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Lions Gate Entertainment 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.1
Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File No.: 1-14880

 

 

Lions Gate Entertainment Corp.

(Exact name of registrant as specified in its charter)

 

 

 

British Columbia, Canada   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

(Registrant’s 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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 

Title of Each Class

 

Outstanding at August 1, 2011

Common Shares, no par value per share   137,136,937 shares

 

 

 


Table of Contents

TABLE OF CONTENTS

 

Item

   Page  
PART I — FINANCIAL INFORMATION   

1. Financial Statements

     4   

2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     42   

3. Quantitative and Qualitative Disclosures About Market Risk

     67   

4. Controls and Procedures

     69   
PART II — OTHER INFORMATION   

1. Legal Proceedings

     69   

1A. Risk Factors

     70   

2. Unregistered Sales of Equity Securities and Use of Proceeds

     71   

3. Defaults Upon Senior Securities

     71   

4. Removed and Reserved

     71   

5. Other Information

     72   

6. Exhibits

     72   

 

2


Table of Contents

FORWARD-LOOKING STATEMENTS

This report includes statements that are, or may deemed to be, “forward looking statements” within the meaning of Section 27A of the Securities Act, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “potential,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “forecasts,” “may,” “will,” “could,” “would” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those discussed under Part I, Item 1.A. “Risk Factors” found in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on May 31, 2011, which risk factors are incorporated herein by reference, as updated by the risk factors found under Part II, Item 1A. Risk Factors herein. These factors should not be construed as exhaustive and should be read with the other cautionary statements and information in our Annual Report on Form 10-K and this report.

We caution you that forward-looking statements made in this report or anywhere else are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially and adversely from those made in or suggested by the forward looking statements contained in this report as a result of various important factors, including, but not limited to, the substantial investment of capital required to produce and market films and television series, increased costs for producing and marketing feature films and television series, budget overruns, limitations imposed by our credit facilities and notes, unpredictability of the commercial success of our motion pictures and television programming, risks related to our acquisition strategy and integration of acquired businesses, the effects of dispositions of businesses or assets, including individual films or libraries, the cost of defending our intellectual property, difficulties in integrating acquired businesses, technological changes and other trends affecting the entertainment industry, and the other risks and uncertainties discussed under Part I, Item 1.A. “Risk Factors” found in our Annual Report on Form 10-filed with the SEC on May 31, 2011, which risk factors are incorporated herein by reference, as updated by the risk factors found under Part II, Item 1A. Risk Factors herein. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods.

Any forward-looking statements, which we make in this report, speak only as of the date of such statement, and we undertake no obligation to update such statements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

Unless otherwise indicated, all references to the “Company,” “Lionsgate,” “we,” “us,” and “our” include reference to our subsidiaries as well.

 

3


Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

     June 30,
2011
    March 31,
2011
 
     (Amounts in thousands,  
     except share amounts)  
ASSETS     

Cash and cash equivalents

   $ 111,040      $ 86,419   

Restricted cash

     19,778        43,458   

Accounts receivable, net of reserve for returns and allowances of $66,151 (March 31, 2011 - $90,715) and provision for doubtful accounts of $1,488 (March 31, 2011 - $2,427)

     252,319        330,624   

Investment in films and television programs, net

     725,578        607,757   

Property and equipment, net

     8,442        9,089   

Equity method investments

     152,762        150,585   

Goodwill

     239,254        239,254   

Other assets

     55,428        46,322   

Assets held for sale

     35,403        44,336   
  

 

 

   

 

 

 

Total assets

   $ 1,600,004      $ 1,557,844   
  

 

 

   

 

 

 
LIABILITIES     

Senior revolving credit facility

   $ —        $ 69,750   

Senior secured second-priority notes

     430,978        226,331   

Accounts payable and accrued liabilities

     155,130        230,989   

Participations and residuals

     291,363        297,482   

Film obligations and production loans

     298,147        326,440   

Convertible senior subordinated notes and other financing obligations

     94,202        110,973   

Deferred revenue

     176,337        150,937   

Liabilities held for sale

     12,427        17,396   
  

 

 

   

 

 

 

Total liabilities

     1,458,584        1,430,298   
  

 

 

   

 

 

 

Commitments and contingencies

    
SHAREHOLDERS’ EQUITY     

Common shares, no par value, 500,000,000 shares authorized, 137,102,540 and 136,839,445 shares issued at June 30, 2011 and March 31, 2011, respectively

     644,716        643,200   

Accumulated deficit

     (501,982     (514,230

Accumulated other comprehensive loss

     (1,314     (1,424
  

 

 

   

 

 

 

Total shareholders’ equity

     141,420        127,546   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,600,004      $ 1,557,844   
  

 

 

   

 

 

 

See accompanying notes.

 

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Table of Contents

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

     Three Months
Ended
June  30,

2011
    Three Months
Ended
June  30,

2010
 
    

(Amounts in thousands,

except per share amounts)

 

Revenues

   $ 261,259      $ 326,584   

Expenses:

    

Direct operating

     139,358        157,581   

Distribution and marketing

     64,746        140,059   

General and administration

     27,922        64,719   

Depreciation and amortization

     1,234        1,603   
  

 

 

   

 

 

 

Total expenses

     233,260        363,962   
  

 

 

   

 

 

 

Operating income (loss)

     27,999        (37,378
  

 

 

   

 

 

 

Other expenses (income):

    

Interest expense

    

Contractual cash based interest

     11,715        10,091   

Amortization of debt discount (premium) and deferred financing costs

     4,620        4,452   
  

 

 

   

 

 

 

Total interest expense

     16,335        14,543   

Interest and other income

     (442     (387

Loss on extinguishment of debt

     531        —     
  

 

 

   

 

 

 

Total other expenses, net

     16,424        14,156   
  

 

 

   

 

 

 

Income (loss) before equity interests and income taxes

     11,575        (51,534

Equity interests income (loss)

     1,874        (11,707
  

 

 

   

 

 

 

Income (loss) before income taxes

     13,449        (63,241

Income tax provision

     1,201        827   
  

 

 

   

 

 

 

Net income (loss)

   $ 12,248      $ (64,068
  

 

 

   

 

 

 

Basic Net Income (Loss) Per Common Share

   $ 0.09      $ (0.54
  

 

 

   

 

 

 

Diluted Net Income (Loss) Per Common Share

   $ 0.09      $ (0.54
  

 

 

   

 

 

 

Weighted average number of common shares outstanding:

    

Basic

     137,011        118,226   

Diluted

     137,357        118,226   

See accompanying notes.

 

5


Table of Contents

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

 

                        Accumulated               
                        Other               
     Common Shares     Accumulated     Comprehensive     Comprehensive         
     Number      Amount     Deficit     Loss     Income      Total  
     (Amounts in thousands, except share amounts)  

Balance at March 31, 2011

     136,839,445       $ 643,200      $ (514,230   $ (1,424      $ 127,546   

Stock based compensation, net of withholding tax obligations of $918

     218,842         1,343               1,343   

Issuance of common shares to directors for services

     44,253         298               298   

May 2011 Repurchase - reduction of equity component of October 2004 2.9375%

              

Notes extinguished

        (125            (125

Comprehensive income

              

Net Income

          12,248        $ 12,248         12,248   

Foreign currency translation adjustments

            74        74         74   

Net unrealized gain on foreign exchange contracts

            36        36         36   
           

 

 

    

Comprehensive income

            $ 12,358      
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance at June 30, 2011

     137,102,540       $ 644,716      $ (501,982   $ (1,314      $ 141,420   
  

 

 

    

 

 

   

 

 

   

 

 

      

 

 

 

See accompanying notes.

 

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Table of Contents

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Three Months
Ended
June  30,

2011
    Three Months
Ended
June  30,

2010
 
     (Amounts in thousands)  

Operating Activities:

    

Net income (loss)

   $ 12,248      $ (64,068

Adjustments to reconcile net income (loss) to net cash used in operating activities:

    

Depreciation of property and equipment

     1,154        1,192   

Amortization of intangible assets

     80        411   

Amortization of films and television programs

     84,983        101,211   

Amortization of debt discount (premium) and deferred financing costs

     4,620        4,452   

Non-cash stock-based compensation

     2,261        22,196   

Loss on extinguishment of debt

     531        —     

Equity interests (income) loss

     (1,874     11,707   

Changes in operating assets and liabilities:

    

Restricted cash

     23,680        (17,071

Accounts receivable, net

     86,383        32,363   

Investment in films and television programs

     (201,776     (165,905

Other assets

     2,283        2,437   

Accounts payable and accrued liabilities

     (81,462     (1,542

Participations and residuals

     (5,162     (16,361

Film obligations

     2,260        636   

Deferred revenue

     25,332        25,409   
  

 

 

   

 

 

 

Net Cash Flows Used In Operating Activities

     (44,459     (62,933
  

 

 

   

 

 

 

Investing Activities:

    

Purchases of restricted investments

     —          (6,993

Proceeds from the sale of restricted investments

     —          6,995   

Buy-out of the earn-out associated with the acquisition of Debmar-Mercury, LLC

     —          (15,000

Investment in equity method investees

     (475     (22,030

Increase in loans receivable

     (1,500     —     

Purchases of property and equipment

     (411     (405
  

 

 

   

 

 

 

Net Cash Flows Used In Investing Activities

     (2,386     (37,433
  

 

 

   

 

 

 

Financing Activities:

    

Tax withholding requirements on equity awards

     (918     (1,497

Borrowings under senior revolving credit facility

     95,400        243,000   

Repayments of borrowings under senior revolving credit facility

     (165,150     (61,000

Borrowings under individual production loans

     48,466        13,737   

Repayment of individual production loans

     (78,595     (83,146

Production loan borrowings under Pennsylvania Regional Center credit facility

     —          494   

Production loan repayments under Pennsylvania Regional Center credit facility

     —          (246

Production loan borrowings under film credit facility

     7,711        3,118   

Production loan repayments under film credit facility

     (8,536     (419

Change in restricted cash collateral associated with financing activities

     —          (3,666

Proceeds from sale of senior secured second-priority notes, net of deferred financing costs

     192,396        —     

Repurchase of convertible senior subordinated notes

     (19,476     —     
  

 

 

   

 

 

 

Net Cash Flows Provided By Financing Activities

     71,298        110,375   
  

 

 

   

 

 

 

Net Change In Cash And Cash Equivalents

     24,453        10,009   

Foreign Exchange Effects on Cash

     168        (683

Cash and Cash Equivalents - Beginning Of Period

     86,419        69,242   
  

 

 

   

 

 

 

Cash and Cash Equivalents - End Of Period

   $ 111,040      $ 78,568   
  

 

 

   

 

 

 

See accompanying notes.

 

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Table of Contents

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. General

Nature of Operations

Lions Gate Entertainment Corp. (the “Company,” “Lionsgate,” “we,” “us” or “our”) is a leading global entertainment company with a strong and diversified presence in motion picture production and distribution, television programming and syndication, home entertainment, family entertainment, digital distribution and new channel platforms.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Lionsgate and all of its majority-owned and controlled subsidiaries.

The unaudited condensed consolidated financial statements have been prepared in accordance with United States (the “U.S.”) accounting principles generally accepted (“GAAP”) for interim financial information and the instructions to quarterly report on Form 10-Q under the 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 Company’s management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been reflected in these unaudited condensed consolidated financial statements. Operating results for the three months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ended March 31, 2012. The balance sheet at March 31, 2011 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, 2011.

Certain amounts presented for fiscal 2011 have been reclassified to conform to the fiscal 2012 presentation relating to the sale of Maple Pictures (see Note 12).

