e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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|
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
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|
|
For the quarterly period ended
September 30, 2007
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or
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
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|
For the transition period
from to
|
Commission File No.: 1-14880
Lions Gate Entertainment
Corp.
(Exact name of registrant as
specified in its charter)
|
|
|
British Columbia, Canada
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N/A
|
(State or other jurisdiction
of
incorporation or organization)
|
|
(I.R.S. Employer
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 is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act.
Large accelerated
Filer þ Accelerated
Filer o Non-accelerated
Filer
o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
|
|
|
Title of Each Class
|
|
Outstanding at November 1, 2007
|
|
Common Shares, no par value per share
|
|
120,334,057 shares
|
FORWARD-LOOKING
STATEMENTS
This report contains forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. In some cases you can identify forward-looking
statements by terms such as may, intend,
will, could, would,
expects, believe, estimate,
or the negative of these terms, and similar expressions intended
to identify forward-looking statements.
These forward-looking statements reflect Lions Gate
Entertainment Corp.s (the Company,
Lionsgate, we, us or
our) current views with respect to future events and
are based on assumptions and are subject to risks and
uncertainties. Also, these forward-looking statements present
our estimates and assumptions only as of the date of this
report. Except for our ongoing obligation to disclose material
information as required by federal securities laws, we do not
intend to update you concerning any future revisions to any
forward-looking statements to reflect events or circumstances
occurring after the date of this report.
Actual results in the future could differ materially and
adversely from those described in the forward-looking statements
as a result of various important factors, including the
substantial investment of capital required to produce and market
films and television series, increased costs for producing and
marketing feature films, budget overruns, limitations imposed by
our credit facilities, unpredictability of the commercial
success of our motion pictures and television programming, the
cost of defending our intellectual property, difficulties in
integrating acquired businesses, technological changes and other
trends affecting the entertainment industry, and the risk
factors found herein and under the heading Risk
Factors in our Annual Report on
Form 10-K
filed with the U.S. Securities and Exchange Commission (the
SEC) on May 30, 2007, which risk factors are
incorporated herein by reference.
Unless otherwise indicated, all references to the
Company, Lionsgate, we,
us, and our include reference to our
subsidiaries as well.
3
PART I
FINANCIAL INFORMATION
|
|
Item 1.
|
Financial
Statements.
|
LIONS
GATE ENTERTAINMENT CORP.
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
(Note 1)
|
|
|
|
(Amounts in thousands,
|
|
|
|
except share amounts)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
158,865
|
|
|
$
|
51,497
|
|
Restricted cash
|
|
|
12,363
|
|
|
|
4,915
|
|
Investments auction rate securities
|
|
|
30,000
|
|
|
|
237,379
|
|
Investments equity securities
|
|
|
104
|
|
|
|
125
|
|
Accounts receivable, net of reserve for video returns and
allowances of $70,017 (March 31, 2007 $77,691)
and provision for doubtful accounts of $5,757 (March 31,
2007 $6,345)
|
|
|
209,457
|
|
|
|
130,496
|
|
Investment in films and television programs
|
|
|
633,024
|
|
|
|
493,140
|
|
Property and equipment
|
|
|
14,120
|
|
|
|
13,095
|
|
Goodwill
|
|
|
224,567
|
|
|
|
187,491
|
|
Other assets
|
|
|
52,725
|
|
|
|
18,957
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,335,225
|
|
|
$
|
1,137,095
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Accounts payable and accrued liabilities
|
|
$
|
253,368
|
|
|
$
|
155,617
|
|
Participation and residuals
|
|
|
293,622
|
|
|
|
171,156
|
|
Film obligations
|
|
|
211,652
|
|
|
|
167,884
|
|
Subordinated notes and other financing obligations
|
|
|
328,718
|
|
|
|
325,000
|
|
Deferred revenue
|
|
|
92,283
|
|
|
|
69,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,179,643
|
|
|
|
889,205
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
Common shares, no par value, 500,000,000 shares authorized,
120,317,891 and 116,970,280 shares issued and outstanding
at September 30, 2007 and March 31, 2007, respectively
|
|
|
423,841
|
|
|
|
398,836
|
|
Series B preferred shares (10 shares issued and
outstanding)
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(258,983
|
)
|
|
|
(149,651
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
1,460
|
|
|
|
(1,295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
166,318
|
|
|
|
247,890
|
|
Treasury shares, no par value, 1,169,835 shares at
September 30, 2007
|
|
|
(10,736
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,582
|
|
|
|
247,890
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,335,225
|
|
|
$
|
1,137,095
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
4
LIONS
GATE ENTERTAINMENT CORP.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
|
Revenues
|
|
$
|
343,505
|
|
|
$
|
218,169
|
|
|
$
|
542,247
|
|
|
$
|
390,625
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating
|
|
|
182,487
|
|
|
|
94,723
|
|
|
|
269,545
|
|
|
|
163,268
|
|
Distribution and marketing
|
|
|
189,012
|
|
|
|
113,345
|
|
|
|
324,513
|
|
|
|
200,391
|
|
General and administration
|
|
|
25,869
|
|
|
|
21,727
|
|
|
|
52,709
|
|
|
|
40,960
|
|
Depreciation
|
|
|
989
|
|
|
|
581
|
|
|
|
1,897
|
|
|
|
1,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
398,357
|
|
|
|
230,376
|
|
|
|
648,664
|
|
|
|
405,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(54,852
|
)
|
|
|
(12,207
|
)
|
|
|
(106,417
|
)
|
|
|
(15,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
4,213
|
|
|
|
4,904
|
|
|
|
8,073
|
|
|
|
9,580
|
|
Interest and other income
|
|
|
(2,646
|
)
|
|
|
(2,286
|
)
|
|
|
(6,449
|
)
|
|
|
(4,847
|
)
|
Gain on sale on equity securities
|
|
|
(2,785
|
)
|
|
|
|
|
|
|
(2,785
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses (income), net
|
|
|
(1,218
|
)
|
|
|
2,618
|
|
|
|
(1,161
|
)
|
|
|
4,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before equity interests and income taxes
|
|
|
(53,634
|
)
|
|
|
(14,825
|
)
|
|
|
(105,256
|
)
|
|
|
(19,852
|
)
|
Equity interests loss
|
|
|
(1,187
|
)
|
|
|
(435
|
)
|
|
|
(1,994
|
)
|
|
|
(377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(54,821
|
)
|
|
|
(15,260
|
)
|
|
|
(107,250
|
)
|
|
|
(20,229
|
)
|
Income tax provision (benefit)
|
|
|
1,393
|
|
|
|
(868
|
)
|
|
|
2,082
|
|
|
|
(2,233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(56,214
|
)
|
|
$
|
(14,392
|
)
|
|
$
|
(109,332
|
)
|
|
$
|
(17,996
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Net Loss Per Common Share
|
|
$
|
(0.47
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.93
|
)
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
5
LIONS
GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B
|
|
|
Restricted
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
|
Preferred Shares
|
|
|
Share
|
|
|
Unearned
|
|
|
Accumulated
|
|
|
Income
|
|
|
Income
|
|
|
Treasury Shares
|
|
|
|
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
Units
|
|
|
Compensation
|
|
|
Deficit
|
|
|
(Loss )
|
|
|
(Loss )
|
|
|
Number
|
|
|
Amount
|
|
|
Total
|
|
|
|
(Amounts in thousands, except share amounts)
|
|
|
Balance at March 31, 2006
|
|
|
104,422,765
|
|
|
$
|
328,771
|
|
|
|
10
|
|
|
$
|
|
|
|
$
|
5,178
|
|
|
$
|
(4,032
|
)
|
|
$
|
(177,130
|
)
|
|
|
|
|
|
$
|
(3,517
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
149,270
|
|
Reclassification of unearned compensation and restricted
share common units upon adoption of SFAS No. 123(R)
|
|
|
|
|
|
|
1,146
|
|
|
|
|
|
|
|
|
|
|
|
(5,178
|
)
|
|
|
4,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
1,297,144
|
|
|
|
4,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,277
|
|
Stock based compensation, net of share units withholding tax
obligations of $504
|
|
|
113,695
|
|
|
|
6,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,517
|
|
Issuance of common shares to directors for services
|
|
|
25,568
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
238
|
|
Conversion of 4.875% notes, net of unamortized issuance
costs
|
|
|
11,111,108
|
|
|
|
57,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,887
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,479
|
|
|
$
|
27,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,479
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,876
|
|
|
|
1,876
|
|
|
|
|
|
|
|
|
|
|
|
1,876
|
|
Net unrealized gain on foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259
|
|
|
|
259
|
|
|
|
|
|
|
|
|
|
|
|
259
|
|
Unrealized gain on investments available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2007
|
|
|
116,970,280
|
|
|
|
398,836
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(149,651
|
)
|
|
|
|
|
|
|
(1,295
|
)
|
|
|
|
|
|
|
|
|
|
|
247,890
|
|
Exercise of stock options, net of shares cancelled to fund
withholding tax obligations and exercise price of options of
$8,273
|
|
|
927,688
|
|
|
|
(2,903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,903
|
)
|
Stock based compensation, net of share units withholding tax
obligations of $647
|
|
|
424,671
|
|
|
|
6,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,030
|
|
Issuance of common shares to directors for services
|
|
|
10,126
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127
|
|
Issuance of common shares for investment in NextPoint, Inc
|
|
|
1,890,189
|
|
|
|
20,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,851
|
|
Issuance of common shares related to the Redbus acquisition
|
|
|
94,937
|
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
900
|
|
Repurchase of common shares, no par value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,169,835
|
|
|
|
(10,736
|
)
|
|
|
(10,736
|
)
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(109,332
|
)
|
|
$
|
(109,332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(109,332
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,560
|
|
|
|
2,560
|
|
|
|
|
|
|
|
|
|
|
|
2,560
|
|
Net unrealized gain on foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
169
|
|
Unrealized gain on investments available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(106,577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2007
|
|
|
120,317,891
|
|
|
$
|
423,841
|
|
|
|
10
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(258,983
|
)
|
|
|
|
|
|
$
|
1,460
|
|
|
|
1,169,835
|
|
|
$
|
(10,736
|
)
|
|
$
|
155,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
6
LIONS
GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(109,332
|
)
|
|
$
|
(17,996
|
)
|
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
|
1,897
|
|
|
|
1,125
|
|
Amortization of deferred financing costs
|
|
|
1,771
|
|
|
|
1,957
|
|
Amortization of films and television programs
|
|
|
175,619
|
|
|
|
81,998
|
|
Amortization of intangible assets
|
|
|
325
|
|
|
|
488
|
|
Non-cash stock-based compensation
|
|
|
6,677
|
|
|
|
2,490
|
|
Gain on sale of equity securities
|
|
|
(2,711
|
)
|
|
|
|
|
Equity interests loss
|
|
|
1,994
|
|
|
|
377
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
359
|
|
|
|
(1,724
|
)
|
Accounts receivable, net
|
|
|
(81,272
|
)
|
|
|
99,804
|
|
Investment in films and television programs
|
|
|
(247,216
|
)
|
|
|
(164,071
|
)
|
Other assets
|
|
|
(2,736
|
)
|
|
|
5,543
|
|
Accounts payable and accrued liabilities
|
|
|
69,164
|
|
|
|
(34,039
|
)
|
Unpresented bank drafts
|
|
|
|
|
|
|
(14,772
|
)
|
Participation and residuals
|
|
|
115,726
|
|
|
|
(16,075
|
)
|
Film obligations
|
|
|
(6,846
|
)
|
|
|
43,361
|
|
Deferred revenue
|
|
|
18,028
|
|
|
|
22,316
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Provided By (Used In) Operating Activities
|
|
|
(58,553
|
)
|
|
|
10,782
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of investments auction rate securities
|
|
|
(207,266
|
)
|
|
|
(296,043
|
)
|
Proceeds from the sale of investments auction rate
securities
|
|
|
414,641
|
|
|
|
316,375
|
|
Purchases of investments equity securities
|
|
|
(4,672
|
)
|
|
|
|
|
Proceeds from the sale of investments equity
securities
|
|
|
23,782
|
|
|
|
|
|
Acquisition of Mandate, net of unrestricted cash acquired
|
|
|
(40,850
|
)
|
|
|
|
|
Acquisition of Debmar, net of unrestricted cash acquired
|
|
|
|
|
|
|
(24,112
|
)
|
Investment in equity method investees
|
|
|
(6,465
|
)
|
|
|
|
|
Loan to equity method investee
|
|
|
(3,059
|
)
|
|
|
|
|
Purchases of property and equipment
|
|
|
(2,385
|
)
|
|
|
(3,537
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Provided By (Used In) Investing Activities
|
|
|
173,726
|
|
|
|
(7,317
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
745
|
|
|
|
2,429
|
|
Repurchases of common shares
|
|
|
(10,736
|
)
|
|
|
|
|
Borrowings under financing arrangements
|
|
|
3,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Provided By (Used In) Financing Activities
|
|
|
(6,273
|
)
|
|
|
2,429
|
|
|
|
|
|
|
|
|
|
|
Net Change In Cash And Cash Equivalents
|
|
|
108,900
|
|
|
|
5,894
|
|
Foreign Exchange Effects on Cash
|
|
|
(1,532
|
)
|
|
|
(110
|
)
|
Cash and Cash Equivalents Beginning Of Period
|
|
|
51,497
|
|
|
|
46,978
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents End Of Period
|
|
$
|
158,865
|
|
|
$
|
52,762
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
7
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nature
of Operations
Lions Gate Entertainment Corp. (the Company,
Lionsgate, we, us or
our) is a diversified independent producer and
distributor of motion pictures, television programming, home
entertainment, family entertainment,
video-on-demand
and music content. The Company also acquires distribution rights
from a wide variety of studios, production companies and
independent producers.
Basis
of Presentation
The accompanying unaudited condensed consolidated financial
statements include the accounts of Lionsgate and all of its
wholly owned and controlled subsidiaries.
The unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States (U.S. GAAP) for
interim financial information and the instructions to
Form 10-Q
under the Securities Exchange Act of 1934, as amended (the
Exchange Act) and Article 10 of
Regulation S-X
under the Exchange Act. Accordingly, they do not include all of
the information and footnotes required by U.S. GAAP for
complete financial statements. In the opinion of the
Companys management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair
presentation have been reflected in these unaudited condensed
consolidated financial statements. Operating results for the
three and six months ended September 30, 2007 are not
necessarily indicative of the results that may be expected for
the fiscal year ended March 31, 2008. The balance sheet at
March 31, 2007 has been derived from the audited financial
statements at that date but does not include all the information
and footnotes required by U.S. GAAP for complete financial
statements. The accompanying unaudited condensed consolidated
financial statements should be read together with the
consolidated financial statements and related notes included in
our Annual Report on
Form 10-K
for the fiscal year ended March 31, 2007.
Certain amounts presented for fiscal 2007 have been reclassified
to conform to the fiscal 2008 presentation.
Use of
Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported
amounts of revenue and expenses during the reporting period. The
most significant estimates made by the Companys management
in the preparation of the financial statements relate to:
ultimate revenue and costs for investment in films and
television programs; estimates of sales returns, provision for
doubtful accounts, fair value of assets and liabilities for
allocation of the purchase price of companies acquired, income
taxes and accruals for contingent liabilities; and impairment
assessments for investment in films and television programs,
property and equipment, goodwill and intangible assets. Actual
results could differ from such estimates.
Recent
Accounting Pronouncements
FASB Issued Interpretation No. 48. On
July 13, 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes An
Interpretation of FASB Statement No. 109
(FIN No. 48). FIN No. 48
clarifies the accounting for uncertainty in income taxes
recognized in an entitys financial statements in
accordance with SFAS No. 109, Accounting for
Income Taxes (SFAS No. 109), and
prescribes a recognition threshold and measurement attributes
for financial statement disclosure of tax positions taken or
expected to be taken on a tax return. Under
FIN No. 48, the impact of an uncertain income tax
position on the income tax return must be recognized at the
largest amount that is more-likely-than-not to be sustained upon
audit by the relevant taxing authority. An uncertain income tax
position will not be recognized if it has less than a 50%
likelihood of being sustained. Additionally,
FIN No. 48 provides guidance on derecognition,
classification, interest and penalties,
8
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
accounting in interim periods, disclosure and transition.
FIN No. 48 is effective for fiscal years beginning
after December 15, 2006.
The Companys practice is to recognize interest
and/or
penalties related to income tax matters in income tax expense.
For the three and six months ended September 30, 2007 and
2006, interest and penalties were not significant.
The Company is subject to taxation in the U.S. and various
state and foreign jurisdictions. With a few exceptions, the
Company is subject to income tax examination by U.S. and
state tax authorities for the fiscal years ended March 31,
2004 and forward. However, to the extent allowed by law, the
taxing authorities may have the right to examine prior periods
where net operating losses (NOLs) were generated and
carried forward, and make adjustments up to the amount of the
NOLs. The Companys fiscal years ended March 31, 2006
and forward are subject to examination by the UK tax
authorities. The Companys fiscal years ended
March 31, 1998 and forward are subject to examination by
the Canadian tax authorities. The Company is not currently under
examination by the IRS. Currently, audits are occurring in
Canada, and various state and local tax jurisdictions.
The adoption of FIN No. 48 on April 1, 2007 did
not have a material impact on the Companys financial
condition, results of operations or cash flows. At April 1,
2007, the Company had net deferred tax assets of
$93.3 million. The total amount of unrecognized tax
benefits as of the date of adoption was not significant. The
deferred tax assets are largely composed of federal and state
tax NOLs. Due to uncertainties surrounding the Companys
ability to generate future taxable income to realize these
assets, a full valuation has been established to offset the net
deferred tax asset. Additionally, the future utilization of the
Companys NOLs to offset future taxable income may be
subject to a substantial annual limitation as a result of
ownership changes that may have occurred previously or that
could occur in the future.
Statement of Financial Accounting Standards
No. 157. In September 2006, the FASB issued
SFAS No. 157, Fair Value Measurements
(SFAS No. 157). SFAS No. 157
establishes a framework for measuring fair value and expands
disclosures about fair value measurements. The changes to
current practice resulting from the application of this
statement relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about
fair value measurements. The Company will be required to adopt
the provisions on SFAS No. 157 on April 1, 2008.
The Company is currently evaluating the impact of adopting the
provisions of SFAS No. 157 but does not believe that
the adoption of SFAS No. 157 will materially impact
its financial position, cash flows, or results of operations.
Statement of Financial Accounting Standards
No. 159. In February 2007, the FASB issued
SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities Including
an Amendment of FASB Statement No. 115
(SFAS No. 159), which is effective for
fiscal years beginning after November 15, 2007. The Company
will be required to adopt the provisions on
SFAS No. 159 on April 1, 2008.
SFAS No. 159 permits an entity to choose to measure
many financial instruments and certain other items at fair value
at specified election dates. Subsequent unrealized gains and
losses on items for which the fair value option has been elected
will be reported in earnings. The Company is currently
evaluating the potential impact of SFAS No. 159.
9
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
Investments
Available-For-Sale
|
Investments classified as available-for-sale as of
September 30, 2007 and March 31, 2007 are set forth
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2007
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains (Losses)
|
|
|
Value
|
|
|
|
(Amounts in thousands )
|
|
|
Auction rate notes
|
|
$
|
30,000
|
|
|
$
|
|
|
|
$
|
30,000
|
|
Equity securities
|
|
|
78
|
|
|
|
26
|
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,078
|
|
|
$
|
26
|
|
|
$
|
30,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains (Losses)
|
|
|
Value
|
|
|
|
(Amounts in thousands )
|
|
|
Auction rate notes
|
|
$
|
237,379
|
|
|
$
|
|
|
|
$
|
237,379
|
|
Equity securities
|
|
|
125
|
|
|
|
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
237,504
|
|
|
$
|
|
|
|
$
|
237,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On November 5, 2007, the auction rate note that was
outstanding as of September 30, 2007 was sold at the end of
its auction period and settled to cash equivalents at its
carrying value resulting in no gain or loss. During the six
months ended September 30, 2007, the auction rate notes
that were outstanding as of March 31, 2007 were also
converted to cash equivalents at their carrying value with no
resulting gain or loss.
Investments classified as available-for-sale are reported at
fair value based on quoted market prices, with unrealized gains
and losses excluded from earnings and reported as other
comprehensive income or loss (see note 10). The cost of
investments sold is determined using the average cost method.
Interest and dividend income earned on available for sale
investments during the three- and six-month periods ended
September 30, 2007 were $2.0 million and
$4.6 million, respectively. Interest and dividend income
earned on available for sale investments during the three- and
six-month periods ended September 30, 2006 were
$1.7 million and $3.6 million, respectively.
