UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

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

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

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)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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

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

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

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

Title of Each Class		Outstanding at November 1, 2009
Common Shares, no par value per share		117,660,274 shares

 

 

TABLE OF CONTENTS

Item				Page
		PART I — FINANCIAL INFORMATION
1.		Financial Statements			2
2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			45
3.		Quantitative and Qualitative Disclosures About Market Risk			74
4.		Controls and Procedures			75
		PART II — OTHER INFORMATION
1.		Legal Proceedings			75
1A.		Risk Factors			75
2.		Unregistered Sales of Equity Securities and Use of Proceeds			76
3.		Defaults Upon Senior Securities			76
4.		Submission of Matters to a Vote of Security Holders			76
5.		Other Information			77
6.		Exhibits			78
EX-3.2
EX-10.70
EX-31.1
EX-31.2
EX-32.1

FORWARD-LOOKING STATEMENTS

     This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by terms such as “may,” “intend,” “will,” “could,” “would,” “expect,” “anticipate,” “potential,” “believe,” “estimate,” or the negative of these terms, and similar expressions intended to identify forward-looking statements.

     These forward-looking statements reflect Lions Gate Entertainment Corp.’s current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. Also, these forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing obligation to disclose material information as required by federal securities laws, we do not intend to update you concerning any future revisions to any forward-looking statements to reflect events or circumstances occurring after the date of this report.

     Actual results in the future could differ materially and adversely from those described in the forward-looking statements as a result of various important factors, including, but not limited to, the substantial investment of capital required to produce and market films and television series, increased costs for producing and marketing feature films, budget overruns, limitations imposed by our credit facilities, unpredictability of the commercial success of our motion pictures and television programming, the cost of defending our intellectual property, difficulties in integrating acquired businesses, technological changes and other trends affecting the entertainment industry, and the risk factors found herein and under the heading “Risk Factors” in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 1, 2009, and in Exhibit 99.1 to our Current Report on Form 8-K filed with the SEC on October 13, 2009, which risk factors are incorporated herein by reference.

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

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

		September 30,				March 31,
		2009				2009
		(Amounts in thousands,
		except share amounts)
ASSETS
Cash and cash equivalents		$	112,652			$	138,475
Restricted cash			9,896				10,056
Restricted investments			6,999				6,987
Accounts receivable, net of reserve for returns and allowances of $89,645 (March 31, 2009 — $98,947) and provision for doubtful accounts of $8,667 (March 31, 2009 — $9,847)			231,975				227,010
Investment in films and television programs, net			749,283				702,767
Property and equipment, net			38,034				42,415
Finite-lived intangible assets, net			75,368				78,904
Goodwill			379,353				379,402
Other assets			86,113				81,234
Total assets		$	1,689,673			$	1,667,250
LIABILITIES
Borrowings under bank line of credit		$	255,000			$	255,000
Accounts payable and accrued liabilities			176,268				270,561
Participations and residuals			304,271				371,857
Film and production obligations			293,714				304,525
Subordinated notes and other financing obligations			266,358				281,521
Mandatorily redeemable preferred stock units held by noncontrolling interest			88,431				—
Deferred revenue			134,911				142,093
Total liabilities			1,518,953				1,625,557
Commitments and contingencies
SHAREHOLDERS’ EQUITY
Lions Gate Entertainment Corp. shareholders’ equity:
Common shares, no par value, 500,000,000 shares authorized, 117,618,718 and 116,950,512 shares issued at September 30, 2009 and March 31, 2009, respectively			515,944				494,724
Accumulated deficit			(373,088	)			(441,153	)
Accumulated other comprehensive loss			(5,974	)			(11,878	)
Total Lions Gate Entertainment Corp. shareholders’ equity			136,882				41,693
Noncontrolling interest			33,838				—
Total equity			170,720				41,693
Total liabilities and equity		$	1,689,673			$	1,667,250

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

		Three Months				Three Months				Six Months				Six Months
		Ended				Ended				Ended				Ended
		September 30,				September 30,				September 30,				September 30,
		2009				2008				2009				2008
		(Amounts in thousands, except per share amounts)
Revenues		$	393,677			$	380,718			$	781,384			$	679,177
Expenses:
Direct operating			198,047				199,626				411,106				347,310
Distribution and marketing			102,245				189,407				187,228				288,382
General and administration			42,452				30,600				83,571				68,908
Depreciation and amortization			6,207				1,415				14,402				2,801
Total expenses			348,951				421,048				696,307				707,401
Operating income (loss)			44,726				(40,330	)			85,077				(28,224	)
Other expenses (income):
Interest expense
Contractual cash based interest			5,392				3,531				10,385				6,909
Amortization of debt discount, deferred financing costs and accretion of redeemable preferred stock units			7,905				5,378				13,621				9,887
Total interest expense			13,297				8,909				24,006				16,796
Interest and other income			(382	)			(2,047	)			(808	)			(4,202	)
Gain on extinguishment of debt			—				—				(7,458	)			—
Total other expenses, net			12,915				6,862				15,740				12,594
Income (loss) before equity interests and income taxes			31,811				(47,192	)			69,337				(40,818	)
Equity interests loss			(1,928	)			(1,960	)			(3,645	)			(4,146	)
Income (loss) before income taxes			29,883				(49,152	)			65,692				(44,964	)
Income tax provision			674				2,662				2,011				3,331
Net income (loss)			29,209				(51,814	)			63,681				(48,295	)
Add: Net loss attributable to noncontrolling interest			2,507				—				4,384				—
Net income (loss) attributable to Lions Gate Entertainment Corp. Shareholders		$	31,716			$	(51,814	)		$	68,065			$	(48,295	)
Basic Net Income (Loss) Per Common Share		$	0.27			$	(0.44	)		$	0.58			$	(0.41	)
Diluted Net Income (Loss) Per Common Share		$	0.26			$	(0.44	)		$	0.56			$	(0.41	)
Weighted average number of common shares outstanding:
Basic			117,322				116,861				117,199				117,647
Diluted			138,732				116,861				137,671				117,647

