Lions Gate Entertainment Corp.
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
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For the quarterly period ended
June 30, 2007
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Or
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File No.: 1-14880
Lions Gate Entertainment
Corp.
(Exact name of registrant as
specified in its charter)
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British Columbia,
Canada
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|
N/A
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(State or other jurisdiction
of
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|
(I.R.S. Employer
|
incorporation or
organization)
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|
Identification
No.)
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1055 West Hastings Street, Suite 2200
Vancouver, British Columbia V6E 2E9
and
2700 Colorado Avenue, Suite 200
Santa Monica, California 90404
(Address of principal executive
offices)
(877) 848-3866
(Registrants telephone
number, including area code)
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act.
Large accelerated
Filer þ Accelerated
Filer o Non-accelerated
Filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
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Title of Each Class
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Outstanding at August 1, 2007
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|
Common Shares, no par value per
share
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|
119,201,707 shares
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FORWARD-LOOKING
STATEMENTS
This report contains forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. In some cases you can identify forward-looking
statements by terms such as may, intend,
will, could, would,
expects, believe, estimate,
or the negative of these terms, and similar expressions intended
to identify forward-looking statements.
These forward-looking statements reflect Lions Gate
Entertainment Corp.s (the Company,
Lionsgate, we, us or
our) current views with respect to future events and
are based on assumptions and are subject to risks and
uncertainties. Also, these forward-looking statements present
our estimates and assumptions only as of the date of this
report. Except for our ongoing obligation to disclose material
information as required by federal securities laws, we do not
intend to update you concerning any future revisions to any
forward-looking statements to reflect events or circumstances
occurring after the date of this report.
Actual results in the future could differ materially and
adversely from those described in the forward-looking statements
as a result of various important factors, including the
substantial investment of capital required to produce and market
films and television series, increased costs for producing and
marketing feature films, budget overruns, limitations imposed by
our credit facilities, unpredictability of the commercial
success of our motion pictures and television programming, the
cost of defending our intellectual property, difficulties in
integrating acquired businesses, technological changes and other
trends affecting the entertainment industry, and the risk
factors found under the heading Risk Factors in our
Annual Report on
Form 10-K
filed with the U.S. Securities and Exchange Commission (the
SEC) on May 30, 2007, which risk factors are
incorporated herein by reference.
Unless otherwise indicated, all references to the
Company, Lionsgate, we,
us, and our include reference to our
subsidiaries as well.
3
PART I
FINANCIAL INFORMATION
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|
Item 1.
|
Financial
Statements.
|
LIONS
GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
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|
June 30,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
(Note 1)
|
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|
(Amounts in thousands,
|
|
|
|
except share amounts)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
58,580
|
|
|
$
|
51,497
|
|
Restricted cash
|
|
|
4,644
|
|
|
|
4,915
|
|
Investments auction
rate securities
|
|
|
166,330
|
|
|
|
237,379
|
|
Investments equity
securities
|
|
|
4,916
|
|
|
|
125
|
|
Accounts receivable, net of
reserve for video returns and allowances of $64,908
(March 31, 2007 $77,691) and provision for
doubtful accounts of $5,931(March 31, 2007
$6,345)
|
|
|
105,234
|
|
|
|
130,496
|
|
Investment in films and television
programs
|
|
|
579,757
|
|
|
|
493,140
|
|
Property and equipment
|
|
|
14,207
|
|
|
|
13,095
|
|
Goodwill
|
|
|
187,491
|
|
|
|
187,491
|
|
Other assets
|
|
|
41,169
|
|
|
|
18,957
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,162,328
|
|
|
$
|
1,137,095
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Accounts payable and accrued
liabilities
|
|
$
|
174,972
|
|
|
$
|
155,617
|
|
Participation and residuals
|
|
|
186,729
|
|
|
|
171,156
|
|
Film obligations
|
|
|
147,490
|
|
|
|
167,884
|
|
Subordinated notes and other
financing obligations
|
|
|
328,718
|
|
|
|
325,000
|
|
Deferred revenue
|
|
|
101,066
|
|
|
|
69,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
938,975
|
|
|
|
889,205
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS
EQUITY
|
Common shares, no par value,
500,000,000 shares authorized, 119,201,707 and
116,970,280 shares issued and outstanding at June 30,
2007 and March 31, 2007, respectively
|
|
|
423,715
|
|
|
|
398,836
|
|
Series B preferred shares
(10 shares issued and outstanding)
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(202,769
|
)
|
|
|
(149,651
|
)
|
Accumulated other comprehensive
income (loss)
|
|
|
2,407
|
|
|
|
(1,295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
223,353
|
|
|
|
247,890
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,162,328
|
|
|
$
|
1,137,095
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
4
LIONS
GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
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|
|
|
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|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
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|
(Amounts in thousands,
|
|
|
|
except per share amounts)
|
|
|
Revenues
|
|
$
|
198,742
|
|
|
$
|
172,456
|
|
Expenses:
|
|
|
|
|
|
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|
|
Direct operating
|
|
|
87,058
|
|
|
|
68,545
|
|
Distribution and marketing
|
|
|
135,501
|
|
|
|
87,046
|
|
General and administration
|
|
|
26,840
|
|
|
|
19,233
|
|
Depreciation
|
|
|
908
|
|
|
|
544
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
250,307
|
|
|
|
175,368
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(51,565
|
)
|
|
|
(2,912
|
)
|
|
|
|
|
|
|
|
|
|
Other expenses
(income):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
3,860
|
|
|
|
4,676
|
|
Interest and other income
|
|
|
(3,803
|
)
|
|
|
(2,561
|
)
|
|
|
|
|
|
|
|
|
|
Total other expenses, net
|
|
|
57
|
|
|
|
2,115
|
|
|
|
|
|
|
|
|
|
|
Loss before equity interests
and income taxes
|
|
|
(51,622
|
)
|
|
|
(5,027
|
)
|
Equity interests income (loss)
|
|
|
(807
|
)
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
Loss before income
taxes
|
|
|
(52,429
|
)
|
|
|
(4,969
|
)
|
Income tax provision (benefit)
|
|
|
689
|
|
|
|
(1,365
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(53,118
|
)
|
|
$
|
(3,604
|
)
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Net Loss Per
Common Share
|
|
$
|
(0.45
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
5
LIONS
GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Restricted
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
Comprehensive
|
|
|
|
|
|
|
Common Shares
|
|
|
Shares
|
|
|
Share
|
|
|
Unearned
|
|
|
Accumulated
|
|
|
Income
|
|
|
Income
|
|
|
|
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
Units
|
|
|
Compensation
|
|
|
Deficit
|
|
|
(Loss)
|
|
|
(Loss)
|
|
|
Total
|
|
|
|
(Amounts in thousands, except share amounts)
|
|
|
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 (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Exercise of stock options
|
|
|
61,807
|
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390
|
|
Stock based compensation, net of
share units withholding tax obligations of $235
|
|
|
174,368
|
|
|
|
2,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,611
|
|
Issuance of common shares to
directors for services
|
|
|
10,126
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127
|
|
Issuance of common shares for
investment in NextPoint, Inc
|
|
|
1,890,189
|
|
|
|
20,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,851
|
|
Issuance of common shares related
to the Redbus acquisition
|
|
|
94,937
|
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
900
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53,118
|
)
|
|
$
|
(53,118
|
)
|
|
|
|
|
|
|
(53,118
|
)
|
Foreign currency translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,434
|
|
|
|
2,434
|
|
|
|
2,434
|
|
Net unrealized loss on foreign
exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
(12
|
)
|
|
|
(12
|
)
|
Unrealized gain on
investments available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,280
|
|
|
|
1,280
|
|
|
|
1,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(49,416
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
|
119,201,707
|
|
|
$
|
423,715
|
|
|
|
10
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(202,769
|
)
|
|
|
|
|
|
$
|
2,407
|
|
|
$
|
223,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
6
LIONS
GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(53,118
|
)
|
|
$
|
(3,604
|
)
|
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation of property and
equipment
|
|
|
908
|
|
|
|
544
|
|
Amortization of deferred financing
costs
|
|
|
884
|
|
|
|
975
|
|
Amortization of films and
television programs
|
|
|
49,862
|
|
|
|
33,193
|
|
Amortization of intangible assets
|
|
|
162
|
|
|
|
244
|
|
Non-cash stock-based compensation
|
|
|
2,846
|
|
|
|
974
|
|
Equity interests income (loss)
|
|
|
807
|
|
|
|
(58
|
)
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
271
|
|
|
|
84
|
|
Accounts receivable, net
|
|
|
9,439
|
|
|
|
93,013
|
|
Investment in films and television
programs
|
|
|
(136,139
|
)
|
|
|
(60,439
|
)
|
Other assets
|
|
|
(3,061
|
)
|
|
|
4,717
|
|
Accounts payable and accrued
liabilities
|
|
|
20,185
|
|
|
|
(68,278
|
)
|
Unpresented bank drafts
|
|
|
|
|
|
|
(14,772
|
)
|
Participation and residuals
|
|
|
15,527
|
|
|
|
(7,587
|
)
|
Film obligations
|
|
|
(20,430
|
)
|
|
|
(2,349
|
)
|
Deferred revenue
|
|
|
31,486
|
|
|
|
8,319
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Used In
Operating Activities
|
|
|
(80,371
|
)
|
|
|
(15,024
|
)
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of
investments auction rate securities
|
|
|
(172,442
|
)
|
|
|
(165,620
|
)
|
Proceeds from the sale of
investments auction rate securities
|
|
|
243,491
|
|
|
|
190,594
|
|
Purchases of
investments equity securities
|
|
|
(3,432
|
)
|
|
|
|
|
Proceeds from the sale of
investments equity securities
|
|
|
16,343
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(2,017
|
)
|
|
|
(1,831
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Provided By
Investing Activities
|
|
|
81,943
|
|
|
|
23,143
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
390
|
|
|
|
353
|
|
Borrowings from financing
obligation
|
|
|
3,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Provided By
Financing Activities
|
|
|
4,108
|
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
Net Change In Cash And Cash
Equivalents
|
|
|
5,680
|
|
|
|
8,472
|
|
Foreign Exchange Effects on
Cash
|
|
|
1,403
|
|
|
|
(592
|
)
|
Cash and Cash
Equivalents Beginning Of Period
|
|
|
51,497
|
|
|
|
46,978
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash
Equivalents End Of Period
|
|
$
|
58,580
|
|
|
$
|
54,858
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
7
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nature
of Operations
Lions Gate Entertainment Corp. (the Company,
Lionsgate, we, us or
our) is a diversified independent producer and
distributor of motion pictures, television programming, home
entertainment,
video-on-demand
and music content. The Company also acquires distribution rights
from a wide variety of studios, production companies and
independent producers.
Basis
of Presentation
The accompanying unaudited condensed consolidated financial
statements include the accounts of Lionsgate and all of its
wholly owned and controlled subsidiaries.
The unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States (U.S. GAAP) for
interim financial information and the instructions to
Form 10-Q
under the Securities Exchange Act of 1934, as amended (the
Exchange Act) and Article 10 of
Regulation S-X
under the Exchange Act. Accordingly, they do not include all of
the information and footnotes required by U.S. GAAP for
complete financial statements. In the opinion of the
Companys management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair
presentation have been reflected in these unaudited condensed
consolidated financial statements. Operating results for the
three months ended June 30, 2007 are not necessarily
indicative of the results that may be expected for the fiscal
year ended March 31, 2008. The balance sheet at
March 31, 2007 has been derived from the audited financial
statements at that date but does not include all the information
and footnotes required by U.S. GAAP for complete financial
statements. The accompanying unaudited condensed consolidated
financial statements should be read together with the
consolidated financial statements and related notes included in
our Annual Report on
Form 10-K
for the fiscal year ended March 31, 2007.
Certain amounts presented for fiscal 2007 have been reclassified
to conform to the fiscal 2008 presentation.
Use of
Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported
amounts of revenue and expenses during the reporting period. The
most significant estimates made by the Companys management
in the preparation of the financial statements relate to
ultimate revenue and costs for investment in films and
television programs; estimates of sales returns, provision for
doubtful accounts, fair value of assets and liabilities for
allocation of the purchase price of companies acquired, income
taxes and accruals for contingent liabilities; and impairment
assessments for investment in films and television programs,
property and equipment, goodwill and intangible assets. Actual
results could differ from such estimates.
Recent
Accounting Pronouncements
Statement of Financial Accounting Standards No. 123(R).
In December 2004, the Financial Accounting
Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 123 (revised
2004), Share-Based Payment
(SFAS No. 123(R)).
