e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2010
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No.: 1-14880
Lions Gate Entertainment Corp.
(Exact name of registrant as specified in its charter)
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British Columbia, Canada
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N/A |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
1055 West Hastings Street, Suite 2200
Vancouver, British Columbia V6E 2E9
and
2700 Colorado Avenue, Suite 200
Santa Monica, California 90404
(Address of principal executive offices)
(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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act:
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller
reporting company) |
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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 registrants 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, 2010 |
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Common Shares, no par value per share |
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136,244,246 shares |
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FORWARD-LOOKING STATEMENTS
This report contains statements that are, or may deemed to be, forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act),
and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These
forward-looking statements can be identified by the use of forward-looking terminology, including
the terms may, intend, will, could, would, expect, anticipate, potential,
believe, estimate, plan, project, forecast, or the negative of these terms, as
applicable, and similar expressions intended to identify forward-looking statements.
These forward-looking statements are not guarantees of future performance they reflect
Lions Gate Entertainment Corp.s current views with respect to future events and are based on
assumptions and are subject to risks and uncertainties. Also, these forward-looking statements
present our estimates and assumptions only as of the date of this report. Except for our ongoing
obligation to disclose material information as required by federal securities laws, we do not
intend to update you concerning any new information, future revisions, events or otherwise to any
forward-looking statements to reflect events or circumstances occurring after the date of this
report.
Our actual results of operations, financial condition and liquidity and the development of the
industry in which we operate may differ materially and adversely from what is expressed or
forecasted in the forward-looking statements as a result of various important factors, including,
but not limited to, the substantial investment of capital required to produce and market films and
television series, increased costs for producing and marketing feature films, budget overruns,
limitations imposed by our credit facilities and notes, unpredictability of the commercial success
of our motion pictures and television programming, the cost of defending our intellectual property,
difficulties in integrating acquired businesses, technological changes and other trends affecting
the entertainment industry, and the risk factors found under the heading Risk Factors found in
our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the SEC) on
June 1, 2010, which risk factors are incorporated herein by reference. In addition, even if our
results of operations, financial condition and liquidity, and the development of the industry in
which we operate are consistent with the forward-looking statements contained in this report, those
results or developments may not be indicative of results or developments in subsequent periods.
Unless otherwise indicated, all references to the Company, Lionsgate, we, us, and
our include reference to our subsidiaries as well.
3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
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June 30, |
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March 31, |
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2010 |
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2010 |
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(Amounts in thousands, |
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except share amounts) |
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ASSETS
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Cash and cash equivalents |
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$ |
78,568 |
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$ |
69,242 |
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Restricted cash |
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24,260 |
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4,123 |
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Restricted investments |
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6,993 |
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6,995 |
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Accounts
receivable, net of reserve for returns and allowances of $81,079 (March 31, 2010 -
$87,978) and provision for doubtful accounts of $7,815 (March 31, 2010 - $7,676) |
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259,295 |
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292,924 |
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Investment in films and television programs, net |
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724,891 |
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661,105 |
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Property and equipment, net |
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11,605 |
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12,414 |
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Equity method investments |
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190,452 |
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179,071 |
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Goodwill |
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239,254 |
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239,254 |
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Other assets |
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57,556 |
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62,027 |
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Total assets |
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$ |
1,592,874 |
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$ |
1,527,155 |
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LIABILITIES
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Senior revolving credit facility |
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$ |
199,000 |
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$ |
17,000 |
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Senior secured second-priority notes |
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225,453 |
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225,155 |
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Accounts payable and accrued liabilities |
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246,394 |
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253,745 |
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Participations and residuals |
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286,249 |
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302,677 |
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Film obligations and production loans |
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285,714 |
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351,769 |
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Subordinated notes and other financing obligations |
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195,421 |
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192,036 |
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Deferred revenue |
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156,223 |
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130,851 |
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Total liabilities |
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1,594,454 |
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1,473,233 |
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Commitments and contingencies |
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SHAREHOLDERS EQUITY (DEFICIENCY)
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Common shares, no par value, 500,000,000 shares authorized, 119,987,198, and
117,951,754 shares issued at June 30, 2010 and March 31, 2010, respectively |
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532,607 |
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521,164 |
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Accumulated deficit |
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(524,699 |
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(460,631 |
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Accumulated other comprehensive loss |
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(9,488 |
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(6,611 |
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Total equity (deficiency) |
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(1,580 |
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53,922 |
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Total liabilities and equity |
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$ |
1,592,874 |
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$ |
1,527,155 |
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See accompanying notes.
4
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Three Months |
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Three Months |
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Ended |
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Ended |
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June 30, |
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June 30, |
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2010 |
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2009 |
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(Amounts in thousands, except |
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per share amounts) |
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Revenues |
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$ |
326,584 |
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$ |
379,224 |
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Expenses: |
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Direct operating |
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157,581 |
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210,529 |
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Distribution and marketing |
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140,059 |
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83,975 |
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General and administration |
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64,719 |
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36,606 |
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Depreciation and amortization |
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1,603 |
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6,656 |
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Total expenses |
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363,962 |
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337,766 |
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Operating income (loss) |
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(37,378 |
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41,458 |
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Other expenses (income): |
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Interest expense |
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Contractual cash based interest |
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10,091 |
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4,974 |
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Amortization of debt discount and deferred financing costs |
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4,452 |
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4,654 |
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Total interest expense |
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14,543 |
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9,628 |
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Interest and other income |
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(387 |
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(423 |
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Gain on extinguishment of debt |
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(7,458 |
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Total other expenses, net |
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14,156 |
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1,747 |
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Income (loss) before equity interests and income taxes |
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(51,534 |
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39,711 |
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Equity interests loss |
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(11,707 |
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(2,027 |
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Income (loss) before income taxes |
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(63,241 |
) |
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37,684 |
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Income tax provision |
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827 |
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1,335 |
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Net income (loss) |
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$ |
(64,068 |
) |
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$ |
36,349 |
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Basic Net Income (Loss) Per Common Share |
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$ |
(0.54 |
) |
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$ |
0.31 |
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Diluted Net Income (Loss) Per Common Share |
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$ |
(0.54 |
) |
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$ |
0.30 |
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Weighted average number of common shares outstanding: |
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Basic |
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118,226 |
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117,073 |
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Diluted |
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118,226 |
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136,595 |
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See accompanying notes.
5
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
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Accumulated |
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Other |
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Common Shares |
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Accumulated |
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Comprehensive |
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Comprehensive |
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Number |
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Amount |
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Deficit |
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Loss |
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Loss |
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Total |
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(Amounts in thousands, except share amounts) |
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Balance at March 31, 2010 |
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117,951,754 |
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$ |
521,164 |
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$ |
(460,631 |
) |
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$ |
(6,611 |
) |
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$ |
53,922 |
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Stock based compensation, net of
withholding tax obligations of $11,042 |
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1,992,122 |
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11,153 |
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11,153 |
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Issuance of common shares
to directors for services |
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43,322 |
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290 |
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290 |
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Comprehensive loss |
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Net loss |
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(64,068 |
) |
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$ |
(64,068 |
) |
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(64,068 |
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Foreign currency translation
adjustments |
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(2,047 |
) |
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(2,047 |
) |
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(2,047 |
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Net unrealized loss on foreign
exchange contracts |
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(830 |
) |
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(830 |
) |
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(830 |
) |
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Comprehensive loss |
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$ |
(66,945 |
) |
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Balance at June 30, 2010 |
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119,987,198 |
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$ |
532,607 |
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$ |
(524,699 |
) |
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$ |
(9,488 |
) |
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$ |
(1,580 |
) |
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See accompanying notes.
6
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Three Months |
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Three Months |
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Ended |
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Ended |
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June 30, |
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June 30, |
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2010 |
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2009 |
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(Amounts in thousands) |
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Operating Activities: |
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Net income (loss) |
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$ |
(64,068 |
) |
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$ |
36,349 |
|
Adjustments to reconcile net income (loss) to
net cash used in operating activities: |
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Depreciation of property and equipment |
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1,192 |
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3,573 |
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Amortization of intangible assets |
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411 |
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3,083 |
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Amortization of films and television programs |
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101,211 |
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151,163 |
|
Amortization of debt discount and deferred financing costs |
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4,452 |
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4,654 |
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Non-cash stock-based compensation |
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22,196 |
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3,729 |
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Gain on extinguishment of debt |
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(7,458 |
) |
Equity interests loss |
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11,707 |
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|
2,027 |
|
Changes in operating assets and liabilities: |
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Restricted cash |
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(17,071 |
) |
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|
161 |
|
Accounts receivable, net |
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32,363 |
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|
26,927 |
|
Investment in films and television programs |
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(165,905 |
) |
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(213,575 |
) |
Other assets |
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2,437 |
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|
1,227 |
|
Accounts payable and accrued liabilities |
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(1,542 |
) |
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(99,342 |
) |
Participations and residuals |
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(16,361 |
) |
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(34,969 |
) |
Film obligations |
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|
636 |
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(19,130 |
) |
Deferred revenue |
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|
25,409 |
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|
(12,786 |
) |
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Net Cash Flows Used In Operating Activities |
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|
(62,933 |
) |
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|
(154,367 |
) |
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Investing Activities: |
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Purchases of restricted investments |
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(6,993 |
) |
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Proceeds from the sale of restricted investments |
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|
6,995 |
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|
Buy-out of the earn-out associated with the acquisition of Debmar-Mercury, LLC |
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(15,000 |
) |
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Investment in equity method investees |
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(22,030 |
) |
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(14,924 |
) |
Repayment of loans receivable |
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|
8,333 |
|
Purchases of property and equipment |
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(405 |
) |
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(1,793 |
) |
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Net Cash Flows Used In Investing Activities |
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|
(37,433 |
) |
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|
(8,384 |
) |
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Financing Activities: |
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Tax withholding requirements on equity awards |
|
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(1,497 |
) |
|
|
(417 |
) |
Proceeds from the issuance of mandatorily redeemable preferred stock units
and common stock units related to the sale of 49% interest in TV Guide Network |
|
|
|
|
|
|
113,372 |
|
Borrowings under senior revolving credit facility |
|
|
243,000 |
|
|
|
|
|
Repayments of borrowings under senior revolving credit facility |
|
|
(61,000 |
) |
|
|
|
|
Borrowings under individual production loans |
|
|
13,737 |
|
|
|
83,117 |
|
Repayment of individual production loans |
|
|
(83,146 |
) |
|
|
(67,977 |
) |
Production loan borrowings under Pennsylvania Regional Center credit facility |
|
|
494 |
|
|
|
109 |
|
Production loan repayments under Pennsylvania Regional Center credit facility |
|
|
(246 |
) |
|
|
(54 |
) |
Production loan borrowings under film credit facility |
|
|
3,118 |
|
|
|
|
|
Production loan repayments under film credit facility |
|
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(419 |
) |
|
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|
|
Restricted cash collateral requirement under the film credit facility |
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(3,666 |
) |
|
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|
Repayment of other financing obligations |
|
|
|
|
|
|
(134 |
) |
|
|
|
|
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|
|
Net Cash Flows Provided By Financing Activities |
|
|
110,375 |
|
|
|
128,016 |
|
|
|
|
|
|
|
|
Net Change In Cash And Cash Equivalents |
|
|
10,009 |
|
|
|
(34,735 |
) |
Foreign Exchange Effects on Cash |
|
|
(683 |
) |
|
|
1,700 |
|
Cash and Cash Equivalents Beginning Of Period |
|
|
69,242 |
|
|
|
134,879 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents End Of Period |
|
$ |
78,568 |
|
|
$ |
101,844 |
|
|
|
|
|
|
|
|
See accompanying notes.
7
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General
Nature of Operations
Lions Gate Entertainment Corp. (the Company, Lionsgate, we, us or our) is the
leading next generation studio with a diversified presence in the production and distribution of
motion pictures, television programming, home entertainment, family entertainment, video-on-demand
and digitally delivered content.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of
Lionsgate and all of its majority-owned and controlled subsidiaries.
The unaudited condensed consolidated financial statements have been prepared in accordance
with United States (the U.S.) accounting principles generally accepted (GAAP) for interim
financial information and the instructions to quarterly report on Form 10-Q under the Securities
Exchange Act 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, 2010 are not necessarily indicative of the
results that may be expected for the fiscal year ended March 31, 2011. The balance sheet at March
31, 2010 has been derived from the audited financial statements at that date, but does not include
all the information and footnotes required by U.S. GAAP for complete financial statements. The
accompanying unaudited condensed consolidated financial statements should be read together with the
consolidated financial statements and related notes included in our Annual Report on Form 10-K for
the fiscal year ended March 31, 2010.
As a result of a new consolidation accounting standard adopted April 1, 2010 (discussed below
under Recent Accounting Pronouncements), prior year amounts presented for fiscal 2010 have been
reclassified to conform to the fiscal 2011 presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements, and the
reported amounts of revenue and expenses during the reporting period. The most significant
estimates made by management in the preparation of the financial statements relate to ultimate
revenue and costs for investment in films and television programs; estimates of sales returns and
other allowances and provisions for doubtful accounts; fair value of assets and liabilities for
allocation of the purchase price of companies acquired; income taxes and accruals for contingent
liabilities; and impairment assessments for investment in films and television programs, property
and equipment, equity investments, goodwill and intangible assets. Actual results could differ from
such estimates.
Recent Accounting Pronouncements
Consolidation accounting for variable interest entities. This new accounting guidance modifies
the previous guidance in relation to the identification of controlling financial interests in a
variable interest entity (VIE). Under this new guidance, the primary beneficiary of a VIE is the
enterprise that has both of the following characteristics, among others: (a) the power to direct
the activities of a VIE that most significantly impact the entitys economic performance; and (b)
the obligation to absorb losses of the entity, or the right to receive benefits from the entity,
that could potentially be significant to the VIE. If an enterprise determines that power is shared
among multiple unrelated parties such that no one party has the power to direct the activities of a
VIE that most significantly impact the VIEs economic performance, then no party is the primary
beneficiary. Power is shared if each of the parties sharing power
8
are required to consent to the decisions relating to the activities that most significantly
impact the VIEs performance. The provisions of this standard became effective for the Company
beginning in fiscal 2011.
Upon adoption of the new accounting standard on April 1, 2010, the Company determined that it
was no longer the primary beneficiary of TV Guide Network and TV Guide.com (collectively TV Guide
Network) because pursuant to the operating agreement of the entity, the power to direct the
activities that most significantly impact the economic performance of TV Guide Network are shared
with the 49% owner of TV Guide Network, One Equity Partners (OEP). Accordingly, upon adoption of
the new accounting standard we are no longer consolidating TV Guide Network and instead are
accounting for TV Guide Network under the equity method of accounting.
The Company has applied the provisions of the new accounting standard retrospectively and
accordingly, the Company deconsolidated TV Guide Network from
May 28, 2009, the date the Company sold a 49% interest to OEP, and retrospectively adjusted the financial statements to reflect TV Guide
Network as if it were accounted for under the equity method of accounting since that date. The
deconsolidation of TV Guide network resulted in the reclassification of $305.4 million of assets,
$147.3 million of liabilities and $30.0 million of non-controlling interest amounts from each of
their respective consolidated balance sheet captions to the investment in equity method investees
account as of March 31, 2010, reflecting the carrying amount of the Companys interest in the
mandatorily redeemable preferred and common stock units of TV Guide Network as of March 31, 2010.
In addition, under the equity method of accounting, the Companys share of the revenues, expenses
of TV Guide Network and income for the accretion of the dividend and discount of the mandatorily
redeemable preferred stock are recorded net in the equity interest line item in the consolidated
statements of operations. The adoption of the new accounting standard did not impact the Companys
net loss. See Note 5 and Note 13 for further detail regarding the TV Guide Network.
2. Restricted Cash and Restricted Investments
Restricted Cash. Restricted cash represents amounts held as collateral required under our
revolving film credit facility, amounts that are contractually designated for certain theatrical
marketing obligations, and approximately $16.8 million held in a trust to fund the Companys cash
severance obligations that would be due to certain executive officers should their employment be
terminated without cause, (as defined), in connection with a change in control of the Company,
(as defined in each of their respective employment contracts). For purposes of the employment
agreements with such executive officers, a change in control occurred on June 30, 2010 when a
certain shareholder became the beneficial owner of 33% or more of the Companys common shares.
Accordingly, the trust became irrevocable, and the Company may not withdraw any trust assets (other
than once every six months in an amount that the trustee reasonably determines exceeds the
remaining potential severance obligations), until any cash severance obligations that have become
payable to the executives have been paid or the employment agreements with the executives expire or
terminate without those obligations becoming payable.
Restricted Investments. Restricted investments, which are measured at fair value, represent
amounts held in an investment that are contractually designated as collateral for certain
production loans pursuant to an escrow agreement. The carrying amount of this restricted investment
is equal to its respective fair value as of June 30, 2010 and March 31, 2010. At June 30, 2010 and
March 31, 2010, the restricted investment consisted of approximately $7.0 million of United States
Treasury Bills bearing an interest rate of 0.198%, maturing November 4, 2010.
9
3. Investment in Films and Television Programs
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
March 31, |
|
|
|
2010 |
|
|
2010 |
|
|
|
(Amounts in thousands) |
|
Motion Picture Segment Theatrical and Non-Theatrical Films |
|
|
|
|
|
|
|
|
Released, net of accumulated amortization |
|
$ |
309,878 |
|
|
$ |
212,582 |
|
Acquired libraries, net of accumulated amortization |
|
|
41,031 |
|
|
|
43,374 |
|
Completed and not released |
|
|
32,322 |
|
|
|
49,338 |
|
In progress |
|
|
147,995 |
|
|
|
198,743 |
|
In development |
|
|
13,156 |
|
|
|
10,730 |
|
Product inventory |
|
|
37,220 |
|
|
|
38,291 |
|
|
|
|
|
|
|
|
|
|
|
581,602 |
|
|
|
553,058 |
|
|
|
|
|
|
|
|
Television Segment Direct-to-Television Programs |
|
|
|
|
|
|
|
|
Released, net of accumulated amortization |
|
|
69,825 |
|
|
|
80,557 |
|
In progress |
|
|
70,778 |
|
|
|
24,198 |
|
In development |
|
|
2,686 |
|
|
|
3,292 |
|
|
|
|
|
|
|
|
|
|
|
143,289 |
|
|
|
108,047 |
|
|
|
|
|
|
|
|
|
|
$ |
724,891 |
|
|
$ |
661,105 |
|
|
|
|
|
|
|
|
The following table sets forth acquired libraries that represent titles released three
years prior to the date of acquisition, and amortized over their expected revenue stream from
acquisition date up to 20 years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Remaining |
|
|
Unamortized Costs |
|
|
Unamortized Costs |
|
|
|
|
|
Amortization |
|
|
Amortization |
|
|
June 30, |
|
|
March 31, |
|
Acquired Library |
|
Acquisition Date |
|
Period |
|
|
Period |
|
|
2010 |
|
|
2010 |
|
|
|
|
|
(In years) |
|
|
(Amounts in thousands) |
|
Trimark Holdings |
|
October 2000 |
|
|
20.00 |
|
|
|
10.25 |
|
|
$ |
4,341 |
|
|
$ |
4,589 |
|
Artisan Entertainment |
|
December 2003 |
|
|
20.00 |
|
|
|
13.50 |
|
|
|
35,125 |
|
|
|
36,836 |
|
Modern Entertainment |
|
August 2005 |
|
|
20.00 |
|
|
|
15.00 |
|
|
|
818 |
|
|
|
1,142 |
|
Lionsgate UK |
|
October 2005 |
|
|
20.00 |
|
|
|
15.25 |
|
|
|
747 |
|
|
|
807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Acquired Libraries |
|
|
|
|
|
|
|
|
|
|
|
$ |
41,031 |
|
|
$ |
43,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects approximately 47% of completed films and television programs, net of
accumulated amortization, will be amortized during the one-year period ending June 30, 2011.
Additionally, the Company expects approximately 80% of completed and released films and television
programs, net of accumulated amortization and excluding acquired libraries, will be amortized
during the three-year period ending June 30, 2013.
10
4. Goodwill
The carrying amount of goodwill by reporting segment as of June 30, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion |
|
|
|
|
|
|
|
|
|
Pictures |
|
|
Television |
|
|
Total |
|
|
|
(Amounts in thousands) |
|
Balance as of June 30, 2010 |
|
$ |
210,293 |
|
|
$ |
28,961 |
|
|
$ |
239,254 |
|
|
|
|
|
|
|
|
|
|
|
5. Equity Method Investments
Equity Method Investments. The carrying amount of significant equity method investments at June 30,
2010 and March 31, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
March 31, |
|
|
|
2010 |
|
|
2010 |
|
|
|
(Amounts in thousands) |
|
Horror Entertainment, LLC (FEARnet) |
|
$ |
2,643 |
|
|
$ |
630 |
|
NextPoint, Inc. (Break.com) |
|
|
16,448 |
|
|
|
16,698 |
|
Roadside Attractions, LLC |
|
|
2,000 |
|
|
|
1,913 |
|
Studio 3 Partners, LLC (EPIX) |
|
|
40,243 |
|
|
|
31,700 |
|
TV Guide Network |
|
|
128,129 |
|
|
|
128,130 |
|
Tiger Gate Entertainment Limited (Tiger Gate) |
|
|
989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
190,452 |
|
|
$ |
179,071 |
|
|
|
|
|
|
|
|
Equity interests in equity method investments in our unaudited condensed consolidated
statements of operations represent our portion of the income or loss of our equity method investees
based on our percentage ownership and the elimination of profits on sales to equity method
investees. Equity interests in equity method investments for the three months ended June 30, 2010
and 2009 were as follows (income (loss)):
11
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Amounts in thousands) |
|
Horror Entertainment, LLC (FEARnet) |
|
$ |
513 |
|
|
$ |
(133 |
) |
NextPoint, Inc. (Break.com) |
|
|
(251 |
) |
|
|
(361 |
) |
Roadside Attractions, LLC |
|
|
86 |
|
|
|
(108 |
) |
Studio 3 Partners, LLC (EPIX) |
|
|
(11,987 |
) |
|
|
(1,115 |
) |
TV Guide Network |
|
|
(1 |
) |
|
|
(310 |
) |
Tiger Gate Entertainment Limited (Tiger Gate) |
|
|
(67 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(11,707 |
) |
|
$ |
(2,027 |
) |
|
|
|
|
|
|
|
Horror Entertainment, LLC. Represents the Companys 33.33% interest in Horror
Entertainment, LLC (FEARnet), a multiplatform programming and content service provider of horror
genre films operating under the branding of FEARnet. The Company licenses content to FEARnet for
video-on-demand and broadband exhibition. The Company is recording its share of the FEARnet results
on a one quarter lag and, accordingly, during the three months ended June 30, 2010, the Company
recorded 33.33% of the income incurred by FEARnet through March 31, 2010. The Company funded an
additional $1.5 million during the three months ended June 30, 2010.
NextPoint, Inc. Represents the Companys 42% equity interest in NextPoint, Inc. (Break.com),
an online home entertainment service provider operating under the branding of Break.com. The
interest was acquired on June 29, 2007 for an aggregate purchase price of $21.4 million which
included $0.5 million of transaction costs, by issuing 1,890,189 of the Companys common shares.
The value assigned to the shares for purposes of recording the investment of $20.9 million was
based on the average price of the Companys common shares a few days prior and subsequent to the
date of the closing of the acquisition. The Company is recording its share of the Break.com results
on a one quarter lag and, accordingly, during the three months ended June 30, 2010, the Company
recorded 42% of the loss incurred by Break.com through March 31, 2010.
Roadside Attractions, LLC. Represents the Companys 43% equity interest acquired on July 26,
2007 in Roadside Attractions, LLC (Roadside), an independent theatrical releasing company. The
Company has a call option which is exercisable for a period of 90 days commencing on the receipt of
certain audited financial statements for the three years ended July 26, 2010, to purchase all of
the remaining 57% equity interests of Roadside, at a price representative of the then fair value of
the remaining interest. The estimated initial cost of the call option was de minimus since the
option price is designed to be representative of the then fair value and is included within the
investment balance. The Company is recording its share of the Roadside results on a one quarter lag
and, accordingly, during the three months ended June 30, 2010, the Company recorded 43% of the
income incurred by Roadside through March 31, 2010.
Studio 3 Partners, LLC (EPIX). In April 2008, the Company formed a joint venture with Viacom
Inc. (Viacom), its Paramount Pictures unit (Paramount Pictures) and Metro-Goldwyn-Mayer Studios
Inc. (MGM) to create a premium television channel and subscription video-on-demand service named
EPIX. The new venture has access to the Companys titles released theatrically on or after
January 1, 2009. Viacom provides operational support to the venture, including marketing and
affiliate services through its MTV Networks division. The joint venture provides the Company with
an additional platform to distribute its library of motion picture titles and television episodes
and programs. The Company has invested $79.7 million through June 30, 2010, including $20.5 million
funded during the three months ended June 30, 2010, and may fund additional amounts in the future.
The Company is recording its share of the joint venture results on a one quarter lag and,
accordingly, during the three months ended June 30, 2010, the Company recorded 31.15% of the loss
incurred by the joint venture through March 31, 2010.
The Company licenses certain of its theatrical releases and other films and television programs to
EPIX. A portion of the profits of these licenses reflecting our ownership share in the venture are
eliminated through an adjustment to the equity interest loss of the venture. These profits are
recognized as they are realized by the venture. For the three months ended June 30, 2010, there
was not a significant amount of revenue from the licensing of products to EPIX. Profits from
previous licensing of products to the venture were realized by the venture in the period. The
equity interest loss from EPIX above includes $13.1 million, which represents our share of EPIX
losses of $42.4 million for the three months ended March 31, 2010, reduced by the realization of a
portion of the profits
previously eliminated on licenses to the venture of $1.2 million. EPIX expects to report losses of
approximately $47.3 million for its quarter ended June 30, 2010, of which the Companys pro rata share will be recorded in the quarter ended September 30, 2010.
12
The following table presents the summarized statement of operations for the three months ended
March 31, 2010 and 2009 for EPIX and a reconciliation of the net loss reported by EPIX to equity
interest loss recorded by the Company:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Amounts in thousands) |
|
Revenues |
|
$ |
295 |
|
|
$ |
|
|
Expenses: |
|
|
|
|
|
|
|
|
Programming expenses |
|
|
34,172 |
|
|
|
|
|
Other operating expenses |
|
|
8,485 |
|
|
|
3,887 |
|
|
|
|
|
|
|
|
Operating loss |
|
|
(42,362 |
) |
|
|
(3,887 |
) |
Interest income |
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
|
Net loss |
|
$ |
(42,362 |
) |
|
$ |
(3,900 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of net loss reported by EPIX
to equity interest loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss reported by EPIX |
|
$ |
(42,362 |
) |
|
$ |
(3,900 |
) |
The Companys ownership interest in EPIX |
|
|
31.15 |
% |
|
|
28.60 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys share of net loss
before intercompany profits elimination |
|
|
(13,196 |
) |
|
|
(1,115 |
) |
Realization of intercompany
profits previously eliminated |
|
|
1,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity interest loss recorded |
|
$ |
(11,987 |
) |
|
$ |
(1,115 |
) |
|
|
|
|
|
|
|
TV Guide Network. Represents the Companys 51% interest in TV Guide Network. The
Companys investment balance consists of common share units of $26.3 million and mandatorily
redeemable preferred stock units of $101.8 million. On February 28, 2009, the Company purchased all
of the issued and outstanding equity interests of TV Guide Network. The Company paid approximately
$241.6 million for all of the equity interest of TV Guide Network. On May 28, 2009, the Company
sold 49% of the Companys interest in TV Guide Network (see Note 13).