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

		Lions Gate Entertainment Corp. Shareholders
														Accumulated
														Other
		Common Shares								Accumulated				Comprehensive				Noncontrolling				Comprehensive
		Number				Amount				Deficit				Income (Loss)				Interest				Income				Total
		(Amounts in thousands, except share amounts)
Balance at March 31, 2009, as adjusted (see Note 8)			116,950,512			$	494,724			$	(441,153	)		$	(11,878	)		$	—							$	41,693
Stock based compensation, net of withholding tax obligations of $1,343			614,268				6,345																				6,345
Issuance of common shares to directors for services			53,938				281																				281
Sale of TV Guide Network common stock units to noncontrolling interest							(167	)											38,222								38,055
Equity component of April 2009 3.625% Notes, net of $3.9 million reduction for February 2005 3.625% Notes extinguished in the exchange transaction (Note 8)							14,761																				14,761
Comprehensive income
Net income (loss)											68,065								(4,384	)		$	63,681				63,681
Foreign currency translation adjustments															5,887								5,887				5,887
Net unrealized gain on foreign exchange contracts															17								17				17
Comprehensive income																						$	69,585
Balance at September 30, 2009			117,618,718			$	515,944			$	(373,088	)		$	(5,974	)		$	33,838							$	170,720

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Six Months				Six Months
		Ended				Ended
		September 30,				September 30,
		2009				2008
		(Amounts in thousands)
Operating Activities:
Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders		$	68,065			$	(48,295	)
Net loss attributable to noncontrolling interest			(4,384	)			—
Net income (loss)			63,681				(48,295	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation of property and equipment			7,952				2,242
Amortization of films and television programs			287,303				186,743
Amortization of debt discount, deferred financing costs and accretion of redeemable preferred stock units			13,621				9,887
Amortization of intangible assets			6,450				559
Non-cash stock-based compensation			7,686				7,516
Gain on extinguishment of debt			(7,458	)			—
Equity interests loss			3,645				4,146
Changes in operating assets and liabilities:
Restricted cash			160				(11,935	)
Accounts receivable, net			(301	)			56,667
Investment in films and television programs			(333,476	)			(325,176	)
Other assets			(4,381	)			(9,438	)
Accounts payable and accrued liabilities			(96,247	)			3,077
Participations and residuals			(68,116	)			65,271
Film obligations			(36,901	)			(4,325	)
Deferred revenue			(7,469	)			23,337
Net Cash Flows Used In Operating Activities			(163,851	)			(39,724	)
Investing Activities:
Purchases of restricted investments			(6,999	)			—
Proceeds from the sale of restricted investments			6,987				125
Investment in equity method investees			(14,924	)			(11,099	)
(Increase) decrease in loans receivable			8,333				(28,427	)
Purchases of property and equipment			(3,690	)			(5,743	)
Net Cash Flows Used In Investing Activities			(10,293	)			(45,144	)
Financing Activities:
Exercise of stock options			—				2,894
Tax withholding requirements on equity awards			(1,343	)			(2,941	)
Repurchase and cancellation of common shares			—				(44,737	)
Proceeds from the sale of 49% interest in TV Guide			122,355				—
Borrowings under bank line of credit			70,000				—
Repayments of borrowings under bank line of credit			(70,000	)			—
Increase in production obligations			128,094				113,320
Repayment of production obligations			(102,490	)			(104,216	)
Repayment of other financing obligations			(406	)			—
Net Cash Flows Provided By (Used In) Financing Activities			146,210				(35,680	)
Net Change In Cash And Cash Equivalents			(27,934	)			(120,548	)
Foreign Exchange Effects on Cash			2,111				(2,136	)
Cash and Cash Equivalents — Beginning Of Period			138,475				371,589
Cash and Cash Equivalents — End Of Period		$	112,652			$	248,905

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. General

     Nature of Operations

     Lions Gate Entertainment Corp. (the “Company,” “Lionsgate,” “we,” “us” or “our”) is the leading next generation studio with a diversified presence in the production and distribution of motion pictures, television programming, home entertainment, family entertainment, video-on-demand and digitally delivered content.

     Basis of Presentation

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

     The unaudited condensed consolidated financial statements have been prepared in accordance with United States (the “U.S.”) accounting principles generally accepted (“GAAP”) for interim financial information and the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Article 10 of Regulation S-X under the Exchange Act. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the 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 and six months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ended March 31, 2010. The balance sheet at March 31, 2009 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 Exhibit 99.5 to our Current Report on Form 8-K filed with the SEC on October 13, 2009.

     Certain amounts presented for fiscal 2009 have been reclassified to conform to the fiscal 2010 presentation.

     Net Loss Attributable to Noncontrolling interest

     As discussed in Note 10, the net loss attributable to noncontrolling interest in the consolidated statements of operations and shareholders’ equity represents the noncontrolling interest’s 49% share of the net loss incurred by TV Guide Network for the period from May 28, 2009 through September 30, 2009.

     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, goodwill and intangible assets. Actual results could differ from such estimates.

     Recent Accounting Pronouncements

     In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162 (“SFAS No. 168”). This statement modifies the GAAP hierarchy by establishing only two levels of GAAP, authoritative and nonauthoritative accounting literature. Effective July 2009, the FASB Accounting Standards Codification (“ASC”), also known collectively as the “Codification,” is considered the single source of authoritative U.S. accounting and reporting standards, except for additional authoritative rules and interpretive releases issued by the SEC. Nonauthoritative

guidance and literature would include, among other things, FASB Concepts Statements, American Institute of Certified Public Accountants Issue Papers and Technical Practice Aids and accounting textbooks. The Codification was developed to organize GAAP pronouncements by topic so that users can more easily access authoritative accounting guidance. It is organized by topic, subtopic, section, and paragraph, each of which is identified by a numerical designation. The Company has adopted SFAS No. 168 prospectively beginning in the second quarter of fiscal 2010, resulting in no impact on the Company’s consolidated financial statements.

     Accounting for noncontrolling interest in consolidated subsidiaries. The Company adopted new accounting guidance that changes the accounting and reporting for minority interests, which are recharacterized as noncontrolling interests and classified as a component of equity. This new consolidation method changes the accounting for transactions with noncontrolling interest holders. We adopted this standard beginning in the first quarter of fiscal 2010 (see Note 10).

     Accounting for certain convertible debt instruments. The Company adopted new accounting guidance that specifies that issuers of convertible debt instruments that may be settled in cash upon either mandatory or optional conversion (including partial cash settlement) should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The Company adopted this standard beginning in the first quarter of fiscal 2010 (see Note 8).

