
|
|
|
|
256
|
|
|
|
256
|
|
|
|
256
|
|
|
|
|
|
|
|
11,509
|
|
Employment and consulting contracts
|
|
|
22,853
|
|
|
|
11,564
|
|
|
|
6,916
|
|
|
|
4,553
|
|
|
|
504
|
|
|
|
|
|
|
|
46,390
|
|
Interest payments on Subordinated
notes
|
|
|
10,750
|
|
|
|
10,750
|
|
|
|
10,750
|
|
|
|
10,750
|
|
|
|
10,750
|
|
|
|
135,344
|
|
|
|
189,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
166,256
|
|
|
$
|
124,455
|
|
|
$
|
25,266
|
|
|
$
|
22,577
|
|
|
$
|
13,351
|
|
|
$
|
136,054
|
|
|
$
|
487,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total future commitments under
contractual obligations
|
|
$
|
248,606
|
|
|
$
|
146,320
|
|
|
$
|
28,972
|
|
|
$
|
52,552
|
|
|
$
|
43,339
|
|
|
$
|
461,054
|
|
|
$
|
980,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Film obligations include minimum guarantees, theatrical
marketing obligations and production obligations as disclosed in
note 8. Repayment dates are based on anticipated delivery or
release date of the related film or contractual due dates of the
obligation. |
|
(2) |
|
Distribution and marketing commitments represent contractual
commitments for future expenditures associated with distribution
and marketing of films which the Company will distribute. The
payment dates of these amounts are primarily based on the
anticipated release date of the film. |
|
(3) |
|
Minimum guarantee commitments represent contractual commitments
related to the purchase of film rights for future delivery.
Production obligation commitments represent amounts committed
for future film production and development to be funded through
production financing and recorded as a production obligation
liability. Future payments under these obligations are based on
anticipated delivery or release dates of the related film or
contractual due dates of the obligation. The amounts include
future interest payments associated with the obligations. |
|
|
ITEM 7A.
|
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 its foreign currency
exposures on future production expenses denominated in Canadian
dollars. As of March 31, 2007, we had outstanding contracts
to sell US$12.8 million in exchange for
CDN$15.0 million over a period of five weeks
50
at a weighted average exchange rate of CDN$1.1759. Changes in
the fair value representing an unrealized fair value gain on
foreign exchange contracts outstanding during the year ended
March 31, 2007 amounted to $0.3 million and are
included in accumulated other comprehensive income (loss), a
separate component of shareholders equity. During the year
ended March 31, 2007, we completed foreign exchange
contracts denominated in Canadian dollars. The net losses
resulting from the completed contracts were $0.4 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 is interest rate risk. We currently have
minimal exposure to cash flow risk due to changes in market
interest rates related to our outstanding debt and other
financing obligations. Our credit facility has a nil balance at
March 31, 2007. Other financing obligations subject to
variable interest rates include $59.1 million owed to film
production entities on delivery of titles.
The table below presents repayments and related weighted average
interest rates for our interest-bearing debt and production
obligations and subordinate notes at March 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Revolving Credit
Facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Production
Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable(2)
|
|
|
50,453
|
|
|
|
8,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,108
|
|
Subordinated Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
150,000
|
|
Fixed(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,000
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,453
|
|
|
$
|
8,655
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
325,000
|
|
|
$
|
384,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Revolving credit facility, which expires December 31, 2008.
At March 31, 2007, the Company had no borrowings under this
facility. |
|
(2) |
|
Amounts owed to film production entities on anticipated delivery
date or release date of the titles or the contractual due dates
of the obligation. Production obligations incur interest at
rates ranging from 7.32% to 8.10%. Not included in the table
above are approximately $85.0 million of production
obligations which are non-interest bearing. |
|
(3) |
|
2.9375% Notes with fixed interest rate equal to 2.9375%. |
|
(4) |
|
3.625% Notes with fixed interest rate equal to 3.625%. |
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
|
The Auditors Report and our Consolidated Financial
Statements and Notes thereto appear in a separate section of
this report (beginning on
page F-1
following Part IV). The index to our Consolidated Financial
Statements is included in Item 15.
51
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
|
Not applicable.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES.
|
Disclosure
Controls and Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our
reports under the Securities Exchange Act of 1934, as amended,
is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange
Commissions rules and forms, and that such information is
accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosure. We
periodically review the design and effectiveness of our
disclosure controls and internal control over financial
reporting. We make modifications to improve the design and
effectiveness of our disclosure controls and internal control
structure, and may take other corrective action, if our reviews
identify a need for such modifications or actions.
As of March 31, 2007, the end of the period covered by this
report, the Companys management had 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 effective.
Internal
Control Over Financial Reporting
Managements
Annual Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting for the
Company. Our internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. Internal control over
financial reporting includes policies and procedures that:
|
|
|
|
|
pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
|
|
|
|
provide reasonable assurance that (a) transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and (b) that our receipts and expenditures are
being recorded and made only in accordance with
managements authorizations;
|
|
|
|
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our
assets.
|
A control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Because of the
inherent limitations, internal controls over financial reporting
may not prevent or detect misstatements. Projections of any
evaluation of the effectiveness of internal control over
financial reporting to future periods are subject to the risks
that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
Our management has made an assessment of the effectiveness of
our internal control over financial reporting as of
March 31, 2007. Management based its assessment on criteria
established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
Based on this assessment, our management has concluded that, as
of March 31, 2007, the Company maintained effective
internal control over financial reporting.
Changes
in Internal Control Over Financial Reporting
There were no changes in internal control over financial
reporting during the fiscal fourth quarter ended March 31,
2007, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
The Companys independent registered public accounting
firm, Ernst & Young LLP, has issued an attestation
report on managements assessment of the Companys
internal control over financial reporting. Their report is
included below.
Report of Independent Registered Public Accounting Firm on
Internal Control Over Financial Reporting
52
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Shareholders of Lions Gate Entertainment
Corp.
We have audited managements assessment, included in the
accompanying Managements Annual Report on Internal Control
Over Financial Reporting, that Lions Gate Entertainment Corp.
maintained effective internal control over financial reporting
as of March 31, 2007, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Lions Gate Entertainment Corp.s
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on managements
assessment and an opinion on the effectiveness of the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that Lions Gate
Entertainment Corp. maintained effective internal control over
financial reporting as of March 31, 2007, is fairly stated,
in all material respects, based on the COSO criteria. Also, in
our opinion, Lions Gate Entertainment Corp. maintained, in all
material respects, effective internal control over financial
reporting as of March 31, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Lions Gate Entertainment Corp. as
of March 31, 2007 and 2006, and the related consolidated
statements of income, shareholders equity, and cash flows
for each of the three years in the period ended March 31,
2007 of Lions Gate Entertainment Corp. and our report dated
May 30, 2007 expressed an unqualified opinion thereon.
Los Angeles, California
May 30, 2007
53
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
Not applicable.
PART III
Corporate
Governance
The Companys Corporate Governance Guidelines are
also available on the Companys website at
http://www.lionsgate.com.
You may obtain a copy of the Companys Corporate
Governance Guidelines without charge through either of the
Companys principal executive offices.
The Company has filed with the Securities and Exchange
Commission its exhibits to
Form 10-K,
which include the Chief Executive Officer and Chief Financial
Officer certifications required pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. The Company has also filed with
the NYSE the annual certification of its Chief Executive Officer
for fiscal 2007, confirming that the Company was in compliance
with NYSE corporate governance listing standards.
|
|
ITEM 10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT.
|
Directors
The information relating to directors required by this item will
be contained under the captions Information Regarding Our
Board of Directors and Committees of Our Board of
Directors in the Proxy Statement, and such information is
incorporated herein by reference.
The information required pursuant to Item 405 of
Regulation S-K
will be contained under the caption Section 16(a)
Beneficial Ownership Compliance in the Proxy Statement,
and such information is incorporated herein by reference.
The information required pursuant to Item 406 of
Regulation S-K
will be contained under the caption Codes of Conduct and
Ethics in the Proxy Statement, and such information is
incorporated herein by reference.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION.
|
The information required by this item will be contained under
the captions Compensation Discussion and Analysis,
Executive Compensation and Employment
Contracts, Termination of Employment and
Change-in-Control
Arrangements in the Proxy Statement, and such information
is incorporated herein by reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS.
|
The information required by this item will be contained under
the captions Compensation Discussion and Analysis,
Executive Compensation and Equity Compensation
Plan Information for Fiscal 2007 in the Proxy Statement,
and such information is incorporated herein by reference.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.
|
The information required by this item will be contained under
the caption Certain Relationships and Related
Transactions in the Proxy Statement, and such information
is incorporated herein by reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
|
The information required by this item will be contained under
the items Audit Fees, Audit-Related
Fees, Tax Fees and All Other Fees
in the Proxy Statement, and such information is incorporated
herein by reference.
54
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES.
|
(a) The following documents are filed as part of this
report:
1. Financial Statements
The financial statements listed on the accompanying Index to
Financial Statements are filed as part of this report at pages
F-1 to F-51.
2. Financial Statement Schedules
Financial statement schedules are omitted because the required
information is not applicable, or because the information
required is included in the consolidated financial statements
and notes thereto.
3. Exhibits
The exhibits listed on the accompanying Index to Exhibits are
filed as part of this report.
55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on May 30, 2007.
LIONS GATE ENTERTAINMENT CORP.
James Keegan
Chief Financial Officer
DATE: May 30, 2007
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons in
the capacities and on the dates so indicated.
Each person whose signature appears below authorizes each of Jon
Feltheimer, Michael Burns, Wayne Levin and James Keegan,
severally and not jointly, to be his or her true and lawful
attorney-in-fact
and agent, with full power of substitution and resubstitution,
for him or her and in such persons name, place and stead,
in any and all capacities, to sign any amendments to the
Companys Annual Report on
Form 10-K
for the fiscal year ended March 31, 2007; granting unto
said
attorney-in-fact
and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully
for all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said
attorney-in-fact
and agent, or his substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ Mark
Amin
Mark
Amin
|
|
Director
|
|
May 30, 2007
|
|
|
|
|
|
/s/ Norman
Bacal
Norman
Bacal
|
|
Director
|
|
May 30, 2007
|
|
|
|
|
|
/s/ Michael
Burns
Michael
Burns
|
|
Director
|
|
May 30, 2007
|
|
|
|
|
|
/s/ Arthur
Evrensel
Arthur
Evrensel
|
|
Director
|
|
May 30, 2007
|
|
|
|
|
|
/s/ Jon
Feltheimer
Jon
Feltheimer
|
|
Chief Executive Officer
(Principal Executive Officer) and
Co-Chairman of the Board of Directors
|
|
May 30, 2007
|
|
|
|
|
|
/s/ James
Keegan
James
Keegan
|
|
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
|
|
May 30, 2007
|
|
|
|
|
|
/s/ Morley
Koffman
Morley
Koffman
|
|
Director
|
|
May 30, 2007
|
56
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ Harald
Ludwig
Harald
Ludwig
|
|
Co-Chairman of the Board of
Directors
|
|
May 30, 2007
|
|
|
|
|
|
/s/ Laurie
May
Laurie
May
|
|
Director
|
|
May 30, 2007
|
|
|
|
|
|
/s/ G.
Scott
Paterson
G.
Scott Paterson
|
|
Director
|
|
May 30, 2007
|
|
|
|
|
|
Daryl
Simm
|
|
Director
|
|
May 30, 2007
|
|
|
|
|
|
/s/ Hardwick
Simmons
Hardwick
Simmons
|
|
Director
|
|
May 30, 2007
|
|
|
|
|
|
/s/ Brian
V. Tobin
Brian
V. Tobin
|
|
Director
|
|
May 30, 2007
|
57
INDEX TO
EXHIBITS
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Documents
|
|
|
3
|
.1(10)
|
|
Articles
|
|
3
|
.2
|
|
Notice of Articles
|
|
3
|
.3
|
|
Vertical Short
Form Amalgamation Application
|
|
3
|
.4
|
|
Certificate of Amalgamation
|
|
4
|
.1(1)
|
|
Indenture dated as of
December 3, 2003 among Lions Gate Entertainment Inc., Lions
Gate Entertainment Corp. and J.P. Morgan Trust Company,
National Association
|
|
4
|
.2(1)
|
|
Form of 4.875% Convertible
Senior Subordinated Notes Due 2010
|
|
4
|
.3(1)
|
|
Form of Guaranty of
4.875% Convertible Subordinated Notes Due 2010
|
|
4
|
.4(2)
|
|
Indenture dated as of
October 4, 2004 among Lions Gate Entertainment Inc., Lions
Gate Entertainment Corp. and J.P. Morgan Trust Company,
National Association
|
|
4
|
.5(2)
|
|
Form of 2.9375% Convertible
Senior Subordinated Notes due 2024
|
|
4
|
.6(2)
|
|
Form of Guaranty of
2.9375% Convertible Senior Subordinated Notes due 2024
|
|
4
|
.7(3)
|
|
Indenture dated as of
February 24, 2005 among Lions Gate Entertainment Inc.,
Lions Gate Entertainment Corp. and J.P. Morgan Trust
Company, National Association
|
|
4
|
.8(3)
|
|
Form of 3.625% Convertible
Senior Subordinated Notes due 2025
|
|
4
|
.9(3)
|
|
Form of Guaranty of
3.625% Convertible Senior Subordinated Notes due 2025
|
|
10
|
.1(4)
|
|
Amended Employees and
Directors Equity Incentive Plan
|
|
10
|
.2(5)
|
|
Form of Incentive Plan Stock
Option Agreement
|
|
10
|
.3(10)
|
|
2004 Performance Plan Restricted
Share Unit Agreement
|
|
10
|
.4(14)
|
|
2004 Performance Incentive Plan
|
|
10
|
.5(10)
|
|
Form of 2004 Performance Incentive
Plan Nonqualified Stock Option Agreement
|
|
10
|
.6(6)
|
|
Registration Rights Agreement by
and among the Company, Mark Amin and Reza Amin, dated as of
June 6, 2000
|
|
10
|
.7
|
|
Director Compensation Summary
|
|
10
|
.8(16)
|
|
Employment Agreement between the
Company and Jon Feltheimer, dated September 20, 2006
|
|
10
|
.9(16)
|
|
Employment Agreement between the
Company and Michael Burns, dated September 1, 2006
|
|
10
|
.10(13)
|
|
Employment Agreement between the
Company and James Keegan, dated February 21, 2006 and
entered into as of April 4, 2006
|
|
10
|
.11(13)
|
|
Employment Agreement between the
Company and Wayne Levin, dated April 1, 2006 and entered
into as of May 9, 2006
|
|
10
|
.12(13)
|
|
Employment Agreement between the
Company and Marni Wieshofer, dated January 5, 2006 and
entered into as of March 7, 2006
|
|
10
|
.13
|
|
Employment Agreement between the
Company and Steve Beeks, dated March 28, 2007 and entered
into as of March 29, 2007.
|
|
10
|
.14(7)
|
|
Amended and Restated Credit,
Security, Guaranty and Pledge Agreement, dated as of
December 15, 2003 among Lions Gate Entertainment Corp.,
Lions Gate Entertainment Inc., the Guarantors referred to
therein, the Lenders referred to therein, JP Morgan Chase Bank,
JP Morgan Chase Bank (Toronto Branch), Fleet National Bank and
BNP Paribas, dated as of December 15, 2003
|
|
10
|
.15(1)
|
|
Amendment No. 1 to the
Companys Amended and Restated Credit, Security, Guaranty
and Pledge Agreement, dated as of June 15, 2004, by and
among Lions Gate Entertainment Corp., Lions Gate Entertainment
Inc., the Guarantors referred to therein, the Lenders referred
to therein, JP Morgan Chase Bank, JP Morgan Chase Bank (Toronto
Branch), Fleet National Bank and BNP Paribas, dated as of
December 15, 2003
|
58
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Documents
|
|
|
10
|
.16(2)
|
|
Amendment No. 2 to the
Amended and Restated Credit, Security, Guaranty and Pledge
Agreement, dated as of September 22, 2004, by and among
Lions Gate Entertainment Corp., Lions Gate Entertainment Inc.,
the Guarantors referred to therein, the Lenders referred to
therein, JP Morgan Chase Bank, JP Morgan Chase Bank (Toronto
Branch), Fleet National Bank and BNP Paribas, dated as of
December 15, 2003
|
|
10
|
.17(8)
|
|
Amendment No. 3 to the
Amended and Restated Credit, Security, Guaranty and Pledge
Agreement, dated as of December 31, 2004, by and among
Lions Gate Entertainment Corp., Lions Gate Entertainment Inc.,
the Guarantors referred to therein, the Lenders referred to
therein, JP Morgan Chase Bank, JP Morgan Chase Bank (Toronto
Branch), Fleet National Bank and BNP Paribas, dated as of
December 15, 2003
|
|
10
|
.18(8)
|
|
Amendment No. 4 to the
Amended and Restated Credit, Security, Guaranty and Pledge
Agreement, dated as of February 15, 2005, by and among
Lions Gate Entertainment Corp., Lions Gate Entertainment Inc.,
the Guarantors referred to therein, the Lenders referred to
therein, JP Morgan Chase Bank, National Association, JP Morgan
Chase Bank, National Association (Toronto Branch), Fleet
National Bank and BNP Paribas, dated as of December 15, 2003
|
|
10
|
.19(9)
|
|
Amendment No. 5 to the
Amended and Restated Credit, Security, Guaranty and Pledge
Agreement, dated as of March 31, 2005, by and among Lions
Gate Entertainment Corp., Lions Gate Entertainment Inc., the
Guarantors referred to therein, the Lenders referred to therein,
JP Morgan Chase Bank, National Association, JP Morgan Chase
Bank, National Association (Toronto Branch), Fleet National Bank
and BNP Paribas, dated as of December 15, 2003
|
|
10
|
.20(11)
|
|
Amendment No. 6 to the
Amended and Restated Credit, Security, Guaranty and Pledge
Agreement, dated as of June 21, 2005, by and among Lions
Gate Entertainment Corp., Lions Gate Entertainment Inc., the
Guarantors referred to therein, the Lenders referred to therein,
JP Morgan Chase Bank, National Association, JP Morgan Chase
Bank, National Association (Toronto Branch), Fleet National Bank
and BNP Paribas, dated as of December 15, 2003
|
|
10
|
.21(11)
|
|
Amendment No. 7 to the
Amended and Restated Credit, Security, Guaranty and Pledge
Agreement, dated as of October 17, 2005, by and among Lions
Gate Entertainment Corp., Lions Gate Entertainment Inc., the
Guarantors referred to therein, the Lenders referred to therein,
JP Morgan Chase Bank, National Association, JP Morgan Chase
Bank, National Association (Toronto Branch), Fleet National Bank
and BNP Paribas, dated as of December 15, 2003
|
|
10
|
.22
|
|
Amendment No. 9 to the
Amended and Restated Credit, Security, Guaranty and Pledge
Agreement, dated as of April 2, 2007, by and among Lions
Gate Entertainment Corp., Lions Gate Entertainment Inc., the
Guarantors referred to therein, the Lenders referred to therein,
JP Morgan Chase Bank, National Association, JP Morgan Chase
Bank, National Association (Toronto Branch), Fleet National Bank
and BNP Paribas, dated as of December 15, 2003
|
|
10
|
.23(10)
|
|
Amendment to January 5, 2000
Incentive Plan Stock Option Agreement between the Company and
Michael Burns, dated December 11, 2001
|
|
10
|
.24(10)
|
|
Amendment to January 5, 2000
Incentive Plan Stock Option Agreement between the Company and
Jon Feltheimer, dated December 11, 2001
|
|
10
|
.25(10)
|
|
Share Appreciation Rights Award
Agreement between the Company and Steve Beeks, dated
February 2, 2004
|
|
10
|
.26(10)
|
|
Clarification of Stock
Appreciation Rights Award Letter for Steve Beeks, dated
November 18, 2004
|
|
10
|
.27(12)
|
|
Partnership Interest Purchase
Agreement, dated December 22, 2005, by and among Lions Gate
Entertainment Corp., Lions Gate Films Corp., Bosa Development
Corp., and 0742102 B.C. LTD.
|
|
10
|
.28(12)
|
|
Amendment to
Partnership Interest Purchase Agreement Amendment and
Removal of Conditions Precedent, January 23, 2006, by and
among Lions Gate Entertainment Corp., Lions Gate Films Corp.,
Bosa Development Corp., and 0742102 B.C. LTD.
|
|
10
|
.29(13)
|
|
Agreement dated as of
December 6, 2005 between Lions Gate Film, Inc. and Sobini
Films, with respect to the distribution rights to the motion
picture entitled The Prince and Me II.
|
59
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Documents
|
|
|
10
|
.30(13)
|
|
Agreement dated as of
March 24, 2005 between Lions Gate Films Inc. and Sobini
Films, with respect to the distribution rights to the motion
picture entitled Streets of Legend.
|
|
10
|
.31(13)
|
|
Agreement dated as of
December 6, 2005 between Lions Gate Films Inc. and Sobini
Films, with respect to the distribution rights to the motion
picture entitled Peaceful Warrior.
|
|
10
|
.32(13)
|
|
Purchase Agreement dated
March 17, 2006 between Lions Gate Entertainment Corp. and
Icon International, Inc.
|
|
10
|
.33(13)
|
|
Vendor Subscription Agreement
dated March 17, 2006 between Lions Gate Entertainment Corp.
and Icon International, Inc.
|
|
10
|
.34(13)
|
|
Agreement, by and between Ignite,
LLC and Lions Gate Films Inc., entered into June 13, 2006
and dated and effective as of March 13, 2006
|
|
10
|
.35(15)
|
|
Right of First Refusal Agreement
dated as of August 29, 2006 between Lions Gate
Entertainment Corp., Sobini Films and Mark Amin.
|
|
10
|
.36
|
|
Master Covered Picture Purchase
Agreement, by and between LG Film Finance I, LLC and Lions
Gate Films Inc., dated as of May 25, 2007
|
|
10
|
.37
|
|
Master Distribution Agreement, by
and between Lions Gate Films Inc. and LG Film Finance I,
LLC, dated as of May 25, 2007
|
|
10
|
.38
|
|
Limited Liability Company
Agreement for LG Film Finance I, LLC, dated as of
May 25, 2007
|
|
21
|
.1
|
|
Subsidiaries of the Company
|
|
23
|
.1
|
|
Consent of Ernst & Young
LLP, Independent Registered Public Accounting Firm
|
|
24
|
.1
|
|
Power of Attorney (Contained on
Signature Page)
|
|
31
|
.1
|
|
Certification of CEO pursuant to
Section 302 of Sarbanes-Oxley Act of 2002
|
|
31
|
.2
|
|
Certification of CFO pursuant to
Section 302 of Sarbanes-Oxley Act of 2002
|
|
32
|
.1
|
|
Certification of CEO and CFO
pursuant to Section 906 of Sarbanes-Oxley Act of 2002
|
|
|
|
(1) |
|
Incorporated by reference to the Companys Quarterly Report
on Form 10-Q
for the period ended June 30, 2004 (File
No. 1-14880). |
|
(2) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
as filed on October 4, 2004 (File
No. 1-14880). |
|
(3) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
as filed on February 25, 2005 (File
No. 1-14880). |
|
(4) |
|
Incorporated by reference to the Companys Definitive Proxy
Statement dated August 13, 2001 (File
No. 1-14880). |
|
(5) |
|
Incorporated by reference to the Companys Registration
Statement on
Form S-2
under the Securities Act of 1933 dated April 30, 2003 (File
No.