The February 28, 2009 acquisition was accounted for as a purchase, with the results of
operations of TV Guide Network included in the Companys consolidated results from February 28,
2009 through May 28, 2009 when a portion of the entity was sold. Subsequent to the sale of TV
Guide, and pursuant to the new accounting guidance effective April 1, 2010 which the Company has
retrospectively applied, the Companys interest in TV Guide Network is being accounted for under
the equity method of accounting. Accordingly, the Companys portion of the loss incurred by TV
Guide Network for the three months ended June 30, 2010 and the period from May 29, 2009
through June 30, 2009 is reflected in equity interests loss.
Investment in Mandatorily Redeemable Preferred Stock Units. The mandatorily redeemable
preferred stock carries a dividend rate of 10% compounded annually and is mandatorily redeemable in
May 2019 at the stated value plus the dividend return and any additional capital contributions less
previous distributions. The mandatorily redeemable preferred stock units were initially recorded
based on their estimated fair value, as determined using an option pricing model methodology. The
mandatorily redeemable preferred
stock and the 10% dividend are being accreted up to its redemption
amount over the ten-year period to the redemption date which is
recorded as income from equity interest.
The following table presents the summarized statement of operations for the three months ended
June 30, 2010 for TV Guide Network and a reconciliation of the net loss reported by TV Guide
Network to equity interest loss recorded by the Company:
13
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended |
|
|
|
June 30, |
|
|
|
2010 (1) |
|
|
|
(Amounts in thousands) |
|
Revenues |
|
$ |
29,045 |
|
Expenses: |
|
|
|
|
Direct operating |
|
|
7,643 |
|
Distribution and marketing |
|
|
5,435 |
|
General and administration |
|
|
11,542 |
|
Depreciation and amortization |
|
|
4,015 |
|
|
|
|
|
Operating income |
|
|
410 |
|
Interest expense |
|
|
417 |
|
Accretion of redeemable preferred stock units (2) |
|
|
6,598 |
|
Interest income |
|
|
(7 |
) |
|
|
|
|
Loss before income taxes |
|
|
(6,598 |
) |
Income tax provision |
|
|
2 |
|
|
|
|
|
Net loss |
|
$ |
(6,600 |
) |
|
|
|
|
|
|
|
|
|
Reconciliation of net loss reported by
TV Guide Network to equity interest loss: |
|
|
|
|
|
|
|
|
|
Net loss reported by TV Guide Network |
|
$ |
(6,600 |
) |
The Companys ownership interest
in TV Guide Network |
|
|
51 |
% |
|
|
|
|
|
|
|
|
|
The Companys share of net loss |
|
|
(3,366 |
) |
|
|
|
|
|
Accretion of dividend and interest income
of redeemable preferred stock units |
|
|
3,365 |
|
|
|
|
|
|
|
|
|
|
Total equity interest loss recorded |
|
$ |
(1 |
) |
|
|
|
|
|
|
|
(1) |
|
A comparative summarized statement of operations for the three months ended June 30, 2009
for TV Guide Network is not presented because the period the Company
accounted for its interest in TV
Guide Network under the equity method of accounting was for only a one month period from May
28, 2009 to June 30, 2009. |
|
(2) |
|
Accretion of redeemable preferred stock units represents TV Guide Networks non cash
dividend and the amortization of discount on its mandatorily redeemable preferred stock units held
by the Company and the 49% interest holder. The Company records 51% of this expense as income from the accretion of dividend
and discount on redeemable preferred stock units as equity interest income. For the three months
ended June 30, 2010 and 2009, the Company recorded $3.4 million and $1.1 million of income from the
accretion of dividend and discount on redeemable preferred stock units, respectively. |
Tiger Gate Entertainment Limited. Represents the Companys 45.9% interest in Tiger Gate
Entertainment Limited, an operator of pay television channels and a distributor of television
programming and action and horror films across Asia. The Company is recording its share of the
joint venture results on a one quarter lag and, accordingly, during the three months ended June 30,
2010, the Company recorded 45.9% of the loss incurred by the joint venture through March 31, 2010.
14
6. Other Assets
The composition of the Companys other assets is as follows as of June 30, 2010 and March 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
March 31, |
|
|
|
2010 |
|
|
2010 |
|
|
|
(Amounts in thousands) |
|
Deferred financing costs, net of accumulated amortization |
|
$ |
19,007 |
|
|
$ |
19,460 |
|
Prepaid expenses and other |
|
|
12,150 |
|
|
|
15,078 |
|
Loans receivable |
|
|
25,421 |
|
|
|
26,096 |
|
Finite-lived intangible assets |
|
|
978 |
|
|
|
1,393 |
|
|
|
|
|
|
|
|
|
|
$ |
57,556 |
|
|
$ |
62,027 |
|
|
|
|
|
|
|
|
Deferred Financing Costs. Deferred financing costs primarily include costs incurred in
connection with (1) an amended senior revolving credit facility (see Note 7), (2) the issuance of
the Senior Secured Second-Priority Notes (see Note 8) and (3) the issuance of the October 2004
2.9375% Notes, the February 2005 3.625% Notes and the April 2009 3.625% Notes (see Note 11) that
are deferred and amortized to interest expense using the effective interest method.
Prepaid Expenses and Other. Prepaid expenses and other primarily include prepaid expenses and
security deposits.
Loans Receivable. The following table sets forth the Companys loans receivable at June 30, 2010
and March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
June 30, |
|
|
March 31, |
|
|
|
Rate |
|
|
2010 |
|
|
2010 |
|
|
|
|
|
|
|
(Amounts in thousands) |
|
Third-party producer |
|
|
3.28 |
% |
|
$ |
17,283 |
|
|
$ |
17,147 |
|
NextPoint, Inc. (Break.com) |
|
|
5.53% - 20.0 |
% |
|
|
8,138 |
|
|
|
7,891 |
|
Other |
|
|
3.49 |
% |
|
|
|
|
|
|
1,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
25,421 |
|
|
$ |
26,096 |
|
|
|
|
|
|
|
|
|
|
|
|
Finite-Lived Intangible Assets. Finite-lived intangible assets consist of trademarks and
distribution agreements. The composition of the Companys finite-lived intangible assets and the
associated accumulated amortization is as follows as of June 30, 2010 and March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Range |
|
|
|
|
|
|
|
|
|
average |
|
|
of |
|
|
June 30, 2010 |
|
|
March 31, 2010 |
|
|
|
remaining |
|
|
remaining |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
|
life in |
|
|
life in |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
|
years |
|
|
years |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands) |
|
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
2 |
|
|
|
1 - 2 |
|
|
$ |
1,600 |
|
|
$ |
930 |
|
|
$ |
670 |
|
|
$ |
1,600 |
|
|
$ |
851 |
|
|
$ |
749 |
|
Distribution agreements |
|
|
1 |
|
|
|
1 - 3 |
|
|
|
3,899 |
|
|
|
3,591 |
|
|
|
308 |
|
|
|
3,922 |
|
|
|
3,278 |
|
|
|
644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finite-lived intangible assets |
|
|
|
|
|
|
|
|
|
$ |
5,499 |
|
|
$ |
4,521 |
|
|
$ |
978 |
|
|
$ |
5,522 |
|
|
$ |
4,129 |
|
|
$ |
1,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate amount of amortization expense associated with the Companys intangible
assets for the three months ended June 30, 2010 and 2009 were $0.4 million and $3.1 million,
respectively. The estimated aggregate amortization expense associated with the Companys intangible
assets, for the nine-months ended March 31, 2011 and for each of the years ending March 31, 2012
through 2015 is approximately $0.5 million, $0.3 million, $0.1 million, nil, and nil, respectively.
15
7. Senior Revolving Credit Facility
At June 30, 2010, the Company had borrowings of $199.0 million (March 31, 2010 $17.0
million) under its senior revolving credit facility. The availability of funds under its senior
revolving credit facility is limited by a borrowing base and also reduced by outstanding letters of
credit which amounted to $25.6 million at June 30, 2010 (March 31, 2010 $25.6 million). At June
30, 2010, there was $115.4 million available under the senior revolving credit facility (March 31,
2010 $297.4 million). The Company is required to pay a quarterly commitment fee based upon
0.375% per annum on the total senior revolving credit facility of $340 million less the amount
drawn. The senior revolving credit facility expires July 25, 2013 and as of June 30, 2010, bore
interest of 2.5% over the Adjusted LIBOR rate (effective interest rate of 2.85% and 2.75% as of
June 30, 2010 and March 31, 2010, respectively). Obligations under the senior revolving credit
facility are secured by collateral (as defined in the credit agreement) granted by the Company and
certain subsidiaries of the Company, as well as a pledge of equity interests in certain of the
Companys subsidiaries. The senior revolving credit facility contains a number of affirmative and
negative covenants that, among other things, require the Company to satisfy certain financial
covenants and restrict the ability of the Company to incur additional debt, pay dividends and make
distributions, make certain investments and acquisitions, repurchase its stock and prepay certain
indebtedness, create liens, enter into agreements with affiliates, modify the nature of its
business, enter into sale-leaseback transactions, transfer and sell material assets and merge or
consolidate. Under the senior revolving credit facility, the Company may also be subject to an
event of default upon a change in control (as defined in the senior revolving credit facility)
which, among other things, includes a person or group acquiring ownership or control in excess of
50% (amended from 20% on June 22, 2010) of the Companys common stock.
8. Senior Secured Second-Priority Notes
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
March 31, |
|
|
|
2010 |
|
|
2010 |
|
|
|
(Amounts in thousands) |
|
Principal amount of Senior Secured Second-Priority Notes |
|
$ |
236,000 |
|
|
$ |
236,000 |
|
Unamortized discount (remaining period as of June 30, 2010 of 6.3 years ) |
|
|
(10,547 |
) |
|
|
(10,845 |
) |
|
|
|
|
|
|
|
Net carrying amount of Senior Secured Second-Priority Notes |
|
$ |
225,453 |
|
|
$ |
225,155 |
|
|
|
|
|
|
|
|
On October 21, 2009, Lions Gate Entertainment Inc. (LGEI), the Companys wholly-owned
subsidiary, issued $236.0 million aggregate principal amount of senior secured second-priority
notes due 2016 (the Senior Notes) in a private offering conducted pursuant to Rule 144A and
Regulation S under the Securities Act of 1933, as amended (the Securities Act).
The Senior Notes were issued by LGEI at an initial price of 95.222% (original issue discount
4.778%) of the principal amount. The net proceeds, after deducting discounts, fees paid to the
initial purchaser, and all transaction costs (including accrued legal, accounting and other
professional fees) from the sale of the Senior Notes was approximately $214.3 million, which was
used by LGEI to repay a portion of its outstanding debt under its senior revolving credit facility.
The original issue discount, interest and deferred financing costs are being amortized through
November 1, 2016 using the effective interest method.
The Senior Notes pay interest semi-annually on May 1 and November 1 of each year at a rate of
10.25% per year and mature on November 1, 2016.
The Senior Notes are guaranteed on a senior secured basis by the Company, and certain
wholly-owned subsidiaries of both the Company and LGEI. The Senior Notes are ranked junior in right
of payment to the Companys senior revolving credit facility, ranked equally in right of payment to
the Companys subordinated notes, and ranked senior to any of the Companys unsecured debt.
The Senior Notes contain certain restrictions and covenants that, subject to certain
exceptions, limit our ability to incur additional indebtedness, pay dividends or repurchase the
Companys common shares, make certain loans or investments, and sell or otherwise dispose of
certain assets subject to certain conditions, among other limitations.
16
9. Participations and Residuals
The Company expects approximately 81% of accrued participations and residuals will be paid
during the one-year period ending June 30, 2011.
Theatrical Slate Participation
On May 29, 2009, we terminated our theatrical slate participation arrangement with Pride
Pictures, LLC (Pride), an unrelated entity. The arrangement was evidenced by, among other
documents, that certain Master Covered Picture Purchase Agreement (the Master Picture Purchase
Agreement) between us and LG Film Finance I, LLC (FilmCo) and that certain Limited Liability
Company Agreement (the FilmCo Operating Agreement) for FilmCo by and between LGEI and Pride, each
dated as of May 25, 2007 and amended on January 30, 2008. Under the arrangement, Pride contributed,
in general, 50% of our production, acquisition, marketing and distribution costs of theatrical
feature films and participated in a pro rata portion of the pictures net profits or losses similar
to a co-production arrangement based on the portion of costs funded. In late 2008, the
administrative agent for the senior lenders under Prides senior credit facility took the position,
among others, that the senior lenders did not have an obligation to continue to fund under the
senior credit facility because the conditions precedent to funding set forth in the senior credit
facility could not be satisfied. We were not a party to the credit facility. Consequently, Pride
did not purchase the pictures The Spirit, My Bloody Valentine 3-D and Madea Goes To Jail.
Thereafter, on April 20, 2009, after failed attempts by us to facilitate a resolution, we gave
FilmCo and Pride notice that FilmCo, through Prides failure to make certain capital contributions,
was in default of the Master Picture Purchase Agreement. On May 5, 2009, the representative for the
Pride equity and the Pride mezzanine investor responded that the required amount was fully funded
and that it had no further obligations to make any additional capital contributions. Consequently,
on May 29, 2009, we gave notice of termination of the Master Picture Purchase Agreement. Since May
29, 2009, there have been no developments with respect to the arrangement. We will no longer
receive financing as provided from the participation of Pride in our films.
Amounts provided from Pride are reflected as a participation liability. The difference between
the ultimate participation expected to be paid to Pride and the amount provided by Pride is
amortized as a charge to or a reduction of participation expense under the individual-film-forecast
method.
At June 30, 2010, $21.7 million (March 31, 2010, $24.1 million) was payable to Pride and is
included in participations and residuals in the unaudited condensed consolidated balance sheets.
Société Générale de Financement du Québec Filmed Entertainment Participation
On July 30, 2007, the Company entered into a four-year filmed entertainment slate
participation agreement with Société Générale de Financement du Québec (SGF), the Québec
provincial governments investment arm. SGF will provide up to 35% of production costs of
television and feature film productions produced in Québec for a four-year period for an aggregate
participation of up to $140 million, and the Company will advance all amounts necessary to fund the
remaining budgeted costs. The maximum aggregate of budgeted costs over the four-year period will be
$400 million, including the 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 productions after the Company deducts a distribution fee, recoups all distribution
expenses and releasing costs, and pays all applicable third party participations and residuals.
Amounts provided from SGF are reflected as a participation liability. The difference between
the ultimate participation expected to be paid to SGF and the amount provided by SGF is amortized
as a charge to or a reduction of participation expense under the individual film forecast method.
At June 30, 2010, $2.2 million (March 31, 2010, $7.2 million) was payable to SGF and is included in
participations and residuals in the unaudited condensed consolidated balance sheets. Under the
terms of the arrangement, $35 million was available through July 30, 2010 and $35 million is
available during the twelve-month period ending July 30, 2011. Of the $35.0
million available through July 30, 2010, $1.4 million was provided through June 30, 2010 and an
additional $2.4 million was provided through July 2010, with the remaining commitment expiring on
July 30, 2010.
10. Film Obligations and Production Loans
17
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
March 31, |
|
|
|
2010 |
|
|
2010 |
|
|
|
(Amounts in thousands) |
|
Film obligations |
|
$ |
40,794 |
|
|
$ |
40,267 |
|
Production loans |
|
|
|
|
|
|
|
|
Individual production loans |
|
|
140,492 |
|
|
|
210,021 |
|
Pennsylvania Regional Center production loans |
|
|
65,994 |
|
|
|
65,746 |
|
Film Credit Facility |
|
|
38,434 |
|
|
|
35,735 |
|
|
|
|
|
|
|
|
Total film obligations and production loans |
|
|
285,714 |
|
|
|
351,769 |
|
Less film obligations and production loans expected to be paid within nine months |
|
|
(158,137 |
) |
|
|
(227,100 |
) |
|
|
|
|
|
|
|
Film obligations and production loans expected to be paid after nine months |
|
$ |
127,577 |
|
|
$ |
124,669 |
|
|
|
|
|
|
|
|
The following table sets forth future nine-month and annual repayment of film obligations
and production loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
|
|
|
Ended |
|
|
|
|
|
|
March 31, |
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
Thereafter |
|
|
Total |
|
|
|
(Amounts in thousands) |
Future annual repayment of Film Obligations and Production Loans
recorded as of June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film obligations |
|
$ |
40,794 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
40,794 |
|
Production loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual production loans |
|
|
86,101 |
|
|
|
39,391 |
|
|
|
|
|
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
140,492 |
|
Pennsylvania Regional Center production loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,994 |
|
|
|
|
|
|
|
|
|
|
|
65,994 |
|
Film Credit Facility |
|
|
31,242 |
|
|
|
7,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
158,137 |
|
|
$ |
46,583 |
|
|
$ |
|
|
|
$ |
80,994 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
285,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film Obligations
Film obligations include minimum guarantees, which represent amounts payable for film rights
that the Company has acquired and certain theatrical marketing obligations, which represent amounts
received from third parties that are contractually committed for theatrical marketing expenditures
associated with specific titles.
Individual Production Loans
Production loans represent individual loans for the production of film and television programs
that the Company produces. Individual production loans have contractual repayment dates either at
or near the expected completion date, with the exception of certain loans containing repayment
dates on a longer term basis. Individual production loans of $73.5 million incur interest at rates
ranging from 2.20% to 4.16%, and approximately $67.0 million of production loans are non-interest
bearing.
Pennsylvania Regional Center
On April 9, 2008, the Company entered into a loan agreement with the Pennsylvania Regional
Center, which provides for the availability of production loans up to $66,500,000 on a five-year
term for use in film and television productions in the State of Pennsylvania. The amount that was
borrowed was limited to approximately one half of the qualified production costs incurred in the
State of Pennsylvania through the two-year period ended April 2010, and is subject to certain other
limitations. Under the terms of the loan, for every dollar borrowed, the Companys production
companies are required (within a two-year period) to either create a specified number of jobs, or
spend a specified amount in certain geographic regions in the State of Pennsylvania. Amounts
borrowed under the agreement carry an interest rate of 1.5%, which is payable semi-annually, and
the principal amount is due on the five-year anniversary date of the first borrowing under the
agreement (i.e., April 2013). The loan is secured by a first priority security interest in the
Companys film library pursuant to an intercreditor agreement with the Companys senior lender
under the Companys senior revolving credit facility. Pursuant to the terms of the Companys senior
revolving credit facility, the Company is required to maintain certain collateral equal to the
loans outstanding plus 5% under this facility. Such collateral can consist of cash, cash
equivalents or debt securities, including the Companys subordinated debt repurchased. As of June
30, 2010, $72.8 million principal value (fair value $70.7 million) of the Companys subordinated
debt repurchased in December 2009 (see Note 11) was held as collateral under the Companys senior
revolving credit facility (March 31, 2010 $72.8 million principal value, $69.5 million fair
value).
18
All amounts borrowed under this loan agreement with the Pennsylvania Regional Center are due
April 11, 2013, five years from the date that the Company began to borrow under this agreement.
Film Credit Facility
On October 6, 2009, the Company, entered into a revolving film credit facility agreement, as
amended effective December 31, 2009 (the Film Credit Facility), which provides for borrowings for
the acquisition or production of motion pictures. Currently, the Film Credit Facility provides for
total borrowings up to $120 million and can be increased to $200 million if additional lenders or
financial institutions become a party to and provide a commitment under the facility. The Film
Credit Facility has a maturity date of April 6, 2013 and as of June 30, 2010, bore interest of
3.25% over the LIBO rate (as defined in the credit agreement effective interest rate of 3.60%
and 3.50% as of June 30, 2010 and March 31, 2010, respectively). The Company is required to pay a
quarterly commitment fee of 0.75% per annum on the unused commitment under the Film Credit
Facility. Borrowings under the Film Credit Facility are due the earlier of (a) nine months after
delivery of each motion picture or (b) April 6, 2013. Borrowings under the Film Credit Facility are
subject to a borrowing base calculation and are secured by interests in the related motion
pictures, together with certain other receivables from other motion picture and television
productions pledged by the Company, including a minimum pledge of such receivables of $25 million.
Receivables pledged to the Film Credit Facility must be excluded from the borrowing base
calculation under the Companys senior revolving credit facility as described in Note 7. At June
30, 2010, the Company had borrowings of $38.4 million (March 31, 2010 $35.7 million) and $81.6
million remains available under the Film Credit Facility (March 31, 2010 $84.3 million).
11. Subordinated Notes and Other Financing Obligations
The following table sets forth the subordinated notes and other financing obligations
outstanding at June 30, 2010 and March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
March 31, |
|
|
|
2010 |
|
|
2010 |
|
|
|
(Amounts in thousands) |
|
October 2004 2.9375% Convertible Senior Subordinated Notes |
|
$ |
101,076 |
|
|
$ |
99,471 |
|
February 2005 3.625% Convertible Senior Subordinated Notes |
|
|
53,470 |
|
|
|
52,675 |
|
April 2009 3.625% Convertible Senior Subordinated Notes |
|
|
37,157 |
|
|
|
36,172 |
|
Other financing obligations |
|
|
3,718 |
|
|
|
3,718 |
|
|
|
|
|
|
|
|
|
|
$ |
195,421 |
|
|
$ |
192,036 |
|
|
|
|
|
|
|
|
Subordinated Notes
19
Carrying Value. The following table sets forth the equity and liability components of the
Companys subordinated notes outstanding as of June 30, 2010 and March 31, 2010 as fully described
below:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
March 31, |
|
|
|
2010 |
|
|
2010 |
|
|
|
(Amounts in thousands) |
|
October 2004 2.9375% Convertible Senior Subordinated Notes: |
|
|
|
|
|
|
|
|
Carrying amount of equity component |
|
$ |
48,080 |
|
|
$ |
48,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount of liability component |
|
|
|
|
|
|
|
|
Principal amount of October 2004 2.9375% Notes |
|
$ |
110,035 |
|
|
$ |
110,035 |
|
Unamortized
discount (remaining period of 1.5 and 1.8 years, respectively) |
|
|
(8,959 |
) |
|
|
(10,564 |
) |
|
|
|
|
|
|
|
Net carrying amount of October 2004 2.9375% Notes |
|
$ |
101,076 |
|
|
$ |
99,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2005 3.625% Convertible Senior Subordinated Notes: |
|
|
|
|
|
|
|
|
Carrying amount of equity component |
|
$ |
50,855 |
|
|
$ |
50,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount of liability component |
|
|
|
|
|
|
|
|
Principal amount of February 3.625% Notes |
|
$ |
59,479 |
|
|
$ |
59,479 |
|
Unamortized
discount (remaining period of 1.8 and 2.0 years, respectively) |
|
|
(6,009 |
) |
|
|
(6,804 |
) |
|
|
|
|
|
|
|
Net carrying amount of February 2005 3.625% Notes |
|
$ |
53,470 |
|
|
$ |
52,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2009 3.625% Convertible Senior Subordinated Notes: |
|
|
|
|
|
|
|
|
Carrying amount of equity component |
|
$ |
16,085 |
|
|
$ |
16,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount of liability component |
|
|
|
|
|
|
|
|
Principal amount of April 2009 3.625% Notes |
|
$ |
66,581 |
|
|
$ |
66,581 |
|
Unamortized
discount (remaining period of 4.8 and 5.0 years) |
|
|
(29,424 |
) |
|
|
(30,409 |
) |
|
|
|
|
|
|
|
Net carrying amount of April 2009 3.625% Notes |
|
$ |
37,157 |
|
|
$ |
36,172 |
|
|
|
|
|
|
|
|
Interest Expense. The effective interest rate on the liability component and the amount
of interest expense, which includes both the contractual interest coupon and amortization of the
discount on the liability component, for the three months ended June 30, 2010 and 2009 are
presented below.
20
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Amounts in thousands) |
|
October 2004 2.9375% Convertible Senior Subordinated Notes: |
|
|
|
|
|
|
|
|
Effective interest rate of liability component (9.65%) |
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
Contractual interest coupon |
|
$ |
808 |
|
|
$ |
1,102 |
|
Amortization of discount on liability component |
|
|
1,605 |
|
|
|
1,985 |
|
Amortization of debt issuance costs |
|
|
112 |
|
|
|
127 |
|
|
|
|
|
|
|
|
|
|
$ |
2,525 |
|
|
$ |
3,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2005 3.625% Convertible Senior Subordinated Notes: |
|
|
|
|
|
|
|
|
Effective interest rate of liability component (10.03%) |
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
Contractual interest coupon |
|
$ |
539 |
|
|
$ |
1,028 |
|
Amortization of discount on liability component |
|
|
795 |
|
|
|
1,373 |
|
Amortization of debt issuance costs |
|
|
57 |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
$ |
1,391 |
|
|
$ |
2,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2009 3.625% Convertible Senior Subordinated Notes: |
|
|
|
|
|
|
|
|
Effective interest rate of liability component (17.26%) |
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
Contractual interest coupon |
|
$ |
603 |
|
|
$ |
476 |
|
Amortization of discount on liability component |
|
|
984 |
|
|
|
637 |
|
Amortization of debt issuance costs |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,590 |
|
|
$ |
1,113 |
|
|
|
|
|
|
|
|
October 2004 2.9375% Notes. In October 2004, LGEI sold $150.0 million of 2.9375%
Convertible Senior Subordinated Notes (the October 2004 2.9375% Notes).
Outstanding Amount: As of June 30, 2010, $110.0 million of aggregate principal amount
(carrying value $101.1 million) of the October 2004 2.9375% Notes remain outstanding. On July
20, 2010 the Company entered into a Refinancing Exchange Agreement to exchange $63.7 million in
aggregate principal amount of the October 2004 2.9375% Notes (see Note 22). Following the
refinancing exchange on July 20, 2010 $46.3 million of aggregate principal amount remains
outstanding.
Interest: Interest on the October 2004 2.9375% Notes is payable semi-annually on April 15 and
October 15.
Maturity Date: The October 2004 2.9375% Notes mature on October 15, 2024.
Redeemable by LGEI: From October 15, 2009 to October 14, 2010, LGEI may redeem the October
2004 2.9375% Notes at 100.839%; from October 15, 2010 to October 14, 2011, LGEI may redeem the
October 2004 2.9375% Notes at 100.420%; and thereafter, LGEI may redeem the October 2004 2.9375%
Notes at 100%.
Redeemable by Holder: The holder may require LGEI to repurchase the October 2004 2.9375%
Notes on October 15, 2011, 2014 and 2019 or upon a change in control at a price equal to 100% of
the principal amount, together with accrued and unpaid interest through the date of repurchase.
Conversion Features: The holder may convert the October 2004 2.9375% Notes into the
Companys common shares prior to maturity only if the price of the Companys common shares
issuable upon conversion of a note reaches or falls below a certain specific threshold over a
specified period, the notes have been called for redemption, a change in control occurs or
certain other corporate transactions occur. Before the close of business on or prior to the
trading day immediately before the maturity date, the holder may convert the notes into the
Companys common shares at a conversion rate equal to 86.9565 shares per $1,000 principal amount
of the October 2004 2.9375% Notes, subject to adjustment in certain circumstances, which
represents a conversion price of approximately $11.50 per share. Upon conversion of the October
2004 2.9375% Notes, the Company has the option to deliver, in lieu of common shares, cash or a
combination of cash and common shares of the Company.
21
Make Whole Premium: Under certain circumstances, if the holder requires LGEI to repurchase
all or a portion of their notes or the holder converts the notes upon a change in control, they
will be entitled to receive a make whole premium. The amount of the make whole premium, if any,
will be based on the price of the Companys common shares on the effective date of the change in
control. No make whole premium will be paid if the price of the Companys common shares at such
time is less than $8.79 per share or exceeds $50.00 per share.
Transaction: In December 2009, LGEI paid $38.0 million to repurchase $40.0 million of
aggregate principal amount (carrying value $35.5 million) of the October 2004 2.9375% Notes
and recorded a loss on extinguishment of $0.8 million, which includes $0.3 million of deferred
financing costs written off. The loss represented the excess of the fair value of the liability
component of the October 2004 2.9375% Notes repurchased over their carrying value, plus the
deferred financing costs written off. The excess of the amount paid over the fair value of the
October 2004 2.9375% Notes repurchased was recorded as a reduction of shareholders equity
reflecting the repurchase of the equity component of the October 2004 2.9375% Notes repurchased.