SFAS No. 123(R) revises SFAS No. 123 and
eliminates the alternative to use the intrinsic method of
accounting under Accounting Principles Board (APB)
No. 25. SFAS No. 123(R) requires all public
companies accounting for share-based payment transactions in
which an enterprise receives employee services in exchange for
(a) equity instruments of the enterprise or
(b) liabilities that are based on the fair value of the
enterprises equity instruments or that may be settled by
the issuance of such equity instruments, to account for these
types of transactions using a fair-value-based method. Effective
April 1, 2006, the Company adopted the fair value
recognition provisions of SFAS No. 123(R), using the
modified-prospective
8
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
transition method. Under such transition method, compensation
cost recognized in the three months ended June 30, 2007 and
2006 includes: (a) compensation cost for all stock options
granted prior to, but not yet vested as of, April 1, 2006,
based on the grant date fair value estimated in accordance with
the original provisions of SFAS No. 123, and
(b) compensation cost for all share-based payments granted
on or after April 1, 2006, based on the grant-date fair
value estimated in accordance with the provisions of
SFAS No. 123(R). See note 11 for further
discussion of the Companys stock-based compensation in
accordance with SFAS No. 123(R).
FASB Issued Interpretation No. 48. On
July 13, 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes An
Interpretation of FASB Statement No. 109
(FIN No. 48). FIN No. 48
clarifies the accounting for uncertainty in income taxes
recognized in an entitys financial statements in
accordance with SFAS No. 109, Accounting for
Income Taxes (SFAS No. 109), and
prescribes a recognition threshold and measurement attributes
for financial statement disclosure of tax positions taken or
expected to be taken on a tax return. Under
FIN No. 48, the impact of an uncertain income tax
position on the income tax return must be recognized at the
largest amount that is more-likely-than-not to be sustained upon
audit by the relevant taxing authority. An uncertain income tax
position will not be recognized if it has less than a 50%
likelihood of being sustained. Additionally,
FIN No. 48 provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure and transition. FIN No. 48 is
effective for fiscal years beginning after December 15,
2006.
The Company adopted the provisions of FIN No. 48 on
April 1, 2007. The total amount of unrecognized tax
benefits as of the date of adoption was $0.5 million that,
if recognized, would affect the effective tax rate. The Company
expects that it is reasonably possible that the unrecognized tax
benefits will decrease by $0.5 million within
12 months of this reporting date due to the resolution of
audits.
The Companys practice is to recognize interest
and/or
penalties related to income tax matters in income tax expense.
For the three months ended June 30, 2007 and 2006 interest
and penalties were not significant.
The Company is subject to taxation in the U.S. and various
state and foreign jurisdictions. With a few exceptions, the
Company is subject to income tax examination by U.S. and
state tax authorities for the fiscal years ended March 31,
2004 and forward. However, to the extent allowed by law, the
taxing authorities may have the right to examine prior periods
where net operating losses (NOLs) were generated and
carried forward, and make adjustments up to the amount of the
NOLs. The Companys fiscal years ended March 31, 2006
and forward are subject to examination by the UK tax
authorities. The Companys fiscal years ended
March 31, 1998 and forward are subject to examination by
the Canadian tax authorities. The Company is not currently under
examination by the IRS. Currently, audits are occurring in
Canada, and various state and local tax jurisdictions.
The adoption of FIN No. 48 did not impact the
Companys financial condition, results of operations or
cash flows. At April 1, 2007, the Company had net deferred
tax assets of $93.3 million. The deferred tax assets are
largely composed of federal and state tax NOLs. Due to
uncertainties surrounding the Companys ability to generate
future taxable income to realize these assets, a full valuation
has been established to offset the net deferred tax asset.
Additionally, the future utilization of the Companys NOLs
to offset future taxable income may be subject to a substantial
annual limitation as a result of ownership changes that may have
occurred previously or that could occur in the future.
Statement of Financial Accounting Standards
No. 157. In September 2006, the FASB issued
SFAS No. 157, Fair Value Measurements
(SFAS No. 157). SFAS No. 157
establishes a framework for measuring fair value and expands
disclosures about fair value measurements. The changes to
current practice resulting from the application of this
statement relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about
fair value measurements. The Company will be required to adopt
the provisions on SFAS No. 157 on April 1, 2008.
The Company is currently evaluating the impact of adopting the
provisions of SFAS No. 157 but
9
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
does not believe that the adoption of SFAS No. 157
will materially impact its financial position, cash flows, or
results of operations.
Statement of Financial Accounting Standards
No. 159. In February 2007, the FASB issued
SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities Including
an Amendment of FASB Statement No. 115,
(SFAS No. 159), which is effective for
fiscal years beginning after November 15, 2007.
SFAS No. 159 permits an entity to choose to measure
many financial instruments and certain other items at fair value
at specified election dates. Subsequent unrealized gains and
losses on items for which the fair value option has been elected
will be reported in earnings. The Company is currently
evaluating the potential impact of SFAS No. 159.
|
|
2.
|
Investments
Available-For-Sale
|
Investments classified as available-for-sale are reported at
fair value based on quoted market prices, with unrealized gains
and losses excluded from earnings and reported as other
comprehensive income or loss (see note 9). The cost of
investments sold is determined in accordance with the average
cost method. As of June 30, 2007 and March 31, 2007,
the cost, unrealized losses and carrying value of the
Companys available-for-sale investments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
Holding
|
|
|
Carrying
|
|
|
|
Cost
|
|
|
Gains (Losses)
|
|
|
Value
|
|
|
|
(Amounts in thousands)
|
|
|
Auction rate notes
|
|
$
|
166,330
|
|
|
$
|
|
|
|
$
|
166,330
|
|
Equity securities
|
|
|
3,636
|
|
|
|
1,280
|
|
|
|
4,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
169,966
|
|
|
$
|
1,280
|
|
|
$
|
171,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
Holding
|
|
|
Carrying
|
|
|
|
Cost
|
|
|
Gains (Losses)
|
|
|
Value
|
|
|
|
(Amounts in thousands)
|
|
|
Auction rate notes
|
|
$
|
237,379
|
|
|
$
|
|
|
|
$
|
237,379
|
|
Equity securities
|
|
|
125
|
|
|
|
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
237,504
|
|
|
$
|
|
|
|
$
|
237,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company began investing in Auction Rate Securities
(ARS) during the fiscal year ended March 31,
2006. The ARS carry interest rates or dividend yields that are
periodically re-set through auctions, typically every 7, 14, 28,
or 35 days. ARS are usually issued with long-term
maturities or in perpetuity and are auctioned at par. Thus, the
return on the investment between auction dates is determined by
the interest rate or dividend yield set through the auctions.
Accordingly, dividends and interest earned on auction rate
investments are computed as a percentage of the principal amount
of the security. Interest and dividend income earned during the
three-month periods ended June 30, 2007 and June 30,
2006 on ARS was $2.6 million and $1.9 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 with unrealized gains and losses recorded in other
comprehensive income or loss.
10
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Equity securities as of June 30, 2007 are comprised of
13,470,525 common shares of Magna Pacific Holdings
(Magna), an independent DVD distributor in Australia
and New Zealand, purchased at an average cost of $0.23 per
share. The closing price of Magnas common shares on
June 30, 2007 was $0.36 per common share. As a result, the
Company had an unrealized gain of $1.3 million on its
investment in Magna common shares as of June 30, 2007. The
Company has reported the $1.3 million unrealized gain in
other comprehensive income in the unaudited condensed
consolidated statement of shareholders equity as of
June 30, 2007. At March 31, 2007 equity securities
were comprised of 592,156 common shares of Magna purchased at an
average cost per share of $0.21.
In July 2007, the Company purchased 3,111,625 additional common
shares of Magna for approximately $1.2 million, at an
average price of $0.39 per share. On July 23, 2007 the
Company sold 16,129,740 of Magnas common shares for total
proceeds of approximately $7.4 million, resulting in a gain
of approximately $2.7 million. At July 23, 2007 the
Company continued to own 452,410 Magna common shares.
|
|
3.
|
Investment
in Films and Television Programs
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
(Amounts in thousands)
|
|
|
Motion Picture
Segment Theatrical and Non-Theatrical
Films
|
|
|
|
|
|
|
|
|
Released, net of accumulated
amortization
|
|
$
|
150,661
|
|
|
$
|
144,302
|
|
Acquired libraries, net of
accumulated amortization
|
|
|
88,532
|
|
|
|
90,980
|
|
Completed and not released
|
|
|
15,374
|
|
|
|
19,424
|
|
In progress
|
|
|
135,238
|
|
|
|
107,105
|
|
In development
|
|
|
7,058
|
|
|
|
5,205
|
|
Product inventory
|
|
|
28,180
|
|
|
|
30,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
425,043
|
|
|
|
397,346
|
|
|
|
|
|
|
|
|
|
|
Television Segment
Direct-to-Television Programs
|
|
|
|
|
|
|
|
|
Released, net of accumulated
amortization
|
|
|
61,359
|
|
|
|
70,949
|
|
In progress
|
|
|
92,592
|
|
|
|
24,083
|
|
In development
|
|
|
763
|
|
|
|
762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154,714
|
|
|
|
95,794
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
579,757
|
|
|
$
|
493,140
|
|
|
|
|
|
|
|
|
|
|
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 Costs
|
|
|
Unamortized Costs
|
|
|
|
|
|
Total
|
|
|
Remaining
|
|
|
Three Months Ended
|
|
|
Year Ended
|
|
Acquired
|
|
Acquisition
|
|
Amortization
|
|
|
Amortization
|
|
|
June 30,
|
|
|
March 31,
|
|
Library
|
|
Date
|
|
Period
|
|
|
Period
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
(In years)
|
|
|
(Amounts in thousands)
|
|
|
Trimark
|
|
October 2000
|
|
|
20.00
|
|
|
|
13.25
|
|
|
$
|
14,221
|
|
|
$
|
14,854
|
|
Artisan
|
|
December 2003
|
|
|
20.00
|
|
|
|
16.50
|
|
|
|
67,726
|
|
|
|
69,402
|
|
Modern
|
|
August 2005
|
|
|
20.00
|
|
|
|
18.00
|
|
|
|
4,651
|
|
|
|
4,753
|
|
LGUK
|
|
October 2005
|
|
|
20.00
|
|
|
|
18.25
|
|
|
|
1,934
|
|
|
|
1,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Acquired Libraries
|
|
|
|
|
|
|
|
|
|
|
|
$
|
88,532
|
|
|
$
|
90,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company expects approximately 40% of completed films and
television programs, net of accumulated amortization, will be
amortized during the one-year period ending June 30, 2008.
Additionally, the Company expects approximately 80% of completed
and released films and television programs, net of accumulated
amortization and excluding acquired libraries, will be amortized
during the three-year period ending June 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
(Amounts in thousands)
|
|
|
Deferred financing costs, net of
accumulated amortization
|
|
$
|
9,405
|
|
|
$
|
10,038
|
|
Prepaid expenses and other
|
|
|
5,738
|
|
|
|
3,553
|
|
Equity method investments
|
|
|
26,026
|
|
|
|
5,366
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,169
|
|
|
$
|
18,957
|
|
|
|
|
|
|
|
|
|
|
Deferred
Financing Costs
Deferred financing costs primarily include costs incurred in
connection with the credit facility (see note 5) and
the issuance of the 2.9375% Notes and the 3.625% Notes
(see note 7) that are deferred and amortized to
interest expense.
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
June 30, 2007 and March 31, 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
(Amounts in thousands)
|
|
|
Maple
|
|
$
|
1,976
|
|
|
$
|
1,764
|
|
CinemaNow
|
|
|
|
|
|
|
|
|
Horror Entertainment, LLC
|
|
|
2,680
|
|
|
|
3,602
|
|
NextPoint, Inc.
|
|
|
21,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,026
|
|
|
$
|
5,366
|
|
|
|
|
|
|
|
|
|
|
Equity interest in equity method investments on our unaudited
condensed consolidated statements of operations represent our
portion of the income or loss of our equity method investment
based on our percentage ownership of the investee. Equity
interests in equity method investments for the three months
ended June 30, 2007 and 2006 were as follows (income
(loss)):
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Maple
|
|
$
|
61
|
|
|
$
|
58
|
|
Horror Entertainment, LLC
|
|
|
(868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(807
|
)
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
12
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Maple. On April 8, 2005, Maple Pictures
Corp., a Canadian corporation, (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, for the distribution of
Lionsgates motion picture, television and home video
product in Canada. Lionsgate also acquired and as of
June 30, 2007 owns a 10% minority interest in Maple
Pictures. The Company is accounting for the investment in Maple
Pictures using the equity method.
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 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 June 30, 2007, the Companys equity
interest in CinemaNow is 18.7% 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 five-year license agreement
with FEARnet for the U.S. 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.
NextPoint, Inc. On June 29, 2007, the
Company purchased a 42% equity interest or
21,000,000 shares of the Series B Preferred Stock of
NextPoint, Inc. (Break.com), an online video
entertainment service provider operating under the branding of
Break.com, for an aggregate purchase price of
$21.4 million which includes $0.5 million of
transaction costs, by issuing 1,890,189 of its common shares.
The Company is accounting for the investment in Break.com using
the equity method. The Company has a call option which is
exercisable at any time from June 29, 2007 until the
earlier of 30 months after June 29, 2007 or one year
after a change of control, as narrowly defined, to purchase all,
but not less than all, of the remaining 58% equity interests,
including in-the-money stock options, warrants and other rights,
of Break.com for $58 million in cash or common stock, at
the Companys option. Due to the timing in availability of
financial statements from Break.com the Company is recording its
share of the Break.com results on a one quarter lag.