333-104836). |
|
(6) |
|
Incorporated by reference to the Companys Registration
Statement on
Form F-4
under the Securities Act of 1933 dated August 18, 2000
(File No.
333-12406). |
|
(7) |
|
Incorporated by reference to the Companys Quarterly Report
on Form 10-Q
for the period ended December 31, 2003 (File
No. 1-14880). |
|
(8) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
as filed on February 22, 2005 (File
No. 1-14880). |
|
(9) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
as filed on April 14, 2005 (File
No. 1-14880). |
|
(10) |
|
Incorporated by reference to the Companys Annual Report on
Form 10-K
for the fiscal year ended March 31, 2005 as filed on
June 29, 2005 (File
No. 1-14880). |
60
|
|
|
(11) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
as filed on October 18, 2005 (File
No. 1-14880). |
|
(12) |
|
Incorporated by reference to the Companys Quarterly Report
on Form 10-Q
for the period ended December 31, 2005 (File
No. 1-14880). |
|
(13) |
|
Incorporated by reference to the Companys Annual Report on
Form 10-K
for the fiscal year ended March 31, 2006 as filed on
June 14, 2006 (File
No. 1-14880). |
|
(14) |
|
Incorporated by reference to the Companys Definitive Proxy
Statement dated July 28, 2006 (File
No. 1-14880). |
|
(15) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
as filed on September 5, 2006 (File
No. 1-14880). |
|
(16) |
|
Incorporated by reference to the Companys Quarterly Report
on Form 10-Q
for the period ended September 30, 2006 (File
No. 1-14880). |
61
INDEX TO
FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
Number
|
|
Audited Financial Statements
|
|
|
F-1
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
See accompanying notes.
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Lions Gate
Entertainment Corp.
We have audited the accompanying consolidated balance sheets of
Lions Gate Entertainment Corp. as of March 31, 2007 and
2006, and the related consolidated statements of income,
shareholders equity, and cash flows for each of the three
years in the period ended March 31, 2007. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Lions Gate Entertainment Corp. at
March 31, 2007 and 2006, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended March 31, 2007, in conformity with
U.S. generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial
statements, on April 1, 2006 Lions Gate Entertainment Corp.
changed its method of accounting for share-based compensation in
accordance with Statement of Financial Accounting Standards
No. 123 (revised 2004).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Lions Gate Entertainment Corp.s internal
control over financial reporting as of March 31, 2007,
based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated May 30, 2007
expressed an unqualified opinion thereon.
Los Angeles, California
May 30, 2007
F-2
LIONS
GATE ENTERTAINMENT CORP.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands,
|
|
|
|
except share amounts)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
51,497
|
|
|
$
|
46,978
|
|
Restricted cash
|
|
|
4,915
|
|
|
|
820
|
|
Investments auction
rate securities
|
|
|
237,379
|
|
|
|
167,081
|
|
Investments equity
securities
|
|
|
125
|
|
|
|
14,921
|
|
Accounts receivable, net of
reserve for video returns and allowances of $77,691
(March 31, 2006 $73,366) and provision for
doubtful accounts of $6,345 (March 31, 2006
$10,934)
|
|
|
130,496
|
|
|
|
182,659
|
|
Investment in films and television
programs
|
|
|
493,140
|
|
|
|
417,750
|
|
Property and equipment
|
|
|
13,095
|
|
|
|
7,218
|
|
Goodwill
|
|
|
187,491
|
|
|
|
185,117
|
|
Other assets
|
|
|
18,957
|
|
|
|
30,705
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,137,095
|
|
|
$
|
1,053,249
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Accounts payable and accrued
liabilities
|
|
$
|
155,617
|
|
|
$
|
188,793
|
|
Unpresented bank drafts
|
|
|
|
|
|
|
14,772
|
|
Participation and residuals
|
|
|
171,156
|
|
|
|
164,326
|
|
Film obligations
|
|
|
167,884
|
|
|
|
120,661
|
|
Subordinated notes
|
|
|
325,000
|
|
|
|
385,000
|
|
Deferred revenue
|
|
|
69,548
|
|
|
|
30,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
889,205
|
|
|
|
903,979
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS
EQUITY
|
Common shares, no par value,
500,000,000 shares authorized, 116,970,280 at
March 31, 2007 and 104,422,765 at March 31,
2006 shares issued and outstanding
|
|
|
398,836
|
|
|
|
328,771
|
|
Series B preferred shares
(10 shares issued and outstanding)
|
|
|
|
|
|
|
|
|
Restricted share units
|
|
|
|
|
|
|
5,178
|
|
Unearned compensation
|
|
|
|
|
|
|
(4,032
|
)
|
Accumulated deficit
|
|
|
(149,651
|
)
|
|
|
(177,130
|
)
|
Accumulated other comprehensive
loss
|
|
|
(1,295
|
)
|
|
|
(3,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
247,890
|
|
|
|
149,270
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,137,095
|
|
|
$
|
1,053,249
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-3
LIONS
GATE ENTERTAINMENT CORP.
CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands,
|
|
|
|
except per share amounts)
|
|
|
Revenues
|
|
$
|
976,740
|
|
|
$
|
945,385
|
|
|
$
|
838,097
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating
|
|
|
436,818
|
|
|
|
458,990
|
|
|
|
353,790
|
|
Distribution and marketing
|
|
|
404,410
|
|
|
|
399,299
|
|
|
|
364,281
|
|
General and administration
|
|
|
90,782
|
|
|
|
69,936
|
|
|
|
69,258
|
|
Depreciation
|
|
|
2,786
|
|
|
|
1,817
|
|
|
|
2,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
934,796
|
|
|
|
930,042
|
|
|
|
789,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
41,944
|
|
|
|
15,343
|
|
|
|
48,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
(income):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
17,832
|
|
|
|
18,860
|
|
|
|
25,318
|
|
Interest rate swaps
mark-to-market
|
|
|
|
|
|
|
123
|
|
|
|
(2,453
|
)
|
Interest and other income
|
|
|
(11,930
|
)
|
|
|
(4,304
|
)
|
|
|
(3,440
|
)
|
Gain on sale of equity securities
|
|
|
(1,722
|
)
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses, net
|
|
|
4,180
|
|
|
|
14,679
|
|
|
|
19,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity interests
and income taxes
|
|
|
37,764
|
|
|
|
664
|
|
|
|
28,866
|
|
Equity interests
|
|
|
(2,605
|
)
|
|
|
(74
|
)
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes
|
|
|
35,159
|
|
|
|
590
|
|
|
|
28,666
|
|
Income tax provision (benefit)
|
|
|
7,680
|
|
|
|
(1,030
|
)
|
|
|
8,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before discontinued
operations
|
|
|
27,479
|
|
|
|
1,620
|
|
|
|
19,919
|
|
Income from discontinued
operations (including gain on sale in 2006 of $4,872), net of
tax of nil, $2,464 and $200
|
|
|
|
|
|
|
4,476
|
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
27,479
|
|
|
$
|
6,096
|
|
|
$
|
20,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Income Per Common Share From
Continuing Operations
|
|
$
|
0.25
|
|
|
$
|
0.02
|
|
|
$
|
0.20
|
|
Basic Income Per Common Share From
Discontinued Operations
|
|
|
|
|
|
|
0.04
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Net Income Per Common
Share
|
|
$
|
0.25
|
|
|
$
|
0.06
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Per Share
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Common Share
From Continuing Operations
|
|
$
|
0.25
|
|
|
$
|
0.02
|
|
|
$
|
0.19
|
|
Diluted Earnings Per Common Share
From Discontinued Operations
|
|
|
|
|
|
|
0.04
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Net Income Per Common
Share
|
|
$
|
0.25
|
|
|
$
|
0.06
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
108,398
|
|
|
|
103,066
|
|
|
|
97,610
|
|
Diluted
|
|
|
111,164
|
|
|
|
106,102
|
|
|
|
103,375
|
|
See accompanying notes.
F-4
LIONS
GATE ENTERTAINMENT CORP.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B
|
|
|
Restricted
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
Other
|
|
|
|
|
|
|
Common Shares
|
|
|
Preferred Shares
|
|
|
Share
|
|
|
Unearned
|
|
|
Accumulated
|
|
|
Income
|
|
|
Comprehensive
|
|
|
|
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
Units
|
|
|
Compensation
|
|
|
Deficit
|
|
|
(Loss)
|
|
|
Loss
|
|
|
Total
|
|
|
|
(Amounts in thousands, except share amounts)
|
|
|
Balance at March 31, 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 of common shares to
directors for services
|
|
|
15,804
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137
|
|
Impact of previously modified 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
|
|
|
361,310
|
|
|
|
1,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,408
|
|
Issuance of common shares to
directors for services
|
|
|
20,408
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203
|
|
Impact of previously modified stock
options
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
Issuance of common shares in
connection with acquisition of film assets
|
|
|
399,042
|
|
|
|
3,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,775
|
|
Issuance of common shares in
connection with acquisition of common shares of Image
Entertainment
|
|
|
1,104,004
|
|
|
|
11,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,537
|
|
Issuance of common shares in
connection with acquisition of Redbus
|
|
|
643,460
|
|
|
|
5,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,643
|
|
Issuance of restricted share units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,694
|
|
|
|
(5,694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted share
units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,662
|
|
Vesting of restricted share units
|
|
|
50,833
|
|
|
|
516
|
|
|
|
|
|
|
|
|
|
|
|
(516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,096
|
|
|
$
|
6,096
|
|
|
|
|
|
|
|
6,096
|
|
Foreign currency translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,223
|
|
|
|
2,223
|
|
|
|
2,223
|
|
Net unrealized loss on foreign
exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(356
|
)
|
|
|
(356
|
)
|
|
|
(356
|
)
|
Unrealized loss on
investments available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87
|
)
|
|
|
(87
|
)
|
|
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2006
|
|
|
104,422,765
|
|
|
|
328,771
|
|
|
|
10
|
|
|
|
|
|
|
|
5,178
|
|
|
|
(4,032
|
)
|
|
|
(177,130
|
)
|
|
|
|
|
|
|
(3,517
|
)
|
|
|
149,270
|
|
Reclassification of unearned
compensation and restricted share common units upon adoption of
SFAS No. 123(R )
|
|
|
|
|
|
|
1,146
|
|
|
|
|
|
|
|
|
|
|
|
(5,178
|
)
|
|
|
4,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
1,297,144
|
|
|
|
4,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,277
|
|
Stock based compensation, net of
share units withholding tax obligations of $504
|
|
|
113,695
|
|
|
|
6,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,517
|
|
Issuance of common shares to
directors for services
|
|
|
25,568
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
238
|
|
Conversion of 4.875% notes,
net of unamortized issuance costs
|
|
|
11,111,108
|
|
|
|
57,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,887
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,479
|
|
|
$
|
27,479
|
|
|
|
|
|
|
|
27,479
|
|
Foreign currency translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,876
|
|
|
|
1,876
|
|
|
|
1,876
|
|
Net unrealized gain on foreign
exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259
|
|
|
|
259
|
|
|
|
259
|
|
Unrealized gain on
investments available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
|
|
|
|
87
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2007
|
|
|
116,970,280
|
|
|
$
|
398,836
|
|
|
|
10
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(149,651
|
)
|
|
|
|
|
|
$
|
(1,295
|
)
|
|
$
|
247,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
LIONS
GATE ENTERTAINMENT CORP.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
27,479
|
|
|
$
|
6,096
|
|
|
$
|
20,281
|
|
Income from discontinued operations
|
|
|
|
|
|
|
4,476
|
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
27,479
|
|
|
|
1,620
|
|
|
|
19,919
|
|
Adjustments to reconcile income
from continuing operations to net cash provided by operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property and
equipment
|
|
|
2,786
|
|
|
|
1,817
|
|
|
|
2,370
|
|
Amortization and write-off of
deferred financing costs
|
|
|
3,756
|
|
|
|
3,804
|
|
|
|
6,945
|
|
Amortization of films and
television programs
|
|
|
241,640
|
|
|
|
253,279
|
|
|
|
213,346
|
|
Amortization of intangible assets
|
|
|
884
|
|
|
|
2,004
|
|
|
|
2,192
|
|
Non-cash stock-based compensation
|
|
|
7,259
|
|
|
|
1,881
|
|
|
|
448
|
|
Interest rate swaps
mark-to-market
|
|
|
|
|
|
|
123
|
|
|
|
(2,453
|
)
|
Gain on disposition of assets
|
|
|
|
|
|
|
|
|
|
|
(666
|
)
|
Gain on sale of equity securities
|
|
|
(1,722
|
)
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
6,780
|
|
|
|
297
|
|
|
|
6,283
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
107
|
|
Equity interests
|
|
|
2,605
|
|
|
|
74
|
|
|
|
200
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
(4,095
|
)
|
|
|
2,093
|
|
|
|
(2,913
|
)
|
Accounts receivable, net
|
|
|
79,704
|
|
|
|
(33,459
|
)
|
|
|
(21,077
|
)
|
Investment in films and television
programs
|
|
|
(297,149
|
)
|
|
|
(284,711
|
)
|
|
|
(171,272
|
)
|
Other assets
|
|
|
7,448
|
|
|
|
(7,892
|
)
|
|
|
(2,149
|
)
|
Accounts payable and accrued
liabilities
|
|
|
(38,509
|
)
|
|
|
49,155
|
|
|
|
4,043
|
|
Unpresented bank drafts
|
|
|
(14,772
|
)
|
|
|
14,772
|
|
|
|
|
|
Participation and residuals
|
|
|
3,261
|
|
|
|
68,676
|
|
|
|
18,718
|
|
Film obligations
|
|
|
42,011
|
|
|
|
78,542
|
|
|
|
(3,124
|
)
|
Deferred revenue
|
|
|
38,451
|
|
|
|
(31,643
|
)
|
|
|
23,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Provided By
Operating Activities continuing operations
|
|
|
107,817
|
|
|
|
120,432
|
|
|
|
94,805
|
|
Net Cash Flows Provided By
Operating Activities discontinued
operations
|
|
|
|
|
|
|
2,580
|
|
|
|
691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Provided By
Operating Activities
|
|
|
107,817
|
|
|
|
123,012
|
|
|
|
95,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of
investments auction rate securities
|
|
|
(865,750
|
)
|
|
|
(307,031
|
)
|
|
|
|
|
Sales of investments
auction rate securities
|
|
|
795,448
|
|
|
|
139,950
|
|
|
|
|
|
Purchases of
investments equity securities
|
|
|
(122
|
)
|
|
|
(3,470
|
)
|
|
|
|
|
Sales of investments
equity securities
|
|
|
390
|
|
|
|
|
|
|
|
|
|
Funding of joint
venture FEARnet
|
|
|
(5,116
|
)
|
|
|
|
|
|
|
|
|
Cash received from sale of
investment
|
|
|
|
|
|
|
2,945
|
|
|
|
|
|
Cash received from disposition of
assets, net
|
|
|
|
|
|
|
34,860
|
|
|
|
1,172
|
|
Acquisition of Debmar, net of cash
acquired
|
|
|
(24,119
|
)
|
|
|
|
|
|
|
|
|
Acquisition of Redbus, net of cash
acquired
|
|
|
|
|
|
|
(27,138
|
)
|
|
|
|
|
Purchases of property and equipment
|
|
|
(8,348
|
)
|
|
|
(5,555
|
)
|
|
|
(2,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Used In Investing
Activities continuing operations
|
|
|
(107,617
|
)
|
|
|
(165,439
|
)
|
|
|
(1,446
|
)
|
Net Cash Flows Provided By
Investing Activities discontinued
operations
|
|
|
|
|
|
|
105
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Used In Investing
Activities
|
|
|
(107,617
|
)
|
|
|
(165,334
|
)
|
|
|
(1,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
4,277
|
|
|
|
1,408
|
|
|
|
24,713
|
|
Financing fees
|
|
|
|
|
|
|
(546
|
)
|
|
|
(1,612
|
)
|
Increase in subordinated notes, net
of issue costs
|
|
|
|
|
|
|
|
|
|
|
314,822
|
|
Repayment of subordinated notes
|
|
|
|
|
|
|
(5,000
|
)
|
|
|
|
|
Repayment of bank loans
|
|
|
|
|
|
|
|
|
|
|
(325,111
|
)
|
Repayment of mortgages payable
|
|
|
|
|
|
|
(16,224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Provided By (Used
In) Financing Activities continuing
operations
|
|
|
4,277
|
|
|
|
(20,362
|
)
|
|
|
12,812
|
|
Net Cash Flows Used In Financing
Activities discontinued operations
|
|
|
|
|
|
|
(2,703
|
)
|
|
|
(1,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Provided By (Used
In) Financing Activities
|
|
|
4,277
|
|
|
|
(23,065
|
)
|
|
|
10,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change In Cash And Cash
Equivalents
|
|
|
4,477
|
|
|
|
(65,387
|
)
|
|
|
105,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Effects on
Cash continuing operations
|
|
|
42
|
|
|
|
(628
|
)
|
|
|
603
|
|
Foreign Exchange Effects on
Cash discontinued operations
|
|
|
|
|
|
|
154
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Effects on
Cash
|
|
|
42
|
|
|
|
(474
|
)
|
|
|
648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash
Equivalents Beginning Of Year
|
|
|
46,978
|
|
|
|
112,839
|
|
|
|
7,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash
Equivalents End Of Year
|
|
$
|
51,497
|
|
|
$
|
46,978
|
|
|
$
|
112,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-6
LIONS
GATE ENTERTAINMENT CORP.
Lions Gate Entertainment Corp. (the Company,
Lionsgate, we, us or
our) is a diversified independent producer and
distributor of motion pictures, television programming, home
entertainment,
video-on-demand
and music content. The Company also acquires distribution rights
from a wide variety of studios, production companies and
independent producers.
