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EX-31.2 - CERTIFICATION OF CFO PURSUANT TO SECTION 302 - LIONS GATE ENTERTAINMENT CORP /CN/ex312q2f2016.htm
EX-31.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 302 - LIONS GATE ENTERTAINMENT CORP /CN/ex311q2f2016.htm
EX-32.1 - CERTIFICATION OF CEO AND CFO PURSUANT TO SECTION 906 - LIONS GATE ENTERTAINMENT CORP /CN/ex321q2f2016.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________
Form 10-Q 
___________________________________________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File No.: 1-14880
___________________________________________________________
Lions Gate Entertainment Corp.
(Exact name of registrant as specified in its charter)
___________________________________________________________
British Columbia, Canada
 
N/A
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
 Identification No.)
250 Howe Street, 20th Floor
Vancouver, British Columbia V6C 3R8
and
2700 Colorado Avenue
Santa Monica, California 90404
(Address of principal executive offices)
___________________________________________________________
(877) 848-3866
(Registrant’s telephone number, including area code)
___________________________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer 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  ¨  No  ý
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 2, 2015
Common Shares, no par value per share
 
148,578,249 shares





 


2


FORWARD-LOOKING STATEMENTS

This report includes statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “potential,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “forecasts,” “may,” “will,” “could,” “would” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those discussed under Part I, Item 1A. “Risk Factors” found in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on May 21, 2015, which risk factors are incorporated herein by reference, as updated by the risk factors found under Part II, Item 1A. "Risk Factors" herein. These risk factors should not be construed as exhaustive and should be read with the other cautionary statements and information in our Annual Report on Form 10-K, and this report.
We caution you that forward-looking statements made in this report or anywhere else are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially and adversely from those made in or suggested by the forward-looking statements contained in this report as a result of various important factors, including, but not limited to, the substantial investment of capital required to produce and market films and television series, increased costs for producing and marketing feature films and television series, budget overruns, limitations imposed by our credit facilities and notes, unpredictability of the commercial success of our motion pictures and television programming, risks related to acquisition and integration of acquired businesses, the effects of dispositions of businesses or assets, including individual films or libraries, the cost of defending our intellectual property, difficulties in integrating acquired businesses, technological changes and other trends affecting the entertainment industry, and the other risks and uncertainties discussed under Part I, Item 1A. “Risk Factors” found in our Annual Report on Form 10-K filed with the SEC on May 21, 2015, which risk factors are incorporated herein by reference, as updated by the risk factors found under Part II, Item 1A. "Risk Factors" herein. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods.
Any forward-looking statements, which we make in this report, speak only as of the date of such statement, and we undertake no obligation to update such statements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.
This Quarterly Report on Form 10-Q  may contain references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other company.
Unless otherwise indicated or the context requires, all references to the “Company,” “Lionsgate,” “we,” “us,” and “our” refer to Lions Gate Entertainment Corp., a corporation organized under the laws of the province of British Columbia, Canada, and its direct and indirect subsidiaries.


3


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
September 30,
2015
 
March 31,
2015
 
(Amounts in thousands,
except share amounts)
ASSETS
 
 
 
Cash and cash equivalents
$
170,417

 
$
102,697

Restricted cash
2,508

 
2,508

Accounts receivable, net of reserves for returns and allowances of $43,671 (March 31, 2015 - $64,362) and provision for doubtful accounts of $4,476 (March 31, 2015 - $4,120)
881,474

 
891,880

Investment in films and television programs, net
1,557,084

 
1,381,829

Property and equipment, net
30,094

 
26,651

Investments
474,290

 
438,298

Goodwill
323,328

 
323,328

Other assets
75,835

 
74,784

Deferred tax assets
50,196

 
50,114

Total assets
$
3,565,226

 
$
3,292,089

LIABILITIES
 
 
 
Senior revolving credit facility
$

 
$

5.25% Senior Notes
225,000

 
225,000

Term Loan
400,000

 
375,000

Accounts payable and accrued liabilities
282,412

 
332,473

Participations and residuals
516,673

 
471,661

Film obligations and production loans
904,091

 
656,755

Convertible senior subordinated notes
98,979

 
114,126

Deferred revenue
250,524

 
274,787

Total liabilities
2,677,679

 
2,449,802

Commitments and contingencies

 

SHAREHOLDERS’ EQUITY
 
 
 
Common shares, no par value, 500,000,000 shares authorized, 148,504,591 shares issued (March 31, 2015 - 145,532,978 shares)
884,182

 
830,786

Retained earnings (accumulated deficit)
(11,405
)
 
13,720

Accumulated other comprehensive income (loss)
14,770

 
(2,219
)
Total shareholders’ equity
887,547

 
842,287

Total liabilities and shareholders’ equity
$
3,565,226

 
$
3,292,089

See accompanying notes.

4


LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
Three Months Ended
 
Six Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Amounts in thousands, except per share amounts)
Revenues
$
476,759

 
$
552,876

 
$
885,700

 
$
1,002,259

Expenses:
 
 
 
 
 
 
 
Direct operating
292,810

 
306,391

 
523,120

 
545,264

Distribution and marketing
153,140

 
152,877

 
225,064

 
250,198

General and administration
67,577

 
61,489

 
128,289

 
125,568

Depreciation and amortization
2,520

 
1,631

 
4,350

 
2,977

Total expenses
516,047

 
522,388

 
880,823

 
924,007

Operating income (loss)
(39,288
)
 
30,488

 
4,877

 
78,252

Other expenses (income):
 
 
 
 
 
 
 
Interest expense
 
 
 
 
 
 
 
Cash interest
10,357

 
9,537

 
20,728

 
18,979

Amortization of debt discount and deferred financing costs
2,273

 
3,534

 
4,527

 
7,064

Total interest expense
12,630

 
13,071

 
25,255

 
26,043

Interest and other income
(555
)
 
(547
)
 
(1,155
)
 
(1,565
)
Loss on extinguishment of debt

 
586

 

 
586

Total other expenses, net
12,075

 
13,110

 
24,100

 
25,064

Income (loss) before equity interests and income taxes
(51,363
)
 
17,378

 
(19,223
)
 
53,188

Equity interests income
7,149

 
8,245

 
18,537

 
26,455

Income (loss) before income taxes
(44,214
)
 
25,623

 
(686
)
 
79,643

Income tax provision (benefit)
(2,145
)
 
4,842

 
699

 
15,601

Net income (loss)
$
(42,069
)
 
$
20,781

 
$
(1,385
)
 
$
64,042

 
 
 
 
 
 
 
 
Basic net income (loss) per common share
$
(0.28
)
 
$
0.15

 
$
(0.01
)
 
$
0.46

Diluted net income (loss) per common share
$
(0.28
)
 
$
0.15

 
$
(0.01
)
 
$
0.44

 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
148,345

 
137,380

 
147,984

 
137,942

Diluted
148,345

 
146,667

 
147,984

 
151,788

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.09

 
$
0.07

 
$
0.16

 
$
0.12

See accompanying notes.