At March 31, 2007, equity securities were comprised of
592,156 common shares of Magna Pacific Holdings
(Magna), an independent DVD distributor in Australia
and New Zealand, purchased at an average cost per share of
$0.21. During the six months ended September 30, 2007 the
Company purchased 15,989,994 common shares of Magna for
approximately $4.7 million, at an average price of $0.29
per share. During July 2007, the Company sold 16,129,740 of
Magnas common shares for total proceeds of approximately
$7.5 million, resulting in a gain of approximately
$2.7 million. At September 30, 2007, the Company held
452,410 common shares of Destra Corporation, an independent
digital media and entertainment company in Australia who
acquired the Companys Magna shares in exchange for cash
and stock consideration.
10
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Investment
in Films and Television Programs
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
(Amounts in thousands )
|
|
|
Motion Picture Segment Theatrical and
Non-Theatrical Films
|
|
|
|
|
|
|
|
|
Released, net of accumulated amortization
|
|
$
|
217,263
|
|
|
$
|
144,302
|
|
Acquired libraries, net of accumulated amortization
|
|
|
90,422
|
|
|
|
90,980
|
|
Completed and not released
|
|
|
81,152
|
|
|
|
19,424
|
|
In progress
|
|
|
103,947
|
|
|
|
107,105
|
|
In development
|
|
|
8,736
|
|
|
|
5,205
|
|
Product inventory
|
|
|
27,913
|
|
|
|
30,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
529,433
|
|
|
|
397,346
|
|
|
|
|
|
|
|
|
|
|
Television Segment Direct-to-Television
Programs
|
|
|
|
|
|
|
|
|
Released, net of accumulated amortization
|
|
|
79,435
|
|
|
|
70,949
|
|
In progress
|
|
|
23,519
|
|
|
|
24,083
|
|
In development
|
|
|
637
|
|
|
|
762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,591
|
|
|
|
95,794
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
633,024
|
|
|
$
|
493,140
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized
|
|
|
Unamortized
|
|
|
|
|
|
Total
|
|
|
Remaining
|
|
|
Costs
|
|
|
Costs
|
|
Acquired
|
|
Acquisition
|
|
Amortization
|
|
|
Amortization
|
|
|
September 30,
|
|
|
March 31,
|
|
Library
|
|
Date
|
|
Period
|
|
|
Period
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
(In years)
|
|
|
(Amounts in thousands)
|
|
|
Trimark
|
|
October 2000
|
|
|
20.00
|
|
|
|
13.00
|
|
|
$
|
13,341
|
|
|
$
|
14,854
|
|
Artisan
|
|
December 2003
|
|
|
20.00
|
|
|
|
16.25
|
|
|
|
64,732
|
|
|
|
69,402
|
|
Modern
|
|
August 2005
|
|
|
20.00
|
|
|
|
17.75
|
|
|
|
4,592
|
|
|
|
4,753
|
|
LGUK
|
|
October 2005
|
|
|
20.00
|
|
|
|
18.00
|
|
|
|
1,957
|
|
|
|
1,971
|
|
Mandate
|
|
September 2007
|
|
|
20.00
|
|
|
|
20.00
|
|
|
|
5,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Acquired Libraries
|
|
|
|
|
|
|
|
|
|
|
|
$
|
90,422
|
|
|
$
|
90,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects approximately 45% of completed films and
television programs, net of accumulated amortization, will be
amortized during the one-year period ending September 30,
2008. Additionally, the Company expects approximately 80% of
completed and released films and television programs, net of
accumulated amortization and excluding acquired libraries, will
be amortized during the three-year period ending
September 30, 2010.
11
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
(Amounts in thousands )
|
|
|
Deferred financing costs, net of accumulated amortization
|
|
$
|
8,518
|
|
|
$
|
10,038
|
|
Prepaid expenses and other
|
|
|
12,450
|
|
|
|
3,553
|
|
Equity method investments
|
|
|
31,757
|
|
|
|
5,366
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52,725
|
|
|
$
|
18,957
|
|
|
|
|
|
|
|
|
|
|
Deferred
Financing Costs
Deferred financing costs primarily include costs incurred in
connection with the credit facility (see note 5) and
the issuance of the 2.9375% Notes and the 3.625% Notes
(see note 7) that are deferred and amortized to
interest expense.
Prepaid
expenses and other
Prepaid expenses and other primarily include prepaid expenses,
security deposits and intangible assets. In addition, included
in prepaid and other assets is a $3.0 million note
receivable from NextPoint, Inc. (Break.com), an
equity method investee as described below, during the three
months ended September 30, 2007.
Equity
Method Investments
The carrying amount of significant equity method investments at
September 30, 2007 and March 31, 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
(Amounts in thousands )
|
|
|
Maple
|
|
$
|
1,952
|
|
|
$
|
1,764
|
|
CinemaNow
|
|
|
|
|
|
|
|
|
Horror Entertainment, LLC (FEARnet)
|
|
|
4,307
|
|
|
|
3,602
|
|
NextPoint, Inc. (Break.com)
|
|
|
21,389
|
|
|
|
|
|
Roadside Attractions, LLC
|
|
|
3,341
|
|
|
|
|
|
Elevation Sales Limited
|
|
|
768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,757
|
|
|
$
|
5,366
|
|
|
|
|
|
|
|
|
|
|
Equity interests in equity method investments on our unaudited
condensed consolidated statements of operations represent our
portion of the income or loss of our equity method investee
based on our percentage
12
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
ownership. Equity interests in equity method investments for the
three and six months ended September 30, 2007 and 2006 were
as follows (income (loss)):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands )
|
|
|
Maple
|
|
$
|
(152
|
)
|
|
$
|
(92
|
)
|
|
$
|
(90
|
)
|
|
$
|
(34
|
)
|
CinemaNow
|
|
|
|
|
|
|
(343
|
)
|
|
|
|
|
|
|
(343
|
)
|
Horror Entertainment, LLC (FEARnet)
|
|
|
(1,030
|
)
|
|
|
|
|
|
|
(1,899
|
)
|
|
|
|
|
NextPoint, Inc. (Break.com)
|
|
|
(5
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,187
|
)
|
|
$
|
(435
|
)
|
|
$
|
(1,994
|
)
|
|
$
|
(377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maple. Represents the Companys interest
in Maple Pictures (Maple), a motion picture,
television and home video distributor in Canada. Maple was
formed by a director of the Company, a former Lionsgate
executive and a third-party equity investor. Due to the timing
of the availability of financial statements from Maple, the
Company is recording its share of the Maple results on a one
quarter lag. Through June 30, 2007, the Company owned 10%
of the common shares of Maple and, accordingly, during the six
months ended September 30, 2007 and 2006, the Company
recorded 10% of the loss incurred by Maple during the six months
ended June 30, 2007 and 2006, respectively. Subsequent to
June 30, 2007, Lionsgate entered into a transaction where
it effectively gained control of Maple for financial reporting
purposes. The Company is currently evaluating strategic
alternatives as it relates to its investment in Maple. If this
control becomes other than temporary, the Company would
consolidate Maple in the future.
CinemaNow. At September 30, 2007, the
Company has an equity interest in CinemaNow, Inc.
(CinemaNow) of approximately 18.6% on a fully
diluted basis and 21.0% on an undiluted basis. The investment
carrying amount is nil as a result of the Company absorbing its
share of losses to the full extent of the investment in
CinemaNow.
Horror Entertainment, LLC. Represents the
Companys 33.3% interest in Horror Entertainment, LLC
(FEARnet), a multiplatform programming and content
service provider of horror genre films operating under the
branding of FEARnet. In addition, the Company
entered into a five-year license agreement with FEARnet for the
U.S. territories and possessions whereby the Company will
license content to FEARnet for
video-on-demand
and broadband exhibition. The Company made capital contributions
to FEARnet of $5.0 million in October 2006, and
$2.6 million in July 2007. As of September 30, 2007,
the Company has a remaining commitment for additional capital
contributions totaling $5.7 million, which are expected to
be fully funded over the next two-year period. Under certain
circumstances, if the Company defaults on any of its funding
obligations, the Company could forfeit its equity and its
license agreement with FEARnet could be terminated. Due to the
timing of the availability of financial statements from FEARnet,
the Company is recording its share of the FEARnet results on a
one quarter lag and, accordingly, during the six months ended
September 30, 2007 the Company recorded 33.3% of the loss
incurred by FEARnet through June 30, 2007.
NextPoint, Inc. Represents the Companys
42% equity interest or 21,000,000 shares of the
Series B Preferred Stock of NextPoint, Inc.
(Break.com), an online video entertainment service
provider operating under the branding of Break.com.
The interest was acquired on June 29, 2007 for an aggregate
purchase price of $21.4 million which includes
$0.5 million of transaction costs, by issuing 1,890,189 of
the Companys common shares. The Company has a call option
which is exercisable at any time from June 29, 2007 until
the earlier of 30 months after June 29, 2007 or one
year after a change of control, as narrowly defined, to purchase
all of the remaining 58% equity interests (excluding any
subsequent dilutive events), including in-the-money stock
options,
13
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
warrants and other rights of Break.com for $58.0 million in
cash or common stock, at the Companys option. The fair
value of the call option is included in the investment balance.
Due to the timing of the availability of financial statements
from Break.com, the Company is recording its share of the
Break.com results on a one quarter lag and, accordingly, during
the six months ended September 30, 2007 the Company
recorded 42% of the loss incurred by Break.com from the date of
investment through June 30, 2007.
Roadside Attractions, LLC. Represents the
Companys 43% equity interest in Roadside Attractions, LLC
(Roadside), an independent theatrical releasing
company acquired on July 26, 2007. 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 a period ending on the third anniversary of this
investment 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 fair value of the call option was
not significant since the exercise price represents the then
fair value of the company. Due to the timing of the availability
of financial statements from Roadside, the Company is recording
its share of the Roadside results on a one quarter lag. Through
September 30, 2007, the Company has not recorded its share
of the results of Roadside because first quarter will be
reported in the Companys quarter ended December 31,
2007.
Elevation Sales Limited. Represents a 50%
equity interest in Elevation Sales Limited
(Elevation), a UK based film distributor. The
Companys share of the results of Elevation for the quarter
ended September 30, 2007 was nil.
At September 30, 2007, the Company had a $215 million
revolving line of credit, of which $10 million is available
for borrowing by Lionsgate UK in either U.S. dollars or
British pounds sterling. At September 30, 2007, the Company
had no borrowings (March 31, 2007 nil) under
the credit facility. The credit facility expires
December 31, 2008 and bears interest at 2.75% over the
Adjusted LIBOR or the Canadian Bankers
Acceptance rate (as defined in the credit facility), or
1.75% over the U.S. or Canadian prime rates. The
availability of funds under the credit facility is limited by
the borrowing base. Amounts available under the credit facility
are also limited by outstanding letters of credit, which
amounted to $15.2 million at September 30, 2007. At
September 30, 2007, there was $199.8 million available
under the credit facility. The Company is required to pay a
monthly commitment fee based upon 0.50% per annum on the total
credit facility of $215 million less the amount drawn.
Right, title and interest in and to all personal property of
Lions Gate Entertainment Corp. and Lions Gate Entertainment
Inc., the Companys wholly owned U.S. subsidiary is
pledged as security for the credit facility. The credit facility
is senior to the Companys film obligations and
subordinated notes. The credit facility restricts the Company
from paying cash dividends on its common shares.
|
|
6.
|
Film
Obligations and Participation and Residuals
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
(Amounts in thousands )
|
|
|
Minimum guarantees(1)
|
|
$
|
17,035
|
|
|
$
|
19,286
|
|
Theatrical marketing obligations(2)
|
|
|
3,158
|
|
|
|
4,482
|
|
Production obligations(3)
|
|
|
191,459
|
|
|
|
144,116
|
|
|
|
|
|
|
|
|
|
|
Total film obligations
|
|
|
211,652
|
|
|
|
167,884
|
|
Less film obligations expected to be paid within one year
|
|
|
(113,053
|
)
|
|
|
(82,350
|
)
|
|
|
|
|
|
|
|
|
|
Production obligations expected to be paid after one year
|
|
$
|
98,599
|
|
|
$
|
85,534
|
|
|
|
|
|
|
|
|
|
|
Participation and residuals
|
|
$
|
293,622
|
|
|
$
|
171,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Minimum guarantees represent amounts payable for film rights
which the Company has acquired. |
14
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(2) |
|
Theatrical marketing obligations represent amounts which are
contractually committed for theatrical marketing expenditures
associated with specific titles. |
|
(3) |
|
Production obligations represent amounts payable for the cost
incurred for the production of film and television programs that
the Company produces, which in some cases are financed over
periods exceeding one year. Production obligations have
contractual repayment dates either at or near the expected
completion date, with the exception of certain obligations
containing repayment dates on a longer term basis. Production
obligations of $108.1 million incur interest at rates
ranging from 6.72% to 8.02%, one production loan of
$2.5 million bears interest of 14.08%, and approximately
$80.9 million of production obligations are non-interest
bearing. |
The Company expects approximately 74% of accrued participations
and residuals will be paid during the one-year period ending
September 30, 2008.
Theatrical
Slate Financing
On May 25, 2007, the Company, through a series of
agreements, closed a theatrical slate funding arrangement. Under
this arrangement Pride Pictures LLC (Pride), an
unrelated entity, will fund, generally, 50% of the
Companys production, acquisition, marketing and
distribution costs of theatrical feature films up to an
aggregate of approximately $196 million, net of transaction
costs. The funds available from Pride are generated from the
issuance by Pride of $35 million of subordinated debt
instruments, $35 million of equity and $134 million
from a senior credit facility, which is subject to a borrowing
base. The Company is not a party to the Pride debt obligations
or their senior credit facility, and provides no guarantee of
repayment of these obligations. The percentage of the
contribution may vary on certain pictures. The slate of films
covered by the arrangement is expected to be comprised of 23
films over the next three years. Pride will participate in a pro
rata portion of the pictures net profits or losses similar
to a co-production arrangement based on the portion of costs
funded. The Company continues to distribute the pictures covered
by the arrangement with a portion of net profits after all costs
and the Companys distribution fee being distributed to
Pride based on their pro rata contribution to the applicable
costs similar to a back-end participation on a film.
The $134 million senior credit facility is a revolving
facility for print and advertising costs, other releasing costs,
and direct production and acquisition costs. Borrowings for
direct production and acquisition cost are subject to a
borrowing base calculation generally based on 90% of the
estimated ultimate amounts due to Pride on previously released
films, as defined.
Amounts funded from Pride are reflected as a participation
liability. The difference between the ultimate participation
expected to be paid to Pride and the amount funded by Pride is
amortized as a charge to or a reduction of participation expense
under the individual film forecast method. At September 30,
2007, $96.5 million was payable to Pride and is included in
the participation liability on the consolidated balance sheet
and $96.1 million was available to be funded by Pride under
the terms of the arrangement.
Société
Générale de Financement du Québec Filmed
Entertainment Financing Deal
On July 30, 2007, the Company entered into a four-year
filmed entertainment slate financing agreement with
Société Générale de Financement du
Québec (SGF), the Québec provincial
governments investment arm. SGF will finance up to 35% of
production costs of television and feature film productions
produced in Québec for a four year period for an aggregate
investment of up to $140 million, and the Company will
advance all amounts necessary to fund the remaining budgeted
costs. The maximum aggregate of budgeted costs over the
four-year period will be $400 million, including the
Companys portion, but no more than $100 million per
year. In connection with this agreement the Company and SGF will
proportionally share in the proceeds derived from the funded
productions after the Company deducts a distribution fee,
recoups all distribution expenses and releasing costs, and pays
all applicable participations and residuals.
15
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amounts funded from SGF are reflected as a participation
liability. The difference between the ultimate participation
expected to be paid to SGF and the amount funded by SGF is
amortized as a charge to or a reduction of participation expense
under the individual film forecast method. At September 30,
2007, $5.1 million was payable to SGF and is included in
the participation liability on the consolidated balance sheet
and $132.8 million was available to be funded by SGF under
the terms of the arrangement.
|
|
7.
|
Subordinated
Notes and Other Financing Obligations
|
The following table sets forth the subordinated notes and other
financing obligations outstanding at September 30, 2007 and
March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
(Amounts in thousands )
|
|
|
2.9375% Convertible Senior Subordinated Notes
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
3.625% Convertible Senior Subordinated Notes
|
|
|
175,000
|
|
|
|
175,000
|
|
Other Financing Obligations
|
|
|
3,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
328,718
|
|
|
$
|
325,000
|
|
|
|
|
|
|
|
|
|
|
Subordinated
Notes
3.625% Notes. In February 2005, Lions
Gate Entertainment Inc. sold $175.0 million of
3.625% Convertible Senior Subordinated Notes (the
3.625% Notes). The Company received
$170.2 million of net proceeds after paying placement
agents fees from the sale of $175.0 million of the
3.625% Notes. The Company also paid $0.6 million of
offering expenses incurred in connection with the
3.625% Notes. Interest on the 3.625% Notes is payable
semi-annually on March 15 and September 15, which commenced
on September 15, 2005. After March 15, 2012, interest
will be 3.125% per annum on the principal amount of the
3.625% Notes, payable semi-annually on March 15 and
September 15 of each year. The 3.625% Notes mature on
March 15, 2025. Lions Gate Entertainment Inc. may redeem
all or a portion of the 3.625% Notes at its option on or
after March 15, 2012 at 100% of their principal amount,
together with accrued and unpaid interest through the date of
redemption.
The holder may require Lions Gate Entertainment Inc. to
repurchase the 3.625% Notes on March 15, 2012, 2015
and 2020 or upon a change in control at a price equal to 100% of
the principal amount, together with accrued and unpaid interest
through the date of repurchase. Under certain circumstances, if
the holder requires Lions Gate Entertainment Inc. to repurchase
all or a portion of their notes upon a change in control, they
will be entitled to receive a make whole premium. The amount of
the make whole premium, if any, will be based on the price of
the common shares of the Company on the effective date of the
change in control. No make whole premium will be paid if the
price of the common shares of the Company is less than $10.35
per share or exceeds $75.00 per share.
The 3.625% Notes are convertible, at the option of the
holder, at any time before the close of business on or prior to
the trading day immediately before the maturity date, if the
notes have not been previously redeemed or repurchased, at a
conversion rate of 70.0133 shares per $1,000 principal
amount of the 3.625% Notes, subject to adjustment in
certain circumstances, which is equal to a conversion price of
approximately $14.28 per share. Upon conversion of the
3.625% Notes, the Company has the option to deliver, in
lieu of common shares, cash or a combination of cash and common
shares of the Company. The holder may convert the
3.625% Notes into common shares of the Company prior to
maturity if the notes have been called for redemption, a change
in control occurs or certain corporate transactions occur.
2.9375% Notes. In October 2004, Lions
Gate Entertainment Inc. sold $150.0 million of
2.9375% Convertible Senior Subordinated Notes (the
2.9375% Notes). The Company received
$146.0 million of net proceeds after paying placement
agents fees from the sale of $150.0 million of the
2.9375% Notes. The Company also paid
16
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$0.7 million of offering expenses incurred in connection
with the 2.9375% Notes. Interest on the 2.9375% Notes
is payable semi-annually on April 15 and October 15, which
commenced on April 15, 2005, and the 2.9375% Notes
mature on October 15, 2024. From October 15, 2009 to
October 14, 2010, Lions Gate Entertainment Inc. may redeem
the 2.9375% Notes at 100.839%; from October 15, 2010
to October 14, 2011, Lions Gate Entertainment Inc. may
redeem the 2.9375% Notes at 100.420%; and thereafter, Lions
Gate Entertainment Inc. may redeem the notes at 100%.
The holder may require Lions Gate Entertainment Inc. to
repurchase the 2.9375% Notes on October 15, 2011, 2014
and 2019 or upon a change in control at a price equal to 100% of
the principal amount, together with accrued and unpaid interest
through the date of repurchase. Under certain circumstances, if
the holder requires Lions Gate Entertainment Inc. to repurchase
all or a portion of their notes upon a change in control, they
will be entitled to receive a make whole premium. The amount of
the make whole premium, if any, will be based on the price of
the common shares of the Company on the effective date of the
change in control. No make whole premium will be paid if the
price of the common shares of the Company is less than $8.79 per
share or exceeds $50.00 per share.
The holder may convert the 2.9375% Notes into our common
shares prior to maturity only if the price of the common shares
of the Company issuable upon conversion of a note reaches a
specified threshold over a specified period, the trading price
of the notes falls below certain thresholds, the notes have been
called for redemption, a change in control occurs or certain
corporate transactions occur. In addition, under certain
circumstances, if the holder converts their notes upon a change
in control, they will be entitled to receive a make whole
premium. Before the close of business on or prior to the trading
day immediately before the maturity date, if the notes have not
been previously redeemed or repurchased, the holder may convert
the notes into our common shares at a conversion rate of
86.9565 shares per $1,000 principal amount of the
2.9375% Notes, subject to adjustment in certain
circumstances, which is equal to a conversion price of
approximately $11.50 per share.
Other
Financing Obligations
On June 1, 2007, the Company entered into a bank financing
agreement for $3.7 million to fund the acquisition of
certain capital assets. Interest is payable in monthly payments
totaling $0.3 million per year for five years at an
interest rate of 8.02%, with the entire principal due June 2012.