On October 17, 2005, the Company acquired all outstanding
shares of Redbus, an independent film distributor located in the
United Kingdom, as described in note 12. The acquisition is
included in the consolidated balance sheets and all operating
results and cash flows have been included in the consolidated
statements of income and cash flows from the acquisition date.
On January 23, 2006, the Company entered into an amended
agreement to sell its studio facilities located in Vancouver,
British Columbia as described in note 12. The transaction
was completed on March 15, 2006. Studio facilities
comprised the Companys studio facilities reporting
segment. Certain assets, including, cash and accounts
receivable, excluded from the transaction are included in the
consolidated balance sheets as of March 31, 2006. The
studio facility is presented in the accompanying financial
statements as a discontinued operation as described in
note 12.
On July 3, 2006, the Company acquired all of the capital
stock of Debmar-Mercury LLC (Debmar), an independent
distributor of film and television packages. The acquisition is
included in the consolidated balance sheets and all operating
results and cash flows have been included in the consolidated
statements of income and cash flows from the acquisition date.
|
|
2.
|
Significant
Accounting Policies
|
|
|
(a)
|
Generally
Accepted Accounting Principles
|
These consolidated financial statements have been prepared in
accordance with United States generally accepted accounting
principles (U.S. GAAP). The Canadian dollar and
the U.S. dollar are the functional currencies of the
Companys Canadian and U.S. based businesses,
respectively.
|
|
(b)
|
Principles
of Consolidation and Discontinued Operations
|
The accompanying consolidated financial statements of the
Company include the accounts of Lionsgate and all of its
majority-owned and controlled subsidiaries. The Company reviews
its relationships with other entities to identify whether it is
the primary beneficiary of a variable interest entity
(VIE). If the determination is made that the Company
is the primary beneficiary, then the entity is consolidated in
accordance with Financial Accounting Standards Board
(FASB) Interpretation No. (FIN) 46,
Consolidation of Variable Interest Entities.
Investments in which the Company exercises significant
influence, but does not control, are accounted for using the
equity method of accounting. Investments in which there is no
significant influence are accounted for using the cost method of
accounting.
All significant intercompany balances and transactions have been
eliminated on consolidation.
As a result of the Companys sale of the studio facilities
on March 15, 2006, the Companys consolidated
statements of income for the years ended March 31, 2006 and
2005 have been revised to reflect total revenues of
$5.8 million and $4.5 million and total expenses of
$6.2 million, which includes $2.5 million of taxes,
and $4.1 million of the studio facilities for the years
ended March 31, 2006 and 2005, respectively, net within the
discontinued operations section of the consolidated statements
of income.
F-7
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenue from the sale or licensing of films and television
programs is recognized upon meeting all recognition requirements
of SoP 00-2.
Revenue from the theatrical release of feature films is
recognized at the time of exhibition based on the Companys
participation in box office receipts. Revenue from the sale of
videocassettes and DVDs in the retail market, net of an
allowance for estimated returns and other allowances, is
recognized on the later of receipt by the customer or
street date (when it is available for sale by the
customer). Under revenue sharing arrangements, rental revenue is
recognized when the Company is entitled to receipts and such
receipts are determinable. Revenues from television licensing
are recognized when the feature film or television program is
available to the licensee for telecast. For television licenses
that include separate availability windows during
the license period, revenue is allocated over the
windows. Revenue from sales to international
territories are recognized when access to the feature film or
television program has been granted or delivery has occurred, as
required under the sales contract, and the right to exploit the
feature film or television program has commenced. For multiple
media rights contracts with a fee for a single film or
television program where the contract provides for media
holdbacks (defined as contractual media release restrictions),
the fee is allocated to the various media based on
managements assessment of the relative fair value of the
rights to exploit each media and is recognized as each holdback
is released. For multiple-title contracts with a fee, the fee is
allocated on a
title-by-title
basis, based on managements assessment of the relative
fair value of each title.
Shipping and handling costs are included under distribution and
marketing expenses in the consolidated statements of income.
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. At March 31, 2007, $18.6 million of
accounts receivable are due beyond one year. The accounts
receivable are due as follows: $11.0 million in fiscal
2009, $5.3 million in fiscal 2010, $2.2 million in
fiscal 2011 and less than $0.1 million in fiscal 2012.
|
|
(d)
|
Cash
and Cash Equivalents
|
Cash and cash equivalents consist of cash deposits at financial
institutions and investments in money market mutual funds.
Restricted cash represents amounts on deposit with a financial
institution that are contractually designated for theatrical
marketing expenses for specific titles. Refer to note 8 for
the theatrical marketing obligation.
Investments classified as
available-for-sale
are reported at fair value based on quoted market prices, with
unrealized gains and losses excluded from earnings and reported
as other comprehensive income (see note 10). The cost of
investments sold is determined in accordance with the average
cost method and realized gains and losses are included in
interest income. The Company periodically assesses its
available-for-sale
investments for other than temporary impairment. Any such other
than temporary impairment loss is recognized as a realized loss
and measured as the excess of carrying value over fair value at
the time the assessment is made.
|
|
(g)
|
Investment
in Films and Television Programs
|
Investment in films and television programs includes the
unamortized costs of completed films and television programs
which have been produced by the Company or for which the Company
has acquired distribution rights, libraries acquired as part of
acquisitions of companies, films and television programs in
progress and in development and home video product inventory.
F-8
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For films and television programs produced by the Company,
capitalized costs include all direct production and financing
costs, capitalized interest and production overhead. For
acquired films and television programs, these capitalized costs
consist of minimum guarantee payments to acquire the
distribution rights.
Costs of acquiring and producing films and television programs
and of acquired libraries are amortized using the
individual-film-forecast method, whereby these costs are
amortized and participation and residual costs are accrued in
the proportion that current years revenue bears to
managements estimate of ultimate revenue at the beginning
of the current year expected to be recognized from the
exploitation, exhibition or sale of the films or television
programs.
Ultimate revenue includes estimates over a period not to exceed
ten years following the date of initial release or from the date
of delivery of the first episode for episodic television series.
For titles included in acquired libraries, ultimate revenue
includes estimates over a period not to exceed twenty years
following the date of acquisition.
Investment in films and television programs is stated at the
lower of amortized cost or estimated fair value. The valuation
of investment in films and television programs is reviewed on a
title-by-title
basis, when an event or change in circumstances indicates that
the fair value of a film or television program is less than its
unamortized cost. The fair value of the film or television
program is determined using managements future revenue and
cost estimates and a discounted cash flow approach. Additional
amortization is recorded in the amount by which the unamortized
costs exceed the estimated fair value of the film or television
program. Estimates of future revenue involve measurement
uncertainty and it is therefore possible that reductions in the
carrying value of investment in films and television programs
may be required as a consequence of changes in managements
future revenue estimates.
Films and television programs in progress include the
accumulated costs of productions, which have not yet been
completed by the Company.
Films and television programs in development include costs of
acquiring film rights to books, stage plays or original
screenplays and costs to adapt such projects. Such costs are
capitalized and, upon commencement of production, are
transferred to production costs. Projects in development are
written off at the earlier of the date they are determined not
to be recoverable or when abandoned, or three years from the
date of the initial investment.
Home video product inventory consists of videocassettes and DVDs
and are stated at the lower of cost or market value
(first-in,
first-out method).
|
|
(h)
|
Property
and Equipment
|
Property and equipment is carried at cost less accumulated
depreciation. Depreciation is provided for using the following
rates and methods:
|
|
|
Computer equipment and software
|
|
2 5 years
straight-line
|
Furniture and equipment
|
|
2 10 years
straight-line
|
Leasehold improvements
|
|
Over the lease term or the useful
life, whichever is shorter
|
Land
|
|
Not depreciated
|
The Company periodically reviews and evaluates the
recoverability of property and equipment. Where applicable,
estimates of net future cash flows, on an undiscounted basis,
are calculated based on future revenue estimates, if appropriate
and where deemed necessary, a reduction in the carrying amount
is recorded.
Goodwill represents the excess costs of acquisition costs over
the tangible and intangible assets acquired and liabilities
assumed in various business acquisitions by the Company. The
Company has two reporting units with goodwill within its
businesses: Motion Pictures and Television. Under
SFAS No. 142, Goodwill and Other
F-9
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Intangible Assets, goodwill is no longer amortized but is
reviewed for impairment annually 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
impairment test follows a two-step approach. The first step
determines if the goodwill is potentially impaired, and the
second step measures the amount of the impairment loss, if
necessary. Under the first step, goodwill is considered
potentially impaired if the fair value of the reporting unit is
less than the reporting units carrying amount, including
goodwill. Under the second step, the impairment loss is then
measured as the excess of recorded goodwill over the fair value
of the goodwill, as calculated. The fair value of goodwill is
calculated by allocating the fair value of the reporting unit to
all the assets and liabilities of the reporting unit as if the
reporting unit was purchased in a business combination and the
purchase price was the fair value of the reporting unit. 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,
2006. No goodwill impairment was identified in any of the
Companys reporting units.
Other assets include deferred print costs, deferred debt
financing costs, equity investments and prepaid expenses.
Prints, Advertising and Marketing
Expenses. The cost of film prints are expensed
upon theatrical release and are included in operating expenses.
The costs of advertising and marketing expenses are expensed as
incurred. Advertising expenses for the year ended March 31,
2007 were $216.2 million (2006
$209.3 million, 2005 $175.8 million) which
were recorded as distribution and marketing expenses.
Debt Financing Costs. Amounts incurred in
connection with obtaining debt financing are deferred and
amortized, as a component of interest expense, over the earlier
of the date of the earliest put option or term to maturity of
the related debt obligation.
Equity Method Investees. The Company uses the
equity method of accounting for investments in companies in
which it has minority equity interest and the ability to exert
significant influence over operating decisions of the companies.
Other assets include companies, which are accounted for using
the equity method. The Companys equity method investees
are periodically reviewed to determine whether there has been a
loss in value that is other than a temporary decline.
|
|
(k)
|
Unpresented
Bank Drafts
|
Unpresented bank drafts at March 31, 2006 represent checks
issued and not yet presented for payment in excess of the cash
balances at custodial banks. The applicable bank accounts are
funded at the time the checks are presented for payment.
Income taxes are accounted for using SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109
requires an asset and liability approach for financial
accounting and reporting for income taxes and allows recognition
and measurement of deferred assets based upon the likelihood of
realization of tax benefits in future years. Under this method,
deferred taxes are provided for the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Valuation allowances are
established when management determines that it is more likely
than not that some portion or all of the net deferred tax asset
will not be realized. The financial effect of changes in tax
laws or rates is accounted for in the period of enactment. The
subsequent realization of net operating loss and general
business credit carryforwards acquired in acquisitions accounted
for using the purchase method of accounting is recorded as a
reduction of goodwill.
F-10
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(m)
|
Government
Assistance
|
The Company has access to government programs that are designed
to promote film and television production and distribution in
Canada. The Company also has access to similar programs in
certain states within the U.S. that are designed to promote
film and television production in those states.
Tax credits earned with respect to expenditures on qualifying
film and television productions are included as an offset to
investment in films and television programs when the qualifying
expenditures have been incurred provided that there is
reasonable assurance that the credits will be realized (refer to
note 15).
|
|
(n)
|
Foreign
Currency Translation
|
Monetary assets and liabilities denominated in currencies other
than the functional currency are translated at exchange rates in
effect at the balance sheet date. Resulting unrealized
translation gains and losses are included in the consolidated
statements of income.
Foreign company assets and liabilities in foreign currencies are
translated into United States dollars at the exchange rate in
effect at the balance sheet date. Foreign company revenue and
expense items are translated at the average rate of exchange for
the fiscal year. Gains or losses arising on the translation of
the accounts of foreign companies are included in accumulated
other comprehensive income (loss), a separate component of
shareholders equity.
|
|
(o)
|
Derivative
Instruments and Hedging Activities
|
Derivative financial instruments are used by the Company in the
management of its foreign currency and interest rate exposures.
The Companys policy is not to use derivative financial
instruments for trading or speculative purposes.
The Company enters into interest rate swap contracts in order to
reduce the impact of fluctuating interest rates on its
interest-bearing debt. These swap contracts require the periodic
exchange of the difference between fixed-rate, generally the
same rate being paid on the Companys underlying debt
obligations, and floating-rate interest amounts calculated based
on the notional principal amount of the swap contract, which are
recorded as interest expense. The related amount payable to or
receivable from counterparties is included as an adjustment to
interest payable or receivable. The Company evaluates whether
the interest rate swap contracts qualify for hedge accounting at
the inception of the contract. The fair value of the swap
contracts are reflected as an asset or liability on the
consolidated balance sheets. Changes in the fair value of the
swap contracts that are effective hedges are reflected in
accumulated other comprehensive income (loss), a separate
component of shareholders equity and changes in the fair
value of the swap contracts that are ineffective hedges are
reflected in the consolidated statements of income. The interest
rate swap contracts entered into by the Company do not qualify
for hedge accounting and accordingly the changes in the fair
value of the swaps are recorded in the consolidated statements
of income.
The Company enters into forward foreign exchange contracts to
hedge its foreign currency exposures on future production
expenses denominated in Canadian dollars. The Company evaluates
whether the foreign exchange contracts qualify for hedge
accounting at the inception of the contract. The fair value of
the forward exchange contracts are recorded on the consolidated
balance sheets. Changes in the fair value of the foreign
exchange contracts that are effective hedges are reflected in
accumulated other comprehensive income (loss), a separate
component of shareholders equity, and changes in the fair
value of foreign exchange contracts that are ineffective hedges
are reflected in the consolidated statements of income. Gains
and losses realized upon settlement of the foreign exchange
contracts are amortized to the consolidated statements of income
on the same basis as the production expenses being hedged. The
foreign exchange contracts entered into by the Company are
considered effective cash flow hedges and accordingly the
changes in the fair value of the foreign exchange contracts are
included in accumulated other comprehensive income (loss), a
separate component of shareholders equity until realized.
F-11
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(p)
|
Stock-Based
Compensation
|
Effective April 1, 2006, the Company adopted the fair value
recognition provisions of SFAS No. 123(R),
Share-Based Payment, (SFAS No. 123(R))
using the modified-prospective transition method. Under such
transition method, compensation cost recognized in the year
ended March 31, 2007 includes: (a) compensation cost
for all stock options granted prior to, but not yet vested as
of, April 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of
SFAS No. 123, and (b) compensation cost for all
share-based payments granted on or after April 1, 2006,
based on the grant-date fair value estimated in accordance with
the provisions of SFAS No. 123(R). See note 11
for further discussion of the Companys stock-based
compensation in accordance with SFAS No. 123(R).
The Company calculates earnings per share in accordance with
SFAS No. 128, Earnings Per Share. Basic
earnings per share is calculated based on the weighted average
common shares outstanding for the period. Basic earnings per
share for the years ended March 31, 2007, 2006 and 2005 are
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Basic Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
27,479
|
|
|
$
|
1,620
|
|
|
$
|
19,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
|
|
|
$
|
4,476
|
|
|
$
|
362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
27,479
|
|
|
$
|
6,096
|
|
|
$
|
20,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for all Basic Income
Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
108,398
|
|
|
|
103,066
|
|
|
|
97,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Income Per Common Share From
Continuing Operations
|
|
$
|
0.25
|
|
|
$
|
0.02
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Income Per Common Share From
Discontinued Operations
|
|
$
|
|
|
|
$
|
0.04
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Net Income Per Common Share
|
|
$
|
0.25
|
|
|
$
|
0.06
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-12
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Diluted earnings per share includes the dilutive effect, if any,
of the share purchase options, the restricted share units, and
the conversion of the 4.875% Notes, the 2.9375% Notes,
the 3.625% Notes. Diluted income per common share for the
years ended March 31, 2007, 2006 and 2005 are presented
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Diluted Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for Diluted Income Per
Common Share From Continuing Operations
|
|
$
|
27,479
|
|
|
$
|
1,620
|
|
|
$
|
19,919
|
|
Numerator for Diluted Income Per
Common Share From Discontinued Operations
|
|
|
|
|
|
|
4,476
|
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for Diluted Net Income
Per Common Share
|
|
$
|
27,479
|
|
|
$
|
6,096
|
|
|
$
|
20,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for all Diluted Income
Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
108,398
|
|
|
|
103,066
|
|
|
|
97,610
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share purchase options
|
|
|
2,493
|
|
|
|
3,036
|
|
|
|
4,861
|
|
Share purchase warrants
|
|
|
|
|
|
|
|
|
|
|
904
|
|
Restricted share units
|
|
|
273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average common
shares outstanding
|
|
|
111,164
|
|
|
|
106,102
|
|
|
|
103,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Income Per Common Share
From Continuing Operations
|
|
$
|
0.25
|
|
|
$
|
0.02
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Income Per Common Share
From Discontinued Operations
|
|
$
|
|
|
|
$
|
0.04
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Net Income Per Common Share
|
|
$
|
0.25
|
|
|
$
|
0.06
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 5,933,289 common shares (2006
5,170,104 common shares; 2005 5,767,266 common
shares) at an average exercise price of $6.30 (2006
$4.19; 2005 $4.29) were outstanding at
March 31, 2007. At March 31, 2007, 1,872,243
restricted share units were outstanding.
Diluted net income per common share reflects the potential
dilutive effect of the conversion of the 4.875%, 2.9375% and
3.625% convertible senior subordinated notes under the
if converted method, share purchase options and
restricted share units using the treasury stock method. Share
purchase options to purchase 1,518,290, 357,958, and
54,065 shares of common stock for the years ended
March 31, 2007, 2006 and 2005, respectively, were excluded
from the diluted net income per common share computation since
their inclusion would have been anti-dilutive. Additionally,
58,302 and 391,035 unvested restricted share units for the years
ended March 31, 2007 and 2006, respectively, were excluded
from the diluted net income per common share computation since
their inclusion would have been anti-dilutive. The shares
issuable on the potential conversion of the 4.875%, 2.9375% and
3.625% convertible senior subordinated notes were
anti-dilutive in each of the years ended March 31, 2007,
2006 and 2005 and were excluded from diluted net income per
common share for those periods.
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
F-13
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
Certain amounts presented in prior years have been reclassified
to conform to the current years presentation.
|
|
(t)
|
Recent
Accounting Pronouncements
|
Statement of Financial Accounting Standards
No. 123(R). In December 2004, the FASB
issued SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS No. 123(R)).
SFAS No. 123(R) revises SFAS No. 123 and
eliminates the alternative to use the intrinsic value method of
accounting under APB No. 25. SFAS No. 123(R)
requires accounting for share-based payment transactions in
which an enterprise receives employee services in exchange for
(a) equity instruments of the enterprise or
(b) liabilities that are based on the fair value of the
enterprises equity instruments or (c) that may be
settled by the issuance of such equity instruments, to account
for these types of transactions using a fair-value-based method.
Effective April 1, 2006, the Company adopted the fair value
recognition provisions of SFAS No. 123(R),
Share-Based Payment (SFAS No. 123(R)),
using the modified-prospective transition method. Under such
transition method, compensation cost recognized in the year
ended March 31, 2007 includes: (a) compensation cost
for all stock options granted prior to, but not yet vested as of
April 1, 2006, based on the grant-date fair value estimated
in accordance with the original provisions of
SFAS No. 123, and (b) compensation cost for all
share-based payments granted on or after April 1, 2006,
based on the grant-date fair value estimated in accordance with
the provisions of SFAS No. 123(R). See note 11
for further discussion of the Companys stock-based
compensation in accordance with SFAS No. 123(R).
FASB Issued Interpretation No. 48. In
July 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes An
Interpretation of SFAS No. 109
(FIN No. 48), which prescribes a recognition threshold
and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. In particular, this interpretation
requires uncertain tax positions to be recognized only if they
are more-likely-than-not to be upheld based on their
technical merits. Additionally, the measurement of the tax
position will be based on the largest amount that is determined
to have greater than a 50% likelihood of realization upon
ultimate settlement. Any resulting cumulative effect of applying
the provisions of FIN No. 48 upon adoption would be
reported as an adjustment to the beginning balance of retained
earnings in the period of adoption. FIN No. 48 will be
effective beginning fiscal 2007. The Company is evaluating the
impact, if any, the adoption of FIN No. 48 will have
on our operating income, net earnings or retained earnings.
Statement of Financial Accounting Standards
No. 157. In September 2006, the FASB issued
SFAS No. 157, Fair Value Measurements, which
addresses how companies should measure fair value when they are
required to use a fair value measure for recognition or
disclosure purposes under generally accepted accounting
principles. As a result of SFAS No. 157 there is now a
common definition of fair value to be used throughout GAAP. This
new standard will make the measurement for fair value more
consistent and comparable and improve disclosures about those
measures. The statement does not require any new fair value
measurement but will result in increased disclosures. This
interpretation is effective for fiscal years beginning after
November 15, 2007.