5


LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 
Three Months Ended
 
Six Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Amounts in thousands)
Net income (loss)
$
(42,069
)
 
$
20,781

 
$
(1,385
)
 
$
64,042

Foreign currency translation adjustments, net of tax
(1,497
)
 
(3,275
)
 
1,993

 
(1,793
)
Net unrealized gain (loss) on available-for-sale securities, net of tax of ($4,517) and $1,794 in the three and six months ended September 30, 2015, respectively
(30,232
)
 

 
12,002

 

Net unrealized gain on foreign exchange contracts, net of tax
2,987

 
1,227

 
2,994

 
416

Comprehensive income (loss)
$
(70,811
)
 
$
18,733

 
$
15,604

 
$
62,665

See accompanying notes.


6


LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY



 
Common Shares
 
Retained Earnings (Accumulated Deficit)
 
Accumulated
 Other
Comprehensive
Income (Loss)
 
 
 
Number
 
Amount
 
 
 
Total
 
(Amounts in thousands, except share amounts)
Balance at March 31, 2015
145,532,978

 
$
830,786

 
$
13,720

 
$
(2,219
)
 
$
842,287

Exercise of stock options
281,879

 
4,453

 

 

 
4,453

Share-based compensation, net of withholding tax obligations of $18,390
700,793

 
32,585

 

 

 
32,585

Conversion of April 2009 3.625% Notes
1,983,058

 
16,162

 

 

 
16,162

Issuance of common shares to directors for services
5,883

 
196

 

 

 
196

Dividends declared

 

 
(23,740
)
 

 
(23,740
)
Net loss

 

 
(1,385
)
 

 
(1,385
)
Foreign currency translation adjustments, net of tax

 

 

 
1,993

 
1,993

Net unrealized gain on available-for-sale securities, net of tax

 

 

 
12,002

 
12,002

Net unrealized gain on foreign exchange contracts, net of tax

 

 

 
2,994

 
2,994

Balance at September 30, 2015
148,504,591

 
$
884,182

 
$
(11,405
)
 
$
14,770

 
$
887,547


See accompanying notes.

7



LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Six Months Ended
 
September 30,
 
2015
 
2014
 
(Amounts in thousands)
Operating Activities:
 
 
 
Net income (loss)
$
(1,385
)
 
$
64,042

Adjustments to reconcile net income (loss) to net cash used in operating activities:
 
 
 
Depreciation and amortization
4,350

 
2,977

Amortization of films and television programs
361,290

 
359,092

Amortization of debt discount and deferred financing costs
4,527

 
7,064

Non-cash share-based compensation
33,983

 
33,549

Distribution from equity method investee

 
7,788

Loss on extinguishment of debt

 
586

Equity interests income
(18,537
)
 
(26,455
)
Deferred income taxes
(2,612
)
 
9,316

Changes in operating assets and liabilities:
 
 
 
Restricted cash

 
1,390

Accounts receivable, net
12,007

 
83,594

Investment in films and television programs
(535,470
)
 
(639,019
)
Other assets
(1,828
)
 
(896
)
Accounts payable and accrued liabilities
(34,300
)
 
(78,990
)
Participations and residuals
44,938

 
22,570

Film obligations
(11,148
)
 
(38,913
)
Deferred revenue
(24,423
)
 
(15,632
)
Net Cash Flows Used In Operating Activities
(168,608
)
 
(207,937
)
Investing Activities:
 
 
 
Proceeds from the sale of equity method investees

 
14,575

Investment in equity method investees
(3,659
)
 
(12,650
)
Purchases of other investments

 
(2,000
)
Purchases of property and equipment
(6,880
)
 
(4,495
)
Net Cash Flows Used In Investing Activities
(10,539
)
 
(4,570
)
Financing Activities:
 
 
 
Senior revolving credit facility - borrowings
48,000

 
367,500

Senior revolving credit facility - repayments
(48,000
)
 
(325,619
)
Term Loan - borrowings, net of deferred financing costs of $964
24,036

 

Convertible senior subordinated notes - repurchases
(5
)
 
(16
)
Production loans - borrowings
370,945

 
385,706

Production loans - repayments
(112,474
)
 
(65,435
)
Repurchase of common shares

 
(126,404
)
Dividends paid
(20,563
)
 
(13,946
)
Excess tax benefits on equity-based compensation awards

 
1,150

Exercise of stock options
4,453

 
1,663

Tax withholding required on equity awards
(18,983
)
 
(12,136
)
Net Cash Flows Provided By Financing Activities
247,409

 
212,463

Net Change In Cash And Cash Equivalents
68,262

 
(44
)
Foreign Exchange Effects on Cash
(542
)
 
621

Cash and Cash Equivalents - Beginning Of Period
102,697

 
25,692

Cash and Cash Equivalents - End Of Period
$
170,417

 
$
26,269

See accompanying notes.

8



LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. General
Nature of Operations
Lions Gate Entertainment Corp. (the “Company,” “Lionsgate,” "Lions Gate," “we,” “us” or “our”) is a premier next generation global content leader with a strong and diversified presence in motion picture production and distribution, television programming and syndication, home entertainment, digital distribution, channel platforms and international distribution and sales.
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 (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to quarterly report on Form 10-Q under the Securities Exchange Act of 1934, as amended, and Article 10 of Regulation S-X. 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, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2016. The balance sheet at March 31, 2015 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 the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2015.
Certain amounts presented in prior years have been reclassified to conform to the current year’s presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The most significant estimates made by management in the preparation of the financial statements relate to ultimate revenue and costs for investment in films and television programs; estimates of sales returns and other allowances and provisions for doubtful accounts; fair value of equity-based compensation; fair value of assets and liabilities for allocation of the purchase price of companies acquired; income taxes; 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 May 2014, the Financial Accounting Standards Board ("FASB") issued an accounting standard update relating to the recognition of revenue from contracts with customers, which will supersede most current U.S. GAAP revenue recognition guidance, including industry-specific guidance. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. Based on the current guidance, the new framework will become effective on either a full or modified retrospective basis for the Company on April 1, 2018. The Company is currently evaluating the impact that the adoption of this new guidance will have on its consolidated financial statements.