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The most significant estimates made by management in the preparation of the financial statements relate to ultimate revenue and costs for investment in films and television programs; estimates of sales returns and other allowances and provisions for doubtful accounts; fair value of assets and liabilities for allocation of the purchase price of companies acquired; income taxes and accruals for contingent liabilities; and impairment assessments for investment in films and television programs, property and equipment, equity investments, goodwill and intangible assets. Actual results could differ from such estimates.

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update relating to the presentation of other comprehensive income. The accounting update eliminates the option to present components of other comprehensive income as part of the statement of stockholders’ equity. Instead, Companies must report comprehensive income in either a single continuous statement of comprehensive income (which would contain the current income statement presentation followed by the components of other comprehensive income and a total amount for comprehensive income), or in two separate but consecutive statements. This guidance is effective for the Company’s fiscal year beginning April 1, 2012. The Company does not expect the guidance to have a material impact on its consolidated financial statements.

In May 2011, the FASB issued an accounting standard update related to fair value measurements and disclosures to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards. This guidance includes amendments that clarify the intent about the application of existing fair value measurement requirements, while other amendments change a principle or requirement for measuring fair value or

 

8


Table of Contents

for disclosing information about fair value measurements. Specifically, the guidance requires additional disclosures for fair value measurements that are based on significant unobservable inputs. The updated guidance is to be applied prospectively and is effective for the Company’s interim and annual periods beginning April 1, 2012. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

2. Restricted Cash

Restricted cash represents amounts held as collateral required under our revolving film credit facility, amounts that are contractually designated for certain theatrical marketing obligations, and approximately $14.0 million held in a trust to fund the Company’s cash severance obligations that would be due to certain executive officers should their employment be terminated “without cause” (as defined), in connection with a “change in control” of the Company (as defined in each of their respective employment contracts). For purposes of the employment agreements with such executive officers, a “change in control” occurred on June 30, 2010 when a certain shareholder became the beneficial owner of 33% or more of the Company’s common shares. Accordingly, the trust became irrevocable, and the Company may not withdraw any trust assets (other than once every six months in an amount that the trustee reasonably determines exceeds the remaining potential severance obligations), until any cash severance obligations that have become payable to the executives have been paid or the employment agreements with the executives expire or terminate without those obligations becoming payable.

3. Investment in Films and Television Programs

 

     June 30,
2011
     March 31,
2011
 
     (Amounts in thousands)  

Motion Picture Segment - Theatrical and Non-Theatrical Films

     

Released, net of accumulated amortization

   $ 240,163       $ 212,125   

Acquired libraries, net of accumulated amortization

     30,268         31,929   

Completed and not released

     42,310         47,347   

In progress

     243,987         170,372   

In development

     9,755         11,825   

Product inventory

     30,988         29,467   
  

 

 

    

 

 

 
     597,471         503,065   
  

 

 

    

 

 

 

Television Segment - Direct-to-Television Programs

     

Released, net of accumulated amortization

     77,647         92,290   

In progress

     47,640         10,206   

In development

     2,820         2,196   
  

 

 

    

 

 

 
     128,107         104,692   
  

 

 

    

 

 

 
   $ 725,578       $ 607,757   
  

 

 

    

 

 

 

The following table sets forth acquired libraries that represent titles released three years prior to the date of acquisition, and amortized over their expected revenue stream from acquisition date up to 20 years:

 

          Total      Remaining      Unamortized Costs      Unamortized Costs  
          Amortization      Amortization      June 30,      March 31,  

Acquired Library

   Acquisition Date    Period      Period      2011      2011  
          (In years)      (Amounts in thousands)  

Trimark Holdings

   October 2000      20.00         9.25       $ 2,740       $ 2,900   

Artisan Entertainment

   December 2003      20.00         12.50         26,861         28,348   

Lionsgate UK

   October 2005      20.00         14.25         667         681   
           

 

 

    

 

 

 

Total Acquired Libraries

            $ 30,268       $ 31,929   
           

 

 

    

 

 

 

The Company expects approximately 44% of completed films and television programs, net of accumulated amortization, will be amortized during the one-year period ending June 30, 2012. Additionally, the Company expects approximately 80% of completed and released films and television programs, net of accumulated amortization and excluding acquired libraries, will be amortized during the three-year period ending June 30, 2014.

 

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Table of Contents

4. Equity Method Investments

The carrying amount of significant equity method investments at June 30, 2011 and March 31, 2011 were as follows:

 

Equity Method Investee

   June 30,
2011
Ownership
Percentage
    June 30,
2011
     March 31,
2011
 
           (Amounts in thousands)  

Horror Entertainment, LLC (“FEARnet”)

     34.5   $ 2,865       $ 2,809   

NextPoint, Inc. (“Break Media”)

     42.0     12,977         14,293   

Roadside Attractions, LLC (“Roadside”)

     43.0     2,558         2,756   

Studio 3 Partners, LLC (“EPIX”)

     31.2     19,460         14,664   

TV Guide Network

     51.0     114,003         114,940   

Tiger Gate Entertainment Limited (“Tiger Gate”)

     45.9     899         1,123   
    

 

 

    

 

 

 
     $ 152,762       $ 150,585   
    

 

 

    

 

 

 

Equity interests in equity method investments in our unaudited condensed consolidated statements of operations represent our portion of the income or loss of our equity method investees based on our percentage ownership and the elimination of profits on sales to equity method investees. Equity interests in equity method investments for the three months ended June 30, 2011 and 2010 were as follows (income (loss)):

 

Equity Method Investee

   Three Months
Ended
June 30,
2011
    Three Months
Ended
June  30,

2010
 
     (Amounts in thousands)  

Horror Entertainment, LLC (“FEARnet”)

   $ 56      $ 513   

NextPoint, Inc. (“Break Media”)

     (1,316     (251

Roadside Attractions, LLC (“Roadside”)

     (39     86   

Studio 3 Partners, LLC (“EPIX”)

     4,796        (11,987

TV Guide Network

     (936     (1

Tiger Gate Entertainment Limited (“Tiger Gate”)

     (687     (67
  

 

 

   

 

 

 
   $ 1,874      $ (11,707
  

 

 

   

 

 

 

Horror Entertainment, LLC. Horror Entertainment, LLC (“FEARnet”), a multiplatform programming and content service provider of horror genre films operating under the branding of “FEARnet.” The Company licenses content to FEARnet for video-on-demand and broadband exhibition. The Company is recording its share of the FEARnet results on a one quarter lag and, accordingly, during the three months ended June 30, 2011, the Company recorded its share of the income earned by FEARnet for the three months ended March 31, 2011.

NextPoint, Inc. NextPoint, Inc. (“Break Media”), an online home entertainment service provider operating under the branding of “Break Media.” The Company is recording its share of the Break Media results on a one quarter lag and, accordingly, during the three months ended June 30, 2011, the Company recorded its share of losses incurred by Break Media for the three months ended March 31, 2011.

Roadside Attractions, LLC. Roadside Attractions, LLC (“Roadside”), an independent theatrical releasing company. The Company is recording its share of the Roadside results on a one quarter lag and, accordingly, during the three months ended June 30, 2011, the Company recorded its share of losses incurred by Roadside for the three months ended March 31, 2011.

Studio 3 Partners, LLC (“EPIX”). In April 2008, the Company formed a joint venture with Viacom Inc. (“Viacom”), its Paramount Pictures unit (“Paramount Pictures”) and Metro-Goldwyn-Mayer Studios Inc. (“MGM”) to create a premium television channel and subscription video-on-demand service named “EPIX”. The Company has invested $80.4 million through September 30, 2010, and no additional amounts have been funded since. The Company is recording its share of the joint venture results on a one quarter lag and, accordingly, during the three months ended June 30, 2011, the Company recorded its share of the net income earned by the joint venture for the three months ended March 31, 2011. EPIX expects to report net income of approximately $17 million for its quarter ended June 30, 2011, of which the Company’s pro rata share will be recorded in the quarter ended September 30, 2011.

The Company licenses certain of its theatrical releases and other films and television programs to EPIX. A portion of the profits of these licenses reflecting the Company’s ownership share in the venture are eliminated through an adjustment to the equity interest income (loss) of the venture. These profits are recognized as they are realized by the venture. For the three months ended June 30,

 

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2011, the Company recognized $35.2 million of revenue and $21.6 million of gross profit on the licensing of films to EPIX before eliminations. For the three months ended June 30, 2010, there was not a significant amount of revenue from the licensing of products to EPIX.

The following table presents summarized balance sheet data as of March 31, 2011 and December 31, 2010 for EPIX:

 

     March 31,
2011
     December 31,
2010
 
     (Amounts in thousands)  

Current assets

   $ 143,856       $ 117,835   

Non-current assets

   $ 95,293       $ 89,648   

Current liabilities

   $ 104,243       $ 105,303   

Non-current liabilities

   $ 15,219       $ 6,719   

The following table presents the summarized statement of operations for the three months ended March 31, 2011 and 2010 for EPIX and a reconciliation of the net income (loss) reported by EPIX to equity interest income (loss) recorded by the Company:

 

     Three Months
Ended
March 31,
2011
    Three Months
Ended
March 31,
2010
 
     (Amounts in thousands)  

Revenues

   $ 77,285      $ 295   

Expenses:

    

Operating expenses

     48,078        37,568   

Selling, general and administrative expenses

     5,097        5,089   
  

 

 

   

 

 

 

Operating income (loss)

     24,110        (42,363

Interest income

     3        1   
  

 

 

   

 

 

 

Net income (loss)

   $ 24,113      $ (42,362
  

 

 

   

 

 

 

Reconciliation of net income (loss) reported by EPIX to equity interest income (loss):

    

Net income (loss) reported by EPIX

   $ 24,113      $ (42,362

Ownership interest in EPIX

     31.15     31.15
  

 

 

   

 

 

 

Share of net income (loss)

     7,511        (13,196

Adjustments and eliminations of the Company’s share of profits on sales to EPIX

     (6,560     —     

Realization of the Company’s share of profits on sales to EPIX

     3,845        1,209   
  

 

 

   

 

 

 

Total equity interest income (loss) recorded

   $ 4,796      $ (11,987
  

 

 

   

 

 

 

TV Guide Network. The Company’s investment balance consists of common share units of $8.0 million and mandatorily redeemable preferred stock units of $106.0 million. On February 28, 2009, the Company purchased all of the issued and outstanding equity interests of TV Guide Network. The Company paid approximately $241.6 million for all of the equity interest of TV Guide Network. On May 28, 2009, the Company sold 49% of the Company’s interest in TV Guide Network (see Note 12).

The February 28, 2009 acquisition was accounted for as a purchase, with the results of operations of TV Guide Network included in the Company’s consolidated results from February 28, 2009 through May 27, 2009 when a portion of the entity was sold. Subsequent to the sale of TV Guide Network, and pursuant to the new accounting guidance on accounting for variable interest entities (“VIEs”) effective April 1, 2010, which the Company has retrospectively applied, the Company’s interest in TV Guide Network is being accounted for under the equity method of accounting. Accordingly, the Company’s portion of the loss incurred by TV Guide Network for the three months ended June 30, 2011 and 2010 is reflected in equity interest loss.

Investment in Mandatorily Redeemable Preferred Stock Units. The mandatorily redeemable preferred stock carries a dividend rate of 10% compounded annually and is mandatorily redeemable in May 2019 at the stated value plus the dividend return and any additional capital contributions less previous distributions. The mandatorily redeemable preferred stock units were initially recorded based on their estimated fair value, as determined using an option pricing model methodology. The mandatorily redeemable preferred stock units and the 10% dividend are being accreted up to its redemption amount over the ten-year period to the redemption date which is recorded as income within equity interest.