     Subsequent events. The Company adopted new accounting guidance related to the accounting for and disclosure of subsequent events that occur after the balance sheet date. Entities are also required to disclose the date through which subsequent events have been evaluated and the basis for that date. The Company adopted this standard beginning in the first quarter of fiscal 2010 and has evaluated subsequent events through the date of issuance, November 9, 2009, resulting in no impact on the Company’s consolidated financial statements.

     Consolidation accounting for variable interest entities. This new accounting guidance modifies the previous guidance in relation to the identification of controlling financial interests in a variable interest entity (“VIE”). This analysis identifies the primary beneficiary of a VIE as the enterprise that has both of the following characteristics, among others: (a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance; and (b) the obligation to absorb losses of the entity, or the right to receive benefits from the entity, that could potentially be significant to the VIE. If an enterprise determines that power is shared among multiple unrelated parties such that no one party has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, then no party is the primary beneficiary. Power is shared if each of the parties sharing power are required to consent to the decisions relating to the activities that most significantly impact the VIE’s performance. The provisions of this standard will become effective for the Company beginning in fiscal 2011. The Company is currently evaluating the impact of this standard on the Company’s VIEs. Based upon the Company’s initial review and its current business and ownership structure of one of its VIEs, TV Guide Network, the Company may no longer be required to consolidate TV Guide Network, effective April 1, 2010.

2. Restricted Cash and Restricted Investments

     Restricted Cash. Restricted cash represents amounts on deposit with financial institutions that are contractually designated for certain theatrical marketing obligations and collateral required under our revolving credit facility as a result of a borrowing under our funding agreement with the State of Pennsylvania (see Note 7).

     Restricted Investments. Restricted investments, which measured at fair value, represent amounts held in investments that are contractually designated as collateral for certain production obligations. The carrying amounts of these restricted investments are equal to their respective fair values as of September 30, 2009 and March 31, 2009. At September 30, 2009 and March 31, 2009, the Company held $7.0 million of restricted investments in United States Treasury Bills bearing an interest rate of 0.05%, maturing November 12, 2009. These investments are held as collateral for a production obligation pursuant to an escrow agreement.

3. Investment in Films and Television Programs

		September 30,				March 31,
		2009				2009
		(Amounts in thousands)
Motion Picture Segment — Theatrical and Non-Theatrical Films
Released, net of accumulated amortization		$	231,234			$	262,067
Acquired libraries, net of accumulated amortization			51,700				56,898
Completed and not released			58,907				55,494
In progress			215,557				149,402
In development			9,865				6,732
Product inventory			35,925				40,392
			603,188				570,985
Television Segment — Direct-to-Television Programs
Released, net of accumulated amortization			85,888				77,973
Completed and not released			1,350				—
In progress			56,440				51,619
In development			1,767				1,445
			145,445				131,037
Media Networks
Released, net of accumulated amortization			209				—
In progress			441				745
			650				745
		$	749,283			$	702,767

     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
Acquired				Amortization				Amortization				September 30,				March 31,
Library		Acquisition Date		Period				Period				2009				2009
				(In years)								(Amounts in thousands)
Trimark		October 2000			20.00				11.00			$	5,553			$	6,280
Artisan		December 2003			20.00				14.25				43,439				47,255
Modern		August 2005			20.00				15.75				1,788				2,462
Lionsgate UK		October 2005			20.00				16.00				920				901
Total Acquired Libraries												$	51,700			$	56,898

     The Company expects approximately 43% of completed films and television programs, net of accumulated amortization, will be amortized during the one-year period ending September 30, 2010. Additionally, the Company expects approximately 80% of completed and released films and television programs, net of accumulated amortization and excluding acquired libraries, will be amortized during the three-year period ending September 30, 2012.

4. Goodwill

     The changes in the carrying amount of goodwill by reporting segment were as follows in the six months ended September 30, 2009:

		Motion								Media
		Pictures				Television				Networks				Total
		(Amounts in thousands)
Balance as of March 31, 2009		$	210,293			$	13,961			$	155,148			$	379,402
TV Guide Network			—				—				(49	)			(49	)
Balance as of September 30, 2009		$	210,293			$	13,961			$	155,099			$	379,353

     During the six months ended September 30, 2009, goodwill decreased by less than $0.1 million due to changes to the allocation of the purchase price to identified tangible and intangible assets and liabilities assumed from the acquisition of the TV Guide Network.

5. Finite-Lived Intangible Assets and Other Assets

     Finite-Lived Intangible Assets. Finite-lived intangible assets consist primarily of customer relationships and trademarks. The composition of the Company’s finite-lived intangible assets and the associated accumulated amortization is as follows as of September 30, 2009 and March 31, 2009:

		Weighted				Range
		average				of				September 30, 2009												March 31, 2009
		remaining				remaining				Gross								Net				Gross								Net
		life in				life in				Carrying				Accumulated				Carrying				Carrying				Accumulated				Carrying
		years				years				Amount				Amortization				Amount				Amount				Amortization				Amount
										(Amounts in thousands)
Finite-lived intangible assets:
Customer relationships			10				5 - 11			$	64,330			$	3,710			$	60,620			$	64,330			$	530			$	63,800
Trademarks			16				2 - 20				11,330				1,371				9,959				11,330				627				10,703
Developed technology and patents			2				2 - 6				3,740				1,032				2,708				3,740				147				3,593
Distribution agreements			3				2 - 4				4,014				1,933				2,081				1,598				790				808
Total finite-lived intangible assets										$	83,414			$	8,046			$	75,368			$	80,998			$	2,094			$	78,904

     The aggregate amount of amortization expense associated with the Company’s intangible assets for the three months ended September 30, 2009 and 2008 were $2.6 million and $0.3 million, respectively. The aggregate amount of amortization expense associated with the Company’s intangible assets for the six-month periods ended September 30, 2009 and 2008 were $6.5 million and $0.6 million, respectively. The estimated aggregate amortization expense, based on the preliminary allocation of the purchase price related to the acquisition of TV Guide Network, for the six-months ended March 31, 2010 and for each of the years ending March 31, 2011 through 2014 is approximately $5.3 million, $10.3 million, $7.6 million, $7.2 million, and $6.8 million, respectively.

