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 (State or other jurisdiction of incorporation or organization)		N/A (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:

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a 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 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 February 1, 2010
	Common Shares, no par value per share			117,836,146 shares

 

 

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			40
3.		Quantitative and Qualitative Disclosures About Market Risk			70
4.		Controls and Procedures			71
		PART II - OTHER INFORMATION
1.		Legal Proceedings			72
1A.		Risk Factors			72
2.		Unregistered Sales of Equity Securities and Use of Proceeds			75
3.		Defaults Upon Senior Securities			76
4.		Submission of Matters to a Vote of Security Holders			76
5.		Other Information			76
6.		Exhibits			76
EX-10.72
EX-10.73
EX-10.74
EX-10.75
EX-10.76
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

		December 31,				March 31,
		2009				2009
		(Amounts in thousands,
		except share amounts)
ASSETS
Cash and cash equivalents		$	105,090			$	138,475
Restricted cash			706				10,056
Restricted investments			6,995				6,987
Accounts receivable, net of reserve for returns and allowances of $83,578 (March 31, 2009 - $98,947) and provision for doubtful accounts of $8,961 (March 31, 2009 - $9,847)			255,377				227,010
Investment in films and television programs, net			731,289				702,767
Property and equipment, net			35,359				42,415
Finite-lived intangible assets, net			74,412				78,904
Goodwill			376,853				379,402
Other assets			113,026				81,234
Total assets		$	1,699,107			$	1,667,250
LIABILITIES
Senior revolving credit facility		$	12,000			$	255,000
Senior secured second-priority notes			225,488				—
Accounts payable and accrued liabilities			244,969				270,561
Participations and residuals			286,656				371,857
Film and production obligations			397,068				304,525
Subordinated notes and other financing obligations			200,064				281,521
Mandatorily redeemable preferred stock units held by noncontrolling interest			91,454				—
Deferred revenue			136,977				142,093
Total liabilities			1,594,676				1,625,557
Commitments and contingencies
SHAREHOLDERS’ EQUITY
Lions Gate Entertainment Corp. shareholders’ equity:
Common shares, no par value, 500,000,000 shares authorized, 117,834,653 and 116,950,512 shares issued at December 31, 2009 and March 31, 2009, respectively			515,728				494,724
Accumulated deficit			(438,347	)			(441,153	)
Accumulated other comprehensive loss			(5,091	)			(11,878	)
Total Lions Gate Entertainment Corp. shareholders’ equity			72,290				41,693
Noncontrolling interest			32,141				—
Total equity			104,431				41,693
Total liabilities and shareholders’ equity		$	1,699,107			$	1,667,250

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		December 31,				December 31,				December 31,				December 31,
		2009				2008				2009				2008
		(Amounts in thousands, except per share amounts)
Revenues		$	371,783			$	324,027			$	1,153,167			$	1,003,204
Expenses:
Direct operating			208,907				218,451				620,013				565,761
Distribution and marketing			160,303				170,400				347,531				458,782
General and administration			39,571				27,472				123,142				96,380
Depreciation and amortization			6,685				1,575				21,087				4,376
Total expenses			415,466				417,898				1,111,773				1,125,299
Operating income (loss)			(43,683	)			(93,871	)			41,394				(122,095	)
Other expenses (income):
Interest expense
Contractual cash based interest			7,655				3,497				18,040				10,406
Amortization of debt discount, deferred financing costs and accretion of redeemable preferred stock units			9,104				4,615				22,725				14,502
Total interest expense			16,759				8,112				40,765				24,908
Interest and other income			(420	)			(860	)			(1,228	)			(5,062	)
Loss (gain) on extinguishment of debt			1,783				(3,023	)			(5,675	)			(3,023	)
Total other expenses, net			18,122				4,229				33,862				16,823
Income (loss) before equity interests and income taxes			(61,805	)			(98,100	)			7,532				(138,918	)
Equity interests loss			(6,903	)			(1,695	)			(10,548	)			(5,841	)
Loss before income taxes			(68,708	)			(99,795	)			(3,016	)			(144,759	)
Income tax provision (benefit)			(1,752	)			(2,039	)			259				1,292
Net loss			(66,956	)			(97,756	)			(3,275	)			(146,051	)
Add: Net loss attributable to noncontrolling interest			1,697				—				6,081				—
Net income (loss) attributable to Lions Gate Entertainment Corp. Shareholders		$	(65,259	)		$	(97,756	)		$	2,806			$	(146,051	)
Basic Net Income (Loss) Per Common Share		$	(0.55	)		$	(0.84	)		$	0.02			$	(1.25	)
Diluted Net Income (Loss) Per Common Share		$	(0.55	)		$	(0.84	)		$	0.02			$	(1.25	)
Weighted average number of common shares outstanding:
Basic			117,745				115,765				117,381				117,018
Diluted			117,745				115,765				117,579				117,018