At June 30, 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 June 30, 2007, the Company had
no borrowings (March 31, 2007 nil) under the
credit facility. The credit facility expires December 31,
2008 and bears interest at 2.75% over the Adjusted
LIBOR or the Canadian Bankers Acceptance rate
(as defined in the credit facility), or 1.75% over the
U.S. or Canadian prime rates. The availability of funds
under the credit facility is limited by the borrowing base.
Amounts available under the credit facility are also limited by
outstanding letters of credit, which amounted to
$15.2 million at June 30, 2007. At June 30, 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., the
Companys wholly owned U.S. subsidiary
13
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
|
|
6.
|
Film
Obligations and Participation and Residuals
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
(Amounts in thousands)
|
|
|
Minimum guarantees(1)
|
|
$
|
24,455
|
|
|
$
|
19,286
|
|
Theatrical marketing obligations(2)
|
|
|
3,474
|
|
|
|
4,482
|
|
Production obligations(3)
|
|
|
119,561
|
|
|
|
144,116
|
|
|
|
|
|
|
|
|
|
|
Total film obligations
|
|
|
147,490
|
|
|
|
167,884
|
|
Less film obligations expected to
be paid within one year
|
|
|
(58,554
|
)
|
|
|
(82,350
|
)
|
|
|
|
|
|
|
|
|
|
Production obligations expected to
be paid after one year
|
|
$
|
88,936
|
|
|
$
|
85,534
|
|
|
|
|
|
|
|
|
|
|
Participation and residuals
|
|
$
|
186,729
|
|
|
$
|
171,156
|
|
|
|
|
|
|
|
|
|
|
The Company expects approximately 63% of accrued
participants shares will be paid during the one-year
period ending June 30, 2008.
|
|
|
(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. Production
obligations incur interest at rates ranging from 7.32% to 7.76%,
with the exception of approximately $91.4 million of
production obligations which are non-interest bearing. |
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 (Pride), 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 $196 million net of transaction
costs. The funds available from Pride are generated from the
issuance by Pride of $35 million of subordinated debt
instruments, $35 million of equity and $134 million
from a senior credit facility, which is subject to a borrowing
base. The Company is not a party to the Pride debt obligations
or their senior credit facility, and provides no guarantee of
repayment of these obligations. 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 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 based on their pro rata contribution to the applicable
costs similar to a back-end participation on a film.
The $134 million senior credit facility is a revolving
facility for print and advertising costs, other releasing costs,
and direct production and acquisition costs. Borrowings for
direct production and acquisition cost are subject
14
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to a borrowing base calculation generally based on 90% of the
estimated ultimate amounts due to Pride on previously released
films, as defined.
Amounts funded from Pride are reflected as a participation
liability. The ultimate participation expected to be paid to
Pride in excess of or less than the amount funded by Pride is
amortized to expense under the individual film forecast method.
At June 30, 2007, $175.3 million was available to be
funded by Pride under the terms of the arrangement.
|
|
7.
|
Subordinated
Notes and Other Financing Obligations
|
The following table sets forth the subordinated notes and other
financing obligations outstanding at June 30, 2007 and
March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
(Amounts in thousands)
|
|
|
2.9375% Convertible Senior
Subordinated Notes
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
3.625% Convertible Senior
Subordinated Notes
|
|
|
175,000
|
|
|
|
175,000
|
|
Other Financing Obligations
|
|
|
3,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
328,718
|
|
|
$
|
325,000
|
|
|
|
|
|
|
|
|
|
|
Subordinated
Notes
3.625% Notes. In February 2005, Lions
Gate Entertainment Inc. sold $150.0 million of
3.625% Convertible Senior Subordinated Notes (the
3.625% Notes). In connection with this sale,
Lions Gate Entertainment Inc. granted the initial purchasers of
the 3.625% Notes an option to purchase up to an additional
$25.0 million of the 3.625% Notes for 13 days.
The fair value of this option was not significant. The initial
purchasers exercised this option in February 2005 and purchased
an additional $25 million of the 3.625% Notes. The
Company received $170.2 million of net proceeds after
paying placement agents fees from the sale of
$175.0 million of the 3.625% Notes. The Company also
paid $0.6 million of offering expenses incurred in
connection with the 3.625% Notes. Interest on the
3.625% Notes is payable semi-annually on March 15 and
September 15, which commenced on September 15, 2005.
After March 15, 2012, interest will be 3.125% per annum on
the principal amount of the 3.625% Notes, payable
semi-annually on March 15 and September 15 of each year. The
3.625% Notes mature on March 15, 2025. Lions Gate
Entertainment Inc. may redeem all or a portion of the
3.625% Notes at its option on or after March 15, 2012
at 100% of their principal amount, together with accrued and
unpaid interest through the date of redemption.
The holder may require Lions Gate Entertainment Inc. to
repurchase the 3.625% Notes on March 15, 2012, 2015
and 2020 or upon a change in control at a price equal to 100% of
the principal amount, together with accrued and unpaid interest
through the date of repurchase. Under certain circumstances, if
the holder requires Lions Gate Entertainment Inc. to repurchase
all or a portion of their notes upon a change in control, they
will be entitled to receive a make whole premium. The amount of
the make whole premium, if any, will be based on the price of
our common shares on the effective date of the change in
control. No make whole premium will be paid if the price of our
common shares is less than $10.35 per share or if the price of
the common shares of the Company exceeds $75.00 per share.
The 3.625% Notes are convertible, at the option of the
holder, at any time before the close of business on or prior to
the trading day immediately before the maturity date, if the
notes have not been previously redeemed or repurchased, at a
conversion rate of 70.0133 shares per $1,000 principal
amount of the 3.625% Notes, subject to adjustment in
certain circumstances, which is equal to a conversion price of
approximately $14.28 per share. Upon conversion of the
3.625% Notes, the Company has the option to deliver, in
lieu of common shares, cash or a
15
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
2.9375% Notes. In October 2004, Lions
Gate Entertainment Inc. sold $150.0 million of
2.9375% Convertible Senior Subordinated Notes (the
2.9375% Notes). The Company received
$146.0 million of net proceeds after paying placement
agents fees from the sale of $150.0 million of the
2.9375% Notes. The Company also paid $0.7 million of
offering expenses incurred in connection with the
2.9375% Notes. Interest on the 2.9375% Notes is
payable semi-annually on April 15 and October 15, which
commenced 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%; thereafter, Lions
Gate Entertainment Inc. may redeem the notes 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 our common shares 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 our common
shares prior to maturity only if the price of the common shares
of the Company issuable upon conversion of a note reaches a
specified threshold over a specified period, the trading price
of the notes falls below certain thresholds, the notes have been
called for redemption, a change in control occurs or certain
corporate transactions occur. In addition, under certain
circumstances, if the holder converts their notes upon a change
in control, they will be entitled to receive a make whole
premium. Before the close of business on or prior to the trading
day immediately before the maturity date, if the notes have not
been previously redeemed or repurchased, the holder may convert
the notes into our common shares at a conversion rate of
86.9565 shares per $1,000 principal amount of the
2.9375% Notes, subject to adjustment in certain
circumstances, which is equal to a conversion price of
approximately $11.50 per share.
Other
Financing Obligations
On June 1, 2007, the Company entered into a bank financing
agreement for $3.7 million to fund the acquisition of
certain capital assets. Interest is payable in monthly payments
totaling $0.3 million per year for five years at an
interest rate of 8.02%, with the entire principal due June 2012.
|
|
8.
|
Direct
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Amortization of films and
television programs
|
|
$
|
49,862
|
|
|
$
|
33,193
|
|
Participation and residual expense
|
|
|
38,011
|
|
|
|
37,198
|
|
Amortization of acquired
intangible assets
|
|
|
162
|
|
|
|
244
|
|
Other expenses
|
|
|
(977
|
)
|
|
|
(2,090
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
87,058
|
|
|
$
|
68,545
|
|
|
|
|
|
|
|
|
|
|
16
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other expenses primarily consist of the provision for doubtful
accounts and foreign exchange gains and losses. The provision
for doubtful accounts for the three months ended June 30,
2007 and 2006 were benefits of $0.5 million and
$2.2 million, respectively. The benefit in the provision
for doubtful accounts for the three months ended June 30,
2006 is due to a reversal of the provision for doubtful accounts
of $2.2 million, primarily due to collection of a portion
of accounts receivables related to a large retail customer that
had declared bankruptcy and was previously reserved. Other
expenses for the three months ended June 30, 2007 also
includes foreign exchange gains of $0.5 million.
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Net loss
|
|
$
|
(53,118
|
)
|
|
$
|
(3,604
|
)
|
Add: Foreign currency translation
adjustments
|
|
|
2,434
|
|
|
|
1,550
|
|
Add (Deduct): Net unrealized gain
(loss) on foreign exchange contracts
|
|
|
(12
|
)
|
|
|
17
|
|
Add (Deduct): Unrealized gain
(loss) on investments available for sale
|
|
|
1,280
|
|
|
|
(363
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(49,416
|
)
|
|
$
|
(2,400
|
)
|
|
|
|
|
|
|
|
|
|
The Company calculates loss per share in accordance with
SFAS No. 128, Earnings Per Share. Basic
loss per share is calculated based on the weighted average
common shares outstanding for the period. Basic loss per share
for the three months ended June 30, 2007 and 2006 are
presented below:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Basic and Diluted Net Loss Per
Share:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(53,118
|
)
|
|
$
|
(3,604
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
117,107
|
|
|
|
103,319
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Net Loss Per
Common Share
|
|
$
|
(0.45
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
Basic loss per common share is calculated using the weighted
average number of common shares outstanding during the three
months ended June 30, 2007 and 2006 of
117,106,524 shares and 103,318,955 shares,
respectively. The exercise of common share equivalents including
stock options, the conversion features of the
2.9375% Notes, and the 3.625% Notes and restricted
share units could potentially dilute income (loss) per share in
the future, but were not reflected in diluted loss per share
during the periods presented because their effect is
anti-dilutive.
17
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company had 500,000,000 authorized shares of common stock at
June 30, 2007 and March 31, 2007. The table below
outlines common shares reserved for future issuance:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
(Amounts in thousands)
|
|
|
Stock options outstanding
|
|
|
6,356
|
|
|
|
5,933
|
|
Restricted share units
unvested
|
|
|
2,178
|
|
|
|
1,872
|
|
Share purchase options and
restricted share units available for future issuance
|
|
|
53
|
|
|
|
1,026
|
|
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
|
|
|
33,882
|
|
|
|
34,126
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
|
Accounting
for Stock-Based Compensation
|
Share-Based
Compensation
The Company accounts for stock-based compensation in accordance
with the provisions of SFAS No. 123(R).
SFAS No. 123(R) requires the measurement of all
stock-based awards using a fair value method and the recognition
of the related stock-based compensation expense in the
consolidated financial statements over the requisite service
period. Further, as required under SFAS No. 123(R),
the Company estimates forfeitures for share-based awards that
are not expected to vest. As stock-based compensation expense
recognized in the Companys consolidated financial
statements is based on awards ultimately expected to vest, it
has been reduced for estimated forfeitures.
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. The following table
represents the assumptions used in the Black-Scholes
option-pricing model for options granted during the three months
ended June 30, 2007 (no options were granted during the
three months ended June 30, 2006):
|
|
|
|
|
Three Months
|
|
|
Ended
|
|
|
June 30,
|
|
|
2007
|
|
Risk-free interest rate
|
|
4.7% - 4.8%
|
Expected option lives (in years)
|
|
5.6 to 6.3 years
|
Expected volatility for options
|
|
31%
|
Expected dividend yield
|
|
0.0%
|
18
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The weighted-average grant-date fair values for options granted
during the three months ended June 30, 2007 was $4.75. The
Company recognized the following share-based compensation
expense during the three months ended June 30, 2007 and
2006:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Compensation Expense (Benefit):
|
|
|
|
|
|
|
|
|
Stock Options
|
|
$
|
785
|
|
|
$
|
458
|
|
Restricted Share Units
|
|
|
2,061
|
|
|
|
516
|
|
Stock Appreciation Rights
|
|
|
(380
|
)
|
|
|
(1,384
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,466
|
|
|
$
|
(410
|
)
|
|
|
|
|
|
|
|
|
|
There was no income tax benefit recognized in the statements of
operations for share-based compensation arrangements during the
three months ended June 30, 2007 and 2006.