On September 10, 2007, the Company purchased all of the
membership interests in Mandate Pictures, LLC, a Delaware
limited liability company (Mandate). Mandate is an
independent film producer and distributor. The Mandate
acquisition brings to the Company additional experienced
management personnel working within the motion picture business
segment. In addition, the Mandate acquisition adds an
independent film and distribution business to the Companys
motion picture business. The aggregate purchase price was
approximately $60.2 million, comprised of
$48.3 million in cash and 1,282,999 million in shares
of the Companys common stock to be issued and delivered
over a period of 18 months pursuant to certain holdback
provisions. Of the $48.3 million cash portion of the
purchase price, $44.3 million was paid at closing,
$1.2 million represented estimated direct transaction costs
(to be paid to lawyers, accountants and other consultants), and
$2.8 million represented the remaining estimated cash
consideration that will be paid within the next 12 month
period. The value assigned to the shares for purposes of
recording the acquisition was $11.8 million and was based
on the closing price of the Companys common stock on the
date of the acquisition. In addition, the Company may be
obligated to pay additional amounts should certain films or
derivative works meet certain target performance thresholds.
Such amounts, which are directly based on the performance of
these films, will be accounted for similar to other film
participation arrangements. The amount of contingent
consideration ultimately estimated to be paid, if anything, will
be amortized to direct operating expense in the proportion that
the years revenue bears to managements estimate of
ultimate revenue at the beginning of the year.
17
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The acquisition was accounted for as a purchase, with the
results of operations of Mandate included in the Companys
consolidated results from September 10, 2007 through
September 30, 2007. Goodwill of $37.1 million
represents the excess of purchase price over the preliminary
estimate of the fair value of the net identifiable tangible and
intangible assets acquired. Although the goodwill will not be
amortized for financial reporting purposes it is anticipated
that substantially all of the goodwill will be deductible for
federal tax purposes over the statutory period of 15 years.
The preliminary allocation of the purchase price to the assets
acquired and liabilities assumed based on their estimated fair
values was as follows:
|
|
|
|
|
|
|
Preliminary
|
|
|
|
Allocation
|
|
|
|
(Amounts in
|
|
|
|
thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
3,952
|
|
Restricted cash
|
|
|
7,807
|
|
Accounts receivable, net
|
|
|
12,807
|
|
Investment in films and television programs
|
|
|
62,951
|
|
Definite life intangible assets
|
|
|
5,400
|
|
Other assets acquired
|
|
|
2,742
|
|
Goodwill
|
|
|
37,076
|
|
Accounts payable and accrued liabilities
|
|
|
(10,697
|
)
|
Participation and residuals
|
|
|
(6,658
|
)
|
Film obligations
|
|
|
(50,565
|
)
|
Deferred revenue
|
|
|
(4,658
|
)
|
|
|
|
|
|
Total
|
|
$
|
60,157
|
|
|
|
|
|
|
The allocation above is preliminary until completion and receipt
of final appraisals of the net assets acquired. The preliminary
allocation of the purchase price is subject to revision, as more
detailed analysis of investment in films and intangible assets
is completed and additional information on the fair value of
assets and liabilities becomes available. Any change in the fair
value of the net assets of Mandate will change the amount of the
purchase price allocable to goodwill. The $37.1 million of
goodwill was assigned to the motion pictures reporting segment.
The following unaudited pro forma condensed consolidated
statements of operations presented below illustrate the results
of operations of the Company as if the acquisition of Mandate as
described above occurred at April 1, 2006 based on the
preliminary purchase price allocation:
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
Six Months
|
|
|
Ended
|
|
Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2007
|
|
2006
|
|
|
(Amounts in thousands, except per share amounts )
|
|
Revenues
|
|
$
|
563,497
|
|
|
$
|
394,928
|
|
Operating loss
|
|
$
|
(109,318
|
)
|
|
$
|
(16,117
|
)
|
Net loss
|
|
$
|
(112,646
|
)
|
|
$
|
(19,026
|
)
|
Basic and Diluted Net Loss Per Common Share
|
|
$
|
(0.94
|
)
|
|
$
|
(0.18
|
)
|
Weighted average number of common shares outstanding
|
|
|
119,419
|
|
|
|
105,944
|
|
18
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Direct
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Amortization of films and television programs
|
|
$
|
125,757
|
|
|
$
|
48,805
|
|
|
$
|
175,619
|
|
|
$
|
81,998
|
|
Participation and residual expense
|
|
|
55,956
|
|
|
|
43,824
|
|
|
|
93,967
|
|
|
|
81,022
|
|
Amortization of acquired intangible assets
|
|
|
163
|
|
|
|
244
|
|
|
|
325
|
|
|
|
488
|
|
Other expenses
|
|
|
611
|
|
|
|
1,850
|
|
|
|
(366
|
)
|
|
|
(240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
182,487
|
|
|
$
|
94,723
|
|
|
$
|
269,545
|
|
|
$
|
163,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses primarily consist of the provision for doubtful
accounts and foreign exchange gains and losses. The provision
for doubtful accounts included in other expenses for the three
months ended September 30, 2007 and 2006 was
$0.6 million and $1.8 million, respectively. The
provision (benefit) for doubtful accounts included in other
expenses for the six months ended September 30, 2007 and
2006 was a provision of less than $0.1 million and a
benefit of ($0.2) million, respectively.
Foreign exchange gains included in other expenses for the six
months ended September 30, 2007 and 2006 were
$0.4 million and nil, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands )
|
|
|
Net loss
|
|
$
|
(56,214
|
)
|
|
$
|
(14,392
|
)
|
|
$
|
(109,332
|
)
|
|
$
|
(17,996
|
)
|
Add: Foreign currency translation adjustments
|
|
|
126
|
|
|
|
130
|
|
|
|
2,560
|
|
|
|
1,680
|
|
Add (Deduct): Net unrealized gain (loss) on foreign exchange
contracts
|
|
|
181
|
|
|
|
(31
|
)
|
|
|
169
|
|
|
|
(14
|
)
|
Add (Deduct): Unrealized gain (loss) on investments
available for sale
|
|
|
(1,254
|
)
|
|
|
(517
|
)
|
|
|
26
|
|
|
|
(880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(57,161
|
)
|
|
$
|
(14,810
|
)
|
|
$
|
(106,577
|
)
|
|
$
|
(17,210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Loss Per
Share and Treasury Shares
|
The Company calculates loss per share in accordance with
SFAS No. 128, Earnings Per Share. Basic
loss per share is calculated based on the weighted average
common shares outstanding for the period. Basic loss per share
for the three and six months ended September 30, 2007 and
2006 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(Amounts in thousands )
|
|
|
|
|
|
Basic and Diluted Net Loss Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(56,214
|
)
|
|
$
|
(14,392
|
)
|
|
$
|
(109,332
|
)
|
|
$
|
(17,996
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
119,155
|
|
|
|
104,856
|
|
|
|
118,136
|
|
|
|
104,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Net Loss Per Common Share
|
|
$
|
(0.47
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.93
|
)
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The exercise of common share equivalents including stock
options, the conversion features of the 2.9375% Notes, and
the 3.625% Notes and restricted share units could
potentially dilute income (loss) per share in the future, but
were not reflected in diluted loss per share during the periods
presented because their effect is anti-dilutive.
The Company had 500,000,000 authorized shares of common stock at
September 30, 2007 and March 31, 2007. The table below
outlines common shares reserved for future issuance:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
(Amounts in thousands )
|
|
|
Stock options outstanding
|
|
|
5,208
|
|
|
|
5,933
|
|
Restricted share units unvested
|
|
|
2,374
|
|
|
|
1,872
|
|
Share purchase options and restricted share units available for
future issuance
|
|
|
6,924
|
|
|
|
1,026
|
|
Shares issuable upon conversion of 2.9375% Notes
|
|
|
13,043
|
|
|
|
13,043
|
|
Shares issuable upon conversion of 3.625% Notes
|
|
|
12,252
|
|
|
|
12,252
|
|
|
|
|
|
|
|
|
|
|
Shares reserved for future issuance
|
|
|
39,801
|
|
|
|
34,126
|
|
|
|
|
|
|
|
|
|
|
On May 31, 2007, the Companys Board of Directors
authorized the repurchase of up to $50 million of the
Companys common shares, with the timing, price, quantity,
and manner of the purchases to be made at the discretion of
management, depending upon market conditions. During the period
from the authorization date through September 30, 2007,
1,169,835 million shares have been repurchased at a cost of
approximately $10.7 million, including commission costs.
The share repurchase program has no expiration date. The shares
repurchased under the stock repurchase program are included in
treasury shares in the accompanying unaudited consolidated
balance sheets and statements of shareholders equity.
20
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Accounting
for Stock-Based Compensation
|
Share-Based
Compensation
The Company accounts for stock-based compensation in accordance
with the provisions of SFAS No. 123(R).
SFAS No. 123(R) requires the measurement of all
stock-based awards using a fair value method and the recognition
of the related stock-based compensation expense in the
consolidated financial statements over the requisite service
period. Further, as required under SFAS No. 123(R),
the Company estimates forfeitures for share-based awards that
are not expected to vest. As stock-based compensation expense
recognized in the Companys consolidated financial
statements is based on awards ultimately expected to vest, it
has been reduced for estimated forfeitures.
The fair value of each option award is estimated on the date of
grant using a closed-form option valuation model (Black-Scholes)
based on the assumptions noted in the following table. Expected
volatilities are based on implied volatilities from traded
options on the Companys stock, historical volatility of
the Companys stock and other factors. The expected term of
options granted represents the period of time that options
granted are expected to be outstanding. The following table
represents the assumptions used in the Black-Scholes
option-pricing model for options granted during the six months
ended September 30, 2007 and 2006:
|
|
|
|
|
|
|
Six Months
|
|
Six Months
|
|
|
Ended
|
|
Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2007
|
|
2006
|
|
Risk-free interest rate
|
|
4.1%- 4.8%
|
|
4.7%
|
Expected option lives (in years)
|
|
5.6 to 6.5 years
|
|
6 years
|
Expected volatility for options
|
|
31%
|
|
26%
|
Expected dividend yield
|
|
0%
|
|
0%
|
The weighted-average grant-date fair values for options granted
during the six months ended September 30, 2007 was $4.17.
The Company recognized the following share-based compensation
expense during the three and six months ended September 30,
2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Three Months Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands )
|
|
|
Compensation Expense (Benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
$
|
851
|
|
|
$
|
433
|
|
|
$
|
1,636
|
|
|
$
|
891
|
|
Restricted Share Units
|
|
|
2,980
|
|
|
|
905
|
|
|
|
5,041
|
|
|
|
1,421
|
|
Stock Appreciation Rights
|
|
|
(629
|
)
|
|
|
1,910
|
|
|
|
(1,009
|
)
|
|
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,202
|
|
|
$
|
3,248
|
|
|
$
|
5,668
|
|
|
$
|
2,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There was no income tax benefit recognized in the statements of
operations for share-based compensation arrangements during the
three and six months ended September 30, 2007 and 2006.
21
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Options
A summary of option activity as of September 30, 2007 and
changes during the six months then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Average
|
|
|
Remaining
|
|
|
Value as of
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
September 30,
|
|
Options:
|
|
Shares(1)
|
|
|
Shares(2)
|
|
|
Shares
|
|
|
Price
|
|
|
Term In Years
|
|
|
2007
|
|
|
Outstanding at March 31, 2007
|
|
|
5,933,289
|
|
|
|
|
|
|
|
5,933,289
|
|
|
$
|
4.18
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
490,000
|
|
|
|
|
|
|
|
490,000
|
|
|
|
11.70
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(61,807
|
)
|
|
|
|
|
|
|
(61,807
|
)
|
|
|
6.31
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(5,665
|
)
|
|
|
|
|
|
|
(5,665
|
)
|
|
|
8.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2007
|
|
|
6,355,817
|
|
|
|
|
|
|
|
6,355,817
|
|
|
$
|
6.71
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
9.22
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,743,167
|
)
|
|
|
|
|
|
|
(1,743,167
|
)
|
|
|
2.86
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(4,501
|
)
|
|
|
|
|
|
|
(4,501
|
)
|
|
|
8.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2007
|
|
|
4,608,149
|
|
|
|
600,000
|
|
|
|
5,208,149
|
|
|
$
|
8.29
|
|
|
|
6.22
|
|
|
$
|
11,225,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of September 30, 2007, vested or expected to
vest in the future
|
|
|
4,602,107
|
|
|
|
600,000
|
|
|
|
5,202,107
|
|
|
$
|
8.29
|
|
|
|
6.22
|
|
|
$
|
11,224,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2007
|
|
|
1,987,314
|
|
|
|
600,000
|
|
|
|
2,587,314
|
|
|
$
|
6.58
|
|
|
|
3.41
|
|
|
$
|
9,661,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Issued under our long-term incentive plans. |
|
(2) |
|
On September 10, 2007, in connection with the acquisition
of Mandate (see note 8), two executives entered into
employment agreements with Lions Gate Films, Inc., a
wholly-owned subsidiary of the Company. Pursuant to the
employment agreements, the executives were granted an aggregate
of 600,000 stock options, which vest over a three- to five-year
period. The options were granted outside of our long-term
incentive plans. |
The total intrinsic value of options exercised as of each
exercise date during the three and six months ended
September 30, 2007 were $11.6 million and
$11.9 million, respectively (2006
$5.2 million and $6.0 million, respectively).
22
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted
Share Units
A summary of the status of the Companys restricted share
units as of September 30, 2007, and changes during the six
months then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Weighted Average
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Number of
|
|
|
Grant Date Fair
|
|
Restricted Share Units:
|
|
Shares(1)
|
|
|
Shares(2)
|
|
|
Shares
|
|
|
Value
|
|
|
Outstanding at March 31, 2007
|
|
|
1,872,243
|
|
|
|
|
|
|
|
1,872,243
|
|
|
$
|
9.78
|
|
Granted
|
|
|
505,833
|
|
|
|
|
|
|
|
505,833
|
|
|
|
11.69
|
|
Vested
|
|
|
(195,257
|
)
|
|
|
|
|
|
|
(195,257
|
)
|
|
|
9.86
|
|
Forfeited
|
|
|
(5,206
|
)
|
|
|
|
|
|
|
(5,206
|
)
|
|
|
10.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2007
|
|
|
2,177,613
|
|
|
|
|
|
|
|
2,177,613
|
|
|
$
|
10.22
|
|
Granted
|
|
|
214,583
|
|
|
|
287,500
|
|
|
|
502,083
|
|
|
|
9.40
|
|
Vested
|
|
|
(294,545
|
)
|
|
|
|
|
|
|
(294,545
|
)
|
|
|
10.13
|
|
Forfeited
|
|
|
(11,166
|
)
|
|
|
|
|
|
|
(11,166
|
)
|
|
|
9.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2007
|
|
|
2,086,485
|
|
|
|
287,500
|
|
|
|
2,373,985
|
|
|
$
|
10.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Issued under our long-term incentive plans. |
|
(2) |
|
On September 10, 2007, in connection with the acquisition
of Mandate (see note 8), two executives entered into
employment agreements with Lions Gate Films, Inc., a
wholly-owned subsidiary of the Company. Pursuant to the
employment agreements, the executives were granted an aggregate
of 287,500 restricted share units, which vest over a three- to
five-year period. The restricted share units were granted
outside of our long-term incentive plans. |
The fair values of restricted share units are determined based
on the market value of the shares on the date of grant.
The following table summarizes the total remaining unrecognized
compensation cost as of September 30, 2007 related to
non-vested stock options and restricted share units and the
weighted average remaining years over which the cost will be
recognized:
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Weighted
|
|
|
|
Unrecognized
|
|
|
Average
|
|
|
|
Compensation
|
|
|
Remaining
|
|
|
|
Cost
|
|
|
Years
|
|
|
|
(Amounts in thousands)
|
|
|
Stock Options
|
|
$
|
10,543
|
|
|
|
3.0
|
|
Restricted Share Units
|
|
|
18,973
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under the Companys two stock option and long term
incentive plans, the Company withholds shares to satisfy minimum
statutory federal, state and local tax withholding obligations
arising from the vesting of restricted share units. During the
six months ended September 30, 2007, 65,131 shares
were withheld upon the vesting of restricted share units and
396,904 shares were withheld upon the exercise of stock
options to satisfy minimum statutory federal, state and local
tax withholding obligations. In addition, 480,382 shares
were withheld and cancelled to fund the exercise of certain
stock options.
23
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company becomes entitled to an income tax deduction in an
amount equal to the taxable income reported by the holders of
the stock options and restricted share units when vesting or
exercise occurs, the restrictions are released and the shares
are issued. Restricted share units are forfeited if the
employees terminate prior to vesting.
Stock
Appreciation Rights
On February 2, 2004, an officer of the Company was granted
1,000,000 stock appreciation rights (SARs), which
entitles the officer to receive cash only, and not common
shares. The amount of cash received will be equal to the amount
by which the trading price of the Companys common shares
on the exercise notice date exceeds the SARs price of
$5.20 multiplied by the number of SARs exercised. The SARs
vested one quarter immediately on the award date and one quarter
on each of the first, second and third anniversaries of the
award date. These SARs are not considered part of the
Companys Employees and Directors Equity
Incentive Plan. Through March 31, 2006, the Company
measured compensation expense as the amount by which the market
value of common shares exceeded the SARs price at each
reporting date. Effective April 1, 2006, upon the adoption
of SFAS No. 123(R), the Company measures compensation
expense based on the fair value of the SARs which is determined
by using the Black-Scholes option-pricing model at each
reporting date. For the three and six months ended
September 30, 2007, the following assumptions were used in
the Black-Scholes option-pricing model: Volatility of 45.6%,
Risk Free Rate of 4.2%, Expected Term of 1.3 years, and
Dividend of 0%. At September 30, 2007, the market price of
the Companys common shares was $10.31, the weighted
average fair value of the SARs was $5.53, and all 1,000,000 of
the SARs had vested. Due to the decrease in the market price of
its common shares, the Company recorded a reduction in
stock-based compensation expense in the amount of
$0.6 million and $1.0 million in general and
administration expenses in the unaudited condensed consolidated
statements of operations for the three and six months ended
September 30, 2007, respectively (2006
$0.3 million increase and a reduction of $0.3 million,
respectively). The compensation expense amount in the period is
calculated by using the fair value of the SARs, multiplied by
the remaining 850,000 SARs which have fully vested (150,000 SARs
were previously exercised and expensed). At September 30,
2007, the Company has a stock-based compensation liability
accrual in the amount of $4.7 million (March 31,
2007 $5.7 million) included in accounts payable
and accrued liabilities on the unaudited condensed consolidated
balance sheets relating to these SARs.
SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, requires the Company
to make certain disclosures about each reportable segment. The
Companys reportable segments are determined based on the
distinct nature of their operations and each segment is a
strategic business unit that offers different products and
services and is managed separately. The Company evaluates
performance of each segment using segment profit (loss) as
defined below. The Company has two reportable business segments:
Motion Pictures and Television.
Motion Pictures consists of the development and production of
feature films, acquisition of North American and worldwide
distribution rights, North American theatrical, video and
television distribution of feature films produced and acquired,
and worldwide licensing of distribution rights to feature films
produced and acquired.
Television consists of the development, production and worldwide
distribution of television productions, including television
series, television movies and mini-series and non-fiction
programming.
24
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Segmented information by business unit is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Segment revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
234,412
|
|
|
$
|
186,598
|
|
|
$
|
404,734
|
|
|
$
|
351,784
|
|
Television
|
|
|
109,093
|
|
|
|
31,571
|
|
|
|
137,513
|
|
|
|
38,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
343,505
|
|
|
$
|
218,169
|
|
|
$
|
542,247
|
|
|
$
|
390,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
84,640
|
|
|
$
|
69,549
|
|
|
$
|
144,270
|
|
|
$
|
131,502
|
|
Television
|
|
|
97,847
|
|
|
|
25,174
|
|
|
|
125,275
|
|
|
|
31,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
182,487
|
|
|
$
|
94,723
|
|
|
$
|
269,545
|
|
|
$
|
163,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution and marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
184,793
|
|
|
$
|
110,396
|
|
|
$
|
317,652
|
|
|
$
|
195,657
|
|
Television
|
|
|
4,219
|
|
|
|
2,949
|
|
|
|
6,861
|
|
|
|
4,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
189,012
|
|
|
$
|
113,345
|
|
|
$
|
324,513
|
|
|
$
|
200,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
8,284
|
|
|
$
|
6,378
|
|
|
$
|
15,699
|
|
|
$
|
13,192
|
|
Television
|
|
|
1,879
|
|
|
|
900
|
|
|
|
3,705
|
|
|
|
1,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,163
|
|
|
$
|
7,278
|
|
|
$
|
19,404
|
|
|
$
|
14,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
(43,305
|
)
|
|
$
|
275
|
|
|
$
|
(72,887
|
)
|
|
$
|
11,433
|
|
Television
|
|
|
5,148
|
|
|
|
2,548
|
|
|
|
1,672
|
|
|
|
1,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(38,157
|
)
|
|
$
|
2,823
|
|
|
$
|
(71,215
|
)
|
|
$
|
12,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of investment in films and television programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
81,612
|
|
|
$
|
60,389
|
|
|
$
|
137,685
|
|
|
$
|
99,863
|
|
Television
|
|
|
29,464
|
|
|
|
43,050
|
|
|
|
109,531
|
|
|
|
64,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
111,076
|
|
|
$
|
103,439
|
|
|
$
|
247,216
|
|
|
$
|
164,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment amounted to
$0.4 million and $2.4 million for the three and six
months ending September 30, 2007, respectively, and
$1.7 million and $3.5 million for the three and six
months ending September 30, 2006, respectively, all
primarily pertaining to the Companys corporate
headquarters.