In April 2015, the FASB issued an accounting standards update relating to the presentation of debt issuance costs. The accounting update requires companies to present debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, rather than as an asset.  The guidance is effective for the Company's fiscal year beginning April 1, 2016, with early adoption permitted. The Company plans to adopt the new guidance effective April 1, 2016. The adoption of this guidance is not expected to have a material impact on the Company's consolidated financial statements.

9

LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




2. Investment in Films and Television Programs
 
September 30,
2015
 
March 31,
2015
 
(Amounts in thousands)
Motion Pictures Segment - Theatrical and Non-Theatrical Films
 
 
 
Released, net of accumulated amortization
$
410,997

 
$
507,628

Acquired libraries, net of accumulated amortization
6,358

 
9,357

Completed and not released
87,366

 
76,968

In progress
710,557

 
478,879

In development
27,014

 
21,054

Product inventory
24,183

 
23,023

 
1,266,475

 
1,116,909

Television Production Segment - Direct-to-Television Programs
 
 
 
Released, net of accumulated amortization
200,943

 
231,470

In progress
84,771

 
28,585

In development
4,895

 
4,865

 
290,609

 
264,920

 
$
1,557,084

 
$
1,381,829

The Company expects approximately 45% of completed films and television programs, net of accumulated amortization, will be amortized during the one-year period ending September 30, 2016. Additionally, the Company expects approximately 81% 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, 2018.
During the three and six months ended September 30, 2015 and 2014, the Company performed fair value measurements related to certain films. In determining the fair value of its films, the Company employs a discounted cash flows ("DCF") methodology that includes cash flow estimates of a film’s ultimate revenue and costs as well as a discount rate. The discount rate utilized in the DCF analysis is based on the Company’s weighted average cost of capital plus a risk premium representing the risk associated with producing a particular film. During the three and six months ended September 30, 2015, the Company recorded $7.8 million and $8.5 million, respectively, of fair value film write-downs, as compared to $0.6 million and $3.4 million of fair value film write-downs recorded during the three and six months ended September 30, 2014.

3. Investments
The carrying amounts of investments, by category, at September 30, 2015 and March 31, 2015 were as follows:
 
 
September 30,
2015
 
March 31,
2015
 
 
(Amounts in thousands)
Equity method investments
 
$
256,398

 
$
234,202

Available-for-sale securities
 
175,820

 
162,024

Cost method investments
 
42,072

 
42,072

 
 
$
474,290

 
$
438,298


10

LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




Equity Method Investments:
The carrying amounts of equity method investments at September 30, 2015 and March 31, 2015 were as follows:
 
 
September 30,
2015
 
 
 
 
Equity Method Investee
Ownership
Percentage
 
September 30,
2015
 
March 31,
2015
 
 
 
(Amounts in thousands)
EPIX
31.2%
 
$
140,917

 
$
119,688

Pop
50.0%
 
93,147

 
91,683

Other Equity Method Investments(1)
Various
 
22,334

 
22,831

 
 
 
$
256,398

 
$
234,202

Equity interests in equity method investments for the three and six months ended September 30, 2015 and 2014 were as follows (income (loss)):
 
 
Three Months Ended
 
Six Months Ended
 
September 30,
 
September 30,
Equity Method Investee
2015
 
2014
 
2015
 
2014
 
(Amounts in thousands)
EPIX
$
8,157

 
$
7,724

 
$
21,229

 
$
16,232

Pop
1,032

 
(1,323
)
 
665

 
(3,548
)
Other Equity Method Investments(1)
(2,040
)
 
1,844

 
(3,357
)
 
13,771

 
$
7,149

 
$
8,245

 
$
18,537

 
$
26,455

_________________________
(1)The Company records its share of the net income or loss of Other Equity Method Investments on a one quarter lag. Equity interest income from Other Equity Method Investments of $13.8 million for the six months ended September 30, 2014 includes a gain on sale of the Company's investment in FEARnet of $11.4 million.
EPIX. In April 2008, the Company formed a joint venture with Viacom, its Paramount Pictures unit and Metro-Goldwyn-Mayer Studios to create a premium television channel and subscription video-on-demand service named “EPIX”. The Company invested $80.4 million through September 30, 2010, and no additional amounts have been funded since. During the three and six months ended September 30, 2014, the Company received distributions from EPIX of $1.6 million and $7.8 million, respectively. No distributions were made during the three and six months ended September 30, 2015. Since the Company's original investment in April 2008, the Company has received distributions from EPIX of $28.0 million.
EPIX Financial Information:
The following table presents summarized balance sheet data as of September 30, 2015 and March 31, 2015 for EPIX:
 
 
September 30,
2015
 
March 31,
2015
 
(Amounts in thousands)
Current assets
$
247,025

 
$
285,819

Non-current assets
$
368,766

 
$
277,888

Current liabilities
$
84,960

 
$
121,451

Non-current liabilities
$
25,422

 
$
6,753

The following table presents the summarized statement of operations for the three and six months ended September 30, 2015 and 2014 for EPIX and a reconciliation of the net income reported by EPIX to equity interest income recorded by the Company:

11

LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



 
Three Months Ended
 
Six Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Amounts in thousands)
Revenues
$
105,243

 
$
95,851

 
$
216,593

 
$
187,300

Expenses:
 
 
 
 
 
 
 
Operating expenses
70,153

 
61,959

 
133,090

 
119,466

Selling, general and administrative expenses
6,345

 
5,886

 
12,135

 
11,640

Operating income
28,745

 
28,006

 
71,368

 
56,194

Interest and other expense
(892
)
 
(338
)
 
(1,401
)
 
(731
)
Net income
$
27,853

 
$
27,668

 
$
69,967

 
$
55,463

Reconciliation of net income reported by EPIX to equity interest income:
 