     Other Assets. Other assets consist primarily of equity method investments and loans receivable. The composition of the Company’s other assets is as follows as of September 30, 2009 and March 31, 2009:

		September 30,				March 31,
		2009				2009
		(Amounts in thousands)
Deferred financing costs, net of accumulated amortization		$	12,397			$	10,184
Prepaid expenses and other			6,239				6,025
Loans receivable			24,236				33,065
Equity method investments			43,241				31,960
		$	86,113			$	81,234

     Deferred Financing Costs

     Deferred financing costs primarily include costs incurred in connection with (1) an amended credit facility (see Note 6), (2) the issuance of the 10.25% Senior Secured Second-Priority Notes (see Note 18) and (3) the issuance of the October 2004 2.9375% Notes, the February 2005 3.625% Notes and the April 2009 3.625% Notes (see Note 8) that are deferred and amortized to interest expense using the effective interest method.

     Prepaid Expenses and Other

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

     Loans Receivable

     Loans receivable at September 30, 2009 consist of a $16.7 million collateralized note receivable plus $0.2 million of accrued interest from a third party producer, and $6.8 million of notes receivable and $0.6 million of accrued interest from NextPoint, Inc. (“Break.com”), an equity method investee, as described below. At March 31, 2009, loans receivable consisted of a $25.0 million collateralized note receivable plus $0.8 million of accrued interest from a third party producer, and $6.8 million of notes receivable and $0.3 million of accrued interest from Break.com.

     Equity Method Investments

     The carrying amount of significant equity method investments at September 30, 2009 and March 31, 2009 were as follows:

		September 30,				March 31,
		2009				2009
		(Amounts in thousands)
Horror Entertainment, LLC (“FEARnet”)		$	804			$	845
NextPoint, Inc. (“Break.com”)			16,912				17,542
Roadside Attractions, LLC			1,965				2,062
Studio 3 Partners, LLC (“EPIX”)			23,560				11,511
		$	43,241			$	31,960

     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 investee based on our percentage ownership. Equity interests in equity method investments for the three and six months ended September 30, 2009 and 2008 were as follows (income (loss)):

		Three Months				Three Months				Six Months				Six Months
		Ended				Ended				Ended				Ended
		September 30,				September 30,				September 30,				September 30,
		2009				2008				2009				2008
		(Amounts in thousands)
Horror Entertainment, LLC (“FEARnet”)		$	(262	)		$	(1,344	)		$	(395	)		$	(2,410	)
NextPoint, Inc. (“Break.com”)			(270	)			(320	)			(631	)			(1,146	)
Roadside Attractions, LLC			11				(84	)			(97	)			(378	)
Studio 3 Partners, LLC (“EPIX”)			(1,407	)			(212	)			(2,522	)			(212	)
		$	(1,928	)		$	(1,960	)		$	(3,645	)		$	(4,146	)

     Horror Entertainment, LLC. Represents the Company’s 33.33% interest in Horror Entertainment, LLC (“FEARnet”), a multiplatform programming and content service provider of horror genre films operating under the branding of “FEARnet.” The Company entered into a five-year license agreement with FEARnet for U.S. territories and possessions whereby the Company will license content to FEARnet for video-on-demand and broadband exhibition. The Company made capital contributions to FEARnet of $0.3 million in April 2009. The Company is recording its share of the FEARnet results on a one quarter lag and, accordingly, during the six months ended September 30, 2009, the Company recorded 33.33% of the loss incurred by FEARnet through June 30, 2009.

     NextPoint, Inc. Represents the Company’s 42% equity interest or 21,000,000 shares of the Series B Preferred Stock of NextPoint, Inc. (“Break.com”), an online home entertainment service provider operating under the branding of “Break.com.” The interest was acquired on June 29, 2007 for an aggregate purchase price of $21.4 million which included $0.5 million of transaction costs, by issuing 1,890,189 of the Company’s common shares. The value assigned to the shares for purposes of recording the investment of $20.9 million was based on the average price of the Company’s common shares a few days prior and subsequent to the date of the closing of the acquisition. The Company has a call option which is exercisable at any time from June 29, 2007 until the earlier of (i) 30 months after June 29, 2007 or (ii) one year after a change of control, as narrowly defined, to purchase all of the remaining 58% equity interests (excluding any subsequent dilutive events) of Break.com, including in-the-money stock options, warrants and other rights of Break.com for $58.0 million in cash or common stock, at the Company’s option. The carrying value of the call option which was de minimus at September 30, 2009 is included in the investment balance. The Company is recording its share of the Break.com results on a one quarter lag and, accordingly, during the six months ended September 30, 2009, the Company recorded 42% of the loss incurred by Break.com through June 30, 2009.

     Roadside Attractions, LLC. Represents the Company’s 43% equity interest acquired on July 26, 2007 in Roadside Attractions, LLC (“Roadside”), an independent theatrical releasing company. The Company has a call option which is exercisable for a period of 90 days commencing on the receipt of certain audited financial statements for the three years ended July 26, 2010, to purchase all of the remaining 57% equity interests of Roadside, at a price representative of the then fair value of the remaining interest. The estimated initial cost of the call option was de minimus since the option price is designed to be representative of the then fair value and is included within the investment balance. The Company is recording its share of the Roadside results on a one quarter lag and, accordingly, during the six months ended September 30, 2009, the Company recorded 43% of the loss incurred by Roadside through June 30, 2009.

     Studio 3 Partners, LLC (“EPIX”). In April 2008, the Company formed a joint venture with Viacom Inc. (“Viacom”), its Paramount Pictures unit (“Paramount Pictures”) and Metro-Goldwyn-Mayer Studios Inc. (“MGM”) to create a premium television channel and subscription video-on-demand service named “EPIX”. The new venture will have access to the Company’s titles released theatrically on or after January 1, 2009. Viacom provides operational support to the venture, including marketing and affiliate services through its MTV Networks division. The joint venture will provide the Company with an additional platform to distribute its library of motion picture titles and television episodes and programs. The Company has a 28.57% interest in EPIX. The Company had invested $27.0 million as of September 30, 2009 and funded an additional $14.2 million subsequent to September 30, 2009 and may fund additional amounts in the future. The Company is recording its share of the joint venture results on a one quarter lag and, accordingly, during the six months ended September 30, 2009, the Company recorded 28.57% of the loss incurred by the joint venture through June 30, 2009.