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 (Note 10)			116,950,512			$	494,724			$	(441,153	)		$	(11,878	)		$	—							$	41,693
Stock based compensation, net of withholding tax obligations of $1,733			759,810				10,008																				10,008
Issuance of common shares to directors for services			100,665				573																				573
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 April 2009 exchange transaction (Note 10)							14,761																				14,761
Reduction of equity component for October 2004 2.9375% Notes and February 3.625% Notes extinguished in December 2009 (Note 10)							(4,171	)																			(4,171	)
Comprehensive income
Net income (loss)											2,806								(6,081	)		$	(3,275	)			(3,275	)
Foreign currency translation adjustments															6,628								6,628				6,628
Net unrealized gain on foreign exchange contracts															159								159				159
Comprehensive income																						$	3,512
Balance at December 31, 2009			117,810,987			$	515,728			$	(438,347	)		$	(5,091	)		$	32,141							$	104,431

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Nine Months				Nine Months
		Ended				Ended
		December 31,				December 31,
		2009				2008
		(Amounts in thousands)
Operating Activities:
Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders		$	2,806			$	(146,051	)
Net loss attributable to noncontrolling interest			(6,081	)			—
Net loss			(3,275	)			(146,051	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation of property and equipment			11,174				3,616
Amortization of films and television programs			429,474				315,614
Amortization of debt discount, deferred financing costs and accretion of redeemable preferred stock units			22,725				14,502
Amortization of intangible assets			9,913				760
Non-cash stock-based compensation			11,741				12,027
Gain on extinguishment of debt			(5,675	)			(3,023	)
Equity interests loss			10,548				5,841
Changes in operating assets and liabilities:
Restricted cash			9,350				(6,700	)
Accounts receivable, net			(22,966	)			72,945
Investment in films and television programs			(457,271	)			(471,308	)
Other assets			(2,315	)			(12,191	)
Accounts payable and accrued liabilities			(30,305	)			26,826
Participations and residuals			(85,802	)			24,696
Film obligations			(20,019	)			58,711
Deferred revenue			(5,399	)			7,826
Net Cash Flows Used In Operating Activities			(128,102	)			(95,909	)
Investing Activities:
Purchases of restricted investments			(13,994	)			—
Proceeds from the sale of restricted investments			13,985				—
Investment in equity method investees			(41,342	)			(15,886	)
Increase in loans receivable			(362	)			(28,767	)
Repayment of loans receivable			8,333				—
Purchases of property and equipment			(4,228	)			(6,465	)
Net Cash Flows Used In Investing Activities			(37,608	)			(51,118	)
Financing Activities:
Exercise of stock options			—				2,894
Tax withholding requirements on equity awards			(1,733	)			(3,134	)
Repurchase and cancellation of common shares			—				(44,968	)
Proceeds from the sale of 49% interest in TV Guide Network			122,355				—
Borrowings under senior revolving credit facility			170,000				—
Repayments of borrowings under senior revolving credit facility			(413,000	)			—
Borrowings under individual production obligations			134,587				117,662
Repayment of individual production obligations			(111,885	)			(165,298	)
Production obligation borrowings under Pennsylvania Regional Center credit facility			57,000				8,758
Production obligation borrowings under film credit facility			32,217				—
Proceeds from sale of senior secured second-priority notes			216,232				—
Repurchase of subordinated notes			(75,185	)			(5,310	)
Repayment of other financing obligations			(615	)			—
Net Cash Flows Provided By (Used In) Financing Activities			129,973				(89,396	)
Net Change In Cash And Cash Equivalents			(35,737	)			(236,423	)
Foreign Exchange Effects on Cash			2,352				(4,453	)
Cash and Cash Equivalents — Beginning Of Period			138,475				371,589
Cash and Cash Equivalents — End Of Period		$	105,090			$	130,713

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 nine months ended December 31, 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 12, 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 December 31, 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, equity investments, 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 the Codification 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 12).