 
 
 
 
 
 
Net income reported by EPIX
$
27,853

 
$
27,668

 
$
69,967

 
$
55,463

Ownership interest in EPIX
31.15
%
 
31.15
%
 
31.15
%
 
31.15
%
The Company's share of net income
8,676

 
8,619

 
21,795

 
17,277

Eliminations of the Company’s share of profits on licensing sales to EPIX(1)
(2,906
)
 
(3,204
)
 
(5,701
)
 
(5,071
)
Realization of the Company’s share of profits on licensing sales to EPIX(2)
2,387

 
2,309

 
5,135

 
4,026

Total equity interest income recorded
$
8,157

 
$
7,724

 
$
21,229

 
$
16,232

_________________________
(1)
Represents the elimination of the gross profit recognized by the Company on licensing sales to EPIX in proportion to the Company's ownership interest in EPIX.
(2)
Represents the realization of a portion of the profits previously eliminated. This profit remains eliminated until realized by EPIX. EPIX initially records the license fee for the title as inventory on its balance sheet and amortizes the inventory over the license period. Accordingly, the profit is realized as the inventory on EPIX's books is amortized.
Pop. The Company’s investment interest in Pop consists of an equity investment in its common stock units and mandatorily redeemable preferred stock units. The Company's partner in Pop, CBS TVG Inc. ("CBS"), has a call option to purchase a portion of the Company's ownership interest in Pop at fair market value, which would result in CBS owning 80% of Pop, exercisable beginning March 26, 2018 for a period of 30 days. During the six months ended September 30, 2015, the Company made contributions to Pop of $0.8 million (no contributions were made during the three months ended September 30, 2015). During the three and six months ended September 30, 2014, the Company made contributions to Pop of $3.0 million and $10.5 million, respectively.
The mandatorily redeemable preferred stock units carry a dividend rate of 10% compounded annually and are mandatorily redeemable in May 2019 at the stated value plus the dividend return and any additional capital contributions less previous distributions. The mandatorily redeemable preferred stock units were initially recorded based on their estimated fair value, as determined using an option pricing model. The mandatorily redeemable preferred stock units and the 10% dividend are being accreted up to their redemption amount over the ten-year period to the redemption date, which is recorded as income within equity interest.

12

LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Pop Financial Information:
The following table presents summarized balance sheet data as of September 30, 2015 and March 31, 2015 for Pop:
 
September 30,
2015
 
March 31,
2015
 
(Amounts in thousands)
Current assets
$
34,928

 
$
32,815

Non-current assets
$
184,607

 
$
187,985

Current liabilities
$
24,586

 
$
26,048

Non-current liabilities
$
4,394

 
$
7,196

Redeemable preferred stock
$
428,580

 
$
399,247

The following table presents the summarized statement of operations for the three and six months ended September 30, 2015 and 2014 for Pop and a reconciliation of the net loss reported by Pop to equity interest income (loss) recorded by the Company:
 
 
Three Months Ended
 
Six Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Amounts in thousands)
Revenues
$
20,837

 
$
19,738

 
$
41,391

 
$
38,566

Expenses:
 
 
 
 
 
 
 
Cost of services
7,926

 
9,803

 
17,291

 
18,293

Selling, marketing, and general and administration
8,708

 
10,122

 
18,600

 
22,593

Depreciation and amortization
1,945

 
1,941

 
3,889

 
3,938

Operating income (loss)
2,258

 
(2,128
)
 
1,611

 
(6,258
)
Other (income) expense
(1
)
 
252

 
(1
)
 
362

Interest expense, net
103

 
181

 
214

 
391

Accretion of redeemable preferred stock units(1)
14,095

 
11,968

 
27,733

 
22,900

Total interest expense, net
14,197

 
12,401

 
27,946

 
23,653

Net loss
$
(11,939
)
 
$
(14,529
)
 
$
(26,335
)
 
$
(29,911
)
Reconciliation of net loss reported by Pop to equity interest income (loss):
 
 
 
 
 
 
 
Net loss reported by Pop
$
(11,939
)
 
$
(14,529
)
 
$
(26,335
)
 
$
(29,911
)
Ownership interest in Pop
50
%
 
50
%
 
50
%
 
50
%
The Company's share of net loss
(5,970
)
 
(7,265
)
 
(13,168
)
 
(14,956
)
Accretion of dividend and interest income on redeemable preferred stock units(1)
7,048

 
5,984

 
13,867

 
11,450

Elimination of the Company's share of profits on licensing sales to Pop
(218
)
 
(367
)
 
(350
)
 
(367
)
Realization of the Company’s share of profits on licensing sales to Pop
172

 
325

 
316

 
325

Total equity interest income (loss) recorded
$
1,032

 
$
(1,323
)
 
$
665

 
$
(3,548
)
 ___________________
(1)
Accretion of mandatorily redeemable preferred stock units represents Pop's 10% dividend and the amortization of discount on its mandatorily redeemable preferred stock units held by the Company and the other interest holder. The Company recorded its share of this expense as income from the accretion of dividend and discount on mandatorily redeemable preferred stock units within equity interest loss.

13

LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Other Equity Method Investments
Defy Media. In June 2007, the Company acquired an interest in Break Media, a multi-platform digital media company and a leader in male-targeted content creation and distribution. In October 2013, Break Media merged with Alloy Digital, a multi-platform digital media company with a strong presence in the youth market, to create Defy Media. The Company's effective economic interest in Defy Media through its investment in Break Media and its direct investment in Defy Media is approximately 16.0%. The Company is accounting for its investment in Defy Media, a limited liability company, under the equity method of accounting due to the Company's board representation that provides significant influence over the investee.
Roadside Attractions. Roadside Attractions is an independent theatrical distribution company. The Company owns a 43.0% interest in Roadside Attractions.
Pantelion Films. Pantelion Films is a joint venture with Videocine, an affiliate of Televisa, which produces, acquires and distributes a slate of English and Spanish language feature films that target Hispanic moviegoers in the U.S. The Company owns a 49.0% interest in Pantelion Films.
Atom Tickets. Atom Tickets is a theatrical movie discovery service. The Company made initial investments totaling $4.3 million in Atom Tickets during the year ended March 31, 2015. The Company owns an interest of approximately 19.7% in Atom Tickets. The Company is accounting for its investment in Atom Tickets, a limited liability company, under the equity method of accounting due to the Company's board representation that provides significant influence over the investee.
Tribeca Short List. Tribeca Short List is a subscription video-on-demand (SVOD) service. The Company made an initial investment of $2.1 million during the year ended March 31, 2015, and during the three and six months ended September 30, 2015, the Company made capital contributions to Tribeca Short List of $2.9 million. The Company holds a 75.0% economic interest, however, the power to direct the activities that most significantly impact the economic performance of Tribeca Short List is shared equally with Tribeca Enterprises. Accordingly, the Company's interest in Tribeca Short List is being accounted for under the equity method of accounting.