F-14
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Investments
Available-For-Sale
|
Investments classified as
available-for-sale
are reported at fair value based on quoted market prices, with
unrealized gains and losses excluded from earnings and reported
as other comprehensive income or loss (see note 10). The
cost of investments sold is determined in accordance with the
average cost method. As of March 31, 2007 and 2006, the
cost, unrealized losses and carrying value of the Companys
available-for-sale
investments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2007
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
Holding
|
|
|
Carrying
|
|
|
|
Cost
|
|
|
Losses
|
|
|
Value
|
|
|
|
(Amounts in thousands)
|
|
|
Auction Rate
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
$
|
237,379
|
|
|
$
|
|
|
|
$
|
237,379
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
125
|
|
|
|
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
237,504
|
|
|
$
|
|
|
|
$
|
237,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2006
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
Holding
|
|
|
Carrying
|
|
|
|
Cost
|
|
|
Losses
|
|
|
Value
|
|
|
|
(Amounts in thousands)
|
|
|
Auction Rate
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
$
|
146,631
|
|
|
$
|
|
|
|
$
|
146,631
|
|
Municipal Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal obligations
|
|
|
20,450
|
|
|
|
|
|
|
|
20,450
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
15,008
|
|
|
|
(87
|
)
|
|
$
|
14,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
182,089
|
|
|
$
|
(87
|
)
|
|
$
|
182,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company began investing in Auction Rate Securities
(ARS) during the fiscal year ended March 31,
2006. The ARS carry interest rates or dividend yields that are
periodically re-set through auctions, typically every 7,
14, 28, or 35 days. ARS are usually issued with
long-term maturities or in perpetuity and are auctioned at par.
Thus, the return on the investment between auction dates is
determined by the interest rate or dividend yield set through
the auctions. Accordingly, dividends and interest earned on
auction rate investments are computed as a percentage of the
principal amount of the security. Interest and dividend income
earned during the year ended March 31, 2007 and
March 31, 2006 on ARS was $8.7 million and
$2.0 million, respectively. The Company minimizes its
credit risk associated with investments by investing primarily
in investment grade, highly liquid securities.
In accordance with SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities, and
based on our ability to market and sell these instruments, we
classify ARS as
available-for-sale
securities and carry them at fair value.
Equity securities as of March 31, 2007 are comprised of the
Companys investment in the common shares of Magna Pacific
Holdings (Magna), the largest independent DVD
distributor in Australia and New Zealand, which has a library of
approximately 1,700 active titles. During the fiscal year ended
March 31, 2007 the Company purchased a total of 592,156
common shares of Magna in the open market for $0.1 million
in cash. This represents an average cost per share of $0.21.
F-15
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of March 31, 2006, equity securities comprised of the
Companys investment in the common shares of Image
Entertainment, Inc. (Image), a distributor of DVDs
and entertainment programming. During the fiscal year ended
March 31, 2006, the Company purchased 4,033,996 common
shares of Image at an average cost of $3.72 per share and a
total cost of $15.0 million. The Company subsequently sold
all of its shares held in Image as follows: (1) on
March 13, 2007, the Company sold 112,500 shares at an
average price of $3.17; (2) on March 14, 2007, the
Company sold 11,000 shares at an average price of $3.09;
and (3) on March 30, 2007, the Company sold
3,910,496 shares at an average price of $4.21. The
Companys total sale price for the Image common shares was
approximately $16.7 million, resulting in a gain of
approximately $1.7 million.
The amortized cost and estimated fair value of the
Companys investments
available-for-sale
as of March 31, 2007, by contractual maturities, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
|
(Amounts in thousands)
|
|
|
Due in one year or less
|
|
$
|
97,754
|
|
|
$
|
97,754
|
|
Due after ten years
|
|
|
139,625
|
|
|
|
139,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
237,379
|
|
|
|
237,379
|
|
Equity securities
|
|
|
125
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
Total available for sale
|
|
$
|
237,504
|
|
|
$
|
237,504
|
|
|
|
|
|
|
|
|
|
|
The following table illustrates the impact in other
comprehensive income of realized and unrealized gains of
investments
available-for-sale
during the years ended March 31, 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Gain on sale of investments
available-for-sale
included in net income
|
|
$
|
1,722
|
|
|
$
|
|
|
|
$
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss) arising
during the year
|
|
$
|
1,809
|
|
|
$
|
(87
|
)
|
|
$
|
|
|
Reclassification adjustment
|
|
|
(1,722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss)
recognized in other comprehensive income
|
|
$
|
87
|
|
|
$
|
(87
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-16
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
Investment
in Films and Television Programs
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Motion Picture
Segment Theatrical and Non-Theatrical
Films
|
|
|
|
|
|
|
|
|
Released, net of accumulated
amortization
|
|
$
|
144,302
|
|
|
$
|
154,574
|
|
Acquired libraries, net of
accumulated amortization
|
|
|
90,980
|
|
|
|
105,144
|
|
Completed and not released
|
|
|
19,424
|
|
|
|
30,444
|
|
In progress
|
|
|
107,105
|
|
|
|
47,487
|
|
In development
|
|
|
5,205
|
|
|
|
3,104
|
|
Product inventory
|
|
|
30,330
|
|
|
|
28,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
397,346
|
|
|
|
368,932
|
|
|
|
|
|
|
|
|
|
|
Television Segment
Direct-to-Television
Programs
|
|
|
|
|
|
|
|
|
Released, net of accumulated
amortization
|
|
|
70,949
|
|
|
|
36,003
|
|
In progress
|
|
|
24,083
|
|
|
|
12,311
|
|
In development
|
|
|
762
|
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,794
|
|
|
|
48,818
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
493,140
|
|
|
$
|
417,750
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth acquired libraries that represent
titles released three years prior to the date of acquisition,
and amortized over its expected revenue stream from acquisition
date up to 20 years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized
|
|
|
Unamortized
|
|
|
|
|
|
|
|
|
|
|
|
Costs
|
|
|
Costs
|
|
|
|
|
|
Total
|
|
|
Remaining
|
|
|
Year Ended
|
|
|
Year Ended
|
|
Acquired
|
|
Acquisition
|
|
Amortization
|
|
|
Amortization
|
|
|
March 31,
|
|
|
March 31,
|
|
Library
|
|
Date
|
|
Period
|
|
|
Period
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
(In years)
|
|
|
(Amounts in thousands)
|
|
|
Trimark
|
|
October 2000
|
|
|
20.00
|
|
|
|
13.50
|
|
|
$
|
14,854
|
|
|
$
|
19,028
|
|
Artisan
|
|
December 2003
|
|
|
20.00
|
|
|
|
16.75
|
|
|
|
69,402
|
|
|
|
78,854
|
|
Modern
|
|
August 2005
|
|
|
20.00
|
|
|
|
18.25
|
|
|
|
4,753
|
|
|
|
5,197
|
|
LGUK
|
|
October 2005
|
|
|
20.00
|
|
|
|
18.50
|
|
|
|
1,971
|
|
|
|
2,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Acquired Libraries
|
|
|
|
|
|
|
|
|
|
|
|
$
|
90,980
|
|
|
$
|
105,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects approximately 42.6% of completed films and
television programs, net of accumulated amortization will be
amortized during the one-year period ending March 31, 2008.
Additionally, the Company expects approximately 80.2% 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 March 31,
2010.
F-17
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
Property
and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Leasehold improvements
|
|
$
|
2,758
|
|
|
$
|
1,518
|
|
Property and equipment
|
|
|
4,694
|
|
|
|
1,072
|
|
Computer equipment and software
|
|
|
13,405
|
|
|
|
10,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,857
|
|
|
|
13,362
|
|
Less accumulated depreciation and
amortization
|
|
|
(8,968
|
)
|
|
|
(6,144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
11,889
|
|
|
|
7,218
|
|
Land
|
|
|
1,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,095
|
|
|
$
|
7,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Deferred financing costs, net of
accumulated amortization
|
|
$
|
10,038
|
|
|
$
|
15,626
|
|
Prepaid expenses and other
|
|
|
3,553
|
|
|
|
12,566
|
|
Equity method investments
|
|
|
5,366
|
|
|
|
1,949
|
|
Deferred print costs
|
|
|
|
|
|
|
564
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,957
|
|
|
$
|
30,705
|
|
|
|
|
|
|
|
|
|
|
Deferred
Financing Costs
Deferred Financing Costs. Deferred financing
costs primarily include costs incurred in connection with the
credit facility (see note 7) and the issuance of the
4.875% Notes, the 2.9375% Notes and the
3.625% Notes (see note 9) and are deferred and
amortized to interest expense.
Prepaid
expenses and other
Prepaid expenses and other. Prepaid expenses
and other primarily include prepaid expenses, security deposits
and intangible assets.
Equity
Method Investments
The carrying amount of equity method investments at
March 31, 2007 and 2006 was as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Maple
|
|
$
|
1,764
|
|
|
$
|
1,949
|
|
CinemaNow
|
|
|
|
|
|
|
|
|
Horror Entertainment, LLC
|
|
|
3,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,366
|
|
|
$
|
1,949
|
|
|
|
|
|
|
|
|
|
|
F-18
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Equity interest in equity method investments on our consolidated
statements of income represent our portion of the income or loss
of our equity method investment based on our percentage
ownership of the investee. Equity interest in equity method
investments for the years ended March 31, 2007, 2006 and
2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Maple
|
|
$
|
(90
|
)
|
|
$
|
(74
|
)
|
|
$
|
|
|
CinemaNow
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
(200
|
)
|
Horror Entertainment, LLC
|
|
|
(1,515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,605
|
)
|
|
$
|
(74
|
)
|
|
$
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maple: On April 8, 2005, Maple Pictures
was formed by two former Lionsgate executives and a third-party
equity investor. Lionsgate entered into library and output
agreements with Maple Pictures, a Canadian corporation, for the
distribution of Lionsgates motion picture, television and
home video product in Canada. Lionsgate also acquired and
currently owns a 10% minority interest in Maple Pictures.
As a result of these transactions with Maple Pictures, Lionsgate
recorded an investment in Maple Pictures of $2.1 million in
other assets in the consolidated balance sheets. The Company is
accounting for the investment in Maple Pictures using the equity
method. For the fiscal year ended March 31, 2007, the
Company received dividends of $0.1 million. No dividends
were received for the fiscal year ended March 31, 2006.
CinemaNow: At March 31, 2006, the Company
had a 30% equity interest on an undiluted basis in CinemaNow,
Inc. (CinemaNow). The investment in CinemaNow was
accounted for using the equity method. In July 2004, the Company
purchased $0.2 million Series D Convertible Preferred
Shares as part of an $11 million round of financing secured
by CinemaNow. In June 2006, the Company purchased
$1.0 million Series E Preferred Stock as part of a
$20.3 million round of financing secured by CinemaNow. At
March 31, 2007, the Companys equity interest in
CinemaNow is 18.8% on a fully diluted basis and 21.1% on an
undiluted basis.
Horror Entertainment, LLC. On October 10,
2006, the Company purchased 300 membership interests in Horror
Entertainment, LLC (FEARnet), a multiplatform
programming and content service provider of horror genre films
operating under the branding of FEARnet. In
addition, the Company entered into a
5-year
license agreement with FEARnet for the US territories and
possessions whereby the Company will license content to FEARnet
for video-on-demand and broadband exhibition. The Company has
agreed not to compete in the area of a channel within the horror
genre and the Company cannot license to a horror genre
competitor more than 25 titles in any year during the term of
the license agreement. The Company made a capital contribution
to FEARnet of $5.1 million at the date of acquisition,
which includes direct transaction costs of $0.1 million,
and has committed to a total capital contribution of
$13.3 million, which is expected to be fully funded over
the next two-year period. Under certain circumstances, if the
Company defaults on any of its funding obligations, then the
Company could forfeit its equity and its license agreement with
FEARnet could be terminated. The Company is accounting for the
investment in FEARnet using the equity method because of the
Companys ownership percentage of 33.33%. Due to the timing
in availability of financial statements from FEARnet, the
Company is recording its share of the FEARnet results on a one
quarter lag.
At March 31, 2007, the Company had a $215 million
revolving line of credit, of which $10 million is available
for borrowing by Lionsgate UK in either U.S. dollars
or British pounds sterling. At March 31, 2007, the Company
had no borrowings (March 31, 2006 nil) under
the credit facility. The credit facility expires
December 31, 2008 and bears interest at 2.75% over the
Adjusted LIBOR or the Canadian Bankers
Acceptance rate (as defined in the credit facility), or
1.75% over the U.S. or Canadian prime rates. The
availability of funds under the credit facility is limited by
the borrowing base. Amounts available under the credit facility
are also limited by outstanding letters
F-19
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of credit, which amounted to $15.2 million at
March 31, 2007. At March 31, 2007 there was
$199.8 million available under the credit facility. The
Company is required to pay a monthly commitment fee based upon
0.50% per annum on the total credit facility of
$215 million less the amount drawn. Right, title and
interest in and to all personal property of Lions Gate
Entertainment Corp. and Lions Gate Entertainment Inc. is pledged
as security for the credit facility. The credit facility is
senior to the Companys film obligations and subordinated
notes. The credit facility restricts the Company from paying
cash dividends on its common shares.
The Company entered into a $100 million interest rate swap
at an interest rate of 3.08%, commencing January 2003 and ended
September 2005. The swap was in effect as long as three month
LIBOR was less than 5.0%. Fair market value of the interest rate
swap at the maturity date of September 30, 2005 was nil
(March 31, 2005 $0.1 million). Changes in
the fair value representing fair valuation losses on the
interest rate swap during the year ended March 31, 2006
amount to $0.1 million (2005 gains of
$2.5 million) and are included in the consolidated
statements of income.
|
|
8.
|
Film
Obligations and Participation and Residuals
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Minimum guarantees(1)
|
|
$
|
19,286
|
|
|
$
|
22,865
|
|
Theatrical marketing obligations(2)
|
|
|
4,482
|
|
|
|
1,770
|
|
Production obligations(3)
|
|
|
144,116
|
|
|
|
96,026
|
|
|
|
|
|
|
|
|
|
|
Total film obligations
|
|
|
167,884
|
|
|
|
120,661
|
|
Less film obligations expected to
be paid within one year
|
|
|
(82,350
|
)
|
|
|
(46,516
|
)
|
|
|
|
|
|
|
|
|
|
Production obligations expected to
be paid after one year
|
|
$
|
85,534
|
|
|
$
|
74,145
|
|
|
|
|
|
|
|
|
|
|
Participation and residuals
|
|
$
|
171,156
|
|
|
$
|
164,326
|
|
|
|
|
|
|
|
|
|
|
The Company expects approximately 65% of accrued
participants shares will be paid during the one-year
period ending March 31, 2008.
Refer to note 2 for restricted cash contractually
designated for the theatrical marketing obligation.
|
|
|
(1) |
|
Minimum guarantees represent amounts payable for film rights
which the Company has acquired. |
|
(2) |
|
Theatrical marketing obligations represent amounts received
which are contractually committed for theatrical marketing
expenditures associated with specific titles. |
|
(3) |
|
Production obligations represent amounts payable for the cost
incurred for the production of film and television programs that
the Company produces, which in some cases are financed over
periods exceeding one year. Production obligations have
contractual repayment dates either at or near the expected
completion date, with the exception of certain obligations
containing repayment dates on a longer term basis (see
note 17). Production obligations incur interest at rates
ranging from 7.32% to 8.10%, with the exception of approximately
$85.0 million of production obligations which are
non-interest bearing. |
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
F-20
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company also paid $0.6 million of offering expenses
incurred in connection with the 3.625% Notes. Interest on
the 3.625% Notes is payable semi-annually on March 15 and
September 15 commencing on September 15, 2005. After
March 15, 2012, interest will be 3.125% per annum on
the principal amount of the 3.625% Notes, payable
semi-annually on March 15 and September 15 of each year. The
3.625% Notes mature on March 15, 2025. Lions Gate
Entertainment Inc. may redeem all or a portion of the
3.625% Notes at its option on or after March 15, 2012
at 100% of their principal amount, together with accrued and
unpaid interest through the date of redemption.
The holder may require Lions Gate Entertainment Inc. to
repurchase the 3.625% Notes on March 15, 2012, 2015
and 2020 or upon a change in control at a price equal to 100% of
the principal amount, together with accrued and unpaid interest
through the date of repurchase. Under certain circumstances, if
the holder requires Lions Gate Entertainment Inc. to repurchase
all or a portion of their notes upon a change in control, they
will be entitled to receive a make whole premium. The amount of
the make whole premium, if any, will be based on the price of
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 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.
The fair value of the 3.625% Notes is approximately
$186 million based on current market quotes at
March 31, 2007.
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 holder may require Lions Gate Entertainment Inc. to
repurchase the 2.9375% Notes on October 15, 2011, 2014
and 2019 or upon a change in control at a price equal to 100% of
the principal amount, together with accrued and unpaid interest
through the date of repurchase. Under certain circumstances, if
the holder requires Lions Gate Entertainment Inc. to repurchase
all or a portion of their notes upon a change in control, they
will be entitled to receive a make whole premium. The amount of
the make whole premium, if any, will be based on the price of
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
F-21
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
The fair value of the 2.9375% Notes is approximately
$172 million based on current market quotes at
March 31, 2007.
4.875% Notes. In December 2003, Lions
Gate Entertainment Inc. sold $60.0 million of
4.875% Convertible Senior Subordinated Notes (the
4.875% Notes). The Company received
$57.0 million of net proceeds after paying placement
agents fees from the sale of $60.0 million of the
4.875% Notes. The Company also paid $0.7 million of
offering expenses incurred in connection with the
4.875% Notes.
The 4.875% Notes were convertible, at the option of the
holder, at any time before the close of business on or prior to
the trading day immediately before the maturity date if the
notes had not been previously redeemed or repurchased at a
conversion rate of 185.0944 shares per $1,000 principal
amount of the 4.875% Notes, subject to adjustment in
certain circumstances, which is equal to a conversion price of
approximately $5.40 per share. Lions Gate Entertainment
Inc. had the option to redeem the 4.875% Notes at its
option on or after December 15, 2006 at 100% of their
principal amount plus accrued and unpaid interest if the closing
price of our common shares had exceeded $9.45 per share for at
least 20 trading days within a period of 30 consecutive trading
days ending on the trading day before the date of notice of
redemption.
On December 15, 2006, in response to our optional
redemption notice, all of the noteholders of the
4.875% Notes voluntarily elected to convert their notes
into the Companys common shares. A total of
$60 million of principal was converted into 11,111,108
common shares at a conversion price of $5.40 per share. In
connection with this conversion, the principal amount net of the
unamortized portion of the financing costs associated with the
original conversion of the 4.875% Notes of approximately
$2.1 million was recorded as an increase to common shares.
The shares issued pursuant to the conversion were previously
reserved for such issuance pursuant to the conversion.
|
|
10.
|
Accumulated
Other Comprehensive Income (Loss)
|
Components of accumulated other comprehensive income (loss) are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
Gain (Loss)
|
|
|
|
|
|
Accumulated
|
|
|
|
Currency
|
|
|
on Foreign
|
|
|
Unrealized
|
|
|
Other
|
|
|
|
Translation
|
|
|
Exchange
|
|
|
Gain (Loss) on
|
|
|
Comprehensive
|
|
|
|
Adjustments
|
|
|
Contracts
|
|
|
Securities
|
|
|
Income (Loss)
|
|
|
|
(Amounts in thousands)
|
|
|
Balance at March 31, 2005
|
|
$
|
(5,601
|
)
|
|
$
|
304
|
|
|
$
|
|
|
|
$
|
(5,297
|
)
|
Current year change
|
|
|
2,223
|
|
|
|
(356
|
)
|
|
|
(87
|
)
|
|
|
1,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2006
|
|
|
(3,378
|
)
|
|
|
(52
|
)
|
|
|
(87
|
)
|
|
|
(3,517
|
)
|
Current year change
|
|
|
1,876
|
|
|
|
259
|
|
|
|
87
|
|
|
|
2,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2007
|
|
$
|
(1,502
|
)
|
|
$
|
207
|
|
|
$
|
|
|
|
$
|
(1,295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company had 500,000,000 authorized shares of common stock at
March 31, 2007 and 2006. The table below outlines common
shares reserved for future issuance:
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Stock options outstanding
|
|
|
5,933
|
|
|
|
5,170
|
|
Restricted share units
unvested
|
|
|
1,872
|
|
|
|
509
|
|
Share purchase options and
restricted share units available for future issuance
|
|
|
1,026
|
|
|
|
377
|
|
Shares issuable upon conversion of
4.875% Notes
|
|
|
|
|
|
|
11,111
|
|
Shares issuable upon conversion of
2.9375% Notes
|
|
|
13,043
|
|
|
|
13,043
|
|
Shares issuable upon conversion of
3.625% Notes
|
|
|
12,252
|
|
|
|
12,252
|
|
|
|
|
|
|
|
|
|
|
Shares reserved for future issuance
|
|
|
34,126
|
|
|
|
42,462
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
|
Series B
Preferred Shares
|
As a condition of the purchase of a subsidiary, on
October 13, 2000, the Company issued ten shares at
$10 per share to the principal shareholder of Trimark. The
shares are non-transferable and are not entitled to dividends.