     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 10).

     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, February 9, 2010, 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.

     Restricted Investments. Restricted investments, which are 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 December 31, 2009 and March 31, 2009. At December 31, 2009 and March 31, 2009, restricted investments consist of United States Treasury Bills bearing an interest rate of 0.165%, maturing May 13, 2010.

3. Investment in Films and Television Programs

		December 31,				March 31,
		2009				2009
		(Amounts in thousands)
Motion Picture Segment — Theatrical and Non-Theatrical Films
Released, net of accumulated amortization		$	250,871			$	262,067
Acquired libraries, net of accumulated amortization			46,872				56,898
Completed and not released			24,751				55,494
In progress			234,854				149,402
In development			10,043				6,732
Product inventory			43,189				40,392
			610,580				570,985
Television Segment — Direct-to-Television Programs
Released, net of accumulated amortization			88,350				77,973
In progress			29,106				51,619
In development			2,565				1,445
			120,021				131,037
Media Networks
Released, net of accumulated amortization			352				—
In progress			336				745
			688				745
		$	731,289			$	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				December 31,				March 31,
Library		Acquisition Date				Period				Period				2009				2009
						(In years)								(Amounts in thousands)
Trimark		October 2000					20.00				10.75			$	5,263			$	6,280
Artisan		December 2003					20.00				14.00				39,434				47,255
Modern		August 2005					20.00				15.50				1,288				2,462
Lionsgate UK		October 2005					20.00				15.75				887				901
Total Acquired Libraries														$	46,872			$	56,898

     The Company expects approximately 44% of completed films and television programs, net of accumulated amortization, will be amortized during the one-year period ending December 31, 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 December 31, 2012.

4. Goodwill

     The changes in the carrying amount of goodwill by reporting segment were as follows in the nine months ended December 31, 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			—				—				(2,549	)			(2,549	)
Balance as of December 31, 2009		$	210,293			$	13,961			$	152,599			$	376,853

     During the nine months ended December 31, 2009, goodwill decreased by $2.5 million due to the completion of the preliminary purchase price allocation of the 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 December 31, 2009 and March 31, 2009:

		Weighted				Range
		average				of				December 31, 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			$	66,340			$	5,352			$	60,988			$	64,330			$	530			$	63,800
Trademarks			16				2—20				11,850				1,743				10,107				11,330				627				10,703
Developed technology and patents			2				2—6				3,710				1,470				2,240				3,740				147				3,593
Distribution agreements			2				2—4				4,031				2,954				1,077				1,598				790				808
Total finite-lived intangible assets										$	85,931			$	11,519			$	74,412			$	80,998			$	2,094			$	78,904

     The aggregate amount of amortization expense associated with the Company’s intangible assets for the three months ended December 31, 2009 and 2008 were $3.5 million and $0.2 million, respectively. The aggregate amount of amortization expense associated with the Company’s intangible assets for the nine-month periods ended December 31, 2009 and 2008 were $9.9 million and $0.8 million, respectively. The estimated aggregate amortization expense associated with the Company’s intangible assets, for the three-months ended March 31, 2010 and for each of the years ending March 31, 2011 through 2014 is approximately $2.7 million, $10.2 million, $7.1 million, $7.0 million, and $6.8 million, respectively.

     Other Assets. The composition of the Company’s other assets is as follows as of December 31, 2009 and March 31, 2009:

		December 31,				March 31,
		2009				2009
		(Amounts in thousands)
Deferred financing costs, net of accumulated amortization		$	20,734			$	10,184
Prepaid expenses and other			6,651				6,025
Loans receivable			25,071				33,065
Equity method investments			60,570				31,960
		$	113,026			$	81,234

     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 (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 (see Note 10) 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 December 31, 2009 consist of a $16.7 million collateralized note receivable plus $0.4 million of accrued interest from a third party producer, and $7.1 million of notes receivable and $0.7 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 December 31, 2009 and March 31, 2009 were as follows:

		December 31,				March 31,
		2009				2009
		(Amounts in thousands)
Horror Entertainment, LLC (“FEARnet”)		$	887			$	845
NextPoint, Inc. (“Break.com”)			17,078				17,542
Roadside Attractions, LLC			1,735				2,062
Studio 3 Partners, LLC (“EPIX”)			40,870				11,511
		$	60,570			$	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 nine months ended December 31, 2009 and 2008 were as follows (income (loss)):

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		December 31,				December 31,				December 31,				December 31,
		2009				2008				2009				2008
		(Amounts in thousands)
Horror Entertainment, LLC (“FEARnet”)		$	83			$	(1,373	)		$	(312	)		$	(3,783	)
NextPoint, Inc. (“Break.com”)			165				(208	)			(466	)			(1,354	)
Roadside Attractions, LLC			(230	)			134				(327	)			(244	)
Studio 3 Partners, LLC (“EPIX”)			(6,921	)			(248	)			(9,443	)			(460	)
		$	(6,903	)		$	(1,695	)		$	(10,548	)		$	(5,841	)

     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 licenses 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 nine months ended December 31, 2009, the Company recorded 33.33% of the loss incurred by FEARnet through September 30, 2009.

     NextPoint, Inc. Represents the Company’s 42% equity interest in NextPoint, Inc. (“Break.com”), an online home entertainment service provider operating under the branding of “Break.com.” The interest was acquired on June 29, 2007 for an aggregate purchase price of $21.4 million which included $0.5 million of transaction costs, by issuing 1,890,189 of the 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 is recording its share of the Break.com results on a one quarter lag and, accordingly, during the nine months ended December 31, 2009, the Company recorded 42% of the loss incurred by Break.com through September 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 nine months ended December 31, 2009, the Company recorded 43% of the loss incurred by Roadside through September 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 has 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 provides the Company with an additional platform to distribute its library of motion picture titles and television episodes and programs. The Company increased its initial 28.57% interest in EPIX to 31.15% during the quarter ended December 31, 2009. The Company has invested $51.2 million through December 31, 2009 and will 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 nine months ended December 31, 2009, the Company recorded 28.57% of the loss incurred by the joint venture through September 30, 2009.

     Certain of the Company’s theatrical releases have been made available to EPIX for exhibition in the domestic pay television window, for which $25.7 million of revenue and $17.2 million of gross profit was recognized by the Company in the nine months ended December 31, 2009. Intercompany profits reflecting our pro rata share of the venture of $5.3 million for the nine months ended December 31, 2009 were eliminated in the Equity interests loss line in our Consolidated Statements of Operations. Also reflected within Equity interests loss are $1.6 million and $4.1 million for our share of EPIX losses for the three and nine months ended December 31, 2009, respectively.

     EPIX launched operations during the current quarter and began amortization of its program cost and increased its marketing efforts, and as a result, EPIX expects to report losses of approximately $48.0 million for its quarter ended December 31, 2009, of which the Company’s pro rata share will be recorded in the quarter ended March 31, 2010.

6. Senior Revolving Credit Facility

     On September 30, 2009, the Company amended its senior revolving credit facility which allowed for the Company to issue certain senior secured second-priority notes and expand acceptable obligors included in the senior revolving credit facility’s 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 December 31, 2009, the Company had borrowings of $12.0 million (March 31, 2009 — $255 million) under its senior revolving credit facility. The availability of funds under its senior revolving credit facility is limited by a borrowing base and also reduced by outstanding letters of credit which amounted to $22.6 million at December 31, 2009 (March 31, 2009 — $46.7 million). At December 31, 2009, there was $305.4 million available under the senior revolving 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 senior revolving credit facility of $340 million less the amount drawn. The senior revolving credit facility expires July 25, 2013 and as of December 31, 2009, bore interest of 2.50% over the “Adjusted LIBOR” rate (effective interest rate of 2.73% and 2.75% as of December 31, 2009 and March 31, 2009, respectively). Obligations under the senior revolving credit facility are secured by collateral (as defined in the credit agreement) granted by the Company and certain subsidiaries of the Company, as well as a pledge of equity interests in certain of the Company’s subsidiaries. The senior revolving credit facility contains a number of affirmative and negative covenants that, among other things, require the Company to satisfy certain financial covenants and restrict the ability of the Company to incur additional debt, pay dividends and make distributions, make certain investments and acquisitions, repurchase its stock and prepay certain indebtedness, create liens, enter into agreements with affiliates, modify the nature of its business, enter into sale-leaseback transactions, transfer and sell material assets and merge or consolidate. Under the senior revolving credit facility, the Company may also be subject to an event of default upon a “change in control” (as defined in the senior revolving credit facility) which, among other things, includes a person or group acquiring ownership or control in excess of 20% of our common stock.