6. Borrowings Under Bank Line of Credit

On September 30, 2009, the Company amended its credit facility which allowed for the Company to issue the senior secured second-priority notes and expand acceptable obligors included in the borrowing base calculation. The amendment resulted in an increase of the interest rate of 0.25%, and an additional financial covenant was added among other changes.

At September 30, 2009, the Company had borrowings of $255 million (March 31, 2009 — $255 million) under its credit facility. The availability of funds under its credit facility is limited by a borrowing base and also reduced by outstanding letters of credit which amounted to $22.7 million at September 30, 2009 (March 31, 2009 — $46.7 million). At September 30, 2009, there was $62.3 million available under the credit facility (March 31, 2009 — $38.3 million). The Company is required to pay a quarterly commitment fee based upon 0.375% per annum on the total credit facility of $340 million less the amount drawn. The credit facility expires July 25, 2013 and bore interest at 2.25% over the “Adjusted LIBOR” rate through September 29, 2009 (effective interest rate of 2.50% and 2.75% as of September 29, 2009 and March 31, 2009, respectively). Obligations under the 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. The credit facility contains a number of affirmative and negative covenants that, among other things, require the Company to satisfy certain financial covenants and restrict the ability of the Company to incur additional debt, pay dividends and make distributions, make certain investments and acquisitions, repurchase its stock and prepay certain indebtedness, create liens, enter into agreements with affiliates, modify the nature of its business, enter into sale-leaseback transactions, transfer and sell material assets and merge or consolidate. Under the credit facility, the Company may also be subject to an event of default upon a “change in control” (as defined in the credit facility) which, among other things, includes a person or group acquiring ownership or control in excess of 20% of our common stock.

7. Film and Production Obligations and Participations and Residuals

		September 30,				March 31,
		2009				2009
		(Amounts in thousands)
Film obligations (1)		$	52,374			$	88,814
Production obligations (2)			241,340				215,711
Total film and production obligations			293,714				304,525
Less film and production obligations expected to be paid within one year			(64,607	)			(185,647	)
Film and production obligations expected to be paid after one year		$	229,107			$	118,878
Participations and residuals		$	304,271			$	371,857

     The Company expects approximately 77% of accrued participations and residuals will be paid during the one-year period ending September 30, 2010.

     On May 25, 2007, the Company closed a theatrical slate participation arrangement, as amended on January 30, 2008. Under this arrangement, Pride Pictures, LLC (“Pride”), an unrelated entity, was to contribute, in general, 50% of the Company’s production, acquisition, marketing and distribution costs of theatrical feature films up to an aggregate of approximately $196 million, net of transaction costs. The funds available from Pride were generated from the issuance of subordinated debt instruments, equity and a senior revolving credit facility, which was subject to a borrowing base. The borrowing base calculation was generally based on 90% of the estimated ultimate amounts due to Pride on previously released films, as defined in the applicable agreements. The Company was not a party to the Pride debt obligations or their senior credit facility, and provided no guarantee of repayment of these obligations. The percentage of the contribution could vary on certain pictures. Pride 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. The Company distributed the pictures covered by the arrangement with a portion of net profits after all costs and the Company’s distribution fee being distributed to Pride based on their pro rata contribution to the applicable costs similar to a back-end participation on a film.

     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.

     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, the Company gave LG Film Finance I, LLC (“FilmCo”) and Pride notice that 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 terminated our theatrical slate participation arrangement with Pride. Since May 29, 2009, there have been no developments with respect to the arrangement.

     At September 30, 2009, $35.3 million (March 31, 2009, $83.8 million) was payable to Pride and is included in participations and residuals liability in the unaudited condensed consolidated balance sheets.

     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 September 30, 2009, $7.5 million (March 31, 2009, $3.2 million) was payable to SGF and is included in the participations and residuals liability in the unaudited condensed consolidated balance sheet. Under the terms of the arrangement $35 million is available through July 30, 2010 and $35 million is available during the twelve-month period ending July 30, 2011 to be provided by SGF.

8. Subordinated Notes and Other Financing Obligations

     The following table sets forth the subordinated notes and other financing obligations outstanding at September 30, 2009 and March 31, 2009:

		September 30,				March 31,
		2009				2009
		(Amounts in thousands)
October 2004 2.9375% Convertible Senior Subordinated Notes		$	131,297			$	127,253
February 2005 3.625% Convertible Senior Subordinated Notes			85,452				138,552
April 2009 3.625% Convertible Senior Subordinated Notes			34,299				—
Other financing obligations			15,310				15,716
		$	266,358			$	281,521

     On April 1, 2009, the Company adopted a new accounting standard that specifies that issuers of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate on the instrument’s issuance date when interest cost is recognized. Accordingly, a portion of the proceeds received is recorded as a liability and a portion is recorded as an addition to shareholders’ equity reflecting the equity component (i.e., conversion feature). The difference between the principal amount and the amount recorded as the liability component represents the debt discount. The carrying amount of the liability is accreted up to the principal amount through the amortization of the discount, using the effective interest method, to interest expense over the expected life of the note. The Company applied the provisions of this standard retrospectively to all periods presented resulting in an increase to interest expense of $3.7 million, an increase to net loss of $3.7 million and an increase in basic and diluted loss per share of $0.03 for the three months ended September 30, 2008. For the six months ended September 30, 2008, the application of the provisions of the new accounting standard resulted in an increase to interest expense of $7.3 million, an increase to net loss of $7.3 million and an increase in basic and diluted loss per share of $0.06. Shareholders’ equity at March 31, 2009 was increased by $49.9 million consisting of the increase in the accumulated deficit of $54.5 million resulting from the cumulative change in interest expense from the date the notes were issued and changes in the previously reported gains on extinguishment of debt, net of the increase in common shareholders’ equity of $104.4 million representing the carrying amount of the equity component of the notes.

     October 2004 2.9375% Notes. In October 2004, Lions Gate Entertainment Inc., the Company’s wholly-owned subsidiary (“LGEI”), sold $150.0 million of 2.9375% Convertible Senior Subordinated Notes (the “October 2004 2.9375% Notes”). The Company received $146.0 million of net proceeds after paying placement agents’ fees from the sale of $150.0 million of the October 2004 2.9375% Notes. Interest on the October 2004 2.9375% Notes is payable semi-annually on April 15 and October 15. The October 2004 2.9375% Notes mature on October 15, 2024. From October 15, 2009 to October 14, 2010, LGEI may redeem the October 2004 2.9375% Notes at 100.839%; from October 15, 2010 to October 14, 2011, LGEI may redeem the October 2004 2.9375% Notes at 100.420%; and thereafter, LGEI may redeem the October 2004 2.9375% Notes at 100%.