The shares are non-voting except that the holder, who was a
principal of the subsidiary acquired, has the right to elect
himself to the Board of Directors. The shares are redeemable by
the Company if certain events occur. The shares have a
liquidation preference equal to the stated value of $10 per
share.
|
|
(c)
|
Share-Based
Compensation Plans
|
Adoption
of SFAS No. 123(R)
As of March 31, 2007, the Company had two stock option and
long-term incentive plans that permit the grant of stock options
and other equity awards to certain employees, officers and
non-employee directors, which are described more fully below.
Prior to April 1, 2006, the Company accounted for
stock-based compensation under the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB
Opinion No. 25), and related Interpretations, as permitted
under SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123). The intrinsic value
method requires recognition of compensation expense over the
applicable vesting period for the difference between the
exercise price of the stock option and the market value of the
underlying stock on the date of grant. Since the exercise price
of our stock options is equal to the market value of the
underlying stock at the date of grant, the Company has not
historically recognized compensation costs associated with share
based awards, with the exception of stock appreciation rights
(SARs) and restricted share units discussed below
and to a very limited extent the modification of awards
previously issued.
Effective April 1, 2006, the Company adopted the fair value
recognition provisions of SFAS No. 123(R),
Share-Based Payment (SFAS No. 123(R)),
using the modified-prospective transition method. Under such
transition method, compensation cost recognized for the year
ended March 31, 2007 includes: (a) compensation cost
for all stock options granted prior to, but not yet vested as of
April 1, 2006, based on the grant-date fair value estimated
in accordance with the original provisions of
SFAS No. 123, and (b) compensation cost for all
share-based payments granted on or after April 1, 2006,
based on the grant-date fair value estimated in accordance with
the provisions of SFAS No. 123(R). Results for prior
periods have not been restated. As a result of adopting
SFAS No. 123(R) on April 1, 2006, the
Companys income from operations before income taxes and
net income
F-23
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
for the year ended March 31, 2007 are both
$3.0 million lower than if the Company had continued to
account for share-based compensation under APB Opinion
No. 25. The $3.0 million charge for the year ended
March 31, 2007 consisted of the recognition of compensation
expense of $2.6 million associated with stock options
granted and a $0.4 million change in the fair value as
compared to the change in the intrinsic value of stock
appreciation rights. For the year ended March 31, 2007, the
Companys basic and diluted income per share would have
been $0.03 and $0.02, respectively, higher if the Company had
not adopted SFAS No. 123(R).
SFAS No. 123(R) requires the cash flows resulting from
the tax benefits from tax deductions in excess of the
compensation cost recognized for those options (excess tax
benefits) to be classified as financing cash flows. There were
no tax benefits realized from the deduction of amounts related
to share based payments for the years ended March 31, 2007.
Prior to the adoption of SFAS No. 123(R) and upon
issuance of the restricted share units pursuant to the
agreements, an unamortized compensation expense equivalent to
the market value of the shares on the date of grant was charged
to stockholders equity as unearned compensation and
amortized over the applicable vested periods. As a result of
adopting SFAS No. 123(R) on April 1, 2006, the
Company transferred the remaining unearned compensation balance
in its stockholders equity to common share capital. Prior
to the adoption of SFAS No. 123(R), the Company
recorded forfeitures of restricted share units, if any, and any
compensation cost previously recognized for unvested restricted
share units was reversed in the period of forfeiture. Beginning
April 1, 2006, the Company records forfeitures in
accordance with SFAS No. 123(R) by estimating the
forfeiture rates for share-based awards upfront and recording a
true-up
adjustment for the actual forfeitures. For the year ended
March 31, 2007, the calculation of forfeitures did not have
a material effect on the Companys results of operations,
financial position or cash flows.
The fair value of each option award is estimated on the date of
grant using a closed-form option valuation model (Black-Scholes)
based on the assumptions noted in the following table. Expected
volatilities are based on implied volatilities from traded
options on the Companys stock, historical volatility of
the Companys stock and other factors. The expected term of
options granted represents the period of time that options
granted are expected to be outstanding. During the year ended
March 31, 2007, two officers were each granted options to
purchase 1.1 million shares of common stock. The following
table represents the assumptions used in the Black-Scholes
option-pricing model for options granted during the years ended
March 31, 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Risk-free interest rate
|
|
|
4.7
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
Expected option lives (in years)
|
|
|
6.3
|
|
|
|
5.0
|
|
|
|
5.0
|
|
Expected volatility for options
|
|
|
31
|
%
|
|
|
33
|
%
|
|
|
33
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
The weighted-average grant-date fair values for options granted
during the year ended March 31, 2007 was $3.93
(2006 $3.61, 2005 $2.80).
F-24
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table illustrates the effect on net income and
income per common share if the Company had applied the fair
value recognition provisions of SFAS No. 123 to stock
options issued and modified under the Companys stock
option plans during the years ended March 31, 2006 and
2005. For purposes of this pro forma disclosure, the value of
the options is estimated using a Black-Scholes option-pricing
model and amortized to expense over the options vesting
periods.
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income, as reported
|
|
$
|
6,096
|
|
|
$
|
20,281
|
|
Add: stock-based compensation
expense calculated using intrinsic value method and included in
reported net income
|
|
|
27
|
|
|
|
311
|
|
Deduct: stock-based compensation
expense calculated using fair value method
|
|
|
(2,044
|
)
|
|
|
(2,257
|
)
|
|
|
|
|
|
|
|
|
|
Net income, pro forma
|
|
$
|
4,079
|
|
|
$
|
18,335
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding used in the computation of pro forma basic income
per common share
|
|
|
103,066
|
|
|
|
97,610
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding used in the computation of pro forma diluted income
per common share
|
|
|
106,102
|
|
|
|
103,375
|
|
|
|
|
|
|
|
|
|
|
Income per share:
|
|
|
|
|
|
|
|
|
Basic income per share
as reported
|
|
$
|
0.06
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
pro forma
|
|
$
|
0.04
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
Diluted income per
share as reported
|
|
$
|
0.06
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
Diluted income per
share pro forma
|
|
$
|
0.04
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
The Company recognized the following share-based compensation
expense during the years ended March 31, 2007, 2006 and
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Compensation Expense (Benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
$
|
2,591
|
|
|
$
|
27
|
|
|
$
|
311
|
|
Restricted Share Units
|
|
|
4,431
|
|
|
|
1,689
|
|
|
|
|
|
Stock Appreciation Rights
|
|
|
1,684
|
|
|
|
(274
|
)
|
|
|
7,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,706
|
|
|
$
|
1,442
|
|
|
$
|
8,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There was no income tax benefit recognized in the statements of
income for share-based compensation arrangements during the
years ended March 31, 2007, 2006 and 2005.
F-25
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Option and Long-Term Incentive Plans
The Company has two stock option and long-term incentive plans
that permit the grant of stock options and other equity awards
to certain employees, officers and non-employee directors for up
to 16.0 million shares of common stock.
The shareholders approved an Employees and Directors
Equity Incentive Plan (the Plan) that provides for
the issue of up to 8.0 million common shares of common
stock of the Company to eligible employees, directors and
service providers of the Company and its affiliates. On
July 25, 2003, the Board of Directors increased the number
of shares authorized for stock options from 8.0 million to
9.0 million. Of the 9.0 million common shares
allocated for issuance, up to a maximum of 250,000 common shares
may be issued as discretionary bonuses in accordance with the
terms of a share bonus plan. At March 31, 2007, 70,765
common shares were available for grant under the Plan.
With the approval of the 2004 Performance Incentive Plan (the
2004 Plan), no new awards were granted under the
Plan subsequent to the 2004 Annual General Meeting of
Shareholders. Any remaining shares available for additional
grant purposes under the Plan may be issued under the 2004 Plan.
The 2004 Plan provided for the issue of up to an additional
2.0 million common shares of the Company to eligible
employees, directors, officers and other eligible persons
through the grant of awards and incentives for high levels of
individual performance and improved financial performance of the
Company. On September 12, 2006, the Companys
shareholders approved an increase of 5.0 million common
shares under the 2004 Plan. The 2004 Plan authorizes stock
options, share appreciation rights, restricted shares, share
bonuses and other forms of awards granted or denominated in the
Companys common shares. The per share exercise price of an
option granted under the 2004 Plan generally may not be less
than the fair market value of a common share of the Company on
the date of grant. The maximum term of an option granted under
the 2004 Plan is ten years from the date of grant. At
March 31, 2007, 955,639 common shares were available for
grant under the 2004 Plan.
F-26
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of option activity under the various plans as of
March 31, 2007, 2006 and 2005 and changes during the years
then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Value as of
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term in Years
|
|
|
2007
|
|
|
|
|
|
|
|
|
Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 1, 2004
|
|
|
9,267,163
|
|
|
$
|
2.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,670,999
|
|
|
|
8.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4,991,141
|
)
|
|
|
2.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(179,755
|
)
|
|
|
5.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2005
|
|
|
5,767,266
|
|
|
$
|
4.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
201,000
|
|
|
|
9.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(361,310
|
)
|
|
|
3.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(436,852
|
)
|
|
|
8.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2006
|
|
|
5,170,104
|
|
|
$
|
4.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,100,000
|
|
|
|
9.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,297,144
|
)
|
|
|
3.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(39,671
|
)
|
|
|
7.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2007
|
|
|
5,933,289
|
|
|
$
|
6.30
|
|
|
|
4.18
|
|
|
$
|
30,380,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options as of
March 31, 2007, vested or expected to vest in the future
|
|
|
5,925,914
|
|
|
$
|
6.30
|
|
|
|
4.18
|
|
|
$
|
30,363,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2007
|
|
|
3,544,120
|
|
|
$
|
4.08
|
|
|
|
1.17
|
|
|
$
|
26,010,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised as of each
exercise date during the year ended March 31, 2007 was
$8.7 million (2006 $2.0 million,
2005 $37.6 million).
Restricted Share Units. Effective
June 27, 2005 the Company, pursuant to the 2004 Plan,
entered into restricted share unit agreements with certain
employees and directors.
F-27
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the status of the Companys restricted share
units as of March 31, 2007 and 2006, and changes during the
years then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
Number of Shares
|
|
|
Value
|
|
|
Restricted Share
Units:
|
|
|
|
|
|
|
|
|
Outstanding at April 1, 2005
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
570,375
|
|
|
|
10.18
|
|
Vested
|
|
|
(50,833
|
)
|
|
|
10.16
|
|
Forfeited
|
|
|
(10,875
|
)
|
|
|
10.40
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2006
|
|
|
508,667
|
|
|
$
|
10.18
|
|
Granted
|
|
|
1,557,833
|
|
|
|
9.70
|
|
Vested
|
|
|
(167,608
|
)
|
|
|
10.28
|
|
Forfeited
|
|
|
(26,649
|
)
|
|
|
9.54
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2007
|
|
|
1,872,243
|
|
|
$
|
9.78
|
|
|
|
|
|
|
|
|
|
|
The fair values of restricted share units are determined based
on the market value of the shares on the date of grant.
The following table summarizes the total remaining unrecognized
compensation related to nonvested stock options and restricted
share units and the weighted average remaining years over which
the cost will be recognized:
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Weighted
|
|
|
|
Unrecognized
|
|
|
Average
|
|
|
|
Compensation
|
|
|
Remaining
|
|
|
|
Cost
|
|
|
Years
|
|
|
|
(Amounts in thousands)
|
|
|
Stock Options
|
|
$
|
7,643
|
|
|
|
2.7
|
|
Restricted Share Units
|
|
|
14,043
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under the Companys two stock option and long term
incentive plans, the Company withholds shares to satisfy minimum
statutory federal, state and local tax withholding obligations
arising from the vesting of restricted share units. During the
year ended March 31, 2007, 53,913 shares were withheld
upon the vesting of restricted share units.
The Company becomes entitled to an income tax deduction in an
amount equal to the taxable income reported by the holders of
the stock options and restricted share units when vesting or
exercise occurs, the restrictions are released and the shares
are issued. Restricted share units are forfeited if the
employees terminate prior to vesting.
Stock Appreciation Rights. On
November 13, 2001, 750,000 options, granted to certain
officers of the Company to purchase common shares of the
Company, were revised as stock appreciation rights
(SARs) which entitled the holders to receive cash
only and not common shares. The amount of cash received was to
be equal to the amount by which the trading price of common
shares on the exercise notice date exceeds the SARs price
of $5.00 multiplied by the number of options exercised. Any
twenty-day
average trading price of common shares prior to the exercise
notice date had to be $6.00 or above in order for the officers
to exercise their SARs. These SARs are not considered part of
the Employees and Directors Equity Incentive Plan.
Through March 31, 2006, the Company measured compensation
expense as the amount by which the market value of common shares
exceeded the SARs price. The SARs were fully vested prior
to the adoption of SFAS No. 123(R). Effective
April 1, 2006, upon the adoption of
SFAS No. 123(R), the Company measured compensation
expense based on the fair value of the SARs determined by using
the Black-Scholes option-pricing model at each reporting date.
For the year ended March 31,
F-28
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2007, the following assumptions were used in the Black-Scholes
option-pricing model: Volatility of 41.8%, Risk Free Rate of
5.0%-5.2%, Expected Term of 0.17-1.25 years, and Dividend
of 0%. On August 11, 2006, an officer exercised 375,000
SARs and received $1.6 million in cash. The trading price
of common shares at the exercise date was $9.27. On
September 20, 2006, another officers 375,000 fully
vested and outstanding SARs were cancelled in exchange for
$2.1 million in cash. The Company has no stock-based
compensation accrual at March 31, 2007 related to these
awards (March 31, 2006 $3.8 million).
On February 2, 2004, an officer of the Company was granted
1,000,000 SARs, which entitle the officer to receive cash only,
and not common shares. The amount of cash received will be equal
to the amount by which the trading price of common shares on the
exercise notice date exceeds the SARs price of $5.20
multiplied by the number of SARs exercised. The SARs vested one
quarter immediately on the award date and one quarter on each of
the first, second and third anniversaries of the award date.
These SARs are not considered part of the Employees and
Directors Equity Incentive Plan. Applying FASB issued
Interpretation No. (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. Through March 31,
2006, the Company measured compensation expense as the amount by
which the market value of common shares exceeded the SARs
price at each reporting date. Effective April 1, 2006, upon
the adoption of SFAS No. 123(R), the Company measures
compensation expense based on the fair value of the SARs which
is determined by using the Black-Scholes option-pricing model at
each reporting date. For the year ended March 31, 2007, the
following assumptions were used in the Black-Scholes
option-pricing model: Volatility of 38.3%, Risk Free Rate of
4.6%, Expected Term of 1.9 years, and Dividend of 0%. At
March 31, 2007, the market price of our common shares was
$11.42, the weighted average fair value of the SARs was $6.71,
and all 1,000,000 of the SARs had vested. Due to the increase in
the market price of its common shares, the Company recorded
additional stock-based compensation expense in the amount of
$1.8 million in general and administration expenses in the
consolidated statements of income for the year ended
March 31, 2007 (2006 $0.4 million,
2005 $4.3 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 compensation
expense amount in the period is calculated by using the fair
value of the SARs, multiplied by the remaining 1,000,000 SARs
assumed to have vested under the graded methodology less the
150,000 SARs exercised less the amount previously recorded. At
March 31, 2007, the Company has a stock-based compensation
accrual in the amount of $5.7 million (March 31,
2006 $3.9 million) included in accounts payable
and accrued liabilities on the consolidated balance sheets
relating to these SARs.
|
|
12.
|
Acquisitions
and Divestitures
|
Acquisition
of Debmar-Mercury LLC
On July 3, 2006, the Company acquired all of the capital
stock of Debmar-Mercury LLC (Debmar), an independent
distributor of film and television packages. Consideration for
the Debmar acquisition was $27.0 million, comprised of a
combination of $24.5 million in cash paid on July 3,
2006 and up to $2.5 million in common shares of the Company
to be issued as of January 1, 2008 if there are no breaches
requiring indemnification by the seller of certain
representations and warranties made by the seller. An additional
$0.2 million has been incurred in acquisition costs. The
$2.5 million of shares to be issued has been recorded as
part of the purchase consideration and reflected as a liability.
If no incremental liabilities become known by January 1,
2008 then the shares will be issued and the $2.5 million
will be reclassified to equity. The purchase price may be
adjusted for the payment of additional consideration contingent
on the financial performance of Debmar for the five-year period
ending June 30, 2011. The Debmar acquisition provides the
Company with the rights to distribute certain television
properties such as the television series, South Park, and
provides the Company with an experienced management team to
further enhance its capacity to syndicate its own television
programming and feature film packages.
The Debmar acquisition was accounted for as a purchase, with the
results of operations of Debmar consolidated from July 3,
2006. Goodwill of $8.7 million represents the excess of the
purchase price over the
F-29
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
fair value of the net identifiable tangible and intangible
assets acquired. The preliminary allocation of the purchase
price to the tangible and intangible assets acquired and
liabilities assumed based on their fair values is as follows:
|
|
|
|
|
|
|
Preliminary
|
|
|
|
Balance Sheet
|
|
|
|
(Amounts in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
603
|
|
Accounts receivable, net
|
|
|
10,065
|
|
Investment in films and television
programs
|
|
|
18,000
|
|
Other assets acquired
|
|
|
391
|
|
Goodwill
|
|
|
8,690
|
|
Other liabilities assumed
|
|
|
(10,509
|
)
|
|
|
|
|
|
Total
|
|
$
|
27,240
|
|
|
|
|
|
|
Sale
of Studio Facilities
On March 15, 2006, the Company sold its studio facility
located in Vancouver, British Columbia. The purchase price of
$35.3 million (net of commissions) was paid in cash. Studio
facilities previously comprised the Companys studio
facilities reporting segment (see note 16). Certain assets,
including cash and accounts receivable balances were excluded
from the transaction. At March 15, 2006, the carrying value
of studios property and equipment sold in the agreement
was $28.3 million and was comprised primarily of land and
buildings, with carrying values of $12.6 million and
$14.8 million, respectively. At March 15, 2006, the
carrying value of the goodwill within the studios reporting unit
was $1.9 million. The agreement also required the Company
to repay the remaining balances of its mortgages payable at the
close of the transaction. On March 15, 2006, the Company
paid the remaining mortgages balances of $16.8 million. The
Company incurred mortgage penalty costs of less than
$0.1 million in connection with the repayment of the
mortgages which reduced the gain on sale of studio facilities
recorded during the year ended March 31, 2006 in the
consolidated statements of income. In connection with the
repayment of the remaining balances of its mortgages payable on
its studio facilities, the Company terminated its
CDN$20 million interest rate swap for $0.1 million,
which the Company paid on March 15, 2006. The Company
recognized a gain, on the sale of the studio facilities of
$4.9 million before $1.7 million of related taxes,
during the fiscal year ended March 31, 2006 within the
discontinued operations line item in the consolidated statements
of income.
The Companys consolidated statements of income for all
years presented have been revised to reflect the gain on sale of
the studio facility and all revenues and expenses of the studio
facility net within the discontinued operations section of the
consolidated statements of income. Similarly, the Companys
statements of cash flows have been revised to distinguish the
cash flows of continued operations from cash flows from
discontinued operations.
F-30
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the revenues and expenses of the
studio facilities which have been aggregated and included net of
taxes within the discontinued operations in the consolidated
statements of income (in millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
March 31, 2006
|
|
|
March 31, 2005
|
|
|
|
(Amounts in millions)
|
|
|
Statements of Income
Data
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
5.8
|
|
|
$
|
4.5
|
|
Operating expenses
|
|
|
(2.3
|
)
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
|
3.5
|
|
|
|
2.2
|
|
Other expenses
|
|
|
(1.4
|
)
|
|
|
(1.6
|
)
|
Gain on sale
|
|
|
4.9
|
|
|
|
|
|
Taxes
|
|
|
(2.5
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
4.5
|
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of Lionsgate UK, formerly Redbus Group Limited
On October 17, 2005, the Company acquired all outstanding
shares of Redbus, an independent film distributor located in the
United Kingdom. Consideration for the Redbus acquisition was
$35.5 million, comprised of a combination of
$28.0 million in cash, $6.4 million in Lionsgate
common shares and direct transaction costs of $1.1 million.