7. Senior Secured Second-Priority Notes

     On October 21, 2009, Lions Gate Entertainment Inc. (“LGEI”), one of the Company’s wholly-owned subsidiaries, issued $236.0 million aggregate principal amount of senior secured second-priority notes due 2016 (the “Senior Notes”) in a private offering conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended (the “Securities Act”).

     The Senior Notes were issued by LGEI at an initial price of 95.222% (original issue discount — 4.778%) of the principal amount. The net proceeds, after deducting discounts, fees paid to the initial purchaser, and all transaction costs (including accrued legal, accounting and other professional fees) from the sale of the Senior Notes was approximately $214.2 million, which was used by LGEI to repay a portion of its outstanding debt under its senior revolving credit facility. The original issue discount, interest and deferred financing costs are being amortized through November 1, 2016 using the effective interest method.

     The Senior Notes pay interest semi-annually on May 1 and November 1 of each year at a rate of 10.25% per year and mature on November 1, 2016.

     The Senior Notes are guaranteed on a senior secured basis by the Company, and certain wholly-owned subsidiaries of both the Company and LGEI.

     The Senior Notes are ranked junior in right of payment to the Company’s senior revolving credit facility, ranked equally in right of payment to the Company’s subordinated notes, and ranked senior to any of the Company’s unsecured debt, to the extent of the value of the respective collateral.

     The Senior Notes contain certain restrictions and covenants that, subject to certain exceptions, limit our ability to incur additional indebtedness, pay dividends or repurchase 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 78% of accrued participations and residuals will be paid during the one-year period ending December 31, 2010.

     Theatrical Slate Participation

     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 its theatrical slate participation arrangement with Pride.

     At December 31, 2009, $26.7 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.

     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 December 31, 2009, $6.7 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 sheets. 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.

9. Film and Production Obligations

		December 31,				March 31,
		2009				2009
		(Amounts in thousands)
Film obligations		$	69,391			$	88,814
Production obligations
Individual production loans			229,726				206,978
Pennsylvania Regional Center production loans			65,734				8,733
Film Credit Facility			32,217				—
Total film and production obligations			397,068				304,525
Less film and production obligations expected to be paid within one year			(172,233	)			(185,647	)
Film and production obligations expected to be paid after one year		$	224,835			$	118,878

Film Obligations

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

Individual Production Loans

     Production obligations represent individual loans for the production of film and television programs that the Company produces. Individual production obligations have contractual repayment dates either at or near the expected completion date, with the exception of certain obligations containing repayment dates on a longer term basis. Individual production obligations of $191.2 million incur interest at rates ranging from 1.83% to 5.50%, and approximately $70.7 million of production obligations are non-interest bearing.

Pennsylvania Regional Center

     On April 9, 2008, the Company entered into a loan agreement with the Pennsylvania Regional Center, which provides for the availability of production loans up to $66,500,000 on a five year term for use in film and television productions in the State of Pennsylvania. The amount that can be borrowed is generally 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. Amounts borrowed under the agreement carry an interest rate of 1.5%, which is payable semi-annually, and the principal amount is due on the five-year anniversary date of the first borrowing under the agreement (i.e., April 2013). The loan is secured by a first priority security interest in the 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 subordinated debt repurchased. As of December 31, 2009, $72.8 million principal value of the Company’s subordinated debt repurchased in December 2009 (see Note 10) was held as collateral under the Company’s senior revolving credit facility.

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

Film Credit Facility

     On October 6, 2009, the Company, entered into a revolving film credit facility agreement, as amended effective December 31, 2009 (“Film Credit Facility”), which provides for borrowings for the acquisition or production of motion pictures. Currently, the Film Credit Facility provides for total borrowings up to $120 million and can be increased to $200 million if additional lenders or financial institutions become a party to and provide a commitment under the facility. The Film Credit Facility has a maturity date of April 6, 2013 and generally bears an interest rate of 3.25% over the “LIBO” rate (as defined in the credit agreement). The Company is required to pay a quarterly commitment fee of 0.75% per annum on the unused commitment under the Film Credit Facility. Borrowings under the Film Credit Facility are due the earlier of (a) nine months after delivery of each motion picture or (b) April 6, 2013. Borrowings under the Film Credit Facility are subject to a borrowing base calculation and are secured by interests in the related motion pictures, together with certain other receivables from other motion picture and television productions pledged by the Company, including a minimum pledge of such receivables of $25 million. Receivables pledged to the Film Credit Facility must be excluded from the borrowing base calculation under the Company’s senior revolving credit facility as described in Note 6. At December 31, 2009, the Company had borrowings of $32.2 million and $87.8 million available under the Film Credit Facility.