     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. 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 $8.79 per share or exceeds $50.00 per share.

     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 a specified threshold over a specified period, the trading price of the notes falls below certain thresholds, the notes have been called for redemption, a change in control occurs or certain other corporate transactions occur. In addition, under certain circumstances, if the holder converts their notes upon a change in control, they will be entitled to receive a make whole premium. Before the close of business on or prior to the trading day immediately before the maturity date, if the notes have not been previously redeemed or repurchased, the holder may convert the notes into the Company’s common shares at a conversion rate equal to 86.9565 shares per $1,000 principal amount of the October 2004 2.9375% Notes, subject to adjustment in certain circumstances, which represents a conversion price of approximately $11.50 per share. Upon conversion of the October 2004 2.9375% Notes, the Company has the option to deliver, in lieu of common shares, cash or a combination of cash and common shares of the Company.

     February 2005 3.625% Notes. In February 2005, LGEI sold $175.0 million of 3.625% Convertible Senior Subordinated Notes (“February 2005 3.625% Notes”). The Company received $170.2 million of net proceeds after paying placement agents’ fees from the sale of $175.0 million of the February 2005 3.625% Notes. 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 on March 15, 2025. 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.

     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. 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.

     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.

     In December 2008, LGEI extinguished $9.0 million of the February 2005 3.625% Notes and originally recorded a gain on extinguishment of $3.5 million. The adoption of a new accounting standard described above decreased the gain on extinguishment for fiscal 2009 to $3.0 million to account for the unamortized portion of the discounts associated with the repurchased notes. The gain represented the difference between the fair value of the liability component of the February 2005 3.625% Notes and their carrying value with the excess of the amount paid to extinguish the February 2005 3.625% Notes over the fair value of the February 2005 3.625% Notes recorded as a reduction of shareholders equity reflecting the repurchase of the equity component of the February 2005 3.625% Notes.

     On April 20, 2009, LGEI entered into Refinancing Exchange Agreements with certain existing holders of the February 2005 3.625% Notes. Pursuant to the terms of the Refinancing Exchange Agreements, holders of the February 2005 3.625% Notes exchanged approximately $66.6 million aggregate principal amount of the February 2005 3.625% Notes for new 3.625% convertible senior subordinated notes (“April 2009 3.625% Notes”) in the same aggregate principal amount under a new indenture entered into by LGEI, the Company, as guarantor, and an indenture trustee thereunder. As a result of the exchange transaction, the Company recorded a gain on extinguishment of debt of $7.5 million. The gain represented the difference between the fair value of the liability component of the February 2005 3.625% Notes and their carrying value. The excess of the fair value of both the equity and liability component of the April 2009 3.625% Notes over the fair value of the February 2005 3.625% Notes of $3.9 million was recorded as a reduction of shareholders equity reflecting the repurchase of the equity component of the February 2005 3.625% Notes.

     April 2009 3.625% Notes. As discussed above, in April 2009, LGEI issued approximately $66.6 million of 3.625% Convertible Senior Subordinated Notes (the “April 2009 3.625% Notes”). Interest on the April 2009 3.625% Notes is payable on March 15 and September 15 of each year. The April 2009 3.625% Notes will mature on March 15, 2025. 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.

     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. 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.

     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.

     The following table sets forth the equity and liability components of the 3.625% Notes and 2.9375% Notes outstanding as of September 30, 2009 and March 31, 2009:

		September 30,				March 31,
		2009				2009
		(Amounts in thousands)
October 2004 2.9375% Convertible Senior Subordinated Notes:
Carrying amount of equity component		$	50,074			$	50,074
Carrying amount of liability component
Principal amount of 2.9375% Notes		$	150,000			$	150,000
Unamortized discount (remaining period of 2.3 and 2.8 years, respectively)			(18,703	)			(22,747	)
Net carrying amount of October 2004 2.9375% Notes		$	131,297			$	127,253
February 2005 3.625% Convertible Senior Subordinated Notes:
Carrying amount of equity component		$	53,032			$	54,355
Carrying amount of liability component
Principal amount of February 3.625% Notes		$	99,419			$	166,000
Unamortized discount (remaining period of 2.5 and 3.0 years, respectively)			(13,967	)			(27,448	)
Net carrying amount of February 2005 3.625% Notes		$	85,452			$	138,552
April 2009 3.625% Convertible Senior Subordinated Notes:
Carrying amount of equity component		$	16,085				N/A
Carrying amount of liability component
Principal amount of April 2009 3.625% Notes		$	66,581				N/A
Unamortized discount (remaining period of 5.5 years)			(32,282	)			N/A
Net carrying amount of April 2009 3.625% Notes		$	34,299				N/A

     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 and six months ended September 30, 2009 and 2008 are presented below.

		Three Months				Three Months				Six Months				Six Months
		Ended				Ended				Ended				Ended
		September 30,				September 30,				September 30,				September 30,
		2009				2008				2009				2008
		(Amounts in thousands)
October 2004 2.9375% Convertible Senior Subordinated Notes:
Effective interest rate of liability component (9.65%)
Interest Expense
Contractual interest coupon		$	1,102			$	1,102			$	2,203			$	2,203
Amortization of discount on liability component			2,064				1,875				4,049				3,677
Amortization of debt issuance costs			134				112				261				217
		$	3,300			$	3,089			$	6,513			$	6,097
February 2005 3.625% Convertible Senior Subordinated Notes:
Effective interest rate of liability component (10.03%)
Interest Expense
Contractual interest coupon		$	901			$	1,586			$	1,929			$	3,172
Amortization of discount on liability component			1,490				1,974				2,911				3,887
Amortization of debt issuance costs			81				122				171				238
		$	2,472			$	3,682			$	5,011			$	7,297
April 2009 3.625% Convertible Senior Subordinated Notes:
Effective interest rate of liability component (17.26%)
Interest Expense
Contractual interest coupon		$	603				N/A			$	1,079				N/A
Amortization of discount on liability component			766				N/A				1,403				N/A
Amortization of debt issuance costs			3				N/A				3				N/A
		$	1,372				N/A			$	2,485				N/A

     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.