The October 2004 2.9375% Notes repurchased in December 2009 are being held as collateral under
the Companys senior revolving credit facility and may be resold at the prevailing market value.
February 2005 3.625% Notes. In February 2005, LGEI sold $175.0 million of 3.625% Convertible
Senior Subordinated Notes (the February 2005 3.625% Notes).
Outstanding Amount: As of June 30, 2010, $59.5 million of aggregate principal amount
(carrying value $53.5 million) of the February 2005 3.625% Notes remain outstanding. On July
20, 2010 the Company entered into a Refinancing Exchange Agreement to exchange $36.0 million in
aggregate principal amount of the February 2005 3.625% Notes (see Note 22). Following the
refinancing exchange on July 20, 2010 $23.5 million of aggregate principal amount remains
outstanding.
Interest: Interest on the February 2005 3.625% Notes is payable at 3.625% per annum
semi-annually on March 15 and September 15 until March 15, 2012 and at 3.125% per annum
thereafter until maturity.
Maturity Date: The February 2005 3.625% Notes will mature on March 15, 2025.
Redeemable by LGEI: LGEI may redeem all or a portion of the February 2005 3.625% Notes at
its option on or after March 15, 2012 at 100% of their principal amount, together with accrued
and unpaid interest through the date of redemption.
Redeemable by Holder: The holder may require LGEI to repurchase the February 2005 3.625%
Notes on March 15, 2012, 2015 and 2020 or upon a change in control at a price equal to 100% of
the principal amount, together with accrued and unpaid interest through the date of repurchase.
Conversion Features: The February 2005 3.625% Notes are convertible, at the option of the
holder, at any time before the maturity date, if the notes have not been previously redeemed or
repurchased, at a conversion rate equal to 70.0133 shares per $1,000 principal amount of the
February 2005 3.625% Notes, subject to adjustment in certain circumstances, which represents a
conversion price of approximately $14.28 per share. Upon conversion of the February 2005 3.625%
Notes, the Company has the option to deliver, in lieu of common shares, cash or a combination of
cash and common shares of the Company.
Make Whole Premium: Under certain circumstances, if the holder requires LGEI to repurchase
all or a portion of their notes upon a change in control, they will be entitled to receive a make
whole premium. The amount of the make whole premium, if any, will be based on the price of the
Companys common shares on the effective date of the change in control. No make whole premium
will be paid if the price of the Companys common shares at such time is less than $10.35 per
share or exceeds $75.00 per share.
Transactions: The Company had the following transactions associated with its February 2005
3.625% Notes:
December 2008 Repurchase: In December 2008, LGEI paid $5.5 million to extinguish $9.0
million of aggregate principal amount (carrying value $7.4 million) of the February 2005
3.625% Notes and recorded a gain on extinguishment of $3.0 million, which includes $0.1 million
of deferred financing costs written off. The gain represented the excess of the carrying value of
the liability component of the February 2005 3.625% Notes repurchased over their fair value, net
of the deferred financing costs
22
written off. The excess of the amount paid to repurchase the February 2005 3.625% Notes over
the fair value of the February 2005 3.625% Notes repurchased was recorded as a reduction of
shareholders equity reflecting the repurchase of the equity component of the February 2005
3.625% Notes repurchased.
April 20, 2009 Refinancing Exchange Agreement: On April 20, 2009, LGEI entered into
Refinancing Exchange Agreements (the Refinancing Exchange Agreements) with certain existing
holders of the February 2005 3.625% Notes. Pursuant to the terms of the Refinancing Exchange
Agreements, holders of the February 2005 3.625% Notes exchanged approximately $66.6 million
aggregate principal amount of the February 2005 3.625% Notes for new 3.625% convertible senior
subordinated notes (the April 2009 3.625% Notes) in the same aggregate principal amount under a
new indenture entered into by LGEI, the Company, as guarantor, and an indenture trustee
thereunder. As a result of the exchange transaction, the Company recorded a gain on
extinguishment of debt of $7.5 million. The gain represented the difference between the fair
value of the liability component of the February 2005 3.625% Notes and their carrying value. The
excess of the fair value of both the equity and liability component of the April 2009 3.625%
Notes over the fair value of the February 2005 3.625% Notes of $3.9 million was recorded as a
reduction of shareholders equity reflecting the repurchase of the equity component of the
February 2005 3.625% Notes.
December 2009 Repurchase: In December 2009, LGEI paid $37.7 million to extinguish $39.9
million of aggregate principal amount (carrying value $35.0 million) of the February 2005
3.625% Notes and recorded a loss on extinguishment of $0.9 million, which includes $0.4 million
of deferred financing costs written off. The loss represented the excess of the fair value of the
liability component of the February 2005 3.625% Notes repurchased over their carrying value, plus
the deferred financing costs written off. The excess of the amount paid over the fair value of
the February 2005 3.625% Notes repurchased was recorded as a reduction of shareholders equity
reflecting the repurchase of the equity component of the February 2005 3.625% Notes repurchased.
The February 2005 3.625% Notes repurchased in December 2009 may be resold at the prevailing
market value. In addition, $32.9 million of aggregate principal amount of the February 2005
3.625% Notes repurchased are being held as collateral under the Companys senior revolving credit
facility.
April 2009 3.625% Notes. As discussed above, in April 2009, LGEI issued approximately $66.6
million of 3.625% Convertible Senior Subordinated Notes (the April 2009 3.625% Notes).
Outstanding Amount: As of June 30, 2010, $66.6 million of aggregate principal amount
(carrying value $37.2 million) of the April 2009 3.625% Notes remain outstanding.
Interest: Interest on the April 2009 3.625% Notes is payable at 3.625% per annum
semi-annually on March 15 and September 15 of each year.
Maturity Date: The April 2009 3.625% Notes will mature on March 15, 2025.
Redeemable by LGEI: On or after March 15, 2015, the Company may redeem the April 2009 3.625%
Notes, in whole or in part, at a price equal to 100% of the principal amount of the April 2009
3.625% Notes to be redeemed, plus accrued and unpaid interest through the date of redemption.
Redeemable by Holder: The holder may require LGEI to repurchase the April 2009 3.625% Notes
on March 15, 2015, 2018 and 2023 or upon a designated event, at a price equal to 100% of the
principal amount of the April 2009 3.625% Notes to be repurchased plus accrued and unpaid
interest.
Conversion Features: The April 2009 3.625% Notes may be converted into common shares of the
Company at any time before maturity, redemption or repurchase. The initial conversion rate of the
April 2009 3.625% Notes is 121.2121 common shares per $1,000 principal amount of the April 2009
3.625% Notes, subject to adjustment in certain circumstances, which represents a conversion price
of approximately $8.25 per share. Upon conversion of the April 2009 3.625% Notes, the Company has
the option to deliver, in lieu of common shares, cash or a combination of cash and common shares
of the Company.
Make Whole Premium: Under certain circumstances, if the holder requires LGEI to repurchase
all or a portion of their notes upon a change in control, they will be entitled to receive a make
whole premium. The amount of the make whole premium, if any,
23
will be based on the price of the Companys common shares on the effective date of the
change in control. No make whole premium will be paid if the price of the Companys common shares
at such time is less than $5.36 per share or exceeds $50.00 per share.
The following table sets forth future nine-month and annual contractual principal payment
commitments under convertible senior subordinated notes as of June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
|
|
|
Ended |
|
|
|
|
|
|
March 31, |
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
Thereafter |
|
|
Total |
|
|
|
(Amounts in thousands) |
Future annual repayment of Convertible Senior Subordinated Notes
recorded as of June 30, 2010 (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2004 2.9375% Notes (2) |
|
$ |
|
|
|
$ |
110,035 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
110,035 |
|
February 2005 3.625% Notes (3) |
|
|
|
|
|
|
59,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,479 |
|
April 2009 3.625% Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,581 |
|
|
|
|
|
|
|
66,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
169,514 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
66,581 |
|
|
$ |
|
|
|
$ |
236,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The future repayment dates of the convertible senior subordinated notes represent the
first redemption date by holder for each note respectively, as described above. |
|
(2) |
|
On July 20, 2010, $63.7 million of the October 2004 2.9375% Notes were converted into
10,373,240 of the Companys common shares (see Note 22). |
|
(3) |
|
On July 20, 2010, $36.0 million of the February 2005 3.675% Notes were converted into
5,863,065 of the Companys common shares (see Note 22). |
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.
12. Fair Value Measurements
Fair Value
Accounting guidance and standards about fair value define fair value as the price that would
be received from selling an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
Fair Value Hierarchy
Accounting guidance and standards about fair value establish a fair value hierarchy that
requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. A financial instruments categorization within the fair value
hierarchy is based upon the lowest level of input that is significant to the fair value
measurement. The accounting guidance and standards establish three levels of inputs that may be
used to measure fair value:
|
|
|
Level 1 Quoted prices in active markets for identical assets or liabilities. |
|
|
|
|
Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets with insufficient volume or infrequent
transactions (less active markets); or model-derived valuations in which all
significant inputs are observable or can be derived principally from or corroborated by
observable market data for substantially the full term of the assets or liabilities. Level 2
liabilities that are measured at fair value on a recurring basis include the |
24
|
|
|
Companys senior revolving credit facility and convertible senior subordinated notes,
both priced using discounted cash flow techniques that use observable market inputs, such as
LIBOR-based yield curves, three- and seven-year swap rates, and credit ratings. |
|
|
|
|
Level 3 Unobservable inputs to the valuation methodology that are significant to the
measurement of fair value of assets or liabilities. |
The following table sets forth the carrying values and fair values (all determined using Level
2 inputs defined above) of the Companys outstanding debt at June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
|
|
|
|
Value |
|
|
Fair Value |
|
|
|
|
|
|
|
(Level 2) |
|
|
|
(Amounts in thousands) |
|
Senior revolving credit facility |
|
$ |
199,000 |
|
|
$ |
199,000 |
|
October 2004 2.9375% Convertible Senior Subordinated
Notes |
|
|
101,076 |
|
|
|
107,480 |
|
February 2005 3.625% Convertible Senior Subordinated
Notes |
|
|
53,470 |
|
|
|
57,110 |
|
April 2009 3.625% Convertible Senior Subordinated Notes |
|
|
37,157 |
|
|
|
56,672 |
|
Senior Secured Second-Priority Notes |
|
|
225,453 |
|
|
|
234,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
616,156 |
|
|
$ |
654,492 |
|
|
|
|
|
|
|
|
13. Acquisitions and Divestitures
TV Guide Network
Acquisition of TV Guide Network. On February 28, 2009, the Company purchased all of the issued
and outstanding equity interests of TV Guide Network, a network and online provider of
entertainment and television guidance-related programming, as well as localized program listings
and descriptions primarily in the U.S. The Company paid approximately $241.6 million for all of the
equity interest of TV Guide Network, which included a capital lease obligation of $12.1 million,
and incurred approximately $1.5 million in direct transaction costs (legal fees, accountants fees
and other professional fees).
Sale of Non-Controlling Interest in TV Guide Network. On May 28, 2009, the Company entered
into a Purchase Agreement with OEP, the global private equity investment arm of JPMorgan Chase
Bank, N.A., pursuant to which OEP purchased 49% of the Companys interest in TV Guide Network for
approximately $122.4 million in cash. In addition, OEP reserved the option of buying another 1% of
TV Guide Network under certain circumstances. The arrangement contains joint control rights, as
evidenced in an operating agreement as well as certain transfer restrictions and exit rights. There
was no gain or loss on the transaction.
In exchange for the cash consideration, OEP received mandatorily redeemable preferred stock
units and common stock units representing its 49% interest in TV Guide Network. The Company also
received mandatorily redeemable preferred stock units and common stock units representing its 51%
ownership share. The mandatorily redeemable preferred stock carries a dividend rate of 10%
compounded annually and is mandatorily redeemable in May 2019 at the stated value plus the dividend
return and any additional capital contributions less previous distributions.
The February 28, 2009 acquisition was accounted for as a purchase, with the results of
operations of TV Guide Network included in the Companys consolidated results from February 28,
2009 through May 28, 2009 when a portion of the entity was sold. Subsequent to the sale of TV
Guide, and pursuant to the new accounting guidance effective April 1, 2010, which the Company has
retrospectively applied, the Companys interest in TV Guide Network is being accounted for under
the equity method of accounting (see Note 5).
The final allocation of the February 28, 2009 acquisition purchase price to the assets
acquired and liabilities assumed was recorded in the separate financial statements of TV Guide
Network and was as follows:
25
|
|
|
|
|
|
|
Allocation |
|
|
|
(Amounts in |
|
|
|
thousands) |
|
Accounts receivable, net |
|
$ |
14,505 |
|
Property and equipment |
|
|
26,649 |
|
Other assets acquired |
|
|
1,831 |
|
Finite-lived intangible assets: |
|
|
|
|
Customer relationships |
|
|
66,340 |
|
Trademarks/trade names |
|
|
10,250 |
|
Internal Use Software |
|
|
2,200 |
|
Prepaid Patent License Agreements |
|
|
1,510 |
|
Goodwill |
|
|
152,599 |
|
Other liabilities assumed |
|
|
(32,775 |
) |
|
|
|
|
Total purchase price including transaction costs |
|
$ |
243,109 |
|
|
|
|
|
Acquisition of Mandate Pictures, LLC
On September 10, 2007, the Company purchased all of the membership interests in Mandate
Pictures, LLC, (Mandate), a worldwide independent film producer and distributor. The Company paid
approximately $58.6 million, comprised of $46.8 million in cash and 1,282,999 of the Companys
common shares. The value assigned to the shares for purposes of recording the acquisition was $11.8
million and was based on the average price of the Companys common shares a few days prior and
subsequent to the date of the closing of the acquisition, which is when it was publicly announced.
In addition, the Company may be obligated to pay additional amounts pursuant to the purchase
agreement should certain films or derivative works meet certain target performance thresholds. Such
amounts, to the extent they relate to films or derivative works of films identified at the
acquisition date will be charged to goodwill if the target thresholds are achieved, and such
amounts, to the extent they relate to other qualifying films produced in the future, will be
accounted for similar to other film participation arrangements. The amount to be paid is the excess
of the sum of the following amounts over the performance threshold (i.e., the Hurdle Amount):
|
|
|
80% of the earnings of certain films for the longer of 5 years from the closing or 5
years from the release of the pictures, plus |
|
|
|
|
20% of the earnings of certain pictures which commence principal photography within 5
years from the closing date for a period up to 10 years, plus |
|
|
|
|
certain fees designated for derivative works which commence principal photography within
7 years of the initial release of the original picture. |
The Hurdle Amount is the purchase price of approximately $56 million plus an interest cost
accruing until such hurdle is reached, and certain other costs the Company agreed to pay in
connection with the acquisition. Accordingly, the additional consideration is the total of the
above in excess of the Hurdle Amount. As of June 30, 2010, the total earnings and fees from
identified projects in process are not projected to reach the Hurdle Amount. However, as additional
projects are identified in the future and current projects are released in the market place, the
total projected earnings and fees from these projects could increase causing additional payments to
the sellers to become payable.
Acquisition of Debmar-Mercury, LLC
On July 3, 2006, the Company acquired all of the capital stock of Debmar-Mercury, LLC
(Debmar-Mercury), a leading syndicator of film and television packages. Consideration for the
Debmar-Mercury acquisition was $27.0 million, comprised of a combination of $24.5 million in cash
paid on July 3, 2006 and $2.5 million in common shares of the Company issued in January 2008,
and assumed liabilities of $10.5 million. Goodwill of $8.7 million represents the excess of
the purchase price over the fair value of the net identifiable tangible and intangible assets
acquired.
26
The purchase agreement provided for additional purchase consideration if the aggregate
earnings before interest, taxes, depreciation and amortization adjusted to add back 20% of the
overhead expense (Adjusted EBITDA) of Debmar-Mercury exceeded certain thresholds. In March 2010,
the Company negotiated the buy-out of this potential additional purchase consideration for $15
million. This amount was recorded as an addition to goodwill in March 2010. In connection with this
buy-out, the Company extended certain employment contracts which provides for certain contractual
bonuses, as defined.
14. Direct Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Amounts in thousands) |
|
Amortization of films and television programs |
|
$ |
101,211 |
|
|
$ |
151,163 |
|
Participations and residual expense |
|
|
56,375 |
|
|
|
57,103 |
|
Other expenses: |
|
|
|
|
|
|
|
|
Provision for doubtful accounts |
|
|
316 |
|
|
|
2,063 |
|
Foreign exchange losses (gains) |
|
|
(321 |
) |
|
|
200 |
|
|
|
|
|
|
|
|
|
|
$ |
157,581 |
|
|
$ |
210,529 |
|
|
|
|
|
|
|
|
15. Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Amounts in thousands) |
|
Net Income (loss) |
|
$ |
(64,068 |
) |
|
$ |
36,349 |
|
Add (Deduct): Foreign currency translation adjustments |
|
|
(2,047 |
) |
|
|
5,009 |
|
Deduct: Net unrealized loss on foreign exchange contracts |
|
|
(830 |
) |
|
|
(29 |
) |
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
(66,945 |
) |
|
$ |
41,329 |
|
|
|
|
|
|
|
|
16. Net Income (Loss) Per Share
Basic net income (loss) per share is calculated based on the weighted average common shares
outstanding for the period. Basic net income (loss) per share for the three months ended June 30,
2010 and 2009 is presented below:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Amounts in thousands) |
|
Basic Net Income (Loss) Per Common Share: |
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(64,068 |
) |
|
$ |
36,349 |
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
118,226 |
|
|
|
117,073 |
|
|
|
|
|
|
|
|
Basic Net Income (Loss) Per Common Share |
|
$ |
(0.54 |
) |
|
$ |
0.31 |
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share reflects the potential dilutive effect, if
any, of the conversion of the October 2004 2.9375% Notes, the February 2005 3.625% Notes and the
April 2009 3.625% Notes under the if converted method. Diluted net income (loss) per common share
also reflects share purchase options and restricted share units using the treasury stock method
when
27
dilutive, and any contingently issuable shares when dilutive. Diluted net income (loss) per
common share for the three months ended June 30, 2010 and 2009 is presented below:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Amounts in thousands) |
|
Diluted Net Income (Loss) Per Common Share: |
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(64,068 |
) |
|
$ |
36,349 |
|
|
|
|
|
|
|
|
Add: |
|
|
|
|
|
|
|
|
Interest on convertible Notes, net of tax |
|
|
|
|
|
|
3,990 |
|
Amortization of deferred financing costs, net of tax |
|
|
|
|
|
|
121 |
|
|
|
|
|
|
|
|
Numerator for Diluted Net Income (Loss) Per Common Share |
|
$ |
(64,068 |
) |
|
$ |
40,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
118,226 |
|
|
|
117,073 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Conversion of Notes |
|
|
|
|
|
|
19,428 |
|
Restricted share units |
|
|
|
|
|
|
94 |
|
|
|
|
|
|
|
|
Adjusted weighted average common shares outstanding |
|
|
118,226 |
|
|
|
136,595 |
|
|
|
|
|
|
|
|
Diluted Net Income (Loss) Per Common Share |
|
$ |
(0.54 |
) |
|
$ |
0.30 |
|
|
|
|
|
|
|
|
For the three months ended June 30, 2010, the weighted average incremental common shares
calculated under the if converted and treasury stock method presented below were excluded from
diluted net loss per common share for the period because their inclusion would have had
an anti-dilutive effect as a result of the reported net loss.
|
|
|
|
|
|
|
Three Months |
|
|
Ended |
|
|
June 30, |
|
|
2010 |
|
|
(Amounts in thousands) |
Incremental shares |
|
|
|
|
Conversion of Notes |
|
|
21,802 |
|
Restricted share units |
|
|
1,667 |
|
|
|
|
|
|
Total incremental shares excluded from Diluted Net loss Per Common Share |
|
|
23,469 |
|
|
|
|
|
|
Additionally, for the three months ended June 30, 2010 and 2009, the weighted average
common shares issuable presented below were excluded from diluted net income (loss) per common
share because their inclusion would have had an anti-dilutive effect due to the terms of the award
or the Notes or the market price of common shares.
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Amounts in thousands) |
|
Anti-dilutive shares issuable |
|
|
|
|
|
|
|
|
Conversion of Notes |
|
|
|
|
|
|
7,934 |
|
Share purchase options |
|
|
3,331 |
|
|
|
3,949 |
|
Restricted share units |
|
|
216 |
|
|
|
1,598 |
|
Contingently issuable shares |
|
|
180 |
|
|
|
653 |
|
|
|
|
|
|
|
|
Total weighted average anti-dilutive shares issuable excluded from Diluted
Net Income (Loss) Per Common Share |
|
|
3,727 |
|
|
|
14,134 |
|
|
|
|
|
|
|
|
The Company had 500,000,000 authorized common shares at June 30, 2010 and March 31, 2010.
The table below outlines common shares reserved for future issuance:
28
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
March 31, |
|
|
2010 |
|
2010 |
|
|
(Amounts in thousands) |
Stock options outstanding, average exercise price $9.75 (March 31, 2010 - $9.75 ) |
|
|
3,310 |
|
|
|
3,360 |
|
Restricted share units unvested |
|
|
1,828 |
|
|
|
3,416 |
|
Share purchase options and restricted share units available for future issuance |
|
|
4,266 |
|
|
|
3,717 |
|
Shares issuable upon conversion of October 2004 2.9375% Notes at conversion price of $11.50 per share |
|
|
9,568 |
|
|
|
9,568 |
|
Shares issuable upon conversion of February 2005 3.625% Notes at conversion price of $14.28 per share |
|
|
4,164 |
|
|
|
4,164 |
|
Shares issuable upon conversion of April 2009 3.625% Notes at conversion price of $8.25 per share |
|
|
8,070 |
|
|
|
8,070 |
|
|
|
|
|
|
|
|
|
|
Shares reserved for future issuance |
|
|
31,206 |
|
|
|
32,295 |
|
|
|
|
|
|
|
|
|
|
17. Accounting for Stock-Based Compensation
The Company recognized the following share-based compensation expense (benefit) during the
three months ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Amounts in thousands) |
|
Compensation Expense (Benefit): |
|
|
|
|
|
|
|
|
Stock Options |
|
$ |
2,527 |
|
|
$ |
805 |
|
Restricted Share Units and Other Share-based Compensation |
|
|
19,669 |
|
|
|
2,924 |
|
Stock Appreciation Rights |
|
|
5,062 |
|
|
|
266 |
|
|
|
|
|
|
|
|
Total |
|
$ |
27,258 |
|
|
$ |
3,995 |
|
|
|
|
|
|
|
|
On June 30, 2010, certain unvested equity awards of certain executive officers
immediately vested as a result of the triggering of change in control provisions in their
respective employment agreements. For purposes of the employment agreements with such executive
officers, a change in control occurred on June 30, 2010 when a certain shareholder became the
beneficial owner of 33% or more of the Companys common shares. As a result, the Company recognized
$21.9 million in additional compensation expense, which is included in the table above.
There was no income tax benefit recognized in the statements of operations for share-based
compensation arrangements during the three months ended June 30, 2010 and 2009.
During the three months ended June 30, 2010, the Company granted 1,940,357 restricted share
units at a weighted average grant date fair value of $6.91, of which 960,714 restricted share units
became fully vested upon change in control as discussed above.
Total unrecognized compensation cost related to unvested stock options and restricted share
unit awards at June 30, 2010 are $0.3 million and $8.0 million, respectively, and are expected to
be recognized over a weighted average period of 1.1 and 1.8 years, respectively.
29
Stock Appreciation Rights
The Company has the following stock appreciation rights (SARs) outstanding as of June 30,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date |
|
|
July 14, 2008 |
|
August 14, 2008 |
|
February 5, 2009 |
|
April 6, 2009 |
|
March 17, 2010 |
SARs outstanding |
|
|
750,000 |
|
|
|
250,000 |
|
|
|
850,000 |
|
|
|
700,000 |
|
|
|
500,000 |
|
Vested and exercisable |
|
|
750,000 |
|
|
|
187,500 |
|
|
|
850,000 |
|
|
|
700,000 |
|
|
|
500,000 |
|
Exercise price |
|
$ |
9.56 |
|
|
$ |
11.16 |
|
|
$ |
5.45 |
|
|
$ |
5.17 |
|
|
$ |
5.95 |
|
Original vesting period (see below) |
|
3 years |
|
4 years |
|
3 years |
|
4 years |
|
4 years |
Expiration date |
|
July 14, 2013 |
|
June 20, 2012 |
|
February 5, 2014 |
|
April 6, 2014 |
|
March 17, 2015 |
Fair value as of June 30, 2010 |
|
$ |
1.48 |
|
|
$ |
0.74 |
|
|
$ |
3.02 |
|
|
$ |
3.19 |
|
|
$ |
3.16 |
|
Liability as of June 30, 2010 (in thousands) |
|
$ |
1,113 |
|
|
$ |
186 |
|
|
$ |
2,570 |
|
|
$ |
2,236 |
|
|
$ |
1,578 |
|
On June 30, 2010, all SARs, with the exception of SARs granted on July 14, 2008 and
August 14, 2008 listed above, became fully vested due to the triggering of change in control
provisions in certain executive officer employment agreements.
SARs require that upon their exercise, the Company pay the holder the excess of the market
value of the Companys common stock at that time over the exercise price of the SAR multiplied by
the number of SARs exercised. SARs can be exercised at any time subsequent to vesting and prior to
expiration. The fair value of all unexercised SARs are determined at each reporting period under a
Black-Scholes option pricing methodology based on the inputs in the table below and are recorded as
a liability over the vesting period. With the exception of SARs granted on July 14, 2008, the fair
value of SARs is expensed on a pro rata basis over the vesting period or service period, if
shorter. Changes in the fair value of vested SARs are expensed in the period of change. SARs
granted on July 14, 2008 were granted to a third party producer and vest in 250,000 SAR increments
over a three-year period based on the commencement of principal photography of certain films.
Accordingly, the pro rata portion of the fair value of SARs are recorded as part of the cost of the
related films until commencement of principal photography of the motion picture (i.e., vesting)
with subsequent changes in the fair value of SARs recorded to expense.
For the three months ended June 30, 2010, the following assumptions were used in the
Black-Scholes option-pricing model:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date |
|
|
July 14, 2008 |
|
August 14, 2008 |
|
February 5, 2009 |
|
April 6, 2009 |
|
March 17, 2010 |
Risk-free interest rate |
|
|
1.0 |
% |
|
|
0.6 |
% |
|
|
1.4 |
% |
|
|
1.4 |
% |
|
|
1.8 |
% |
Expected option lives (in years) |
|
3.0 years |
|
2.0 years |
|
3.6 years |
|
3.8 years |
|
4.7 years |
Expected volatility for options |
|
|
45 |
% |
|
|
45 |
% |
|
|
45 |
% |
|
|
45 |
% |
|
|
45 |
% |
Expected dividend yield |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
18. Segment Information
Accounting guidance and standards require 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 as of June
30, 2010: Motion Pictures and Television Production. The Media Networks segment has been
reclassified to the equity interest line item from May 28, 2009, the date of sale of the 49%
interest in TV Guide Network, as a result of the new accounting standard adopted on April 1, 2010
and retrospectively applied (see Note 1).
Motion Pictures consists of the development and production of feature films, acquisition of
North American and worldwide distribution rights, North American theatrical, home entertainment and
television distribution of feature films produced and acquired, and worldwide licensing of
distribution rights to feature films produced and acquired.
30
Television Production consists of the development, production and worldwide distribution of
television productions including television series, television movies and mini-series and
non-fiction programming.