 

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The Company licenses certain films and/or television programs to TV Guide Network. A portion of the profits of these licenses reflecting the Company’s ownership share in the venture are eliminated through an adjustment to the equity interest loss of the venture. These profits are recognized as they are realized by the venture. For the three months ended June 30, 2011, the Company recognized $2.9 million of revenue and $0.9 million of gross profit on the licensing of television programs to TV Guide Network before eliminations. For the three months ended June 30, 2010, there was not a significant amount of revenue from the licensing of products to TV Guide Network.

The following table presents summarized balance sheet data as of June 30, 2011 and March 31, 2011 for TV Guide Network:

 

     June 30,
2011
     March 31,
2011
 
     (Amounts in thousands)  

Current assets

   $ 44,703       $ 43,497   

Non-current assets

   $ 259,150       $ 261,245   

Current liabilities

   $ 32,691       $ 32,126   

Non-current liabilities

   $ 39,904       $ 40,354   

Redeemable preferred stock

   $ 207,767       $ 200,724   

The following table presents the summarized statement of operations for the three months ended June 30, 2011 and 2010 for TV Guide Network and a reconciliation of the net loss reported by TV Guide Network to equity interest loss recorded by the Company:

 

     Three Months
Ended
June  30,

2011
    Three Months
Ended
June  30,

2010
 
     (Amounts in thousands)  

Revenues

   $ 28,260      $ 29,045   

Expenses:

    

Cost of services

     10,189        8,312   

Selling, marketing, and general and administration

     15,793        16,308   

Depreciation and amortization

     2,947        4,015   
  

 

 

   

 

 

 

Operating income (loss)

     (669     410   

Interest expense, net

     460        410   

Accretion of redeemable preferred stock units (1)

     7,042        6,598   
  

 

 

   

 

 

 

Total interest expense, net

     7,502        7,008   
  

 

 

   

 

 

 

Loss before income taxes

     (8,171     (6,598

Income tax expense

     —          2   
  

 

 

   

 

 

 

Net loss

   $ (8,171   $ (6,600
  

 

 

   

 

 

 

Reconciliation of net loss reported by TV Guide Network to equity interest loss:

    

Net loss reported by TV Guide Network

   $ (8,171   $ (6,600

Ownership interest in TV Guide Network

     51     51
  

 

 

   

 

 

 

Share of net loss

     (4,167     (3,366

Accretion of dividend and interest income on redeemable preferred stock units (1)

     3,592        3,365   

Adjustments and eliminations of the Company’s share of profits on sales to TV Guide Network

     (484     —     

Realization of the Company’s share of profits on sales to TV Guide Network

     123        —     
  

 

 

   

 

 

 

Total equity interest loss recorded

   $ (936   $ (1
  

 

 

   

 

 

 

 

(1) Accretion of mandatorily redeemable preferred stock units represents TV Guide Network’s 10% dividend and the amortization of discount on its mandatorily redeemable preferred stock units held by the Company and the 49% interest holder. The Company records 51% of this expense as income from the accretion of dividend and discount on mandatorily redeemable preferred stock units within equity interest loss.

Tiger Gate Entertainment Limited. Tiger Gate Entertainment Limited (“Tigergate”) is an operator of pay television channels and a distributor of television programming and action and horror films across Asia. The Company is recording its share of the joint venture

 

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results on a one quarter lag and, accordingly, during the three months ended June 30, 2011, the Company recorded its share of the loss incurred by the joint venture for the three months ended March 31, 2011. The Company funded an additional $0.5 million during the three months ended June 30, 2011.

5. Other Assets

The composition of the Company’s other assets is as follows as of June 30, 2011 and March 31, 2011:

 

     June 30,
2011
     March 31,
2011
 
     (Amounts in thousands)  

Deferred financing costs, net of accumulated amortization

   $ 24,888       $ 15,360   

Loans receivable

     20,237         18,433   

Prepaid expenses and other

     10,303         12,529   
  

 

 

    

 

 

 
   $ 55,428       $ 46,322   
  

 

 

    

 

 

 

Deferred Financing Costs. Deferred financing costs primarily include costs incurred in connection with (1) an amended senior revolving credit facility (see Note 6), (2) the issuance of the Senior Secured Second-Priority Notes (as defined herein, see Note 7) and (3) the issuance of the October 2004 2.9375% Notes, the February 2005 3.625% Notes and the April 2009 3.625% Notes (as defined herein, see Note 10) that are deferred and amortized to interest expense using the effective interest method.

Loans Receivable. The following table sets forth the Company’s loans receivable at June 30, 2011 and March 31, 2011:

 

     Interest Rate    June 30,
2011
     March 31,
2011
 
     (Amounts in thousands)  

Third-party producer

   3.0%    $ 8,840       $ 8,777   

NextPoint, Inc. (“Break Media”)

   5.25% - 20.0%      11,397         9,656   
     

 

 

    

 

 

 
      $ 20,237       $ 18,433   
     

 

 

    

 

 

 

Prepaid Expenses and Other. Prepaid expenses and other primarily include prepaid expenses and security deposits.

6. Senior Revolving Credit Facility

Outstanding Amount. At June 30, 2011, the Company had no borrowings outstanding (March 31, 2011 — $69.8 million).

Availability of Funds. At June 30, 2011, there was $325.0 million available (March 31, 2011 — $255.2 million). The senior revolving credit facility provides for borrowings and letters of credit up to an aggregate of $340 million. The availability of funds is limited by a borrowing base and also reduced by outstanding letters of credit which amounted to $15.0 million at June 30, 2011 (March 31, 2011 — $15.0 million).

Maturity Date. The senior revolving credit facility expires July 25, 2013.

Interest. As of June 30, 2011, the senior revolving credit facility bore interest of 2.5% over the “Adjusted LIBOR” rate (effective interest rate of 2.69% and 2.74% as of June 30, 2011 and March 31, 2011, respectively).

Commitment Fee. The Company is required to pay a quarterly commitment fee based upon 0.5% per annum on the total senior revolving credit facility of $340 million less the amount drawn.

Security. Obligations under the senior revolving credit facility are secured by collateral (as defined in the credit agreement) granted by the Company and certain subsidiaries of the Company, as well as a pledge of equity interests in certain of the Company’s subsidiaries.

Covenants. The senior revolving credit facility contains a number of affirmative and negative covenants that, among other things, require the Company to satisfy certain financial covenants and restrict the ability of the Company to incur additional debt, pay dividends and make distributions, make certain investments and acquisitions, repurchase its stock and prepay certain indebtedness, create liens, enter into agreements with affiliates, modify the nature of its business, enter into sale-leaseback transactions, transfer and sell material assets and merge or consolidate.

 

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Change in Control. Under the senior revolving credit facility, the Company may also be subject to an event of default upon a change in control (as defined in the senior revolving credit facility) which, among other things, includes a person or group acquiring ownership or control in excess of 50% (amended from 20% on June 22, 2010) of the Company’s common stock.

7. Senior Secured Second-Priority Notes

On October 21, 2009, Lions Gate Entertainment Inc. (“LGEI”), the Company’s wholly-owned subsidiary, issued $236.0 million aggregate principal amount of senior secured second-priority notes due 2016 (the “October 2009 Senior Notes”) in a private offering conducted pursuant to Rule 144A and Regulation S under the Securities Act.

On May 13, 2011, LGEI issued approximately $200.0 million aggregate principal amount of senior secured second-priority notes due 2016 (the “May 2011 Senior Notes,” and collectively with the October 2009 Senior Notes, the “Senior Notes”) in a private offering conducted pursuant to Rule 144A and Regulation S under the Securities Act. The May 2011 Senior Notes were issued pursuant a Supplemental Indenture among LGEI, the Company, the subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee. The Supplemental Indenture amended the indenture under the October 2009 Senior Notes to, among other things, enable LGEI to issue additional notes having the same terms as the October 2009 Senior Notes, except for the issue date, issue price and first interest payment, in an aggregate principal amount of up to $200.0 million.

Outstanding Amount. The outstanding amount is set forth in the tables below:

 

     June 30, 2011  
     Principal      Unamortized
Premium/
(Discount)
    Net Carrying
Amount
 
     (Amounts in thousands)  

Senior Secured Second-Priority Notes

       

October 2009 Senior Notes

   $ 236,000       $ (9,343   $ 226,657   

May 2011 Senior Notes

     200,000         4,321        204,321   
  

 

 

    

 

 

   

 

 

 
   $ 436,000       $ (5,022   $ 430,978   
  

 

 

    

 

 

   

 

 

 
     March 31, 2011  
     Principal      Unamortized
Discount
    Net Carrying
Amount
 
     (Amounts in thousands)  

Senior Secured Second-Priority Notes

       

October 2009 Senior Notes

   $ 236,000       $ (9,669   $ 226,331   
  

 

 

    

 

 

   

 

 

 

Maturity Date. The Senior Notes are due November 1, 2016.

Original Issue Discount/Premium. The October 2009 Senior Notes were issued by LGEI at an initial price of 95.222% (original issue discount — 4.778%) of the principal amount. The May 2011 Senior Notes were issued by LGEI at an initial price of 102.219% (original issue premium — 2.219%) of the principal amount, plus accrued interest thereon from May 1, 2011, resulting in gross proceeds of approximately $204.4 million and net proceeds of approximately $192.4 million after estimated fees and expenses, including $5.6 million paid in connection with the consent solicitation of holders of the October 2009 Senior Notes. The original issue discount/premium, interest and deferred financing costs are being amortized through November 1, 2016 using the effective interest method. As of June 30, 2011 the remaining amortization period was 5.3 years.

Interest. The Senior Notes pay interest semi-annually on May 1 and November 1 of each year at a rate of 10.25% per year.

Security. The Senior Notes are guaranteed on a senior secured basis by the Company, and certain wholly-owned subsidiaries of both the Company and LGEI. The Senior Notes are ranked junior in right of payment to the Company’s senior revolving credit facility, ranked equally in right of payment to the Company’s convertible senior subordinated notes, and ranked senior to any of the Company’s unsecured debt.

 

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Covenants. The Senior Notes contain certain restrictions and covenants that, subject to certain exceptions, limit the Company’s ability to incur additional indebtedness, pay dividends or repurchase the Company’s common shares, make certain loans or investments, and sell or otherwise dispose of certain assets subject to certain conditions, among other limitations.

8. Participations and Residuals

The Company expects approximately 74% of accrued participations and residuals will be paid during the one-year period ending June 30, 2012.

Theatrical Slate Participation

On May 29, 2009, the Company terminated its theatrical slate participation arrangement with Pride Pictures, LLC (“Pride”), an unrelated entity. Under the arrangement dated May 25, 2007 and amended on January 30, 2008 (the “Master Picture Purchase Agreement”), Pride contributed, in general, 50% of the Company’s production, acquisition, marketing and distribution costs of theatrical feature films and participated in a pro rata portion of the pictures’ net profits or losses similar to a co-production arrangement based on the portion of costs funded. In late 2008, the administrative agent for the senior lenders under Pride’s senior credit facility took the position, among others, that the senior lenders did not have an obligation to continue to fund under the senior credit facility because the conditions precedent to funding set forth in the senior credit facility could not be satisfied. The Company was not a party to the credit facility. Consequently, Pride did not purchase the pictures The Spirit, My Bloody Valentine 3-D and Madea Goes To Jail. Thereafter, on April 20, 2009, after failed attempts by the Company to facilitate a resolution, it gave FilmCo and Pride notice that LG Film Finance I, LLC (“FilmCo”), through Pride’s failure to make certain capital contributions, was in default of the Master Picture Purchase Agreement. On May 5, 2009, the representative for the Pride equity and the Pride mezzanine investor responded that the required amount was fully funded and that it had no further obligations to make any additional capital contributions. Consequently, on May 29, 2009, the Company gave notice of termination of the Master Picture Purchase Agreement. Since May 29, 2009, there have been no developments with respect to the arrangement. The Company will no longer receive financing as provided from the participation of Pride in its films.