     In association with the February 28, 2009 acquisition of TV Guide Network, the Company assumed a $12.1 million capital lease obligation for a satellite transponder lease. At September 30, 2009 the balance of the capital lease obligation was $11.6 million. The monthly payments total $1.6 million per year through August 2019, with an imputed interest rate of 6.65%.

9. 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 credit facility and convertible senior subordinated notes, both priced using discounted cash flow techniques that use observable market inputs, such as LIBOR-based yield curves, three- and seven-year swap rates, and credit ratings.
	•		Level 3 — Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

     The following table sets forth the carrying values and fair values (all determined using Level 2 inputs defined above) of the Company’s outstanding debt at September 30, 2009:

		Carrying
		Value				Fair Value
						(Level 2)
		(Amounts in thousands)
Borrowings under bank line of credit		$	255,000			$	271,681
October 2004 2.9375% Convertible Senior Subordinated Notes			131,297				129,234
February 2005 3.625% Convertible Senior Subordinated Notes			85,452				83,855
April 2009 3.625% Convertible Senior Subordinated Notes			34,299				33,820
		$	506,048			$	518,590

10. Acquisitions and Divestitures

     TV Guide Network

     Acquisition of TV Guide Network. On February 28, 2009, the Company purchased all of the issued and outstanding equity interests of TV Guide Network 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, assumed a capital lease obligation of $12.1 million and incurred approximately $1.5 million in direct transaction costs (paid to lawyers, accountants and other consultants).

     The 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. The acquisition goodwill represents the significant opportunity for the Company to expand the existing television channel and online media platforms. Goodwill of $155.1 million represents the excess of the purchase price over the preliminary estimate of the fair value of the tangible and intangible assets acquired and liabilities assumed. Although the goodwill will not be amortized for financial reporting purposes, it is anticipated that substantially all of the goodwill will be deductible for federal tax purposes over the statutory period of 15 years. The preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on their estimated fair values was as follows:

		Preliminary
		Allocation
		(Amounts in
		thousands)
Accounts receivable, net		$	14,505
Property and equipment			26,649
Other assets acquired			1,831
Finite-lived intangible assets:
Customer relationships			64,330
Trademarks/trade names			9,730
Internal Use Software			2,230
Prepaid Patent License Agreements			1,510
Goodwill			155,099
Other liabilities assumed			(32,775	)
Total preliminary estimated purchase price including estimated transaction costs		$	243,109

     Sale of Noncontrolling Interest in TV Guide Network. On May 28, 2009, the Company entered into a Purchase Agreement (the “Purchase Agreement”) with One Equity Partners (“OEP”), the global private equity investment arm of JPMorgan Chase, 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.

     In exchange for the cash consideration, OEP received mandatorily redeemable preferred stock units and common stock units representing its 49% noncontrolling interest in TV Guide Network. The Company also received mandatorily redeemable preferred stock units and common stock units representing its 51% ownership share. The mandatorily redeemable preferred stock carries a dividend rate of 10% compounded annually and is mandatorily redeemable ten years from the closing at the stated value plus the dividend return and any additional capital contributions less previous distributions.

     After the sale of the Company’s 49% interest in TV Guide Network to OEP, the Company has continued to consolidate TV Guide Network. TV Guide Network is a variable interest entity that is currently required to be consolidated since the Company is the primary beneficiary pursuant to its business and ownership structure. The net loss attributable to noncontrolling interest in the consolidated statement of operations represents the noncontrolling interest’s 49% share of the net loss incurred by TV Guide Network for the period from May 28, 2009 through September 30, 2009.

     As a result of the sale transaction, the difference between the cash received and 49% of the carrying value of TV Guide Network acquired by OEP was recorded as an adjustment to shareholders’ equity attributable to the Company’s shareholders. The mandatorily redeemable preferred stock units attributable to the noncontrolling interest were initially recorded based on their estimated fair value, as determined using an option pricing model methodology, as a liability in our consolidated balance sheet. The carrying value of the 49% interest in TV Guide Network, less the amount recorded for the mandatorily redeemable preferred stock units, representing the

common stock units held by the minority holders, was recorded as equity attributable to noncontrolling interest in our consolidated statement of shareholders’ equity.

     The portion of the mandatorily redeemable preferred and common stock units held by the Company and associated non-cash interest representing the Company’s 51% ownership interest is eliminated in consolidation. The mandatorily redeemable preferred stock held by the noncontrolling interest and the 10% dividend is being accreted, through a non-cash charge to interest expense, up to its redemption amount over the ten-year period to the redemption date. The redemption amount of the noncontrolling interest’s share of the mandatorily redeemable preferred stock as of September 30, 2009 which includes capital contributions and dividend accretion through September 30, 2009 was $129.3 million.

     The following unaudited pro forma condensed consolidated statement of operations presented below illustrate the results of operations of the Company as if the acquisition of TV Guide Network on February 28, 2009 had occurred at April 1, 2008 and also presents the pro forma adjustments and results of operations as if the sale of the Company’s interest in TV Guide Network as described above occurred at April 1, 2008:

		Six Months				Six Months
		Ended				Ended
		September 30,				September 30,
		2009				2008
		(Amounts in thousands, except per share amounts)
Revenues		$	781,384			$	750,193
Operating income (loss)		$	85,077			$	(32,488	)
Net income (loss)		$	66,378			$	(52,519	)
Basic Net (Loss) Income Per Common Share		$	0.57			$	(0.45	)
Diluted Net Income (Loss) Per Common Share		$	0.54			$	(0.45	)
Weighted average number of common shares outstanding — Basic			117,199				117,647
Weighted average number of common shares outstanding — Diluted			137,671				117,647

     The following table sets forth the carrying amounts of the assets and liabilities of the TV Guide Network included in the consolidated balance sheet as of September 30, 2009:

		September 30,
		2009
		(Amounts in
		thousands)
Cash and cash equivalents		$	16,286
Accounts receivable, net			16,439
Investment in films and television programs, net			650
Property and equipment, net			24,517
Finite-lived intangible assets, net			72,378
Goodwill			155,099
Other assets			1,199
Total Assets			286,568
Accounts payable and accrued liabilities			16,921
Other financing obligations			11,592
Mandatorily redeemable preferred stock units held by noncontrolling interest			88,431
Other liabilities			7,737
Total Liabilities			124,681
Noncontrolling interest			33,838
Net assets held by Lions Gate Entertainment Corp.		$	128,049