Available-for-Sale Securities:

The cost basis, unrealized gains and fair market value of available-for-sale securities are set forth below:

 
 
September 30,
2015
 
March 31,
2015
 
 
(Amounts in thousands)
Cost basis
 
$
158,916

 
$
158,916

Gross unrealized gain
 
16,904

 
3,108

Fair value
 
$
175,820

 
$
162,024


Starz. At September 30, 2015 and March 31, 2015, available-for-sale securities consisted of the Company's minority interest in Starz. On March 27, 2015, pursuant to the terms of a stock exchange agreement entered into on February 10, 2015 (the "Exchange Agreement"), the Company exchanged 4,967,695 of its newly issued common shares for 2,118,038 shares of Series A common stock of Starz and 2,590,597 shares of Series B common stock of Starz held by certain affiliates of John C. Malone ("Dr. Malone") (the exchange transaction, the "Exchange"). The Exchange Agreement placed certain restrictions on the ability to transfer the shares issued by the Company. The Starz shares acquired by the Company represent approximately 14.7% of the total voting power of the issued and outstanding Starz common stock as of September 30, 2015. However, under the Exchange Agreement, the Company granted an irrevocable proxy to Dr. Malone and the affiliates of Dr. Malone to vote the shares the Company acquired except with respect to proposals related to extraordinary transactions, including any proposals related to any sale or issuance of securities, or any business combination, merger, consolidation, liquidation, reorganization, recapitalization, sale or disposition of all or substantially all of Starz's assets or similar extraordinary transaction, whether or not involving the Company.

The Company classifies the Series A common stock of Starz within Level 1 of the fair value hierarchy as the valuation inputs are based on quoted prices in active markets (see Note 8). The Series B common stock of Starz are considered a Level 2 security because the quoted market prices are based on infrequent transactions. Therefore, the fair value of the Series B common stock, which is convertible, at the holder’s option, into Series A common stock of Starz is based on the quoted market

14

LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



price of the Series A common stock, which is an equivalent security other than for the voting rights.


Cost Method Investments:
Telltale. Telltale Games ("Telltale") is a creator, developer and publisher of interactive software episodic games based upon popular stories and characters across all major gaming and entertainment platforms. In February 2015, the Company invested $40.0 million in Telltale, which consisted of a cash investment in Telltale of $28.0 million in exchange for 2,628,072 of Telltale's Series D Convertible Preferred Stock, and 361,229 newly issued common shares of the Company with a fair value of approximately $12.0 million in exchange for approximately 1,126,316 existing common shares of Telltale, representing in the aggregate an approximately 14% economic interest in Telltale.
Next Games. Next Games is a mobile games development company headquartered in Helsinki, Finland, with a focus on crafting visually impressive, highly engaging games. In July 2014, the Company invested $2.0 million in Next Games for a small minority ownership interest.


4. Other Assets
The composition of the Company’s other assets is as follows as of September 30, 2015 and March 31, 2015:
 
 
September 30,
2015
 
March 31,
2015
 
(Amounts in thousands)
Deferred financing costs, net of accumulated amortization
$
24,653

 
$
28,060

Prepaid expenses and other
50,390

 
45,537

Finite-lived intangible assets
792

 
1,187

 
$
75,835

 
$
74,784

Deferred Financing Costs. Deferred financing costs primarily include costs incurred in connection with the Company's various debt issuances (see Note 5).
Prepaid Expenses and Other. Prepaid expenses and other primarily include prepaid expenses, security deposits, and other assets.
Finite-lived Intangible Assets. Finite-lived intangibles consist primarily of sales agency relationships and trademarks.

5. Corporate Debt

The total carrying values of corporate debt of the Company, excluding film obligations and production loans, were as follows as of September 30, 2015 and March 31, 2015:
 
September 30,
2015
 
March 31,
2015
 
(Amounts in thousands)
Senior revolving credit facility
$

 
$

5.25% Senior Notes
225,000

 
225,000

Term Loan Due 2022
400,000

 
375,000

Convertible senior subordinated notes, net of unamortized discount of $2,871 (March 31, 2015 - $3,891)
98,979

 
114,126

 
$
723,979

 
$
714,126


15

LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table sets forth future annual contractual principal payment commitments of corporate debt as of September 30, 2015:
 
 
 
Conversion Price Per Share at September 30, 2015
 
Maturity Date
 
Year Ended March 31,
Debt Type
 
 
 
2016
 
2017
 
2018
 
2019
 
2020
 
Thereafter
 
Total
 
 
 
 
 
 
(Amounts in thousands)
Senior revolving credit facility
 
N/A
 
September 2017
 
$

 
$

 
$

 
$

 
$

 
$

 
$

5.25% Senior Notes
 
N/A
 
August 2018
 

 

 

 
225,000

 

 

 
225,000

Term Loan Due 2022
 
N/A
 
March 2022
 

 

 

 

 

 
400,000

 
400,000

Principal amounts of convertible senior subordinated notes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
January 2012 4.00% Notes
 
$10.33
 
January 2017
 

 
41,850

 

 

 

 

 
41,850

April 2013 1.25% Notes
 
$29.52
 
April 2018
 

 

 

 
60,000

 

 

 
60,000

 
 
 
 
 
 
$

 
$
41,850

 
$

 
$
285,000

 
$

 
$
400,000

 
726,850

Less aggregate unamortized discount
 
 
 
 
 
 
 
 
 
 
 
 
 