Amounts provided from Pride are reflected as a participation liability. The difference between the ultimate participation expected to be paid to Pride and the amount provided by Pride is amortized as a charge to or a reduction of participation expense under the individual-film-forecast method.

At June 30, 2011, $17.4 million (March 31, 2011, $19.2 million) was payable to Pride and is included in participations and residuals in the unaudited condensed consolidated balance sheets.

Société Générale de Financement du Québec Filmed Entertainment Participation

On July 30, 2007, the Company entered into a four-year filmed entertainment slate participation agreement with Société Générale de Financement du Québec (“SGF”), the Québec provincial government’s investment arm. SGF will provide up to 35% of production costs of television and feature film productions produced in Québec for a four-year period for an aggregate participation of up to $140 million, and the Company will advance all amounts necessary to fund the remaining budgeted costs. The maximum aggregate of budgeted costs over the four-year period will be $400 million, including the Company’s portion, but no more than $100 million per year. In connection with this agreement, the Company and SGF will proportionally share in the proceeds derived from the productions after the Company deducts a distribution fee, recoups all distribution expenses and releasing costs, and pays all applicable third party participations and residuals.

Amounts provided from SGF are reflected as a participation liability. The difference between the ultimate participation expected to be paid to SGF and the amount provided by SGF is amortized as a charge to or a reduction of participation expense under the individual film forecast method. At June 30, 2011, $6.9 million (March 31, 2011, $7.1 million) was payable to SGF and is included in participations and residuals in the unaudited condensed consolidated balance sheets. Under the terms of the arrangement, $35 million was available through July 30, 2011. Of the $35 million available through July 30, 2011, $5.7 million was provided through June 30, 2011, and the remaining commitment expired on July 30, 2011.

 

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9. Film Obligations and Production Loans

 

     June 30,
2011
     March 31,
2011
 
     (Amounts in thousands)  

Film obligations

   $ 61,317       $ 58,681   

Production loans

     

Individual production loans

     151,725         181,829   

Pennsylvania Regional Center production loans

     65,500         65,500   

Film Credit Facility

     19,605         20,430   
  

 

 

    

 

 

 

Total film obligations and production loans

   $ 298,147       $ 326,440   
  

 

 

    

 

 

 

 

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The following table sets forth future nine-month and annual repayment of film obligations and production loans:

 

     Nine Months
Ended
March 31,
     Year Ended March 31,  
     2012      2013      2014      2015      2016      Thereafter      Total  
     (Amounts in thousands)  

Future annual repayment of Film Obligations and Production Loans recorded as of June 30, 2011

                    

Film obligations

   $ 28,124       $ 16,875       $ 13,766       $ 6,553       $ —         $ —         $ 65,318   

Production loans

                    

Individual production loans

     79,991         56,734         15,000         —           —           —           151,725   

Pennsylvania Regional Center production loans

     —           —           65,500         —           —           —           65,500   

Film Credit Facility

     12,486         7,119         —           —           —           —           19,605   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 120,601       $ 80,728       $ 94,266       $ 6,553       $ —         $ —         $ 302,148   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Less imputed interest on film obligations

                       (4,001
                    

 

 

 
                     $ 298,147   
                    

 

 

 

Film Obligations

Film obligations include minimum guarantees, which represent amounts payable for film rights that the Company has acquired and certain theatrical marketing obligations, which represent amounts received from third parties that are contractually committed for theatrical marketing expenditures associated with specific titles.

Individual Production Loans

Production loans represent individual loans for the production of film and television programs that the Company produces. Individual production loans have contractual repayment dates either at or near the expected completion date, with the exception of certain loans containing repayment dates on a longer term basis. Individual production loans of $106.7 million incur interest at rates ranging from 3.39% to 3.83%, and approximately $45.0 million of production loans are non-interest bearing.

Pennsylvania Regional Center

General. On April 9, 2008, the Company entered into a loan agreement with the Pennsylvania Regional Center, which provides for the availability of production loans up to $65,500,000 on a five-year term for use in film and television productions in the State of Pennsylvania. The amount that was borrowed was limited to approximately one half of the qualified production costs incurred in the State of Pennsylvania through the two-year period ended April 2010, and is subject to certain other limitations. Under the terms of the loan, for every dollar borrowed, the Company’s production companies are required (within a two-year period) to either create a specified number of jobs, or spend a specified amount in certain geographic regions in the State of Pennsylvania.

Outstanding Amount. At June 30, 2011, the Company had borrowings of $65.5 million (fair value — $62.4 million) (March 31, 2011 — $65.5 million (fair value — $62.0 million)).

Availability of Funds. At June 30, 2011, there were no amounts available under this agreement (March 31, 2011 — nil).

Maturity Date. All amounts borrowed under this loan agreement with the Pennsylvania Regional Center are due April 11, 2013, five years from the date that the Company began to borrow under this agreement.

Interest. Amounts borrowed under the agreement carry an interest rate of 1.5%, which is payable semi-annually.

Security. The loan is secured by a first priority security interest in the Company’s film library pursuant to an intercreditor agreement with the Company’s senior lender under the Company’s senior revolving credit facility. Pursuant to the terms of the Company’s senior revolving credit facility, the Company is required to maintain certain collateral equal to the loans outstanding plus 5% under this facility. Such collateral can consist of cash, cash equivalents or debt securities, including the Company’s convertible senior subordinated notes repurchased. As of June 30, 2011, $72.8 million principal value (fair value — $72.4 million) of the Company’s convertible senior subordinated notes repurchased in December 2009 (see Note 10) was held as collateral under the Company’s senior revolving credit facility (March 31, 2011 — $72.8 million principal value, $72.4 million fair value).

 

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Table of Contents

Film Credit Facility

On October 6, 2009, the Company entered into a revolving film credit facility agreement, as amended effective December 31, 2009 and June 22, 2010 (the “Film Credit Facility”), which provides for borrowings for the acquisition or production of motion pictures.

Outstanding Amount. At June 30, 2011, the Company had borrowings of $19.6 million (March 31, 2011 — $20.4 million).

Availability of Funds. Currently, the Film Credit Facility provides for total borrowings up to $130 million, subject to a borrowing base, which can vary based on the amount of sales contracts in place on pictures financed under the facility. The Film Credit Facility can be increased to $200 million if additional qualified lenders or financial institutions become a party to and provide a commitment under the facility.

Maturity Date. The Film Credit Facility has a maturity date of April 6, 2013. Borrowings under the Film Credit Facility are due the earlier of (a) nine months after delivery of each motion picture or (b) April 6, 2013.

Interest. As of June 30, 2011, the Film Credit Facility bore interest of 3.25% over the “LIBO” rate (as defined in the credit agreement). The weighted average interest rate on borrowings outstanding as of June 30, 2011 was 3.44% (March 31, 2011 — 3.49%).

Commitment Fee. The Company is required to pay a quarterly commitment fee of 0.75% per annum on the unused commitment under the Film Credit Facility.

Security. Borrowings under the Film Credit Facility are subject to a borrowing base calculation and are secured by interests in the related motion pictures, together with certain other receivables from other motion picture and television productions pledged by the Company, including a minimum pledge of such receivables of $25 million. Receivables pledged to the Film Credit Facility must be excluded from the borrowing base calculation under the Company’s senior revolving credit facility, as described in Note 6.

10. Convertible Senior Subordinated Notes and Other Financing Obligations

Accounting Method Description. The Company accounts for its convertible senior subordinated notes by separating the liability and equity components. The liability component is recorded at the date of issuance based on its fair value which is generally determined in a manner that will reflect an interest cost equal to the Company’s nonconvertible debt borrowing rate at the convertible senior subordinated notes issuance date. The amount of the proceeds less the amount recorded as the liability component is recorded as an addition to shareholders’ equity reflecting the equity component (i.e., conversion feature). The difference between the principal amount and the amount recorded as the liability component represents the debt discount. The carrying amount of the liability is accreted up to the principal amount through the amortization of the discount, using the effective interest method, to interest expense over the expected life of the note.

Outstanding Amount. The following table sets forth the convertible senior subordinated notes and other financing obligations outstanding at June 30, 2011 and March 31, 2011:

 

     June 30, 2011  
     Principal      Unamortized
Discount
    Net Carrying
Amount
 
     (Amounts in thousands)  

Convertible Senior Subordinated Notes

       

October 2004 2.9375% (Equity Component $47,955)

   $ 26,931       $ (491   $ 26,440   

February 2005 3.625% (Equity Component $50,855)

     23,470         (1,016     22,454   

April 2009 3.625% (Equity Component $16,085)

     66,581         (24,991     41,590   
  

 

 

    

 

 

   

 

 

 
   $ 116,982       $ (26,498     90,484   
  

 

 

    

 

 

   

Other financing obligations

          3,718   
       

 

 

 
        $ 94,202   
       

 

 

 

 

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Table of Contents
     March 31, 2011  
     Principal      Unamortized
Discount
    Net Carrying
Amount
 
     (Amounts in thousands)  

Convertible Senior Subordinated Notes

       

October 2004 2.9375% (Equity Component $48,080)

   $ 46,326       $ (1,598   $ 44,728   

February 2005 3.625% (Equity Component $50,855)

     23,470         (1,363     22,107   

April 2009 3.625% (Equity Component $16,085)

     66,581         (26,161     40,420   
  

 

 

    

 

 

   

 

 

 
   $ 136,377       $ (29,122     107,255   
  

 

 

    

 

 

   

Other financing obligations

          3,718   
       

 

 

 
        $ 110,973   
       

 

 

 

The following table sets forth future nine-month and annual contractual principal payment commitments under convertible senior subordinated notes as of June 30, 2011:

 

          Nine Months                                            
          Ended                                            
          March 31,      Year Ended March 31,  

Note

  

First Holder Redemption Date

   2012      2013      2014      2015      2016      Thereafter      Total  
          (Amounts in thousands)  

October 2004 2.9375% Notes

   October 2011    $ 26,931       $ —         $ —         $ —         $ —         $ —         $ 26,931   

February 2005 3.625% Notes

   March 2012      23,470         —           —           —           —           —           23,470   

April 2009 3.625% Notes

   March 2015      —           —           —           66,581         —           —           66,581   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
      $ 50,401       $ —         $ —         $ 66,581       $ —         $ —         $ 116,982   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The future repayment dates of the convertible senior subordinated notes represent the first redemption date by holder for each note respectively, as described above.

Interest Expense. The effective interest rate on the liability component and the amount of interest expense, which includes both the contractual interest coupon and amortization of the discount on the liability component, for the three months ended June 30, 2011 and 2010 are presented below.