Stock
Options
A summary of option activity under our long-term incentive plans
as of June 30, 2007 and changes during the three months
then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Value as of
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
June 30,
|
|
Options:
|
|
Shares
|
|
|
Price
|
|
|
Term in Years
|
|
|
2007
|
|
|
Outstanding at March 31, 2007
|
|
|
5,933,289
|
|
|
$
|
4.18
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
490,000
|
|
|
|
11.70
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(61,807
|
)
|
|
|
6.31
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(5,665
|
)
|
|
|
8.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2007
|
|
|
6,355,817
|
|
|
$
|
6.71
|
|
|
|
4.41
|
|
|
$
|
27,762,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options as of
June 30, 2007, vested or expected to vest in the future
|
|
|
6,348,834
|
|
|
$
|
6.71
|
|
|
|
4.41
|
|
|
$
|
27,755,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2007
|
|
|
3,557,816
|
|
|
$
|
4.13
|
|
|
|
0.93
|
|
|
$
|
24,555,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised as of each
exercise date during the three months ended June 30, 2007
was $0.3 million (2006 $0.8 million).
19
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted
Share Units
A summary of the status of the Companys restricted share
units as of June 30, 2007, and changes during the three
months then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Number of
|
|
|
Grant Date Fair
|
|
Restricted Share Units:
|
|
Shares
|
|
|
Value
|
|
|
Outstanding at March 31, 2007
|
|
|
1,872,243
|
|
|
$
|
9.78
|
|
Granted
|
|
|
505,833
|
|
|
|
11.69
|
|
Vested
|
|
|
(195,257
|
)
|
|
|
9.86
|
|
Forfeited
|
|
|
(5,206
|
)
|
|
|
10.01
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2007
|
|
|
2,177,613
|
|
|
$
|
10.22
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
9,177
|
|
|
|
2.8
|
|
Restricted Share Units
|
|
|
17,796
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
three months ended June 30, 2007, 20,889 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 February 2, 2004, an officer of the Company was granted
1,000,000 stock appreciation rights (SARs), which
entitles 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 Companys
Employees and Directors Equity Incentive Plan.
Applying FIN No. 28 Accounting for Stock Appreciation
Rights and Other Variable Stock Option or Award Plans, the
Company is accruing compensation expense over the service
period, which is assumed to be the three-year vesting period,
using a graded approach. Through March 31, 2006, the
Company measured compensation expense as the amount by which the
market value of common shares exceeded the SARs price 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 three months
20
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
ended June 30, 2007, the following assumptions were used in
the Black-Scholes option-pricing model: Volatility of 36.7%,
Risk Free Rate of 4.9%, Expected Term of 1.6 years, and
Dividend of 0%. At June 30, 2007, the market price of our
common shares was $11.03, the weighted average fair value of the
SARs was $6.27, and all 1,000,000 of the SARs had vested. Due to
the decrease in the market price of its common shares, the
Company recorded a reduction in stock-based compensation expense
in the amount of $0.4 million in general and administration
expenses in the unaudited condensed consolidated statements of
operations for the three months ended June 30, 2007
(2006 $0.4 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
June 30, 2007, the Company has a stock-based compensation
liability accrual in the amount of $5.3 million
(March 31, 2007 $5.7 million) included in
accounts payable and accrued liabilities on the unaudited
condensed consolidated balance sheets relating to these SARs.
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.
21
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Segmented information by business unit is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Segment revenues
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
170,322
|
|
|
$
|
165,186
|
|
Television
|
|
|
28,420
|
|
|
|
7,270
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
198,742
|
|
|
$
|
172,456
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
59,630
|
|
|
$
|
61,953
|
|
Television
|
|
|
27,428
|
|
|
|
6,592
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
87,058
|
|
|
$
|
68,545
|
|
|
|
|
|
|
|
|
|
|
Distribution and marketing
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
132,859
|
|
|
$
|
85,261
|
|
Television
|
|
|
2,642
|
|
|
|
1,785
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
135,501
|
|
|
$
|
87,046
|
|
|
|
|
|
|
|
|
|
|
General and administration
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
7,415
|
|
|
$
|
6,814
|
|
Television
|
|
|
1,826
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,241
|
|
|
$
|
6,964
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss)
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
(29,582
|
)
|
|
$
|
11,158
|
|
Television
|
|
|
(3,476
|
)
|
|
|
(1,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(33,058
|
)
|
|
$
|
9,901
|
|
|
|
|
|
|
|
|
|
|
Acquisition of investment in films
and television programs
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
56,073
|
|
|
$
|
39,281
|
|
Television
|
|
|
80,066
|
|
|
|
21,158
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
136,139
|
|
|
$
|
60,439
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment amounted to
$2.0 million and $1.8 million for the three months
ending June 30, 2007 and 2006, respectively, all primarily
pertaining to the corporate headquarters.
22
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Segment profit (loss) is defined as segment revenue less segment
direct operating, distribution and marketing, and general and
administration expenses. The reconciliation of total segment
profit (loss) to the Companys loss before income taxes is
as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Companys total segment
profit (loss)
|
|
$
|
(33,058
|
)
|
|
$
|
9,901
|
|
Less:
|
|
|
|
|
|
|
|
|
Corporate general and
administration
|
|
|
(17,599
|
)
|
|
|
(12,269
|
)
|
Depreciation
|
|
|
(908
|
)
|
|
|
(544
|
)
|
Interest expense
|
|
|
(3,860
|
)
|
|
|
(4,676
|
)
|
Interest and other income
|
|
|
3,803
|
|
|
|
2,561
|
|
Equity interests income (loss)
|
|
|
(807
|
)
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(52,429
|
)
|
|
$
|
(4,969
|
)
|
|
|
|
|
|
|
|
|
|
The following table sets forth significant assets as broken down
by segment and other unallocated assets as of June 30, 2007
and March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
March 31, 2007
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Significant assets by segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
64,505
|
|
|
$
|
40,729
|
|
|
$
|
105,234
|
|
|
$
|
85,294
|
|
|
$
|
45,202
|
|
|
$
|
130,496
|
|
Investment in films and television
programs
|
|
|
425,043
|
|
|
|
154,714
|
|
|
|
579,757
|
|
|
|
397,346
|
|
|
|
95,794
|
|
|
|
493,140
|
|
Goodwill
|
|
|
173,530
|
|
|
|
13,961
|
|
|
|
187,491
|
|
|
|
173,530
|
|
|
|
13,961
|
|
|
|
187,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
663,078
|
|
|
$
|
209,404
|
|
|
$
|
872,482
|
|
|
$
|
656,170
|
|
|
$
|
154,957
|
|
|
$
|
811,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other unallocated assets
(primarily cash and available-for-sale investments)
|
|
|
|
|
|
|
|
|
|
|
289,846
|
|
|
|
|
|
|
|
|
|
|
|
325,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
$
|
1,162,328
|
|
|
|
|
|
|
|
|
|
|
$
|
1,137,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company is from time to time involved in various claims,
legal proceedings and complaints arising in the ordinary course
of business. The Company does not believe that adverse decisions
in any such pending or threatened proceedings, or any amount
which the Company might be required to pay by reason thereof,
would have a material adverse effect on the financial condition
or future results of the Company. The Company has provided an
accrual for estimated losses under the above matters as of
June 30, 2007, in accordance with SFAS No. 5,
Accounting for Contingencies.
|
|
14.
|
Consolidating
Financial Information
|
In October 2004, the Company sold $150.0 million of the
2.9375% Notes, through its wholly owned
U.S. subsidiary Lions Gate Entertainment Inc. (the
Issuer). The 2.9375% Notes, by their terms, are
fully and
23
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
unconditionally guaranteed by the Company. On February 4,
2005, the Company filed a registration statement on
Form S-3
to register the resale of the 2.9375% Notes and common
shares issuable on conversion of the 2.9375% Notes. On
March 3, 2005, the registration statement was declared
effective by the SEC.
In February 2005, the Company sold $175.0 million of the
3.625% Notes through the Issuer. The 3.625% Notes, by
their terms, are fully and unconditionally guaranteed by the
Company. On March 29, 2005, and as amended April 6,
2005, the Company filed a registration statement on
Form S-3
to register the resale of the 3.625% Notes and common
shares issuable on conversion of the 3.625% Notes. On
April 13, 2005, the registration statement was declared
effective by the SEC.
The following tables present unaudited condensed consolidating
financial information as of June 30, 2007 and
March 31, 2007 and for the three months ended June 30,
2007 and 2006 for (1) the Company, on a stand-alone basis,
(2) the Issuer, on a stand-alone basis, (3) the
non-guarantor subsidiaries of the Company (including the
subsidiaries of the Issuer), on a combined basis (collectively,
the Other Subsidiaries) and (4) the Company, on
a consolidated basis.
BALANCE
SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 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
|
|
$
|
2,127
|
|
|
$
|
45,921
|
|
|
$
|
10,532
|
|
|
$
|
|
|
|
$
|
58,580
|
|
Restricted cash
|
|
|
|
|
|
|
3,256
|
|
|
|
1,388
|
|
|
|
|
|
|
|
4,644
|
|
Investments auction
rate securities
|
|
|
|
|
|
|
166,330
|
|
|
|
|
|
|
|
|
|
|
|
166,330
|
|
Investments equity
securities
|
|
|
|
|
|
|
|
|
|
|
4,916
|
|
|
|
|
|
|
|
4,916
|
|
Accounts receivable, net
|
|
|
638
|
|
|
|
880
|
|
|
|
103,716
|
|
|
|
|
|
|
|
105,234
|
|
Investment in films and television
programs
|
|
|
262
|
|
|
|
6,651
|
|
|
|
572,903
|
|
|
|
(59
|
)
|
|
|
579,757
|
|
Property and equipment
|
|
|
|
|
|
|
12,951
|
|
|
|
1,256
|
|
|
|
|
|
|
|
14,207
|
|
Goodwill
|
|
|
10,173
|
|
|
|
|
|
|
|
177,318
|
|
|
|
|
|
|
|
187,491
|
|
Other assets
|
|
|
2,132
|
|
|
|
58,176
|
|
|
|
30,234
|
|
|
|
(49,373
|
)
|
|
|
41,169
|
|
Investment in subsidiaries
|
|
|
285,483
|
|
|
|
572,062
|
|
|
|
(64,900
|
)
|
|
|
(792,645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
300,815
|
|
|
$
|
866,227
|
|
|
$
|
837,363
|
|
|
$
|
(842,077
|
)
|
|
$
|
1,162,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Shareholders
Equity (Deficiency)
|
Accounts payable and accrued
liabilities
|
|
$
|
851
|
|
|
$
|
22,905
|
|
|
$
|
151,216
|
|
|
$
|
|
|
|
$
|
174,972
|
|
Participation and residuals
|
|
|
180
|
|
|
|
1,623
|
|
|
|
184,926
|
|
|
|
|
|
|
|
186,729
|
|
Film obligations
|
|
|
75
|
|
|
|
5,500
|
|
|
|
141,915
|
|
|
|
|
|
|
|
147,490
|
|
Subordinated notes
|
|
|
|
|
|
|
325,000
|
|
|
|
3,718
|
|
|
|
|
|
|
|
328,718
|
|
Deferred revenue
|
|
|
|
|
|
|
|
|
|
|
101,066
|
|
|
|
|
|
|
|
101,066
|
|
Intercompany payables (receivables)
|
|
|
(243,629
|
)
|
|
|
428,562
|
|
|
|
54,011
|
|
|
|
(238,944
|
)
|
|
|
|
|
Intercompany equity
|
|
|
319,985
|
|
|
|
93,217
|
|
|
|
270,983
|
|
|
|
(684,185
|
)
|
|
|
|
|
Shareholders equity
(deficiency)
|
|
|
223,353
|
|
|
|
(10,580
|
)
|
|
|
(70,472
|
)
|
|
|
81,052
|
|
|
|
223,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
300,815
|
|
|
$
|
866,227
|
|
|
$
|
837,363
|
|
|
$
|
(842,077
|
)
|
|
$
|
1,162,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
STATEMENT
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2007
|
|
|
|
Lions Gate
|
|
|
Lions Gate
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Entertainment
|
|
|
Other
|
|
|
Consolidating
|
|
|
Lions Gate
|
|
|
|
Corp.
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
Revenues
|
|
$
|
47
|
|
|
$
|
2,207
|
|
|
$
|
197,881
|
|
|
$
|
(1,393
|
)
|
|
$
|
198,742
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating
|
|
|
|
|
|
|
93
|
|
|
|
86,965
|
|
|
|
|
|
|
|
87,058
|
|
Distribution and marketing
|
|
|
|
|
|
|
|
|
|
|
135,501
|
|
|
|
|
|
|
|
135,501
|
|
General and administration
|
|
|
452
|
|
|
|
16,235
|
|
|
|
10,153
|
|
|
|
|
|
|
|
26,840
|
|
Depreciation
|
|
|
|
|
|
|
1
|
|
|
|
907
|
|
|
|
|
|
|
|
908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
452
|
|
|
|
16,329
|
|
|
|
233,526
|
|
|
|
|
|
|
|
250,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING LOSS
|
|
|
(405
|
)
|
|
|
(14,122
|
)
|
|
|
(35,645
|
)
|
|
|
(1,393
|
)
|
|
|
(51,565
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expense (Income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
3,855
|
|
|
|
5
|
|
|
|
|
|
|
|
3,860
|
|
Interest income
|
|
|
(14
|
)
|
|
|
(3,790
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(3,803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses (income)
|
|
|
(14
|
)
|
|
|
65
|
|
|
|
6
|
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE EQUITY
INTERESTS AND INCOME TAXES
|
|
|
(391
|
)
|
|
|
(14,187
|
)
|
|
|
(35,651
|
)
|
|
|
(1,393
|
)
|
|
|
(51,622
|
)
|
Equity interests income (loss)
|
|
|
(52,727
|
)
|
|
|
(37,288
|
)
|
|
|
(867
|
)
|
|
|
90,075
|
|
|
|
(807
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
(53,118
|
)
|
|
|
(51,475
|
)
|
|
|
(36,518
|
)
|
|
|
88,682
|
|
|
|
(52,429
|
)
|
Income tax provision (benefit)
|
|
|
|
|
|
|
48
|
|
|
|
641
|
|
|
|
|
|
|
|
689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
(53,118
|
)
|
|
$
|
(51,523
|
)
|
|
$
|
(37,159
|
)
|
|
$
|
88,682
|
|
|
$
|
(53,118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
STATEMENT
OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2007
|
|
|
|
Lions Gate
|
|
|
Lions Gate
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Entertainment
|
|
|
Other
|
|
|
Consolidating
|
|
|
Lions Gate
|
|
|
|
Corp.