25
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Segment profit (loss) is defined as segment revenue less segment
direct operating, distribution and marketing, and general and
administration expenses. The reconciliation of total segment
profit (loss) to the Companys loss before income taxes is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Companys total segment profit (loss)
|
|
$
|
(38,157
|
)
|
|
$
|
2,823
|
|
|
$
|
(71,215
|
)
|
|
$
|
12,724
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate general and administration
|
|
|
(15,706
|
)
|
|
|
(14,449
|
)
|
|
|
(33,305
|
)
|
|
|
(26,718
|
)
|
Depreciation
|
|
|
(989
|
)
|
|
|
(581
|
)
|
|
|
(1,897
|
)
|
|
|
(1,125
|
)
|
Interest expense
|
|
|
(4,213
|
)
|
|
|
(4,904
|
)
|
|
|
(8,073
|
)
|
|
|
(9,580
|
)
|
Interest and other income
|
|
|
2,646
|
|
|
|
2,286
|
|
|
|
6,449
|
|
|
|
4,847
|
|
Gain on sale on equity securities
|
|
|
2,785
|
|
|
|
|
|
|
|
2,785
|
|
|
|
|
|
Equity interests loss
|
|
|
(1,187
|
)
|
|
|
(435
|
)
|
|
|
(1,994
|
)
|
|
|
(377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(54,821
|
)
|
|
$
|
(15,260
|
)
|
|
$
|
(107,250
|
)
|
|
$
|
(20,229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth significant assets as broken down
by segment and other unallocated assets as of September 30,
2007 and March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
|
March 31, 2007
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Significant assets by segment Accounts receivable
|
|
$
|
144,704
|
|
|
$
|
64,753
|
|
|
$
|
209,457
|
|
|
$
|
85,294
|
|
|
$
|
45,202
|
|
|
$
|
130,496
|
|
Investment in films and television programs
|
|
|
529,433
|
|
|
|
103,591
|
|
|
|
633,024
|
|
|
|
397,346
|
|
|
|
95,794
|
|
|
|
493,140
|
|
Goodwill
|
|
|
210,606
|
|
|
|
13,961
|
|
|
|
224,567
|
|
|
|
173,530
|
|
|
|
13,961
|
|
|
|
187,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
884,743
|
|
|
$
|
182,305
|
|
|
$
|
1,067,048
|
|
|
$
|
656,170
|
|
|
$
|
154,957
|
|
|
$
|
811,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other unallocated assets (primarily cash and available-for-sale
investments)
|
|
|
|
|
|
|
|
|
|
|
268,177
|
|
|
|
|
|
|
|
|
|
|
|
325,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
$
|
1,335,225
|
|
|
|
|
|
|
|
|
|
|
$
|
1,137,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company is from time to time involved in various claims,
legal proceedings and complaints arising in the ordinary course
of business. The Company does not believe that adverse decisions
in any such pending or threatened proceedings, or any amount
which the Company might be required to pay by reason thereof,
would have a material adverse effect on the financial condition
or future results of the Company. The Company has provided an
accrual for estimated losses under the above matters as of
September 30, 2007, in accordance with
SFAS No. 5, Accounting for Contingencies.
|
|
15.
|
Consolidating
Financial Information
|
In October 2004, the Company sold $150.0 million of the
2.9375% Notes, through its wholly owned
U.S. subsidiary Lions Gate Entertainment Inc. (the
Issuer). The 2.9375% Notes, by their terms, are
fully and unconditionally guaranteed by the Company.
In February 2005, the Company sold $175.0 million of the
3.625% Notes through the Issuer. The 3.625% Notes, by
their terms, are fully and unconditionally guaranteed by the
Company.
27
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables present unaudited condensed consolidating
financial information as of September 30, 2007 and
March 31, 2007 and for the six months ended
September 30, 2007 and 2006 for (1) the Company, on a
stand-alone basis, (2) the Issuer, on a stand-alone basis,
(3) the non-guarantor subsidiaries of the Company
(including the subsidiaries of the Issuer), on a combined basis
(collectively, the Other Subsidiaries) and
(4) the Company, on a consolidated basis.
BALANCE
SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2007
|
|
|
|
Lions Gate
|
|
|
Lions Gate
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Entertainment
|
|
|
Other
|
|
|
Consolidating
|
|
|
Lions Gate
|
|
|
|
Corp.
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands )
|
|
|
BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,016
|
|
|
$
|
144,582
|
|
|
$
|
12,267
|
|
|
$
|
|
|
|
$
|
158,865
|
|
Restricted cash
|
|
|
|
|
|
|
2,280
|
|
|
|
10,083
|
|
|
|
|
|
|
|
12,363
|
|
Investments auction rate securities
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
Investments equity securities
|
|
|
|
|
|
|
|
|
|
|
104
|
|
|
|
|
|
|
|
104
|
|
Accounts receivable, net
|
|
|
322
|
|
|
|
373
|
|
|
|
208,762
|
|
|
|
|
|
|
|
209,457
|
|
Investment in films and television programs
|
|
|
1,313
|
|
|
|
6,584
|
|
|
|
625,186
|
|
|
|
(59
|
)
|
|
|
633,024
|
|
Property and equipment
|
|
|
|
|
|
|
13,164
|
|
|
|
956
|
|
|
|
|
|
|
|
14,120
|
|
Goodwill
|
|
|
10,173
|
|
|
|
|
|
|
|
214,394
|
|
|
|
|
|
|
|
224,567
|
|
Other assets
|
|
|
2,063
|
|
|
|
203,540
|
|
|
|
6,682
|
|
|
|
(159,560
|
)
|
|
|
52,725
|
|
Investment in subsidiaries
|
|
|
229,515
|
|
|
|
524,214
|
|
|
|
|
|
|
|
(753,729
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
245,402
|
|
|
$
|
924,737
|
|
|
$
|
1,078,434
|
|
|
$
|
(913,348
|
)
|
|
$
|
1,335,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity (Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
477
|
|
|
$
|
39,462
|
|
|
$
|
213,429
|
|
|
$
|
|
|
|
$
|
253,368
|
|
Participation and residuals
|
|
|
193
|
|
|
|
1,623
|
|
|
|
291,806
|
|
|
|
|
|
|
|
293,622
|
|
Film obligations
|
|
|
80
|
|
|
|
|
|
|
|
211,572
|
|
|
|
|
|
|
|
211,652
|
|
Subordinated notes and other financing obligations
|
|
|
|
|
|
|
325,000
|
|
|
|
3,718
|
|
|
|
|
|
|
|
328,718
|
|
Deferred revenue
|
|
|
|
|
|
|
|
|
|
|
92,283
|
|
|
|
|
|
|
|
92,283
|
|
Intercompany payables (receivables)
|
|
|
(230,915
|
)
|
|
|
481,645
|
|
|
|
9,295
|
|
|
|
(260,025
|
)
|
|
|
|
|
Intercompany equity
|
|
|
319,985
|
|
|
|
93,217
|
|
|
|
331,148
|
|
|
|
(744,350
|
)
|
|
|
|
|
Shareholders equity (deficiency)
|
|
|
155,582
|
|
|
|
(16,210
|
)
|
|
|
(74,817
|
)
|
|
|
91,027
|
|
|
|
155,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
245,402
|
|
|
$
|
924,737
|
|
|
$
|
1,078,434
|
|
|
$
|
(913,348
|
)
|
|
$
|
1,335,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
STATEMENT
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended September 30, 2007
|
|
|
|
Lions Gate
|
|
|
Lions Gate
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Entertainment
|
|
|
Other
|
|
|
Consolidating
|
|
|
Lions Gate
|
|
|
|
Corp.
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands )
|
|
|
STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
137
|
|
|
$
|
7,624
|
|
|
$
|
536,839
|
|
|
$
|
(2,353
|
)
|
|
$
|
542,247
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating
|
|
|
|
|
|
|
|
|
|
|
269,545
|
|
|
|
|
|
|
|
269,545
|
|
Distribution and marketing
|
|
|
|
|
|
|
1,155
|
|
|
|
323,358
|
|
|
|
|
|
|
|
324,513
|
|
General and administration
|
|
|
776
|
|
|
|
30,765
|
|
|
|
21,168
|
|
|
|
|
|
|
|
52,709
|
|
Depreciation
|
|
|
|
|
|
|
1
|
|
|
|
1,896
|
|
|
|
|
|
|
|
1,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
776
|
|
|
|
31,921
|
|
|
|
615,967
|
|
|
|
|
|
|
|
648,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING LOSS
|
|
|
(639
|
)
|
|
|
(24,297
|
)
|
|
|
(79,128
|
)
|
|
|
(2,353
|
)
|
|
|
(106,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
7,842
|
|
|
|
231
|
|
|
|
|
|
|
|
8,073
|
|
Interest and other income
|
|
|
(35
|
)
|
|
|
(6,116
|
)
|
|
|
(298
|
)
|
|
|
|
|
|
|
(6,449
|
)
|
Gain on sale on equity securities
|
|
|
|
|
|
|
|
|
|
|
(2,785
|
)
|
|
|
|
|
|
|
(2,785
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses (income)
|
|
|
(35
|
)
|
|
|
1,726
|
|
|
|
(2,852
|
)
|
|
|
|
|
|
|
(1,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE EQUITY INTERESTS AND INCOME TAXES
|
|
|
(604
|
)
|
|
|
(26,023
|
)
|
|
|
(76,276
|
)
|
|
|
(2,353
|
)
|
|
|
(105,256
|
)
|
Equity interests income (loss)
|
|
|
(108,827
|
)
|
|
|
(80,358
|
)
|
|
|
(1,898
|
)
|
|
|
189,089
|
|
|
|
(1,994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
(109,431
|
)
|
|
|
(106,381
|
)
|
|
|
(78,174
|
)
|
|
|
186,736
|
|
|
|
(107,250
|
)
|
Income tax provision (benefit)
|
|
|
(99
|
)
|
|
|
155
|
|
|
|
2,026
|
|
|
|
|
|
|
|
2,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
(109,332
|
)
|
|
$
|
(106,536
|
)
|
|
$
|
(80,200
|
)
|
|
$
|
186,736
|
|
|
$
|
(109,332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
STATEMENT
OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended September 30, 2007
|
|
|
|
Lions Gate
|
|
|
Lions Gate
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Entertainment
|
|
|
Other
|
|
|
Consolidating
|
|
|
Lions Gate
|
|
|
|
Corp.
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands )
|
|
|
STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
$
|
9,697
|
|
|
$
|
(54,138
|
)
|
|
$
|
(14,112
|
)
|
|
$
|
|
|
|
$
|
(58,553
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of investments auction rate securities
|
|
|
|
|
|
|
(207,266
|
)
|
|
|
|
|
|
|
|
|
|
|
(207,266
|
)
|
Proceeds from the sale of investments auction rate
securities
|
|
|
|
|
|
|
414,641
|
|
|
|
|
|
|
|
|
|
|
|
414,641
|
|
Purchases of investments equity securities
|
|
|
|
|
|
|
|
|
|
|
(4,672
|
)
|
|
|
|
|
|
|
(4,672
|
)
|
Proceeds from the sale of investments equity
securities
|
|
|
|
|
|
|
16,343
|
|
|
|
7,439
|
|
|
|
|
|
|
|
23,782
|
|
Acquisition of Mandate, net of unrestricted cash acquired
|
|
|
|
|
|
|
(44,802
|
)
|
|
|
3,952
|
|
|
|
|
|
|
|
(40,850
|
)
|
Investment in equity method investees
|
|
|
|
|
|
|
(3,051
|
)
|
|
|
(3,414
|
)
|
|
|
|
|
|
|
(6,465
|
)
|
Loan to equity method investee
|
|
|
|
|
|
|
(3,059
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,059
|
)
|
Purchases of property and equipment
|
|
|
|
|
|
|
(1,935
|
)
|
|
|
(450
|
)
|
|
|
|
|
|
|
(2,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
|
|
|
|
|
|
170,871
|
|
|
|
2,855
|
|
|
|
|
|
|
|
173,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
745
|
|
Repurchase of common shares
|
|
|
(10,736
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,736
|
)
|
Borrowings from financing obligation
|
|
|
|
|
|
|
|
|
|
|
3,718
|
|
|
|
|
|
|
|
3,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
|
(9,991
|
)
|
|
|
|
|
|
|
3,718
|
|
|
|
|
|
|
|
(6,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
(294
|
)
|
|
|
116,733
|
|
|
|
(7,539
|
)
|
|
|
|
|
|
|
108,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN EXCHANGE EFFECT ON CASH
|
|
|
402
|
|
|
|
(498
|
)
|
|
|
(1,436
|
)
|
|
|
|
|
|
|
(1,532
|
)
|
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD
|
|
|
1,908
|
|
|
|
28,347
|
|
|
|
21,242
|
|
|
|
|
|
|
|
51,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS END OF PERIOD
|
|
$
|
2,016
|
|
|
$
|
144,582
|
|
|
$
|
12,267
|
|
|
$
|
|
|
|
$
|
158,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
BALANCE
SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2007
|
|
|
|
Lions Gate
|
|
|
Lions Gate
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Entertainment
|
|
|
Other
|
|
|
Consolidating
|
|
|
Lions Gate
|
|
|
|
Corp.
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,908
|
|
|
$
|
28,347
|
|
|
$
|
21,242
|
|
|
$
|
|
|
|
$
|
51,497
|
|
Restricted cash
|
|
|
|
|
|
|
2,475
|
|
|
|
2,440
|
|
|
|
|
|
|
|
4,915
|
|
Investments auction rate securities
|
|
|
|
|
|
|
237,379
|
|
|
|
|
|
|
|
|
|
|
|
237,379
|
|
Investments equity securities
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
|
|
|
|
|
125
|
|
Accounts receivable, net
|
|
|
281
|
|
|
|
17,261
|
|
|
|
112,954
|
|
|
|
|
|
|
|
130,496
|
|
Investment in films and television programs
|
|
|
|
|
|
|
6,632
|
|
|
|
486,508
|
|
|
|
|
|
|
|
493,140
|
|
Property and equipment
|
|
|
|
|
|
|
11,230
|
|
|
|
1,865
|
|
|
|
|
|
|
|
13,095
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
187,491
|
|
|
|
|
|
|
|
187,491
|
|
Other assets
|
|
|
59
|
|
|
|
10,675
|
|
|
|
8,223
|
|
|
|
|
|
|
|
18,957
|
|
Investment in subsidiaries
|
|
|
361,898
|
|
|
|
639,289
|
|
|
|
|
|
|
|
(1,001,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
364,146
|
|
|
$
|
953,288
|
|
|
$
|
820,848
|
|
|
$
|
(1,001,187
|
)
|
|
$
|
1,137,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity (Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
390
|
|
|
$
|
28,313
|
|
|
$
|
126,914
|
|
|
$
|
|
|
|
$
|
155,617
|
|
Participation and residuals
|
|
|
|
|
|
|
229
|
|
|
|
170,927
|
|
|
|
|
|
|
|
171,156
|
|
Film obligations
|
|
|
|
|
|
|
5,500
|
|
|
|
162,384
|
|
|
|
|
|
|
|
167,884
|
|
Subordinated notes
|
|
|
|
|
|
|
325,000
|
|
|
|
|
|
|
|
|
|
|
|
325,000
|
|
Deferred revenue
|
|
|
|
|
|
|
|
|
|
|
69,548
|
|
|
|
|
|
|
|
69,548
|
|
Intercompany payables (receivables)
|
|
|
(204,119
|
)
|
|
|
555,762
|
|
|
|
(126,108
|
)
|
|
|
(225,535
|
)
|
|
|
|
|
Intercompany equity
|
|
|
319,985
|
|
|
|
93,217
|
|
|
|
364,536
|
|
|
|
(777,738
|
)
|
|
|
|
|
Shareholders equity (deficiency)
|
|
|
247,890
|
|
|
|
(54,733
|
)
|
|
|
52,647
|
|
|
|
2,086
|
|
|
|
247,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
364,146
|
|
|
$
|
953,288
|
|
|
$
|
820,848
|
|
|
$
|
(1,001,187
|
)
|
|
$
|
1,137,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
STATEMENT
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended September 30, 2006
|
|
|
|
Lions Gate
|
|
|
Lions Gate
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Entertainment
|
|
|
Other
|
|
|
Consolidating
|
|
|
Lions Gate
|
|
|
|
Corp.
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands )
|
|
|
STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
8,719
|
|
|
$
|
381,906
|
|
|
$
|
|
|
|
$
|
390,625
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating
|
|
|
|
|
|
|
|
|
|
|
163,268
|
|
|
|
|
|
|
|
163,268
|
|
Distribution and marketing
|
|
|
|
|
|
|
534
|
|
|
|
199,857
|
|
|
|
|
|
|
|
200,391
|
|
General and administration
|
|
|
967
|
|
|
|
25,114
|
|
|
|
14,879
|
|
|
|
|
|
|
|
40,960
|
|
Depreciation
|
|
|
|
|
|
|
21
|
|
|
|
1,104
|
|
|
|
|
|
|
|
1,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
967
|
|
|
|
25,669
|
|
|
|
379,108
|
|
|
|
|
|
|
|
405,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
|
|
(967
|
)
|
|
|
(16,950
|
)
|
|
|
2,798
|
|
|
|
|
|
|
|
(15,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses (Income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
104
|
|
|
|
9,368
|
|
|
|
329
|
|
|
|
(221
|
)
|
|
|
9,580
|
|
Interest income
|
|
|
(86
|
)
|
|
|
(4,982
|
)
|
|
|
|
|
|
|
221
|
|
|
|
(4,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses (income), net
|
|
|
18
|
|
|
|
4,386
|
|
|
|
329
|
|
|
|
|
|
|
|
4,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE EQUITY INTERESTS AND INCOME TAXES
|
|
|
(985
|
)
|
|
|
(21,336
|
)
|
|
|
2,469
|
|
|
|
|
|
|
|
(19,852
|
)
|
Equity interests income (loss)
|
|
|
(17,277
|
)
|
|
|
3,802
|
|
|
|
(377
|
)
|
|
|
13,475
|
|
|
|
(377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
(18,262
|
)
|
|
|
(17,534
|
)
|
|
|
2,092
|
|
|
|
13,475
|
|
|
|
(20,229
|
)
|
Income tax provision (benefit)
|
|
|
(266
|
)
|
|
|
543
|
|
|
|
(2,510
|
)
|
|
|
|
|
|
|
(2,233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
(17,996
|
)
|
|
$
|
(18,077
|
)
|
|
$
|
4,602
|
|
|
$
|
13,475
|
|
|
$
|
(17,996
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
LIONS
GATE ENTERTAINMENT CORP.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
STATEMENT
OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended September 30, 2006
|
|
|
|
Lions Gate
|
|
|
Lions Gate
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Entertainment
|
|
|
Other
|
|
|
Consolidating
|
|
|
Lions Gate
|
|
|
|
Corp.
|
|
|
Inc.
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands )
|
|
|
STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
$
|
(32,065
|
)
|
|
$
|
5,379
|
|
|
$
|
44,474
|
|
|
$
|
(7,006
|
)
|
|
$
|
10,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of investments auction rate securities
|
|
|
|
|
|
|
(296,043
|
)
|
|
|
|
|
|
|
|
|
|
|
(296,043
|
)
|
Sales of investments auction rate securities
|
|
|
|
|
|
|
316,375
|
|
|
|
|
|
|
|
|
|
|
|
316,375
|
|
Acquisition of Redbus, net of cash acquired
|
|
|
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
44
|
|
|
|
|
|
Acquisition of Debmar, net of cash acquired
|
|
|
|
|
|
|
(24,715
|
)
|
|
|
603
|
|
|
|
|
|
|
|
(24,112
|
)
|
Purchases of property and equipment
|
|
|
|
|
|
|
(1,883
|
)
|
|
|
(1,654
|
)
|
|
|
|
|
|
|
(3,537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
|
|
|
|
|
|
(6,310
|
)
|
|
|
(1,051
|
)
|
|
|
44
|
|
|
|
(7,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
2,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
2,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
(29,665
|
)
|
|
|
(931
|
)
|
|
|
43,423
|
|
|
|
(6,933
|
)
|
|
|
5,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN EXCHANGE EFFECT ON CASH
|
|
|
35,906
|
|
|
|
931
|
|
|
|
(44,203
|
)
|
|
|
7,256
|
|
|
|
(110
|
)
|
CASH AND CASH EQUIVALENTS BEGINNING OF P ERIOD
|
|
|
6,370
|
|
|
|
|
|
|
|
40,446
|
|
|
|
162
|
|
|
|
46,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS END OF PERIOD
|
|
$
|
12,611
|
|
|
$
|
|
|
|
$
|
39,666
|
|
|
$
|
485
|
|
|
$
|
52,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Overview
Lions Gate Entertainment
Corp. (Lionsgate, the
Company, we, us or
our) is a diversified independent producer and
distributor of motion pictures, television programming, home
entertainment, family entertainment,
video-on-demand
and music content. We release approximately 18 to 22 motion
pictures theatrically per year. Our theatrical releases include
films we produce in-house and films we acquire from third
parties. We also have produced approximately 77 hours of
television programming on average each of the last three years.