 

     Three Months
Ended
June  30,

2011
     Three Months
Ended
June  30,

2010
 
     (Amounts in thousands)  

October 2004 2.9375% Convertible Senior Subordinated Notes:

     

Effective interest rate of liability component (9.65%)

     

Interest Expense

     

Contractual interest coupon

   $ 266       $ 808   

Amortization of discount on liability component and debt issuance costs

     616         1,717   
  

 

 

    

 

 

 
     882         2,525   

February 2005 3.625% Convertible Senior Subordinated Notes:

     

Effective interest rate of liability component (10.03%)

     

Interest Expense

     

Contractual interest coupon

     213         539   

Amortization of discount on liability component and debt issuance costs

     374         852   
  

 

 

    

 

 

 
     587         1,391   

April 2009 3.625% Convertible Senior Subordinated Notes:

     

Effective interest rate of liability component (17.26%)

     

Interest Expense

     

Contractual interest coupon

     603         603   

Amortization of discount on liability component and debt issuance costs

     1,175         987   
  

 

 

    

 

 

 
     1,778         1,590   

Total

     

Contractual interest coupon

     1,082         1,950   

Amortization of discount on liability component and debt issuance costs

     2,165         3,556   
  

 

 

    

 

 

 
   $ 3,247       $ 5,506   
  

 

 

    

 

 

 

 

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Table of Contents

Fiscal 2011 and 2012 Convertible Senior Subordinated Notes Transactions

May 2011 Repurchase of a Portion of October 2004 2.9375% Notes: In May 2011, LGEI paid $19.5 million to repurchase $19.4 million of aggregate principal amount (carrying value — $18.9 million) of the 2.9375% Convertible Senior Subordinated Notes (the “October 2004 2.9375% Notes”). The Company recorded a loss on extinguishment in the quarter ended June 30, 2011 of $0.5 million, which includes $0.1 million of deferred financing costs written off. The loss represented the excess of the fair value of the liability component of the October 2004 2.9375% Notes repurchased over their carrying values, plus the deferred financing costs written off. The amount of consideration recorded as a reduction of shareholders’ equity represents the equity component of the October 2004 2.9375% Notes repurchased.

July 20, 2010 Refinancing Exchange Agreement: On July 20, 2010, the Company entered into a Refinancing Exchange Agreement to exchange approximately $36.0 million in aggregate principal amount of the 3.625% Convertible Senior Subordinated Notes (the “February 2005 3.625% Notes”) and approximately $63.7 million in aggregate principal amount of the October 2004 2.9375% Notes for equal principal amounts, respectively, of new 3.625% Convertible Senior Subordinated Notes due 2027 (the “New 3.625% Notes”) and new 2.9375% Convertible Senior Subordinated Notes due 2026 (the “New 2.9375% Notes”, and together with the New 3.625% Notes, the “New Notes”). The New Notes took effect immediately and all terms were identical to the February 2005 3.625% Notes and October 2004 2.9375% Notes except that the New Notes had an extended maturity date, extended put rights by two years, and were immediately convertible at an initial conversion rate of 161.2903 common shares of the Company per $1,000 principal amount of New Notes (conversion price per share of $6.20), subject to specified contingencies.

On July 20, 2010, the New Notes were converted into 16,236,305 common shares of the Company. As a result, the New Notes are no longer outstanding as of July 20, 2010.

As a result of the exchange transaction and related conversion, the Company recorded a non-cash loss on extinguishment of debt of $14.5 million during the quarter ended September 30, 2010, which includes the write-off of $0.6 million of unamortized deferred financing costs, an increase to common shares equity of $106.0 million and reduction in the carrying amount of the old notes of approximately $91.2 million. The loss represented the excess of the fair value of the common stock issuable pursuant to conversion terms contained in the New Notes as compared to the fair value of the Company’s common stock issuable pursuant to the conversion terms of the old notes, partially offset by the excess of the carrying amount of the debt extinguished over the fair value of the Company’s common stock issuable pursuant to the conversion terms of the old notes.

Convertible Senior Subordinated Notes Terms

October 2004 2.9375% Notes. In October 2004, LGEI sold $150.0 million of the October 2004 2.9375% Notes.

Outstanding Amount: As of June 30, 2011, $26.9 million of aggregate principal amount (carrying value — $26.4 million) of the October 2004 2.9375% Notes remain outstanding.

Interest: Interest on the October 2004 2.9375% Notes is payable semi-annually on April 15 and October 15.

Maturity Date: The October 2004 2.9375% Notes mature on October 15, 2024.

Redeemable by LGEI: From October 15, 2010 to October 14, 2011, LGEI may redeem the October 2004 2.9375% Notes at 100.420%, and, thereafter, LGEI may redeem the October 2004 2.9375% Notes at 100%.

Redeemable by Holder: The holder may require LGEI to repurchase the October 2004 2.9375% Notes on October 15, 2011, 2014 and 2019 or upon a change in control at a price equal to 100% of the principal amount, together with accrued and unpaid interest through the date of repurchase.

Conversion Features: The holder may convert the October 2004 2.9375% Notes into the Company’s common shares prior to maturity only if the price of the Company’s common shares issuable upon conversion of a note reaches or falls below a certain specific threshold over a specified period, the notes have been called for redemption, a change in control occurs or certain other corporate transactions occur. Before the close of business on or prior to the trading day immediately before the maturity date, the holder may convert the notes into the Company’s common shares at a conversion rate equal to 86.9565 shares per $1,000 principal

 

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amount of the October 2004 2.9375% Notes, subject to adjustment in certain circumstances, which represents a conversion price of approximately $11.50 per share. Upon conversion of the October 2004 2.9375% Notes, the Company has the option to deliver, in lieu of common shares, cash or a combination of cash and common shares of the Company.

Make Whole Premium: Under certain circumstances, if the holder requires LGEI to repurchase all or a portion of their notes or the holder converts the notes upon a change in control, they will be entitled to receive a make whole premium. The amount of the make whole premium, if any, will be based on the price of the Company’s common shares on the effective date of the change in control. No make whole premium will be paid if the price of the Company’s common shares at such time is less than $8.79 per share or exceeds $50.00 per share.

February 2005 3.625% Notes. In February 2005, LGEI sold $175.0 million of 3.625% Convertible Senior Subordinated Notes (the “February 2005 3.625% Notes”).

Outstanding Amount: As of June 30, 2011, $23.5 million of aggregate principal amount (carrying value — $22.5 million) of the February 2005 3.625% Notes remain outstanding.

Interest: Interest on the February 2005 3.625% Notes is payable at 3.625% per annum semi-annually on March 15 and September 15 until March 15, 2012 and at 3.125% per annum thereafter until maturity.

Maturity Date: The February 2005 3.625% Notes will mature on March 15, 2025.

Redeemable by LGEI: LGEI may redeem all or a portion of the February 2005 3.625% Notes at its option on or after March 15, 2012 at 100% of their principal amount, together with accrued and unpaid interest through the date of redemption.

Redeemable by Holder: The holder may require LGEI to repurchase the February 2005 3.625% Notes on March 15, 2012, 2015 and 2020 or upon a change in control at a price equal to 100% of the principal amount, together with accrued and unpaid interest through the date of repurchase.

Conversion Features: The February 2005 3.625% Notes are convertible, at the option of the holder, at any time before the maturity date, if the notes have not been previously redeemed or repurchased, at a conversion rate equal to 70.0133 shares per $1,000 principal amount of the February 2005 3.625% Notes, subject to adjustment in certain circumstances, which represents a conversion price of approximately $14.28 per share. Upon conversion of the February 2005 3.625% Notes, the Company has the option to deliver, in lieu of common shares, cash or a combination of cash and common shares of the Company.

Make Whole Premium: Under certain circumstances, if the holder requires LGEI to repurchase all or a portion of their notes upon a change in control, they will be entitled to receive a make whole premium. The amount of the make whole premium, if any, will be based on the price of the Company’s common shares on the effective date of the change in control. No make whole premium will be paid if the price of the Company’s common shares at such time is less than $10.35 per share or exceeds $75.00 per share.

April 2009 3.625% Notes. In April 2009, LGEI issued approximately $66.6 million of 3.625% Convertible Senior Subordinated Notes (the “April 2009 3.625% Notes”).

Outstanding Amount: As of June 30, 2011, $66.6 million of aggregate principal amount (carrying value — $41.6 million) of the April 2009 3.625% Notes remain outstanding.

Interest: Interest on the April 2009 3.625% Notes is payable at 3.625% per annum semi-annually on March 15 and September 15 of each year.

Maturity Date: The April 2009 3.625% Notes will mature on March 15, 2025.

Redeemable by LGEI: On or after March 15, 2015, the Company may redeem the April 2009 3.625% Notes, in whole or in part, at a price equal to 100% of the principal amount of the April 2009 3.625% Notes to be redeemed, plus accrued and unpaid interest through the date of redemption.

 

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Redeemable by Holder: The holder may require LGEI to repurchase the April 2009 3.625% Notes on March 15, 2015, 2018 and 2023 or upon a “designated event,” at a price equal to 100% of the principal amount of the April 2009 3.625% Notes to be repurchased plus accrued and unpaid interest.

Conversion Features: The April 2009 3.625% Notes may be converted into common shares of the Company at any time before maturity, redemption or repurchase. The initial conversion rate of the April 2009 3.625% Notes is 121.2121 common shares per $1,000 principal amount of the April 2009 3.625% Notes, subject to adjustment in certain circumstances, which represents a conversion price of approximately $8.25 per share. Upon conversion of the April 2009 3.625% Notes, the Company has the option to deliver, in lieu of common shares, cash or a combination of cash and common shares of the Company.

Make Whole Premium: Under certain circumstances, if the holder requires LGEI to repurchase all or a portion of their notes upon a change in control, they will be entitled to receive a make whole premium. The amount of the make whole premium, if any, will be based on the price of the Company’s common shares on the effective date of the change in control. No make whole premium will be paid if the price of the Company’s common shares at such time is less than $5.36 per share or exceeds $50.00 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.

 

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Table of Contents

11. Fair Value Measurements

Fair Value

Accounting guidance and standards about fair value define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Fair Value Hierarchy

Accounting guidance and standards about fair value establish a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The accounting guidance and standards establish three levels of inputs that may be used to measure fair value:

 

   

Level 1 — Quoted prices in active markets for identical assets or liabilities.

 

   

Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 liabilities that are measured at fair value on a recurring basis include the Company’s senior revolving credit facility, convertible senior subordinated notes, Pennsylvania Regional Center loan, and Senior Notes, which are priced using discounted cash flow techniques that use observable market inputs, such as LIBOR-based yield curves, three- and seven-year swap rates, and credit ratings.

 

   

Level 3 — Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

The following table sets forth the carrying values and fair values (all determined using Level 2 inputs defined above) of the Company’s outstanding debt at June 30, 2011:

 

     Carrying
Value
     Fair Value  
            (Level 2)  
     (Amounts in thousands)  

October 2004 2.9375% Convertible Senior Subordinated Notes

   $ 26,440       $ 27,002   

February 2005 3.625% Convertible Senior Subordinated Notes

     22,454         23,326   

April 2009 3.625% Convertible Senior Subordinated Notes

     41,590         60,220   

Pennsylvania Regional Center Loan

     65,500         62,441   

Senior Secured Second-Priority Notes

     430,978         439,270   
  

 

 

    

 

 

 
   $ 586,962       $ 612,259   
  

 

 

    

 

 

 

12. Acquisitions and Divestitures

Maple Pictures

On June 23, 2011, the Company executed an agreement to sell its interest in Maple Pictures Corp. (“Maple Pictures”) to Alliance Films Holdings Inc. (“Alliance”), a leading Canadian producer and distributor of motion pictures, television programming and home entertainment. The sales price was approximately $34.5 million, net of an estimated working capital adjustment, which is subject to further adjustments subsequent to the closing of the transaction.