(2,871
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
723,979


Senior Revolving Credit Facility
Availability of Funds. The senior revolving credit facility provides for borrowings and letters of credit up to an aggregate of $800 million, and at September 30, 2015 there was $800.0 million available (March 31, 2015$800.0 million). The availability of funds is limited by a borrowing base and also reduced by outstanding letters of credit, if any. There were no letters of credit outstanding at September 30, 2015 (March 31, 2015none).
Maturity Date. September 27, 2017.
Interest. Interest is payable at an alternative base rate, as defined, plus 1.5%, or LIBOR plus 2.5% as designated by the Company.
Commitment Fee. The Company is required to pay a quarterly commitment fee of 0.375% to 0.5% per annum, depending on the average balance of borrowings outstanding during the period, on the total senior revolving credit facility of $800 million less the amount drawn.
Security. Obligations are secured by collateral (as defined in the credit agreement) granted by the Company and certain subsidiaries of the Company, as well as a pledge of equity interests in certain of the Company’s subsidiaries.
Covenants. The senior revolving credit facility contains a number of 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, make certain investments and acquisitions, repurchase its stock, 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. As of September 30, 2015, the Company was in compliance with all applicable covenants.
Change in Control. The Company may also be subject to an event of default upon a change in control (as defined in the credit agreement) which, among other things, includes a person or group acquiring ownership or control in excess of 50% of the Company’s common shares.

5.25% Senior Notes

Issuance Date. On July 19, 2013, Lions Gate Entertainment Corp. issued $225.0 million aggregate principal amount of 5.25% Senior Secured Second-Priority Notes (the "5.25% Senior Notes").


16

LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Interest. Interest is payable semi-annually on February 1 and August 1 of each year at a rate of 5.25% per year, and commenced on February 1, 2014.

Maturity Date. August 1, 2018.

Covenants. The 5.25% Senior Notes contain certain restrictions and covenants that, subject to certain exceptions, limit the Company’s ability to incur additional indebtedness, pay dividends or repurchase the Company’s common shares, make certain loans or investments, and sell or otherwise dispose of certain assets subject to certain conditions, among other limitations. As of September 30, 2015, the Company was in compliance with all applicable covenants.

Term Loan Due 2022

Issuance Date. On March 17, 2015, Lions Gate Entertainment Corp. entered into a second lien credit and guarantee agreement (the "Credit Agreement"), and pursuant to the Credit Agreement, borrowed a term loan in an aggregate amount of $375 million (the "Term Loan Due 2022"). In May 2015, Lions Gate Entertainment Corp. amended the Credit Agreement governing its Term Loan Due 2022, and pursuant to the amended Credit Agreement, borrowed an additional term loan in an aggregate amount of $25.0 million. Contemporaneously with the issuance of the Term Loan Due 2022 (which carries a fixed interest rate of 5.00%), the Company used a portion of the proceeds to redeem its $225.0 million principal amount term loan (the "Term Loan Due 2020") (which carried a variable interest rate of LIBOR, subject to a 1.00% floor, plus 4.00%).

Interest. Interest on the Term Loan Due 2022 is payable on the last business day of each April, July, October and January at a rate of 5.00% per year.

Maturity Date. The Term Loan Due 2022 matures on March 17, 2022.

Covenants. Substantially similar to the 5.25% Senior Notes discussed above. As of September 30, 2015, the Company was in compliance with all applicable covenants.

Convertible Senior Subordinated Notes
Outstanding Amount and Terms. The following table sets forth the convertible senior subordinated notes outstanding and certain key terms of these notes at September 30, 2015 and March 31, 2015:
 
 
 
Maturity Date
 
Conversion Price Per Share at September 30, 2015
 
September 30, 2015
 
March 31, 2015
Convertible Senior Subordinated Notes
 
 
 
Principal
 
Unamortized Discount
 
Net Carrying Amount
 
Principal
 
Unamortized Discount
 
Net Carrying Amount
 
 
 
 
 
 
(Amounts in thousands)
April 2009 3.625% Notes
 
N/A
 
 N/A
 
$

 
$

 
$

 
$
16,167

 
$

 
$
16,167

January 2012 4.00% Notes
 
January 11, 2017
 
$10.33
 
41,850

 
(2,871
)
 
38,979

 
41,850

 
(3,891
)
 
37,959

April 2013 1.25% Notes
 
April 15, 2018
 
$29.52
 
60,000

 

 
60,000

 
60,000

 

 
60,000

 
 
 
 
 
 
$
101,850

 
$
(2,871
)
 
$
98,979

 
$
118,017

 
$
(3,891
)
 
$
114,126


April 2009 3.625% Notes: On March 17, 2015, the April 2009 3.625% Notes were called for redemption and in April 2015, the holders of the notes converted substantially all of the outstanding principal amounts into common shares.

January 2012 4.00% Notes: In January 2012, Lions Gate Entertainment Inc. ("LGEI") issued approximately $45.0 million of January 2012 4.00% Notes, of which $10.1 million was allocated to the equity component. Interest is payable semi-annually on January 15 and July 15 of each year.

April 2013 1.25% Notes: In April 2013, LGEI issued approximately $60.0 million in aggregate principal amount of April 2013 1.25% Notes. Interest is payable semi-annually on April 15 and October 15 of each year, and commenced on October 15, 2013.


17

LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Conversion Features: The convertible senior subordinated notes are convertible, at any time, into the number of common shares of the Company determined by the principal amount being converted divided by the conversion price, subject to adjustment in certain circumstances.
 
The January 2012 4.00% Notes provide that upon conversion, the Company has the option to deliver, in lieu of common shares, cash or a combination of cash and common shares of the Company. Accounting guidance requires that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are recorded by separately accounting for the liability and equity component (i.e., conversion feature), thereby reducing the principal amount with a debt discount that is amortized as interest expense over the expected life of the note using the effective interest method. The effective interest rate on the liability component of the January 2012 4.00% Notes is 9.56%.

The April 2013 1.25% Notes are convertible only into the Company's common shares and do not carry an option to be settled in cash upon conversion, and accordingly, have been recorded at their principal amount (not reduced by a debt discount for the equity component).

