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EX-31.2 - EXHIBIT 31.2 - CERTIFICATION OF CFO PURSUANT TO SECTION 302 - LIONS GATE ENTERTAINMENT CORP /CN/ex312q2f201910-q.htm
EX-31.1 - EXHIBIT 31.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 302 - LIONS GATE ENTERTAINMENT CORP /CN/ex311q2f201910-q.htm
EX-32.1 - EXHIBIT 32.1 - CERTIFICATION OF CEO AND CFO PURSUANT TO SECTION 906 - LIONS GATE ENTERTAINMENT CORP /CN/ex321q2f201910-q.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________
Form 10-Q 
___________________________________________________________

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

For the quarterly period ended September 30, 2018

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 every Interactive Data File required to be submitted 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 such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth 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
 
 
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
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 5, 2018
Class A Voting Shares, no par value per share
 
82,068,047 shares
Class B Non-Voting Shares, no par value per share
 
132,351,596 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 24, 2018, 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; technological changes and other trends affecting the entertainment industry; potential adverse reactions or changes to business or employee relationships; litigation relating to the acquisition of Starz; impact of the Tax Cuts and Jobs Act (the "Tax Act"); 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 24, 2018, 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,
2018
 
March 31,
2018
 
(Amounts in millions)
ASSETS
 
 
 
Cash and cash equivalents
$
372.3

 
$
378.1

Accounts receivable, net
1,059.0

 
946.0

Program rights
234.2

 
253.2

Other current assets
191.0

 
195.8

Total current assets
1,856.5

 
1,773.1

Investment in films and television programs and program rights, net
1,662.9

 
1,692.0

Property and equipment, net
158.5

 
161.7

Investments
129.8

 
164.9

Intangible assets
1,928.5

 
1,937.7

Goodwill
2,833.5

 
2,740.8

Other assets
439.6

 
458.6

Deferred tax assets
40.1

 
38.8

Total assets
$
9,049.4

 
$
8,967.6

LIABILITIES
 
 
 
Accounts payable and accrued liabilities
$
585.9

 
$
447.7

Participations and residuals
494.3

 
504.5

Film obligations and production loans
318.7

 
327.9

Debt - short term portion
35.3

 
79.1

Dissenting shareholders' liability
961.3

 
869.3

Deferred revenue
238.0

 
183.9

Total current liabilities
2,633.5

 
2,412.4

Debt
2,458.0

 
2,478.3

Participations and residuals
456.5

 
438.3

Film obligations and production loans
149.6

 
171.3

Other liabilities
48.4

 
46.4

Deferred revenue
59.3

 
70.3

Deferred tax liabilities
58.8

 
91.9

Redeemable noncontrolling interest
133.1

 
101.8

Commitments and contingencies (Note 16)

 

EQUITY
 
 
 
Class A voting common shares, no par value, 500.0 shares authorized, 82.0 shares issued (March 31, 2018 - 81.8 shares issued)
638.3

 
628.7

Class B non-voting common shares, no par value, 500.0 shares authorized, 132.1 shares issued (March 31, 2018 - 129.3 shares issued)
2,095.0

 
2,020.3

Retained earnings
332.3

 
516.6

Accumulated other comprehensive loss
(15.6
)
 
(9.7
)
Total Lions Gate Entertainment Corp. shareholders' equity
3,050.0

 
3,155.9

Noncontrolling interests
2.2

 
1.0

Total equity
3,052.2

 
3,156.9

Total liabilities and equity
$
9,049.4

 
$
8,967.6

See accompanying notes.

4


LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
Three Months Ended
 
Six Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
 
(Amounts in millions, except per share amounts)
Revenues
$
901.0

 
$
940.8

 
$
1,833.6

 
$
1,946.1

Expenses
 
 
 
 
 
 
 
Direct operating
463.2

 
521.6

 
993.2

 
1,076.4

Distribution and marketing
227.9

 
234.5

 
431.4

 
432.6

General and administration
115.0

 
111.5

 
225.1

 
223.3

Depreciation and amortization
40.8

 
39.3

 
81.1

 
79.3

Restructuring and other
15.0

 
3.5

 
25.6

 
14.4

Total expenses
861.9

 
910.4

 
1,756.4

 
1,826.0

Operating income
39.1

 
30.4

 
77.2

 
120.1

Interest expense
 
 
 
 
 
 
 
Interest expense
(38.8
)
 
(34.8
)
 
(74.2
)
 
(73.8
)
Interest on dissenting shareholders' liability
(16.7
)
 
(13.9
)
 