10. Subordinated Notes and Other Financing Obligations

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

		December 31,				March 31,
		2009				2009
		(Amounts in thousands)
October 2004 2.9375% Convertible Senior Subordinated Notes		$	97,881			$	127,253
February 2005 3.625% Convertible Senior Subordinated Notes			51,881				138,552
April 2009 3.625% Convertible Senior Subordinated Notes			35,201				—
Other financing obligations			15,101				15,716
		$	200,064			$	281,521

Subordinated Notes

     New Accounting Pronouncement. 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.

     Retrospective Impact of Application of New Accounting Pronouncement. The Company applied the provisions of this standard retrospectively to all periods presented resulting in an increase to interest expense of $3.8 million, a decrease to gain on extinguishment of debt of $0.5 million, an increase to net loss of $4.3 million and an increase in basic and diluted loss per share of $0.03 for the three months ended December 31, 2008. For the nine months ended December 31, 2008, the application of the provisions of the new accounting standard resulted in an increase to interest expense of $11.1 million, a decrease to gain on extinguishment of debt of $0.5 million, an increase to net loss of $11.6 million and an increase in basic and diluted loss per share of $0.10. 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.

     Carrying Value. The following table sets forth the equity and liability components of the Company’s subordinated notes outstanding as of December 31, 2009 and March 31, 2009 as fully described below:

		December 31,				March 31,
		2009				2009
		(Amounts in thousands)
October 2004 2.9375% Convertible Senior Subordinated Notes:
Carrying amount of equity component		$	48,080			$	50,074
Carrying amount of liability component
Principal amount of October 2004 2.9375% Notes		$	110,035			$	150,000
Unamortized discount (remaining period of 2.0 and 2.8 years, respectively)			(12,154	)			(22,747	)
Net carrying amount of October 2004 2.9375% Notes		$	97,881			$	127,253
February 2005 3.625% Convertible Senior Subordinated Notes:
Carrying amount of equity component		$	50,855			$	54,355
Carrying amount of liability component
Principal amount of February 3.625% Notes		$	59,479			$	166,000
Unamortized discount (remaining period of 2.3 and 3.0 years, respectively)			(7,598	)			(27,448	)
Net carrying amount of February 2005 3.625% Notes		$	51,881			$	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 5.3 years)			(31,380	)			N/A
Net carrying amount of April 2009 3.625% Notes		$	35,201				N/A

     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 and nine months ended December 31, 2009 and 2008 are presented below.

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		December 31,				December 31,				December 31,				December 31,
		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		$	868			$	1,102			$	3,071			$	3,305
Amortization of discount on liability component			2,092				1,924				6,141				5,602
Amortization of debt issuance costs			129				117				390				334
		$	3,089			$	3,143			$	9,602			$	9,241
February 2005 3.625% Convertible Senior Subordinated Notes:
Effective interest rate of liability component (10.03%)
Interest Expense
Contractual interest coupon		$	497			$	1,560			$	2,426			$	4,732
Amortization of discount on liability component			1,393				1,999				4,304				5,886
Amortization of debt issuance costs			75				126				246				364
		$	1,965			$	3,685			$	6,976			$	10,982
April 2009 3.625% Convertible Senior Subordinated Notes:
Effective interest rate of liability component (17.26%)
Interest Expense
Contractual interest coupon		$	604				N/A			$	1,683				N/A
Amortization of discount on liability component			902				N/A				2,305				N/A
Amortization of debt issuance costs			2				N/A				5				N/A
		$	1,508				N/A			$	3,993				N/A

     October 2004 2.9375% Notes. In October 2004, LGEI sold $150.0 million of 2.9375% Convertible Senior Subordinated Notes (the “October 2004 2.9375% Notes”).