Segmented information by business unit is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Amounts in thousands) |
|
Segment revenues |
|
|
|
|
|
|
|
|
Motion Pictures |
|
$ |
272,713 |
|
|
$ |
272,728 |
|
Television Production |
|
|
53,871 |
|
|
|
87,221 |
|
Media Networks (April 1, 2009 thru May 27, 2009) |
|
|
|
|
|
|
19,275 |
|
|
|
|
|
|
|
|
|
|
$ |
326,584 |
|
|
$ |
379,224 |
|
|
|
|
|
|
|
|
Direct operating expenses |
|
|
|
|
|
|
|
|
Motion Pictures |
|
$ |
114,235 |
|
|
$ |
131,979 |
|
Television Production |
|
|
43,346 |
|
|
|
71,127 |
|
Media Networks (April 1, 2009 thru May 27, 2009) |
|
|
|
|
|
|
7,423 |
|
|
|
|
|
|
|
|
|
|
$ |
157,581 |
|
|
$ |
210,529 |
|
|
|
|
|
|
|
|
Distribution and marketing |
|
|
|
|
|
|
|
|
Motion Pictures |
|
$ |
135,514 |
|
|
$ |
74,837 |
|
Television Production |
|
|
4,545 |
|
|
|
7,130 |
|
Media Networks (April 1, 2009 thru May 27, 2009) |
|
|
|
|
|
|
2,008 |
|
|
|
|
|
|
|
|
|
|
$ |
140,059 |
|
|
$ |
83,975 |
|
|
|
|
|
|
|
|
Segment contribution before general and administration expenses |
|
|
|
|
|
|
|
|
Motion Pictures |
|
$ |
22,964 |
|
|
$ |
65,912 |
|
Television Production |
|
|
5,980 |
|
|
|
8,964 |
|
Media Networks (April 1, 2009 thru May 27, 2009) |
|
|
|
|
|
|
9,844 |
|
|
|
|
|
|
|
|
|
|
$ |
28,944 |
|
|
$ |
84,720 |
|
|
|
|
|
|
|
|
General and administration |
|
|
|
|
|
|
|
|
Motion Pictures |
|
$ |
11,610 |
|
|
$ |
11,482 |
|
Television Production |
|
|
3,074 |
|
|
|
2,125 |
|
Media Networks (April 1, 2009 thru May 27, 2009) |
|
|
|
|
|
|
6,194 |
|
|
|
|
|
|
|
|
|
|
$ |
14,684 |
|
|
$ |
19,801 |
|
|
|
|
|
|
|
|
Segment profit |
|
|
|
|
|
|
|
|
Motion Pictures |
|
$ |
11,354 |
|
|
$ |
54,430 |
|
Television Production |
|
|
2,906 |
|
|
|
6,839 |
|
Media Networks (April 1, 2009 thru May 27, 2009) |
|
|
|
|
|
|
3,650 |
|
|
|
|
|
|
|
|
|
|
$ |
14,260 |
|
|
$ |
64,919 |
|
|
|
|
|
|
|
|
Acquisition of investment in films and television programs |
|
|
|
|
|
|
|
|
Motion Pictures |
|
$ |
107,072 |
|
|
$ |
151,149 |
|
Television Production |
|
|
58,833 |
|
|
|
56,055 |
|
Media Networks (April 1, 2009 thru May 27, 2009) |
|
|
|
|
|
|
6,371 |
|
|
|
|
|
|
|
|
|
|
$ |
165,905 |
|
|
$ |
213,575 |
|
|
|
|
|
|
|
|
Purchases of property and equipment amounted to $0.4 million and $1.8 million for the
three months ended June 30, 2010 and 2009, respectively, all primarily pertaining to purchases for
the Companys corporate headquarters for the three months ended June 30, 2010, and primarily
pertaining to purchases for Media Networks prior to the deconsolidation of TV Guide Network for the
three months ended June 30, 2009.
Segment contribution before general and administration expenses is defined as segment revenue
less segment direct operating and distribution and marketing expenses.
Segment profit is defined as segment revenue less segment direct operating, distribution and
marketing, and general and administration expenses. The reconciliation of total segment profit to
the Companys income (loss) before income taxes is as follows:
31
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Amounts in thousands) |
|
Companys total segment profit |
|
$ |
14,260 |
|
|
$ |
64,919 |
|
Less: |
|
|
|
|
|
|
|
|
Corporate general and administration |
|
|
(50,035 |
) |
|
|
(16,805 |
) |
Depreciation and amortization |
|
|
(1,603 |
) |
|
|
(6,656 |
) |
Interest expense |
|
|
(14,543 |
) |
|
|
(9,628 |
) |
Interest and other income |
|
|
387 |
|
|
|
423 |
|
Gain on extinguishment of debt |
|
|
|
|
|
|
7,458 |
|
Equity interests loss |
|
|
(11,707 |
) |
|
|
(2,027 |
) |
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
(63,241 |
) |
|
$ |
37,684 |
|
|
|
|
|
|
|
|
The following table sets forth significant assets as broken down by segment and other
unallocated assets as of June 30, 2010 and March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
March 31, 2010 |
|
|
|
Motion |
|
|
Television |
|
|
|
|
|
|
Motion |
|
|
Television |
|
|
|
|
|
|
Pictures |
|
|
Production |
|
|
Total |
|
|
Pictures |
|
|
Production |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands) |
|
|
|
|
|
|
|
|
|
Significant assets by segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
148,215 |
|
|
$ |
111,080 |
|
|
$ |
259,295 |
|
|
$ |
171,522 |
|
|
$ |
121,402 |
|
|
$ |
292,924 |
|
Investment in films
and television programs, net |
|
|
581,602 |
|
|
|
143,289 |
|
|
|
724,891 |
|
|
|
553,058 |
|
|
|
108,047 |
|
|
|
661,105 |
|
Goodwill |
|
|
210,293 |
|
|
|
28,961 |
|
|
|
239,254 |
|
|
|
210,293 |
|
|
|
28,961 |
|
|
|
239,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
940,110 |
|
|
$ |
283,330 |
|
|
$ |
1,223,440 |
|
|
$ |
934,873 |
|
|
$ |
258,410 |
|
|
$ |
1,193,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other unallocated assets (primarily cash, other
assets and equity method investments) |
|
|
|
|
|
|
|
|
|
|
369,434 |
|
|
|
|
|
|
|
|
|
|
|
333,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
$ |
1,592,874 |
|
|
|
|
|
|
|
|
|
|
$ |
1,527,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19. Contingencies
The Company is, from time to time, involved in various claims, legal proceedings and
complaints arising in the ordinary course of business. The Company does not believe that adverse
decisions in any such pending or threatened proceedings, or any amount which the Company might be
required to pay by reason thereof, would have a material adverse effect on the financial condition
or future results of the Company.
20. Consolidating Financial Information Subordinated Notes
The October 2004 2.9375% Notes, the February 2005 3.625% Notes and the April 2009 3.625%
Notes, by their terms, are fully and unconditionally guaranteed by the Company.
The following tables present unaudited condensed consolidating financial information as of
June 30, 2010 and March 31, 2010, and for the three months ended June 30, 2010 and 2009 for (1) the
Company, on a stand-alone basis, (2) LGEI, on a stand-alone basis, (3) the non-guarantor
subsidiaries of the Company (including the subsidiaries of LGEI), on a combined basis
(collectively, the Non-guarantor Subsidiaries) and (4) the Company, on a consolidated basis.
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010 |
|
|
|
Lions Gate |
|
|
Lions Gate |
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment |
|
|
Entertainment |
|
|
Non-guarantor |
|
|
Consolidating |
|
|
Lions Gate |
|
|
|
Corp. |
|
|
Inc. |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,034 |
|
|
$ |
8,852 |
|
|
$ |
68,682 |
|
|
$ |
|
|
|
$ |
78,568 |
|
Restricted cash |
|
|
16,634 |
|
|
|
7,626 |
|
|
|
|
|
|
|
|
|
|
|
24,260 |
|
Restricted investments |
|
|
|
|
|
|
6,993 |
|
|
|
|
|
|
|
|
|
|
|
6,993 |
|
Accounts receivable, net |
|
|
187 |
|
|
|
542 |
|
|
|
258,566 |
|
|
|
|
|
|
|
259,295 |
|
Investment in films and television programs, net |
|
|
2 |
|
|
|
6,391 |
|
|
|
717,616 |
|
|
|
882 |
|
|
|
724,891 |
|
Property and equipment, net |
|
|
|
|
|
|
10,601 |
|
|
|
1,004 |
|
|
|
|
|
|
|
11,605 |
|
Equity method investments |
|
|
989 |
|
|
|
18,451 |
|
|
|
171,012 |
|
|
|
|
|
|
|
190,452 |
|
Goodwill |
|
|
10,173 |
|
|
|
|
|
|
|
229,081 |
|
|
|
|
|
|
|
239,254 |
|
Other assets |
|
|
417 |
|
|
|
45,056 |
|
|
|
12,083 |
|
|
|
|
|
|
|
57,556 |
|
Subsidiary investments and advances |
|
|
(26,270 |
) |
|
|
54,971 |
|
|
|
(362,525 |
) |
|
|
333,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,166 |
|
|
$ |
159,483 |
|
|
$ |
1,095,519 |
|
|
$ |
334,706 |
|
|
$ |
1,592,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders
Equity (Deficiency) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior revolving credit facility |
|
$ |
|
|
|
$ |
199,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
199,000 |
|
Senior secured second-priority notes |
|
|
|
|
|
|
225,453 |
|
|
|
|
|
|
|
|
|
|
|
225,453 |
|
Accounts payable and accrued liabilities |
|
|
4,498 |
|
|
|
39,235 |
|
|
|
202,655 |
|
|
|
6 |
|
|
|
246,394 |
|
Participations and residuals |
|
|
178 |
|
|
|
8,044 |
|
|
|
278,212 |
|
|
|
(185 |
) |
|
|
286,249 |
|
Film obligations and production loans |
|
|
70 |
|
|
|
|
|
|
|
285,644 |
|
|
|
|
|
|
|
285,714 |
|
Subordinated notes and other financing obligations |
|
|
|
|
|
|
191,703 |
|
|
|
3,718 |
|
|
|
|
|
|
|
195,421 |
|
Deferred revenue |
|
|
|
|
|
|
213 |
|
|
|
156,010 |
|
|
|
|
|
|
|
156,223 |
|
Shareholders equity (deficiency) |
|
|
(1,580 |
) |
|
|
(504,165 |
) |
|
|
169,280 |
|
|
|
334,885 |
|
|
|
(1,580 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,166 |
|
|
$ |
159,483 |
|
|
$ |
1,095,519 |
|
|
$ |
334,706 |
|
|
$ |
1,592,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2010 |
|
|
|
Lions Gate |
|
|
Lions Gate |
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment |
|
|
Entertainment |
|
|
Non-guarantor |
|
|
Consolidating |
|
|
Lions Gate |
|
|
|
Corp. |
|
|
Inc. |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
STATEMENT OF OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
2,048 |
|
|
$ |
329,098 |
|
|
$ |
(4,562 |
) |
|
$ |
326,584 |
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating |
|
|
|
|
|
|
76 |
|
|
|
168,034 |
|
|
|
(10,529 |
) |
|
|
157,581 |
|
Distribution and marketing |
|
|
|
|
|
|
(1 |
) |
|
|
140,066 |
|
|
|
(6 |
) |
|
|
140,059 |
|
General and administration |
|
|
7,603 |
|
|
|
42,400 |
|
|
|
14,768 |
|
|
|
(52 |
) |
|
|
64,719 |
|
Depreciation and amortization |
|
|
|
|
|
|
923 |
|
|
|
680 |
|
|
|
|
|
|
|
1,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
7,603 |
|
|
|
43,398 |
|
|
|
323,548 |
|
|
|
(10,587 |
) |
|
|
363,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
(7,603 |
) |
|
|
(41,350 |
) |
|
|
5,550 |
|
|
|
6,025 |
|
|
|
(37,378 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
14,128 |
|
|
|
670 |
|
|
|
(255 |
) |
|
|
14,543 |
|
Interest and other income |
|
|
(36 |
) |
|
|
(427 |
) |
|
|
(179 |
) |
|
|
255 |
|
|
|
(387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses (income) |
|
|
(36 |
) |
|
|
13,701 |
|
|
|
491 |
|
|
|
|
|
|
|
14,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE EQUITY
INTERESTS AND INCOME
TAXES |
|
|
(7,567 |
) |
|
|
(55,051 |
) |
|
|
5,059 |
|
|
|
6,025 |
|
|
|
(51,534 |
) |
Equity interests income (loss) |
|
|
(56,501 |
) |
|
|
(7,965 |
) |
|
|
(11,475 |
) |
|
|
64,234 |
|
|
|
(11,707 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES |
|
|
(64,068 |
) |
|
|
(63,016 |
) |
|
|
(6,416 |
) |
|
|
70,259 |
|
|
|
(63,241 |
) |
Income tax provision |
|
|
|
|
|
|
393 |
|
|
|
434 |
|
|
|
|
|
|
|
827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
(64,068 |
) |
|
$ |
(63,409 |
) |
|
$ |
(6,850 |
) |
|
$ |
70,259 |
|
|
$ |
(64,068 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2010 |
|
|
|
Lions Gate |
|
|
Lions Gate |
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment |
|
|
Entertainment |
|
|
Non-guarantor |
|
|
Consolidating |
|
|
Lions Gate |
|
|
|
Corp. |
|
|
Inc. |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
STATEMENT OF CASH FLOWS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) OPERATING
ACTIVITIES |
|
$ |
1,761 |
|
|
$ |
(176,013 |
) |
|
$ |
111,319 |
|
|
$ |
|
|
|
$ |
(62,933 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of restricted investments |
|
|
|
|
|
|
(6,993 |
) |
|
|
|
|
|
|
|
|
|
|
(6,993 |
) |
Proceeds from the sale of restricted investments |
|
|
|
|
|
|
6,995 |
|
|
|
|
|
|
|
|
|
|
|
6,995 |
|
Buy-out of the earn-out associated with the
acquisition of Debmar-Mercury, LLC |
|
|
|
|
|
|
|
|
|
|
(15,000 |
) |
|
|
|
|
|
|
(15,000 |
) |
Investment in equity method investees |
|
|
|
|
|
|
|
|
|
|
(22,030 |
) |
|
|
|
|
|
|
(22,030 |
) |
Purchases of property and equipment |
|
|
|
|
|
|
(196 |
) |
|
|
(209 |
) |
|
|
|
|
|
|
(405 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) INVESTING
ACTIVITIES |
|
|
|
|
|
|
(194 |
) |
|
|
(37,239 |
) |
|
|
|
|
|
|
(37,433 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax withholding requirements on equity awards |
|
|
(1,497 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,497 |
) |
Borrowings under senior revolving credit facility |
|
|
|
|
|
|
243,000 |
|
|
|
|
|
|
|
|
|
|
|
243,000 |
|
Repayments of borrowings under senior revolving credit facility |
|
|
|
|
|
|
(61,000 |
) |
|
|
|
|
|
|
|
|
|
|
(61,000 |
) |
Borrowings under individual production loans |
|
|
|
|
|
|
|
|
|
|
13,737 |
|
|
|
|
|
|
|
13,737 |
|
Repayment of individual production loans |
|
|
|
|
|
|
|
|
|
|
(83,146 |
) |
|
|
|
|
|
|
(83,146 |
) |
Production loan borrowings under Pennsylvania Regional
Center credit facility |
|
|
|
|
|
|
|
|
|
|
494 |
|
|
|
|
|
|
|
494 |
|
Production loan borrowings under Pennsylvania Regional
Center credit facility |
|
|
|
|
|
|
|
|
|
|
(246 |
) |
|
|
|
|
|
|
(246 |
) |
Production loan borrowings under film credit facility |
|
|
|
|
|
|
|
|
|
|
3,118 |
|
|
|
|
|
|
|
3,118 |
|
Production loan repayments under film credit facility |
|
|
|
|
|
|
|
|
|
|
(419 |
) |
|
|
|
|
|
|
(419 |
) |
Restricted cash collateral requirement under the film credit facility |
|
|
|
|
|
|
|
|
|
|
(3,666 |
) |
|
|
|
|
|
|
(3,666 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) FINANCING
ACTIVITIES |
|
|
(1,497 |
) |
|
|
182,000 |
|
|
|
(70,128 |
) |
|
|
|
|
|
|
110,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH
EQUIVALENTS |
|
|
264 |
|
|
|
5,793 |
|
|
|
3,952 |
|
|
|
|
|
|
|
10,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN EXCHANGE EFFECTS ON
CASH |
|
|
(44 |
) |
|
|
|
|
|
|
(639 |
) |
|
|
|
|
|
|
(683 |
) |
CASH AND
CASH EQUIVALENTS BEGINNING OF PERIOD |
|
|
814 |
|
|
|
3,059 |
|
|
|
65,369 |
|
|
|
|
|
|
|
69,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS
END OF PERIOD |
|
$ |
1,034 |
|
|
$ |
8,852 |
|
|
$ |
68,682 |
|
|
$ |
|
|
|
$ |
78,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010 |
|
|
|
Lions Gate |
|
|
Lions Gate |
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment |
|
|
Entertainment |
|
|
Non-guarantor |
|
|
Consolidating |
|
|
Lions Gate |
|
|
|
Corp. |
|
|
Inc. |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
814 |
|
|
$ |
3,059 |
|
|
$ |
65,369 |
|
|
$ |
|
|
|
$ |
69,242 |
|
Restricted cash |
|
|
|
|
|
|
4,123 |
|
|
|
|
|
|
|
|
|
|
|
4,123 |
|
Restricted investments |
|
|
|
|
|
|
6,995 |
|
|
|
|
|
|
|
|
|
|
|
6,995 |
|
Accounts receivable, net |
|
|
99 |
|
|
|
1,116 |
|
|
|
291,209 |
|
|
|
500 |
|
|
|
292,924 |
|
Investment in films and television programs, net |
|
|
2 |
|
|
|
6,391 |
|
|
|
655,994 |
|
|
|
(1,282 |
) |
|
|
661,105 |
|
Property and equipment, net |
|
|
|
|
|
|
11,328 |
|
|
|
1,086 |
|
|
|
|
|
|
|
12,414 |
|
Equity method investments |
|
|
|
|
|
|
18,611 |
|
|
|
160,460 |
|
|
|
|
|
|
|
179,071 |
|
Goodwill |
|
|
10,173 |
|
|
|
|
|
|
|
229,081 |
|
|
|
|
|
|
|
239,254 |
|
Other assets |
|
|
431 |
|
|
|
25,446 |
|
|
|
36,150 |
|
|
|
|
|
|
|
62,027 |
|
Subsidiary investments and advances |
|
|
43,686 |
|
|
|
(5,885 |
) |
|
|
(249,526 |
) |
|
|
211,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
55,205 |
|
|
$ |
71,184 |
|
|
$ |
1,189,823 |
|
|
$ |
210,943 |
|
|
$ |
1,527,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders
Equity (Deficiency) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior revolving credit facility |
|
$ |
|
|
|
$ |
17,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
17,000 |
|
Senior secured second-priority notes |
|
|
|
|
|
|
225,155 |
|
|
|
|
|
|
|
|
|
|
|
225,155 |
|
Accounts payable and accrued liabilities |
|
|
1,018 |
|
|
|
53,706 |
|
|
|
198,915 |
|
|
|
106 |
|
|
|
253,745 |
|
Participations and residuals |
|
|
186 |
|
|
|
3,760 |
|
|
|
298,741 |
|
|
|
(10 |
) |
|
|
302,677 |
|
Film obligations and production loans |
|
|
79 |
|
|
|
|
|
|
|
351,690 |
|
|
|
|
|
|
|
351,769 |
|
Subordinated notes and other financing obligations |
|
|
|
|
|
|
188,318 |
|
|
|
3,718 |
|
|
|
|
|
|
|
192,036 |
|
Deferred revenue |
|
|
|
|
|
|
247 |
|
|
|
130,725 |
|
|
|
(121 |
) |
|
|
130,851 |
|
Shareholders equity (deficiency) |
|
|
53,922 |
|
|
|
(417,002 |
) |
|
|
206,034 |
|
|
|
210,968 |
|
|
|
53,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
55,205 |
|
|
$ |
71,184 |
|
|
$ |
1,189,823 |
|
|
$ |
210,943 |
|
|
$ |
1,527,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2009 |
|
|
|
Lions Gate |
|
|
Lions Gate |
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment |
|
|
Entertainment |
|
|
Non-guarantor |
|
|
Consolidating |
|
|
Lions Gate |
|
|
|
Corp. |
|
|
Inc. |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
STATEMENT OF OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
13,496 |
|
|
$ |
372,117 |
|
|
$ |
(6,389 |
) |
|
$ |
379,224 |
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating |
|
|
|
|
|
|
463 |
|
|
|
213,805 |
|
|
|
(3,739 |
) |
|
|
210,529 |
|
Distribution and marketing |
|
|
|
|
|
|
407 |
|
|
|
83,577 |
|
|
|
(9 |
) |
|
|
83,975 |
|
General and administration |
|
|
321 |
|
|
|
16,463 |
|
|
|
19,823 |
|
|
|
(1 |
) |
|
|
36,606 |
|
Depreciation and amortization |
|
|
|
|
|
|
1,677 |
|
|
|
4,979 |
|
|
|
|
|
|
|
6,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
321 |
|
|
|
19,010 |
|
|
|
322,184 |
|
|
|
(3,749 |
) |
|
|
337,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
(321 |
) |
|
|
(5,514 |
) |
|
|
49,933 |
|
|
|
(2,640 |
) |
|
|
41,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
9,137 |
|
|
|
(566 |
) |
|
|
1,057 |
|
|
|
9,628 |
|
Interest and other income |
|
|
(31 |
) |
|
|
(405 |
) |
|
|
13 |
|
|
|
|
|
|
|
(423 |
) |
Gain on extinguishment of debt |
|
|
|
|
|
|
(7,458 |
) |
|
|
|
|
|
|
|
|
|
|
(7,458 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses (income) |
|
|
(31 |
) |
|
|
1,274 |
|
|
|
(553 |
) |
|
|
1,057 |
|
|
|
1,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) BEFORE EQUITY INTERESTS AND INCOME TAXES |
|
|
(290 |
) |
|
|
(6,788 |
) |
|
|
50,486 |
|
|
|
(3,697 |
) |
|
|
39,711 |
|
Equity interests income (loss) |
|
|
36,639 |
|
|
|
40,161 |
|
|
|
(2,536 |
) |
|
|
(76,291 |
) |
|
|
(2,027 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES |
|
|
36,349 |
|
|
|
33,373 |
|
|
|
47,950 |
|
|
|
(79,988 |
) |
|
|
37,684 |
|
Income tax provision |
|
|
|
|
|
|
83 |
|
|
|
1,252 |
|
|
|
|
|
|
|
1,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
36,349 |
|
|
$ |
33,290 |
|
|
$ |
46,698 |
|
|
$ |
(79,988 |
) |
|
$ |
36,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2009 |
|
|
|
Lions Gate |
|
|
Lions Gate |
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment |
|
|
Entertainment |
|
|
Non-guarantor |
|
|
Consolidating |
|
|
Lions Gate |
|
|
|
Corp. |
|
|
Inc. |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
STATEMENT OF CASH FLOWS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) OPERATING
ACTIVITIES |
|
$ |
(9,922 |
) |
|
$ |
(173,802 |
) |
|
$ |
29,357 |
|
|
$ |
|
|
|
$ |
(154,367 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in equity method investees |
|
|
|
|
|
|
|
|
|
|
(14,924 |
) |
|
|
|
|
|
|
(14,924 |
) |
Increase in loan receivables |
|
|
|
|
|
|
8,333 |
|
|
|
|
|
|
|
|
|
|
|
8,333 |
|
Purchases of property and equipment |
|
|
|
|
|
|
(356 |
) |
|
|
(1,437 |
) |
|
|
|
|
|
|
(1,793 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) INVESTING
ACTIVITIES |
|
|
|
|
|
|
7,977 |
|
|
|
(16,361 |
) |
|
|
|
|
|
|
(8,384 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax withholding requirements on equity awards |
|
|
(417 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(417 |
) |
Proceeds from the sale of 49% interest in TV Guide |
|
|
|
|
|
|
113,426 |
|
|
|
(54 |
) |
|
|
|
|
|
|
113,372 |
|
Borrowings under individual production loans |
|
|
|
|
|
|
|
|
|
|
83,117 |
|
|
|
|
|
|
|
83,117 |
|
Repayment of individual production loans |
|
|
|
|
|
|
|
|
|
|
(67,977 |
) |
|
|
|
|
|
|
(67,977 |
) |
Production loan borrowings under Pennsylvania |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regional Center credit facility |
|
|
|
|
|
|
|
|
|
|
109 |
|
|
|
|
|
|
|
109 |
|
Production loan repayments under Pennsylvania |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regional Center credit facility |
|
|
|
|
|
|
|
|
|
|
(54 |
) |
|
|
|
|
|
|
(54 |
) |
Repayment of other financing obligations |
|
|
|
|
|
|
|
|
|
|
(134 |
) |
|
|
|
|
|
|
(134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) FINANCING
ACTIVITIES |
|
|
(417 |
) |
|
|
113,426 |
|
|
|
15,007 |
|
|
|
|
|
|
|
128,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH
EQUIVALENTS |
|
|
(10,339 |
) |
|
|
(52,399 |
) |
|
|
28,003 |
|
|
|
|
|
|
|
(34,735 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN EXCHANGE EFFECTS ON
CASH |
|
|
1,201 |
|
|
|
|
|
|
|
499 |
|
|
|
|
|
|
|
1,700 |
|
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD |
|
|
13,253 |
|
|
|
88,962 |
|
|
|
32,664 |
|
|
|
|
|
|
|
134,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS
END OF PERIOD |
|
$ |
4,115 |
|
|
$ |
36,563 |
|
|
$ |
61,166 |
|
|
$ |
|
|
|
$ |
101,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21. Consolidating Financial Information Senior Secured Second-Priority Notes
In October 2009, the Company issued $236.0 million aggregate principal amount the Senior Notes
in a private offering conducted pursuant to Rule 144A and Regulation S under the Securities Act
through LGEI.
The Company has agreed to make available to the trustee and the holders of the Senior Notes
the following tables which present unaudited condensed consolidating financial information as of
June 30, 2010 and March 31, 2010, and for the three months ended June 30, 2010 and 2009 for (1) the
Company, on a stand-alone basis, (2) LGEI, on a stand-alone basis, (3) the guarantor subsidiaries
of the Company (including the subsidiaries of LGEI), on a combined basis (4) the non-guarantor
subsidiaries of the Company (including the subsidiaries of LGEI), on a combined basis and (5) the
Company, on a consolidated basis.