(32.6
)
 
(27.2
)
Total interest expense
(55.5
)
 
(48.7
)
 
(106.8
)
 
(101.0
)
Shareholder litigation settlements
(114.1
)
 

 
(114.1
)
 

Interest and other income
3.0

 
2.7

 
6.1

 
5.5

Loss on extinguishment of debt

 
(6.4
)
 

 
(18.0
)
Gain (loss) on investments
(36.1
)
 

 
(37.0
)
 
201.0

Equity interests loss
(11.7
)
 
(12.7
)
 
(17.8
)
 
(21.0
)
Income (loss) before income taxes
(175.3
)
 
(34.7
)
 
(192.4
)
 
186.6

Income tax benefit
26.0

 
47.6

 
31.8

 
0.8

Net income (loss)
(149.3
)
 
12.9

 
(160.6
)
 
187.4

Less: Net loss attributable to noncontrolling interests
5.2

 
2.6

 
8.7

 
1.9

Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders
$
(144.1
)
 
$
15.5

 
$
(151.9
)
 
$
189.3

 
 
 
 
 
 
 
 
Per share information attributable to Lions Gate Entertainment Corp. shareholders:
 
 
 
 
 
 
 
Basic net income (loss) per common share
$
(0.67
)
 
$
0.07

 
$
(0.71
)
 
$
0.91

Diluted net income (loss) per common share
$
(0.67
)
 
$
0.07

 
$
(0.71
)
 
$
0.87

 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
213.6

 
207.8

 
212.7

 
207.3

Diluted
213.6

 
219.8

 
212.7

 
218.7

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.09

 
$

 
$
0.18

 
$

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,
 
2018
 
2017
 
2018
 
2017
 
(Amounts in millions)
Net income (loss)
$
(149.3
)
 
$
12.9

 
$
(160.6
)
 
$
187.4

Foreign currency translation adjustments, net of tax
(1.7
)
 
(0.5
)
 
(7.8
)
 
1.6

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

 
3.9

 

 
3.0

Net unrealized gain (loss) on cash flow hedges, net of tax
9.7

 
(0.8
)
 
4.5

 
(0.1
)
Comprehensive income (loss)
(141.3
)
 
15.5

 
(163.9
)
 
191.9

Less: Comprehensive loss attributable to noncontrolling interests
5.2

 
2.6

 
8.7

 
1.9

Comprehensive income (loss) attributable to Lions Gate Entertainment Corp. shareholders
$
(136.1
)
 
$
18.1

 
$
(155.2
)
 
$
193.8

See accompanying notes.


6

LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF EQUITY



 
Class A Voting
Common Shares
 
Class B Non-Voting
Common Shares
 
Retained Earnings
 
Accumulated
 Other
Comprehensive
Loss
 
Lions Gate Entertainment Corp. Shareholders' Equity
 
Noncontrolling Interests (a)
 
 Total Equity
 
Number
 
Amount
 
Number
 
Amount
 
 
 
 
 
 
(Amounts in millions)
Balance at March 31, 2018
81.8

 
$
628.7

 
129.3

 
$
2,020.3

 
$
516.6

 
$
(9.7
)
 
$
3,155.9

 
$
1.0

 
$
3,156.9

Cumulative effect of accounting changes

 

 

 

 
21.3

 
(2.6
)
 
18.7

 

 
18.7

Exercise of stock options

 
0.4

 
0.1

 
1.9

 

 

 
2.3

 

 
2.3

Share-based compensation, net
0.2

 
9.1

 
0.2

 
17.1

 

 

 
26.2

 

 
26.2

Issuance of common shares related to acquisitions and other

 
0.1

 
2.5

 
55.7

 

 

 
55.8

 

 
55.8

Noncontrolling interests

 

 

 

 

 

 

 
2.5

 
2.5

Dividends declared

 

 

 

 
(38.7
)
 

 
(38.7
)
 

 
(38.7
)
Net loss

 

 

 

 
(151.9
)
 

 
(151.9
)
 
(1.3
)
 
(153.2
)
Other comprehensive loss

 

 

 

 

 
(3.3
)
 
(3.3
)
 

 
(3.3
)
Redeemable noncontrolling interests adjustments to redemption value

 

 

 

 
(15.0
)
 

 
(15.0
)
 

 
(15.0
)
Balance at September 30, 2018
82.0

 
$
638.3

 
132.1

 
$
2,095.0

 
$
332.3

 
$
(15.6
)
 
$
3,050.0

 
$
2.2

 
$
3,052.2

_____________________
(a)
Excludes redeemable noncontrolling interests, which are reflected in temporary equity (see Note 9).