          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 Company: From October 15, 2009 to October 14, 2010, LGEI may redeem the October 2004 2.9375% Notes at 100.839%; from October 15, 2010 to October 14, 2011, LGEI may redeem the October 2004 2.9375% Notes at 100.420%; and thereafter, LGEI may redeem the October 2004 2.9375% Notes at 100%.

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

          Conversion Features: The holder may convert the October 2004 2.9375% Notes into the 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 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.

          Transaction: In December 2009, LGEI paid $38.0 million to repurchase $40.0 million of aggregate principal amount (carrying value — $35.5 million) of the October 2004 2.9375% Notes and recorded a loss on extinguishment of $0.8 million, which includes $0.3 million of deferred financing costs written off. The loss represented the excess of the fair value of the liability component of the October 2004 2.9375% Notes repurchased over their carrying value, plus the deferred financing costs written off. The excess of the amount paid to repurchase the October 2004 2.9375% Notes over the fair value of the October 2004 2.9375% Notes repurchased was recorded as a reduction of shareholders’ equity reflecting the repurchase of the equity component of the October 2004 2.9375% Notes repurchased.

          The October 2004 2.9375% Notes repurchased in December 2009 are being held as collateral under the Company’s senior revolving credit facility and may be resold at the prevailing market value.

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

          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 Company: 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.

     Transactions: The Company had the following transactions associated with its February 2005 3.625% Notes:

     December 2008 Repurchase: In December 2008, LGEI paid $5.5 million to extinguish $9.0 million of aggregate principal amount (carrying value — $7.4 million) of the February 2005 3.625% Notes and recorded a gain on extinguishment of $3.0 million, which includes $0.1 million of deferred financing costs written off. The gain represented the excess of the carrying value of the liability component of the February 2005 3.625% Notes repurchased over their fair value, net of the deferred financing costs written off. The excess of the amount paid to repurchase the February 2005 3.625% Notes over the fair value of the February 2005 3.625% Notes repurchased was recorded as a reduction of shareholders’ equity reflecting the repurchase of the equity component of the February 2005 3.625% Notes repurchased.

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

     December 2009 Repurchase: In December 2009, LGEI paid $37.7 million to extinguish $39.9 million of aggregate principal amount (carrying value — $35.0 million) of the February 2005 3.625% Notes and recorded a loss on extinguishment of $0.9 million, which includes $0.4 million of deferred financing costs written off. The loss represented the excess of the fair value of the liability component of the February 2005 3.625% Notes repurchased over their carrying value, plus the deferred financing costs written off. The excess of the amount paid to repurchase the February 2005 3.625% Notes over the fair value of the February 2005 3.625% Notes repurchased was recorded as a reduction of shareholders’ equity reflecting the repurchase of the equity component of the February 2005 3.625% Notes repurchased.

     The February 2005 3.625% Notes repurchased in December 2009 may be resold at the prevailing market value. In addition, $32.9 million of aggregate principal amount of the February 2005 3.625% Notes repurchased are being held as collateral under the Company’s senior revolving credit facility.

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

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

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

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

     Make Whole Premium: Under certain circumstances, if the holder requires LGEI to repurchase all or a portion of their notes upon a change in control, they will be entitled to receive a make whole premium. The amount of the make whole premium, if any, 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.

     TV Guide Network has a capital lease obligation for a satellite transponder lease in the amount of $11.4 million as of December 31, 2009. The monthly payment on the capital lease obligation totals $1.6 million per year through August 2019, with an imputed interest rate of 6.65%.

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 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 December 31, 2009:

		Carrying
		Value				Fair Value
						(Level 2)
		(Amounts in thousands)
Senior revolving credit facility		$	12,000			$	13,252
October 2004 2.9375% Convertible Senior Subordinated Notes			97,881				98,778
February 2005 3.625% Convertible Senior Subordinated Notes			51,881				53,076
April 2009 3.625% Convertible Senior Subordinated Notes			35,201				34,603
		$	196,963			$	199,709

12. 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, 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).

     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 $152.6 million represents the excess of the purchase price over 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 final allocation of the purchase price to the assets acquired and liabilities assumed were as follows:

		Allocation
		(Amounts in
		thousands)
Accounts receivable, net		$	14,505
Property and equipment			26,649
Other assets acquired			1,831
Finite-lived intangible assets:
Customer relationships			66,340
Trademarks/trade names			10,250
Internal Use Software			2,200
Prepaid Patent License Agreements			1,510
Goodwill			152,599
Other liabilities assumed			(32,775	)
Total purchase price including transaction costs		$	243,109

     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 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.