In addition, the Company assumed other obligations (including
accounts payable and accrued liabilities and film obligations)
of $18.1 million. At the closing of the transaction the
Company issued 643,460 common shares to Redbus Group Limited
(RGL) valued at approximately $5.6 million, or
$8.77 per share, and will issue up to an additional 94,937
common shares to RGL valued at approximately $0.8 million
upon satisfaction of the terms of the escrow agreement which
terminated in May 2007. This acquisition provided the Company
with a library of approximately 130 films. In addition, the
acquisition provided the Company the capability to distribute
its product directly to each market in the United Kingdom and
Ireland rather than selling to distributors in those markets.
Effective October 17, 2005, the credit facility was
amended in connection with the acquisition of Redbus, to make
available a portion of the credit facility for borrowing by
Redbus in either U.S. dollars or British pounds sterling.
The Redbus acquisition was accounted for as a purchase, with the
results of operations of Redbus consolidated from
October 17, 2005. Goodwill of $26.3 million represents
the excess of the purchase price over the fair value of the net
identifiable tangible and intangible assets acquired, and is
included in the goodwill of the motion pictures segment as
disclosed in note 16. Pro forma information for the Redbus
acquisition is not presented because the assets acquired and the
results of operations were not material to the Companys
condensed consolidated balance sheets or consolidated statements
of income, respectively. The allocation of the purchase price to
the tangible and intangible assets acquired and liabilities
assumed based on their fair values is as follows:
|
|
|
|
|
|
|
(Amounts in
|
|
|
|
thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
1,962
|
|
Accounts receivable, net
|
|
|
2,997
|
|
Investment in films and television
programs
|
|
|
21,585
|
|
Other tangible assets acquired
|
|
|
807
|
|
Goodwill
|
|
|
26,273
|
|
Other liabilities assumed
|
|
|
(18,090
|
)
|
|
|
|
|
|
Total
|
|
$
|
35,534
|
|
|
|
|
|
|
F-31
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
13.
|
Direct
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands)
|
|
|
Amortization of films and
television programs
|
|
$
|
241,640
|
|
|
$
|
253,279
|
|
|
$
|
213,346
|
|
Participation and residual expense
|
|
|
196,716
|
|
|
|
197,785
|
|
|
|
143,329
|
|
Amortization of acquired
intangible assets
|
|
|
884
|
|
|
|
2,004
|
|
|
|
2,192
|
|
Other expenses
|
|
|
(2,422
|
)
|
|
|
5,922
|
|
|
|
(5,077
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
436,818
|
|
|
$
|
458,990
|
|
|
$
|
353,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses primarily consist of the provision for doubtful
accounts and foreign exchange gains and losses. The provision
for doubtful accounts for the years ended March 31, 2007,
2006 and 2005 were a benefit of $1.5 million, an expense of
$5.7 million and a benefit of $4.6 million,
respectively. The negative other expenses for the year ended
March 31, 2007 and 2005 is due to a reversal of the
provision for doubtful accounts of $1.5 million and
$4.6 million, respectively, primarily due to collection of
accounts receivables that were previously reserved. Other
expenses for the year ended March 31, 2007 includes foreign
exchange gains of $0.9 million. Other expenses for the year
ended March 31, 2006 includes a provision for doubtful
accounts of $5.7 million, of which $4.4 million
related primarily to a large retail customer which declared
bankruptcy.
The Companys Canadian, United Kingdom, United States, and
Australian pretax income (loss) from continuing operations, net
of intercompany eliminations, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
March 31, 2007
|
|
|
March 31, 2006
|
|
|
March 31, 2005
|
|
|
|
(Amounts in thousands)
|
|
|
Canada
|
|
$
|
(1,131
|
)
|
|
$
|
720
|
|
|
$
|
7,797
|
|
United Kingdom
|
|
|
(466
|
)
|
|
|
(1,843
|
)
|
|
|
|
|
United States
|
|
|
37,721
|
|
|
|
1,713
|
|
|
|
20,869
|
|
Australia
|
|
|
(965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,159
|
|
|
$
|
590
|
|
|
$
|
28,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys current and deferred income tax provision
(benefits) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
March 31, 2007
|
|
|
March 31, 2006
|
|
|
March 31, 2005
|
|
|
|
(Amounts in thousands)
|
|
|
Current
|
|
$
|
2,547
|
|
|
$
|
(1,425
|
)
|
|
$
|
2,464
|
|
Deferred
|
|
|
5,133
|
|
|
|
395
|
|
|
|
6,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,680
|
|
|
$
|
(1,030
|
)
|
|
$
|
8,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CANADA
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
(758
|
)
|
|
$
|
(2,385
|
)
|
|
$
|
369
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(758
|
)
|
|
|
(2,385
|
)
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED KINGDOM
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Deferred
|
|
|
(784
|
)
|
|
|
(572
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(784
|
)
|
|
|
(572
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED STATES
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
3,305
|
|
|
$
|
960
|
|
|
$
|
2,095
|
|
Deferred
|
|
|
5,917
|
|
|
|
967
|
|
|
|
6,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,222
|
|
|
|
1,927
|
|
|
|
8,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AUSTRALIA
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The differences between income taxes expected at United States
statutory income tax rates and the income tax provision
(benefit) are as set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
March 31, 2007
|
|
|
March 31, 2006
|
|
|
March 31, 2005
|
|
|
|
(Amounts in thousands)
|
|
|
Income taxes (tax benefits)
computed at Federal statutory rate of 35%
|
|
$
|
12,306
|
|
|
$
|
172
|
|
|
$
|
10,030
|
|
Federal alternative minimum tax
|
|
|
494
|
|
|
|
562
|
|
|
|
|
|
Foreign and provincial operations
subject to different income tax rates
|
|
|
500
|
|
|
|
73
|
|
|
|
400
|
|
State income tax
|
|
|
3,477
|
|
|
|
1,750
|
|
|
|
1,459
|
|
Reduction to the accrual for tax
liability
|
|
|
(1,109
|
)
|
|
|
(1,099
|
)
|
|
|
|
|
Foreign income tax withholding
|
|
|
507
|
|
|
|
466
|
|
|
|
|
|
Other
|
|
|
(1,292
|
)
|
|
|
(1,161
|
)
|
|
|
(491
|
)
|
Increase (decrease) in valuation
allowance
|
|
|
(7,203
|
)
|
|
|
(1,793
|
)
|
|
|
(2,651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,680
|
|
|
$
|
(1,030
|
)
|
|
$
|
8,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Although the Company is incorporated under Canada law, the
majority of its global operations are currently subject to tax
in the U.S. As a result, the Company believes it is more
appropriate to use the U.S. Federal statutory rate in its
reconciliation of the statutory rate to its reported income tax
rate.
F-33
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The income tax effects of temporary differences between the book
value and tax basis of assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007
|
|
|
March 31, 2006
|
|
|
|
(Amounts in thousands)
|
|
|
CANADA
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
13,437
|
|
|
$
|
17,181
|
|
Accounts payable
|
|
|
561
|
|
|
|
636
|
|
Property and equipment
|
|
|
750
|
|
|
|
953
|
|
Other
|
|
|
3,681
|
|
|
|
2,591
|
|
Valuation allowance
|
|
|
(16,729
|
)
|
|
|
(19,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
1,700
|
|
|
|
1,528
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Other
|
|
|
(1,700
|
)
|
|
|
(1,528
|
)
|
|
|
|
|
|
|
|
|
|
Net Canada
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED KINGDOM
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
4,116
|
|
|
$
|
1,341
|
|
Property and equipment
|
|
|
56
|
|
|
|
47
|
|
Interest Payable
|
|
|
330
|
|
|
|
|
|
Reserves
|
|
|
|
|
|
|
690
|
|
Other
|
|
|
6
|
|
|
|
|
|
Valuation Allowance
|
|
|
(1,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,820
|
|
|
|
2,078
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Investment in film and television
obligations
|
|
|
(2,820
|
)
|
|
|
(3,720
|
)
|
|
|
|
|
|
|
|
|
|
Net United Kingdom
|
|
|
|
|
|
|
(1,642
|
)
|
|
|
|
|
|
|
|
|
|
UNITED STATES
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
36,959
|
|
|
$
|
73,731
|
|
Accounts payable
|
|
|
4,824
|
|
|
|
5,630
|
|
Other assets
|
|
|
18,332
|
|
|
|
18,765
|
|
Reserves
|
|
|
62,685
|
|
|
|
49,899
|
|
Valuation allowance
|
|
|
(74,621
|
)
|
|
|
(90,630
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
48,179
|
|
|
|
57,395
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Investment in film and television
programs
|
|
|
(42,234
|
)
|
|
|
(49,421
|
)
|
Accounts receivable
|
|
|
(2,850
|
)
|
|
|
(3,124
|
)
|
Other
|
|
|
(3,095
|
)
|
|
|
(4,850
|
)
|
|
|
|
|
|
|
|
|
|
Net United States
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AUSTRALIA
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
265
|
|
|
$
|
|
|
Property and equipment
|
|
|
1
|
|
|
|
|
|
Valuation allowance
|
|
|
(266
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Australia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
|
|
|
$
|
(1,642
|
)
|
|
|
|
|
|
|
|
|
|
Due to the uncertainty surrounding the timing of realizing the
benefits of its deferred tax assets in future tax returns, the
Company has recorded a valuation allowance against its deferred
tax assets. A release of $6.8 million of
F-34
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
valuation allowance was recorded as a reduction of goodwill for
the initial recognition of tax benefits related to acquired
deductible temporary differences and net operating losses,
resulting in a deferred tax expense. The total change in the
valuation allowance was ($16.0) million and
$14.7 million for fiscal 2007 and fiscal 2006, respectively.
At March 31, 2007, the Company had U.S. and state net
operating loss carryforwards of approximately
$116.4 million and $80.4 million, respectively,
available to reduce future federal and state taxable income
which expire beginning in 2008 through 2025. Certain of these
net operating losses are subject to limitations provided under
U.S. federal and state income tax laws. The Company also
has U.S. capital loss carryforwards of $23.7 million
which expire in 2008. At March 31, 2007, the Company had
Canadian loss carryforwards of $29.2 million which will
expire beginning in 2008 through 2015, $13.7 million of
United Kingdom loss carryforwards available indefinitely to
reduce future income taxes, and $0.9 million Australian
loss carryforwards available indefinitely to reduce future
income taxes. At March 31, 2007, approximately
$5.6 million of the valuation allowance attributable to
U.S. loss carry forwards would, to the extent those losses
were utilized in future years, reduce goodwill.
As a result of the adoption of SFAS No. 123(R), the
Company recognizes windfall tax benefits associated with the
exercise of stock options directly to stockholders equity
only when realized. Accordingly, deferred tax assets are not
recognized for net operating loss carryforwards resulting from
windfall tax benefits occurring from April 1, 2006 onward.
A windfall tax benefit occurs when the actual tax benefit
realized upon an employees disposition of a share-based
award exceeds the deferred tax asset, if any, associated with
the award. At March 31, 2007, deferred tax assets do not
include $21.4 million of excess tax benefits from
stock-based compensation.
U.S. income taxes were not provided for on undistributed
earnings from Australian and U.K. subsidiaries. Determination of
the amount of taxes not provided is not practicable at this
time. Those earnings are considered to be permanently reinvested
in accordance with APB Opinion No. 23.
|
|
15.
|
Government
Assistance
|
Tax credits earned for the year ended March 31, 2007
totaled $16.4 million (2006 $15.7 million;
2005 $15.1 million). Accounts receivable at
March 31, 2007 includes $22.6 million with respect to
tax credits receivable (2006 $22.7 million;
2005 $11.8 million).
The Company is subject to routine inquiries and review by
regulatory authorities of its various incentive claims which
have been received or are receivable. Adjustments of claims, if
any, as a result of such inquiries or reviews, will be recorded
at the time of such determination.
SFAS No. 131 Disclosures About Segments of an
Enterprise and Related Information requires the Company to
make certain disclosures about each reportable segment. The
Companys reportable segments are determined based on the
distinct nature of their operations and each segment is a
strategic business unit that offers different products and
services and is managed separately. The Company evaluates
performance of each segment using segment profit (loss) as
defined below. The Company has two reportable business segments:
Motion Pictures and Television.
Motion Pictures consists of the development and production of
feature films, acquisition of North American and worldwide
distribution rights, North American theatrical, video and
television distribution of feature films produced and acquired
and worldwide licensing of distribution rights to feature films
produced and acquired.
Television consists of the development, production and worldwide
distribution of television productions including television
series, television movies and mini-series and non-fiction
programming.
As a result of the Companys sale of the studio facilities
on March 15, 2006 as discussed in note 12, the Company
no longer discloses its studio operations as a reportable
segment.
F-35
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Segmented information by business is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
March 31, 2007
|
|
|
March 31, 2006
|
|
|
March 31, 2005
|
|
|
|
(Amounts in thousands)
|
|
|
Segment revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
858,207
|
|
|
$
|
812,441
|
|
|
$
|
755,328
|
|
Television
|
|
|
118,533
|
|
|
|
132,944
|
|
|
|
82,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
976,740
|
|
|
$
|
945,385
|
|
|
$
|
838,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
330,497
|
|
|
$
|
337,457
|
|
|
$
|
287,378
|
|
Television
|
|
|
106,321
|
|
|
|
121,533
|
|
|
|
66,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
436,818
|
|
|
$
|
458,990
|
|
|
$
|
353,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution and marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
396,045
|
|
|
$
|
396,098
|
|
|
$
|
361,568
|
|
Television
|
|
|
8,365
|
|
|
|
3,201
|
|
|
|
2,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
404,410
|
|
|
$
|
399,299
|
|
|
$
|
364,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administration
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
30,758
|
|
|
$
|
26,544
|
|
|
$
|
26,210
|
|
Television
|
|
|
3,209
|
|
|
|
461
|
|
|
|
1,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,967
|
|
|
$
|
27,005
|
|
|
$
|
27,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
100,907
|
|
|
$
|
52,342
|
|
|
$
|
80,172
|
|
Television
|
|
|
638
|
|
|
|
7,749
|
|
|
|
12,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
101,545
|
|
|
$
|
60,091
|
|
|
$
|
92,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of investment in films
and television programs
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
173,700
|
|
|
$
|
179,702
|
|
|
$
|
92,387
|
|
Television
|
|
|
123,449
|
|
|
|
105,009
|
|
|
|
78,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
297,149
|
|
|
$
|
284,711
|
|
|
$
|
171,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment amounted to
$8.3 million, $5.6 million and $2.6 million for
the fiscal year ended March 31, 2007, 2006 and 2005,
respectively, all primarily pertaining to the corporate
headquarters.
F-36
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Segment profit is defined as segment revenue less segment direct
operating, distribution and marketing and general and
administration expenses and severance and relocation costs. The
reconciliation of total segment profit to the Companys
income before income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
March 31, 2007
|
|
|
March 31, 2006
|
|
|
March 31, 2005
|
|
|
|
(Amounts in thousands)
|
|
|
Companys total segment profit
|
|
$
|
101,545
|
|
|
$
|
60,091
|
|
|
$
|
92,372
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate general and
administration
|
|
|
(56,815
|
)
|
|
|
(42,931
|
)
|
|
|
(41,604
|
)
|
Depreciation
|
|
|
(2,786
|
)
|
|
|
(1,817
|
)
|
|
|
(2,370
|
)
|
Interest expense
|
|
|
(17,832
|
)
|
|
|
(18,860
|
)
|
|
|
(25,318
|
)
|
Interest rate swaps
mark-to-market
|
|
|
|
|
|
|
(123
|
)
|
|
|
2,453
|
|
Interest and other income
|
|
|
11,930
|
|
|
|
4,304
|
|
|
|
3,440
|
|
Gain on sale of equity securities
|
|
|
1,722
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
(107
|
)
|
Equity interests
|
|
|
(2,605
|
)
|
|
|
(74
|
)
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
35,159
|
|
|
$
|
590
|
|
|
$
|
28,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth significant assets as broken down
by segment and other unallocated assets as of March 31,
2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007
|
|
|
March 31, 2006
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Significant assets by segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
85,294
|
|
|
$
|
45,202
|
|
|
$
|
130,496
|
|
|
$
|
155,318
|
|
|
$
|
27,341
|
|
|
$
|
182,659
|
|
Investment in films and television
programs
|
|
|
397,346
|
|
|
|
95,794
|
|
|
|
493,140
|
|
|
|
368,932
|
|
|
|
48,818
|
|
|
|
417,750
|
|
Goodwill
|
|
|
173,530
|
|
|
|
13,961
|
|
|
|
187,491
|
|
|
|
179,847
|
|
|
|
5,270
|
|
|
|
185,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
656,170
|
|
|
$
|
154,957
|
|
|
$
|
811,127
|
|
|
$
|
704,097
|
|
|
$
|
81,429
|
|
|
$
|
785,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other unallocated assets
(primarily cash and
available-for-sale
investments)
|
|
|
|
|
|
|
|
|
|
|
325,968
|
|
|
|
|
|
|
|
|
|
|
|
267,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
$
|
1,137,095
|
|
|
|
|
|
|
|
|
|
|
$
|
1,053,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by geographic location, based on the location of the
customers, with no other foreign country individually comprising
greater than 10% of total revenue, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
March 31, 2007
|
|
|
March 31, 2006
|
|
|
March 31, 2005
|
|
|
|
(Amounts in thousands)
|
|
|
Canada
|
|
$
|
15,667
|
|
|
$
|
11,939
|
|
|
$
|
40,763
|
|
United States
|
|
|
844,642
|
|
|
|
853,207
|
|
|
|
698,341
|
|
Other foreign
|
|
|
116,431
|
|
|
|
80,239
|
|
|
|
98,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
976,740
|
|
|
$
|
945,385
|
|
|
$
|
838,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Assets by geographic location are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007
|
|
|
March 31, 2006
|
|
|
|
(Amounts in thousands)
|
|
|
Canada
|
|
$
|
14,714
|
|
|
$
|
21,971
|
|
United States
|
|
|
1,033,445
|
|
|
|
978,137
|
|
United Kingdom
|
|
|
58,758
|
|
|
|
53,141
|
|
Australia
|
|
|
30,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,137,095
|
|
|
$
|
1,053,249
|
|
|
|
|
|
|
|
|
|
|
Total amount of revenue from a customer representing greater
than 10% of consolidated revenues for the year ended
March 31, 2007 was $214.7 million (2006
$216.9 million) and was included in the motion pictures
reporting segment. Accounts receivable due from a customer was
approximately 15% of consolidated gross accounts receivable at
March 31, 2007. The total amount of gross accounts
receivable due from this customer was approximately
$39.4 million at March 31, 2007. Accounts receivable
due from a customer was approximately 24% of consolidated gross
accounts receivable at March 31, 2006. The total amount of
gross accounts receivable due from this customer was
approximately $73.0 million at March 31, 2006.
|
|
17.
|
Commitments
and Contingencies
|
Future annual repayments on debt and film obligations incurred
as of March 31, 2007 based on contractual or anticipated
payment dates are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Film obligations(1)
|
|
$
|
82,350
|
|
|
$
|
21,865
|
|
|
$
|
3,706
|
|
|
$
|
29,975
|
|
|
$
|
29,988
|
|
|
$
|
|
|
|
$
|
167,884
|
|
Subordinated notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325,000
|
|
|
|
325,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82,350
|
|
|
$
|
21,865
|
|
|
$
|
3,706
|
|
|
$
|
29,975
|
|
|
$
|
29,988
|
|
|
$
|
325,000
|
|
|
$
|
492,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual commitments by expected repayment date as of
March 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Distribution and marketing
commitments(2)
|
|
$
|
51,919
|
|
|
$
|
70,223
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
122,142
|
|
Minimum guarantee commitments(3)
|
|
|
66,254
|
|
|
|
14,690
|
|
|
|
2,900
|
|
|
|
2,900
|
|
|
|
|
|
|
|
|
|
|
|
86,744
|
|
Production obligation commitments(3)
|
|
|
3,962
|
|
|
|
7,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,666
|
|
Operating lease commitments
|
|
|
4,556
|
|
|
|
4,745
|
|
|
|
4,444
|
|
|
|
4,118
|
|
|
|
1,841
|
|
|
|
710
|
|
|
|
20,414
|
|
Other contractual obligations
|
|
|
5,962
|
|
|
|
4,779
|
|
|
|
256
|
|
|
|
256
|
|
|
|
256
|
|
|
|
|
|
|
|
11,509
|
|
Employment and consulting contracts
|
|
|
22,853
|
|
|
|
11,564
|
|
|
|
6,916
|
|
|
|
4,553
|
|
|
|
504
|
|
|
|
|
|
|
|
46,390
|
|
Interest payments on Subordinated
notes
|
|
|
10,750
|
|
|
|
10,750
|
|
|
|
10,750
|
|
|
|
10,750
|
|
|
|
10,750
|
|
|
|
135,344
|
|
|
|
189,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
166,256
|
|
|
$
|
124,455
|
|
|
$
|
25,266
|
|
|
$
|
22,577
|
|
|
$
|
13,351
|
|
|
$
|
136,054
|
|
|
$
|
487,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Film obligations include minimum guarantees, theatrical
marketing obligations and production obligations as disclosed in
note 8. Repayment dates are based on anticipated delivery
or release date of the related film or contractual due dates of
the obligation. |
F-38
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(2) |
|
Distribution and marketing commitments represent contractual
commitments for future expenditures associated with distribution
and marketing of films which the Company will distribute. The
payment dates of these amounts are primarily based on the
anticipated release date of the film. |
|
(3) |
|
Minimum guarantee commitments represent contractual commitments
related to the purchase of film rights for future delivery.