See accompanying notes.

7



LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Six Months Ended
 
September 30,
 
2018
 
2017
 
(Amounts in millions)
Operating Activities:
 
 
 
Net income (loss)
$
(160.6
)
 
$
187.4

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
81.1

 
79.3

Amortization of films and television programs and program rights
723.2

 
764.6

Interest on dissenting shareholders' liability
32.6

 
27.2

Amortization of debt discount and financing costs
6.0

 
7.5

Non-cash share-based compensation
30.2

 
47.4

Other non-cash items
12.1

 
3.9

Shareholder litigation settlements
114.1

 

Loss on extinguishment of debt

 
18.0

Equity interests loss
17.8

 
21.0

Loss (gain) on investments
37.0

 
(201.0
)
Deferred income taxes (benefit)
(40.9
)
 
16.2

Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net and other assets
172.7

 
131.6

Investment in films and television programs and program rights, net
(697.1
)
 
(680.7
)
Accounts payable and accrued liabilities
(65.3
)
 
(197.7
)
Participations and residuals
(24.1
)
 
20.9

Film obligations
(12.4
)
 
25.7

Deferred revenue
43.5

 
65.3

Net Cash Flows Provided By Operating Activities
269.9

 
336.6

Investing Activities:
 
 
 
Proceeds from the sale of equity method investee, net of transaction costs

 
393.7

Investment in equity method investees
(16.2
)
 
(29.3
)
Business acquisitions, net of cash acquired of $5.5 (see Note 2)
(77.3
)
 

Increase in loans receivable
(5.8
)
 

Capital expenditures
(21.6
)
 
(21.3
)
Net Cash Flows Provided By (Used In) Investing Activities
(120.9
)
 
343.1

Financing Activities:
 
 
 
Debt - borrowings
2,069.5

 
115.0

Debt - repayments
(2,144.8
)
 
(818.0
)
Production loans - borrowings
154.5

 
169.7

Production loans - repayments
(189.7
)
 
(251.6
)
Dividends paid
(38.2
)
 

Distributions to noncontrolling interest
(1.5
)
 
(4.6
)
Exercise of stock options
1.8

 
22.4

Tax withholding required on equity awards
(4.0
)
 
(8.5
)
Net Cash Flows Used In Financing Activities
(152.4
)
 
(775.6
)
Net Change In Cash, Cash Equivalents and Restricted Cash
(3.4
)
 
(95.9
)
Foreign Exchange Effects on Cash, Cash Equivalents and Restricted Cash
(2.4
)
 
(2.9
)
Cash, Cash Equivalents and Restricted Cash - Beginning Of Period
378.1

 
324.7

Cash and Cash Equivalents - End Of Period
$
372.3

 
$
225.9


See accompanying notes.

8



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

1. General
Nature of Operations
Lions Gate Entertainment Corp. (“Lionsgate,” the “Company,”, “Lions Gate”, “we,” “us” or “our”) is a global content platform whose films, television series, digital products and linear and over-the-top platforms reach next generation audiences around the world. In addition to our filmed entertainment leadership, Lionsgate content drives a growing presence in interactive and location-based entertainment, gaming, virtual reality and other new entertainment technologies. Lionsgate's content initiatives are backed by a nearly 17,000-title film and television library and delivered through a global licensing infrastructure.
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, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2019. The balance sheet at March 31, 2018 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, 2018, as updated by the Current Report on Form 8-K filed with the SEC on October 15, 2018.
Certain amounts presented in prior periods have been reclassified to conform to the current period presentation. In particular, as a result of the segment reorganization in the first quarter of fiscal 2019 (see Note 15), the Company has presented prior period segment data in a manner that conforms to the current period 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 used for the amortization of investment in films and television programs; the allocations made in connection with the amortization of program rights; estimates of sales returns and other allowances and provisions for doubtful accounts; estimates related to the recognition of sales or usage-based royalties; fair value of equity-based compensation; fair value of assets and liabilities for allocation of the purchase price of companies acquired; income taxes including the assessment of valuation allowances for deferred tax assets; 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
Accounting Guidance Adopted in Fiscal 2019
Revenue Recognition: On April 1, 2018, the Company adopted, on a modified retrospective basis, accounting guidance that establishes a new revenue recognition framework in U.S. GAAP for all companies and industries. The core principle of the new revenue framework is that an entity should recognize revenue from the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to receive for those goods or services. The revenue framework includes a five-step model to determine the timing and amount of revenue to recognize related to contracts with customers. 