     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 in May 2019 at the stated value plus the dividend return and any additional capital contributions less previous distributions.

     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 December 31, 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 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 December 31, 2009 which includes capital contributions and dividend accretion through December 31, 2009 was $132.6 million (carrying value — $91.5 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:

		Nine Months				Nine Months
		Ended				Ended
		December 31,				December 31,
		2009				2008
		(Amounts in thousands, except per share amounts)
Revenues		$	1,153,167			$	1,106,341
Operating income (loss)		$	41,394			$	(126,463	)
Net income (loss)		$	1,119			$	(151,736	)
Basic Net Income (Loss) Per Common Share		$	0.01			$	(1.30	)
Diluted Net Income (Loss) Per Common Share		$	0.01			$	(1.30	)
Weighted average number of common shares outstanding — Basic			117,381				117,018
Weighted average number of common shares outstanding — Diluted			117,580				117,018

     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 December 31, 2009:

		December 31,
		2009
		(Amounts in
		thousands)
Cash and cash equivalents		$	20,400
Accounts receivable, net			17,887
Investment in films and television programs, net			688
Property and equipment, net			22,691
Finite-lived intangible assets, net			72,506
Goodwill			152,599
Other assets			353
Total Assets			287,124
Accounts payable and accrued liabilities			15,925
Other financing obligations			11,383
Mandatorily redeemable preferred stock units held by noncontrolling interest			91,454
Other liabilities			7,901
Total Liabilities			126,663
Noncontrolling interest			32,141
Net assets held by Lions Gate Entertainment Corp.		$	128,320

     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 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 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 December 31, 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 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.

13. Direct Operating Expenses

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		December 31,				December 31,				December 31,				December 31,
		2009				2008				2009				2008
						(Amounts in thousands)
Amortization of films and television programs		$	142,171			$	128,871			$	429,474			$	315,614
Participations and residual expense			66,194				86,728				188,443				245,735
Other expenses:
Provision for doubtful accounts			755				1,591				2,346				1,813
Foreign exchange losses (gains)			(213	)			1,261				(250	)			2,599
		$	208,907			$	218,451			$	620,013			$	565,761

14. Comprehensive Income (Loss)

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		December 31,				December 31,				December 31,				December 31,
		2009				2008				2009				2008
						(Amounts in thousands)
Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders		$	(65,259	)		$	(97,756	)		$	2,806			$	(146,051	)
Add (Deduct): Foreign currency translation adjustments			741				(6,954	)			6,628				(10,834	)
Add: Net unrealized gain on foreign exchange contracts			142				103				159				115
Add: Unrealized gain on investments — available for sale			—				—				—				73
Comprehensive income (loss) attributable to Lions Gate Entertainment Corp.		$	(64,376	)		$	(104,607	)		$	9,593			$	(156,697	)
Comprehensive loss attributable to noncontrolling interest			(1,697	)			—				(6,081	)			—
Comprehensive income (loss)		$	(66,073	)		$	(104,607	)		$	3,512			$	(156,697	)

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 and nine months ended December 31, 2009 and 2008 is presented below:

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		December 31,				December 31,				December 31,				December 31,
		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		$	(65,259	)		$	(97,756	)		$	2,806			$	(146,051	)
Denominator:
Weighted average common shares outstanding			117,745				115,765				117,381				117,018
Basic Net Income (Loss) Per Common Share		$	(0.55	)		$	(0.84	)		$	0.02			$	(1.25	)

     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 nine months ended December 31, 2009 and 2008 is presented below:

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		December 31,				December 31,				December 31,				December 31,
		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		$	(65,259	)		$	(97,756	)		$	2,806			$	(146,051	)
Denominator:
Weighted average common shares outstanding			117,745				115,765				117,381				117,018
Effect of dilutive securities:
Restricted share units			—				—				198				—
Adjusted weighted average common shares outstanding			117,745				115,765				117,579				117,018
Diluted Net Income (Loss) Per Common Share		$	(0.55	)		$	(0.84	)		$	0.02			$	(1.25	)