Production obligation commitments represent amounts committed
for future film production and development costs to be funded
through production financing and recorded as a production
obligation liability. Future payments under these obligations
are based on anticipated delivery or release dates of the
related film or contractual due dates of the obligation. The
amounts include future interest payments associated with the
obligations. |
Operating Leases. The Company has operating
leases for offices and equipment. The Company incurred rental
expense of $4.7 million during the year ended
March 31, 2007 (2006 $3.7 million;
2005 $3.9 million). The Company earned sublease
income of $0.3 million during the year ended March 31,
2007 (2006 $0.7 million; 2005
$1.1 million).
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 March 31, 2007, in accordance with
SFAS No. 5 Accounting for Contingencies.
The Company has entered into an agreement to guarantee a
production loan limited to $27 million, for the production
of a television series produced by a third party. The fair value
of this guarantee was not significant due to remote likelihood
of default by the third party, and the underlying collateral
retained by the Company.
|
|
18.
|
Financial
Instruments
|
Concentration of credit risk with the Companys customers
is limited due to the Companys customer base and the
diversity of its sales throughout the world. The Company
performs ongoing credit evaluations and maintains a provision
for potential credit losses. The Company generally does not
require collateral for its trade accounts receivable. Accounts
receivable include amounts receivable from Canadian governmental
agencies in connection with government assistance for
productions as well as amounts due from customers. Amounts
receivable from governmental agencies amounted to 17.3% of
accounts receivable, net at March 31, 2007
(2006 12.4%).
The Company enters into forward foreign exchange contracts to
hedge its foreign currency exposures on future production
expenses denominated in Canadian dollars. As of March 31,
2007, the Company had outstanding contracts to sell
US$12.8 million in exchange for CDN$15.0 million over
a period of five weeks at a weighted average exchange rate of
CDN$1.1759. Changes in the fair value representing an unrealized
fair value gain on foreign exchange contracts outstanding during
the year ended March 31, 2007 amounted to $0.3 million
and are included in accumulated other comprehensive income
(loss), a separate component of shareholders equity.
During the year ended March 31, 2007, the Company completed
foreign exchange contracts denominated in Canadian dollars. The
net losses resulting from the completed contracts were
$0.4 million. These contracts are 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 contracts, at
current market rates. The Company does not require collateral or
other security to support these contracts.
F-39
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19.
|
Supplementary
Cash Flow Statement Information
|
(a) Interest paid during the fiscal year ended
March 31, 2007 amounted to $15.0 million
(2006 $16.7; 2005 $14.8 million).
(b) Income taxes paid during the fiscal year ended
March 31, 2007 amounted to $3.5 million
(2006 $0.1 million; 2005
$0.5 million).
(c) Amounts receivable from the sale of the Companys
investments in equity securities available-for-sale during the
fiscal year ended March 31, 2007 amounted to approximately
$16.7 million (2006 nil; 2005 nil).
|
|
20.
|
Quarterly
Financial Data (Unaudited)
|
Certain quarterly information is presented below. The
Companys consolidated statements of income for all
quarters presented below have been revised to reflect the gain
on sale of the studio facility and all revenues and expenses of
the studio facility net within the discontinued operations
section of the consolidated statements of income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
172,456
|
|
|
$
|
218,169
|
|
|
$
|
254,531
|
|
|
$
|
331,584
|
|
Direct operating expenses
|
|
$
|
68,545
|
|
|
$
|
94,723
|
|
|
$
|
110,921
|
|
|
$
|
162,629
|
|
Net income (loss)
|
|
$
|
(3,604
|
)
|
|
$
|
(14,392
|
)
|
|
$
|
20,455
|
|
|
$
|
25,020
|
|
Basic income (loss) per share
|
|
$
|
(0.03
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
0.19
|
|
|
$
|
0.21
|
|
Diluted income (loss) per share
|
|
$
|
(0.03
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
0.17
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
192,840
|
|
|
$
|
210,978
|
|
|
$
|
229,313
|
|
|
$
|
312,254
|
|
Direct operating expenses
|
|
$
|
99,745
|
|
|
$
|
108,479
|
|
|
$
|
110,129
|
|
|
$
|
140,637
|
|
Net income (loss) from continuing
operations
|
|
$
|
(21,838
|
)
|
|
$
|
(14,670
|
)
|
|
$
|
2,626
|
|
|
$
|
35,502
|
|
Net income from discontinued
operations
|
|
$
|
19
|
|
|
$
|
564
|
|
|
$
|
516
|
|
|
$
|
3,377
|
|
Net income (loss)
|
|
$
|
(21,819
|
)
|
|
$
|
(14,106
|
)
|
|
$
|
3,142
|
|
|
$
|
38,879
|
|
Basic income (loss) per share
|
|
$
|
(0.21
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
0.03
|
|
|
$
|
0.37
|
|
Diluted income (loss) per share
|
|
$
|
(0.21
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
0.03
|
|
|
$
|
0.27
|
|
|
|
21.
|
Consolidating
Financial Information
|
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 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
F-40
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 Securities and Exchange
Commission (SEC).
The following tables present condensed consolidating financial
information as of March 31, 2007 and 2006 and for the years
ended March 31, 2007, 2006 and 2005 for (1) the
Company, on a stand-alone basis, (2) the Issuer, on a
stand-alone basis, (3) the non-guarantor subsidiaries of
the Company (including the subsidiaries of the Issuer) on a
combined basis (collectively, the Other
Subsidiaries) and (4) the Company on a consolidated
basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2007
|
|
|
|
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
|
|
$
|
1,908
|
|
|
$
|
28,347
|
|
|
$
|
21,242
|
|
|
$
|
|
|
|
$
|
51,497
|
|
Restricted cash
|
|
|
|
|
|
|
2,475
|
|
|
|
2,440
|
|
|
|
|
|
|
|
4,915
|
|
Investments auction
rate securities
|
|
|
|
|
|
|
237,379
|
|
|
|
|
|
|
|
|
|
|
|
237,379
|
|
Investments equity
securities
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
|
|
|
|
|
125
|
|
Accounts receivable, net
|
|
|
281
|
|
|
|
17,261
|
|
|
|
112,954
|
|
|
|
|
|
|
|
130,496
|
|
Investment in films and television
programs
|
|
|
|
|
|
|
6,632
|
|
|
|
486,508
|
|
|
|
|
|
|
|
493,140
|
|
Property and equipment
|
|
|
|
|
|
|
11,230
|
|
|
|
1,865
|
|
|
|
|
|
|
|
13,095
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
187,491
|
|
|
|
|
|
|
|
187,491
|
|
Other assets
|
|
|
59
|
|
|
|
10,675
|
|
|
|
8,223
|
|
|
|
|
|
|
|
18,957
|
|
Investment in subsidiaries
|
|
|
361,898
|
|
|
|
639,289
|
|
|
|
|
|
|
|
(1,001,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
364,146
|
|
|
$
|
953,288
|
|
|
$
|
820,848
|
|
|
$
|
(1,001,187
|
)
|
|
$
|
1,137,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Shareholders Equity (Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
$
|
390
|
|
|
$
|
28,313
|
|
|
$
|
126,914
|
|
|
$
|
|
|
|
$
|
155,617
|
|
Participation and residuals
|
|
|
|
|
|
|
229
|
|
|
|
170,927
|
|
|
|
|
|
|
|
171,156
|
|
Film obligations
|
|
|
|
|
|
|
5,500
|
|
|
|
162,384
|
|
|
|
|
|
|
|
167,884
|
|
Subordinated notes
|
|
|
|
|
|
|
325,000
|
|
|
|
|
|
|
|
|
|
|
|
325,000
|
|
Deferred revenue
|
|
|
|
|
|
|
|
|
|
|
69,548
|
|
|
|
|
|
|
|
69,548
|
|
Intercompany payables (receivables)
|
|
|
(204,119
|
)
|
|
|
555,762
|
|
|
|
(126,108
|
)
|
|
|
(225,535
|
)
|
|
|
|
|
Intercompany equity
|
|
|
319,985
|
|
|
|
93,217
|
|
|
|
364,536
|
|
|
|
(777,738
|
)
|
|
|
|
|
Shareholders equity
(deficiency)
|
|
|
247,890
|
|
|
|
(54,733
|
)
|
|
|
52,647
|
|
|
|
2,086
|
|
|
|
247,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
364,146
|
|
|
$
|
953,288
|
|
|
$
|
820,848
|
|
|
$
|
(1,001,187
|
)
|
|
$
|
1,137,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2007
|
|
|
|
Lions Gate
|
|
|
Lions Gate
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Entertainment
|
|
|
Other
|
|
|
Consolidating
|
|
|
Lions Gate
|
|
|
|
Corp.
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
STATEMENT OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
13,717
|
|
|
$
|
971,583
|
|
|
$
|
(8,560
|
)
|
|
$
|
976,740
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating
|
|
|
|
|
|
|
1,389
|
|
|
|
435,429
|
|
|
|
|
|
|
|
436,818
|
|
Distribution and marketing
|
|
|
84
|
|
|
|
769
|
|
|
|
403,557
|
|
|
|
|
|
|
|
404,410
|
|
General and administration
|
|
|
1,221
|
|
|
|
55,511
|
|
|
|
34,050
|
|
|
|
|
|
|
|
90,782
|
|
Depreciation
|
|
|
|
|
|
|
25
|
|
|
|
2,761
|
|
|
|
|
|
|
|
2,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,305
|
|
|
|
57,694
|
|
|
|
875,797
|
|
|
|
|
|
|
|
934,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
|
|
(1,305
|
)
|
|
|
(43,977
|
)
|
|
|
95,786
|
|
|
|
(8,560
|
)
|
|
|
41,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expense (Income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
118
|
|
|
|
17,608
|
|
|
|
106
|
|
|
|
|
|
|
|
17,832
|
|
Interest income
|
|
|
(174
|
)
|
|
|
(12,020
|
)
|
|
|
264
|
|
|
|
|
|
|
|
(11,930
|
)
|
Gain on sale of equity securities
|
|
|
|
|
|
|
(1,722
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(56
|
)
|
|
|
3,866
|
|
|
|
370
|
|
|
|
|
|
|
|
4,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE EQUITY
INTERESTS AND INCOME TAXES
|
|
|
(1,249
|
)
|
|
|
(47,843
|
)
|
|
|
95,416
|
|
|
|
(8,560
|
)
|
|
|
37,764
|
|
Equity interests
|
|
|
28,778
|
|
|
|
83,470
|
|
|
|
(2,604
|
)
|
|
|
(112,249
|
)
|
|
|
(2,605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
27,529
|
|
|
|
35,627
|
|
|
|
92,812
|
|
|
|
(120,809
|
)
|
|
|
35,159
|
|
Income tax provision
|
|
|
50
|
|
|
|
604
|
|
|
|
7,026
|
|
|
|
|
|
|
|
7,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
27,479
|
|
|
$
|
35,023
|
|
|
$
|
85,786
|
|
|
$
|
(120,809
|
)
|
|
$
|
27,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2007
|
|
|
|
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
|
|
$
|
(8,739
|
)
|
|
$
|
129,702
|
|
|
$
|
(14,293
|
)
|
|
$
|
1,147
|
|
|
$
|
107,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of
investments auction rate securities
|
|
|
|
|
|
|
(865,750
|
)
|
|
|
|
|
|
|
|
|
|
|
(865,750
|
)
|
Sales of investments
auction rate securities
|
|
|
|
|
|
|
795,448
|
|
|
|
|
|
|
|
|
|
|
|
795,448
|
|
Purchases of equity securities
|
|
|
|
|
|
|
|
|
|
|
(122
|
)
|
|
|
|
|
|
|
(122
|
)
|
Sales of investments
equity securities
|
|
|
|
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
|
390
|
|
Acquisition of Redbus, net of cash
acquired
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
45
|
|
|
|
|
|
Acquisition of Debmar, net of cash
acquired
|
|
|
|
|
|
|
(24,722
|
)
|
|
|
603
|
|
|
|
|
|
|
|
(24,119
|
)
|
Funding of joint
venture FEARnet
|
|
|
|
|
|
|
(5,116
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,116
|
)
|
Purchases of property and equipment
|
|
|
|
|
|
|
(3,175
|
)
|
|
|
(5,173
|
)
|
|
|
|
|
|
|
(8,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY (USED
IN) INVESTING ACTIVITIES
|
|
|
|
|
|
|
(102,970
|
)
|
|
|
(4,692
|
)
|
|
|
45
|
|
|
|
(107,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares
|
|
|
4,222
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
4,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES
|
|
|
4,222
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
4,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH
EQUIVALENTS
|
|
|
(4,517
|
)
|
|
|
26,732
|
|
|
|
(18,985
|
)
|
|
|
1,247
|
|
|
|
4,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN EXCHANGE EFFECT ON CASH
|
|
|
(116
|
)
|
|
|
1,615
|
|
|
|
(210
|
)
|
|
|
(1,247
|
)
|
|
|
42
|
|
CASH AND CASH
EQUIVALENTS BEGINNING OF PERIOD
|
|
|
6,541
|
|
|
|
|
|
|
|
40,437
|
|
|
|
|
|
|
|
46,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS END OF PERIOD
|
|
$
|
1,908
|
|
|
$
|
28,347
|
|
|
$
|
21,242
|
|
|
$
|
|
|
|
$
|
51,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-43
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2006
|
|
|
|
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
|
|
$
|
6,541
|
|
|
$
|
|
|
|
$
|
40,437
|
|
|
$
|
|
|
|
$
|
46,978
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
820
|
|
|
|
|
|
|
|
820
|
|
Investments auction
rate securities
|
|
|
|
|
|
|
167,081
|
|
|
|
|
|
|
|
|
|
|
|
167,081
|
|
Investments equity
securities
|
|
|
|
|
|
|
14,921
|
|
|
|
|
|
|
|
|
|
|
|
14,921
|
|
Accounts receivable, net
|
|
|
299
|
|
|
|
829
|
|
|
|
181,531
|
|
|
|
|
|
|
|
182,659
|
|
Investment in films and television
programs
|
|
|
|
|
|
|
5,245
|
|
|
|
412,505
|
|
|
|
|
|
|
|
417,750
|
|
Property and equipment
|
|
|
|
|
|
|
7,131
|
|
|
|
87
|
|
|
|
|
|
|
|
7,218
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
185,117
|
|
|
|
|
|
|
|
185,117
|
|
Other assets
|
|
|
27
|
|
|
|
16,377
|
|
|
|
14,301
|
|
|
|
|
|
|
|
30,705
|
|
Investment in subsidiaries
|
|
|
228,573
|
|
|
|
312,011
|
|
|
|
|
|
|
|
(540,584
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
235,440
|
|
|
$
|
523,595
|
|
|
$
|
834,798
|
|
|
$
|
(540,584
|
)
|
|
$
|
1,053,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Shareholders Equity (Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
$
|
742
|
|
|
$
|
4,087
|
|
|
$
|
183,964
|
|
|
$
|
|
|
|
$
|
188,793
|
|
Unpresented bank drafts
|
|
|
|
|
|
|
14,772
|
|
|
|
|
|
|
|
|
|
|
|
14,772
|
|
Participation and residuals
|
|
|
|
|
|
|
|
|
|
|
164,326
|
|
|
|
|
|
|
|
164,326
|
|
Film obligations
|
|
|
|
|
|
|
|
|
|
|
120,661
|
|
|
|
|
|
|
|
120,661
|
|
Subordinated notes
|
|
|
|
|
|
|
385,000
|
|
|
|
|
|
|
|
|
|
|
|
385,000
|
|
Deferred revenue
|
|
|
|
|
|
|
|
|
|
|
30,427
|
|
|
|
|
|
|
|
30,427
|
|
Intercompany payables (receivables)
|
|
|
(168,726
|
)
|
|
|
188,859
|
|
|
|
(5,927
|
)
|
|
|
(14,206
|
)
|
|
|
|
|
Intercompany equity
|
|
|
254,154
|
|
|
|
93,217
|
|
|
|
329,948
|
|
|
|
(677,319
|
)
|
|
|
|
|
Shareholders equity
(deficiency)
|
|
|
149,270
|
|
|
|
(162,340
|
)
|
|
|
11,399
|
|
|
|
150,941
|
|
|
|
149,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
235,440
|
|
|
$
|
523,595
|
|
|
$
|
834,798
|
|
|
$
|
(540,584
|
)
|
|
$
|
1,053,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-44
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2006
|
|
|
|
Lions Gate
|
|
|
Lions Gate
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Entertainment
|
|
|
Other
|
|
|
Consolidating
|
|
|
Lions Gate
|
|
|
|
Corp.