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010 |
|
|
|
Lions Gate |
|
|
Lions Gate |
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment |
|
|
Entertainment |
|
|
Other Subsidiaries |
|
|
Consolidating |
|
|
Lions Gate |
|
|
|
Corp. |
|
|
Inc. |
|
|
Guarantors |
|
|
Non-guarantors |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,034 |
|
|
$ |
8,852 |
|
|
$ |
876 |
|
|
$ |
67,806 |
|
|
$ |
|
|
|
$ |
78,568 |
|
Restricted cash |
|
|
16,634 |
|
|
|
7,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,260 |
|
Restricted investments |
|
|
|
|
|
|
6,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,993 |
|
Accounts receivable, net |
|
|
187 |
|
|
|
542 |
|
|
|
214,929 |
|
|
|
43,637 |
|
|
|
|
|
|
|
259,295 |
|
Investment in films and television programs, net |
|
|
2 |
|
|
|
6,391 |
|
|
|
624,157 |
|
|
|
94,034 |
|
|
|
307 |
|
|
|
724,891 |
|
Property and equipment, net |
|
|
|
|
|
|
10,601 |
|
|
|
320 |
|
|
|
684 |
|
|
|
|
|
|
|
11,605 |
|
Equity method investments |
|
|
989 |
|
|
|
18,451 |
|
|
|
42,872 |
|
|
|
128,140 |
|
|
|
|
|
|
|
190,452 |
|
Goodwill |
|
|
10,173 |
|
|
|
|
|
|
|
198,883 |
|
|
|
30,198 |
|
|
|
|
|
|
|
239,254 |
|
Other assets |
|
|
417 |
|
|
|
45,056 |
|
|
|
9,169 |
|
|
|
2,914 |
|
|
|
|
|
|
|
57,556 |
|
Subsidiary investments and advances |
|
|
(26,270 |
) |
|
|
54,971 |
|
|
|
(198,517 |
) |
|
|
(195,556 |
) |
|
|
365,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,166 |
|
|
$ |
159,483 |
|
|
$ |
892,689 |
|
|
$ |
171,857 |
|
|
$ |
365,679 |
|
|
$ |
1,592,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders
Equity (Deficiency) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior revolving credit facility |
|
$ |
|
|
|
$ |
199,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
199,000 |
|
Senior secured second-priority notes |
|
|
|
|
|
|
225,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,453 |
|
Accounts payable and accrued liabilities |
|
|
4,498 |
|
|
|
39,235 |
|
|
|
176,361 |
|
|
|
26,264 |
|
|
|
36 |
|
|
|
246,394 |
|
Participations and residuals |
|
|
178 |
|
|
|
8,044 |
|
|
|
240,097 |
|
|
|
38,115 |
|
|
|
(185 |
) |
|
|
286,249 |
|
Film obligations and production loans |
|
|
70 |
|
|
|
|
|
|
|
263,214 |
|
|
|
22,430 |
|
|
|
|
|
|
|
285,714 |
|
Subordinated notes and other financing obligations |
|
|
|
|
|
|
191,703 |
|
|
|
3,718 |
|
|
|
|
|
|
|
|
|
|
|
195,421 |
|
Deferred revenue |
|
|
|
|
|
|
213 |
|
|
|
141,451 |
|
|
|
14,559 |
|
|
|
|
|
|
|
156,223 |
|
Shareholders equity (deficiency) |
|
|
(1,580 |
) |
|
|
(504,165 |
) |
|
|
67,848 |
|
|
|
70,489 |
|
|
|
365,828 |
|
|
|
(1,580 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,166 |
|
|
$ |
159,483 |
|
|
$ |
892,689 |
|
|
$ |
171,857 |
|
|
$ |
365,679 |
|
|
$ |
1,592,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2010 |
|
|
|
Lions Gate |
|
|
Lions Gate |
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment |
|
|
Entertainment |
|
|
Other Subsidiaries |
|
|
Consolidating |
|
|
Lions Gate |
|
|
|
Corp. |
|
|
Inc. |
|
|
Guarantors |
|
|
Non-guarantors |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
|
|
|
|
STATEMENT OF OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
2,048 |
|
|
$ |
292,166 |
|
|
$ |
39,351 |
|
|
$ |
(6,981 |
) |
|
$ |
326,584 |
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating |
|
|
|
|
|
|
76 |
|
|
|
152,492 |
|
|
|
17,347 |
|
|
|
(12,334 |
) |
|
|
157,581 |
|
Distribution and marketing |
|
|
|
|
|
|
(1 |
) |
|
|
123,265 |
|
|
|
16,801 |
|
|
|
(6 |
) |
|
|
140,059 |
|
General and administration |
|
|
7,603 |
|
|
|
42,400 |
|
|
|
11,078 |
|
|
|
3,693 |
|
|
|
(55 |
) |
|
|
64,719 |
|
Depreciation and amortization |
|
|
|
|
|
|
923 |
|
|
|
485 |
|
|
|
195 |
|
|
|
|
|
|
|
1,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
7,603 |
|
|
|
43,398 |
|
|
|
287,320 |
|
|
|
38,036 |
|
|
|
(12,395 |
) |
|
|
363,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
(7,603 |
) |
|
|
(41,350 |
) |
|
|
4,846 |
|
|
|
1,315 |
|
|
|
5,414 |
|
|
|
(37,378 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
14,128 |
|
|
|
392 |
|
|
|
278 |
|
|
|
(255 |
) |
|
|
14,543 |
|
Interest and other income |
|
|
(36 |
) |
|
|
(427 |
) |
|
|
(145 |
) |
|
|
(34 |
) |
|
|
255 |
|
|
|
(387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses (income) |
|
|
(36 |
) |
|
|
13,701 |
|
|
|
247 |
|
|
|
244 |
|
|
|
|
|
|
|
14,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) BEFORE EQUITY INTERESTS AND INCOME TAXES |
|
|
(7,567 |
) |
|
|
(55,051 |
) |
|
|
4,599 |
|
|
|
1,071 |
|
|
|
5,414 |
|
|
|
(51,534 |
) |
Equity interests income (loss) |
|
|
(56,501 |
) |
|
|
(7,965 |
) |
|
|
(11,474 |
) |
|
|
(1 |
) |
|
|
64,234 |
|
|
|
(11,707 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES |
|
|
(64,068 |
) |
|
|
(63,016 |
) |
|
|
(6,875 |
) |
|
|
1,070 |
|
|
|
69,648 |
|
|
|
(63,241 |
) |
Income tax provision |
|
|
|
|
|
|
393 |
|
|
|
417 |
|
|
|
17 |
|
|
|
|
|
|
|
827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
(64,068 |
) |
|
$ |
(63,409 |
) |
|
$ |
(7,292 |
) |
|
$ |
1,053 |
|
|
$ |
69,648 |
|
|
$ |
(64,068 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2010 |
|
|
|
Lions Gate |
|
|
Lions Gate |
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment |
|
|
Entertainment |
|
|
Other Subsidiaries |
|
|
Consolidating |
|
|
Lions Gate |
|
|
|
Corp. |
|
|
Inc. |
|
|
Guarantors |
|
|
Non-guarantors |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
|
|
|
|
STATEMENT OF CASH FLOWS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) OPERATING
ACTIVITIES |
|
$ |
1,761 |
|
|
$ |
(176,013 |
) |
|
$ |
100,574 |
|
|
$ |
10,745 |
|
|
$ |
|
|
|
$ |
(62,933 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of restricted investments |
|
|
|
|
|
|
(6,993 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,993 |
) |
Proceeds from the sale of restricted investments |
|
|
|
|
|
|
6,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,995 |
|
Buy-out of the earn-out associated with the
acquisition of Debmar-Mercury, LLC |
|
|
|
|
|
|
|
|
|
|
(15,000 |
) |
|
|
|
|
|
|
|
|
|
|
(15,000 |
) |
Investment in equity method investees |
|
|
|
|
|
|
|
|
|
|
(22,030 |
) |
|
|
|
|
|
|
|
|
|
|
(22,030 |
) |
Repayment of loans receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
|
|
|
|
(196 |
) |
|
|
(133 |
) |
|
|
(76 |
) |
|
|
|
|
|
|
(405 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) INVESTING
ACTIVITIES |
|
|
|
|
|
|
(194 |
) |
|
|
(37,163 |
) |
|
|
(76 |
) |
|
|
|
|
|
|
(37,433 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax withholding requirements on equity awards |
|
|
(1,497 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,497 |
) |
Borrowings under senior revolving credit facility |
|
|
|
|
|
|
243,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243,000 |
|
Repayments of borrowings under senior revolving credit facility |
|
|
|
|
|
|
(61,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61,000 |
) |
Borrowings under individual production loans |
|
|
|
|
|
|
|
|
|
|
13,178 |
|
|
|
559 |
|
|
|
|
|
|
|
13,737 |
|
Repayment of individual production loans |
|
|
|
|
|
|
|
|
|
|
(83,146 |
) |
|
|
|
|
|
|
|
|
|
|
(83,146 |
) |
Production loan borrowings under Pennsylvania Regional
Center credit facility |
|
|
|
|
|
|
|
|
|
|
494 |
|
|
|
|
|
|
|
|
|
|
|
494 |
|
Production loan repayments under Pennsylvania Regional
Center credit facility |
|
|
|
|
|
|
|
|
|
|
(246 |
) |
|
|
|
|
|
|
|
|
|
|
(246 |
) |
Production loan borrowings under film credit facility |
|
|
|
|
|
|
|
|
|
|
3,118 |
|
|
|
|
|
|
|
|
|
|
|
3,118 |
|
Production loan repayments under film credit facility |
|
|
|
|
|
|
|
|
|
|
(419 |
) |
|
|
|
|
|
|
|
|
|
|
(419 |
) |
Restricted cash collateral requirement under the film credit facility |
|
|
|
|
|
|
|
|
|
|
(3,666 |
) |
|
|
|
|
|
|
|
|
|
|
(3,666 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) FINANCING
ACTIVITIES |
|
|
(1,497 |
) |
|
|
182,000 |
|
|
|
(70,687 |
) |
|
|
559 |
|
|
|
|
|
|
|
110,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH
EQUIVALENTS |
|
|
264 |
|
|
|
5,793 |
|
|
|
(7,276 |
) |
|
|
11,228 |
|
|
|
|
|
|
|
10,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN EXCHANGE EFFECTS ON
CASH |
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
|
(639 |
) |
|
|
|
|
|
|
(683 |
) |
CASH AND
CASH EQUIVALENTS BEGINNING OF PERIOD |
|
|
814 |
|
|
|
3,059 |
|
|
|
8,152 |
|
|
|
57,217 |
|
|
|
|
|
|
|
69,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS
END OF PERIOD |
|
$ |
1,034 |
|
|
$ |
8,852 |
|
|
$ |
876 |
|
|
$ |
67,806 |
|
|
$ |
|
|
|
$ |
78,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010 |
|
|
|
Lions Gate |
|
|
Lions Gate |
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment |
|
|
Entertainment |
|
|
Other Subsidiaries |
|
|
Consolidating |
|
|
Lions Gate |
|
|
|
Corp. |
|
|
Inc. |
|
|
Guarantors |
|
|
Non-guarantors |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands) |
|
|
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
814 |
|
|
$ |
3,059 |
|
|
$ |
8,152 |
|
|
$ |
57,217 |
|
|
$ |
|
|
|
$ |
69,242 |
|
Restricted cash |
|
|
|
|
|
|
4,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,123 |
|
Restricted investments |
|
|
|
|
|
|
6,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,995 |
|
Accounts receivable, net |
|
|
99 |
|
|
|
1,116 |
|
|
|
238,138 |
|
|
|
53,071 |
|
|
|
500 |
|
|
|
292,924 |
|
Investment in films and television programs, net |
|
|
2 |
|
|
|
6,391 |
|
|
|
567,718 |
|
|
|
88,276 |
|
|
|
(1,282 |
) |
|
|
661,105 |
|
Property and equipment, net |
|
|
|
|
|
|
11,328 |
|
|
|
382 |
|
|
|
704 |
|
|
|
|
|
|
|
12,414 |
|
Equity method investments |
|
|
|
|
|
|
18,611 |
|
|
|
32,330 |
|
|
|
128,130 |
|
|
|
|
|
|
|
179,071 |
|
Goodwill |
|
|
10,173 |
|
|
|
|
|
|
|
198,883 |
|
|
|
30,198 |
|
|
|
|
|
|
|
239,254 |
|
Other assets |
|
|
431 |
|
|
|
25,446 |
|
|
|
32,837 |
|
|
|
3,313 |
|
|
|
|
|
|
|
62,027 |
|
Subsidiary investments and advances |
|
|
43,686 |
|
|
|
(5,885 |
) |
|
|
(91,278 |
) |
|
|
(188,711 |
) |
|
|
242,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
55,205 |
|
|
$ |
71,184 |
|
|
$ |
987,162 |
|
|
$ |
172,198 |
|
|
$ |
241,406 |
|
|
$ |
1,527,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders
Equity (Deficiency) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior revolving credit facility |
|
$ |
|
|
|
$ |
17,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
17,000 |
|
Senior secured second-priority notes |
|
|
|
|
|
|
225,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,155 |
|
Accounts payable and accrued liabilities |
|
|
1,018 |
|
|
|
53,706 |
|
|
|
169,893 |
|
|
|
30,298 |
|
|
|
(1,170 |
) |
|
|
253,745 |
|
Participations and residuals |
|
|
186 |
|
|
|
3,760 |
|
|
|
255,794 |
|
|
|
42,947 |
|
|
|
(10 |
) |
|
|
302,677 |
|
Film obligations and production loans |
|
|
79 |
|
|
|
|
|
|
|
334,791 |
|
|
|
16,899 |
|
|
|
|
|
|
|
351,769 |
|
Subordinated notes and other financing obligations |
|
|
|
|
|
|
188,318 |
|
|
|
3,718 |
|
|
|
|
|
|
|
|
|
|
|
192,036 |
|
Deferred revenue |
|
|
|
|
|
|
247 |
|
|
|
125,323 |
|
|
|
5,402 |
|
|
|
(121 |
) |
|
|
130,851 |
|
Shareholders equity (deficiency) |
|
|
53,922 |
|
|
|
(417,002 |
) |
|
|
97,643 |
|
|
|
76,652 |
|
|
|
242,707 |
|
|
|
53,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
55,205 |
|
|
$ |
71,184 |
|
|
$ |
987,162 |
|
|
$ |
172,198 |
|
|
$ |
241,406 |
|
|
$ |
1,527,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2009 |
|
|
|
Lions Gate |
|
|
Lions Gate |
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment |
|
|
Entertainment |
|
|
Other Subsidiaries |
|
|
Consolidating |
|
|
Lions Gate |
|
|
|
Corp. |
|
|
Inc. |
|
|
Guarantors |
|
|
Non-guarantors |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands) |
|
|
|
|
|
|
|
|
|
STATEMENT OF OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
13,496 |
|
|
$ |
264,398 |
|
|
$ |
109,028 |
|
|
$ |
(7,698 |
) |
|
$ |
379,224 |
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating |
|
|
|
|
|
|
463 |
|
|
|
142,658 |
|
|
|
73,687 |
|
|
|
(6,279 |
) |
|
|
210,529 |
|
Distribution and marketing |
|
|
|
|
|
|
407 |
|
|
|
66,644 |
|
|
|
16,928 |
|
|
|
(4 |
) |
|
|
83,975 |
|
General and administration |
|
|
321 |
|
|
|
16,463 |
|
|
|
9,885 |
|
|
|
10,019 |
|
|
|
(82 |
) |
|
|
36,606 |
|
Depreciation and amortization |
|
|
|
|
|
|
1,677 |
|
|
|
1,602 |
|
|
|
3,377 |
|
|
|
|
|
|
|
6,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
321 |
|
|
|
19,010 |
|
|
|
220,789 |
|
|
|
104,011 |
|
|
|
(6,365 |
) |
|
|
337,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
(321 |
) |
|
|
(5,514 |
) |
|
|
43,609 |
|
|
|
5,017 |
|
|
|
(1,333 |
) |
|
|
41,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
9,137 |
|
|
|
207 |
|
|
|
485 |
|
|
|
(201 |
) |
|
|
9,628 |
|
Interest and other income |
|
|
(31 |
) |
|
|
(405 |
) |
|
|
(172 |
) |
|
|
(16 |
) |
|
|
201 |
|
|
|
(423 |
) |
Gain on extinguishment of debt |
|
|
|
|
|
|
(7,458 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,458 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses (income) |
|
|
(31 |
) |
|
|
1,274 |
|
|
|
35 |
|
|
|
469 |
|
|
|
|
|
|
|
1,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) BEFORE EQUITY INTERESTS AND INCOME
TAXES |
|
|
(290 |
) |
|
|
(6,788 |
) |
|
|
43,574 |
|
|
|
4,548 |
|
|
|
(1,333 |
) |
|
|
39,711 |
|
Equity interests income (loss) |
|
|
36,639 |
|
|
|
43,667 |
|
|
|
(1,248 |
) |
|
|
(1,289 |
) |
|
|
(79,796 |
) |
|
|
(2,027 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES |
|
|
36,349 |
|
|
|
36,879 |
|
|
|
42,326 |
|
|
|
3,259 |
|
|
|
(81,129 |
) |
|
|
37,684 |
|
Income tax provision |
|
|
|
|
|
|
83 |
|
|
|
444 |
|
|
|
808 |
|
|
|
|
|
|
|
1,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
36,349 |
|
|
$ |
36,796 |
|
|
$ |
41,882 |
|
|
$ |
2,451 |
|
|
$ |
(81,129 |
) |
|
$ |
36,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2009 |
|
|
|
Lions Gate |
|
|
Lions Gate |
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment |
|
|
Entertainment |
|
|
Other Subsidiaries |
|
|
Consolidating |
|
|
Lions Gate |
|
|
|
Corp. |
|
|
Inc. |
|
|
Guarantors |
|
|
Non-guarantors |
|
|
Adjustments |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands) |
|
|
|
|
|
|
|
|
|
STATEMENT OF CASH FLOWS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) OPERATING
ACTIVITIES |
|
$ |
(9,922 |
) |
|
$ |
(173,802 |
) |
|
$ |
(47,226 |
) |
|
$ |
76,583 |
|
|
$ |
|
|
|
$ |
(154,367 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in equity method investees |
|
|
|
|
|
|
|
|
|
|
(14,924 |
) |
|
|
|
|
|
|
|
|
|
|
(14,924 |
) |
Increase in loan receivables |
|
|
|
|
|
|
8,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,333 |
|
Purchases of property and equipment |
|
|
|
|
|
|
(356 |
) |
|
|
(1,425 |
) |
|
|
(12 |
) |
|
|
|
|
|
|
(1,793 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) INVESTING
ACTIVITIES |
|
|
|
|
|
|
7,977 |
|
|
|
(16,349 |
) |
|
|
(12 |
) |
|
|
|
|
|
|
(8,384 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax withholding requirements on equity awards |
|
|
(417 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(417 |
) |
Proceeds from the sale of 49% interest in TV Guide |
|
|
|
|
|
|
113,426 |
|
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
|
113,372 |
|
Borrowings under individual production loans |
|
|
|
|
|
|
|
|
|
|
79,931 |
|
|
|
3,186 |
|
|
|
|
|
|
|
83,117 |
|
Repayment of individual production loans |
|
|
|
|
|
|
|
|
|
|
(24,987 |
) |
|
|
(42,990 |
) |
|
|
|
|
|
|
(67,977 |
) |
Production loan borrowings under Pennsylvania
Regional Center credit facility |
|
|
|
|
|
|
|
|
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
109 |
|
Production loan repayments under Pennsylvania
Regional Center credit facility |
|
|
|
|
|
|
|
|
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
|
(54 |
) |
Repayment of other financing obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(134 |
) |
|
|
|
|
|
|
(134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY
(USED IN) FINANCING
ACTIVITIES |
|
|
(417 |
) |
|
|
113,426 |
|
|
|
54,945 |
|
|
|
(39,938 |
) |
|
|
|
|
|
|
128,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH
EQUIVALENTS |
|
|
(10,339 |
) |
|
|
(52,399 |
) |
|
|
(8,630 |
) |
|
|
36,633 |
|
|
|
|
|
|
|
(34,735 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN EXCHANGE EFFECTS ON
CASH |
|
|
1,201 |
|
|
|
|
|
|
|
|
|
|
|
499 |
|
|
|
|
|
|
|
1,700 |
|
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD |
|
|
13,253 |
|
|
|
88,962 |
|
|
|
10,424 |
|
|
|
22,240 |
|
|
|
|
|
|
|
134,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS
END OF PERIOD |
|
$ |
4,115 |
|
|
$ |
36,563 |
|
|
$ |
1,794 |
|
|
$ |
59,372 |
|
|
$ |
|
|
|
$ |
101,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22. Subsequent Events
On July 20, 2010, the Company entered into a Refinancing Exchange Agreement (the Refinancing
Exchange Agreement) to exchange approximately $36.0 million in aggregate principal amount of the
February 2005 3.625% Notes and approximately $63.7 million in aggregate principal amount of the
October 2004 2.9375% Notes for equal principal amounts, respectively, of new 3.625% Convertible
Senior Subordinated Notes due 2027 (the New 3.625% Notes) and new 2.9375% Convertible Senior
Subordinated Notes due 2026 (the New 2.9375% Notes, and together with the New 3.625% Notes, the
New Notes). The New Notes took effect immediately and all terms were identical to the February
2005 3.625% Notes and October 2004 2.9375 Notes except that the New Notes had an extended maturity
date, extended put rights by two years, and were immediately convertible at an initial conversion
rate of 161.2903 common shares of the Company per $1,000 principal amount of New Notes, subject to
specified contingencies.
Also on July 20, 2010, the New Notes were converted into 16,236,305 common shares of the
Company. As a result, the New Notes are no longer outstanding as of July 20, 2010.
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 the
leading next generation studio with a diversified presence in the production and distribution of
motion pictures, television programming, home entertainment, family entertainment, video-on-demand
and digitally delivered content.
40
Revenues
Our revenues are derived from the Motion Pictures and Television Production segments, as
described below:
Motion Pictures. Motion Pictures includes Theatrical, Home Entertainment, Television,
International, Lionsgate UK, and Mandate Pictures revenue.
Theatrical revenues are derived from the theatrical release of motion pictures in the U.S. and
Canada 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 consist of the sale or rental of packaged media (i.e., DVD and
Blu-ray) and electronic media (i.e., electronic-sell through or EST) of our own productions and
acquired films, including theatrical releases and direct-to-video releases, to retail stores and
through digital media platforms. 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, which includes pay-per-view and
video-on-demand.
International revenues include revenues from our international subsidiaries from the licensing
and sale of our productions, acquired films, our catalog product or libraries of acquired titles
and revenues from our distribution to international sub-distributors, on a territory-by-territory
basis. Our revenues are derived from the U.S., Canada, the United Kingdom, Australia and other
foreign countries; none of the foreign countries individually comprised greater than 10% of total
revenues.
Lionsgate UK revenues include revenues from the licensing and sale of our productions,
acquired films, our catalog product or libraries of acquired titles from our subsidiary located in
the United Kingdom.
Mandate Pictures revenues include revenues from the sales and licensing of domestic and
worldwide rights of titles developed or acquired by Mandate Pictures to third-party distributors
and to international sub-distributors.
Television Production. Television Production includes the licensing and syndication to domestic and
international markets of one-hour and half-hour drama series, television movies and mini-series and
non-fiction programming, and home entertainment revenues consisting of television production movies
or series.
Expenses
Our primary operating expenses include Direct Operating Expenses, Distribution and Marketing
Expenses and General and Administration Expenses.
Direct Operating Expenses include amortization of film and television production or
acquisition costs, participation and residual expenses, provision for doubtful accounts, and
foreign exchange gains and losses. 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, and 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.
Distribution and Marketing Expenses primarily include the costs of theatrical prints and
advertising (P&A) and of DVD/Blu-ray duplication and marketing. Theatrical P&A includes the
costs of the theatrical prints delivered to theatrical exhibitors and the advertising and marketing
cost associated with the theatrical release of the picture. DVD/Blu-ray duplication represents the
cost of the DVD/Blu-ray product and the manufacturing costs associated with creating the physical
products. DVD/Blu-ray marketing costs represent the cost of advertising the product at or near the
time of its release or special promotional advertising.
41
General and Administration Expenses include salaries and other overhead.
Recent Developments
Refinancing Exchange Agreement. On July 20, 2010 the Company entered the Refinancing Exchange
Agreement to exchange approximately $36.0 million in aggregate principal amount of the February
2005 3.625% Notes and $63.7 million in aggregate principal amount of the October 2004 2.9375% Notes
for equal principal amounts, respectively, the New 3.625% Notes and the New 2.9375% Notes. The New
Notes took effect immediately and all terms were identical to the February 2005 3.625% Notes and
October 2004 2.9375 Notes except that the New Notes had an extended maturity date, extended put
rights by two years, and were immediately convertible at an initial conversion rate of 161.2903
common shares of the Company per $1,000 principal amount of New Notes, subject to specified
contingencies.
Also
on July 20, 2010, the New Notes were converted into 16,236,305 common shares of the
Company. As a result, the New Notes are no longer outstanding as of July 20, 2010.
CRITICAL ACCOUNTING POLICIES
The preparation of our financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates, judgments and assumptions that
affect the amounts reported in the consolidated financial statements and accompanying notes. 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. In some cases, changes in the accounting estimates are reasonably likely
to occur from period to period. Accordingly, actual results could differ materially from our
estimates. For example, accounting for films and television programs requires us 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. To the extent that there are
material differences between these estimates and actual results, our financial condition or results
of operations will be affected. We base our estimates on past experience and other assumptions that
we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing
basis. For a summary of all of our accounting policies, including the accounting policies
discussed below, see Note 2 to our audited consolidated financial statements in our Annual Report
on Form 10-K for the fiscal year ended March 31, 2010.
Accounting for Films and Television Programs. We capitalize costs of production and
acquisition, including financing costs and production overhead, to investment in films and
television programs. These costs for an individual film or television program are amortized and
participation and residual costs are accrued to direct operating expenses in the proportion that
current years revenues bear to managements estimates of the ultimate revenue at the beginning of
the year expected to be recognized from exploitation, exhibition or sale of such film or television
program over a period not to exceed ten years from the date of initial release. For previously
released film or television programs acquired as part of a library, ultimate revenue includes
estimates over a period not to exceed 20 years from the date of acquisition.
Due to the inherent uncertainties involved in making such estimates of ultimate revenues and
expenses, these estimates have differed in the past from actual results and are likely to differ to
some extent in the future from actual results. In addition, in the normal course of our business,
some films and titles are more successful than anticipated and some are less successful than
anticipated. 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-downs 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.
An increase in the estimate of ultimate revenue will generally result in a lower amortization
rate and therefore less film and television program amortization expense while a decrease in the
estimate of ultimate revenue will generally result in a higher
42
amortization rate and therefore
higher film and television program amortization expense and also 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 theatrical release of feature films is recognized at the
time of exhibition based on our participation in box office receipts. Revenue from the sale of
DVDs/Blu-ray discs 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 we are 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. Revenues 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 our
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 our assessment of the relative fair value of each title. The primary
estimate requiring the most subjectivity and judgment involving revenue recognition is the estimate
of sales returns associated with our revenue from the sale of DVDs/Blu-ray discs in the retail
market which is discussed separately below under the caption Reserves.
Distribution revenue from the distribution of TV Guide Network programming (distributors
generally pay a per subscriber fee for the right to distribute programming) is recognized in the
month the services are provided.
Advertising revenue is recognized when the advertising spot is broadcast or displayed online.
Advertising revenue is recorded net of agency commissions and discounts.
Reserves. Sales Returns: Revenues are recorded net of estimated returns and other allowances.
We estimate reserves for DVD/Blu-ray returns based on previous returns experience, point-of-sale
data available from certain retailers, current economic trends, and projected future sales of the
title to the consumer based on the actual performance of similar titles on a title-by-title basis
in each of the DVD/Blu-ray businesses. Factors affecting actual returns include, among other
factors, limited retail shelf space at various times of the year, success of advertising or other
sales promotions, and the near term release of competing titles. 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. Our estimate of future
returns affects reported revenue and operating income. If we underestimate the impact of future
returns in a particular period, then we may record less revenue in later periods when returns
exceed the estimated amounts. If we overestimate the impact of future returns in a particular
period, then we may record additional revenue in later periods when returns are less than
estimated. An incremental change of 1% in our estimated sales returns rate (i.e., provisions for
returns divided by gross sales of related product) for home entertainment products would have had
an approximately $1.8 million impact on our total revenue in the three months ended June 30,
2010.
Provisions for Accounts Receivable: 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 or could be better or
worse than anticipated and could result in an increase or decrease to our allowance for doubtful
accounts, which, when the impact of such change is material, is disclosed in our discussion on
direct operating expenses elsewhere in Managements Discussion and Analysis of Financial Condition
and Results of Operations.
Income Taxes. We are subject to federal and state income taxes in the U.S., and in several
foreign jurisdictions. We record deferred tax assets, net of applicable reserves, related to net
operating loss carryforwards and certain temporary differences. We recognize a future tax benefit
to the extent that realization of such benefit is more likely than not or a valuation allowance is
applied. In order to realize the benefit of our deferred tax assets we will need to generate
sufficient taxable income in the future. Because of our historical operating losses, we have
provided a full valuation allowance against our net deferred tax assets. However, the assessment as
to whether there will be sufficient taxable income to realize our net deferred tax assets is an
estimate which could change in the future depending primarily upon the actual performance of our
Company. When we have a history of profitable operations sufficient to
43
demonstrate that it is more
likely than not that our deferred tax assets will be realized, the valuation allowance or a portion
of the
valuation allowance will be reversed and reflected as a benefit in the income tax provision.