Conversions. The following conversions were completed with respect to the Company's convertible senior subordinated notes in the six months ended September 30, 2015 and 2014, which resulted in a loss on extinguishment of debt of $0.6 million in the six months ended September 30, 2014 (2015 - none):

 
Six Months Ended
 
September 30,
 
2015
 
2014
 
(Amounts in thousands, except share amounts)
April 2009 3.625% Notes
 
 
 
Principal amount converted
$
16,162

 
$
11,251

Common shares issued upon conversion
1,983,058

 
1,370,395

Weighted average conversion price per share
$
8.15

 
$
8.21

October 2004 2.9375% Notes
 
 
 
Principal amount converted
$

 
$
99

Common shares issued upon conversion

 
8,634

Weighted average conversion price per share
$

 
$
11.46

Total
 
 
 
Principal amount converted
$
16,162

 
$
11,350

Common shares issued upon conversion
1,983,058

 
1,379,029

Weighted average conversion price per share
$
8.15

 
$
8.23

Interest Expense. Interest expense recognized for the convertible senior subordinated notes for the three and six months ended September 30, 2015 and 2014 is presented below:
 
 
Three Months Ended
 
Six Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Amounts in thousands)
Interest Expense
 
 
 
 
 
 
 
Contractual interest coupon
$
606

 
$
956

 
$
1,155

 
$
1,929

Amortization of discount on liability component and debt issuance costs
529

 
1,642

 
1,046

 
3,261

 
$
1,135

 
$
2,598

 
$
2,201

 
$
5,190




18

LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



6. Participations and Residuals
The Company expects approximately 69% of accrued participations and residuals will be paid during the one-year period ending September 30, 2016.

Theatrical Slate Participation

On March 10, 2015, the Company entered into a theatrical slate participation arrangement with TIK Films (U.S.), Inc. and TIK Films (Hong Kong) Limited (collectively, "TIK Films"), both wholly owned subsidiaries of Hunan TV & Broadcast Intermediary Co. Ltd. Under the arrangement, TIK Films, in general and subject to certain limitations including per picture and annual caps, will contribute a minority share of 25% of the Company’s production or acquisition costs of “qualifying” theatrical feature films, released during the three-year period ending January 23, 2018, and participate in a pro-rata portion of the pictures’ net profits or losses similar to a co-production arrangement based on the portion of costs funded. The arrangement excludes among others, any theatrical feature film incorporating any elements from the Twilight, Hunger Games or Divergent franchises. The percentage of the contribution could vary on certain pictures.

Amounts provided from TIK Films are reflected as a participation liability in the Company's consolidated balance sheet and amounted to $24.7 million at September 30, 2015 (March 31, 2015 - $13.6 million). The difference between the ultimate participation expected to be paid to TIK Films and the amount provided by TIK Films is amortized as a charge to or a reduction of participation expense under the individual-film-forecast method.



7. Film Obligations and Production Loans
 
 
September 30,
2015
 
March 31,
2015
 
(Amounts in thousands)
Film obligations
$
44,676

 
$
55,811

Production loans
859,415

 
600,944

Total film obligations and production loans
$
904,091

 
$
656,755


The following table sets forth future annual repayment of film obligations and production loans as of September 30, 2015:
 
 
Six Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31,
 
Year Ended March 31,
 
2016
 
2017
 
2018
 
2019
 
2020
 
Thereafter
 
Total
 
(Amounts in thousands)
Film obligations
$
38,889

 
$
2,964

 
$
2,000

 
$
1,000

 
$

 
$

 
$
44,853

Production loans
230,641

 
628,774

 

 

 

 

 
859,415

 
$
269,530

 
$
631,738

 
$
2,000

 
$
1,000

 
$

 
$

 
904,268

Less imputed interest on film obligations
 
 
 
 
 
 
 
 
 
 
 
 
(177
)
 
 
 
 
 
 
 
 
 
 
 
 
 
$
904,091

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

19


Production Loans
Production loans represent individual loans for the production of film and television programs that the Company produces. The majority of production loans have contractual repayment dates either at or near the expected completion date, with the exception of certain loans containing repayment dates on a longer term basis, and incur interest at rates ranging from 3.33% to 3.58%.


8. 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
Fair value hierarchy 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 not required to be measured at fair value on a recurring basis include the Company’s convertible senior subordinated notes, production loans, 5.25% Senior Notes, and Term Loan, which are priced using discounted cash flow techniques that use observable market inputs, such as LIBOR-based yield curves, 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 Company measures the fair value of its investment in Pop's Mandatorily Redeemable Preferred Stock Units using primarily a discounted cash flow analysis based on the expected cash flows of the investment. The analysis reflects the contractual terms of the investment, including the period to maturity, and uses a discount rate commensurate with the risk associated with the investment.
The following table sets forth the assets and liabilities required to be carried at fair value on a recurring basis as of September 30, 2015 and March 31, 2015:
 
September 30, 2015
 
March 31, 2015
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
Assets:
(Amounts in thousands)
Available-for-sale securities (see Note 3):
 
 
 
 
 
 
 
 
 
 
 
Starz Series A common stock
$
79,087

 
$

 
$
79,087

 
$
72,882

 
$

 
$
72,882

Starz Series B common stock

 
96,733

 
96,733

 

 
89,142

 
89,142

 
 
 
 
 
 
 
 
 
 
 
 
Forward exchange contracts (see Note 16)

 
11,895

 
11,895

 

 
8,335

 
8,335

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Forward exchange contracts (see Note 16)

 
(937
)
 
(937
)
 

 
(2,024
)
 
(2,024
)
 
$
79,087

 
$
107,691

 
$
186,778

 
$
72,882

 
$
95,453

 
$
168,335



20

LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table sets forth the carrying values and fair values of the Company’s investment in Pop's mandatorily redeemable preferred stock units and outstanding debt at September 30, 2015 and March 31, 2015:
 
 
September 30, 2015
 
March 31, 2015
 
(Amounts in thousands)
 
Carrying
Value
 
Fair Value
 
Carrying Value
 
Fair Value
 
 
 
(Level 3)
 
 
 
(Level 3)
Assets:
 
 
 
 
 
 
 
Investment in Pop's Mandatorily Redeemable Preferred Stock Units
$
93,147

 
$
110,000

 
$
91,683

 
$
110,000

 
 
 
 
 
 
 
 
 
Carrying
Value
 
Fair Value
 
Carrying Value
 
Fair Value
 
 
 
(Level 2)
 
 
 
(Level 2)
Liabilities:
 
 
 
 
 
 
 