Alliance will be responsible for all of Maple Pictures’ distribution, including Maple Pictures’ exclusive five-year output deal for Canadian distribution of the Company’s new motion picture and second window television product and Maple Pictures’ exclusive long-term arrangement for distribution of Canadian rights of the Company’s filmed entertainment library (ie. distribution rights). The purchase price will be allocated between the fair value of the distribution rights and the fair value of Maple Pictures exclusive of the distribution rights. The fair value of the distribution rights will be recorded as deferred revenue and will be recognized as revenue by the Company as the revenues are earned pursuant to the distribution rights. The fair value of Maple Pictures exclusive of the distribution rights will be recorded as proceeds from sale.

 

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Table of Contents

The sale will be treated as the disposal of an asset group rather than a discontinued operation because, due to the distribution rights, the Company will have continuing involvement in the cash flows generated pursuant to the distribution rights.

Maple Pictures is included in the Company’s Motion Pictures reporting segment. A portion of Motion Pictures goodwill, which is not expected to be significant, will be allocated to the asset group and included in the carrying value of the assets disposed upon closing of the transaction. The assets and liabilities are classified as held for sale in the unaudited condensed consolidated balance sheets and are recorded at their carrying value, which is lower than their fair value less cost to sell. At June 30, 2011, the carrying value of the Maple Pictures assets sold pursuant to the agreement are set forth in the table below:

 

     June 30,
2011
    March 31,
2011
 
     (Amounts in thousands)  

Accounts receivable, net

   $ 21,404      $ 29,197   

Investment in films and television programs, net

     12,530        13,531   

Other assets

     1,469        1,608   

Liabilities

     (12,427     (17,396
  

 

 

   

 

 

 

Net assets and liabilities held for sale

     22,976        26,940   

Participations payable to Lionsgate (1)

     (24,929     (30,576
  

 

 

   

 

 

 

Carrying value of Maple Pictures

   $ (1,953   $ (3,636
  

 

 

   

 

 

 

 

(1) Participation liabilities payable to the Company, which are eliminated in the consolidated financial statements.

TV Guide Network

Acquisition of TV Guide Network. On February 28, 2009, the Company purchased all of the issued and outstanding equity interests of TV Guide Network and TV Guide.com (collectively “TV Guide Network”), a network and online provider of entertainment and television guidance-related programming, as well as localized program listings and descriptions primarily in the U.S. The Company paid approximately $241.6 million for all of the equity interest of TV Guide Network, which included a capital lease obligation of $12.1 million, and incurred approximately $1.5 million in direct transaction costs (legal fees, accountant’s fees and other professional fees).

Sale of Non-Controlling Interest in TV Guide Network. On May 28, 2009, the Company entered into a purchase agreement with One Equity Partners (“OEP”), the global private equity investment arm of JPMorgan Chase Bank, N.A., pursuant to which OEP purchased 49% of the Company’s interest in TV Guide Network for approximately $122.4 million in cash. In addition, OEP reserved the option of buying another 1% of TV Guide Network under certain circumstances. The arrangement contains joint control rights, as evidenced in an operating agreement as well as certain transfer restrictions and exit rights. There was no gain or loss on the transaction.

The February 28, 2009 acquisition was accounted for as a purchase, with the results of operations of TV Guide Network included in the Company’s consolidated results from February 28, 2009 through May 27, 2009. Subsequent to the sale of TV Guide Network, and pursuant to the new accounting guidance on accounting for VIEs effective April 1, 2010, which the Company has retrospectively applied, the Company’s interest in TV Guide Network is being accounted for under the equity method of accounting (see Note 4).

Acquisition of Mandate Pictures, LLC

On September 10, 2007, the Company purchased all of the membership interests in Mandate Pictures, LLC (“Mandate”), a worldwide independent film producer and distributor. The Company paid approximately $58.6 million, comprised of $46.8 million in cash and 1,282,999 of the Company’s common shares. The value assigned to the shares for purposes of recording the acquisition was $11.8 million and was based on the average price of the Company’s common shares a few days prior and subsequent to the date of the closing of the acquisition, which is when it was publicly announced.

In addition, the Company may be obligated to pay additional amounts pursuant to the purchase agreement should certain films or derivative works meet certain target performance thresholds. Such amounts, to the extent they relate to films or derivative works of

 

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Table of Contents

films identified at the acquisition date will be charged to goodwill if the target thresholds are achieved, and such amounts, to the extent they relate to other qualifying films produced in the future, will be accounted for similar to other film participation arrangements. The amount to be paid is the excess of the sum of the following amounts over the performance threshold (i.e., the “Hurdle Amount”):

 

   

80% of the earnings of certain films for the longer of 5 years from the closing or 5 years from the release of the pictures, plus

 

   

20% of the earnings of certain pictures which commence principal photography within 5 years from the closing date for a period up to 10 years, plus

 

   

certain fees designated for derivative works which commence principal photography within 7 years of the initial release of the original picture.

The Hurdle Amount is the purchase price of approximately $56 million plus an interest cost accruing until such hurdle is reached, and certain other costs the Company agreed to pay in connection with the acquisition. Accordingly, the additional consideration is the total of the above in excess of the Hurdle Amount. As of June 30, 2011, the total earnings and fees from identified projects in process are not projected to reach the Hurdle Amount. However, as additional projects are identified in the future and current projects are released in the market place, the total projected earnings and fees from these projects could increase causing additional payments to the sellers to become payable.

13. Direct Operating Expenses

 

     Three Months
Ended

June  30,
2011
    Three Months
Ended
June  30,

2010
 
     (Amounts in thousands)  

Amortization of films and television programs

   $ 84,983      $ 101,211   

Participations and residual expense

     55,136        56,375   

Other expenses:

    

Provision for doubtful accounts

     (418     316   

Foreign exchange gains

     (343     (321
  

 

 

   

 

 

 
   $ 139,358      $ 157,581   
  

 

 

   

 

 

 

14. Comprehensive Income (Loss)

 

     Three Months
Ended
June  30,

2011
     Three Months
Ended
June  30,

2010
 
     (Amounts in thousands)  

Net income (loss)

   $ 12,248       $ (64,068

Add (Deduct): Foreign currency translation adjustments

     74         (2,047

Add (Deduct): Net unrealized gain (loss) on foreign exchange contracts

     36         (830
  

 

 

    

 

 

 

Comprehensive income (loss)

   $ 12,358       $ (66,945
  

 

 

    

 

 

 

 

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Table of Contents

15. Net Income (Loss) Per Share

Basic net income (loss) per share is calculated based on the weighted average common shares outstanding for the period. Basic net income (loss) per share for the three months ended June 30, 2011 and 2010 is presented below:

 

     Three Months
Ended
June  30,

2011
     Three Months
Ended
June  30,

2010
 
     (Amounts in thousands)  

Basic Net Income (Loss) Per Common Share:

     

Numerator:

     

Net income (loss)

   $ 12,248       $ (64,068
  

 

 

    

 

 

 

Denominator:

     

Weighted average common shares outstanding

     137,011         118,226   
  

 

 

    

 

 

 

Basic Net Income (Loss) Per Common Share

   $ 0.09       $ (0.54
  

 

 

    

 

 

 

Diluted net income (loss) per common share reflects the potential dilutive effect, if any, of the conversion of the October 2004 2.9375% Notes, the February 2005 3.625% Notes and the April 2009 3.625% Notes under the “if converted” method. Diluted net income (loss) per common share also reflects share purchase options and restricted share units using the treasury stock method when dilutive, and any contingently issuable shares when dilutive. Diluted net income (loss) per common share for the three months ended June 30, 2011 and 2010 is presented below:

 

     Three Months
Ended
June  30,

2011
     Three Months
Ended
June  30,

2010
 
     (Amounts in thousands)  

Diluted Net Income (Loss) Per Common Share:

     

Numerator:

     

Net income (loss)

   $ 12,248       $ (64,068
  

 

 

    

 

 

 

Denominator:

     

Weighted average common shares outstanding

     137,011         118,226   

Effect of dilutive securities:

     

Share purchase options

     2         —     

Restricted share units

     344         —     
  

 

 

    

 

 

 

Adjusted weighted average common shares outstanding

     137,357         118,226   
  

 

 

    

 

 

 

Diluted Net Income (Loss) Per Common Share

   $ 0.09       $ (0.54
  

 

 

    

 

 

 

For the three months ended June 30, 2010, the weighted average incremental common shares calculated under the “if converted” and treasury stock method presented below were excluded from diluted net loss per common share for the period because their inclusion would have had an anti-dilutive effect as a result of the reported net losses.

 

     Three Months Ended
June 30,

2010
 
     (Amounts in thousands)  

Incremental shares

  

Conversion of notes

     21,802   

Restricted share units

     1,667   
  

 

 

 

Total incremental shares excluded from Diluted Net Loss Per Common Share

     23,469   
  

 

 

 

Additionally, for the three months ended June 30, 2011 and 2010, the weighted average common shares issuable presented below were excluded from diluted net income (loss) per common share because their inclusion would have had an anti-dilutive effect due to either their award terms or the market price of common shares.

 

26


Table of Contents
     Three Months
Ended
June  30,

2011
     Three Months
Ended
June  30,

2010
 
     (Amounts in thousands)  

Anti-dilutive shares issuable

     

Conversion of notes

     12,833         —     

Share purchase options

     3,250         3,331   

Restricted share units

     55         216   

Contingently issuable shares

     369         180   
  

 

 

    

 

 

 

Total weighted average anti-dilutive shares issuable excluded from Diluted

     

Net Income (Loss) Per Common Share

     16,507         3,727   
  

 

 

    

 

 

 

 

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Table of Contents

The Company had 500,000,000 authorized common shares at June 30, 2011 and March 31, 2011. The table below outlines common shares reserved for future issuance:

 

     June 30,
2011
     March 31,
2011
 
     (Amounts in thousands)  

Stock options outstanding, average exercise price $9.75 (March 31, 2011 - $9.75)

     3,310         3,310   

Restricted share units — unvested

     1,793         1,801   

Share purchase options and restricted share units available for future issuance

     3,598         3,683   

Shares issuable upon conversion of October 2004 2.9375% Notes at conversion price of $11.50 per share

     2,342         4,028   

Shares issuable upon conversion of February 2005 3.625% Notes at conversion price of $14.28 per share

     1,643         1,643   

Shares issuable upon conversion of April 2009 3.625% Notes at conversion price of $8.25 per share

     8,070         8,070   
  

 

 

    

 

 

 

Shares reserved for future issuance

     20,756         22,535   
  

 

 

    

 

 

 

16. Accounting for Stock-Based Compensation

The Company recognized the following share-based compensation expense during the three months ended June 30, 2011 and 2010:

 

     Three Months
Ended
June  30,

2011
     Three Months
Ended
June  30,

2010
 
     (Amounts in thousands)  

Compensation Expense:

     

Stock Options

   $ 31       $ 2,527   

Restricted Share Units and Other Share-based Compensation

     2,230         19,669   

Stock Appreciation Rights

     345         5,062   
  

 

 

    

 

 

 

Total

   $ 2,606       $ 27,258   
  

 

 

    

 

 

 

On June 30, 2010, certain unvested equity awards of certain executive officers immediately vested as a result of the triggering of “change in control” provisions in their respective employment agreements. For purposes of the employment agreements with such executive officers, a “change in control” occurred on June 30, 2010 when a certain shareholder became the beneficial owner of 33% or more of the Company’s common shares. As a result, the Company recognized $21.9 million in additional compensation expense during the three months ended June 30, 2010, which is included in the table above.

There was no income tax benefit recognized in the statements of operations for share-based compensation arrangements during the three months ended June 30, 2011 and 2010.

During the three months ended June 30, 2011, the Company granted 312,635 restricted share units at a weighted average grant date fair value of $6.36.