After that we will be required to continually evaluate the more likely than not assessment that our
net deferred tax assets will be realized and if operating results deteriorate we may need to
reestablish all or a portion of the valuation allowance through a charge to our income tax
provision.
Goodwill. 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. We perform our annual
impairment test as of January 1 in each fiscal year. We performed our last annual impairment test
on our goodwill as of January 1, 2010. No goodwill impairment was identified in any of our
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.
Subordinated notes. We account for our subordinated notes by separating the liability and
equity components. The liability component is recorded at the date of issuance based on its fair
value which is generally determined in a manner that will reflect an interest cost equal to our
nonconvertible debt borrowing rate at the subordinated notes issuance date. The amount of the
proceeds less the amount recorded as the liability component is recorded as an addition to
shareholders equity reflecting the equity component (i.e., conversion feature). The difference
between the principal amount and the amount recorded as the liability component represents the debt
discount. The carrying amount of the liability is accreted up to the principal amount through the
amortization of the discount, using the effective interest method, to interest expense over the
expected life of the note. The determination of the fair value of the liability component is an
estimate dependent on a number of factors including estimates of market rates for similar non
convertible debt instruments at the date of issuance. A higher value attributable to the liability
component results in a lower value attributed to the equity component and therefore a smaller
discount amount and lower interest cost as a result of amortization of the smaller discount. A
lower value attributable to the liability component results in a higher value attributed to the
equity component and therefore a larger discount amount and higher interest cost as a result of
amortization of the larger discount.
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
a one-year allocation period. The changes in these estimates or different assumptions used in
determining these estimates could impact the amount of assets, including goodwill and liabilities,
ultimately recorded in our balance sheet and could impact our operating results subsequent to such
acquisition. We believe that our assumptions and estimates have been materially accurate in the
past.
Recent Accounting Pronouncements
Consolidation accounting for variable interest entities. This new accounting guidance modifies
the previous guidance in relation to the identification of controlling financial interests in a
VIE. Under this new guidance the primary beneficiary of a VIE is the enterprise that has both of
the following characteristics, among others: (a) the power to direct the activities of a VIE that
most significantly impact the entitys economic performance; and (b) the obligation to absorb
losses of the entity, or the right to receive benefits from the entity, that could potentially be
significant to the VIE. If an enterprise determines that power is shared among multiple unrelated
parties such that no one party has the power to direct the activities of a VIE that most
significantly impact the VIEs economic performance, then no party is the primary beneficiary.
Power is shared if each of the parties sharing power are required to consent to the decisions
relating to the activities that most significantly impact the VIEs performance. The provisions of
this standard became effective for us beginning in fiscal 2011.
Upon adoption of the new accounting standard on April 1, 2010 we determined that we are no
longer the primary beneficiary of TV Guide Network because the power to direct the activities that
most significantly impact the economic performance of TV Guide Network are shared with the 49%
owner of TV Guide Network, OEP. Although we own 51% interest in TV Guide Network, the power to
direct the activities that most significantly impact the economic performance of TV Guide Network
are held by the board of managers pursuant to the operating agreement of TV Guide Entertainment
Group LLC. Accordingly, upon adoption of the new accounting standard we are no longer consolidating
TV Guide Network and instead are accounting for TV Guide Network under the equity method of
accounting.
44
We have applied the provisions of the new accounting standard retrospectively and accordingly,
we deconsolidated TV Guide Network from May 28, 2009, the date of the transaction with OEP, and
retrospectively adjusted the financial statements to reflect the TV Guide Network as if it were
accounted for under the equity method of accounting since that date. The deconsolidation of TV
Guide network resulted in the reclassification of $305.4 million of assets, $147.3 million of
liabilities and $30.0 million of non-controlling interest amounts from each of their respective
consolidated balance sheet captions to the investment in equity method investees account as of
March 31, 2010 reflecting the carrying amount of the Companys interest in the mandatorily
redeemable stock units and common stock units of TV Guide Network as of March 31, 2010. In
addition, under the equity method of accounting, our share of the revenues, expenses of TV Guide
Network and income for the accretion of the dividend and discount of the mandatorily redeemable
preferred stock are recorded net in the equity interest line item in the consolidated statements of
operations. The adoption of the new accounting standard did not
impact our net loss.
Results of Operations
Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009
The following table sets forth the components of consolidated revenue for the three months
ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
Increase (Decrease) |
|
|
|
2010 |
|
|
2009 |
|
|
Amount |
|
|
Percent |
|
|
|
(Amounts in millions) |
|
Consolidated Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures |
|
$ |
272.7 |
|
|
$ |
272.7 |
|
|
$ |
|
|
|
|
0.0 |
% |
Television Production |
|
|
53.9 |
|
|
|
87.2 |
|
|
|
(33.3 |
) |
|
|
(38.2 |
%) |
Media Networks |
|
|
|
|
|
|
19.3 |
|
|
|
(19.3 |
) |
|
|
(100.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
326.6 |
|
|
$ |
379.2 |
|
|
$ |
(52.6 |
) |
|
|
(13.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Our largest component of revenue comes from home entertainment. The following table sets
forth total home entertainment revenue for both the Motion Pictures and Television Production
reporting segments for the three months ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
Increase (Decrease) |
|
|
|
2010 |
|
|
2009 |
|
|
Amount |
|
|
Percent |
|
|
|
(Amounts in millions) |
|
Home Entertainment Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures |
|
$ |
111.3 |
|
|
$ |
141.2 |
|
|
$ |
(29.9 |
) |
|
|
(21.2 |
%) |
Television Production |
|
|
5.8 |
|
|
|
9.8 |
|
|
|
(4.0 |
) |
|
|
(40.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
117.1 |
|
|
$ |
151.0 |
|
|
$ |
(33.9 |
) |
|
|
(22.5 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures Revenue
The slight increase in motion pictures revenue this period consisted primarily of increases in
theatrical, international and television revenue, offset by decreases in home entertainment and
Mandate Pictures revenue. We expect an increase in the number of our theatrical releases for fiscal
2011, as compared to fiscal 2010. As a result, we currently expect our motion picture segment
revenue for fiscal 2011 will exceed our fiscal 2010 motion picture segment revenue. However, actual
motion pictures revenue will depend on the
performance of our film and video titles across all media and territories and can vary
materially from expectations. The following
45
table sets forth the components of revenue and the
changes in these components for the motion pictures reporting segment for the three-month periods
ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
Increase (Decrease) |
|
|
|
2010 |
|
|
2009 |
|
|
Amount |
|
|
Percent |
|
|
|
(Amounts in millions) |
|
Motion Pictures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical |
|
$ |
71.3 |
|
|
$ |
22.7 |
|
|
$ |
48.6 |
|
|
|
214.1 |
% |
Home Entertainment |
|
|
111.3 |
|
|
|
141.2 |
|
|
|
(29.9 |
) |
|
|
(21.2 |
%) |
Television |
|
|
30.0 |
|
|
|
20.6 |
|
|
|
9.4 |
|
|
|
45.6 |
% |
International |
|
|
29.1 |
|
|
|
17.5 |
|
|
|
11.6 |
|
|
|
66.3 |
% |
Lionsgate UK |
|
|
16.3 |
|
|
|
15.0 |
|
|
|
1.3 |
|
|
|
8.7 |
% |
Mandate Pictures |
|
|
13.3 |
|
|
|
53.1 |
|
|
|
(39.8 |
) |
|
|
(75.0 |
%) |
Other |
|
|
1.4 |
|
|
|
2.6 |
|
|
|
(1.2 |
) |
|
|
(46.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
272.7 |
|
|
$ |
272.7 |
|
|
$ |
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures Theatrical Revenue
The following table sets forth the titles contributing significant motion pictures theatrical
revenue for the three-month periods ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
Three Months Ended June 30, |
2010 |
|
2009 |
|
|
Theatrical Release Date |
|
|
|
Theatrical Release Date |
Killers |
|
June 2010 |
|
Crank: High Voltage |
|
April 2009 |
Kick-Ass |
|
April 2010 |
|
The Haunting in Connecticut |
|
March 2009 |
Why Did I Get Married Too? |
|
April 2010 |
|
Madea Goes to Jail |
|
February 2009 |
The following table sets forth the amount and percentage of theatrical revenue generated
by the titles listed above and the titles not listed above for the three-month periods ended June
30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Amount of |
|
|
of |
|
|
Amount of |
|
|
of |
|
|
|
|
|
|
Theatrical |
|
|
Theatrical |
|
|
Theatrical |
|
|
Theatrical |
|
|
Increase (Decrease) |
|
|
|
Revenue |
|
|
Revenue |
|
|
Revenue |
|
|
Revenue |
|
|
Amount |
|
|
Percent |
|
|
|
(Amounts in |
|
|
|
|
|
|
(Amounts in |
|
|
|
|
|
|
(Amounts in |
|
|
|
|
|
|
|
millions) |
|
|
|
|
|
|
millions) |
|
|
|
|
|
|
millions) |
|
|
|
|
|
Theatrical Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical revenue from significant titles listed above |
|
$ |
70.7 |
|
|
|
99 |
% |
|
$ |
21.2 |
|
|
|
93 |
% |
|
$ |
49.5 |
|
|
|
233.5 |
% |
Theatrical revenue from titles not listed above |
|
|
0.6 |
|
|
|
1 |
% |
|
|
1.5 |
|
|
|
7 |
% |
|
|
(0.9 |
) |
|
|
(60.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
71.3 |
|
|
|
100 |
% |
|
$ |
22.7 |
|
|
|
100 |
% |
|
$ |
48.6 |
|
|
|
214.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of contribution of theatrical revenue of significant titles individually,
as a percent of theatrical revenue |
|
|
29 |
% |
to |
|
39 |
% |
|
|
7 |
% |
to |
|
60 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical revenue of $71.3 million increased $48.6 million, or 214.1%, in this quarter
as compared to the prior years quarter. The increase in theatrical revenue in the current quarter
as compared to the prior years quarter is due to the timing of the three theatrical releases in
the current period all of which were released during the three months ended June 30, 2010, compared
to the three theatrical releases contributing revenue in the prior period, with only one theatrical
release during the three months ended June 30, 2009.
46
Motion Pictures Home Entertainment Revenue
The following table sets forth the titles contributing significant motion pictures home
entertainment revenue for the three-month periods ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
Three Months Ended June 30, |
2010 |
|
2009 |
|
|
Release Date |
|
|
|
Release Date |
From Paris With Love |
|
June 2010 |
|
Madea Goes to Jail |
|
June 2009 |
Daybreakers |
|
May 2010 |
|
My Bloody Valentine 3-D |
|
May 2009 |
Spy Next Door |
|
May 2010 |
|
New In Town |
|
May 2009 |
Brothers |
|
March 2010 |
|
The Spirit |
|
April 2009 |
|
|
|
|
Transporter 3 |
|
March 2009 |
The following table sets forth the amount and percentage of home entertainment revenue
generated by the titles listed above and the titles not listed above for the three-month periods
ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Amount of |
|
|
of |
|
|
Amount of |
|
|
of |
|
|
|
|
|
|
Home |
|
|
Home |
|
|
Home |
|
|
Home |
|
|
|
|
|
|
Entertainment |
|
|
Entertainment |
|
|
Entertainment |
|
|
Entertainment |
|
|
Increase (Decrease) |
|
|
|
Revenue |
|
|
Revenue |
|
|
Revenue |
|
|
Revenue |
|
|
Amount |
|
|
Percent |
|
|
|
(Amounts in |
|
|
|
|
|
|
(Amounts in |
|
|
|
|
|
|
(Amounts in |
|
|
|
|
|
|
|
millions) |
|
|
|
|
|
|
millions) |
|
|
|
|
|
|
millions) |
|
|
|
|
|
Home Entertainment Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home entertainment revenue from significant titles listed above |
|
$ |
50.0 |
|
|
|
45 |
% |
|
$ |
70.0 |
|
|
|
50 |
% |
|
$ |
(20.0 |
) |
|
|
(28.6 |
%) |
Home entertainment revenue from titles not listed above |
|
|
61.3 |
|
|
|
55 |
% |
|
|
71.2 |
|
|
|
50 |
% |
|
|
(9.9 |
) |
|
|
(13.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
111.3 |
|
|
|
100 |
% |
|
$ |
141.2 |
|
|
|
100 |
% |
|
$ |
(29.9 |
) |
|
|
(21.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of contribution of home entertainment revenue of significant titles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
individually, as a percent of home entertainment revenue |
|
|
3 |
% |
to |
|
16 |
% |
|
|
2 |
% |
to |
|
18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home entertainment revenue of $111.3 million decreased $29.9 million, or 21.2%, in the
current quarter as compared to the prior years quarter. The decrease in home entertainment revenue
in the current quarter compared to the prior years quarter is primarily due to fewer theatrical
titles initially released on DVD and Blu-Ray in the current quarter as compared to the prior years
quarter and, to a lesser extent, lower revenues from titles released in previous periods. The
contribution of home entertainment revenue from the titles listed above decreased $20.0 million in
the current quarter compared to the prior years quarter, and the contribution of home
entertainment revenue from the titles not listed above decreased $9.9 million in the current
quarter compared to the prior years quarter.
Motion Pictures Television Revenue
The following table sets forth the titles contributing significant motion pictures television
revenue for the three-month periods ended June 30, 2010 and 2009:
|
|
|
Three Months Ended June 30, |
2010 |
|
2009 |
Brothers |
|
Bangkok Dangerous |
Gamer |
|
Disaster Movie |
I Can Do Bad All By Myself |
|
My Best Friends Girl |
Precious |
|
Saw V |
Rambo |
|
The Family That Preys |
|
|
W. |
47
The following table sets forth the amount and percentage of television revenue generated by
the titles listed above and the titles not listed above for the three-month periods ended June 30,
2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Amount of |
|
|
|
|
|
|
of |
|
|
Amount of |
|
|
|
|
|
|
of |
|
|
|
|
|
|
Television |
|
|
|
|
|
|
Television |
|
|
Television |
|
|
|
|
|
|
Television |
|
|
Increase (Decrease) |
|
|
|
Revenue |
|
|
|
|
|
|
Revenue |
|
|
Revenue |
|
|
|
|
|
|
Revenue |
|
|
Amount |
|
|
Percent |
|
|
|
(Amounts in |
|
|
|
|
|
|
|
|
|
|
(Amounts in |
|
|
|
|
|
|
|
|
|
|
(Amounts in |
|
|
|
|
|
|
|
millions) |
|
|
|
|
|
|
|
|
|
|
millions) |
|
|
|
|
|
|
|
|
|
|
millions) |
|
|
|
|
|
Television Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television revenue from significant titles listed above |
|
$ |
16.7 |
|
|
|
|
|
|
|
56 |
% |
|
$ |
11.2 |
|
|
|
|
|
|
|
54 |
% |
|
$ |
5.5 |
|
|
|
49.1 |
% |
Television revenue from titles not listed above |
|
|
13.3 |
|
|
|
|
|
|
|
44 |
% |
|
|
9.4 |
|
|
|
|
|
|
|
46 |
% |
|
|
3.9 |
|
|
|
41.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
30.0 |
|
|
|
|
|
|
|
100 |
% |
|
$ |
20.6 |
|
|
|
|
|
|
|
100 |
% |
|
$ |
9.4 |
|
|
|
45.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of contribution of television revenue of significant titles individually,
as a percent of television revenue |
|
|
6 |
% |
|
to |
|
|
20 |
% |
|
|
7 |
% |
|
to |
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television revenue included in motion pictures revenue of $30.0 million increased $9.4
million, or 45.6%, in the current quarter as compared to the prior years quarter. The contribution
of television revenue from the titles listed above increased $5.5 million in the current quarter
compared to the prior years quarter, and the contribution of television revenue from the titles
not listed above increased $3.9 million in the current quarter compared to the prior years
quarter.
Motion Pictures International Revenue
The following table sets forth the titles contributing significant motion pictures
international revenue for the three-month periods ended June 30, 2010 and 2009:
|
|
|
Three Months Ended June 30, |
2010 |
|
2009 |
Brothers
|
|
My Best Friends Girl |
Daybreakers
|
|
My Bloody Valentine 3-D |
Kick-Ass
|
|
Saw V |
Killers |
|
|
Saw VI |
|
|
The following table sets forth the amount and percentage of international revenue
generated by the titles listed above and the titles not listed above for the three-month periods
ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Amount of |
|
|
|
|
|
|
of |
|
|
Amount of |
|
|
|
|
|
|
of |
|
|
|
|
|
|
International |
|
|
|
|
|
|
International |
|
|
International |
|
|
|
|
|
|
International |
|
|
Increase (Decrease) |
|
|
|
Revenue |
|
|
|
|
|
|
Revenue |
|
|
Revenue |
|
|
|
|
|
|
Revenue |
|
|
Amount |
|
|
Percent |
|
|
|
(Amounts in |
|
|
|
|
|
|
|
|
|
|
(Amounts in |
|
|
|
|
|
|
|
|
|
|
(Amounts in |
|
|
|
|
|
|
|
millions) |
|
|
|
|
|
|
|
|
|
|
millions) |
|
|
|
|
|
|
|
|
|
|
millions) |
|
|
|
|
|
International Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International revenue from significant titles listed above |
|
$ |
21.8 |
|
|
|
|
|
|
|
75 |
% |
|
$ |
8.4 |
|
|
|
|
|
|
|
48 |
% |
|
$ |
13.4 |
|
|
|
159.5 |
% |
International revenue from titles not listed above |
|
|
7.3 |
|
|
|
|
|
|
|
25 |
% |
|
|
9.1 |
|
|
|
|
|
|
|
52 |
% |
|
|
(1.8 |
) |
|
|
(19.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
29.1 |
|
|
|
|
|
|
|
100 |
% |
|
$ |
17.5 |
|
|
|
|
|
|
|
100 |
% |
|
$ |
11.6 |
|
|
|
66.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of contribution of international revenue of significant titles individually,
as a percent of international revenue |
|
|
5 |
% |
|
to |
|
|
22 |
% |
|
|
7 |
% |
|
to |
|
|
27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
International revenue included in motion pictures revenue of $29.1 million increased
$11.6 million, or 66.3%, in the current quarter as compared to the prior years quarter. The
increase in international revenue in the current quarter compared to the prior years quarter is
mainly due to the revenues from the titles listed above.
Motion Pictures Lionsgate UK Revenue
The following table sets forth the titles contributing significant Lionsgate UK revenue for
the three-month periods ended June 30, 2010 and 2009:
|
|
|
Three Months Ended June 30, |
2010 |
|
2009 |
Brothers
|
|
Drag Me to Hell |
Daybreakers
|
|
My Bloody Valentine 3-D |
Harry Brown
|
|
The Spirit |
The Hurt Locker |
|
|
The Imaginarium of Doctor Parnassus |
|
|
The following table sets forth the amount and percentage of Lionsgate UK revenue
generated by the titles listed above and the titles not listed above for the three-month periods
ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Amount of |
|
|
|
|
|
|
of |
|
|
Amount of |
|
|
|
|
|
|
of |
|
|
|
|
|
|
Lionsgate UK |
|
|
|
|
|
|
Lionsgate UK |
|
|
Lionsgate UK |
|
|
|
|
|
|
Lionsgate UK |
|
|
Increase (Decrease) |
|
|
|
Revenue |
|
|
|
|
|
|
Revenue |
|
|
Revenue |
|
|
|
|
|
|
Revenue |
|
|
Amount |
|
|
Percent |
|
|
|
(Amounts in |
|
|
|
|
|
|
|
|
|
|
(Amounts in |
|
|
|
|
|
|
|
|
|
|
(Amounts in |
|
|
|
|
|
|
|
millions) |
|
|
|
|
|
|
|
|
|
|
millions) |
|
|
|
|
|
|
|
|
|
|
millions) |
|
|
|
|
|
Lionsgate UK Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lionsgate UK revenue from significant titles listed above |
|
$ |
10.3 |
|
|
|
|
|
|
|
63 |
% |
|
$ |
7.0 |
|
|
|
|
|
|
|
47 |
% |
|
$ |
3.3 |
|
|
|
47.1 |
% |
Lionsgate UK revenue from titles not listed above |
|
|
6.0 |
|
|
|
|
|
|
|
37 |
% |
|
|
8.0 |
|
|
|
|
|
|
|
53 |
% |
|
|
(2.0 |
) |
|
|
(25.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16.3 |
|
|
|
|
|
|
|
100 |
% |
|
$ |
15.0 |
|
|
|
|
|
|
|
100 |
% |
|
$ |
1.3 |
|
|
|
8.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of contribution of Lionsgate UK revenue of
significant titles individually, as a percent of Lionsgate UK revenue |
|
|
6 |
% |
|
to |
|
|
19 |
% |
|
|
11 |
% |
|
to |
|
|
18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lionsgate UK revenue of $16.3 million increased $1.3 million, or 8.7%, in the current
quarter as compared to the prior years quarter. The increase in Lionsgate UK revenue in the
current quarter compared to the prior years quarter is mainly due to the revenue generated from
the titles listed above. The contribution of Lionsgate UK revenue from the titles listed above
increased $3.3 million in the current quarter compared to the prior years quarter, and the
contribution of Lionsgate UK revenue from the titles not listed in the table above decreased $2.0
million in the current quarter compared to the prior years quarter.
Motion Pictures Mandate Pictures Revenue
The following table sets forth the titles contributing significant Mandate Pictures revenue
for the three-month periods ended June 30, 2010 and 2009:
49
|
|
|
Three Months Ended June 30, |
2010 |
|
2009 |
Peacock
|
|
Drag Me To Hell |
The Switch
|
|
Juno |
Whip It
|
|
Passengers |
The following table sets forth the amount and percentage of Mandate Pictures revenue
generated by the titles listed above and the titles not listed above for the three-month periods
ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Amount of |
|
|
|
|
|
|
of |
|
|
Amount of |
|
|
|
|
|
|
of |
|
|
|
|
|
|
Mandate |
|
|
|
|
|
|
Mandate |
|
|
Mandate |
|
|
|
|
|
|
Mandate |
|
|
|
|
|
|
Pictures |
|
|
|
|
|
|
Pictures |
|
|
Pictures |
|
|
|
|
|
|
Pictures |
|
|
Increase (Decrease) |
|
|
|
Revenue |
|
|
|
|
|
|
Revenue |
|
|
Revenue |
|
|
|
|
|
|
Revenue |
|
|
Amount |
|
|
Percent |
|
|
|
(Amounts in |
|
|
|
|
|
|
|
|
|
|
(Amounts in |
|
|
|
|
|
|
|
|
|
|
(Amounts in |
|
|
|
|
|
|
|
millions) |
|
|
|
|
|
|
|
|
|
|
millions) |
|
|
|
|
|
|
|
|
|
|
millions) |
|
|
|
|
|
Mandate Pictures Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mandate Pictures revenue from significant titles listed above |
|
$ |
10.8 |
|
|
|
|
|
|
|
81 |
% |
|
$ |
50.3 |
|
|
|
|
|
|
|
95 |
% |
|
$ |
(39.5 |
) |
|
|
(78.5 |
%) |
Mandate Pictures revenue from titles not listed above |
|
|
2.5 |
|
|
|
|
|
|
|
19 |
% |
|
|
2.8 |
|
|
|
|
|
|
|
5 |
% |
|
|
(0.3 |
) |
|
|
(10.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13.3 |
|
|
|
|
|
|
|
100 |
% |
|
$ |
53.1 |
|
|
|
|
|
|
|
100 |
% |
|
$ |
(39.8 |
) |
|
|
(75.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of contribution of Mandate Pictures revenue of significant titles
individually, as a percent of Mandate Pictures revenue |
|
|
9 |
% |
|
to |
|
|
61 |
% |
|
|
6 |
% |
|
to |
|
|
76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mandate Pictures revenue includes revenue from the sales and licensing of domestic and
worldwide rights of titles developed or acquired by Mandate Pictures to third-party distributors or
international sub-distributors. The decrease in Mandate Pictures revenue in the current quarter
compared to the prior year quarter is mainly due to the contribution of Drag Me To Hell in the
prior year quarter as compared to the current quarter.
Television Production Revenue
Television production revenue of $53.9 million decreased $33.3 million, or 38.2%, in the
current quarter as compared to the prior years quarter. The following table sets forth the
components and the changes in the components of revenue that make up television production revenue
for the three-month periods ended June 30, 2010 and 2009:
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
Increase (Decrease) |
|
|
|
2010 |
|
|
2009 |
|
|
Amount |
|
|
Percent |
|
|
|
(Amounts in millions) |
|
Television Production |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic series licensing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lionsgate Television |
|
$ |
8.4 |
|
|
$ |
31.4 |
|
|
$ |
(23.0 |
) |
|
|
(73.2 |
%) |
Debmar-Mercury |
|
|
31.8 |
|
|
|
20.5 |
|
|
|
11.3 |
|
|
|
55.1 |
% |
Ish Entertainment |
|
|
|
|
|
|
12.2 |
|
|
|
(12.2 |
) |
|
|
(100.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total domestic series licensing |
|
|
40.2 |
|
|
|
64.1 |
|
|
|
(23.9 |
) |
|
|
(37.3 |
%) |
International |
|
|
7.8 |
|
|
|
13.2 |
|
|
|
(5.4 |
) |
|
|
(40.9 |
%) |
Home entertainment releases of television production |
|
|
5.8 |
|
|
|
9.8 |
|
|
|
(4.0 |
) |
|
|
(40.8 |
%) |
Other |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
53.9 |
|
|
$ |
87.2 |
|
|
$ |
(33.3 |
) |
|
|
(38.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues included in domestic series licensing from Lionsgate Television decreased in the
current quarter mainly due to a decrease in the number of episodes of programming delivered as
compared to the prior years quarter, and no revenue generated from our former collaboration with
Ish Entertainment Inc. (Ish) in the current quarter compared to the prior years quarter due to
the collaboration ending in fiscal 2010.
The following table sets forth the number of television episodes and hours included in
Lionsgate Television domestic series licensing revenue in the three-month periods ended June 30,
2010 and 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, 2010 |
|
|
|
|
|
|
Episodes |
|
Hours |
Mad Men Season 4 |
|
1hr |
|
|
1 |
|
|
|
1.0 |
|
Scream Queens Season 2 |
|
1hr |
|
|
8 |
|
|
|
8.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
9.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, 2009 |
|
|
|
|
|
|
Episodes |
|
Hours |
Weeds Season 5 |
|
1/2hr |
|
|
6 |
|
|
|
3.0 |
|
Nurse Jackie Season 1 |
|
1/2hr |
|
|
12 |
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
9.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues included in domestic series licensing from Debmar-Mercury increased in the
current quarter due to increased revenue from the deliveries of the television series House of
Payne, Meet the Browns and The Wendy Williams Show.
Our reality television collaboration with Ish ended in fiscal 2010 resulting in no revenue
generated in the current quarter. Revenue generated in the prior years quarter resulted primarily
from the production of the domestic series Paris Hiltons My New BFF, and My Antonio.
International revenue decreased in the current quarter due to a decrease in episodes of
programming delivered internationally and no international revenue generated from our collaboration
with Ish. International revenue in the current quarter included revenue from Blue Mountain State
Season 1, Crash Season 2, and Mad Men Season 3. International revenue in the prior years quarter
included revenue from Crash Season 1, Dead Zone, Paris Hiltons My New BFF, and Scream Queens.
The decrease in revenue from home entertainment releases of television production is primarily
driven by DVD/Blu-Ray revenue from Weeds Season 3 and Weeds Season 4 in the prior years quarter
compared to revenue from Mad Men Season 3 and Weeds Season 5 in the current quarter.