Our disciplined approach to acquisition, production, and
distribution is designed to maximize our profit by balancing our
financial risks against the probability of commercial success of
each project. We currently distribute our library of more than
10,000 motion picture titles and television episodes and
programs directly to retailers, video rental stores, and pay and
free television channels in the U.S., UK and Ireland, and
indirectly to other international markets through third parties.
We own a minority interest in CinemaNow, Inc.
(CinemaNow), an internet
video-on-demand
provider, Horror Entertainment, LLC (FEARnet), a
multiplatform programming and content service provider,
NextPoint, Inc. (Break.com), an online video
entertainment service provider, and in Roadside Attractions, LLC
(Roadside), an independent theatrical distribution
company. Through June 30, 2007, we owned a 10% interest in
Maple Pictures Corp. (Maple), a Canadian film and
television distributor based in Toronto, Canada. During the
quarter ended September 30, 2007, we entered into a
transaction where we effectively gained control of Maple for
financial reporting purposes. We are currently evaluating
strategic alternatives as it relates to our investment in Maple.
If this control becomes other than temporary, we would
consolidate Maple in the future. We have distribution agreements
with Maple through which we distribute our library and other
titles in Canada.
Our revenues are derived from the following business segments:
|
|
|
|
|
Motion Pictures, which includes Theatrical, Home Entertainment,
Television and International Distribution. Theatrical revenues
are derived from the theatrical release of motion pictures in
the U.S. which are distributed to theatrical exhibitors on
a picture by picture basis. The financial terms that we
negotiate with our theatrical exhibitors generally provide that
we receive a percentage of the box office results and are
negotiated on a picture by picture basis. Home entertainment
revenues are derived primarily from the sale of video and DVD
releases of our own productions and acquired films, including
theatrical releases and direct-to-video releases, to retail
stores. In addition, we have revenue sharing arrangements with
certain rental stores which generally provide that in exchange
for a nominal or no upfront sales price we share in the rental
revenues generated by each such store on a title by title basis.
Television revenues are primarily derived from the licensing of
our productions and acquired films to the domestic cable, free
and pay television markets. International revenues include
revenues from our UK subsidiary and from the licensing of our
productions and acquired films to international markets on a
territory-by-territory
basis. Our revenues are derived from the U.S., Canada and other
foreign countries; none of the foreign countries individually
comprised greater than 10% of total revenue.
|
|
|
|
Television Productions, which includes the licensing to domestic
and international markets of
one-hour and
half-hour
drama series, television movies and mini-series and non-fiction
programming and revenues from the sale of television production
movies or series in other media including home entertainment.
|
Our primary operating expenses include the following:
|
|
|
|
|
Direct Operating Expenses, which include amortization of
production or acquisition costs, participation and residual
expenses and provision for doubtful accounts. 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, which primarily include the
costs of theatrical prints and advertising and of
video and DVD duplication and marketing. Theatrical print and
advertising represent the costs of the theatrical prints
delivered to theatrical exhibitors and advertising includes the
advertising and
|
34
marketing cost associated with the theatrical release of the
picture. Video and DVD duplication represent the cost of the
video and DVD product and the manufacturing costs associated
with creating the physical products. Video and DVD marketing
costs represent the cost of advertising the product at or near
the time of its release or special promotional advertising.
|
|
|
|
|
General and Administration Expenses, which include salaries and
other overhead.
|
Recent
Developments
On November 1, 2007, the television business
collective bargaining agreement with the Writers Guild of
America (East and West) (the WGA) covering freelance
writers expired. On November 5, 2007, the WGA began an
industry-wide strike. We do not expect the strike to have a
significant effect on our operating results for the remainder of
2008 fiscal year. Thereafter, we are currently unable to
estimate the impact of the strike, if any.
Mandate Pictures, LLC. On September 10,
2007, the Company purchased all of the membership interests in
Mandate Pictures, LLC, a Delaware limited liability company
(Mandate). Mandate is an independent film producer
and distributor. The Mandate acquisition brings to the Company
additional experienced management personnel working within the
motion picture business segment. In addition, the Mandate
acquisition adds an independent film and distribution business
to the Companys motion picture business. The aggregate
purchase price was approximately $60.2 million, comprised
of $48.3 million in cash and 1,282,999 million in
shares of the Companys common stock to be issued and
delivered over a period of 18 months pursuant to certain
holdback provisions. Of the $48.3 million cash portion of
the purchase price, $44.3 million was paid at closing,
$1.2 million represented estimated direct transaction costs
(to be paid to lawyers, accountants and other consultants), and
$2.8 million represented the remaining estimated cash
consideration that will be paid within the next 12 month
period. The value assigned to the shares for purposes of
recording the acquisition was $11.8 million and was based
on the closing price of the Companys common stock on the
date of acquisition. 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. This contingent consideration, which is
directly based on the performance of these films, will be
accounted for similar to other film participation arrangements.
The amount of contingent consideration ultimately estimated to
be paid, if anything, will be amortized to direct operating
expense in the proportion that the years revenue bears to
managements estimate of ultimate revenue at the beginning
of the year.
The Mandate acquisition was accounted for as a purchase, with
the results of operations of Mandate consolidated from
September 10, 2007. Goodwill of $37.1 million
represents the excess of purchase price over the fair value of
the net identifiable tangible and intangible assets acquired.
SGF. On July 30, 2007, the Company
entered into a four-year filmed entertainment slate financing
agreement with Société Générale de
Financement du Québec (SGF), the Québec
provincial governments investment arm. SGF will finance up
to 35% of production costs of television and feature film
productions produced in Québec for a four year period for
an aggregate investment of up to $140 million, and the
Company will advance all amounts necessary to fund the remaining
budgeted costs. The maximum aggregate of budgeted costs over the
four-year period will be $400 million, including the
Companys portion, but no more than $100 million per
year. In connection with this agreement, the Company and SGF
will proportionally share in the proceeds derived from the
funded productions after the Company deducts a distribution fee,
recoups all distribution expenses and releasing costs, and pays
all applicable participations and residuals.
NextPoint, Inc. On June 29, 2007, the
Company purchased a 42% equity interest or
21,000,000 shares of the Series B Preferred Stock of
NextPoint, Inc. (Break.com), an online video
entertainment service provider operating under the branding of
Break.com. The aggregate purchase price was
approximately $21.4 million, which included
$0.5 million of transaction costs, consisted of the issue
of 1,890,189 of the Companys common shares. The Company is
accounting for the investment in Break.com using the equity
method. The Company has a call option which is exercisable at
any time from June 29, 2007 until the earlier of
30 months after June 29, 2007 or a year after a change
of control, as narrowly defined, to purchase all, but not less
than all, of the remaining 58% equity interests (excluding any
subsequent dilutive events), including in-the-money stock
options, warrants and other rights, of Break.com for
$58 million in cash or common stock, at the Companys
option. Due to the timing in availability of financial
statements from Break.com, the Company is recording its share of
the Break.com results on a one quarter
35
lag. The Company recorded a loss of less than $0.1 million
in its equity interests associated with Break.coms
operations through June 30, 2007 in the consolidated
statement of operations for the three and six months ended
September 30, 2007. The investment in Break.com is
$21.4 million as of September 30, 2007
(2006 nil).
Theatrical Slate Financing. On May 25,
2007, the Company, through a series of agreements, closed a
theatrical slate funding arrangement. Under this arrangement,
Pride Pictures LLC (Pride), an unrelated entity,
will fund, generally, 50% of the Companys production,
acquisition, marketing and distribution costs of theatrical
feature films up to an aggregate of approximately
$196 million, net of transaction costs. The funds available
from Pride are generated from the issuance by Pride of
$35 million of subordinated debt instruments,
$35 million of equity and $134 million from a senior
credit facility, which is subject to a borrowing base. The
Company is not a party to the Pride debt obligations or their
senior credit facility, and provides no guarantee of repayment
of these obligations. The percentage of the contribution may
vary on certain pictures. The slate of films covered by the
arrangement is expected to be comprised of 23 films over the
next three years. Pride will participate in a pro rata portion
of the pictures net profits or losses similar to a co-production
arrangement based on the portion of costs funded. The Company
continues to distribute the pictures covered by the arrangement
with a portion of net profits after all costs and the
Companys distribution fee being distributed to Pride based
on their pro rata contribution to the applicable costs similar
to a back-end participation on a film.
CRITICAL
ACCOUNTING POLICIES
The application of the following accounting policies, which are
important to our financial position and results of operations,
requires significant judgments and estimates on the part of
management. As described more fully below, these estimates bear
the risk of change due to the inherent uncertainty attached to
the estimate. For example, accounting for films and television
programs requires the Company to estimate future revenue and
expense amounts which, due to the inherent uncertainties
involved in making such estimates, are likely to differ to some
extent from actual results. For a summary of all of our
accounting policies, including the accounting policies discussed
below, see note 2 to our March 31, 2007 audited
consolidated financial statements.
Generally Accepted Accounting Principles
(GAAP). Our consolidated financial
statements have been prepared in accordance with U.S. GAAP.
Accounting for Films and Television
Programs. In June 2000, the Accounting Standards
Executive Committee of the American Institute of Certified
Public Accountants issued Statement of Position
00-2
Accounting by Producers or Distributors of Films
(SoP
00-2).
SoP 00-2
establishes accounting standards for producers or distributors
of films, including changes in revenue recognition,
capitalization and amortization of costs of acquiring films and
television programs and accounting for exploitation costs,
including advertising and marketing expenses.
We capitalize costs of production and acquisition, including
financing costs and production overhead, to investment in films
and television programs. These costs are amortized to direct
operating expenses in accordance with SoP
00-2. These
costs are stated at the lower of unamortized films or television
program costs or estimated fair value. These costs for an
individual film or television program are amortized and
participation and residual costs are accrued in the proportion
that current years revenues bear to managements
estimates of the ultimate revenue at the beginning of the year
expected to be recognized from exploitation, exhibition or sale
of such film or television program over a period not to exceed
ten years from the date of initial release. For previously
released film or 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.
The Companys management regularly reviews and revises when
necessary its ultimate revenue and cost estimates, which may
result in a change in the rate of amortization of film costs and
participations and residuals
and/or
write-down of all or a portion of the unamortized costs of the
film or television program to its estimated fair value. The
Companys management estimates the ultimate revenue based
on experience with similar titles or title genre, the general
public appeal of the cast, actual performance (when available)
at the box office or in markets currently being exploited, and
other factors such as the quality and acceptance of motion
pictures or programs that our competitors release into the
marketplace at or near the same time, critical reviews, general
economic conditions and other tangible and intangible factors,
many of which we do not control and which may change. In the
normal course of our business, some films and titles are more
successful than anticipated and some are less successful.
Accordingly, we update our estimates of ultimate
36
revenue and participation costs based upon the actual results
achieved or new information as to anticipated revenue
performance such as (for home video revenues) initial orders and
demand from retail stores when it becomes available. An increase
in the ultimate revenue will generally result in a lower
amortization rate while a decrease in the ultimate revenue will
generally result in a higher amortization rate and periodically
results in an impairment requiring a write down of the film cost
to the titles fair value. These write downs are included
in amortization expense within direct operating expenses in our
consolidated statements of operations.
Revenue Recognition. Revenue from the sale or
licensing of films and television programs is recognized upon
meeting all recognition requirements of SoP
00-2.
Revenue from the theatrical release of feature films is
recognized at the time of exhibition based on the Companys
participation in box office receipts. Revenue from the sale of
videocassettes and DVDs in the retail market, net of an
allowance for estimated returns and other allowances, is
recognized on the later of receipt by the customer or
street date (when it is available for sale by the
customer). Under revenue sharing arrangements, rental revenue is
recognized when the Company is entitled to receipts and such
receipts are determinable. Revenues from television licensing
are recognized when the feature film or television program is
available to the licensee for telecast. For television licenses
that include separate availability windows during
the license period, revenue is allocated over the
windows. Revenue from sales to international
territories are recognized when access to the feature film or
television program has been granted or delivery has occurred, as
required under the sales contract, and the right to exploit the
feature film or television program has commenced. For multiple
media rights contracts with a fee for a single film or
television program where the contract provides for media
holdbacks (defined as contractual media release restrictions),
the fee is allocated to the various media based on
managements assessment of the relative fair value of the
rights to exploit each media and is recognized as each holdback
is released. For multiple-title contracts with a fee, the fee is
allocated on a
title-by-title
basis, based on managements assessment of the relative
fair value of each title.
Cash payments received are recorded as deferred revenue until
all the conditions of revenue recognition have been met.
Long-term, non-interest bearing receivables are discounted to
present value.
Reserves. Revenues are recorded net of
estimated returns and other allowances. We estimate reserves for
video returns based on previous returns and our estimated
expected future returns related to current period sales on a
title-by-title
basis in each of the video businesses. Factors affecting actual
returns include limited retail shelf space at various times of
the year, success of advertising or other sales promotions, the
near term release of competing titles, among other factors. We
believe that our estimates have been materially accurate in the
past; however, due to the judgment involved in establishing
reserves, we may have adjustments to our historical estimates in
the future.
We estimate provisions for accounts receivable based on
historical experience and relevant facts and information
regarding the collectability of the accounts receivable. In
performing this evaluation, significant judgments and estimates
are involved, including an analysis of specific risks on a
customer-by-customer
basis for our larger customers and an analysis of the length of
time receivables have been past due. The financial condition of
a given customer and its ability to pay may change over time and
could result in an increase or decrease to our allowance for
doubtful accounts, which, when the impact of such change is
material, is disclosed in our discussion on direct operating
expenses elsewhere in Managements Discussion and
Analysis of Financial Condition and Results of Operations.
Income Taxes. The Company is subject to
federal and state income taxes in the U.S., and in several
foreign jurisdictions in which we operate. We account for income
taxes according to SFAS No. 109, Accounting for
Income Taxes (SFAS No. 109).
SFAS No. 109 requires the recognition of deferred tax
assets, net of applicable reserves, related to net operating
loss carryforwards and certain temporary differences. The
standard requires recognition of a future tax benefit to the
extent that realization of such benefit is more likely than not
or a valuation allowance is applied. Because of our historical
operating losses, we have provided a valuation allowance against
our net deferred tax assets. When we have a history of
profitable operations sufficient to demonstrate that it is more
likely than not that our deferred tax assets will be realized,
the valuation allowance will be reversed. However, this
assessment of our planned use of our deferred tax assets is an
estimate which could change in the future depending upon the
generation of taxable income in amounts sufficient to realize
our deferred tax assets.
Goodwill. 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
37
unit is less than its carrying value. The Company performs its
annual impairment test as of December 31 in each fiscal year.
The Company performed its annual impairment test on its goodwill
as of December 31, 2006. No goodwill impairment was
identified in any of the Companys reporting units.
Determining the fair value of reporting units requires various
assumptions and estimates. The estimates of fair value include
consideration of the future projected operating results and cash
flows of the reporting unit. Such projections could be different
than actual results. Should actual results be significantly less
than estimates, the value of our goodwill could be impaired in
the future.
Business Acquisitions. The Company accounts
for its business acquisitions as a purchase, whereby the
purchase price is allocated to the assets acquired and
liabilities assumed based on their estimated fair value. The
excess of the purchase price over estimated fair value of the
net identifiable assets is allocated to goodwill. Determining
the fair value of assets and liabilities requires various
assumptions and estimates. These estimates and assumptions are
refined with adjustments recorded to goodwill as information is
gathered and final appraisals are completed over the allocation
period allowed under SFAS No. 141. The changes in
these estimates could impact the amount of assets, including
goodwill and liabilities, ultimately recorded on our balance
sheet as a result of an acquisition and could impact our
operating results subsequent to such acquisition. We believe
that our estimates have been materially accurate in the past.
Recent
Accounting Pronouncements
FASB Issued Interpretation No. 48. On
July 13, 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes An
Interpretation of FASB Statement No. 109
(FIN No. 48). FIN No. 48
clarifies the accounting for uncertainty in income taxes
recognized in an entitys financial statements in
accordance with SFAS No. 109, Accounting for
Income Taxes, and prescribes a recognition threshold and
measurement attributes for financial statement disclosure of tax
positions taken or expected to be taken on a tax return. Under
FIN No. 48, the impact of an uncertain income tax
position on the income tax return must be recognized at the
largest amount that is more-likely-than-not to be sustained upon
audit by the relevant taxing authority. An uncertain income tax
position will not be recognized if it has less than a 50%
likelihood of being sustained. Additionally,
FIN No. 48 provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure and transition. FIN No. 48 is
effective for fiscal years beginning after December 15,
2006.
Statement of Financial Accounting Standards
No. 157. In September 2006, the FASB issued
SFAS No. 157, Fair Value Measurements
(SFAS No. 157). SFAS No. 157
establishes a framework for measuring fair value and expands
disclosures about fair value measurements. The changes to
current practice resulting from the application of this
statement relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about
fair value measurements. The Company will be required to adopt
the provisions on SFAS No. 157 on April 1, 2008.
The Company is currently evaluating the impact of adopting the
provisions of SFAS No. 157 but does not believe that
the adoption of SFAS No. 157 will materially impact
its financial position, cash flows, or results of operations.
Statement of Financial Accounting Standards
No. 159. In February 2007, the FASB issued
SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities Including
an Amendment of FASB Statement No. 115,
(SFAS No. 159), which is effective for
fiscal years beginning after November 15, 2007.
SFAS No. 159 permits an entity to choose to measure
many financial instruments and certain other items at fair value
at specified election dates. Subsequent unrealized gains and
losses on items for which the fair value option has been elected
will be reported in earnings. The Company is currently
evaluating the potential impact of SFAS No. 159.
Results
of Operations
Three
Months Ended September 30, 2007 Compared to Three Months
Ended September 30, 2006
Consolidated revenues of $343.5 million this quarter
increased $125.3 million, or 57.4%, compared to
$218.2 million in the prior years quarter. Motion
pictures revenue of $234.4 million this quarter increased
$47.8 million, or 25.6%, compared to $186.6 million in
the prior years quarter. Television revenues of
38
$109.1 million this quarter increased $77.5 million,
or 245.3%, compared to $31.6 million in the prior
years quarter.
Motion
Pictures Revenue
The increase in motion pictures revenue this quarter was mainly
attributable to increases in theatrical revenue, international
revenue, and video revenue. The following table sets forth the
components of revenue for the motion pictures reporting segment
for the three-month periods ended September 30, 2007 and
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Increase (Decrease)
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical
|
|
$
|
42.4
|
|
|
$
|
20.5
|
|
|
$
|
21.9
|
|
|
|
106.8
|
%
|
|
|
|
|
Video
|
|
|
122.3
|
|
|
|
115.1
|
|
|
|
7.2
|
|
|
|
6.3
|
%
|
|
|
|
|
Television
|
|
|
37.3
|
|
|
|
33.4
|
|
|
|
3.9
|
|
|
|
11.7
|
%
|
|
|
|
|
International
|
|
|
31.1
|
|
|
|
17.1
|
|
|
|
14.0
|
|
|
|
81.9
|
%
|
|
|
|
|
Other
|
|
|
1.3
|
|
|
|
0.5
|
|
|
|
0.8
|
|
|
|
160.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
234.4
|
|
|
$
|
186.6
|
|
|
$
|
47.8
|
|
|
|
25.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the titles contributing
significant motion pictures revenue for the three-month periods
ended September 30, 2007 and 2006:
|
|
|
|
|
|
|
Three Months Ended September 30,
|
2007
|
|
2006
|
|
|
Theatrical and Video
|
|
|
|
Theatrical and Video
|
Title
|
|
Release Date
|
|
Title
|
|
Release Date
|
|
Theatrical:
|
|
|
|
Theatrical:
|
|
|
3:10 to Yuma
Bratz
Good Luck Chuck
War
|
|
September 2007
August 2007
September 2007
August 2007
|
|
Crank
The Descent
|
|
September 2006
August 2006
|
Video:
|
|
|
|
Video:
|
|
|
Bratz Kidz Sleepover Adventure
Bug
Delta Farce
Doctor Strange
Pride
The Condemned
|
|
July 2007
September 2007
September 2007
August 2007
June 2007
September 2007
|
|
Akeelah and the Bee
Crash
Lord of War
Madea Goes to Jail
Madeas Family Reunion
Ultimate Avengers 2
Waiting
Why Did I Get Married
(Stage Play)
|
|
August 2006
September 2005
January 2006
June 2006
June 2006
August 2006
February 2006
June 2006
|
39
|
|
|
Television:
|
|
Television:
|
Crank
|
|
In the Mix
|
Diary of A Mad Black Woman
|
|
Lord of War
|
Employee of the Month
|
|
Saw 2
|
Saw 3
|
|
Waiting
|
International:
|
|
International:
|
Saw 2
|
|
Crank
|
Saw 3
|
|
Dirty Dancing - Stage Play
|
The U.S. vs. John Lennon
|
|
Hard Candy
|
War
|
|
Saw 2
The Lost City
Undiscovered
|
Theatrical revenue of $42.4 million increased
$21.9 million, or 106.8%, in this quarter as compared to
the prior years quarter due to the performance of the
significant theatrical releases in the current quarter, as well
as an increase in the number of theatrical releases in the
current quarter. In this quarter, the titles listed in the above
table as contributing significant theatrical revenue in the
current quarter represented individually between 8% and 42% of
total theatrical revenue and, in the aggregate, approximately
92% of total theatrical revenue. In the prior years
quarter, the titles listed in the above table as contributing
significant theatrical revenue represented, in the aggregate,
approximately 99% of total theatrical revenue.