     Acquisition of Mandate Pictures, LLC

     On September 10, 2007, the Company purchased all of the membership interests in Mandate Pictures, LLC, a Delaware limited liability company (“Mandate”). Mandate is a worldwide independent film producer and distributor. The Mandate acquisition brings to

the Company additional experienced management personnel working within the motion picture business segment. In addition, the Mandate acquisition adds an independent film and distribution business to the Company’s motion picture business. The aggregate cost of the acquisition was approximately $128.8 million including liabilities assumed of $70.2 million with amounts paid to the selling shareholders of 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 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 September 30, 2009, 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 the current projects are released in the market place the total projected earnings and fees from these projects could increase causing additional payments to the sellers to become payable.

     Acquisition of Debmar-Mercury LLC

     On July 3, 2006, the Company acquired all of the capital stock of Debmar-Mercury, LLC (“Debmar-Mercury”), a leading syndicator of film and television packages. Consideration for the Debmar-Mercury acquisition was $27.0 million, comprised of a combination of $24.5 million in cash paid on July 3, 2006 and $2.5 million in common shares of the Company issued in January 2008, and assumed liabilities of $10.5 million. Goodwill of $8.7 million represents the excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired.

     Pursuant to the purchase agreement, if the aggregate earnings before interest, taxes, depreciation and amortization adjusted to add back 20% of the overhead expense (“Adjusted EBITDA”) of Debmar-Mercury for the five-year period ending after the closing date exceeds the target amount, then up to 40% of the excess Adjusted EBITDA over the target amount is payable as additional consideration. The percentage of the excess Adjusted EBITDA over the target amount ranges from 20% of such excess up to an excess of $3 million, 25% of such excess over $3 million and less than $6 million, 30% of such excess over $6 million and less than $10 million and 40% of such excess over $10 million. The target amount is $32.2 million plus adjustments for interest on certain funding provided by the Company and adjustments for certain overhead and other items.

     In addition, up to 40% (percentage is determined based on how much the cumulative Adjusted EBITDA exceeds the target amount) of Adjusted EBITDA of Debmar-Mercury generated subsequent to the five-year period from the assets existing as of the fifth anniversary date of the close is also payable as additional consideration on a quarterly basis (i.e., the Continuing Earnout Payment) unless the substitute earn out option is exercised by either the seller or the Company. The substitute earn out option is only available if the aggregate Adjusted EBITDA for the five-year period ending after the closing date exceeds the target amount. Under the substitute earn out option, the seller can elect to receive an amount equal to $2.5 million in lieu of the Continuing Earnout Payments and the Company can elect to pay an amount equal to $15 million in lieu of the Continuing Earnout Payments.

     Amounts paid, if any, under the above additional consideration provisions will be recorded as additional goodwill.

11. Direct Operating Expenses

		Three Months				Three Months				Six Months				Six Months
		Ended				Ended				Ended				Ended
		September 30,				September 30,				September 30,				September 30,
		2009				2008				2009				2008
		(Amounts in thousands)
Amortization of films and television programs		$	133,361			$	117,696			$	287,303			$	186,743
Participations and residual expense			65,333				80,895				122,249				159,007
Other expenses:
Provision (benefit) for doubtful accounts			(410	)			12				1,591				222
Foreign exchange losses (gains)			(237	)			1,023				(37	)			1,338
		$	198,047			$	199,626			$	411,106			$	347,310

12. Comprehensive Income (Loss)

		Three Months				Three Months				Six Months				Six Months
		Ended				Ended				Ended				Ended
		September 30,				September 30,				September 30,				September 30,
		2009				2008				2009				2008
		(Amounts in thousands)
Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders		$	31,716			$	(51,814	)		$	68,065			$	(48,295	)
Add (Deduct): Foreign currency translation adjustments			878				(4,049	)			5,887				(3,880	)
Add: Net unrealized gain on foreign exchange contracts			46				3				17				12
Add: Unrealized gain on investments — available for sale			—				91				—				73
Comprehensive income (loss) attributable to Lions Gate Entertainment Corp.		$	32,640			$	(55,769	)		$	73,969			$	(52,090	)
Comprehensive loss attributable to noncontrolling interest			(2,507	)			—				(4,384	)			—
Comprehensive income (loss)		$	30,133			$	(55,769	)		$	69,585			$	(52,090	)

13. 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 and six months ended September 30, 2009 and 2008 is presented below:

		Three Months				Three Months				Six Months				Six Months
		Ended				Ended				Ended				Ended
		September 30,				September 30,				September 30,				September 30,
		2009				2008				2009				2008
		(Amounts in thousands)
Basic Net Income (Loss) Per Common Share:
Numerator:
Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders		$	31,716			$	(51,814	)		$	68,065			$	(48,295	)
Denominator:
Weighted average common shares outstanding			117,322				116,861				117,199				117,647
Basic Net Income (Loss) Per Common Share		$	0.27			$	(0.44	)		$	0.58			$	(0.41	)

     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 and six months ended September 30, 2009 and 2008 is presented below:

		Three Months				Three Months				Six Months				Six Months
		Ended				Ended				Ended				Ended
		September 30,				September 30,				September 30,				September 30,
		2009				2008				2009				2008
		(Amounts in thousands)
Diluted Net Income (Loss) Per Common Share:
Numerator:
Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders		$	31,716			$	(51,814	)		$	68,065			$	(48,295	)
Add:
Interest on convertible Notes, net of tax			4,256				—				8,199				—
Amortization of deferred financing costs, net of tax			129				—				248				—
Numerator for Diluted Net Income (Loss) Per Common Share		$	36,101			$	(51,814	)		$	76,512			$	(48,295	)
Denominator:
Weighted average common shares outstanding			117,322				116,861				117,199				117,647
Effect of dilutive securities:
Conversion of Notes			21,113				—				20,276				—
Restricted share units			297				—				196				—
Adjusted weighted average common shares outstanding			138,732				116,861				137,671				117,647
Diluted Net Income (Loss) Per Common Share		$	0.26			$	(0.44	)		$	0.56			$	(0.41	)