51
Media Networks Revenue
Media Networks revenue for the three months ended June 30, 2010 and 2009 are nil and $19.3
million, respectively. The acquisition of TV Guide Network occurred on February 28, 2009. The
results of operations of TV
Guide Network included in the Companys consolidated results
from February 28, 2009 through May 27,
2009. A portion of the entity was sold on May 28, 2009. Subsequent to the sale TV Guide, and pursuant to the
new accounting guidance effective April 1, 2010 which the Company has retrospectively applied, the
Companys interest in TV Guide Network is being accounted for under the equity method of
accounting.
Direct Operating Expenses
The following table sets forth direct operating expenses by segment for the three months ended
June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
June 30, 2010 |
|
|
June 30, 2009 |
|
|
|
Motion |
|
|
Television |
|
|
|
|
|
|
Motion |
|
|
Television |
|
|
Media |
|
|
|
|
|
|
Pictures |
|
|
Production |
|
|
Total |
|
|
Pictures |
|
|
Production |
|
|
Networks |
|
|
Total |
|
|
|
(Amounts in millions) |
|
Direct operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of films
and television programs |
|
$ |
78.5 |
|
|
$ |
22.7 |
|
|
$ |
101.2 |
|
|
$ |
90.2 |
|
|
$ |
53.7 |
|
|
$ |
7.3 |
|
|
$ |
151.2 |
|
Participation and residual expense |
|
|
35.7 |
|
|
|
20.7 |
|
|
|
56.4 |
|
|
|
39.9 |
|
|
|
17.0 |
|
|
|
0.2 |
|
|
|
57.1 |
|
Other expenses |
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
1.9 |
|
|
|
0.4 |
|
|
|
(0.1 |
) |
|
|
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
114.3 |
|
|
$ |
43.3 |
|
|
$ |
157.6 |
|
|
$ |
132.0 |
|
|
$ |
71.1 |
|
|
$ |
7.4 |
|
|
$ |
210.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses as a
percentage of segment revenues |
|
|
41.9 |
% |
|
|
80.3 |
% |
|
|
48.3 |
% |
|
|
48.4 |
% |
|
|
81.5 |
% |
|
|
38.3 |
% |
|
|
55.5 |
% |
Direct operating expenses of the motion pictures segment of $114.3 million for this
quarter were 41.9% of motion pictures revenue, compared to $132.0 million, or 48.4% of motion
pictures revenue for the prior years quarter. The decrease in direct operating expenses of the
motion pictures segment in the current quarter as a percent of revenue is primarily due to the
higher Mandate Pictures revenue in relation to total motion pictures revenue in the prior year
quarter compared to the current year quarter. Direct operating expenses of Mandate Pictures are
higher in relation to revenue as compared to the rest of the motion pictures segment, however
Mandate Pictures does not incur significant distribution and marketing expenses. Investment in film
write-downs of the motion picture segment during the current quarter totaled approximately $0.7
million compared to $2.9 million for the prior years quarter. In the current and prior years
quarter, there were no write-downs that individually exceeded $1.0 million. Other expenses consists
of the provision for doubtful accounts and foreign exchange gains and losses. The provision for
doubtful accounts decreased from $2.1 million in the prior years quarter to $0.3 million in the
current quarter. Foreign exchange gains and losses included a loss of $0.2 million in the prior
years quarter and a gain of $0.3 million in the current quarter due to changes in exchange rates.
Direct operating expenses of the television production segment of $43.3 million for the
current quarter were 80.3% of television revenue, compared to $71.1 million, or 81.5%, of
television revenue for the prior years quarter. In the current quarter, $3.2 million of charges
for costs incurred in excess of contracted revenues for episodic television series or write-downs
of television film costs were included in the amortization of television programs, compared to $1.0
million in the prior years quarter.
Direct operating expenses of the Media Networks segment of $7.4 million for the prior year
quarter consists primarily of programming expenses associated with the production of such programs
as Idol Tonight and Hollywood 411 from April 1, 2009 to May 27, 2009.
52
Distribution and Marketing Expenses
The following table sets forth distribution and marketing expenses by segment for the three
months ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
June 30, 2010 |
|
|
June 30, 2009 |
|
|
|
Motion |
|
|
Television |
|
|
|
|
|
|
Motion |
|
|
Television |
|
|
Media |
|
|
|
|
|
|
Pictures |
|
|
Production |
|
|
Total |
|
|
Pictures |
|
|
Production |
|
|
Networks |
|
|
Total |
|
|
|
(Amounts in millions) |
|
Distribution and marketing expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical |
|
$ |
83.7 |
|
|
$ |
|
|
|
$ |
83.7 |
|
|
$ |
12.5 |
|
|
$ |
0.2 |
|
|
$ |
|
|
|
$ |
12.7 |
|
Home Entertainment |
|
|
39.6 |
|
|
|
0.8 |
|
|
|
40.4 |
|
|
|
51.7 |
|
|
|
3.2 |
|
|
|
|
|
|
|
54.9 |
|
Television |
|
|
1.1 |
|
|
|
2.0 |
|
|
|
3.1 |
|
|
|
0.6 |
|
|
|
2.1 |
|
|
|
|
|
|
|
2.7 |
|
International |
|
|
2.0 |
|
|
|
1.2 |
|
|
|
3.2 |
|
|
|
1.3 |
|
|
|
1.3 |
|
|
|
|
|
|
|
2.6 |
|
Lionsgate UK |
|
|
9.2 |
|
|
|
0.3 |
|
|
|
9.5 |
|
|
|
8.4 |
|
|
|
0.2 |
|
|
|
|
|
|
|
8.6 |
|
Media Networks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0 |
|
|
|
2.0 |
|
Other |
|
|
|
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.4 |
|
|
|
0.1 |
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
135.6 |
|
|
$ |
4.5 |
|
|
$ |
140.1 |
|
|
$ |
74.9 |
|
|
$ |
7.1 |
|
|
$ |
2.0 |
|
|
$ |
84.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 the current
quarter of $83.7 million increased $71.2 million, compared to $12.5 million in the prior years
quarter. The increase is driven by the higher number of theatrical releases in the current quarter
as compared to the prior years quarter. Domestic theatrical P&A from the motion pictures segment
in this quarter included P&A incurred on the release of Kick-Ass, Killers, and Why Did I Get
Married Too?, and P&A incurred in advance of the release of The Expendables, which individually
represented between 6% and 49% of total theatrical P&A and, in the aggregate, accounted for 95% of
the total theatrical P&A. Domestic theatrical P&A from the motion pictures segment in the prior
years quarter included P&A incurred on the release of Crank: High Voltage and The Haunting in
Connecticut, and P&A incurred in advance of the release of titles such as Gamer, Precious, and I
Can Do Bad All By Myself, which individually represented between 6% and 58% of total theatrical P&A
and, in the aggregate, accounted for 88% of the total theatrical P&A.
Theatrical distribution and marketing expenses generally depend on the number of theatrical
motion pictures we release and the release plan of those motion pictures in a given year. As a
result, we currently believe that total theatrical distribution and marketing expenses for fiscal
2011 will exceed that of fiscal 2010 levels because the number of pictures that we expect to
release in fiscal 2011 will be more than the number released last fiscal year.
Home entertainment distribution and marketing costs on motion pictures and television product
in this quarter of $40.4 million decreased $14.5 million, or 26.4%, compared to $54.9 million in
the prior years quarter. The decrease in home entertainment distribution and marketing costs is
mainly due to lower home entertainment revenue. Home entertainment distribution and marketing costs
as a percentage of home entertainment revenues was 34.5% and 36.4% in the current quarter and prior
years quarter, respectively.
Lionsgate UK distribution and marketing expenses in the motion pictures segment in the current
quarter of $9.2 million increased from $8.4 million in the prior years quarter.
Media Networks includes transmission and marketing and promotion expenses from April 1, 2009
to May 27, 2009.
53
General and Administrative Expenses
The following table sets forth general and administrative expenses by segment for the three
months ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
Increase (Decrease) |
|
|
|
2010 |
|
|
2009 |
|
|
Amount |
|
|
Percent |
|
|
|
(Amounts in millions) |
|
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures |
|
$ |
11.6 |
|
|
$ |
11.5 |
|
|
$ |
0.1 |
|
|
|
0.9 |
% |
Television Production |
|
|
3.1 |
|
|
|
2.1 |
|
|
|
1.0 |
|
|
|
47.6 |
% |
Media Networks |
|
|
|
|
|
|
6.2 |
|
|
|
(6.2 |
) |
|
|
(100.0 |
%) |
Corporate, including stock-based compensation |
|
|
50.0 |
|
|
|
16.8 |
|
|
|
33.2 |
|
|
|
197.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative expenses |
|
$ |
64.7 |
|
|
$ |
36.6 |
|
|
$ |
28.1 |
|
|
|
76.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Media Networks general and administrative expenses |
|
|
|
|
|
|
(6.2 |
) |
|
|
6.2 |
|
|
|
(100.0 |
%) |
Less Stock-based compensation expense |
|
|
(27.3 |
) |
|
|
(4.0 |
) |
|
|
(23.3 |
) |
|
NM | |
Less Shareholder activist matter expenses |
|
|
(7.3 |
) |
|
|
(1.0 |
) |
|
|
(6.3 |
) |
|
NM | |
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses excluding Media
Networks, stock-based compensation expense
and shareholder activist matter expenses |
|
$ |
30.1 |
|
|
$ |
25.4 |
|
|
$ |
4.7 |
|
|
|
18.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative expenses as a percentage of revenue |
|
|
19.8 |
% |
|
|
9.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses excluding Media Networks,
stock-based compensation expense, and shareholder
activist matter expenses, as a percentage of
Motion Pictures and Television Production revenue |
|
|
9.2 |
% |
|
|
7.1 |
% |
|
|
|
|
|
|
|
|
The following table sets forth stock-based compensation expense (benefit) included in our
corporate segment for the three months ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
Increase (Decrease) |
|
|
|
2010 |
|
|
2009 |
|
|
Amount |
|
|
Percent |
|
|
|
(Amounts in millions) |
|
Stock-Based Compensation Expense (Benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
$ |
2.5 |
|
|
$ |
0.8 |
|
|
$ |
1.7 |
|
|
|
212.5 |
% |
Restricted share units and other share-based compensation |
|
|
19.7 |
|
|
|
2.9 |
|
|
|
16.8 |
|
|
NM | |
Stock appreciation rights |
|
|
5.1 |
|
|
|
0.3 |
|
|
|
4.8 |
|
|
NM | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27.3 |
|
|
$ |
4.0 |
|
|
$ |
23.3 |
|
|
NM | |
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses increased by $28.1 million, or 76.8%, mainly due to
increases in stock-based compensation and legal and professional fees associated with a shareholder
activist matter included in the corporate segment in the current period, offset by decreases from
the deconsolidation of the Media Networks reporting segments. The increase in stock-based
compensation of $23.3 million is primarily due to $21.9 million of additional expense associated
with the immediate vesting of equity awards of certain executive officers triggered by the change
in control provisions in their respective employment agreements.
54
General and administrative expenses excluding the Media Networks segment, excluding
stock-based compensation, and excluding shareholder activist matter expenses was $29.9 million in
the current quarter compared to $25.4 million in the prior year quarter, which represents an
increase of $4.5 million or 17.8%.
General and administrative expenses of the motion pictures segment increased $0.1 million, or
0.9%, mainly due to a slight increase in other general overhead such as travel and entertainment
expenses. In the current quarter, $2.2 million of motion pictures production overhead was
capitalized compared to $2.0 million in the prior years quarter.
General and administrative expenses of the television production segment increased $1.0
million, or 47.6%, mainly due to an increase in salary and related expenses. In the current
quarter, $1.0 million of television production overhead was capitalized compared to $1.4 million in
the prior years quarter.
General and administrative expenses of the corporate segment increased $33.2 million, or
197.6%, mainly due to an increase of $23.3 million of stock-based compensation of which $21.9
million was associated with the immediate vesting of equity awards of certain executive officers
triggered by the change in control provisions in their
respective employment agreements and $6.3
million of legal and professional fees associated with a shareholder activist matter.
At June 30, 2010, as disclosed in Note 17 to the unaudited condensed consolidated financial
statements, there were unrecognized compensation costs of approximately $8.3 million related to
stock options and restricted share units previously granted, including annual installments of share
grants that were subject to performance targets, which will be expensed over the remaining vesting
periods. At June 30, 2010, 503,751 shares of restricted share units have been awarded to four key
executive officers, the vesting of which will be subject to performance targets to be set annually
by the Compensation Committee of the Board of Directors of the Company. These restricted share
units will vest in two annual installments assuming annual performance targets have been met. The
fair value of the 503,751 shares, whose future annual performance targets have not been set, was
$3.5 million, based on the market price of the Companys common shares as of June 30, 2010. The
market value will be remeasured when the annual 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.
Depreciation, Amortization and Other Expenses (Income)
Depreciation and amortization of $1.6 million this quarter decreased $5.1 million from $6.7
million in the prior years quarter, primarily associated with $3.2 million of depreciation and
amortization recorded in the prior years quarter from the Media Networks segment prior to its
deconsolidation. Estimated amortization expense, based on intangible assets as of June 30, 2010,
for the nine-months ended March 31, 2011 and for each of the years ending March 31, 2012 through
2015 is approximately $0.5 million, $0.3 million, $0.1 million, nil, and nil, respectively.
55
Interest expense of $14.5 million this quarter increased $4.9 million, or 51.0%, from the
prior years quarter of $9.6 million. The following table sets forth the components of interest
expense for the three months ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Amounts in millions) |
|
Interest Expense |
|
|
|
|
|
|
|
|
Cash Based: |
|
|
|
|
|
|
|
|
Senior revolving credit facility |
|
$ |
1.7 |
|
|
$ |
1.8 |
|
Senior subordinated debentures |
|
|
2.0 |
|
|
|
2.6 |
|
Senior secured second priority notes |
|
|
6.0 |
|
|
|
|
|
Other |
|
|
0.3 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
10.0 |
|
|
|
4.9 |
|
|
|
|
|
|
|
|
Non-Cash Based: |
|
|
|
|
|
|
|
|
Amortization of discount on liability component of
senior subordinated debentures |
|
|
3.4 |
|
|
|
4.0 |
|
Amortization of discount on senior secured second priority notes |
|
|
0.3 |
|
|
|
|
|
Amortization of deferred financing costs |
|
|
0.8 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
4.5 |
|
|
|
4.7 |
|
|
|
|
|
|
|
|
|
|
$ |
14.5 |
|
|
$ |
9.6 |
|
|
|
|
|
|
|
|
Interest and other income was $0.4 million for the quarter ended June 30, 2010, compared
to $0.4 million in the prior years quarter. Interest and other income this quarter was earned on
the lower average cash balances and restricted investments held during the three months ended June
30, 2010 as compared to 2009.
Gain on extinguishment of debt was nil for the three months ended June 30, 2010, compared to a
gain of $7.5 million in the prior years quarter resulting from the exchange of $66.6 million of
our February 2005 3.625% convertible senior subordinated notes.
The following table represents our portion of the income or (loss) of our equity method
investees based on our percentage ownership for the three months ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
Percentage |
|
|
June 30, |
|
|
June 30, |
|
|
|
Ownership |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
(Amounts in millions) |
|
Horror Entertainment, LLC (FEARnet) |
|
|
33.33 |
% |
|
$ |
0.5 |
|
|
$ |
(0.1 |
) |
NextPoint, Inc. (Break.com) |
|
|
42.00 |
% |
|
|
(0.3 |
) |
|
|
(0.4 |
) |
Roadside Attractions, LLC |
|
|
43.00 |
% |
|
|
0.1 |
|
|
|
(0.1 |
) |
Studio 3 Partners, LLC (EPIX) (1) |
|
|
31.15 |
% |
|
|
(12.0 |
) |
|
|
(1.1 |
) |
TV Guide Network |
|
|
51.00 |
% |
|
|
|
|
|
|
(0.3 |
) |
Tiger Gate |
|
|
45.90 |
% |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(11.7 |
) |
|
$ |
(2.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We license certain of our theatrical releases and other films and television programs to
EPIX. A portion of the profits of these licenses reflecting our ownership share in the venture are
eliminated through an adjustment to the equity interest loss of the venture. These profits are
recognized as they are realized by the venture. For the three months ended June 30, 2010 there was
not a significant amount of revenue from the licensing of products to EPIX. Profits from previous
licensing of products to the venture were realized by the venture in the period. The equity
interest loss from EPIX above includes $13.1 million, which represents our share of the EPIX losses
of $42.4 million for the three months ended March 31, 2010, reduced by the realization of a portion
of the profits previously eliminated on licenses to the venture of $1.2 million. |
56
Income Tax Provision
We had an income tax expense of $0.8 million, or (1.3%), of loss before income taxes in the
three months ended June 30, 2010, compared to an expense of $1.3 million, or 3.5%, of income before
income taxes in the three months ended June 30, 2009. The tax expense reflected in the current
quarter is primarily attributable to U.S. income taxes and foreign withholding taxes.
Our 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, subject to certain limitations that may prevent us from fully
utilizing them, amount to approximately $156.2 million for U.S. federal income tax purposes
available to reduce income taxes over twenty years, $131.1 million for U.S. state income tax
purposes available to reduce income taxes over future years with varying expirations, $27.3 million
for Canadian income tax purposes available to reduce income taxes over 20 years with varying
expirations, and $15.9 million for UK income tax purposes available indefinitely to reduce future
income taxes.
Net Loss
Net loss for the three months ended June 30, 2010 was $64.1 million, or basic and diluted net
loss per common share of $0.54 on 118.2 million weighted average common shares outstanding. This
compares to net income for the three months ended June 30, 2009 of $36.3 million, or basic net
income per common share of $0.31 on 117.1 million weighted average common shares outstanding.
Diluted net income per common share for the three months ended June 30, 2009 was $0.30 on 136.6
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 senior revolving credit facility.
10.25% Senior Secured Second-Priority Notes. On October 21, 2009, Lions Gate Entertainment
Inc. (LGEI) issued $236.0 million aggregate principal amount of the Senior Notes in a private
offering conducted pursuant to Rule 144A and Regulation S under the Securities Act. The Senior
Notes were issued by LGEI at an initial price of 95.222% (original issue discount 4.778%) of the
principal amount. The net proceeds, after deducting discounts, the fees paid to the initial
purchaser, and all transaction costs (including legal, accounting and other professional fees) from
the sale of the Senior Notes was approximately $214.3 million, which was used by LGEI to repay a
portion of its outstanding debt under our senior revolving credit facility.
Interest: The interest on the Senior Notes is payable semi-annually on May 1 and November 1 of
each year at a rate of 10.25% per year.
Maturity Date: The Senior Notes mature on November 1, 2016.
Certain Terms: The Senior Notes are guaranteed on a senior secured basis by us and certain of
our and LGEIs wholly-owned subsidiaries. The Senior Notes are ranked junior in right of payment to
the Companys senior revolving credit facility, ranked equally in right of payment to the Companys
subordinated notes, and ranked senior to any of the Companys unsecured debt, to the extent of the
value of the respective collateral. The Senior Notes contain certain restrictions and covenants
that, subject to certain exceptions, limit our ability to incur additional indebtedness, pay
dividends or repurchase our common shares, make certain loans or investments, and sell or otherwise
dispose of certain assets subject to certain conditions, among other limitations.
Film Credit Facility. On October 6, 2009, we entered into the Film Credit Facility, as amended
effective December 31, 2009, which provides for borrowings for the acquisition or production of
motion pictures. Currently, the Film Credit Facility provides for total borrowings up to $120
million and can be increased to $200 million if additional lenders or financial institutions become
a party to and provide a commitment under the facility. The Film Credit Facility has a maturity
date of April 6, 2013 and as of June 30, 2010, bore interest of 3.25% over the LIBO rate (as
defined in the credit agreement effective interest rate of 3.60% and 3.50% as of June 30, 2010
and March 31, 2010, respectively). We are required to pay a quarterly commitment fee of 0.75% per
annum on the unused commitment under the Film Credit Facility. Borrowings under the Film Credit
Facility are due the earlier of (a) nine months after delivery of each motion picture or (b) April
6, 2013. Borrowings under the Film Credit Facility are subject to a borrowing base calculation and
are secured by interests in the related motion pictures, together with certain other receivables
from other motion
57
picture and television productions pledged by us including a minimum pledge of
such receivables of $25 million. Receivables pledged to the Film Credit Facility must be excluded
from the borrowing base calculation under our senior revolving credit facility. At June 30, 2010,
the Company had borrowings of $38.4 million (March 31, 2010 $35.7 million) and $81.6 million
available under the Film Credit Facility (March 31, 2010 $84.3 million).
Senior Revolving Credit Facility. At June 30, 2010, we had borrowings of $199.0 million (March
31, 2010 $17.0 million) under our senior revolving credit facility. The availability of funds
under our senior revolving credit facility is limited by a borrowing base and also reduced by
outstanding letters of credit which amounted to $25.6 million at June 30, 2010 (March 31, 2010
$25.6 million). At June 30, 2010, there was $115.4 million available under the senior revolving
credit facility (March 31, 2010 $297.4 million). We are required to pay a quarterly commitment
fee based upon 0.375% per annum on the total senior revolving credit facility of $340 million less
the amount drawn. The senior revolving credit facility expires July 25, 2013, and as of June 30,
2010, bore interest of 2.5% over the Adjusted LIBOR rate (effective interest rate of 2.85% and
2.75% as of June 30, 2010 and March 31, 2010, respectively). Obligations under the senior revolving
credit facility are secured by collateral (as defined in the credit agreement) granted by us and
certain of our subsidiaries, as well as a pledge of equity interests in certain of our
subsidiaries. The senior revolving credit facility contains a number of affirmative and negative
covenants that, among other things, require us to satisfy certain financial covenants and restrict
our ability to incur additional debt, pay dividends and make distributions, make certain
investments and acquisitions, repurchase its stock and prepay certain indebtedness, create liens,
enter into agreements with affiliates, modify the nature of our business, enter into sale-leaseback
transactions, transfer and sell material assets and merge or consolidate. Under the senior
revolving credit facility, the Company may also be subject to an event of default upon a change in
control (as defined in the senior revolving credit facility) which, among other things, includes a
person or group acquiring ownership or control in excess of 50% (amended from 20% on June 22, 2010)
of the Companys common stock.
October 2004 2.9375% Notes. In October 2004, LGEI sold $150.0 million of the October 2004
2.9375% Notes.
Outstanding Amount: As of June 30, 2010, $110.0 million of aggregate principal amount
(carrying value $101.1 million) of the October 2004 2.9375% Notes remain outstanding. Following
the refinancing exchange on July 20, 2010 discussed above under Recent Developments $46.3 million
of aggregate principal amount remains outstanding.
Interest: Interest on the October 2004 2.9375% Notes is payable semi-annually on April 15 and
October 15.
Maturity Date: The October 2004 2.9375% Notes mature on October 15, 2024.
Redeemable by LGEI: From October 15, 2009 to October 14, 2010, LGEI may redeem the October
2004 2.9375% Notes at 100.839%; from October 15, 2010 to October 14, 2011, LGEI may redeem the
October 2004 2.9375% Notes at 100.420%; and thereafter, LGEI may redeem the October 2004 2.9375%
Notes at 100%.
Redeemable by Holder: The holder may require LGEI to repurchase the October 2004 2.9375% Notes
on October 15, 2011, 2014 and 2019 or upon a change in control at a price equal to 100% of the
principal amount, together with accrued and unpaid interest through the date of repurchase.
Conversion Features: The holder may convert the October 2004 2.9375% Notes into our common
shares prior to maturity only if the price of our common shares issuable upon conversion of a note
reaches or falls below a certain specific threshold over a specified period, the notes have been
called for redemption, a change in control occurs or certain other corporate transactions occur.
Before the close of business on or prior to the trading day immediately before the maturity date,
the holder may convert the notes into our common shares at a conversion rate equal to 86.9565
shares per $1,000 principal amount of the October 2004 2.9375% Notes, subject to adjustment in
certain circumstances, which represents a conversion price of approximately $11.50 per share. Upon
conversion of the October 2004 2.9375% Notes, we have the option to deliver, in lieu of common
shares, cash or a combination of cash and our common shares.
Make Whole Premium: Under certain circumstances, if the holder requires LGEI to repurchase all
or a portion of our notes or the holder converts the notes upon a change in control, they will be
entitled to receive a make whole premium. The amount of the make whole premium, if any, will be
based on the price of 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 at such time is less than $8.79 per
share or exceeds $50.00 per share.
58
February 2005 3.625% Notes. In February 2005, LGEI sold $175.0 million of the February 2005
3.625% Notes.
Outstanding Amount: As of June 30, 2010, $59.5 million of aggregate principal amount (carrying
value $53.5 million) of the February 2005 3.625% Notes remain outstanding. Following the
refinancing exchange on July 20, 2010 discussed above under Recent Developments $23.5 million of
aggregate principal amount remains outstanding.
Interest: Interest on the February 2005 3.625% Notes is payable at 3.625% per annum
semi-annually on March 15 and September 15 until March 15, 2012 and at 3.125% per annum thereafter
until maturity.
Maturity Date: The February 2005 3.625% Notes mature on March 15, 2025.
Redeemable by LGEI: LGEI may redeem all or a portion of the February 2005 3.625% Notes at our
option on or after March 15, 2012 at 100% of their principal amount, together with accrued and
unpaid interest through the date of redemption.
Redeemable by Holder: The holder may require LGEI to repurchase the February 2005 3.625% Notes
on March 15, 2012, 2015 and 2020 or upon a change in control at a price equal to 100% of the
principal amount, together with accrued and unpaid interest through the date of repurchase.
Conversion Features: The February 2005 3.625% Notes are convertible, at the option of the
holder, at any time before the maturity date, if the notes have not been previously redeemed or
repurchased, at a conversion rate equal to 70.0133 shares per $1,000 principal amount of the
February 2005 3.625% Notes, subject to adjustment in certain circumstances, which represents a
conversion price of approximately $14.28 per share. Upon conversion of the February 2005 3.625%
Notes, we have the option to deliver, in lieu of common shares, cash or a combination of cash and
our common shares.
Make Whole Premium: Under certain circumstances, if the holder requires LGEI to repurchase all
or a portion of our 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 at such time is less than $10.35 per share or exceeds $75.00 per share.
April 2009 3.625% Notes. In April 2009, LGEI issued approximately $66.6 million of the April
2009 3.625% Notes.
Outstanding Amount: As of June 30, 2010, $66.6 million of aggregate principal amount (carrying
value $37.2 million) of the April 2009 3.625% Notes remain outstanding.
Interest: Interest on the April 2009 3.625% Notes is payable at 3.625% per annum semi-annually
on March 15 and September 15 of each year.
Maturity Date: The April 2009 3.625% Notes will mature on March 15, 2025.
Redeemable by LGEI: On or after March 15, 2015, LGEI may redeem the April 2009 3.625% Notes,
in whole or in part, at a price equal to 100% of the principal amount of the April 2009 3.625%
Notes to be redeemed, plus accrued and unpaid interest through the date of redemption.
Redeemable by Holder: The holder may require LGEI to repurchase the April 2009 3.625% Notes on
March 15, 2015, 2018 and 2023 or upon a designated event, at a price equal to 100% of the
principal amount of the April 2009 3.625% Notes to be repurchased plus accrued and unpaid interest.
Conversion Features: The April 2009 3.625% Notes may be converted into our common shares at
any time before maturity, redemption or repurchase. The initial conversion rate of the April 2009
3.625% Notes is 121.2121 common shares per $1,000 principal amount of the April 2009 3.625% Notes,
subject to adjustment in certain circumstances, which represents a conversion price of
approximately $8.25 per share. Upon conversion of the April 2009 3.625% Notes, we have the option
to deliver, in lieu of common shares, cash or a combination of cash and common shares of the
Company.
59
Make Whole Premium: Under certain circumstances, if the holder requires LGEI to repurchase all
or a portion of their notes upon a change in control, they will be entitled to receive a make whole
premium. The amount of the make whole premium, if any, will be based on the price of 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 at such time is less than $5.36 per share or exceeds $50.00 per share.