Video revenue of $122.3 million increased
$7.2 million, or 6.3%, in this quarter as compared to the
prior years quarter. The increase is primarily due to an
increase in revenue from titles that individually contributed
less than 2% of total video revenue and to a lesser extent,
titles which contributed individually more than 2% of total
video revenue in the current quarter as compared to the prior
years quarter. The titles listed above as contributing
significant video revenue in the current quarter represented
individually between 2% to 12% of total video revenue and, in
the aggregate, 35%, or $42.9 million of total video revenue
for the quarter. In the prior years quarter, the titles
listed above as contributing significant video revenue
represented individually between 2% to 12% of total video
revenue and, in the aggregate, 36%, or $41.7 million of
total video revenue for the quarter. In the current quarter,
$79.4 million, or 65%, of total video revenue was
contributed by titles that individually make up less than 2% of
total video revenue, and in the prior years quarter, this
amounted to $73.4 million, or 64%, of total video revenue.
Television revenue included in motion pictures revenue of
$37.3 million in this quarter increased $3.9 million,
or 11.7%, compared to the prior years quarter. The
increase is due to the performance of the significant titles
listed in the table above in the current quarter as compared to
the prior years quarter. In this quarter, the titles
listed above as contributing significant television revenue
represented individually between 11% to 33% of total television
revenue and, in the aggregate, 83% of total television revenue
for the quarter. In the prior years quarter, the titles
listed above as contributing significant television revenue
represented individually between 8% to 34% of total television
revenue and, in the aggregate, 73% of total television revenue
for the quarter.
International revenue of $31.1 million increased
$14.0 million, or 81.9%, in this quarter as compared to the
prior years quarter. Lionsgate UK, established from the
acquisition of Redbus Film Distribution Ltd. and Redbus Pictures
Ltd. (Redbus) in fiscal 2006, contributed
$6.9 million, or 22.2% of international revenue in the
current quarter, which included revenues from 3:10 to
Yuma, Saw III, The Contract, The Lives of
Others, and The Hamiltons, compared to
$6.1 million, or 35.7% , of total international revenue in
the prior years quarter. In this quarter, the titles
listed in the table above as contributing significant
international revenue, excluding revenue generated from these
titles by Lionsgate UK, represented individually between 4% to
18% of total international revenue and, in the aggregate, 38% of
total international revenue for the quarter. In the prior
years quarter, the titles listed in the table above as
contributing significant revenue represented individually
between 3% to 9% of total international revenue and, in the
aggregate, 32% of total international revenue for the quarter.
40
Television
Revenue
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 September 30,
2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Increase (Decrease)
|
|
|
|
2007
|
|
|
2006
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
|
|
(Amounts in millions)
|
|
|
|
|
|
Television Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic series licensing
|
|
$
|
75.9
|
|
|
$
|
25.0
|
|
|
$
|
50.9
|
|
|
|
203.6
|
%
|
Domestic television movies and miniseries
|
|
|
15.8
|
|
|
|
0.2
|
|
|
|
15.6
|
|
|
|
NM
|
|
International
|
|
|
9.3
|
|
|
|
1.4
|
|
|
|
7.9
|
|
|
|
564.3
|
%
|
Video releases of television production
|
|
|
7.9
|
|
|
|
4.9
|
|
|
|
3.0
|
|
|
|
61.2
|
%
|
Other
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
109.1
|
|
|
$
|
31.6
|
|
|
$
|
77.5
|
|
|
|
245.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(NM) |
|
Percentage not meaningful. |
Domestic series licensing includes revenues from episodic
television deliveries and revenues from the Companys
television syndication subsidiary Debmar-Mercury, LLC
(Debmar-Mercury). The following table sets forth the
number of television episodes and hours delivered in the three
months ended September 30, 2007 and 2006, respectively,
included in domestic series licensing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
September 30, 2007
|
|
|
|
|
|
|
|
September 30, 2006
|
|
|
|
|
|
|
Episodes
|
|
|
Hours
|
|
|
|
|
|
|
|
Episodes
|
|
|
Hours
|
|
|
The Dead Zone Season 5
|
|
|
1hr
|
|
|
|
10
|
|
|
|
10.0
|
|
|
Dirty Dancing Reality TV Series
|
|
|
1hr
|
|
|
|
5
|
|
|
|
5.0
|
|
Mad Men
|
|
|
1hr
|
|
|
|
11
|
|
|
|
11.0
|
|
|
Lovespring International
|
|
|
1/2hr
|
|
|
|
9
|
|
|
|
4.5
|
|
Wildfire Season 4
|
|
|
1hr
|
|
|
|
7
|
|
|
|
7.0
|
|
|
I Pity The Fool
|
|
|
1/2hr
|
|
|
|
3
|
|
|
|
1.5
|
|
Weeds Season 3
|
|
|
1/2hr
|
|
|
|
11
|
|
|
|
5.5
|
|
|
Weeds Season 2
|
|
|
1/2hr
|
|
|
|
10
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
33.5
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
16.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the above, revenues included in domestic series
licensing from the Companys television syndication
subsidiary, Debmar-Mercury, increased $13.5 million to
$17.8 million from $4.3 million in the prior
years quarter due to television series such as House of
Payne and South Park.
Domestic television movies and miniseries increased primarily
due to the delivery of eight episodes of the miniseries The
Kill Point in the current quarter as compared to nil in the
prior years quarter.
International revenue of $9.3 million increased by
$7.9 million in the current quarter mainly due to
international revenue from The Dead Zone, The Lost
Room miniseries, and The Dresden Files, compared to
international revenue of $1.4 million in the prior
years quarter from Wildfire Seasons 1 and 2.
41
Direct
Operating Expenses
The following table sets forth direct operating expenses by
segment for the three months ended September 30, 2007 and
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
September 30, 2007
|
|
|
September 30, 2006
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
|
(Amounts in millions)
|
|
|
Direct operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of films and television programs
|
|
$
|
44.3
|
|
|
$
|
81.4
|
|
|
$
|
125.7
|
|
|
$
|
28.7
|
|
|
$
|
20.1
|
|
|
$
|
48.8
|
|
Participation and residual expense
|
|
|
39.7
|
|
|
|
16.3
|
|
|
|
56.0
|
|
|
|
38.9
|
|
|
|
4.9
|
|
|
|
43.8
|
|
Amortization of acquired intangible assets
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
Other expenses
|
|
|
0.5
|
|
|
|
0.1
|
|
|
|
0.6
|
|
|
|
1.7
|
|
|
|
0.2
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
84.7
|
|
|
$
|
97.8
|
|
|
$
|
182.5
|
|
|
$
|
69.5
|
|
|
$
|
25.2
|
|
|
$
|
94.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses as a percentage of segment revenues
|
|
|
36.1
|
%
|
|
|
89.6
|
%
|
|
|
53.1
|
%
|
|
|
37.2
|
%
|
|
|
79.7
|
%
|
|
|
43.4
|
%
|
Direct operating expenses include amortization, participation
and residual expenses and other expenses. Direct operating
expenses of the motion pictures segment of $84.7 million
for this quarter were 36.1% of motion pictures revenue, compared
to $69.5 million, or 37.2% of motion pictures revenue for
the prior years quarter. The slight decrease in direct
operating expense of the motion pictures segment in the quarter
as a percent of revenue is due to the change in the mix of
titles generating revenue compared to the prior years
quarter. Direct operating expenses of the motion pictures
segment included charges for write downs and reserves related to
investments in film of $4.2 million and $0.9 million
in the current quarter and prior year quarter, respectively, due
to the lower than anticipated actual performance or previously
expected performance of certain titles. Included in these write
downs and reserves is a $2.0 million charge resulting from
concerns over the collectability of amounts due pursuant to a
distribution agreement. Other expenses in the three month period
ended September 30, 2006 included a provision for bad debt
of approximately $1.7 million related to a large retail
customer that declared bankruptcy.
Direct operating expenses of the television segment of
$97.8 million for this quarter were 89.6% of television
revenue, compared to $25.2 million, or 79.7% of television
revenue for the prior years quarter. The increase in
direct operating expense of the television segment in the
current quarter is due primarily to the increase in television
production revenue in this quarter compared to the prior
years quarter. In addition the increase in direct
operating expense of the television segment in the quarter as a
percent of revenue is also due to the change in the mix of
titles generating revenue compared to the prior years
quarter.
42
Distribution
and Marketing Expenses
The following table sets forth distribution and marketing
expenses by segment for the three months ended
September 30, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
September 30, 2007
|
|
|
September 30, 2006
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
|
(Amounts in millions)
|
|
|
Distribution and marketing expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical
|
|
$
|
122.5
|
|
|
$
|
|
|
|
$
|
122.5
|
|
|
$
|
57.1
|
|
|
$
|
|
|
|
$
|
57.1
|
|
Home Entertainment
|
|
|
49.8
|
|
|
|
2.1
|
|
|
|
51.9
|
|
|
|
42.8
|
|
|
|
1.0
|
|
|
|
43.8
|
|
Television
|
|
|
0.7
|
|
|
|
0.8
|
|
|
|
1.5
|
|
|
|
0.2
|
|
|
|
1.2
|
|
|
|
1.4
|
|
International
|
|
|
11.8
|
|
|
|
1.3
|
|
|
|
13.1
|
|
|
|
9.8
|
|
|
|
0.7
|
|
|
|
10.5
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
184.8
|
|
|
$
|
4.2
|
|
|
$
|
189.0
|
|
|
$
|
110.4
|
|
|
$
|
2.9
|
|
|
$
|
113.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The majority of distribution and marketing expenses relate to
the motion pictures segment. Theatrical prints and advertising
(P&A) in the motion pictures segment in this
quarter of $122.5 million increased $65.4 million, or
114.5%, compared to $57.1 million in the prior years
quarter. Domestic theatrical P&A from the motion pictures
segment in this quarter included P&A incurred on the
release of titles such as 3:10 to Yuma, Bratz, Good Luck
Chuck and War, which individually represented between
16% and 28% of total theatrical P&A and, in the aggregate,
accounted for 85% of the total theatrical P&A. Theatrical
P&A in the prior years quarter included P&A
incurred on the release of titles such as Crank, The Descent,
and Employee of the Month domestically, which
individually represented between 22% and 37% of total theatrical
P&A and, in the aggregate, accounted for 90% of total
theatrical P&A. Employee of the Month was released
theatrically subsequent to the quarter ended September 30,
2006, on October 6, 2006.
Home entertainment distribution and marketing costs on motion
pictures and television product in this quarter of
$51.9 million increased $8.1 million, or 18.5%,
compared to $43.8 million in the prior years quarter.
Home entertainment distribution and marketing costs as a
percentage of video revenues was 39.9% and 36.5% in the current
quarter and prior years quarter, respectively. This
increase is mainly due to higher video marketing costs in
relation to revenues generated in the current quarter in
comparison to the prior years quarter.
International distribution and marketing expenses in this
quarter included $9.9 million of distribution and marketing
costs from Lionsgate UK, compared to $8.0 million in the
prior years quarter. Current quarter distribution and
marketing expenses of the television segment included
$0.6 million from the July 3, 2006 acquisition of
Debmar-Mercury, compared to $1.2 million in the prior
years quarter.
General
and Administrative Expenses
The following table sets forth general and administrative
expenses by segment for the three months ended
September 30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Increase (Decrease)
|
|
|
|
September 30, 2007
|
|
|
September 30, 2006
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Amounts in millions)
|
|
|
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
8.3
|
|
|
$
|
6.4
|
|
|
$
|
1.9
|
|
|
|
29.7
|
%
|
Television
|
|
|
1.9
|
|
|
|
0.9
|
|
|
|
1.0
|
|
|
|
111.1
|
%
|
Corporate
|
|
|
15.7
|
|
|
|
14.4
|
|
|
|
1.3
|
|
|
|
9.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25.9
|
|
|
$
|
21.7
|
|
|
$
|
4.2
|
|
|
|
19.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
The increase in motion pictures general and administrative
expenses is primarily due to an increase in salary and related
expenses of approximately $1.6 million.
The increase in television general and administrative expenses
is primarily due to an increase in salary and related expenses
of approximately $0.6 million, and an increase of
professional fees and other general overhead costs of
approximately $0.4 million.
The increase in corporate general and administrative expenses is
primarily due to an increase in professional fees of
approximately $1.3 million. Salaries and related expenses
increased approximately $0.2 million, offset by a decrease
in rent and facility expenses of $0.2 million. In this
quarter, $1.5 million of production overhead was
capitalized, compared to $1.6 million in the prior
years quarter.
The following table sets forth corporate stock based
compensation expense (benefit) for the three months ended
September 30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Increase (Decrease)
|
|
|
|
September 30, 2007
|
|
|
September 30, 2006
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Amounts in millions)
|
|
|
Corporate Stock Based Compensation Expense (Benefit): *
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
0.9
|
|
|
$
|
0.4
|
|
|
$
|
0.5
|
|
|
|
125.0
|
%
|
Restricted share units
|
|
|
2.9
|
|
|
|
0.9
|
|
|
|
2.0
|
|
|
|
222.2
|
%
|
Stock appreciation rights
|
|
|
(0.6
|
)
|
|
|
1.9
|
|
|
|
(2.5
|
)
|
|
|
(131.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3.2
|
|
|
$
|
3.2
|
|
|
$
|
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(NM) |
|
Percentage not meaningful. |
|
(*) |
|
The above table reflects only corporate stock based compensation
expense (benefit) and not motion picture or television stock
based compensation expense (benefit), which amounted to
$0.1 million and nil, respectively. |
At September 30, 2007, as disclosed in note 12 to the
unaudited condensed consolidated financial statements, there
were unrecognized compensation costs of approximately
$29.5 million related to stock options and restricted stock
units previously granted, including the first annual installment
of share grants that were subject to performance targets, which
will be expensed over the remaining vesting periods. At
September 30, 2007 there are 881,666 shares of
restricted stock units awarded to four key executive officers
which will be subject to performance targets to be set by the
Companys compensation committee. These restricted stock
units will vest in three, four, and five annual installments
assuming annual performance targets to be set by the
Companys compensation committee have been met. The fair
value of the 881,666 shares whose performance targets have
not been set was $9.1 million, based on the market price of
the Companys common stock as of September 30, 2007.
The market value will be remeasured when the performance
criteria are set and the value will be expensed over the
remaining vesting periods once it becomes probable that the
performance targets will be satisfied.
Depreciation
and Other Expenses (Income)
Depreciation of $1.0 million this quarter increased
$0.4 million, or 66.7%, from $0.6 million in the prior
years quarter.
Interest expense of $4.2 million this quarter decreased
$0.7 million, or 14.3%, from prior years quarter of
$4.9 million.
Gain on sale of equity securities of $2.8 million for this
quarter resulted primarily from the sale of shares held and
purchased in Magna, an Australian film distributor.
Interest and other income was $2.6 million for the quarter
ended September 30, 2007, compared to $2.3 million in
the prior years quarter. Interest and other income this
quarter was earned on the cash balance and
44
available-for-sale
investments held during the three months ended
September 30, 2007, which were higher than in the prior
years quarter.
The equity interests in this quarter included a
$1.0 million loss from the Companys 33.33% equity
interests in Horror Entertainment, LLC, a $0.2 million loss
from the Companys 10% equity interest in Maple, and a less
than $0.1 million loss from the Companys 42% equity
interest in Break.com. For the three months ended
September 30, 2006, the equity interests consisted of a
loss of $0.1 million from the Companys 10% equity
interest in Maple and a loss of $0.3 million from the
Companys 18.8% equity interest in CinemaNow.
The Company had an income tax expense of $1.4 million or
(2.6%) of loss before income taxes in the three months ended
September 30, 2007, compared to a benefit of
$0.9 million in the three months ended September 30,
2006. The tax expense reflected in the current quarter is
primarily attributable to U.S. state taxes. The
Companys actual annual effective tax rate will differ from
the statutory federal rate as a result of several factors,
including changes in the valuation allowance against net
deferred tax assets, non-temporary differences, foreign income
taxed at different rates, and state and local income taxes.
Income tax loss carryforwards amount to approximately
$116.4 million for U.S. federal income tax purposes
available to reduce income taxes over twenty years,
$80.4 million for U.S. state income tax purposes
available to reduce income taxes over future years with varying
expirations, $29.2 million for Canadian income tax purposes
available to reduce income taxes over eight years, and
$13.7 million for UK income tax purposes available
indefinitely to reduce future income taxes.
Net loss for the three months ended September 30, 2007 was
$56.2 million, or basic and diluted net loss
per common share of $0.47 on 119.2 million weighted
average shares outstanding. This compares to net loss for the
three months ended September 30, 2006 of $14.4 million
or basic and diluted net loss per common share of $0.14 on
104.9 million weighted average common shares outstanding.
Six
Months Ended September 30, 2007 Compared to Six Months
Ended September 30, 2006
Consolidated revenues for the six months ended
September 30, 2007 of $542.2 million increased
$151.6 million, or 38.8%, compared to $390.6 million
in the six months ended September 30, 2006. Motion pictures
revenue of $404.7 million for the current six-month period
increased $52.9 million, or 15.0%, compared to
$351.8 million in the prior years period. Television
revenues of $137.5 million this period increased
$98.7 million, or 254.4%, compared to $38.8 million in
the prior years period.
Motion
Pictures Revenue
The increase in motion pictures revenue this period was mainly
attributable to increases in theatrical revenue, international
revenue, and television revenue, slightly offset by a small
decrease in video revenue. The following table sets forth the
components of revenue for the motion pictures reporting segment
for the six-month periods ended September 30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Increase (Decrease)
|
|
|
|
2007
|
|
|
2006
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
|
|
(Amounts in millions)
|
|
|
|
|
|
Motion Pictures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical
|
|
$
|
61.4
|
|
|
$
|
39.1
|
|
|
$
|
22.3
|
|
|
|
57.0
|
%
|
Video
|
|
|
226.1
|
|
|
|
229.8
|
|
|
|
(3.7
|
)
|
|
|
(1.6
|
)%
|
Television
|
|
|
59.7
|
|
|
|
48.2
|
|
|
|
11.5
|
|
|
|
23.9
|
%
|
International
|
|
|
53.8
|
|
|
|
32.7
|
|
|
|
21.1
|
|
|
|
64.5
|
%
|
Other
|
|
|
3.7
|
|
|
|
2.0
|
|
|
|
1.7
|
|
|
|
85.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
404.7
|
|
|
$
|
351.8
|
|
|
$
|
52.9
|
|
|
|
15.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
The following table sets forth the titles contributing
significant motion pictures revenue for the six-month periods
ended September 30, 2007 and 2006:
|
|
|
|
|
|
|
Six Months Ended September 30,
|
2007
|
|
2006
|
|
|
Theatrical and Video
|
|
|
|
Theatrical and Video
|
Title
|
|
Release Date
|
|
Title
|
|
Release Date
|
|
Theatrical:
|
|
|
|
Theatrical:
|
|
|
3:10 to Yuma
Bratz
Delta Farce
Good Luck Chuck
Hostel 2
War
|
|
September 2007
August 2007
May 2007
September 2007
June 2007
August 2007
|
|
Akeelah and the Bee
Crank
Larry the Cable Guy
See No Evil
The Descent
|
|
April 2006
September 2006
March 2006
May 2006
August 2006
|
|
|
|
|
|
|
|
Video:
|
|
|
|
Video:
|
|
|
Bug
Daddys Little Girls
Delta Farce
Happily NEver After
Pride
The Condemned
|
|
September 2007
June 2007
September 2007
May 2007
June 2007
September 2007
|
|
Akeelah and the Bee
Crash
Lord of War
Madea Goes to Jail
Madeas Family Reunion
Saw 2
Ultimate Avengers 2
Waiting
Why Did I Get Married (Stage Play)
|
|
August 2006
September 2005
January 2006
June 2006
June 2006
February 2006
August 2006
February 2006
June 2006
|
|
|
|
Television:
|
|
Television:
|
Crank
|
|
Crash
|
Diary of a Mad Black Woman
|
|
Devils Rejects
|
Employee of the Month
|
|
Lord of War
|
Saw 3
|
|
Saw 2
|
The Descent
|
|
Waiting
|
International:
|
|
International:
|
Saw 2
|
|
Crank
|
Saw 3
|
|
Hard Candy
|
The Punisher
|
|
Saw 2
|
War
|
|
Undiscovered
|
Theatrical revenue of $61.4 million increased
$22.3 million, or 57.0%, in this period as compared to the
prior years period due to the performance of the
significant titles listed above, as well as the mix of titles
generating theatrical revenue for the current six-month period.