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) OPERATING ACTIVITIES
|
|
$
|
(333
|
)
|
|
$
|
(69,241
|
)
|
|
$
|
(10,797
|
)
|
|
$
|
|
|
|
$
|
(80,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of
investments auction rate securities
|
|
|
|
|
|
|
(172,442
|
)
|
|
|
|
|
|
|
|
|
|
|
(172,442
|
)
|
Sales of investments
auction rate securities
|
|
|
|
|
|
|
243,491
|
|
|
|
|
|
|
|
|
|
|
|
243,491
|
|
Purchases of equity securities
|
|
|
|
|
|
|
|
|
|
|
(3,432
|
)
|
|
|
|
|
|
|
(3,432
|
)
|
Proceeds from sale of equity
securities
|
|
|
|
|
|
|
16,343
|
|
|
|
|
|
|
|
|
|
|
|
16,343
|
|
Purchases of property and equipment
|
|
|
|
|
|
|
(1,746
|
)
|
|
|
(271
|
)
|
|
|
|
|
|
|
(2,017
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) INVESTING ACTIVITIES
|
|
|
|
|
|
|
85,646
|
|
|
|
(3,703
|
)
|
|
|
|
|
|
|
81,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390
|
|
Borrowings from financing
obligation
|
|
|
|
|
|
|
|
|
|
|
3,718
|
|
|
|
|
|
|
|
3,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) FINANCING ACTIVITIES
|
|
|
390
|
|
|
|
|
|
|
|
3,718
|
|
|
|
|
|
|
|
4,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH
EQUIVALENTS
|
|
|
57
|
|
|
|
16,405
|
|
|
|
(10,782
|
)
|
|
|
|
|
|
|
5,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN EXCHANGE EFFECT ON
CASH
|
|
|
162
|
|
|
|
(689
|
)
|
|
|
1,930
|
|
|
|
|
|
|
|
1,403
|
|
CASH AND CASH
EQUIVALENTS BEGINNING OF PERIOD
|
|
|
1,908
|
|
|
|
28,347
|
|
|
|
21,242
|
|
|
|
|
|
|
|
51,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS
END OF PERIOD
|
|
$
|
2,127
|
|
|
$
|
44,063
|
|
|
$
|
12,390
|
|
|
$
|
|
|
|
$
|
58,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
BALANCE
SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2007
|
|
|
|
Lions Gate
|
|
|
Lions Gate
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Entertainment
|
|
|
Other
|
|
|
Consolidating
|
|
|
Lions Gate
|
|
|
|
Corp.
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
STATEMENT
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2006
|
|
|
|
Lions Gate
|
|
|
Lions Gate
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Entertainment
|
|
|
Other
|
|
|
Consolidating
|
|
|
Lions Gate
|
|
|
|
Corp.
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
3,618
|
|
|
$
|
168,838
|
|
|
$
|
|
|
|
$
|
172,456
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating
|
|
|
|
|
|
|
|
|
|
|
68,545
|
|
|
|
|
|
|
|
68,545
|
|
Distribution and marketing
|
|
|
|
|
|
|
346
|
|
|
|
86,700
|
|
|
|
|
|
|
|
87,046
|
|
General and administration
|
|
|
391
|
|
|
|
11,860
|
|
|
|
6,982
|
|
|
|
|
|
|
|
19,233
|
|
Depreciation
|
|
|
|
|
|
|
13
|
|
|
|
531
|
|
|
|
|
|
|
|
544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
391
|
|
|
|
12,219
|
|
|
|
162,758
|
|
|
|
|
|
|
|
175,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
|
|
(391
|
)
|
|
|
(8,601
|
)
|
|
|
6,080
|
|
|
|
|
|
|
|
(2,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses (Income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
100
|
|
|
|
4,497
|
|
|
|
278
|
|
|
|
(199
|
)
|
|
|
4,676
|
|
Interest income
|
|
|
(27
|
)
|
|
|
(2,497
|
)
|
|
|
(236
|
)
|
|
|
199
|
|
|
|
(2,561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses (income), net
|
|
|
73
|
|
|
|
2,000
|
|
|
|
42
|
|
|
|
|
|
|
|
2,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE EQUITY
INTERESTS AND INCOME TAXES
|
|
|
(464
|
)
|
|
|
(10,601
|
)
|
|
|
6,038
|
|
|
|
|
|
|
|
(5,027
|
)
|
Equity interests income (loss)
|
|
|
(3,419
|
)
|
|
|
6,728
|
|
|
|
58
|
|
|
|
(3,309
|
)
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
(3,883
|
)
|
|
|
(3,873
|
)
|
|
|
6,096
|
|
|
|
(3,309
|
)
|
|
|
(4,969
|
)
|
Income tax provision (benefit)
|
|
|
(279
|
)
|
|
|
399
|
|
|
|
(1,485
|
)
|
|
|
|
|
|
|
(1,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
(3,604
|
)
|
|
$
|
(4,272
|
)
|
|
$
|
7,581
|
|
|
$
|
(3,309
|
)
|
|
$
|
(3,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
STATEMENT
OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2006
|
|
|
|
Lions Gate
|
|
|
Lions Gate
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Entertainment
|
|
|
Other
|
|
|
Consolidating
|
|
|
Lions Gate
|
|
|
|
Corp.
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
NET CASH FLOWS PROVIDED BY (USED
IN) OPERATING ACTIVITIES
|
|
$
|
3,591
|
|
|
$
|
(24,882
|
)
|
|
$
|
6,267
|
|
|
$
|
|
|
|
$
|
(15,024
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of
investments auction rate securities
|
|
|
|
|
|
|
(165,620
|
)
|
|
|
|
|
|
|
|
|
|
|
(165,620
|
)
|
Sales of investments
auction rate securities
|
|
|
|
|
|
|
190,594
|
|
|
|
|
|
|
|
|
|
|
|
190,594
|
|
Purchases of property and equipment
|
|
|
|
|
|
|
(153
|
)
|
|
|
(1,678
|
)
|
|
|
|
|
|
|
(1,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY (USED
IN) INVESTING ACTIVITIES
|
|
|
|
|
|
|
24,821
|
|
|
|
(1,678
|
)
|
|
|
|
|
|
|
23,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY (USED
IN) FINANCING ACTIVITIES
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH
EQUIVALENTS
|
|
|
3,944
|
|
|
|
(61
|
)
|
|
|
4,589
|
|
|
|
|
|
|
|
8,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN EXCHANGE EFFECT ON CASH
|
|
|
(5,748
|
)
|
|
|
72
|
|
|
|
5,084
|
|
|
|
|
|
|
|
(592
|
)
|
CASH AND CASH
EQUIVALENTS BEGINNING OF PERIOD
|
|
|
6,541
|
|
|
|
|
|
|
|
40,437
|
|
|
|
|
|
|
|
46,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS END OF PERIOD
|
|
$
|
4,737
|
|
|
$
|
11
|
|
|
$
|
50,110
|
|
|
$
|
|
|
|
$
|
54,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Société
Générale de Financement du Québec Filmed
Entertainment Financing Deal
On July 30, 2007, the Company entered into a four-year
filmed entertainment slate financing agreement with
Société Générale de Financement du
Québec (SGF), the Québec provincial
governments investment arm. SGF will finance up to 35% of
production costs of television and feature film productions
produced in Québec for a four year period for an aggregate
investment of up to $140 million and the Company will
advance all amounts necessary to fund the remaining budgeted
costs. The maximum aggregate of budgeted costs over the
four-year period will be $400 million, including the
Companys portion, but no more than $100 million per
year. In connection with this agreement the Company and SGF will
proportionally share in the proceeds derived from the funded
productions after the Company deducts a distribution fee,
recoups all distribution expenses and releasing costs, and pays
all applicable participations and residuals.
29
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Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Overview
Lions Gate Entertainment
Corp. (Lionsgate, the
Company, we, us or
our) is a diversified independent producer and
distributor of motion pictures, television programming, home
entertainment, family entertainment,
video-on-demand
and music content. We release approximately 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 U.S., UK and Ireland and
indirectly to other international markets through third parties.
We own a minority interest in CinemaNow, Inc.
(CinemaNow), an internet
video-on-demand
provider, Horror Entertainment, LLC (FEARnet), a
multiplatform programming and content service provider, and in
NextPoint, Inc. (Break.com), an online video
entertainment service provider. We also own a minority interest
in Maple Pictures Corp. (Maple Pictures), a Canadian
film and television distributor based in Toronto, Canada. We
have distribution agreements with Maple Pictures through which
we distribute our library and other titles in Canada.
Our revenues are derived from the following business segments:
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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 U.S. 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 U.S., Canada and other
foreign countries; none of the foreign countries individually
comprised greater than 10% of total revenue.
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Television Productions, which includes the licensing to domestic
and international markets of
one-hour and
half-hour
drama series, television movies and mini-series and non-fiction
programming and revenues from the sale of television production
movies or series in other media including home entertainment.
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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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30
Recent
Developments
NextPoint, Inc. On June 29, 2007, the
Company purchased a 42% equity interest or
21,000,000 shares of the Series B Preferred Stock of
NextPoint, Inc. (Break.com), an online video
entertainment service provider operating under the branding of
Break.com, for an aggregate purchase price of
$21.4 million which includes $0.5 million of
transaction costs, by issuing 1,890,189 of its common shares in
exchange for the 21,000,000 shares of the Series B
Preferred Stock in Break.com. The Company is accounting for the
investment in Break.com using the equity method. The Company has
a call option which is exercisable at any time from
June 29, 2007 until the earlier of 30 months after
June 29, 2007 or a year after a change of control, as
narrowly defined, to purchase all, but not less than all, of the
remaining 58% equity interests, including in-the-money stock
options, warrants and other rights, of Break.com for
$58 million in cash or common stock, at the Companys
option. Due to the timing in availability of financial
statements from Break.com the Company is recording its share of
the Break.com results on a one quarter lag.
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 (Pride), 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
$196 million net of transaction costs. The funds available
from Pride are generated from the issuance by Pride of
$35 million of subordinated debt instruments,
$35 million of equity and $134 million from a senior
credit facility, which is subject to a borrowing base. The
Company is not a party to the Pride debt obligations or their
senior credit facility, and provides no guarantee of repayment
of these obligations. 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 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 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 is recording its share of
the FEARnet results on a one quarter lag. The Company recorded a
$0.9 million loss in its equity interests associated with
FEARnets operations through March 31, 2007 in the
consolidated statement of operations for the three months ended
June 30, 2007. The investment in FEARnet is
$2.7 million as of June 30, 2007 (March 31,
2007 $3.6 million).
4.875% Notes Conversion. On
December 15, 2006, in response to our optional redemption
notice, all of the noteholders of the 4.875% Notes
voluntarily elected to convert their notes into the
Companys common shares. A total of $60 million of
principal was converted into 11,111,108 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.
31
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 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.
SGF. On July 30, 2007, the Company
entered into a four-year filmed entertainment slate financing
agreement with Société Générale de
Financement du Québec (SGF), the Québec
provincial governments investment arm. SGF will finance up
to 35% of production costs of television and feature film
productions produced in Québec for a four year period for
an aggregate investment of up to $140 million and the
Company will advance all amounts necessary to fund the remaining
budgeted costs. The maximum aggregate of budgeted costs over the
four-year period will be $400 million, including the
Companys portion, but no more than $100 million per
year. In connection with this agreement the Company and SGF will
proportionally share in the proceeds derived from the funded
productions after the Company deducts a distribution fee,
recoups all distribution expenses and releasing costs, and pays
all applicable participations and residuals.
CRITICAL
ACCOUNTING POLICIES
The application of the following accounting policies, which are
important to our financial position and results of operations,
requires significant judgments and estimates on the part of
management. As described more fully below, these estimates bear
the risk of change due to the inherent uncertainty attached to
the estimate. For example, accounting for films and television
programs requires the Company to estimate future revenue and
expense amounts which, due to the inherent uncertainties
involved in making such estimates, are likely to differ to some
extent from actual results. For a summary of all of our
accounting policies, including the accounting policies discussed
below, see note 2 to our March 31, 2007 audited
consolidated financial statements.