Total unrecognized compensation cost related to unvested stock options and restricted share unit awards at June 30, 2011 are $0.2 million and $7.7 million, respectively, and are expected to be recognized over a weighted average period of 1.1 and 1.6 years, respectively.

Stock Appreciation Rights

The Company has the following stock appreciation rights (“SARs”) outstanding as of June 30, 2011:

 

     Grant Date  
     July 14,
2008
     August 14,
2008
     February 5,
2009
     April 6,
2009
     March 17,
2010
     February 15,
2011
 

SARs outstanding

     750,000         250,000         850,000         700,000         500,000         1,000,000   

Vested and exercisable

     750,000         250,000         850,000         700,000         500,000         333,333   

Exercise price

   $ 9.56       $ 11.16       $ 5.45       $ 5.17       $ 5.95       $ 6.13   

Original vesting period (see below)

     3 years         4 years         3 years         4 years         4 years         3 years   

Expiration date

    
 
July 14,
2013
  
  
    
 
June 20,
2012
  
  
    
 
February 5,
2014
  
  
    
 
April 6,
2014
  
  
    
 
March 17,
2015
  
  
    
 
February 15,
2016
  
  

Fair value as of June 30, 2011

   $ 0.89       $ 0.23       $ 2.41       $ 2.59       $ 2.57       $ 2.79   

Liability as of June 30, 2011 (in thousands)

   $ 671       $ 56       $ 2,047       $ 1,813       $ 1,284       $ 1,096   

At June 30, 2011, the Company has a stock-based compensation liability accrual in the amount of $7.0 million (March 31, 2011 — $6.1 million) included in accounts payable and accrued liabilities on the unaudited condensed consolidated balance sheets relating to these SARs.

 

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On June 30, 2010, the SARs granted on February 5, 2009, April 6, 2009 and March 17, 2010 became fully vested due to the triggering of the “change in control” provisions in certain executive officer employment agreements discussed above.

On February 15, 2011, the Company granted an additional 1,000,000 SARs to a third party producer, which vest in 333,333 SAR increments over a three-year period based on the commencement of principal photography of certain films.

SARs require that upon their exercise, the Company pay the holder the excess of the market value of the Company’s common stock at that time over the exercise price of the SAR multiplied by the number of SARs exercised. SARs can be exercised at any time subsequent to vesting and prior to expiration. The fair value of all unexercised SARs are determined at each reporting period under a Black-Scholes option pricing methodology based on the inputs in the table below and are recorded as a liability over the vesting period. With the exception of the SARs granted on July 14, 2008 and February 15, 2011, the fair value of the SARs is expensed on a pro rata basis over the vesting period or service period, if shorter. Changes in the fair value of vested SARs are expensed in the period of change. SARs granted on July 14, 2008 and February 15, 2011 were granted to a third party producer and vest in 250,000 and 333,333 SAR increments, respectively, over a three-year period based on the commencement of principal photography of certain films. Accordingly, the pro rata portion of the fair value of SARs is recorded as part of the cost of the related films until commencement of principal photography of the motion picture (i.e., vesting) with subsequent changes in the fair value of SARs recorded to expense.

For the three months ended June 30, 2011, the following assumptions were used in the Black-Scholes option-pricing model:

 

     Grant Date  
     July 14, 2008     August 14, 2008     February 5, 2009     April 6, 2009     March 17, 2010     February 15, 2011  

Risk-free interest rate

     0.5     0.2     0.8     0.8     1.3     1.8

Expected option lives (in years)

     2.0 years        1.0 year        2.6 years        2.8 years        3.7 years        4.6 years   

Expected volatility for options

     45     45     45     45     45     45

Expected dividend yield

     0     0     0     0     0     0

17. Segment Information

Accounting guidance requires the Company to make certain disclosures about each reportable segment. The Company’s 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 has two reportable business segments as of June 30, 2011: Motion Pictures and Television Production.

Motion Pictures consists of the development and production of feature films, acquisition of North American and worldwide distribution rights, North American theatrical, home entertainment and television distribution of feature films produced and acquired, and worldwide licensing of distribution rights to feature films produced and acquired.

Television Production consists of the development, production and worldwide distribution of television productions including television series, television movies and mini-series and non-fiction programming.

 

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Table of Contents

Segmented information by business unit is as follows:

 

     Three Months
Ended
June  30,

2011
     Three Months
Ended
June  30,

2010
 
     (Amounts in thousands)  

Segment revenues

     

Motion Pictures

   $ 192,517       $ 272,713   

Television Production

     68,742         53,871   
  

 

 

    

 

 

 
   $ 261,259       $ 326,584   
  

 

 

    

 

 

 

Direct operating expenses

     

Motion Pictures

   $ 86,187       $ 114,235   

Television Production

     53,171         43,346   
  

 

 

    

 

 

 
   $ 139,358       $ 157,581   
  

 

 

    

 

 

 

Distribution and marketing

     

Motion Pictures

   $ 59,099       $ 135,514   

Television Production

     5,647         4,545   
  

 

 

    

 

 

 
   $ 64,746       $ 140,059   
  

 

 

    

 

 

 

Segment contribution before general and administration expenses

     

Motion Pictures

   $ 47,231       $ 22,964   

Television Production

     9,924         5,980   
  

 

 

    

 

 

 
   $ 57,155       $ 28,944   
  

 

 

    

 

 

 

General and administration

     

Motion Pictures

   $ 12,185       $ 11,610   

Television Production

     2,672         3,074   
  

 

 

    

 

 

 
   $ 14,857       $ 14,684   
  

 

 

    

 

 

 

Segment profit

     

Motion Pictures

   $ 35,046       $ 11,354   

Television Production

     7,252         2,906   
  

 

 

    

 

 

 
   $ 42,298       $ 14,260   
  

 

 

    

 

 

 

Acquisition of investment in films and television programs

     

Motion Pictures

   $ 150,607       $ 107,072   

Television Production

     51,169         58,833   
  

 

 

    

 

 

 
   $ 201,776       $ 165,905   
  

 

 

    

 

 

 

Segment contribution before general and administration expenses is defined as segment revenue less segment direct operating and distribution and marketing expenses.

 

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Segment profit is defined as segment revenue less segment direct operating, distribution and marketing, and general and administration expenses. The reconciliation of total segment profit to the Company’s income (loss) before income taxes is as follows:

 

     Three Months
Ended
June  30,

2011
    Three Months
Ended
June  30,

2010
 
     (Amounts in thousands)  

Company’s total segment profit

   $ 42,298      $ 14,260   

Less:

    

Shared services and corporate expenses (1)

     (13,065     (50,035

Depreciation and amortization

     (1,234     (1,603

Interest expense

     (16,335     (14,543

Interest and other income

     442        387   

Loss on extinguishment of debt

     (531     —     

Equity interests income (loss)

     1,874        (11,707
  

 

 

   

 

 

 

Income (loss) before income taxes

   $ 13,449      $ (63,241
  

 

 

   

 

 

 

 

(1) Includes stock-based compensation expense of $2.6 million and $27.3 million for the three months ended June 30, 2011 and 2010, respectively. During the three months ended June 30, 2010 the Company incurred $21.9 million of stock-based compensation expense associated with the immediate vesting of equity awards of certain executive officers triggered by the “change in control” provisions in their respective employment agreements. Also includes a benefit for charges associated with a shareholder activist matter of $3.9 million associated with the negotiated settlement of certain costs incurred and recorded in previous periods for the three months ended June 30, 2011 compared to charges of $7.3 million for the three months ended June 30, 2010.

The following table sets forth significant assets as broken down by segment and other unallocated assets as of June 30, 2011 and March 31, 2011:

 

     June 30, 2011      March 31, 2011  
     Motion
Pictures
     Television
Production
     Total      Motion
Pictures
     Television
Production
     Total  
     (Amounts in thousands)  

Significant assets by segment

                 

Accounts receivable

   $ 93,208       $ 159,111       $ 252,319       $ 167,093       $ 163,531       $ 330,624   

Investment in films and television programs, net

     597,471         128,107         725,578         503,065         104,692         607,757   

Goodwill

     210,293         28,961         239,254         210,293         28,961         239,254   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 900,972       $ 316,179       $ 1,217,151       $ 880,451       $ 297,184       $ 1,177,635   
  

 

 

    

 

 

       

 

 

    

 

 

    

Other unallocated assets (primarily cash, other assets, equity method investments and assets held for sale)

           382,853               380,209   
        

 

 

          

 

 

 

Total assets

         $ 1,600,004             $ 1,557,844   
        

 

 

          

 

 

 

There have been no changes in the carrying amount of goodwill during the periods presented.

Purchases of property and equipment amounted to $0.4 million for the three months ended June 30, 2011 and 2010, all primarily pertaining to purchases for the Company’s corporate headquarters.

18. Contingencies

The Company is, from time to time, involved in various claims, legal proceedings and complaints arising in the ordinary course of business. The Company does not believe that adverse decisions in any such pending or threatened proceedings, or any amount which the Company might be required to pay by reason thereof, would have a material adverse effect on the financial condition or future results of the Company.

On July 23, 2010, Icahn Partners LP, a limited partnership governed by the laws of Delaware and certain entities affiliated with Icahn Partners LP (collectively, the “Offeror”) filed a petition in the Supreme Court of British Columbia (the “BC Court”) against the Company, Dr. Mark Rachesky, MHR Fund Management LLC and MHR Institutional Partners III LP (the “MHR Fund”) and

 

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Table of Contents

Kornitzer Capital Management, Inc. (the “BC Action”). The Offeror filed an amended petition on July 26, 2010. Dr. Mark Rachesky, a director of the Company, is the managing member of MHR Institutional Partners III LP’s general partner. Among other things, the Offeror claimed that a July 20, 2010 Refinancing Exchange Agreement (the “Exchange”) between the Company and Kornitzer Capital Management, Inc. to exchange certain convertible notes of Lions Gate Entertainment Inc. (“LGEI”), as well as the Note Sale (as defined below) and Conversion (as defined below), were “oppressive” to the Offeror under British Columbia law. The Offeror sought, among other things, orders (1) declaring that the Company is oppressing its shareholders, (2) prohibiting MHR Institutional Partners III LP from transferring or voting its new shares, (3) prohibiting the Company from issuing any securities, (4) unwinding the July 20 transactions between the MHR Fund, the Company, and Kornitzer Capital Management, Inc. (which includes the Exchange, the Note Sale and the Conversion) and (5) compensating the petitioners. The BC Court heard argument during the week of October 11, 2010. On November 1, 2010, the BC Court issued a final order and decision dismissing the Offeror’s claims in their entirety and awarding costs to Company. On November 2, 2010, the Offeror announced its intent to appeal the decision. On November 5, 2010, a single Justice of the British Columbia Court of Appeal denied the Offeror’s application for an expedited appeal or, in the alternative, an order prohibiting the Company from scheduling its 2010 annual general meeting of shareholders before January 21, 2011. The Offeror’s application to vary this order was denied by a panel of the British Columbia Court of Appeal on December 7, 2010. The British Columbia Court of Appeal heard oral argument on the Offeror’s appeal from the final order and decision of the BC Court on March 24, 2011. The appeal was dismissed on May 10, 2011. For purposes herein, the “Note Sale” means the July 20, 2010 entry into a Purchase Agreement and subsequent sale of the New Notes received by Kornitzer Capital Management, Inc. in the Exchange to MHR Institutional Partners III LP. Additionally, the “Conversion” means, after the consummation of the Note Sale, the July 20, 2010 exercise by MHR Institutional Partners III LP of conversion rights under the New Notes whereby the New Notes were converted in full into 16,236,305 common shares of the Company.