The titles listed in the above table as contributing significant
theatrical revenue in the current six-month period represented
individually between 6% and 29% of total theatrical revenue and,
in the aggregate, approximately 81% of total theatrical revenue.
In the prior years period, the titles listed in the above
table as contributing significant theatrical revenue represented
individually between 7% and 26% of total theatrical revenue and,
in the aggregate, approximately 95% of total theatrical revenue.
Video revenue of $226.1 million decreased
$3.7 million, or 1.6%, in this period as compared to the
prior years period. The decrease is due to a decrease in
revenues generated from the significant titles listed in the
above table as compared to the prior years period. The
titles listed above as contributing significant video revenue in
the current period represented individually between 2% to 9% of
total video revenue, and in the aggregate, 36% or
$81.6 million of total video revenue for the period. In the
prior years period, the titles listed above as
contributing significant video revenue represented individually
between 2% to 15% of total video revenue and, in the aggregate,
46% or $104.9 million of total video revenue for the
period. In the current period $144.5 million, or 64%, of
total
46
video revenue was contributed by titles that individually make
up less than 2% of total video revenue, and in the prior
years period this amounted to $124.9 million, or 54%,
of total video revenue.
Television revenue included in motion pictures revenue of
$59.7 million in this period increased $11.5 million,
or 23.9%, compared to the prior years period. The increase
is due to the performance of the significant titles listed above
in the current period as compared to the prior years
period. In this period, the titles listed above as contributing
significant television revenue represented individually between
7% to 23% of total television revenue and, in the aggregate, 75%
of total television revenue for the period. In the prior
years period the titles listed above as contributing
significant television revenue represented individually between
6% to 24% of total television revenue and, in the aggregate, 64%
of total television revenue for the period.
International revenue of $53.8 million increased
$21.1 million or 64.5% in this period as compared to the
prior years period. Lionsgate UK, established from the
acquisition of Redbus in fiscal 2006, contributed
$15.0 million, or 27.9% of international revenue in the
current period, which included revenues from Employee of the
Month, Saw III, The Lives of Others, and The
Contract, compared to $12.3 million, or 37.6%, of total
international revenue in the prior years period. In this
period, the titles listed in the table above as contributing
significant international revenue, excluding revenue generated
from these titles by Lionsgate UK, represented individually
between 4% to 13% of total international revenue and, in the
aggregate, 28% of total international revenue for the period. In
the prior years period the titles listed in the table
above as contributing significant revenue represented
individually between 3% to 14% of total international revenue
and, in the aggregate, 25% of total international revenue for
the period.
Television
Revenue
The following table sets forth the components of revenue that
make up television production revenue for the six-month periods
ended September 30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Increase (Decrease)
|
|
|
|
2007
|
|
|
2006
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Amounts in millions)
|
|
|
Television Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic series licensing
|
|
$
|
95.9
|
|
|
$
|
30.5
|
|
|
$
|
65.4
|
|
|
|
214.4
|
%
|
Domestic television movies and miniseries
|
|
|
15.8
|
|
|
|
0.3
|
|
|
|
15.5
|
|
|
|
NM
|
|
International
|
|
|
15.5
|
|
|
|
1.6
|
|
|
|
13.9
|
|
|
|
868.8
|
%
|
Video releases of television production
|
|
|
10.1
|
|
|
|
6.2
|
|
|
|
3.9
|
|
|
|
62.9
|
%
|
Other
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
137.5
|
|
|
$
|
38.8
|
|
|
$
|
98.7
|
|
|
|
254.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(NM) |
|
Percentage not meaningful. |
47
Domestic series licensing includes revenues from episodic
television deliveries and revenues from the Companys
television syndication subsidiary Debmar-Mercury. The following
table sets forth the number of television episodes and hours
delivered in the six months ended September 30, 2007 and
2006, respectively, included in domestic series licensing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
Episodes
|
|
|
Hours
|
|
|
|
|
|
|
|
Episodes
|
|
|
Hours
|
|
|
The Dead Zone Season 5
|
|
|
1hr
|
|
|
|
13
|
|
|
|
13.0
|
|
|
Dirty Dancing Reality TV Series
|
|
|
1hr
|
|
|
|
5
|
|
|
|
5.0
|
|
Dresden Files
|
|
|
1hr
|
|
|
|
2
|
|
|
|
2.0
|
|
|
Wildfire Season 2
|
|
|
1hr
|
|
|
|
1
|
|
|
|
1.0
|
|
Mad Men
|
|
|
1hr
|
|
|
|
11
|
|
|
|
11.0
|
|
|
Lovespring International
|
|
|
1/2hr
|
|
|
|
13
|
|
|
|
6.5
|
|
Wildfire Season 4
|
|
|
1hr
|
|
|
|
11
|
|
|
|
11.0
|
|
|
I Pity The Fool
|
|
|
1/2hr
|
|
|
|
3
|
|
|
|
1.5
|
|
Weeds Season 3
|
|
|
1/2hr
|
|
|
|
12
|
|
|
|
6.0
|
|
|
Weeds Season 2
|
|
|
1/2hr
|
|
|
|
12
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
|
|
|
|
43.0
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
20.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the above, revenues included in domestic series
licensing from the Companys television syndication
subsidiary Debmar-Mercury increased $22.0 million to
$26.3 million from $4.3 million in the prior
years quarter due to television series such as House of
Payne and South Park.
Domestic television movies and miniseries increased primarily
due to the delivery of eight episodes of the miniseries The
Kill Point in the current six-month period, as compared to
nil in the prior year period.
International revenue of $15.5 million increased by
$13.9 million in the current period mainly due to
international revenue from Hidden Palms, Lovespring
International, The Dresden Files and The Dead Zone,
compared to international revenue of $1.6 million in the
prior years period from Wildfire Seasons 1 and
2.
Direct
Operating Expenses
The following table sets forth direct operating expenses by
segment for the six months ended September 30, 2007 and
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30, 2007
|
|
|
September 30, 2006
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
|
(Amounts in millions)
|
|
|
Direct operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of films and television programs
|
|
$
|
73.5
|
|
|
$
|
102.1
|
|
|
$
|
175.6
|
|
|
$
|
55.7
|
|
|
$
|
26.3
|
|
|
$
|
82.0
|
|
Participation and residual expense
|
|
|
71.0
|
|
|
|
23.0
|
|
|
|
94.0
|
|
|
|
75.3
|
|
|
|
5.7
|
|
|
|
81.0
|
|
Amortization of acquired intangible assets
|
|
|
0.3
|
|
|
|
|
|
|
|
0.3
|
|
|
|
0.5
|
|
|
|
|
|
|
|
0.5
|
|
Other expenses
|
|
|
(0.6
|
)
|
|
|
0.2
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
144.2
|
|
|
$
|
125.3
|
|
|
$
|
269.5
|
|
|
$
|
131.5
|
|
|
$
|
31.8
|
|
|
$
|
163.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses as a percentage of segment revenues
|
|
|
35.6
|
%
|
|
|
91.1
|
%
|
|
|
49.7
|
%
|
|
|
37.4
|
%
|
|
|
82.0
|
%
|
|
|
41.8
|
%
|
Direct operating expenses include amortization, participation
and residual expenses and other expenses. Direct operating
expenses of the motion pictures segment of $144.2 million
for this period were 35.6% of motion pictures revenue, compared
to $131.5 million, or 37.4% of motion pictures revenue for
the prior years period. The decrease in direct operating
expense of the motion pictures segment in the current period as
a percent of revenue is due to the change in the mix of titles
generating revenue compared to the prior years period. The
benefit in other expense in the current period resulted
primarily from foreign exchange gains of approximately
$0.4 million. Direct operating expenses of the motion
pictures segment included charges for write downs of investment
in film costs of
48
$6.7 million and $1.2 million in the current period
and prior year period, respectively, due to the lower than
anticipated actual performance or previously expected
performance of certain titles. In the current period,
approximately $1.5 million of the write down related to the
unanticipated poor performance at the box office on one motion
picture and $2.0 million charge resulting from a
distribution partner resulting from concerns over the
collectability of amounts due pursuant to a distribution
agreement. The remaining write downs were each under
$1.0 million.
Direct operating expenses of the television segment of
$125.3 million for this period were 91.1% of television
revenue, compared to $31.8 million, or 82.0% of television
revenue for the prior years period. The increase in direct
operating expense of the television segment in the current
period is due to the increase in television production revenue
in this period compared to prior years period, and to the
write off of film costs associated with a television pilot of
approximately $1.2 million in the first quarter. The
increase in direct operating expense of the television segment
in the current period as a percent of revenue is due to the
change in the mix of titles generating revenue compared to the
prior years period.
Distribution
and Marketing Expenses
The following table sets forth distribution and marketing
expenses by segment for the six months ended September 30,
2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30, 2007
|
|
|
September 30, 2006
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
Motion
|
|
|
|
|
|
|
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
Pictures
|
|
|
Television
|
|
|
Total
|
|
|
|
(Amounts in millions)
|
|
|
Distribution and marketing expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical
|
|
$
|
205.7
|
|
|
$
|
|
|
|
$
|
205.7
|
|
|
$
|
93.2
|
|
|
$
|
0.7
|
|
|
$
|
93.9
|
|
Home Entertainment
|
|
|
92.4
|
|
|
|
3.3
|
|
|
|
95.7
|
|
|
|
82.6
|
|
|
|
1.6
|
|
|
|
84.2
|
|
Television
|
|
|
1.0
|
|
|
|
1.5
|
|
|
|
2.5
|
|
|
|
0.6
|
|
|
|
1.3
|
|
|
|
1.9
|
|
International
|
|
|
18.5
|
|
|
|
2.0
|
|
|
|
20.5
|
|
|
|
19.4
|
|
|
|
1.1
|
|
|
|
20.5
|
|
Other
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
317.7
|
|
|
$
|
6.8
|
|
|
$
|
324.5
|
|
|
$
|
195.7
|
|
|
$
|
4.7
|
|
|
$
|
200.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The majority of distribution and marketing expenses relate to
the motion pictures segment. Theatrical P&A in the motion
pictures segment in this period of $205.7 million increased
$112.5 million, or 120.7%, compared to $93.2 million
in the prior years period. Domestic theatrical P&A
from the motion pictures segment in the current period included
P&A incurred on the release of titles such as Bug,
Delta Farce, The Condemned, 3:10 to Yuma,
Bratz, Hostel 2, Good Luck Chuck, and War,
which individually represented between 5% and 17% of total
theatrical P&A and, in the aggregate, accounted for 83% of
the total theatrical P&A. Theatrical P&A in the prior
years period included P&A incurred on the release of
titles such as Akeelah and the Bee, Crank, The Descent,
Employee of the Month, and See No Evil domestically,
which individually represented between 10% and 22% of total
theatrical P&A and, in the aggregate, accounted for 89% of
total theatrical P&A. Employee of the Month was
released theatrically subsequent to the six-month period ended
September 30, 2006 on October 6, 2006. Bug and
The Condemned, released theatrically during the six
months ended September 30, 2007 individually contributed
less than 5% of total theatrical revenue in the current period.
Home entertainment distribution and marketing costs on motion
pictures and television product in this period of
$95.7 million increased $11.5 million, or 13.7%,
compared to $84.2 million in the prior years period.
Home entertainment distribution and marketing costs as a
percentage of video revenues was 40.5% and 35.7% in the current
period and prior years period, respectively. This increase
is mainly due to higher video marketing costs in relation to
revenues generated in the six-month period ended
September 30, 2007 and partially due to the decline in
video revenue from the significant releases noted in the table
above in the current period in comparison to the prior
years period.
49
International distribution and marketing expenses in this period
includes $14.8 million of distribution and marketing costs
from Lionsgate UK, compared to $15.4 million in the prior
years period. Current period distribution and marketing
expenses of the television segment include $1.3 million
from the July 3, 2006 acquisition of Debmar-Mercury,
compared to $1.2 million in the prior years period.
General
and Administrative Expenses
The following table sets forth general and administrative
expenses by segment for the six months ended September 30,
2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Increase (Decrease)
|
|
|
|
2007
|
|
|
2006
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Amounts in millions)
|
|
|
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Pictures
|
|
$
|
15.7
|
|
|
$
|
13.2
|
|
|
$
|
2.5
|
|
|
|
18.9
|
%
|
Television
|
|
|
3.7
|
|
|
|
1.1
|
|
|
|
2.6
|
|
|
|
236.4
|
%
|
Corporate
|
|
|
33.3
|
|
|
|
26.7
|
|
|
|
6.6
|
|
|
|
24.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52.7
|
|
|
$
|
41.0
|
|
|
$
|
11.7
|
|
|
|
28.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in general and administrative expenses of the
motion pictures segment of $2.5 million, or 18.9%, is
primarily due to an increase in salaries and related expenses of
approximately $2.0 million.
The increase in general and administrative expenses of the
television segment of $2.6 million or 236.4% is primarily
due to an increase in salaries and related expenses of
approximately $2.2 million, an increase of approximately
$0.3 million in professional fees, and an increase of
approximately $0.2 million in rent and facility costs
offset by a decrease in other general overhead costs of
approximately $0.1 million.
The increase in corporate general and administrative expenses is
primarily due to an increase in stock-based compensation of
approximately $2.7 million (see table below), an increase
in salaries and related expenses of approximately
$1.9 million and an increase of $2.0 million in other
general overhead costs. The increase in salaries and related
expenses of $1.9 million includes a $1.5 million
special bonus related to the closing of the Companys
theatrical slate financing agreement on May 25, 2007. In
this period, $3.3 million of production overhead was
capitalized compared to $2.9 million in the prior
years period.
The following table sets forth corporate stock based
compensation expense (benefit) for the six months ended
September 30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Increase (Decrease)
|
|
|
|
2007
|
|
|
2006
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Amounts in millions)
|
|
|
Corporate Stock Based Compensation Expense (Benefit):*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
1.6
|
|
|
$
|
0.9
|
|
|
$
|
0.7
|
|
|
|
77.8
|
%
|
Restricted share units
|
|
|
4.9
|
|
|
|
1.4
|
|
|
|
3.5
|
|
|
|
250.0
|
%
|
Stock appreciation rights
|
|
|
(1.0
|
)
|
|
|
0.5
|
|
|
|
(1.5
|
)
|
|
|
(300.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5.5
|
|
|
$
|
2.8
|
|
|
$
|
2.7
|
|
|
|
96.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(NM) |
|
Percentage not meaningful. |
|
(*) |
|
The above table reflects only corporate stock based compensation
expense (benefit) and not motion picture or television stock
based compensation expense (benefit), which amounted to
$0.2 million and nil, respectively. |
50
At September 30, 2007, as disclosed in note 12 to the
unaudited condensed consolidated financial statements, there
were unrecognized compensation costs of approximately
$29.5 million related to stock options and restricted stock
units previously granted, including the first annual installment
of share grants that were subject to performance targets, which
will be expensed over the remaining vesting periods. At
September 30, 2007, there are 881,666 shares of
restricted stock units awarded to four key executive officers
which will be subject to performance targets to be set by the
Companys compensation committee. These restricted stock
units will vest in three, four, and five annual installments
assuming annual performance targets to be set by the
Companys compensation committee have been met. The fair
value of the 881,666 shares whose performance targets have
not been set was $9.1 million, based on the market price of
the Companys common stock as of September 30, 2007.
The market value will be remeasured when the performance
criteria are set and the value will be expensed over the
remaining vesting periods once it becomes probable that the
performance targets will be satisfied.
Depreciation
and Other Expenses (Income)
Depreciation of $1.9 million this period increased
$0.8 million, or 72.7% from $1.1 million in the prior
years period.
Interest expense of $8.1 million this period decreased
$1.5 million, or 15.6%, from prior years period of
$9.6 million.
Interest and other income was $6.4 million for the period
ended September 30, 2007, compared to $4.8 million in
the prior years period. Interest and other income this
period was earned on the cash balance and available-for-sale
investments held during the six months ended September 30,
2007, which were higher than in the prior years period.
Gain on sale of equity securities of $2.8 million for the
period ended September 30, 2007 resulted primarily from the
sale of shares held and purchased in Magna, an Australian film
distributor.
The equity interests in this period included a $1.9 million
loss from the Companys 33.33% equity interests in Horror
Entertainment, LLC, a $0.1 million loss from the
Companys 10% equity interest in Maple, and a less than
$0.1 million loss from the Companys 42% equity
interest in Break.com. For the six months ended
September 30, 2006, the equity interests consisted of a
loss of less than $0.1 million from the Companys 10%
equity interest in Maple and a loss of $0.3 million from
the Companys 18.8% equity interest in CinemaNow.
The Company had an income tax expense of $2.1 million or
(1.9%) of loss before income taxes in the six months ended
September 30, 2007, compared to a benefit of
$2.2 million in the six months ended September 30,
2006. The tax expense reflected in the current period is
primarily attributable to U.S. state taxes. The
Companys actual annual effective tax rate will differ from
the statutory federal rate as a result of several factors,
including changes in the valuation allowance against net
deferred tax assets, non-temporary differences, foreign income
taxed at different rates, and state and local income taxes.
Income tax loss carryforwards amount to approximately
$116.4 million for U.S. federal income tax purposes
available to reduce income taxes over twenty years,
$80.4 million for U.S. state income tax purposes
available to reduce income taxes over future years with varying
expirations, $29.2 million for Canadian income tax purposes
available to reduce income taxes over eight years, and
$13.7 million for UK income tax purposes available
indefinitely to reduce future income taxes.
Net loss for the six months ended September 30, 2007 was
$109.3 million, or basic and diluted net loss per common
share of $0.93 on 118.1 million weighted average shares
outstanding. This compares to net loss for the six months ended
September 30, 2006 of $18.0 million or basic and
diluted net loss per common share of $0.17 on 104.7 million
weighted average common shares outstanding.
Liquidity
and Capital Resources
Our liquidity and capital resources are provided principally
through cash generated from operations, issuance of subordinated
notes and our credit facility.
In October 2004, Lions Gate Entertainment Inc. sold
$150.0 million of the 2.9375% Notes that mature on
October 15, 2024. We received $146.0 million of net
proceeds after paying placement agents fees. Offering
51
expenses were $0.7 million. The 2.9375% Notes are
convertible at the option of the holder, at any time prior to
maturity, upon satisfaction of certain conversion contingencies,
into common shares of the Company at a conversion rate of
86.9565 shares per $1,000 principal amount of the
2.9375% Notes, which is equal to a conversion price of
approximately $11.50 per share, subject to adjustment upon
certain events. From October 15, 2009 to October 14,
2010, Lions Gate Entertainment Inc. may redeem the
2.9375% Notes at 100.839%; from October 15, 2010 to
October 14, 2011, Lions Gate Entertainment Inc. may redeem
the 2.9375% Notes at 100.420%; and thereafter, Lions Gate
Entertainment Inc. may redeem the notes at 100%.
In February 2005, Lions Gate Entertainment Inc. sold
$175.0 million of the 3.625% Notes that mature on
March 15, 2025. We received $170.2 million of net
proceeds after paying placement agents fees. Offering
expenses were approximately $0.6 million. The
3.625% Notes are convertible at the option of the holder,
at any time prior to maturity into common shares of the Company
at a conversion rate of 70.0133 shares per $1,000 principal
amount of the 3.625% Notes, which is equal to a conversion
price of approximately $14.28 per share, subject to adjustment
upon certain events. Lions Gate Entertainment Inc. may redeem
the 3.625% Notes at its option on or after March 15,
2012 at 100% of their principal amount plus accrued and unpaid
interest.
Credit Facility. At September 30, 2007,
the Company had a $215 million revolving line of credit, of
which $10 million is available for borrowing by Lionsgate
UK in either U.S. dollars or British pounds sterling. At
September 30, 2007, the Company had no borrowings
(March 31, 2007 nil) under the credit facility.
The credit facility expires December 31, 2008 and bears
interest at 2.75% over the Adjusted LIBOR or the
Canadian Bankers Acceptance rate, or 1.75% over the
U.S. or Canadian prime rates. The availability of funds
under the credit facility is limited by the borrowing base.