Generally Accepted Accounting Principles
(GAAP). 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
32
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.
The Companys management regularly reviews and revises when
necessary its ultimate revenue and cost estimates, which may
result in a change in the rate of amortization of film costs and
participations and residuals
and/or
write-down of all or a portion of the unamortized costs of the
film or television program to its estimated fair value. The
Companys management estimates the ultimate revenue based
on experience with similar titles or title genre, the general
public appeal of the cast, actual performance (when available)
at the box office or in markets currently being exploited, and
other factors such as the quality and acceptance of motion
pictures or programs that our competitors release into the
marketplace at or near the same time, critical reviews, general
economic conditions and other tangible and intangible factors,
many of which we do not control and which may change. In the
normal course of our business, some films and titles are more
successful than anticipated and some are less successful.
Accordingly, we update our estimates of ultimate revenue and
participation costs based upon the actual results achieved or
new information as to anticipated revenue performance such as
(for home video revenues) initial orders and demand from retail
stores when it becomes available. An increase in the ultimate
revenue will generally result in a lower amortization rate while
a decrease in the ultimate revenue will generally result in a
higher amortization rate and periodically results in an
impairment requiring a write down of the film cost to the
titles fair value. These write downs are included in
amortization expense within direct operating expenses in our
consolidated statements of operations.
Revenue Recognition. Revenue from the sale or
licensing of films and television programs is recognized upon
meeting all recognition requirements of SoP
00-2.
Revenue from the theatrical release of feature films is
recognized at the time of exhibition based on the Companys
participation in box office receipts. Revenue from the sale of
videocassettes and DVDs in the retail market, net of an
allowance for estimated returns and other allowances, is
recognized on the later of receipt by the customer or
street date (when it is available for sale by the
customer). Under revenue sharing arrangements, rental revenue is
recognized when the Company is entitled to receipts and such
receipts are determinable. Revenues from television licensing
are recognized when the feature film or television program is
available to the licensee for telecast. For television licenses
that include separate availability windows during
the license period, revenue is allocated over the
windows. Revenue from sales to international
territories are recognized when access to the feature film or
television program has been granted or delivery has occurred, as
required under the sales contract, and the right to exploit the
feature film or television program has commenced. For multiple
media rights contracts with a fee for a single film or
television program where the contract provides for media
holdbacks (defined as contractual media release restrictions),
the fee is allocated to the various media based on
managements assessment of the relative fair value of the
rights to exploit each media and is recognized as each holdback
is released. For multiple-title contracts with a fee, the fee is
allocated on a
title-by-title
basis, based on managements assessment of the relative
fair value of each title.
Cash payments received are recorded as deferred revenue until
all the conditions of revenue recognition have been met.
Long-term, non-interest bearing receivables are discounted to
present value.
Reserves. Revenues are recorded net of
estimated returns and other allowances. We estimate reserves for
video returns based on previous returns and our estimated
expected future returns related to current period sales on a
title-by-title
basis in each of the video businesses. Factors affecting actual
returns include limited retail shelf space at various times of
the year, success of advertising or other sales promotions, the
near term release of competing titles, among other factors. We
believe that our estimates have been materially accurate in the
past; however, due to the judgment involved in establishing
reserves, we may have adjustments to our historical estimates in
the future.
We estimate provisions for accounts receivable based on
historical experience and relevant facts and information
regarding the collectability of the accounts receivable. In
performing this evaluation, significant judgments and estimates
are involved, including an analysis of specific risks on a
customer-by-customer
basis for our larger customers and an analysis of the length of
time receivables have been past due. The financial condition of
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.
33
Income Taxes. The Company is subject to
federal and state income taxes in the U.S., and in several
foreign jurisdictions in which we operate. We account for income
taxes according to SFAS No. 109, Accounting for
Income Taxes (SFAS No. 109).
SFAS No. 109 requires the recognition of deferred tax
assets, net of applicable reserves, related to net operating
loss carryforwards and certain temporary differences. The
standard requires recognition of a future tax benefit to the
extent that realization of such benefit is more likely than not
or a valuation allowance is applied. Because of our historical
operating losses, we have provided a valuation allowance against
our net deferred tax assets. When we have a history of
profitable operations sufficient to demonstrate that it is more
likely than not that our deferred tax assets will be realized,
the valuation allowance will be reversed. However, this
assessment of our planned use of our deferred tax assets is an
estimate which could change in the future depending upon the
generation of taxable income in amounts sufficient to realize
our deferred tax assets.
Goodwill. On April 1, 2001, the Company
adopted SFAS No. 142, Goodwill and Other
Intangible Assets. Goodwill is reviewed annually for
impairment within each fiscal year or between the annual tests
if an event occurs or circumstances change that indicate it is
more likely than not that the fair value of a reporting unit is
less than its carrying value. The Company performs its annual
impairment test as of December 31 in each fiscal year. The
Company performed its annual impairment test on its goodwill as
of December 31, 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 three
months ended June 30, 2007 and 2006 includes: (a)
compensation cost for all stock options granted prior to, but
not yet vested as of, April 1, 2006, based on the grant
date fair value estimated in accordance with the original
provisions of SFAS No. 123, and (b) compensation
cost for all share-based payments granted on or after
April 1, 2006, based on the grant-date fair value estimated
in accordance with the provisions of SFAS No. 123(R).
See note 12 for further discussion of the Companys
stock-based compensation in accordance with
SFAS No. 123(R).
FASB Issued Interpretation No. 48. On
July 13, 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes An
Interpretation of FASB Statement No. 109
(FIN No. 48). FIN No. 48
clarifies the accounting for uncertainty in income taxes
recognized in an entitys financial statements in
accordance with SFAS No. 109, Accounting for
Income Taxes, and prescribes a recognition threshold and
measurement attributes for financial statement disclosure of tax
positions taken or expected to be taken on a tax return. Under
FIN No. 48, the impact of an uncertain income tax
position on the income tax return must be recognized at the
largest amount that is more-likely-than-not to be sustained upon
audit by the relevant taxing authority. An uncertain
34
income tax position will not be recognized if it has less than a
50% likelihood of being sustained. Additionally,
FIN No. 48 provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure and transition. FIN No. 48 is
effective for fiscal years beginning after December 15,
2006.
The Company adopted the provisions of FIN No. 48 on
April 1, 2007. The total amount of unrecognized tax
benefits as of the date of adoption was $0.5 million that,
if recognized, would affect the effective tax rate. The Company
expects it is reasonably possible that the unrecognized tax
benefits will decrease by $0.5 million within
12 months of this reporting date due to the resolution of
audits.
Statement of Financial Accounting Standards
No. 157. In September 2006, the FASB issued
SFAS No. 157, Fair Value Measurements
(SFAS No. 157). SFAS No. 157
establishes a framework for measuring fair value and expands
disclosures about fair value measurements. The changes to
current practice resulting from the application of this
statement relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about
fair value measurements. The Company will be required to adopt
the provisions on SFAS No. 157 on April 1, 2008.
The Company is currently evaluating the impact of adopting the
provisions of SFAS No. 157 but does not believe that
the adoption of SFAS No. 157 will materially impact
its financial position, cash flows, or results of operations.
Statement of Financial Accounting Standards
No. 159. In February 2007, the FASB issued
SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities Including
an Amendment of FASB Statement No. 115,
(SFAS No. 159), which is effective for
fiscal years beginning after November 15, 2007.
SFAS No. 159 permits an entity to choose to measure
many financial instruments and certain other items at fair value
at specified election dates. Subsequent unrealized gains and
losses on items for which the fair value option has been elected
will be reported in earnings. The Company is currently
evaluating the potential impact of SFAS No. 159.
Results
of Operations
Three
Months Ended June 30, 2007 Compared to Three Months Ended
June 30, 2006
Consolidated revenues this quarter of $198.7 million
increased $26.2 million, or 15.2%, compared to
$172.5 million in the prior years quarter. Motion
pictures revenue of $170.3 million this quarter increased
$5.1 million, or 3.1%, compared to $165.2 million in
the prior years quarter. Television revenues of
$28.4 million this quarter increased $21.1 million, or
289.0%, compared to $7.3 million in the prior years
quarter.
Motion
Pictures Revenue
The increase in motion pictures revenue this quarter was mainly
attributable to increases in television and international
revenue, offset by decreases in video revenue. The following
table sets forth the components of revenue for the motion
pictures reporting segment for the three-month periods ended
June 30, 2007 and 2006:
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|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Increase (Decrease)
|
|
|
|
2007
|
|
|
2006
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Amounts in millions)
|
|
|
Motion Pictures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical
|
|
$
|
19.0
|
|
|
$
|
18.5
|
|
|
$
|
0.5
|
|
|
|
2.7
|
%
|
Video
|
|
|
103.8
|
|
|
|
114.8
|
|
|
|
(11.0
|
)
|
|
|
(9.6
|
)%
|
Television
|
|
|
22.4
|
|
|
|
14.8
|
|
|
|
7.6
|
|
|
|
51.4
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%
|
International
|
|
|
22.7
|
|
|
|
15.5
|
|
|
|
7.2
|
|
|
|
46.5
|
%
|
Other
|
|
|
2.4
|
|
|
|
1.6
|
|
|
|
0.8
|
|
|
|
50.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
170.3
|
|
|
$
|
165.2
|
|
|
$
|
5.1
|
|
|
|
3.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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35
The following table sets forth the titles contributing
significant motion pictures revenue for the three-month periods
ended June 30, 2007 and 2006:
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|
|
|
|
Three Months Ended June 30,
|
2007
|
|
2006
|
|
|
Theatrical and Video
|
|
|
|
Theatrical and Video
|
Title
|
|
Release Date
|
|
Title
|
|
Release Date
|
|
Theatrical:
|
|
|
|
Theatrical:
|
|
|
Away From Her
|
|
May 2007
|
|
Akeelah and the
Bee
|
|
April 2006
|
Bug
|
|
May 2007
|
|
La Mujer De Mi
Hermano
|
|
April 2006
|
Delta Farce
|
|
May 2007
|
|
Larry the Cable
Guy: Health Inspector
|
|
February 2006
|
Hostel 2
|
|
June 2007
|
|
See No Evil
|
|
May 2006
|
The Condemned
|
|
April 2007
|
|
|
|
|
Video:
|
|
|
|
Video:
|
|
|
Daddys Little
Girls
|
|
June 2007
|
|
Barbie Diaries
|
|
May 2006
|
Employee of the Month
|
|
January 2007
|
|
Crash
|
|
September 2005
|
Happily NEver
After
|
|
May 2007
|
|
Lord of War
|
|
January 2006
|
Pride
|
|
June 2007
|
|
Madea Goes to
Jail
|
|
June 2006
|
Saw 3
|
|
January 2007
|
|
Madeas Family
Reunion
|
|
June 2006
|
|
|
|
|
Saw 2
|
|
February 2006
|
|
|
|
|
Waiting
|
|
February 2006
|
|
|
|
|
Why Did I Get
Married
|
|
June 2006
|
Television:
|
|
|
|
|
|
|
|
|
Television:
|
Crank
|
|
|
|
|
|
|
|
|
Crash
|
Employee of the Month
|
|
|
|
|
|
|
|
|
The Devils
Rejects
|
Saw 3
|
|
|
|
|
The
Descent
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
International:
|
Dirty Dancing Stage
Play
|
|
|
|
|
|
|
|
|
Fierce People
|
Right at Your Door
|
|
|
|
|
|
|
|
|
Hard Candy
|
Saw 3
|
|
|
|
|
|
|
|
|
Saw 2
|
The Punisher
|
|
|
|
|
|
Theatrical revenue of $19.0 million increased
$0.5 million or 2.7% in this quarter as compared to the
prior years quarter due to an increase in the number of
theatrical releases in the current quarter. In this quarter, the
titles listed in the above table as contributing significant
theatrical revenue in the current quarter represented
individually between 7% and 36% of total theatrical revenue and
in the aggregate approximately 90% of total theatrical revenue.
In the prior years quarter, the titles listed in the above
table as contributing significant theatrical revenue represented
individually between 6% and 39% of total theatrical revenue and
in the aggregate approximately 92% of total theatrical revenue.
Video revenue of $103.8 million decreased
$11.0 million or 9.6% in this quarter as compared to the
prior years quarter. The decrease is due to a decrease in
revenues generated from the significant titles listed in the
above table as compared to the prior years quarter. The
titles listed above as contributing significant video revenue in
the current quarter represented individually between 2% to 19%
of total video revenue and in the aggregate 44% or
$45.6 million of total video revenue for the quarter. In
the prior years quarter, the titles listed above as
contributing significant video revenue represented individually
between 2% to 27% of total video revenue and in the aggregate
57% or $65.0 million of total video revenue for the
quarter. In the current quarter $58.3 million, or 56%, of
total video revenue was contributed by titles that individually
make up less than 2% of total video revenue, and in the prior
years quarter this amounted to $49.8 million or 43%
of total video revenue.