The Offeror also sought an order from the British Columbia Securities Commission (the “BCSC”) on July 22, 2010 requiring, among other things, that Dr. Rachesky, the MHR Fund, and their respective affiliates cease trading in any securities of the Company until further order of the BCSC and that the Company and each of its directors cease trading in any securities of the Company until further order of the BCSC. The Offeror alleged that the Exchange was, among other things, an unlawful defensive tactic, and that the disclosures concerning the transactions violated applicable securities laws. A hearing on the request for a temporary cease trade order was held on July 28, 2010, and the BCSC determined to dismiss the Offeror’s application for a temporary cease trade order against the Company and the MHR Fund.

On July 26, 2010, the Offeror filed suit in New York Supreme Court against the Company, the Board of Directors of the Company, LGEI, Dr. Rachesky, the MHR Fund, MHR Institutional Advisors II LLC, MHR Institutional Advisors III LLC, and Kornitzer Capital Management, Inc. and its principal John C. Kornitzer (the “New York Action”). The Offeror claims, among other things, that the Exchange and subsequent issuance of common shares of the Company to Dr. Rachesky’s fund through the Conversion constitutes (1) a breach of a certain July 9, 2010 letter agreement between the Company and the Offeror; (2) tortious interference with the same July 9 letter agreement; and (3) tortious interference with prospective business relationships. The complaint seeks, among other things, a preliminary and permanent injunction rescinding the Exchange and share issuance; a preliminary injunction prohibiting all defendants from voting their shares in any election of directors or any other shareholder vote; and an award of compensatory and punitive damages. On August 26, 2010, the defendants moved to dismiss or stay the New York Action. On November 15, 2010, the Offeror filed a motion for a preliminary injunction. The Offeror’s motion for a preliminary injunction was denied on December 9, 2010. On March 30, 2011, defendants’ motion to dismiss the complaint was granted in its entirety and the complaint was dismissed. The Offeror filed a notice of appeal on April 4, 2011.

On October 28, 2010, the Company filed an action in the United States District Court for the Southern District of New York against Carl Icahn, Brett Icahn, and various investment vehicles controlled by Carl Icahn. The action is captioned Lions Gate Entertainment Corp. v. Carl C. Icahn, Brett Icahn, Icahn Partners LP, High River Limited Partnership, Hopper Investments LLC, Barberry Corp., Icahn Onshore LP, Icahn Offshore LP, Icahn Capital LP, IPH GP LLC, Icahn Enterprises Holdings L.P., Icahn Enterprises G.P. Inc., and Beckton Corp., No. 10-CV-8169. The complaint, filed as Exhibit (a)(8) to the Company’s Amendment No. 7 to the Schedule 14D-9, filed with the Securities and Exchange Commission on October 29, 2010, alleges violations of Sections 13(d), 14(a), 14(d), and 14(e) of the Exchange Act, and certain rules promulgated thereunder, and tortious interference with prospective business relations under state law. The complaint sought damages and injunctive relief, including an order requiring the defendants to make corrective disclosures before the Company’s 2010 annual general meeting of shareholders. On November 22, 2010, the Offeror moved to dismiss the complaint. The Company amended its complaint on December 3, 2010. The Offeror moved to dismiss the amended complaint on December 17, 2010. Following oral argument on March 18, 2011, the Court granted in part and denied in part the Offeror’s motion to dismiss. The Court granted the Offeror’s motion to dismiss with respect to the Company’s claims alleging that the Offeror violated Sections 13(d), 14(a), 14(d) (except for Section 14(d)(7) as discussed below) and 14(e) of the Exchange Act, and certain rules promulgated thereunder, and tortious interference with prospective business relations under state law.

 

32


Table of Contents

The Court denied the Offeror’s motion to dismiss with respect to the Company’s claim alleging that the Offeror violated Section 14(d)(7) of the Exchange Act, and Rule 14d-10(a)(2) promulgated thereunder, by offering special consideration to a particular shareholder in the course of its tender offer when it was required to offer all shareholders the highest consideration paid to any single shareholder, and the suit is ongoing with respect to that remaining claim. The Court denied the Offeror’s motion for reconsideration on June 20, 2011.

From time to time, the Company is involved in certain claims and legal proceedings arising in the normal course of business. While the resolution of these matters cannot be predicted with certainty, the Company does not believe, based on current knowledge, that the outcome of any currently pending claims or legal proceedings in which the Company is currently involved will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flow.

19. Consolidating Financial Information — Convertible Senior Subordinated Notes

The October 2004 2.9375% Notes, the February 2005 3.625% Notes and the April 2009 3.625% Notes, by their terms, are fully and unconditionally guaranteed by the Company.

 

33


Table of Contents

The following tables present unaudited condensed consolidating financial information as of June 30, 2011 and March 31, 2011, and for the three months ended June 30, 2011 and 2010 for (1) the Company, on a stand-alone basis, (2) LGEI, on a stand-alone basis, (3) the non-guarantor subsidiaries of the Company (including the subsidiaries of LGEI), on a combined basis (collectively, the “Non-guarantor Subsidiaries”) and (4) the Company, on a consolidated basis.

 

     As of June 30, 2011  
     Lions Gate
Entertainment
Corp.
     Lions Gate
Entertainment
Inc.
    Non-guarantor
Subsidiaries
    Consolidating
Adjustments
    Lions Gate
Consolidated
 
     (Amounts in thousands)  

BALANCE SHEET

           

Assets

           

Cash and cash equivalents

   $ 7,129       $ 30,170      $ 73,741      $ —        $ 111,040   

Restricted cash

     13,996         5,782        —          —          19,778   

Accounts receivable, net

     582         4,317        247,420        —          252,319   

Investment in films and television programs, net

     12         6,391        722,632        (3,457     725,578   

Property and equipment, net

     —           7,697        745        —          8,442   

Equity method investments

     899         15,538        136,325        —          152,762   

Goodwill

     10,173         —          229,081        —          239,254   

Other assets

     —           46,374        9,054        —          55,428   

Assets held for sale

     —           —          35,403        —          35,403   

Subsidiary investments and advances

     110,151         (57,596     (309,380     256,825        —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
   $ 142,942       $ 58,673      $ 1,145,021      $ 253,368      $ 1,600,004   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Shareholders’ Equity (Deficiency)

           

Senior revolving credit facility

   $ —         $ —        $ —        $ —        $ —     

Senior secured second-priority notes

     —           430,978        —          —          430,978   

Accounts payable and accrued liabilities

     1,250         41,781        112,080        19        155,130   

Participations and residuals

     196         10,335        280,539        293        291,363   

Film obligations and production loans

     76         —          298,071        —          298,147   

Convertible senior subordinated notes and other financing obligations

     —           90,484        3,718        —          94,202   

Deferred revenue

     —           45        176,292        —          176,337   

Liabilities held for sale

     —           —          12,427        —          12,427   

Shareholders’ equity (deficiency)

     141,420         (514,950     261,894        253,056        141,420   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
   $ 142,942       $ 58,673      $ 1,145,021      $ 253,368      $ 1,600,004   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

34


Table of Contents
     Three Months Ended June 30, 2011  
     Lions Gate
Entertainment
Corp.
    Lions Gate
Entertainment
Inc.
    Non-guarantor
Subsidiaries
    Consolidating
Adjustments
    Lions Gate
Consolidated
 
           (Amounts in thousands)              

STATEMENT OF OPERATIONS

          

Revenues

   $ —        $ 11,239      $ 250,397      $ (377   $ 261,259   

EXPENSES:

          

Direct operating

     —          (85     137,333        2,110        139,358   

Distribution and marketing

     —          (94     64,895        (55     64,746   

General and administration

     1,116        11,872        14,971        (37     27,922   

Depreciation and amortization

     —          867        367        —          1,234   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     1,116        12,560        217,566        2,018        233,260   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME (LOSS)

     (1,116     (1,321     32,831        (2,395     27,999   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expenses (income):

          

Interest expense

     —          14,147        2,408        (220     16,335   

Interest and other income

     (39     (492     (131     220        (442

Loss on extinguishment of debt

     —          531        —          —          531   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses (income)

     (39     14,186        2,277        —          16,424   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME (LOSS) BEFORE EQUITY INTERESTS AND INCOME TAXES

     (1,077     (15,507     30,554        (2,395     11,575   

Equity interests income (loss)

     13,278        26,509        1,354        (39,267     1,874   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

     12,201        11,002        31,908        (41,662     13,449   

Income tax provision (benefit)

     (47     563        685        —          1,201   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS)

   $ 12,248      $ 10,439      $ 31,223      $ (41,662   $ 12,248   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     Three Months Ended June 30, 2011  
     Lions Gate
Entertainment
Corp.
    Lions Gate
Entertainment
Inc.
    Non-guarantor
Subsidiaries
    Consolidating
Adjustments
    Lions Gate
Consolidated
 
                 (Amounts in thousands)        

STATEMENT OF CASH FLOWS

          

NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES

   $ 7,702      $ (77,679   $ 25,518      $ —        $ (44,459

INVESTING ACTIVITIES:

          

Investment in equity method investees

     (475     —          —          —          (475

Increase in loan receivables

     —          (1,500     —          —          (1,500

Purchases of property and equipment

     —          (272     (139     —          (411
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES

     (475     (1,772     (139     —          (2,386
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

FINANCING ACTIVITIES:

          

Tax withholding requirements on equity awards

     (918     —          —          —          (918

Borrowings under senior revolving credit facility

     —          95,400        —          —          95,400   

Repayments of borrowings under senior revolving credit facility

     —          (165,150     —          —          (165,150

Borrowings under individual production loans

     —          —          48,466        —          48,466   

Repayment of individual production loans

     —          —          (78,595     —          (78,595

Production loan borrowings under film credit facility

     —          —          7,711        —          7,711   

Production loan repayments under film credit facility

     —          —          (8,536     —          (8,536

Proceeds from sale of senior secured second-priority notes, net of deferred financing costs

     —          192,396        —          —          192,396   

Repurchase of convertible senior subordinated notes

     —          (19,476     —          —          (19,476
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES

     (918     103,170        (30,954     —          71,298   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

     6,309        23,719        (5,575     —          24,453   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

FOREIGN EXCHANGE EFFECTS ON CASH

     25        —          143        —          168   

CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD

     795        6,451        79,173        —          86,419   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS — END OF PERIOD

   $ 7,129      $ 30,170      $ 73,741      $ —        $ 111,040   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

35


Table of Contents
     As of March 31, 2011  
     Lions Gate
Entertainment
Corp.
    Lions Gate
Entertainment
Inc.
    Non-guarantor
Subsidiaries
    Consolidating
Adjustments
    Lions Gate
Consolidated
 
     (Amounts in thousands)  

BALANCE SHEET

          

Assets

          

Cash and cash equivalents

   $ 795      $ 6,451      $ 79,173      $ —        $ 86,419   

Restricted cash

     13,992        29,466        —          —          43,458   

Restricted investments

     —          —          —          —          —     

Accounts receivable, net

     494        4,237        325,893        —          330,624   

Investment in films and television programs, net

     12        6,391        603,264        (1,910     607,757   

Property and equipment, net

     —          8,292        797        —          9,089   

Equity method investments

     1,123        17,052        132,410        —          150,585   

Goodwill

     10,173        —          229,081        —          239,254   

Other assets

     458        34,214        11,650        —          46,322   

Assets held for sale

     —          —          44,336        —          44,336   

Subsidiary investments and advances

     102,680