Amounts available under the credit facility are also limited by
outstanding letters of credit which amounted to
$15.2 million at September 30, 2007. At
September 30, 2007 there was $199.8 million available
under the credit facility. The Company is required to pay a
monthly commitment fee of 0.50% per annum on the total credit
facility of $215 million less the amount drawn. Right,
title and interest in and to all personal property of Lions Gate
Entertainment Corp. and Lions Gate Entertainment Inc. is pledged
as security for the credit facility. The credit facility is
senior to the Companys film obligations and senior
subordinated notes. The credit facility restricts the Company
from paying cash dividends on its common shares.
Theatrical Slate Financing. On May 25,
2007, the Company, through a series of agreements, closed a
theatrical slate funding arrangement. Under this arrangement
Pride, an unrelated entity, will fund, generally, 50% of the
Companys production, acquisition, marketing and
distribution costs of theatrical feature films up to an
aggregate of approximately $196 million, net of transaction
costs. The funds available from Pride are generated from the
issuance by Pride of $35 million of subordinated debt
instruments, $35 million of equity and $134 million
from a senior credit facility, which is subject to a borrowing
base. The Company is not a party to the Pride debt obligations
or their senior credit facility, and provides no guarantee of
repayment of these obligations. The percentage of the
contribution may vary on certain pictures. The slate of films
covered by the arrangement is expected to be comprised of 23
films over the next three years. Pride will participate in a pro
rata portion of the pictures net profits or losses similar to a
co-production arrangement based on the portion of costs funded.
The Company continues to distribute the pictures covered by the
arrangement with a portion of net profits after all costs and
the Companys distribution fee being distributed to Pride
based on their pro rata contribution to the applicable costs
similar to a back-end participation on a film.
SGF. On July 30, 2007, the Company
entered into a four-year filmed entertainment slate financing
agreement with SGF, the Québec provincial governments
investment arm. SGF will finance up to 35% of production costs
of television and feature film productions produced in
Québec for a four year period for an aggregate investment
of up to $140 million, and the Company will advance all
amounts necessary to fund the remaining budgeted costs. The
maximum aggregate of budgeted costs over the four-year period
will be $400 million, including the Companys portion,
but no more than $100 million per year. In connection with
this agreement the Company and SGF will proportionally share in
the proceeds derived from the funded productions after the
Company deducts a distribution fee, recoups all distribution
expenses and releasing costs, and pays all applicable
participations and residuals.
52
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
September 30, 2007 and March 31, 2007 is
$315.8 million and $320.2 million, respectively.
Cash Flows Provided by/Used in Operating
Activities. Cash flows used in operating
activities for the six months ended September 30, 2007 were
$58.6 million compared to cash flows provided by operating
activities in the six months ended September 30, 2006 of
$10.8 million. The change in cash used in operating
activities was primarily due to the increase in the net loss
incurred in the six months ended September 30, 2007,
increases in accounts receivables, increases in investment in
film, offset by greater amortization expense, and decreases in
film obligations. The above decrease in cash was offset by
increases in accounts payable and participations and residuals.
Cash Flows Provided by/Used In Investing
Activities. Cash flows provided by investing
activities of $173.7 million for the six months ended
September 30, 2007 consisted of net proceeds from the sale
of $207.4 million of auction rate securities,
$19.1 million in net proceeds from the sale of equity
securities, $2.4 million for purchases of property and
equipment, $6.5 million for the investment in equity method
investees, $3.1 million for a note receivable from
Break.com and $40.9 million for the acquisition of Mandate,
net of cash acquired. Cash flows used in investing activities of
$7.3 million in the six months ended September 30,
2006 included the net proceeds of $20.3 million of
investments available-for-sale, offset by $3.5 million for
purchases of property and equipment and $24.1 million for
the acquisition of Debmar-Mercury, net of cash acquired.
Cash Flows Provided by/Used In Financing
Activities. Cash flows used in financing
activities of $6.3 million in the six months ended
September 30, 2007 consisted of cash received from
borrowings and the issuance of common shares of
$4.5 million, offset by $10.7 million paid for the
repurchase of the Companys common shares. Cash flows
provided by financing activities of $2.4 million in the six
months ended September 30, 2006 consisted of cash received
from the issuance of common shares.
Anticipated Cash Requirements. The nature of
our business is such that significant initial expenditures are
required to produce, acquire, distribute and market films and
television programs, while revenues from these films and
television programs are earned over an extended period of time
after their completion or acquisition. We believe that cash flow
from operations, cash on hand, investments available-for-sale,
credit facility availability, tax-efficient financing and
production financing available will be adequate to meet known
operational cash requirements for the foreseeable future,
including the funding of future film and television production,
film rights acquisitions and theatrical and video release
schedules. We monitor our cash flow liquidity, availability,
fixed charge coverage, capital base, film spending and leverage
ratios with the long-term goal of maintaining our credit
worthiness.
Our current financing strategy is to fund operations and to
leverage investment in films and television programs through our
cash flow from operations, our credit facility, single-purpose
production financing, government incentive programs, film funds,
and distribution commitments. In addition, we may acquire
businesses or assets, including individual films or libraries,
that are complementary to our business. Any such transaction
could be financed through our cash flow from operations, credit
facilities, equity or debt financing.
53
Future commitments under contractual obligations as of
September 30, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Future annual repayment of debt and other film obligations
recorded as of September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film obligations(1)
|
|
$
|
56,436
|
|
|
$
|
91,547
|
|
|
$
|
3,706
|
|
|
$
|
29,975
|
|
|
$
|
29,988
|
|
|
$
|
|
|
|
$
|
211,652
|
|
Subordinated notes and other financing obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
328,718
|
|
|
|
328,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
56,436
|
|
|
$
|
91,547
|
|
|
$
|
3,706
|
|
|
$
|
29,975
|
|
|
$
|
29,988
|
|
|
$
|
328,718
|
|
|
$
|
540,370
|
|
Contractual commitments by expected repayment date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution and marketing commitments(2)
|
|
$
|
13,552
|
|
|
$
|
92,474
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19,963
|
|
|
$
|
|
|
|
$
|
125,989
|
|
Minimum guarantee commitments(3)
|
|
|
88,360
|
|
|
|
66,063
|
|
|
|
5,300
|
|
|
|
2,900
|
|
|
|
|
|
|
|
|
|
|
|
162,623
|
|
Production obligation commitments(3)
|
|
|
3,170
|
|
|
|
40,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,055
|
|
Operating lease commitments
|
|
|
2,857
|
|
|
|
6,920
|
|
|
|
6,763
|
|
|
|
6,160
|
|
|
|
2,460
|
|
|
|
710
|
|
|
|
25,871
|
|
Other contractual obligations
|
|
|
5,465
|
|
|
|
4,741
|
|
|
|
257
|
|
|
|
221
|
|
|
|
185
|
|
|
|
|
|
|
|
10,869
|
|
Employment and consulting contracts
|
|
|
13,988
|
|
|
|
18,076
|
|
|
|
10,700
|
|
|
|
6,673
|
|
|
|
883
|
|
|
|
|
|
|
|
50,320
|
|
Interest payments on subordinated notes and other financing
obligations
|
|
|
5,498
|
|
|
|
11,046
|
|
|
|
11,046
|
|
|
|
11,046
|
|
|
|
11,046
|
|
|
|
135,394
|
|
|
|
185,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
132,890
|
|
|
$
|
240,205
|
|
|
$
|
34,066
|
|
|
$
|
27,000
|
|
|
$
|
34,537
|
|
|
$
|
136,104
|
|
|
$
|
604,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total future commitments under contractual obligations
|
|
$
|
189,326
|
|
|
$
|
331,752
|
|
|
$
|
37,772
|
|
|
$
|
56,975
|
|
|
$
|
64,525
|
|
|
$
|
464,822
|
|
|
$
|
1,145,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Film obligations include minimum guarantees, theatrical
marketing obligations and production obligations as disclosed in
note 6 of our unaudited condensed consolidated financial
statements. Repayment dates are based on anticipated delivery or
release date of the related film or contractual due dates of the
obligation. |
|
(2) |
|
Distribution and marketing commitments represent contractual
commitments for future expenditures associated with distribution
and marketing of films which the Company will distribute. The
payment dates of these amounts are primarily based on the
anticipated release date of the film. |
|
(3) |
|
Minimum guarantee commitments represent contractual commitments
related to the purchase of film rights for future delivery.
Production obligation commitments represent amounts committed
for future film production and development to be funded through
production financing and recorded as a production obligation
liability. Future payments under these obligations are based on
anticipated delivery or release dates of the related film or
contractual due dates of the obligation. The amounts include
future interest payments associated with the obligations. |
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
Currency
and Interest Rate Risk Management
Market risks relating to our operations result primarily from
changes in interest rates and changes in foreign currency
exchange rates. Our exposure to interest rate risk results from
the financial debt instruments that arise from transactions
entered into during the normal course of business. As part of
our overall risk management program, we evaluate and manage our
exposure to changes in interest rates and currency exchange
risks on an ongoing basis. Hedges and derivative financial
instruments will be used in the future in order to manage our
interest rate and currency exposure. We have no intention of
entering into financial derivative contracts, other than to
hedge a specific financial risk.
Currency Rate Risk. We incur certain operating
and production costs in foreign currencies and are subject to
market risks resulting from fluctuations in foreign currency
exchange rates. Our principal currency exposure is
54
between Canadian and U.S. dollars. The Company enters into
forward foreign exchange contracts to hedge its foreign currency
exposures on future production expenses denominated in Canadian
dollars and on future tax credits to be received in Canadian
dollars. As of September 30, 2007, we had outstanding
contracts to sell US$12.9 million in exchange for
CDN$13.5 million over a period of five weeks at a weighted
average exchange rate of CDN$1.0498, and outstanding contracts
to sell CDN$5.8 million in exchange for US$5.1 million
over a period of five weeks at a weighted average exchange rate
of US$0.8878. Changes in the fair value representing an
unrealized fair value loss on foreign exchange contracts
outstanding during both the three and six months ended
September 30, 2007 amounted to $0.2 million, and are
included in accumulated other comprehensive loss, a separate
component of shareholders equity. During the three and six
months ended September 30, 2007, we completed foreign
exchange contracts denominated in Canadian dollars. The net
gains resulting from the completed contracts were
$0.2 million and $1.0 million, respectively. These
contracts are entered into with a major financial institution as
counterparty. We are exposed to credit loss in the event of
nonperformance by the counterparty, which is limited to the cost
of replacing the contracts, at current market rates. We do not
require collateral or other security to support these contracts.
Interest Rate Risk. Our principal risk with
respect to our debt is interest rate risk. We currently have
minimal exposure to cash flow risk due to changes in market
interest rates related to our outstanding debt and other
financing obligations. Our credit facility has a nil balance at
September 30, 2007. Other financing obligations subject to
variable interest rates include $110.6 million owed to film
production entities on delivery of titles.
The table below presents repayments and related weighted average
interest rates for our interest-bearing debt and production
obligations and subordinate notes and other financing
obligations as of September 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(Amounts in thousands)
|
|
|
Revolving Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Production Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable(2)
|
|
|
32,024
|
|
|
|
78,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,586
|
|
Subordinated Notes and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financing Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
150,000
|
|
Fixed(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,000
|
|
|
|
175,000
|
|
Fixed(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,718
|
|
|
|
3,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,024
|
|
|
$
|
78,562
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
328,718
|
|
|
$
|
439,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Revolving credit facility, which expires December 31, 2008.
At September 30, 2007, the Company had no borrowings under
this facility. |
|
(2) |
|
Amounts owed to film production entities on anticipated delivery
date or release date of the titles or the contractual due dates
of the obligation. Production obligations of $108.1 million
incur interest at rates ranging from 6.72% to 8.02% and one
production loan of $2.5 million bears interest of 14.08%.
Not included in the table above are approximately
$80.9 million of production obligations which are
non-interest bearing. |
|
(3) |
|
2.9375% Notes with fixed interest rate equal to 2.9375%. |
|
(4) |
|
3.625% Notes with fixed interest rate equal to 3.625%. |
|
(5) |
|
Other financing obligation with fixed interest rate equal to
8.02%. |
|
|
Item 4.
|
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures
The term disclosure controls and procedures is
defined in
Rules 13a-15(e)
and
15d-15(e) of
the Securities Exchange Act of 1934 (the Exchange
Act). These rules refer to the controls and other
procedures of a company
55
that are designed to ensure that information required to be
disclosed by a company in the reports that it files under the
Exchange Act is recorded, processed, summarized and reported
within required time periods.
As of September 30, 2007, the end of the period covered by
this report, the Company carried out an evaluation under the
supervision and with the participation of our Chief Executive
Officer and Chief Financial Officer of the effectiveness of our
disclosure controls and procedures. Our Chief Executive Officer
and Chief Financial Officer have concluded that such controls
and procedures were effective as of September 30, 2007.
Changes
in Internal Control over Financial Reporting
As required by
Rule 13a-15(d)
of the Exchange Act, the Company, under the supervision and with
the participation of the Companys management, including
the Chief Executive Officer and Chief Financial Officer, also
evaluated whether any changes occurred to the Companys
internal control over financial reporting during the period
covered by this report that have materially affected, or are
reasonably likely to materially affect, such control. Based on
that evaluation, there has been no such change during the period
covered by this report.
PART II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings.
|
None.
The following updates the risk factor entitled Our
success depends on external factors in the motion picture and
television industry in the Risk Factors
section of our Annual Report on
Form 10-K
for the fiscal year ended March 31, 2007. Other than the
update 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, 2007.
We could be adversely affected by strikes or other union job
actions. We are directly or indirectly dependent
upon highly specialized union members who are essential to the
production of motion pictures and television programs. A strike
by, or a lockout of, one or more of the unions that provide
personnel essential to the production of motion pictures or
television programs could delay or halt our ongoing production
activities. Such a halt or delay, depending on the length of
time, could cause a delay or interruption in our release of new
motion pictures and television programs, which could have a
material adverse effect on our business, results of operations
and financial condition.
On November 1, 2007, the television business
collective bargaining agreement with the Writers Guild of
America (East and West) (the WGA) covering freelance
writers expired. On November 5, 2007, the WGA began an
industry-wide strike. We do not expect the strike to have a
significant effect on our operating results for the remainder of
2008 fiscal year. Thereafter, we are currently unable to
estimate the impact of the strike, if any.
56
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
The following table sets forth information with respect to
shares of the Companys common stock purchased by the
Company during the three months ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer Purchases of Equity Securities(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) Approximate
|
|
|
|
|
|
|
|
|
|
(c) Total Number of
|
|
|
Dollar Value of
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
Shares that May Yet
|
|
|
|
|
|
|
|
|
|
Part of Publicly
|
|
|
be Purchased Under
|
|
|
|
(a) Total Number of
|
|
|
(b) Average Price
|
|
|
Announced Plans or
|
|
|
the Plans or
|
|
Period
|
|
Shares Purchased
|
|
|
Paid per Share
|
|
|
Programs
|
|
|
Programs
|
|
|
July 1, 2007 July 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,000,000
|
|
August 1, 2007 August 31, 2007
|
|
|
300,000
|
|
|
$
|
9.13
|
|
|
|
300,000
|
|
|
$
|
47,200,000
|
|
September 1, 2007 September 30, 2007
|
|
|
869,835
|
|
|
$
|
9.15
|
|
|
|
869,835
|
|
|
$
|
39,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,169,835
|
|
|
$
|
9.15
|
|
|
|
1,169,835
|
|
|
$
|
39,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On May 31, 2007, the Companys Board of Directors
authorized the repurchase of up to $50 million of its
common shares, with the timing, price, quantity, and manner of
the purchases to be made at the discretion of management,
depending upon market conditions. Such purchases are structured
as permitted by securities laws and other legal requirements.
During the period from the authorization date through
September 30, 2007, 1,169,835 million shares have been
repurchased at a cost of approximately $10.7 million
(including commission costs). The share repurchase program has
no expiration date. |
|
|
Item 3.
|
Defaults
Upon Senior Securities.
|
None
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
On September 11, 2007, the Company held its Annual General
Meeting of Shareholders (the Annual Meeting). Below
is a summary of the matters voted on at the Annual Meeting.
1. The Companys stockholders voted to elect twelve
(12) directors to the Board of Directors of the Company to
serve for a term of one year. The votes for the director
nominees were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominees
|
|
For
|
|
|
Abstain
|
|
|
Not Voted
|
|
|
Norman Bacal
|
|
|
98,540,668
|
|
|
|
4,828,478
|
|
|
|
15,832,561
|
|
Michael Burns
|
|
|
99,132,104
|
|
|
|
4,237,042
|
|
|
|
15,832,561
|
|
Arthur Evrensel
|
|
|
96,292,777
|
|
|
|
7,076,369
|
|
|
|
15,832,561
|
|
Jon Feltheimer
|
|
|
96,689,317
|
|
|
|
6,679,829
|
|
|
|
15,832,561
|
|
Morley Koffman
|
|
|
100,735,574
|
|
|
|
2,633,572
|
|
|
|
15,832,561
|
|
Harald Ludwig
|
|
|
100,751,735
|
|
|
|
2,617,411
|
|
|
|
15,832,561
|
|
Laurie May
|
|
|
98,539,046
|
|
|
|
4,830,100
|
|
|
|
15,832,561
|
|
G. Scott Paterson
|
|
|
69,684,392
|
|
|
|
33,684,754
|
|
|
|
15,832,561
|
|
Daryl Simm
|
|
|
95,500,582
|
|
|
|
7,868,564
|
|
|
|
15,832,561
|
|
Hardwick Simmons
|
|
|
96,094,662
|
|
|
|
7,274,484
|
|
|
|
15,832,561
|
|
Brian V. Tobin
|
|
|
98,540,668
|
|
|
|
4,828,478
|
|
|
|
15,832,561
|
|
Additionally, the Companys Series B preferred
stockholder, Mark Amin, elected himself as a director.
57
2. Ernst & Young LLP was re-appointed as the
Companys independent registered public accounting firm for
the fiscal year ending March 31, 2008, and the Audit
Committee of the Board of Directors was authorized to determine
the remuneration to be paid to Ernst & Young LLP. The
vote was as follows:
|
|
|
|
|
For
|
|
|
103,186,226
|
|
Abstain
|
|
|
182,920
|
|
Not Voted
|
|
|
15,832,561
|
|
3. The Companys stockholders approved an increase in
the number of common shares reserved for issuance under the
Lions Gate Entertainment Corp. 2004 Performance Incentive Plan.
The vote was as follows:
|
|
|
|
|
For
|
|
|
71,987,750
|
|
Against
|
|
|
31,328,997
|
|
Abstain
|
|
|
52,399
|
|
Broker Non-votes
|
|
|
15,832,561
|
|
Under applicable law, the proposals before the Companys
stockholders for the election of each of the
nominated directors (Proposal 1), the re-appointment of
Ernst & Young LLP as the Companys independent
registered public accounting firm (Proposal 2), and
approval of an increase in the number of common shares reserved
for issuance under the Lions Gate Entertainment Corp. 2004
Performance Incentive Plan (Proposal 3) each
required the affirmative vote of a majority of the common shares
present or represented by proxy. With respect to
Proposals 1 and 2, abstentions and broker non-votes were
not counted in determining the number of shares necessary for
approval. With respect to Proposal 3, broker non-votes and
abstentions were given the effect of a vote against the approval
of the amendment to increase the shares reserved for issuance.
|
|
Item 5.
|
Other
Information.
|
On September 10, 2007, the Company filed a Current Report
on
Form 8-K
reporting that the Company had entered into a purchase agreement
to acquire all of the membership interests of Mandate Pictures,
LLC, a Delaware limited liability company. Since that time, the
Company has determined that the business acquired did not meet
the lowest significance threshold level as prescribed in the
Rule 3-05(b)
of
Regulation S-X
promulgated by the Securities and Exchange Commission and,
therefore, the Company is not required to file audited financial
statements or pro forma financial statements pursuant to
Rule 3-05
and
Rule 3-11
of
Regulation S-X
with respect to the acquisition.
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Documents
|
|
|
3
|
.1(1)
|
|
Articles
|
|
3
|
.2(2)
|
|
Notice of Articles
|
|
3
|
.3(2)
|
|
Vertical Short Form Amalgamation Application
|
|
3
|
.4(2)
|
|
Certificate of Amalgamation
|
|
31
|
.1
|
|
Certification of CEO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
31
|
.2
|
|
Certification of CFO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
32
|
.1
|
|
Certification of CEO and CFO Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
(1) |
|
Incorporated by reference to the Companys Annual Report on
Form 10-K
for the fiscal year ended March 31, 2005 as filed on
June 29, 2005. |
|
(2) |
|
Incorporated by reference to the Companys Annual Report on
Form 10-K
for the fiscal year ended March 31, 2007 as filed on
May 30, 2007. |
58
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
LIONS GATE ENTERTAINMENT CORP.
Name: James Keegan
|
|
|
|
Title:
|
Duly Authorized Officer and
|
Chief Financial Officer
Date: November 9, 2007
59