36
Television revenue included in motion pictures revenue of
$22.4 million in this quarter increased $7.6 million,
or 51.4%, compared to the prior years quarter. The
increase is due to more theatrical titles with television
windows opening in the current quarter as compared to the prior
years quarter. In this quarter, the titles listed above as
contributing significant television revenue represented
individually between 7% to 31% of total television revenue and
in the aggregate 59% of total television revenue for the
quarter. In the prior years quarter the titles listed
above as contributing significant television revenue represented
individually between 14% to 29% of total television revenue and
in the aggregate 44% of total television revenue for the quarter.
International revenue of $22.7 million increased
$7.2 million or 46.5% in this quarter as compared to the
prior years quarter. Lionsgate UK, established from the
acquisition of Redbus in fiscal 2006, contributed
$8.0 million, or 35.2% of international revenue in the
current quarter, which included revenues from Employee of the
Month, Saw III, The Lives of Others, and An American
Haunting, compared to $6.2 million, or 40.0%, of total
international revenue in the prior years quarter. In this
quarter, the titles listed in the table above as contributing
significant international revenue, which does not include
revenue generated from Lionsgate UK, represented individually
between 5% to 10% of total international revenue and in the
aggregate 27% of total international revenue for the quarter. In
the prior years quarter the titles listed in the table
above as contributing significant revenue represented
individually between 3% to 19% of total international revenue
and in the aggregate 28% of total international revenue for the
quarter.
Television
Revenue
The following table sets forth the components of revenue that
make up television production revenue for the three-month
periods ended June 30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Increase (Decrease)
|
|
|
|
2007
|
|
|
2006
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Amounts in millions)
|
|
|
Television Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic series licensing
|
|
$
|
20.0
|
|
|
$
|
6.1
|
|
|
$
|
13.9
|
|
|
|
227.9
|
%
|
International
|
|
|
6.1
|
|
|
|
0.3
|
|
|
|
5.8
|
|
|
|
1,933.3
|
%
|
Video releases of television
production
|
|
|
2.3
|
|
|
|
0.7
|
|
|
|
1.6
|
|
|
|
228.6
|
%
|
Other
|
|
|
|
|
|
|
0.2
|
|
|
|
(0.2
|
)
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28.4
|
|
|
$
|
7.3
|
|
|
$
|
21.1
|
|
|
|
289.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the number of television episodes
delivered in the three months ended June 30, 2007 and 2006,
respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30, 2007
|
|
|
June 30, 2006
|
|
|
|
Episodes
|
|
|
Hours
|
|
|
Episodes
|
|
|
Hours
|
|
|
Domestic Series Licensing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Hour Series
|
|
|
9
|
|
|
|
9.0
|
|
|
|
1
|
|
|
|
1.0
|
|
Half Hour Series
|
|
|
1
|
|
|
|
0.5
|
|
|
|
6
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
9.5
|
|
|
|
7
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television revenue of $28.4 million in this quarter
increased by $21.1 million, or 289.0%, compared to
$7.3 million in the prior years quarter, due
primarily to higher revenue from domestic series licensing,
international revenue and video releases of television
production. Domestic series licensing increased partially due to
an increase in episodes delivered of Wildfire, The
Dead Zone and The Dresden Files in the three months
ended June 30, 2007 as compared to the three months ended
June 30, 2006. Domestic series licensing for the current
quarter also increased due to $8.6 million of revenue
contributed in the current quarter from the July 3, 2006
acquisition of Debmar on television series such as House of
Payne and South Park, as compared to nil in the prior
years quarter. Domestic
37
series deliveries of
one-hour
series in this quarter included three
one-hour
episodes of The Dead Zone, four
one-hour
episodes of Wildfire Season 4, and two
one-hour
episodes of The Dresden Files, and of
half-hour
series included one
half-hour
episode of Weeds Season 3. In the prior years
quarter, domestic series deliveries of
one-hour
series included Wildfire Season 2,and of
half-hour
series included Weeds Season 2 and Lovespring
International.
International revenue of $6.1 million increased by
$5.8 million in the current quarter mainly due to
international revenue from Hidden Palms, Lovespring
International, The Dresden Files and The Dead Zone,
compared to international revenue of $0.3 million in the
prior years quarter from Weeds and Wildfire.
Direct
Operating Expenses
The following table sets forth direct operating expenses by
segment for the three months ended June 30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30, 2007
|
|
|
June 30, 2006
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
|
(Amounts in millions)
|
|
|
Direct operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of films and
television programs
|
|
$
|
29.2
|
|
|
$
|
20.7
|
|
|
$
|
49.9
|
|
|
$
|
27.0
|
|
|
$
|
6.2
|
|
|
$
|
33.2
|
|
Participation and residual expense
|
|
|
31.2
|
|
|
|
6.8
|
|
|
|
38.0
|
|
|
|
36.4
|
|
|
|
0.8
|
|
|
|
37.2
|
|
Amortization of acquired
intangible assets
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
Other expenses
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
(1.7
|
)
|
|
|
(0.4
|
)
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
59.6
|
|
|
$
|
27.5
|
|
|
$
|
87.1
|
|
|
$
|
61.9
|
|
|
$
|
6.6
|
|
|
$
|
68.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses as a
percentage of segment revenues
|
|
|
35.0
|
%
|
|
|
96.8
|
%
|
|
|
43.8
|
%
|
|
|
37.5
|
%
|
|
|
90.4
|
%
|
|
|
39.7
|
%
|
Direct operating expenses include amortization, participation
and residual expenses and other expenses. Direct operating
expenses of the motion pictures segment of $59.6 million
for this quarter were 35.0% of motion pictures revenue, compared
to $61.9 million, or 37.5% of motion pictures revenue for
the prior years quarter. The decrease in direct operating
expense of the motion pictures segment in the quarter as a
percent of revenue is due to the change in the mix of titles
generating revenue compared to the prior years quarter.
The benefit in other expense in the current quarter resulted
primarily from foreign exchange gains of approximately $0.5
million and adjustments to the provision for bad debts due to
collection of accounts previously reserved. The benefit in other
expense for the prior quarter resulted primarily from the
reversal of the provision for doubtful accounts of
$2.2 million associated with the collection of a portion of
accounts receivable that was previously reserved, related to a
large retail customer that declared bankruptcy. Direct operating
expenses of the motion pictures segment included charges for
write downs of investment in film costs of $2.4 million and
$0.3 million in the current quarter and prior year quarter,
respectively, due to the lower than anticipated actual
performance or previously expected performance of certain
titles. In the current quarter, approximately $1.5 million
of the write down related to the unanticipated poor performance
at the box office on one motion picture.
Direct operating expenses of the television segment of
$27.5 million for this quarter were 96.8% of television
revenue, compared to $6.6 million, or 90.4% of television
revenue for the prior years quarter. The increase in
direct operating expense of the television segment in the
quarter is due to the increase in television production revenue
in this quarter compared to prior years quarter, and to
the write off of film costs associated with a television pilot
of approximately $1.2 million.
38
Distribution
and Marketing Expenses
The following table sets forth distribution and marketing
expenses by segment for the three months ended June 30,
2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30, 2007
|
|
|
June 30, 2006
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
|
(Amounts in millions)
|
|
|
Distribution and marketing expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical
|
|
$
|
83.3
|
|
|
$
|
|
|
|
$
|
83.3
|
|
|
$
|
36.0
|
|
|
$
|
0.7
|
|
|
$
|
36.7
|
|
Home Entertainment
|
|
|
42.5
|
|
|
|
1.2
|
|
|
|
43.7
|
|
|
|
39.7
|
|
|
|
0.6
|
|
|
|
40.3
|
|
Television
|
|
|
0.3
|
|
|
|
0.7
|
|
|
|
1.0
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
0.5
|
|
International
|
|
|
6.7
|
|
|
|
0.7
|
|
|
|
7.4
|
|
|
|
9.7
|
|
|
|
0.4
|
|
|
|
10.1
|
|
Other
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
132.9
|
|
|
$
|
2.6
|
|
|
$
|
135.5
|
|
|
|
85.2
|
|
|
|
1.8
|
|
|
|
87.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The majority of distribution and marketing expenses relate to
the motion pictures segment. Theatrical prints and advertising
(P&A) in the motion pictures segment in this
quarter of $83.3 million increased $47.3 million, or
131.4%, compared to $36.0 million in the prior years
quarter. Domestic theatrical P&A from the motion pictures
segment in this quarter included P&A incurred on the
release of titles such as Hostel 2, Bug, Delta Farce, The
Condemned, and Slow Burn, which individually
represented between 12% and 25% of total theatrical P&A and
in the aggregate accounted for 86% of the total theatrical
P&A. Theatrical P&A in the prior years quarter
included P&A incurred on the release of titles such as
Akeelah and the Bee, See No Evil, Hard Candy and
La Mujer De Mi Hermano domestically, which
individually represented between 5% and 56% of total theatrical
P&A and in the aggregate accounted for 92% of total
theatrical P&A. Hard Candy, released theatrically
during the three months ended June 30, 2006 individually
contributed less than 3% of total theatrical revenue in the
prior years quarter. Slow Burn, released
theatrically during the three months ended June 30, 2007
individually contributed less than 3% of total theatrical
revenue in the current quarter.
Video distribution and marketing costs on motion pictures and
television product in this quarter of $43.7 million
increased $3.4 million, or 8.4%, compared to
$40.3 million in the prior years quarter. Video
distribution and marketing costs as a percentage of video
revenues was 41.2% and 34.9% in the current quarter and prior
years quarter, respectively. This increase is mainly due
to the decline in video revenue from the significant releases in
the quarter noted in the table above and partially due to higher
video marketing costs in relation to revenues generated in the
current quarter in comparison to the prior years quarter.
International distribution and marketing expenses in this
quarter includes $4.9 million of distribution and marketing
costs from Lionsgate UK, compared to $7.3 million in the
prior years quarter. Current quarter distribution and
marketing expenses of the television segment include
$0.7 million from the July 3, 2006 acquisition of
Debmar.
39
General
and Administrative Expenses
The following table sets forth general and administrative
expenses by segment for the three months ended June 30,
2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Increase (Decrease)
|
|
|
|
2007
|
|
|
2006
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Amounts in millions)
|
|
|
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
7.4
|
|
|
$
|
6.8
|
|
|
$
|
0.6
|
|
|
|
8.8
|
%
|
Television
|
|
|
1.8
|
|
|
|
0.1
|
|
|
|
1.7
|
|
|
|
NM
|
|
Corporate
|
|
|
17.6
|
|
|
|
12.3
|
|
|
|
5.3
|
|
|
|
43.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26.8
|
|
|
$
|
19.2
|
|
|
$
|
7.6
|
|
|
|
39.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(NM) |
|
Percentage not meaningful. |
The increase in general and administrative expenses is primarily
due to corporate general and administration expenses of
$17.6 million which increased by $5.3 million or 43.1%
compared to $12.3 million in the prior years quarter.
The increase in corporate general and administrative expenses is
primarily due to an increase in stock-based compensation of
approximately $2.8 million (see table below), an increase
in salaries and related expenses of approximately
$1.7 million and an increase of $0.8 million in other
general overhead costs. The increase in salaries and related
expenses of $1.7 million includes a $1.5 million
special bonus related to the closing of the Companys
theatrical slate financing agreement on May 25, 2007. In
this quarter, $1.8 million of production overhead was
capitalized compared to $1.4 million in the prior
years quarter.
The following table sets forth corporate stock based
compensation expense (benefit) for the three months ended
June 30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Increase (Decrease)
|
|
|
|
2007
|
|
|
2006
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Amounts in millions)
|
|
|
Corporate Stock Based Compensation
Expense (Benefit):*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
0.8
|
|
|
$
|
0.5
|
|
|
$
|
0.3
|
|
|
|
71.4
|
%
|
Restricted share units
|
|
|
2.0
|
|
|
|
0.5
|
|
|
|
1.5
|
|
|
|
NM
|
|
Stock appreciation rights
|
|
|
(0.4
|
)
|
|
|
(1.4
|
)
|
|
|
1.0
|
|
|
|
(72.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.4
|
|
|
$
|
(0.4
|
)
|
|
$
|
2.8
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(NM) |
|
Percentage not meaningful. |
|
(*) |
|
The above table reflects only corporate stock based compensation
expense (benefit) and not motion picture or television stock
based compensation expense (benefit), which amounted to
$0.1 million and nil, respectively. |
At June 30, 2007, as disclosed in note 11 to the
unaudited condensed consolidated financial statements, there
were unrecognized compensation costs of approximately
$27.0 million related to stock options and restricted stock
units previously granted, including the first annual installment
of share grants that were subject to performance targets, which
will be expensed over the remaining vesting periods. In
addition, in fiscal 2007 and the three months ended
June 30, 2007 the Company agreed to issue
702,500 shares of restricted stock units also subject to
performance targets to three key executive officers. These
restricted stock units will vest in three and four annual
installments assuming annual performance targets to be set by
the Companys compensation committee have been met. The
fair value of the 702,500 shares whose performance targets
have not been set was $7.7 million, based on the market
price of the Companys common stock as of June 30,
2007. The market value will be remeasured when
40
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 $0.6 million or 8.8% 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 $0.9 million this quarter increased
$0.4 million, or 80.0% from $0.5 million in the prior
years quarter.