April 2009 3.625% Notes
$

 
$

 
$
16,167

 
$
16,167

January 2012 4.00% Notes
38,979

 
41,340

 
37,959

 
41,473

April 2013 1.25% Notes
60,000

 
53,487

 
60,000

 
53,241

Production loans
859,415

 
859,415

 
600,944

 
600,944

5.25% Senior Notes
225,000

 
231,188

 
225,000

 
233,438

Term Loan
400,000

 
400,500

 
375,000

 
375,938

 
$
1,583,394

 
$
1,585,930

 
$
1,315,070

 
$
1,321,201


9. 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, 2015 and 2014 is presented below:
 
 
Three Months Ended
 
Six Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Amounts in thousands, except per share amounts)
Basic Net Income (Loss) Per Common Share:
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income (loss)
$
(42,069
)
 
$
20,781

 
$
(1,385
)
 
$
64,042

Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding
148,345

 
137,380

 
147,984

 
137,942

Basic net income (loss) per common share
$
(0.28
)
 
$
0.15

 
$
(0.01
)
 
$
0.46


Diluted net income (loss) per common share reflects the potential dilutive effect, if any, of the conversion of convertible senior subordinated notes under the "if converted" method. Diluted net income (loss) per common share also reflects share purchase options, including equity-settled share appreciation rights and restricted share units ("RSUs") 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, 2015 and 2014 is presented below:


21

LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



 
Three Months Ended
 
Six Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Amounts in thousands, except per share amounts)
Diluted Net Income (Loss) Per Common Share:
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income (loss)
$
(42,069
)
 
$
20,781

 
$
(1,385
)
 
$
64,042

Add:
 
 
 
 
 
 
 
Interest on convertible notes, net of tax

 
691

 

 
3,292

Numerator for diluted net income (loss) per common share
$
(42,069
)
 
$
21,472

 
$
(1,385
)
 
$
67,334

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding
148,345

 
137,380

 
147,984

 
137,942

Effect of dilutive securities:
 
 
 
 
 
 
 
Conversion of notes

 
6,020

 

 
10,816

Share purchase options

 
2,818

 

 
2,592

Restricted share units

 
449

 

 
438

Adjusted weighted average common shares outstanding
148,345

 
146,667

 
147,984

 
151,788

Diluted net income (loss) per common share
$
(0.28
)
 
$
0.15

 
$
(0.01
)
 
$
0.44

For the three and six months ended September 30, 2015 and 2014, the outstanding common shares issuable presented below were excluded from diluted net income (loss) per common share because their inclusion would have had an anti-dilutive effect.

 
Three Months Ended
 
Six Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Amounts in thousands)
Anti-dilutive shares issuable
 
 
 
 
 
 
 
Conversion of notes
6,067

 
4,704

 
6,062

 

Share purchase options
3,113

 
5,327

 
3,529

 
5,217

Restricted share units
120

 
47

 
94

 
168

Contingently issuable shares
232

 
284

 
314

 
279

Total weighted average anti-dilutive shares issuable excluded from diluted net income (loss) per common share
9,532

 
10,362

 
9,999

 
5,664




10. Capital Stock

(a) Common Shares
The Company had 500 million authorized common shares at September 30, 2015 and March 31, 2015. The table below outlines common shares reserved for future issuance:
 

22

LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



 
September 30,
2015
 
March 31,
2015
 
(Amounts in thousands)
Stock options outstanding, average exercise price $24.11 (March 31, 2015 - $22.22)
14,600

 
12,215

Restricted share units — unvested
1,533

 
1,662

Share purchase options and restricted share units available for future issuance
3,975

 
7,163

Shares issuable upon conversion of April 2009 3.625% Notes at conversion price of $8.15 per share at March 31, 2015

 
1,984

Shares issuable upon conversion of January 2012 4.00% Notes at conversion price of $10.33 per share (March 31, 2015 - $10.38)
4,051

 
4,032

Shares issuable upon conversion of April 2013 1.25% Notes at conversion price of $29.52 per share (March 31, 2015 - $29.65)
2,033

 
2,024

Shares reserved for future issuance
26,192

 
29,080


In September 2012, the Company adopted the 2012 Performance Incentive Plan, as amended on September 9, 2014 (the "2012 Plan"). The 2012 Plan provides for the issuance of up to 27.6 million common shares of the Company, stock options, share appreciation rights, restricted shares, stock bonuses and other forms of awards granted or denominated in common shares or units of common shares of the Company, as well as certain cash bonus awards to eligible directors of the Company, officers or employees of the Company or any of its subsidiaries, and certain consultants and advisors to the Company or any of its subsidiaries.

(b) Share-based Compensation

The Company recognized the following share-based compensation expense during the three and six months ended September 30, 2015, and 2014:
 
 
Three Months Ended
 
Six Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(Amounts in thousands)
Compensation Expense:
 
 
 
 
 
 
 
Stock Options
$
10,289

 
$
9,366

 
$
19,523

 
$
18,009

Restricted Share Units and Other Share-based Compensation
7,103

 
6,989

 
14,460

 
13,038

Share Appreciation Rights

 
967

 
288

 
2,696

 
17,392

 
17,322

 
34,271

 
33,743

Impact of accelerated vesting on stock options and restricted share units(1)

 

 

 
1,194

Total share-based compensation expense
$
17,392

 
$
17,322

 
$
34,271

 
$
34,937

 
 
 
 
 
 
 
 
Tax impact(2)
(6,378
)
 
(6,350
)
 
(12,567
)
 
(12,808
)
Reduction in net income
$
11,014

 
$
10,972

 
$
21,704

 
$
22,129

___________________
(1)
Represents the impact of the acceleration of certain vesting schedules for stock options and restricted share units pursuant to the severance arrangements related to the integration of the marketing operations of the Company's Lionsgate and Summit film labels.
(2)
Represents the income tax benefit recognized in the statements of income for share-based compensation arrangements.


23

LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table sets forth the stock option, equity-settled share appreciation rights, and restricted share unit activity during the six months ended September 30, 2015:
 
Stock Options
 
Weighted-Average Exercise Price
 
Restricted Share Units
 
Weighted-Average Grant-Date Fair Value
Outstanding at March 31, 2015
13,214,696

 
$21.26
 
1,662,028

 
$28.10
Granted
2,671,884

 
$31.86
 
1,028,099

 
$32.49
Options exercised or RSUs vested
(394,879
)
 
$13.92
 
(1,132,051