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
STATEMENT OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,152
|
|
|
$
|
4,259
|
|
|
$
|
940,532
|
|
|
$
|
(558
|
)
|
|
$
|
945,385
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating
|
|
|
|
|
|
|
|
|
|
|
458,990
|
|
|
|
|
|
|
|
458,990
|
|
Distribution and marketing
|
|
|
|
|
|
|
|
|
|
|
399,299
|
|
|
|
|
|
|
|
399,299
|
|
General and administration
|
|
|
1,748
|
|
|
|
37,613
|
|
|
|
31,133
|
|
|
|
(558
|
)
|
|
|
69,936
|
|
Depreciation
|
|
|
|
|
|
|
86
|
|
|
|
1,731
|
|
|
|
|
|
|
|
1,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,748
|
|
|
|
37,699
|
|
|
|
891,153
|
|
|
|
(558
|
)
|
|
|
930,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
|
|
(596
|
)
|
|
|
(33,440
|
)
|
|
|
49,379
|
|
|
|
|
|
|
|
15,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses (Income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
3
|
|
|
|
18,557
|
|
|
|
300
|
|
|
|
|
|
|
|
18,860
|
|
Interest rate swaps mark-to market
|
|
|
|
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
|
123
|
|
Interest income
|
|
|
(63
|
)
|
|
|
(4,186
|
)
|
|
|
(55
|
)
|
|
|
|
|
|
|
(4,304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses (income), net
|
|
|
(60
|
)
|
|
|
14,494
|
|
|
|
245
|
|
|
|
|
|
|
|
14,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE EQUITY
INTERESTS AND INCOME TAXES
|
|
|
(536
|
)
|
|
|
(47,934
|
)
|
|
|
49,134
|
|
|
|
|
|
|
|
664
|
|
Equity interests
|
|
|
3,384
|
|
|
|
46,822
|
|
|
|
(74
|
)
|
|
|
(50,206
|
)
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
2,848
|
|
|
|
(1,112
|
)
|
|
|
49,060
|
|
|
|
(50,206
|
)
|
|
|
590
|
|
Income tax provision (benefit)
|
|
|
|
|
|
|
376
|
|
|
|
(1,406
|
)
|
|
|
|
|
|
|
(1,030
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS
|
|
|
2,848
|
|
|
|
(1,488
|
)
|
|
|
50,466
|
|
|
|
(50,206
|
)
|
|
|
1,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued
operations (including gain on sale of $4,872), net of tax of
$2,464
|
|
|
|
|
|
|
|
|
|
|
4,476
|
|
|
|
|
|
|
|
4,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
2,848
|
|
|
$
|
(1,488
|
)
|
|
$
|
54,942
|
|
|
$
|
(50,206
|
)
|
|
$
|
6,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-45
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2006
|
|
|
|
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 CONTINUING OPERATIONS
|
|
$
|
(16,993
|
)
|
|
$
|
97,369
|
|
|
$
|
40,056
|
|
|
$
|
|
|
|
$
|
120,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
2,580
|
|
|
|
|
|
|
$
|
2,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY (USED
IN) OPERATING ACTIVITIES
|
|
|
(16,993
|
)
|
|
|
97,369
|
|
|
|
42,636
|
|
|
|
|
|
|
$
|
123,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of
investments auction rate securities
|
|
|
|
|
|
|
(307,031
|
)
|
|
|
|
|
|
|
|
|
|
|
(307,031
|
)
|
Purchases of
investments equity securities
|
|
|
|
|
|
|
(3,470
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,470
|
)
|
Sales of investments
auction rate securities
|
|
|
|
|
|
|
139,950
|
|
|
|
|
|
|
|
|
|
|
|
139,950
|
|
Cash received from sale of
investment
|
|
|
|
|
|
|
|
|
|
|
2,945
|
|
|
|
|
|
|
|
2,945
|
|
Cash received from sale of studio
facility
|
|
|
23,238
|
|
|
|
|
|
|
|
11,622
|
|
|
|
|
|
|
|
34,860
|
|
Acquisition of Redbus, net of cash
acquired
|
|
|
|
|
|
|
(27,138
|
)
|
|
|
|
|
|
|
|
|
|
|
(27,138
|
)
|
Purchases of property and equipment
|
|
|
|
|
|
|
(5,438
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
(5,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY (USED
IN) INVESTING ACTIVITIES CONTINUING OPERATIONS
|
|
|
23,238
|
|
|
|
(203,127
|
)
|
|
|
14,450
|
|
|
|
|
|
|
|
(165,439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
INVESTING ACTIVITIES DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
105
|
|
|
|
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY (USED
IN) INVESTING ACTIVITIES
|
|
|
23,238
|
|
|
|
(203,127
|
)
|
|
|
14,555
|
|
|
|
|
|
|
|
(165,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares
|
|
|
1,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,408
|
|
Financing fees paid
|
|
|
|
|
|
|
(546
|
)
|
|
|
|
|
|
|
|
|
|
|
(546
|
)
|
Repayment of subordinated notes
|
|
|
|
|
|
|
|
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
(5,000
|
)
|
Decrease in mortgages payable
|
|
|
|
|
|
|
|
|
|
|
(16,224
|
)
|
|
|
|
|
|
|
(16,224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY (USED
IN) FINANCING ACTIVITIES CONTINUING OPERATIONS
|
|
|
1,408
|
|
|
|
(546
|
)
|
|
|
(21,224
|
)
|
|
|
|
|
|
|
(20,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS USED IN FINANCING
ACTIVITIES DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
(2,703
|
)
|
|
|
|
|
|
|
(2,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY (USED
IN) FINANCING ACTIVITIES
|
|
|
1,408
|
|
|
|
(546
|
)
|
|
|
(23,927
|
)
|
|
|
|
|
|
|
(23,065
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH
EQUIVALENTS
|
|
|
7,653
|
|
|
|
(106,304
|
)
|
|
|
33,264
|
|
|
|
|
|
|
|
(65,387
|
)
|
FOREIGN EXCHANGE EFFECT ON
CASH CONTINUING OPERATIONS
|
|
|
(2,055
|
)
|
|
|
(52
|
)
|
|
|
1,479
|
|
|
|
|
|
|
|
(628
|
)
|
FOREIGN EXCHANGE EFFECT ON
CASH DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
154
|
|
|
|
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN EXCHANGE EFFECT ON CASH
|
|
|
(2,055
|
)
|
|
|
(52
|
)
|
|
|
1,633
|
|
|
|
|
|
|
|
(474
|
)
|
CASH AND CASH
EQUIVALENTS BEGINNING OF YEAR
|
|
|
943
|
|
|
|
106,356
|
|
|
|
5,540
|
|
|
|
|
|
|
|
112,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS END OF YEAR
|
|
$
|
6,541
|
|
|
$
|
|
|
|
$
|
40,437
|
|
|
$
|
|
|
|
$
|
46,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-46
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2005
|
|
|
|
Lions Gate
|
|
|
Lions Gate
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Entertainment
|
|
|
Other
|
|
|
Consolidating
|
|
|
Lions Gate
|
|
|
|
Corp.
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
STATEMENT OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
593
|
|
|
$
|
|
|
|
$
|
838,107
|
|
|
$
|
(603
|
)
|
|
$
|
838,097
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating
|
|
|
|
|
|
|
|
|
|
|
353,790
|
|
|
|
|
|
|
|
353,790
|
|
Distribution and marketing
|
|
|
|
|
|
|
|
|
|
|
364,281
|
|
|
|
|
|
|
|
364,281
|
|
General and administration
|
|
|
1,458
|
|
|
|
40,753
|
|
|
|
27,650
|
|
|
|
(603
|
)
|
|
|
69,258
|
|
Depreciation
|
|
|
89
|
|
|
|
126
|
|
|
|
2,155
|
|
|
|
|
|
|
|
2,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,547
|
|
|
|
40,879
|
|
|
|
747,876
|
|
|
|
(603
|
)
|
|
|
789,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
|
|
(954
|
)
|
|
|
(40,879
|
)
|
|
|
90,231
|
|
|
|
|
|
|
|
48,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses (Income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
410
|
|
|
|
24,033
|
|
|
|
875
|
|
|
|
|
|
|
|
25,318
|
|
Interest rate swaps mark-to market
|
|
|
|
|
|
|
(2,453
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,453
|
)
|
Interest and other income
|
|
|
(335
|
)
|
|
|
(2,946
|
)
|
|
|
(159
|
)
|
|
|
|
|
|
|
(3,440
|
)
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
107
|
|
|
|
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses, net
|
|
|
75
|
|
|
|
18,634
|
|
|
|
823
|
|
|
|
|
|
|
|
19,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERESTS AND INCOME TAXES
|
|
|
(1,029
|
)
|
|
|
(59,513
|
)
|
|
|
89,408
|
|
|
|
|
|
|
|
28,866
|
|
Equity interests
|
|
|
21,316
|
|
|
|
83,314
|
|
|
|
(200
|
)
|
|
|
(104,630
|
)
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
20,287
|
|
|
|
23,801
|
|
|
|
89,208
|
|
|
|
(104,630
|
)
|
|
|
28,666
|
|
Income tax provision
|
|
|
6
|
|
|
|
|
|
|
|
8,741
|
|
|
|
|
|
|
|
8,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS
|
|
|
20,281
|
|
|
|
23,801
|
|
|
|
80,467
|
|
|
|
(104,630
|
)
|
|
|
19,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued
operations, net of tax of $200
|
|
|
|
|
|
|
|
|
|
|
362
|
|
|
|
|
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
20,281
|
|
|
$
|
23,801
|
|
|
$
|
80,829
|
|
|
$
|
(104,630
|
)
|
|
$
|
20,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-47
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 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 CONTINUING OPERATIONS
|
|
$
|
(30,031
|
)
|
|
$
|
119,534
|
|
|
$
|
5,302
|
|
|
$
|
|
|
|
$
|
94,805
|
|
NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
691
|
|
|
|
|
|
|
|
691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY (USED
IN) OPERATING ACTIVITIES
|
|
|
(30,031
|
)
|
|
|
119,534
|
|
|
|
5,993
|
|
|
|
|
|
|
$
|
95,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received from disposition of
assets, net
|
|
|
|
|
|
|
|
|
|
|
1,172
|
|
|
|
|
|
|
|
1,172
|
|
Purchases of property and equipment
|
|
|
|
|
|
|
(2,424
|
)
|
|
|
(194
|
)
|
|
|
|
|
|
|
(2,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY (USED
IN) INVESTING ACTIVITIES CONTINUING OPERATIONS
|
|
|
|
|
|
|
(2,424
|
)
|
|
|
978
|
|
|
|
|
|
|
|
(1,446
|
)
|
NET CASH FLOWS PROVIDED BY
INVESTING ACTIVITIES DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
134
|
|
|
|
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY (USED
IN) INVESTING ACTIVITIES
|
|
|
|
|
|
|
(2,424
|
)
|
|
|
1,112
|
|
|
|
|
|
|
|
(1,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares
|
|
|
24,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,713
|
|
Financing fees paid
|
|
|
|
|
|
|
(1,612
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,612
|
)
|
Increase in subordinated notes, net
of issue costs
|
|
|
|
|
|
|
314,822
|
|
|
|
|
|
|
|
|
|
|
|
314,822
|
|
Decrease in bank loans
|
|
|
|
|
|
|
(324,700
|
)
|
|
|
(411
|
)
|
|
|
|
|
|
|
(325,111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY (USED
IN) FINANCING ACTIVITIES CONTINUING OPERATIONS
|
|
|
24,713
|
|
|
|
(11,490
|
)
|
|
|
(411
|
)
|
|
|
|
|
|
|
12,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS USED IN FINANCING
ACTIVITIES DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
(1,894
|
)
|
|
|
|
|
|
|
(1,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY (USED
IN) FINANCING ACTIVITIES
|
|
|
24,713
|
|
|
|
(11,490
|
)
|
|
|
(2,305
|
)
|
|
|
|
|
|
|
10,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH
EQUIVALENTS
|
|
|
(5,318
|
)
|
|
|
105,620
|
|
|
|
4,800
|
|
|
|
|
|
|
|
105,102
|
|
FOREIGN EXCHANGE EFFECT ON
CASH CONTINUING OPERATIONS
|
|
|
5,256
|
|
|
|
745
|
|
|
|
(5,398
|
)
|
|
|
|
|
|
|
603
|
|
FOREIGN EXCHANGE EFFECT ON
CASH DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN EXCHANGE EFFECT ON CASH
|
|
|
5,256
|
|
|
|
745
|
|
|
|
(5,353
|
)
|
|
|
|
|
|
|
648
|
|
CASH AND CASH
EQUIVALENTS BEGINNING OF YEAR
|
|
|
1,005
|
|
|
|
(9
|
)
|
|
|
6,093
|
|
|
|
|
|
|
|
7,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS END OF YEAR
|
|
$
|
943
|
|
|
$
|
106,356
|
|
|
$
|
5,540
|
|
|
$
|
|
|
|
$
|
112,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-48
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
22.
|
Related
Party Transactions
|
In February 2001, the Company entered into an agreement with
Ignite, LLC, a company, in which the Vice Chairman, who is also
a director, owns approximately 31% and another director owns
approximately 12%. This agreement terminated pursuant to its
terms in February 2003 and was not renewed. The agreement
provided that Ignite will be paid a producer fee and a
percentage of adjusted gross receipts for projects which
commenced production during the term of the agreement and which
were developed through a development fund financed by Ignite,
LLC. During the year ended March 31, 2007,
$0.1 million was paid to Ignite, LLC under this agreement
(2006 less than $0.1 million, 2005
$0.1 million).
The Company entered into an agreement with Ignite, LLC effective
as of March 31, 2006. Under the agreement, in consideration
for Ignite, LLC disclaiming all of its rights and interests to
and in the motion picture Employee of the Month, Ignite,
LLC was entitled to box office bonuses if certain thresholds
were met. During the year ended March 31, 2007,
$0.3 million was paid to Ignite under this agreement
(2006 nil).
In November 2002, the Company entered into a distribution
agreement with Sobini Films, a company owned by a director, for
international distribution rights to the film The Prince and
Me. During the year ended March 31, 2007, the Company
paid approximately $0.1 million to Sobini Films in
connection with profit participation under this agreement
(2006 $0.4 million, 2005 nil).
In March 2006, the Company entered into three distribution
agreements with Sobini Films, under which the Company acquired
certain distribution rights to the films The Prince and
Me II, Streets of Legend and Peaceful Warrior.
Another director of the Company is also an investor in
Peaceful Warrior. The Company is required to pay a home
video advance in the amount equal to 50% of Sobini Films
projected share of adjusted gross receipts from the
Companys initial home video release of Streets of
Legend. During the year ended March 31, 2007, the
Company paid $0.7 million to Sobini Films under these three
distribution agreements (2006 nominal).
In April 2006, the Company entered into a development agreement
with Sobini Films related to the film Sanctuary. The
agreement provides that the parties are to evenly split
development costs, up to a cap of $75,000 for the Company. Any
amount above the Companys cap will be paid by Sobini
Films. Each of the Company and Sobini Films has the right (but
not the obligation) to move forward with the project. If one
chooses to move forward and the other does not, the latter shall
be entitled to reimbursement of all monies contributed to the
project. During the year ended March 31, 2007, the Company
paid $0.1 million to Sobini Films under the development
agreement.
In March 2007, the Company and Sobini Films entered into a
termination agreement with respect to the film Peaceful
Warrior. Under the termination agreement, Sobini Films
agreed to pay the Company a one-time, non-recoupable payment in
the amount of $386,000, with such payment to be deferred
(subject to a personal guarantee letter from the director that
owns Sobini Films and payment of any interest incurred by the
Company). In exchange, Sobini Films is entitled to most future
rights with respect to the film. No amounts have been paid
during the year ended March 31, 2007, by Sobini Films to
the Company under the termination agreement.
In August 2006, the Company entered into a Right of First
Refusal Agreement with Sobini Films and the director that owns
Sobini Films, granting the Company first look rights with
respect to motion pictures produced by Sobini Films or the
director. Under the Right of First Refusal Agreement, the
Company has a first look with respect to worldwide distribution
rights in any motion picture produced by Sobini Films or the
director (other than as a producer for hire) alone or in
conjunction with others to the extent that Sobini Films or the
director controls the licensing of such distribution rights
during the term of the Right of First Refusal Agreement. The
Right of First Refusal Agreement is subject to an indefinite,
rolling
12-month
term until terminated. During the term of the Right of First
Refusal Agreement, the Company shall pay to Sobini Films the
amount of $250,000 per year. The Company is entitled to
recoup the payment in the form of a production fee payable out
of the budget of two Qualifying Pictures (as defined
in the Right of First Refusal Agreement) annually that the
Company chooses to distribute under the Agreement. During the
year ended March 31, 2007, the Company paid
$0.2 million to Sobini Films under the Right of First
Refusal Agreement.
F-49
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In December 2003 and April 2005, the Company entered into
distribution agreements with Cerulean, LLC, a company in which
the Chief Executive Officer, who is also a director, and the
Vice Chairman, who is also a director, each hold a 28% interest.
Under the agreements, the Company obtained rights to distribute
certain titles in home video and television media and Cerulean,
LLC is entitled to receive royalties. During the year ended
March 31, 2007, the Company paid only a nominal amount to
Cerulean, LLC under these agreements (2006
$0.1 million, 2005 $0.3 million).
In March 2005, the Company entered into an agreement with a
company owned 100% by the President and Chairman Emeritus (who
was Chairman until December 2004), who was also a director until
March 31, 2006, to provide that the President and Chairman
Emeritus will provide consulting services in connection with
Lionsgates Canadian and French Canadian operations for a
term of one year from April 1, 2005. This agreement ended
March 31, 2006. During the year ended March 31, 2006,
the Company paid the company owned 100% by the President and
Chairman Emeritus $0.2 million for consulting services
provided in connection with this agreement (2005
$0.2 million).
In April 2005, we entered into library and output agreements
with Maple Pictures for the distribution of our motion picture,
television and home video product in Canada. During the year
ended March 31, 2007, we recorded $12.9 million in
revenue pursuant to the library and output agreements
(2006 $4.1 million). Maple Pictures was formed
by a director of the Company, another former Lionsgate executive
and a third-party equity investor. The director is Co-President
and a director of, and holds a 19.5% equity interest in, Maple
Pictures. We also have a minority interest in Maple Pictures
(see note 6).
In its ongoing effort to maximize its return on cash
investments, the Company has invested in short-term auction rate
securities (AAA rated or rating agency equivalent) through large
financial institutions. Specifically, the Company has invested
in auction rate securities with Merrill Lynch, JP Morgan and
Bank of America. Kevin Burns, the brother of Michael Burns, our
Vice Chairman and a director, is a Private Wealth Advisor in the
Private Bank and Investment Group at Merrill Lynch. During the
fiscal year ended March 31, 2007, Kevin Burns received a
de minimis amount in connection with this arrangement.
The Companys Chief Executive Officer, Co-Chairman and a
director, and the Companys Vice Chairman and a director,
each hold options to purchase common stock of CinemaNow, Inc.
(CinemaNow), the Companys 18.8% equity method
investment (on a fully diluted basis). The Company invested
$1 million in CinemaNows Series E preferred
stock offering on June 29, 2006. The Companys Chief
Executive Officer and Vice Chairman have served on
CinemaNows board of directors since February 2000. The
options each of the Companys Chief Executive Officer and
Vice Chairman own are fully vested and are exercisable for less
than 1% of the common stock of CinemaNow. In addition, a
director, and the Companys Chief Executive Officer and
Vice Chairman each own less than 1% of the outstanding
convertible preferred stock of CinemaNow. A director also owns
4.0% of the outstanding Series C convertible preferred
stock of CinemaNow and 0.38% of all of the convertible preferred
shares of CinemaNow.
In March 2006, the Company entered into purchase and vendor
subscription agreements with Icon International,
Inc.(Icon), a company which directly reports to
Omnicom Group, Inc. A director of the Company is the Chairman
and Chief Executive Officer of Omnicom Media Group, a division
of Omnicom Group, Inc. Under the purchase agreement, the Company
agreed to transfer title to certain excess CDs in inventory to
Icon International, Inc. for liquidation purposes. In return,
Icon agreed to pay the Company approximately $0.7 million.
The Company received the $0.7 million payment in March
2006. Under the vendor subscription agreement, the Company
agreed to purchase approximately $4.1 million in net media
advertising through Icon in order to earn approximately
$0.8 million in guaranteed minimum credits under a formula
set forth under the Vendor Subscription agreement in exchange
for Icons media advertising procurement services. The
guaranteed minimum credits will be credited against the
guaranteed minimum payment to satisfy the Companys minimum
payment obligation under the vendor subscription agreement. The
Company intends to spend approximately $5.6 million
(approximately $4.8 million in net media advertising under
the terms of the vendor subscription agreement) in media
advertising through Icon.
F-50
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Icon has acknowledged that when delivered such a purchase will
extinguish the Companys guaranteed minimum payment
obligation under the vendor subscription agreement. During the
year ended March 31, 2007, the Company paid
$5.0 million to Icon under the vendor subscription
agreement (2006 nil).
In January 2007, the Company and Icon entered into a vendor
subscription agreement (the Agreement) with a term
of five years. Under the Agreement, the Company agreed to
purchase media advertising through Icon and Icon will reimburse
the Company for certain operating expenses as follows:
(1) $763,958 during the first year of the term;
(2) $786,013 during the second year of the term;
(3) $808,813 during the third year of the term;
(4) $832,383 during the fourth year of the term; and
(5) $856,750 during the fifth year of the term
(collectively, the Minimum Annual Payment Amounts).
The Company may, at its option, elect that Icon reimburse the
Company for certain operating expenses in the following amounts:
(a) $1,145,936 during the first year of the term;
(b) $1,179,019 during the second year of the term;
(c) $1,213,219 during the third year of the term;
(d) $1,248,575 during the fourth year of the term; and
(e) $1,285,126 during the fifth year of the term
(collectively, the Supplemental Annual Payment
Amounts). The Company has elected to be reimbursed for the
Supplemental Annual Payment Amount for the first year of the
term. In exchange, the Company agreed to purchase media
advertising through Icon of approximately $5.6 million per
year (if the Company elects to be reimbursed for the Minimum
Annual Payment Amount) or approximately $8.4 million per
year (if the Company elects to be reimbursed for the
Supplemental Annual Payment Amount) for the five-year term. The
actual amount of media advertising to be purchased is determined
using a formula based upon values assigned to various types of
advertising, as set forth in the Agreement. For accounting
purposes, the operating expenses incurred by the Company will
continue to be expensed in full and the reimbursements from Icon
of such expenses will be treated as a discount on media
advertising and will be reflected as a reduction of advertising
expense as the media advertising costs are incurred by the
Company. The Agreement may be terminated by the Company
effective as of any Agreement year end with six months notice.
|
|
23.
|
Subsequent
Events (Unaudited)
|
On May 25, 2007, the Company, through a series of
agreements, closed a theatrical slate funding arrangement. Under
this arrangement Pride Pictures LLC, an unrelated entity, will
fund, generally, 50% of the Companys production,
acquisition, marketing and distribution costs of theatrical
feature films up to an aggregate of approximately
$204 million before transaction costs (consisting of
$35 million of debt instruments, $35 million of equity
and $134 million from a senior credit facility, which is
subject to a borrowing base). The percentage of the contribution
may vary on certain pictures. The slate of films covered by the
arrangement is expected to be comprised of 23 films over the
next three years. Pride Pictures LLC will participate in a pro
rata portion of the pictures net profits or losses similar to a
co production arrangement based on the portion of costs funded.
The Company continues to distribute the pictures covered by the
arrangement with a portion of net profits after all costs and
the Companys distribution fee being distributed to Pride
Pictures LLC based on their pro rata contribution to the
applicable costs similar to a back-end participation on a film.
F-51