Interest expense of $3.9 million this quarter decreased
$0.8 million, or 17.0%, from prior years quarter of
$4.7 million.
Interest and other income of $3.8 million for the quarter
ended June 30, 2007, compared to $2.6 million in the
prior years quarter. Interest and other income this
quarter was earned on the cash balance and available-for-sale
investments held during the three months ended June 30,
2007 which were higher than in the prior years quarter.
The equity interests in this quarter included a
$0.9 million loss from the Companys 33.33% equity
interests in Horror Entertainment, LLC and a $0.1 million
gain from the Companys 10% equity interest in Maple. For
the three months ended June 30, 2006, the equity interests
consisted of a gain that was less than $0.1 million from
the Companys equity interest in Maple.
The Company had an income tax expense of $0.7 million or
(1.3%) of loss before income taxes in the three months ended
June 30, 2007, compared to a benefit of $1.4 million
in the three months ended June 30, 2006. The tax expense
reflected in the current quarter is primarily attributable to
U.S. state taxes. The Companys actual annual
effective tax rate will differ from the statutory federal rate
as a result of several factors, including changes in the
valuation allowance against net deferred tax assets,
non-temporary differences, foreign income taxed at different
rates, and state and local income taxes. 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 U.S. 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 UK 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.
Net loss for the three months ended June 30, 2007 was
$53.1 million, or basic and diluted net loss per common
share of $0.45 on 117.1 million weighted average shares
outstanding. This compares to net loss for the three months
ended June 30, 2006 of $3.6 million or basic and
diluted net loss per common share of $0.03 on 103.3 million
weighted average common shares outstanding.
Liquidity
and Capital Resources
Our liquidity and capital resources are provided principally
through cash generated from operations, issuance of subordinated
notes and our credit facility.
In October 2004, Lions Gate Entertainment Inc. sold
$150.0 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, Lions Gate
Entertainment Inc. may redeem the notes at 100%.
In February 2005, Lions Gate Entertainment Inc. sold
$175.0 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
41
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 June 30, 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
June 30, 2007, the Company had no borrowings
(March 31, 2007 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 June 30, 2007. At June 30, 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.
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 (Pride), 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
$196 million net of transaction costs. The funds available
from Pride are generated from the issuance by Pride of
$35 million of subordinated debt instruments,
$35 million of equity and $134 million from a senior
credit facility, which is subject to a borrowing base. The
Company is not a party to the Pride debt obligations or their
senior credit facility, and provides no guarantee of repayment
of these obligations. 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 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 based
on their pro rata contribution to the applicable costs similar
to a back-end participation on a film.
Filmed Entertainment Backlog. Backlog
represents the amount of future revenue not yet recorded from
executed contracts for the licensing of films and television
product for television exhibition and in international markets.
Backlog at June 30, 2007 and March 31, 2007 is
$304.0 million and $320.2 million, respectively.
Cash Flows Used in Operating Activities. Cash
flows used in operating activities for the three months ended
June 30, 2007 were $80.4 million compared to cash
flows used in operating activities in the three months ended
June 30, 2006 of $15.0 million. The increase in cash
used in operating activities was primarily due to the increase
in the net loss incurred in the three months ended June 30,
2007 and increase in investment in film, decreases in film
obligations and less cash provided on the decrease in accounts
receivable than in prior period. The above increased use of cash
in the three months ended June 30, 2007 was offset by
sources of cash provided by increases in deferred revenue and
accounts payable.
Cash Flows Provided by Investing
Activities. Cash flows provided by investing
activities of $81.9 million for the three months ended
June 30, 2007 consisted of net proceeds from the sale of
$71.0 million of auction rate securities,
$12.9 million in net proceeds from the sale of equity
securities and $2.0 million for purchases of property and
equipment. Cash flows provided by investing activities of
$23.1 million in the three months ended June 30, 2006
included the net proceeds of $24.9 million of investments
available-for-sale, offset by $1.8 million for purchases of
property and equipment.
Cash Flows Provided by Financing
Activities. Cash flows provided by financing
activities of $4.1 million in the three months ended
June 30, 2007 consisted of cash received from borrowings
and the issuance of common shares. Cash flows provided by
financing activities of $0.4 million in the three months
ended June 30, 2006 consisted of cash received from the
issuance of common shares.
42
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.
Future commitments under contractual obligations as of
June 30, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Future annual repayment of debt
and other film obligations recorded as of June 30,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film obligations(1)
|
|
$
|
58,554
|
|
|
$
|
25,268
|
|
|
$
|
3,706
|
|
|
$
|
29,975
|
|
|
$
|
29,987
|
|
|
$
|
|
|
|
$
|
147,490
|
|
Subordinated notes and other
financing obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
328,718
|
|
|
|
328,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
58,554
|
|
|
$
|
25,268
|
|
|
$
|
3,706
|
|
|
$
|
29,975
|
|
|
$
|
29,987
|
|
|
$
|
328,718
|
|
|
$
|
476,208
|
|
Contractual commitments by
expected repayment date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution and marketing
commitments(2)
|
|
$
|
60,397
|
|
|
$
|
94,186
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
154,583
|
|
Minimum guarantee commitments(3)
|
|
|
61,071
|
|
|
|
36,001
|
|
|
|
3,095
|
|
|
|
2,900
|
|
|
|
|
|
|
|
|
|
|
|
103,067
|
|
Production obligation
commitments(3)
|
|
|
2,789
|
|
|
|
7,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,246
|
|
Operating lease commitments
|
|
|
3,432
|
|
|
|
4,748
|
|
|
|
4,438
|
|
|
|
4,118
|
|
|
|
1,841
|
|
|
|
710
|
|
|
|
19,287
|
|
Other contractual obligations
|
|
|
12,869
|
|
|
|
4,752
|
|
|
|
256
|
|
|
|
256
|
|
|
|
256
|
|
|
|
|
|
|
|
18,389
|
|
Employment and consulting contracts
|
|
|
18,886
|
|
|
|
13,757
|
|
|
|
8,188
|
|
|
|
5,114
|
|
|
|
512
|
|
|
|
|
|
|
|
46,457
|
|
Interest payments on subordinated
notes and other financing obligations
|
|
|
8,285
|
|
|
|
11,046
|
|
|
|
11,046
|
|
|
|
11,046
|
|
|
|
11,046
|
|
|
|
135,394
|
|
|
|
187,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
167,729
|
|
|
$
|
171,947
|
|
|
$
|
27,023
|
|
|
$
|
23,434
|
|
|
$
|
13,655
|
|
|
$
|
136,104
|
|
|
$
|
539,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total future commitments under
contractual obligations
|
|
$
|
226,283
|
|
|
$
|
197,215
|
|
|
$
|
30,729
|
|
|
$
|
53,409
|
|
|
$
|
43,642
|
|
|
$
|
464,822
|
|
|
$
|
1,016,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Film obligations include minimum guarantees, theatrical
marketing obligations and production obligations as disclosed in
note 6 of our unaudited condensed consolidated financial
statements. Repayment dates are based on anticipated delivery or
release date of the related film or contractual due dates of the
obligation. |
|
(2) |
|
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. |
43
|
|
|
(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 3.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
Currency
and Interest Rate Risk Management
Market risks relating to our operations result primarily from
changes in interest rates and changes in foreign currency
exchange rates. Our exposure to interest rate risk results from
the financial debt instruments that arise from transactions
entered into during the normal course of business. As part of
our overall risk management program, we evaluate and manage our
exposure to changes in interest rates and currency exchange
risks on an ongoing basis. Hedges and derivative financial
instruments will be used in the future in order to manage our
interest rate and currency exposure. We have no intention of
entering into financial derivative contracts, other than to
hedge a specific financial risk.
Currency Rate Risk. We incur certain operating
and production costs in foreign currencies and are subject to
market risks resulting from fluctuations in foreign currency
exchange rates. Our principal currency exposure is between
Canadian and U.S. dollars. The Company enters into forward
foreign exchange contracts to hedge its foreign currency
exposures on future production expenses denominated in Canadian
dollars. As of June 30, 2007, we had outstanding contracts
to sell US$1.7 million in exchange for CDN$2.0 million
over a period of five weeks at a weighted average exchange rate
of CDN$1.1887. Changes in the fair value representing an
unrealized fair value loss on foreign exchange contracts
outstanding during the three months ended June 30, 2007
amounted to less than $0.1 million, and are included in
accumulated other comprehensive loss, a separate component of
shareholders equity. During the three months ended
June 30, 2007, we completed foreign exchange contracts
denominated in Canadian dollars. The net gains resulting from
the completed contracts were $0.8 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
June 30, 2007. Other financing obligations subject to
variable interest rates include $28.2 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 and other financing
obligations as of June 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Revolving Credit
Facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Production
Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable(2)
|
|
|
16,093
|
|
|
|
12,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,151
|
|
Subordinated Notes and Other
Financing Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
150,000
|
|
Fixed(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,000
|
|
|
|
175,000
|
|
Fixed(5)
|
|
|
222
|
|
|
|
296
|
|
|
|
296
|
|
|
|
296
|
|
|
|
296
|
|
|
|
3,768
|
|
|
|
5,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,315
|
|
|
$
|
12,354
|
|
|
$
|
296
|
|
|
$
|
296
|
|
|
$
|
296
|
|
|
$
|
328,768
|
|
|
$
|
358,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
(1) |
|
Revolving credit facility, which expires December 31, 2008.
At June 30, 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 7.76%. Not included in the table
above are approximately $91.4 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%. |
|
(5) |
|
Other financing obligation with fixed interest rate equal to
8.02%. |
|
|
Item 4.
|
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures
The term disclosure controls and procedures is
defined in
Rules 13a-15(e)
and
15d-15(e) of
the Securities Exchange Act of 1934 (the Exchange
Act). These rules refer to the controls and other
procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports
that it files under the Exchange Act is recorded, processed,
summarized and reported within required time periods.
As of June 30, 2007, the end of the period covered by this
report, the Company carried out an evaluation under the
supervision and with the participation of our Chief Executive
Officer and Chief Financial Officer of the effectiveness of our
disclosure controls and procedures. Our Chief Executive Officer
and Chief Financial Officer have concluded that such controls
and procedures were effective as of June 30, 2007.
Changes
in Internal Control over Financial Reporting
As required by
Rule 13a-15(d)
of the Exchange Act, the Company, under the supervision and with
the participation of the Companys management, including
the Chief Executive Officer and Chief Financial Officer, also
evaluated whether any changes occurred to the Companys
internal control over financial reporting during the period
covered by this report that have materially affected, or are
reasonably likely to materially affect, such control. Based on
that evaluation, there has been no such change during the period
covered by this report.
PART II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings.
|
None
None
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
None
|
|
Item 3.
|
Defaults
Upon Senior Securities.
|
None
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
None
|
|
Item 5.
|
Other
Information.
|
None
45
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Documents
|
|
|
3
|
.1(1)
|
|
Articles
|
|
3
|
.2(2)
|
|
Notice of Articles
|
|
3
|
.3(2)
|
|
Vertical Short
Form Amalgamation Application
|
|
3
|
.4(2)
|
|
Certificate of Amalgamation
|
|
10
|
.40(3)
|
|
Revenue Participation Purchase
Agreement dated as of July 25, 2007 among Lions Gate
Entertainment Inc., Lions Gate Films Inc., Lions Gate Television
Inc., MQP, LLC and SGF Entertainment, Inc.
|
|
10
|
.41(3)
|
|
Master Distribution Agreement
(Film Productions) dated as of July 25, 2007 between MQP LLC and
Lions Gate Films Inc.
|
|
10
|
.42(3)
|
|
Master Distribution Agreement
(Television Productions) dated as of July 25, 2007 between MQP
LLC and Lions Gate Television Inc.
|
|
31
|
.1
|
|
Certification of CEO Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31
|
.2
|
|
Certification of CFO Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.1
|
|
Certification of CEO and CFO
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
(1) |
|
Incorporated by reference to the Companys Annual Report on
Form 10-K
for the fiscal year ended March 31, 2005 as filed on
June 29, 2005. |
|
(2) |
|
Incorporated by reference to the Companys Annual Report on
Form 10-K
for the fiscal year ended March 31, 2007 as filed on
May 30, 2007. |
|
(3) |
|
Confidential treatment has been requested for portions of this
exhibit. Portions of this document have been omitted and
submitted separately to the Securities and Exchange Commission. |
46
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
LIONS GATE ENTERTAINMENT CORP.
Name: James Keegan
|
|
|
|
Title:
|
Duly Authorized Officer and Chief Financial Officer
|
Date: August 9, 2007
47