Theatrical Slate Participation. On May 29, 2009, we terminated our theatrical slate
participation arrangement with Pride. The arrangement was evidenced by the Master Covered Picture
Purchase Agreement between us and FilmCo and the certain FilmCo Operating Agreement for FilmCo by
and between LGEI and Pride, each dated as of May 25, 2007 and amended on January 30, 2008. Under
the arrangement, Pride contributed, in general, 50% of our production, acquisition, marketing and
distribution costs of theatrical feature films and participated in a pro rata portion of the
pictures net profits or losses similar to a co-production arrangement based on the portion of
costs funded. Amounts provided from Pride were reflected as a participation liability. In late
2008, the administrative agent for the senior lenders under Prides senior credit facility took the
position, among others, that the senior lenders did not have an obligation to continue to fund
under the senior credit facility because the conditions precedent to funding set forth in the
senior credit facility could not be satisfied. We were not a party to the credit facility.
Consequently, Pride did not purchase the pictures The Spirit, My Bloody Valentine 3-D and Madea
Goes To Jail. Thereafter, on April 20, 2009, after failed attempts by us to facilitate a
resolution, we gave FilmCo and Pride notice that FilmCo, through Prides failure to make certain
capital contributions, was in default of the Master Picture Purchase Agreement. On May 5, 2009, the
representative for the Pride equity and the Pride mezzanine investor responded that the required
amount was fully funded and that it had no further obligations to make any additional capital
contributions. Consequently, on May 29, 2009, we gave notice of termination of the Master Picture
Purchase Agreement. Since May 29, 2009, there have been no developments with respect to the
arrangement. Although we will no longer receive financing as provided from the participation of
Pride in our films, we do not believe this will have a material adverse effect to our business.
Société Générale de Financement du Québec. On July 30, 2007, the Company entered into a
four-year filmed entertainment slate participation agreement with SGF. SGF will provide up to 35%
of production costs of television and feature film productions produced in Québec for a four-year
period for an aggregate participation of up to $140.0 million, and we will advance all
amounts necessary to fund the remaining budgeted costs. The maximum aggregate of budgeted
costs over the four-year period will be $400.0 million, including our portion, but no more than
$100.0 million per year. In connection with this agreement, we and SGF will proportionally share in
the proceeds derived from the productions after we deduct a distribution fee, recoup all
distribution expenses and releasing costs, and pay all applicable third party participations and
residuals. Under the terms of the arrangement, $35.0 million is available through July 30, 2010 and
$35.0 million is available during the twelve-month period ended July 30, 2011 to be provided by
SGF. Of the $35.0 million available through July 30, 2010, $1.4 million was provided through June
30, 2010 and an additional $2.4 million was provided through July 30, 2010, with the remaining
commitment expiring on July 30, 2010.
Filmed Entertainment Backlog. Backlog represents the amount of future revenue not yet recorded
from contracts for the licensing of films and television product for television exhibition and in
international markets. Backlog at June 30, 2010 and March 31, 2010 is $478.6 million and $448.9
million, respectively.
Cash Flows Used in Operating Activities. Cash flows used in operating activities for the three
months ended June 30, 2010 were $62.9 million compared to cash flows used in operating activities
in the three months ended June 30, 2009 of $154.4 million. The decrease in cash used in operating
activities was primarily due to increases in cash provided by changes in accounts payable and
accrued liabilities, investment in films and television programs, participations and residuals,
film obligations and deferred revenues, offset by a net loss for the three months ended June 30,
2010 compared to net income for the three months ended June 30, 2009, a decrease in amortization of
films and television programs, and an increase in restricted cash.
Cash Flows Used in Investing Activities. Cash flows used in investing activities of $37.4
million for the three months ended June 30, 2010 consisted of $15.0 million for the buy-out of the
earn-out associated with the acquisition of Debmar-Mercury (see Note 13 to our unaudited condensed
financial statements), $0.4 million for purchases of property and equipment and $22.0 million of
capital contributions to companies accounted as equity method investments. Cash flows used in
investing activities of $8.4 million for the three months ended June 30, 2009 consisted of
$1.8 million for purchases of property and equipment and $14.9 million of capital contributions to
companies accounted as equity method investments, offset by $8.3 million repayments on loans made
to a third party producer.
Cash Flows Provided by Financing Activities. Cash flows provided by financing activities of
$110.4 million for the three months ended June 30, 2010 resulted from borrowings of $243.0 million
under the senior revolving credit facility, offset
by $61.0 million repayment on the senior revolving credit
facility and $83.6 million repayment of
60
production loans. Cash flows provided by financing activities of $128.0 million for the three months ended
June 30, 2009 resulted from increased production loans of $83.2 million and proceeds of
$113.4 million from the sale of our 49% interest in TV Guide Network, offset by $68.0 million
repayment of production loans.
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,
senior revolving credit facility availability, tax-efficient financing and available production
financing 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, and future equity method investment funding requirements.
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 senior revolving credit facility,
single-purpose production financing, film credit facility, 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. If
additional financing beyond our existing cash flows from operations and credit facilities cannot
fund such transactions, there is no assurance that such financing will be available on terms
acceptable to us.
Future commitments under contractual obligations as of June 30, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
|
|
|
Ended |
|
|
|
|
|
|
March 31, |
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
Thereafter |
|
|
Total |
|
|
|
(Amounts in thousands) |
|
Future annual repayment of debt and other
financing obligations recorded as of June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior revolving credit facility |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
199,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
199,000 |
|
Production loans(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual production loans |
|
|
86,101 |
|
|
|
39,391 |
|
|
|
|
|
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
140,492 |
|
Pennsylvania Regional Center production loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,994 |
|
|
|
|
|
|
|
|
|
|
|
65,994 |
|
Film Credit Facility |
|
|
31,242 |
|
|
|
7,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,434 |
|
Subordinated notes and other financing obligations (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2004 2.9375% Notes |
|
|
|
|
|
|
110,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,035 |
|
February 2005 3.625% Notes |
|
|
|
|
|
|
59,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,479 |
|
April 2009 3.625% Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,581 |
|
|
|
|
|
|
|
66,581 |
|
Other financing obligations |
|
|
|
|
|
|
|
|
|
|
3,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,718 |
|
Senior secured second priority notes (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
236,000 |
|
|
|
236,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
117,343 |
|
|
$ |
216,097 |
|
|
$ |
3,718 |
|
|
$ |
279,994 |
|
|
$ |
66,581 |
|
|
$ |
236,000 |
|
|
$ |
919,733 |
|
Contractual commitments by expected
repayment date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film obligations(1) |
|
$ |
40,794 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
40,794 |
|
Distribution and marketing commitments (4) |
|
|
70,779 |
|
|
|
3,000 |
|
|
|
22,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,779 |
|
Minimum guarantee commitments (5) |
|
|
193,176 |
|
|
|
18,919 |
|
|
|
8,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,619 |
|
Production loan commitments (5) |
|
|
17,377 |
|
|
|
2,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,312 |
|
Cash interest payments on subordinated notes and other financing obligations |
|
|
6,408 |
|
|
|
8,098 |
|
|
|
2,440 |
|
|
|
2,414 |
|
|
|
2,414 |
|
|
|
|
|
|
|
21,774 |
|
Cash interest payments on senior secured second priority notes |
|
|
12,095 |
|
|
|
24,190 |
|
|
|
24,190 |
|
|
|
24,190 |
|
|
|
24,190 |
|
|
|
48,380 |
|
|
|
157,235 |
|
Operating lease commitments |
|
|
6,678 |
|
|
|
8,242 |
|
|
|
8,617 |
|
|
|
8,671 |
|
|
|
8,087 |
|
|
|
3,269 |
|
|
|
43,564 |
|
Other contractual obligations |
|
|
480 |
|
|
|
704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,184 |
|
Employment and consulting contracts |
|
|
28,772 |
|
|
|
24,874 |
|
|
|
12,546 |
|
|
|
7,266 |
|
|
|
2,823 |
|
|
|
1,885 |
|
|
|
78,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
376,559 |
|
|
$ |
90,962 |
|
|
$ |
78,317 |
|
|
$ |
42,541 |
|
|
$ |
37,514 |
|
|
$ |
53,534 |
|
|
$ |
679,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total future commitments under
contractual obligations |
|
$ |
493,902 |
|
|
$ |
307,059 |
|
|
$ |
82,035 |
|
|
$ |
322,535 |
|
|
$ |
104,095 |
|
|
$ |
289,534 |
|
|
$ |
1,599,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Production loans represent loans for the production of film and television programs that we
produce. Film obligations include minimum guarantees and theatrical marketing obligations as
disclosed in Note 9 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. |
61
|
|
|
(2) |
|
Subordinated notes and other financing obligations reflect the principal amounts of the
October 2004 2.9375% Notes, the February 2005 3.625% Notes and the April 2009 3.625% Notes and
other financing obligations. The future repayment dates of the Senior Notes represent the
first redemption date by holder for each note respectively. As of June 30, 2010, the carrying
value of our subordinated notes was as follows: October 2004 2.9375% Notes $101.1 million;
February 2005 3.625% Notes $53.5 million; and April 2009 3.625% Notes $37.2 million. The
difference between the carrying value and the principal amounts is being amortized as a
non-cash charge to interest expense over the expected life of the notes. On July 20, 2010
$63.7 million of the October 2004 2.9375% Notes were converted into 10,373,240 of the
Companys common shares and $36.0 million of the February 2005 3.675% Notes were converted
into 5,863,065 of the Companys common shares. |
|
(3) |
|
The Senior Notes reflect the principal amount payable in November 2016 with a carrying amount
of $225.5 million as of June 30, 2010. The difference between the carrying value and the
principal amount is being amortized as a non-cash charge to interest expense over the expected
life of the notes. |
|
(4) |
|
Distribution and marketing commitments represent contractual commitments for future
expenditures associated with distribution and marketing of films which we will distribute. The
payment dates of these amounts are primarily based on the anticipated release date of the
film. |
|
(5) |
|
Minimum guarantee commitments represent contractual commitments related to the purchase of
film rights for future delivery. Production loan commitments represent amounts committed for
future film production and development to be funded through production financing and recorded
as a production loan liability. Future payments under these commitments are based on
anticipated delivery or release dates of the related film or contractual due dates of the
commitment. The amounts include future interest payments associated with the commitment. |
Off-Balance Sheet Arrangements
We do not have any transactions, arrangements and other relationships with unconsolidated
entities that will affect our liquidity or capital resources. We have no special purpose entities
that provided off-balance sheet financing, liquidity or market or credit risk support, nor do we
engage in leasing, hedging or research and development services, that could expose us to liability
that is not reflected on the face of our consolidated financial statements. Our commitments to fund
operating leases, minimum guarantees, production loans, equity method investment funding
requirements and all other contractual commitments not reflected on the face of our consolidated
financial statements are presented in the above table.
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 enter into forward foreign exchange contracts to hedge our foreign
currency exposures on future production expenses denominated in various foreign currencies. As of
June 30, 2010, we had outstanding forward foreign exchange contracts to buy Canadian $8.8 million
in exchange for US$8.9 million over a period of three months at a weighted average exchange rate of
one US$ equals Canadian $0.99 and we had outstanding forward exchange contracts to buy US$6.3
million in exchange for British Pound Sterling £4.0 million over a period of eight months at a
weighted average exchange rate of one British Pound Sterling equals US$1.55. Changes in the fair
value representing a net unrealized fair value loss on foreign exchange contracts that qualified as
effective hedge contracts outstanding during the three months ended June 30, 2010 amounted to $0.8
million and are included in accumulated other comprehensive loss, a separate component of
shareholders equity. These contracts are entered into with a major
62
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. Certain of the Companys borrowings primarily borrowings under its senior
revolving credit facility, certain production loans and the Film Credit Facility, are, and are
expected to continue to be, at variable rates of interest and expose the Company to interest rate
risk. If interest rates increase, the Companys debt service obligations on the variable rate
indebtedness would increase even though the amount borrowed remained the same, and its net income
would decrease. The applicable margin with respect to loans under the senior revolving credit
facility is a percentage per annum equal to 2.50% plus an adjusted rate based on LIBOR. The
applicable margin with respect to loans under the Film Credit Facility is a percentage per annum
equal to 3.25% over the LIBO rate (as defined in the credit agreement). Assuming the senior
revolving credit facility and the Film Credit Facility are fully drawn, based on the applicable
LIBOR in effect as of June 30, 2010, each quarter point change in interest rates would result in a
$0.9 million change in annual interest expense on the senior revolving credit facility and $0.3
million change in annual interest expense on the Film Credit Facility. The variable interest
production loans incur interest at rates ranging from approximately 2.20% to 4.16% and applicable
margins ranging from 1.5% over an adjusted rate based on LIBOR to 3.25% over LIBOR. A quarter point
increase of the interest rates on the outstanding principal amount of our variable rate production
loans would result in $0.2 million in additional costs capitalized to the respective film or
television asset.
The following table presents the Companys financial instruments that are sensitive to changes in
interest rates. The table also presents the cash flows of the principal amounts of the financial
instruments with the related weighted-average interest rates by expected maturity dates and the
fair value of the instrument as of June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
|
|
|
Ended |
|
|
|
|
|
|
March 31, |
|
|
Year Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
Thereafter |
|
|
Total |
|
|
June 30, 2010 |
|
|
|
(US$ in thousands, principal amounts) |
|
Variable Rates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Revolving Credit Facility (1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
199,000 |
|
|
$ |
|
|
|
$ |
|
|
|
|
199,000 |
|
|
|
199,000 |
|
Average Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.85 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production Loans (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual production loans |
|
|
64,076 |
|
|
|
9,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,479 |
|
|
|
73,479 |
|
Average Interest Rate |
|
|
3.75 |
% |
|
|
3.70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film Credit Facility |
|
|
31,242 |
|
|
|
7,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,434 |
|
|
|
38,434 |
|
Average Interest Rate |
|
|
3.60 |
% |
|
|
3.60 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production Loans (3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pennsylvania Regional Center production loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,994 |
|
|
|
|
|
|
|
|
|
|
|
65,994 |
|
|
|
63,566 |
|
Average Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Notes (4): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2004 2.9375% Notes |
|
|
|
|
|
|
110,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,035 |
|
|
|
101,076 |
|
Average Interest Rate |
|
|
|
|
|
|
2.94 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2005 3.625% Notes |
|
|
|
|
|
|
59,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,479 |
|
|
|
53,470 |
|
Average Interest Rate |
|
|
|
|
|
|
3.63 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2009 3.625% Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,581 |
|
|
|
|
|
|
|
66,581 |
|
|
|
37,157 |
|
Average Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.63 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Other Financing Obligations (5) |
|
|
|
|
|
|
|
|
|
|
3,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,718 |
|
|
|
3,718 |
|
Average Interest Rate |
|
|
|
|
|
|
|
|
|
|
8.02 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Second Priority Notes (6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
236,000 |
|
|
|
236,000 |
|
|
|
225,453 |
|
Average Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
95,318 |
|
|
$ |
186,109 |
|
|
$ |
3,718 |
|
|
$ |
264,994 |
|
|
$ |
66,581 |
|
|
$ |
236,000 |
|
|
$ |
852,720 |
|
|
$ |
795,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Senior revolving credit facility, which expires July 25, 2013 bears interest of 2.50% over
the Adjusted LIBOR rate. At June 30, 2010, we had borrowings of $199.0 million 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 loans of $111.9 million
incur interest at rates ranging from approximately 2.20% to 4.16%. Not included in the table
above are approximately $67.0 million of production loans which are non-interest bearing. |
63
(3) |
|
Long term production loans of $66.0 million with a fixed interest rate equal to 1.5%. |
|
(4) |
|
Subordinated notes reflect the principal amounts of the October 2004 2.9375% Notes, the
February 2005 3.625% Notes and the April 2009 3.625% Notes as of June 30, 2010, and the
repayment dates fall on the first redemption date by holder for each note respectively. On
July 20, 2010 $63.7 million of the October 2004 2.9375% Notes were converted into 10,373,240
of the Companys common shares and $36.0 million of the February 2005 3.675% Notes were
converted into 5,863,065 of the Companys common shares. |
|
(5) |
|
Other financing obligation with fixed interest rate equal to 8.02%. |
|
(6) |
|
Senior Notes reflect the principal amount of $236.0 million with a fixed interest rate equal
to 10.25%. |
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 as amended (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 or submits under the Exchange Act is
recorded, processed, summarized and reported within required time periods specified in the SECs
rules and forms, and that such information is accumulated and communicated to management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
As of June 30, 2010, 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, 2010.
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.
On July 23, 2010, Carl Icahn and affiliates (collectively, the Icahn Group) filed suit in
the Supreme Court of British Columbia against the Company, Mark H. Rachesky, M.D., a director of
the Company, MHR Fund Management LLC and Institutional Partners III LP (the MHR Fund) and
Kornitzer Capital Management. The Icahn Group claims that the Companys July 20, 2010 press release
describing a note exchange and conversion of newly issued notes into common shares of the Company
failed to comply with the Companys disclosure obligations under the British Columbia securities
laws. According to the Icahn Group, the actual and improper purpose of the transactions was to
further entrench the Companys Board of Directors (the Board) and management. The Icahn Group
further attacked the Boards adoption of a shareholder rights plan dated as of July 1, 2010 between
Lionsgate and CIBC Mellon Trust Company (the Second Rights Plan), claiming that the affairs of
the Company are being conducted in a manner oppressive to its shareholders, and alleges that the
directors have failed to act in good faith and with reasonable care. The Icahn Group seeks, among
other things, orders (1) declaring that the Company is oppressing its shareholders, (2) prohibiting
the MHR Fund from transferring or
64
voting its new common shares of the Company, (3) prohibiting the
Company from issuing any securities, (4) unwinding the July 20 transactions between the MHR Fund,
the Company, and Kornitzer Capital Management, and (5) compensating the petitioners.
The Icahn Group also sought an order from the British Columbia Securities Commission (the
BCSC) on July 22, 2010 requiring that Dr. Rachesky, the MHR Fund, and their respective affiliates
cease trading in any securities of the Company until further order of the BCSC and that the Company
and each of its directors cease trading in any securities of the Company until further order of the
BCSC. The Icahn Group alleges that the July 20, 2010 conversion of the notes and share exchange
were, among other things, an unlawful defensive tactic, and that the disclosures concerning the
transactions violated applicable securities laws. The Icahn Group also sought a temporary order
from the BCSC requiring that Dr. Rachesky, the MHR Fund and their respective affiliates cease
trading in any securities of the Company for fifteen days after the date of the temporary order,
and that the Company and each of its directors cease trading in any securities of the Company for
fifteen days after the date of the temporary order. A hearing on the request for a temporary cease
trade order was held on July 28, 2010, and the BCSC determined to dismiss the Icahn Groups
application for a temporary cease trade order against the Company and the MHR Fund.
On July 26, 2010, the Icahn Group filed suit in New York Supreme Court against the Company,
the Board, LGEI, Dr. Rachesky, the MHR Fund, and Kornitzer Capital Management and its principal
John C. Kornitzer. The Icahn Group claims, among other things, that the July 20 note exchange and
the issuance of shares to Dr. Racheskys fund constitutes (1) breach of a letter agreement entered
into by the Company with Mr. Icahn (the July 9 Letter Agreement); (2) tortious interference with
the July 9 Letter Agreement; and (3) tortious interference with prospective business relationships.
The Icahn Group also claims that various of the defendants disclosures, including the July 20
press release, a Current Report on Form 8-K filed on July 21, 2010 by the Company, and a Schedule
13D filed on July 21, 2010 by Dr. Rachesky, omit material information relating to, among other
things: the purpose of the July 20 note exchange, the terms of the transactions by which Dr.
Rachesky and his investment fund increased their ownership stake in the Company, and the fact that
the issuance would allegedly subject the Company to penalties from the NYSE. The complaint seeks,
among other things, a preliminary and permanent injunction rescinding the note exchange and share
issuance; a preliminary injunction prohibiting all defendants from voting their shares in any
election of directors or any other shareholder vote; and an award of compensatory and punitive
damages to the plaintiffs.
Item 1A. Risk Factors.
Other than as set forth below, there were no other material changes to the risk factors previously
reported in our Annual Report on Form 10-K for the fiscal year ended March 31, 2010.
An increase in the ownership of our common shares by certain shareholders could trigger a change in
control under the agreements governing our long-term indebtedness.
The agreements governing certain of our long-term indebtedness contain change in control provisions
that are triggered when any of our shareholders, directly or indirectly, acquires ownership or
control in excess of a certain percentage of our common shares. As of July 23, 2010, three of our
shareholders, Carl C. Icahn, Mark H. Rachesky, M.D. and Capital Research Global Investors and their
respective affiliates, beneficially owned approximately 32.9%, 28.9% and 9.1%, respectively, of our
outstanding common shares. Under certain circumstances, including the acquisition of ownership or
control by a person or group in excess of 50% of our common shares, the noteholders of our
unsecured convertible senior subordinated notes and the Senior Notes may require us to repurchase
all or a portion of such notes upon a change in control and the noteholders of our unsecured
convertible senior subordinated notes may be entitled to receive a make whole premium based on the
price of our common shares on the change in control date. We may not be able to repurchase these
notes upon a change in control because we may not have sufficient funds. Further, we may be
contractually restricted under the terms of our senior revolving credit facility and the Film
Credit Facility from repurchasing all of the notes tendered by holders upon a change in control.
Our failure to repurchase the notes upon a change in control would cause a default under the
indentures governing the Senior Notes and our unsecured convertible senior subordinated notes and a
cross-default under the senior revolving credit facility and the Film Credit Facility.
Our senior revolving credit facility and the Film Credit Facility also provide that a change in
control, which includes a person or group acquiring ownership or control in excess of 50% of our
outstanding common shares, will be an event of default that permits lenders to accelerate the
maturity of borrowings thereunder and to enforce security interests in the collateral securing such
debt, thereby limiting our ability to raise cash to purchase our outstanding notes.
65
Certain shareholders own a majority of our outstanding common shares.
As of July 23, 2010, three of our shareholders beneficially owned an aggregate of 96,541,577 of our
common shares, or approximately 70.9% of the outstanding shares. In addition, one of these
shareholders, Mark H. Rachesky, M.D., the beneficial owner of approximately 28.9% of our
outstanding common shares currently serves on our Board of Directors. Accordingly, these three
shareholders, collectively, have the power to exercise substantial influence over us and on matters
requiring approval by our shareholders, including the election of directors, the approval of
mergers and other significant corporate transactions. This concentration of ownership may make it
more difficult for other shareholders to effect substantial changes in our company and may also
have the effect of delaying, preventing or expediting, as the case may be, a change in control of
our company.
Sales of a substantial number of shares of our common shares, or the perception that such sales
might occur, could have an adverse effect on the price of our common shares, and therefore our
ability to raise additional capital to fund our operations.
As of July 23, 2010, over 70% of our common shares were held beneficially by certain
individuals and institutional investors who each had ownership of greater than 5% of our common
shares. Sales by such individuals and institutional investors of a substantial number of shares of
our common shares into the public market, or the perception that such sales might occur, could have
an adverse effect on the price of our common shares, which could materially impair our ability to
raise capital through the sale of common shares or debt that is convertible into our common shares.
An unsolicited offer for our shares could create volatility in our stock price.
In July 2010, Carl Icahn and affiliates (the Icahn Group) launched an unsolicited tender offer,
pursuant to which the Icahn Group currently is offering to acquire all of our outstanding shares of
common stock, subject to certain conditions. An unsolicited offer for shares of our common shares
is, among other things, a distraction for our management and employees, requires the expenditure of
significant time and resources by us, could cause our stock price to fluctuate significantly and,
if it results in a change in control, could result in a significant change in our business. In
addition, if the offer triggers a change in control under the agreements governing our long-term
indebtedness, we may be required to repurchase our outstanding unsecured convertible senior
subordinated convertible notes and the Senior Notes, and the maturity of our other outstanding
indebtedness may be accelerated. See An increase in the ownership of our common shares by certain
shareholders could trigger a change in control under the agreements governing our long-term
indebtedness. Any unsolicited offer, whether from the Icahn Group or another party, could subject
us to any of the aforementioned concerns, which could harm our business and have a material and
adverse effect on our business, our results of operations and the price of our shares. Any
unsolicited offer also could cause our stock price to fluctuate significantly.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Securities
On May 31, 2007, our Board of Directors authorized the repurchase of up to $50 million of our
common shares. Thereafter, on each of May 29, 2008 and November 6, 2008, as part of its regularly
scheduled meetings, our Board of Directors authorized the repurchase up to an additional $50
million of our common shares, subject to market conditions. The additional resolutions increased
the total authorization to $150 million. The common shares may be purchased, from time to time, at
the Companys discretion, including the quantity, timing and price thereof. Such purchases will be
structured as permitted by securities laws and other legal requirements. During the period from the
authorization date through March 31, 2010, 6,787,310 shares have been repurchased at a cost of
approximately $65.2 million (including commission costs). The share repurchase program has no
expiration date.
There were no purchases of shares of our common stock by us during the three months ended June 30,
2010.
Item 3. Defaults Upon Senior Securities.
None
66
Item 4. Removed and Reserved.
Item 5. Other Information.
None
Item 6. Exhibits.
|
|
|
Exhibit |
|
|
Number |
|
Description of Documents |
3.1 (1)
|
|
Articles |
|
|
|
3.2 (2)
|
|
Notice of Articles |
|
|
|
3.3 (3)
|
|
Vertical Short Form Amalgamation Application |
|
|
|
3.4 (3)
|
|
Certificate of Amalgamation |
|
|
|
10.77 (4)
|
|
Amendment No.3 dated as of June 22, 2010 to the Second Amended and Restated Credit,
Security, Guaranty and Pledge Agreement dated as of July 25, 2008 among Lions Gate
Entertainment Inc., Lions Gate UK Limited and Lions Gate Australia Pty Limited, as
Borrowers, the guarantors and lenders referred to therein, JP Morgan Chase Bank, N.A.,
as Administrative Agent and as Issuing Bank and Wachovia Bank, N.A., as Syndication
Agent. |
|
|
|
10.78 (4)
|
|
Amendment No.2 dated as of June 22, 2010 to the Credit, Security, Guaranty and Pledge
Agreement dated as of October 6, 2009, among Lions Gate Mandate Financing Vehicle
Inc., the guarantors and lenders referred to therein, JPMorgan Chase Bank, N.A., as
administrative agent and issuing bank, Union Bank, N.A., as co-administrative agent,
syndication agent and joint lead arranger, and Wells Fargo Bank, National Association
as documentation agent. |
|
|
|
10.79 (5)
|
|
Letter, dated as of July 9, 2010, from Lions Gate Entertainment Corp. to Carl C. Icahn. |
|
|
|
10.80 (6)
|
|
Refinancing Exchange Agreement, dated as of July 20, 2010, by Lions Gate Entertainment
Inc., and Kornitzer Capital Management, 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 |
|
|
|
101
|
|
The following materials from the Companys Quarterly Report on Form 10-Q for
the quarter ended June 30, 2010 formatted in Extensible Business
Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of
Operations, (iii) the Condensed Consolidated Statements of Shareholders Equity, (iv) the
Condensed Consolidated Statements of Cash Flows and (v) related notes, tagged as blocks of
text |
|
|
|
(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 Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 2009 as filed on November 9, 2009. |
|
(3) |
|
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. |
|
(4) |
|
Incorporated by reference to the Companys Current Report on Form 8-K as filed on June 25, 2010. |
|
(5) |
|
Incorporated by reference to the Companys Current Report on Form 8-K as filed on July 9, 2010. |
|
(6) |
|
Incorporated by reference to the Companys Current Report on Form 8-K as filed on July 21, 2010. |
|
* |
|
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. |
67
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. |
|
|
|
By: |
/s/ James Keegan
|
|
|
|
Name: |
James Keegan |
|
|
|
Title: |
Duly Authorized Officer and Chief Financial Officer |
|
|
Date: August 9, 2010
68