9

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



The adoption of the new accounting guidance did not result in significant changes to the Company's reported operating results. The Company recorded a transition adjustment for all open contracts existing as of April 1, 2018, of $18.7 million as an increase to the opening balance of retained earnings related principally to the areas noted below:
Sales or Usage Based Royalties:  The Company currently receives royalties from certain domestic and international distributors and other transactional digital distribution partners based on the sales made by these distributors after recoupment of a minimum guarantee, if applicable. Under prior guidance, the Company recorded these sales or usage based royalties after receiving statements from the licensee and/or film distributor. Under the new guidance, revenues are recorded based on best estimates available of the amounts due to the Company in the period of the customer's sales or usage. Accordingly, the timing of the revenue recognition is accelerated; however, the Company continues to have a consistent number of periods of sales or usage based royalties in each reporting period, and therefore the impact of the new guidance depends on the timing and performance of the titles released in those reporting periods. This change primarily impacts the Motion Picture and Television Production segments.
Renewals of Licenses of Intellectual Property:  Under the prior guidance, when the term of an existing license agreement was extended, without any other changes to the provisions of the license, revenue for the renewal period was recognized when the agreement was renewed or extended. Under the new guidance, revenue associated with renewals or extensions of existing license agreements is recognized as revenue when the licensed content becomes available for the customer to use and benefit from under the renewal or extension. This change impacts the timing of revenue recognition (i.e., revenue is recorded at a later time) as compared with prior revenue recognition guidance. While revenues from renewal do occur, they are not a significant portion of our revenue and thus do not have a material impact on our revenue recognition. This change primarily impacts the Motion Picture and Television Production segments.
Also, under the new guidance, the Company presents sales returns and certain sales incentive allowances as refund liabilities instead of as contra asset allowances within accounts receivable. On April 1, 2018, the liabilities for such sales returns and incentives were $86.9 million and were recorded in accounts payable and accrued liabilities on the unaudited condensed consolidated balance sheet.
Changes to the opening balances of current assets, total assets, current liabilities and total liabilities resulting from the adoption of the new guidance were as follows:
 
 
March 31, 2018
 
Impact of Adoption
 
April 1, 2018
 
 
(Amounts in millions)
Current assets
 
$
1,773.1

 
$
174.4

 
$
1,947.5

Total assets
 
$
8,967.6

 
$
143.6

 
$
9,111.2

Current liabilities
 
$
2,412.4

 
$
104.1

 
$
2,516.5

Total liabilities
 
$
5,708.9

 
$
124.9

 
$
5,833.8


For further information, including the impact of adoption of the new guidance on the current period, see Note 10.

Recognition and Measurement of Financial Instruments: In January 2016, the Financial Accounting Standards Board ("FASB") issued new guidance that addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Among other provisions, the new guidance requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. For investments without readily determinable fair values, entities have the option to either measure these investments at fair value or at cost adjusted for changes in observable prices minus impairment. The guidance is effective for the Company's fiscal year beginning April 1, 2018. Upon adoption of the new guidance, the Company recorded a transition adjustment of $2.6 million to reclassify the unrealized gains recorded through March 31, 2018 for the Company's available-for-sale investments with a readily determinable fair market value (i.e., Next Games) from accumulated other comprehensive loss to retained earnings. After adoption of the new guidance, changes in the fair value of the Company's available-for-sale investments with a readily determinable fair market value will be recognized in net income. The adoption of the new guidance will also impact the accounting for the Company's cost method investments, which will now be measured at cost less any impairment, adjusted for observable price changes in orderly transactions in the investees' securities that are identical or similar to the Company's investments in the investee. The impact of this change will depend on the nature and extent of changes in observable prices, if any. See Note 4.
Restricted Cash: In November 2016, the FASB issued guidance to clarify how entities should present restricted cash and restricted cash equivalents in the statement of cash flows.  The guidance requires entities to show the changes in the total of

10

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



cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows.  As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows.  This guidance became effective for the Company as of April 1, 2018, and has been applied on a retrospective basis. Upon adoption, in the unaudited condensed consolidated statement of cash flows for the six months ended September 30, 2017, cash provided by operating activities was reduced by $2.8 million, and beginning cash and cash equivalents was increased by $2.8 million to include restricted cash. There was no restricted cash in the unaudited condensed consolidated balance sheets as of September 30, 2018 or March 31, 2018.
Accounting Guidance Not Yet Adopted
Accounting for Leases: In February 2016, the FASB issued guidance on accounting for leases which requires lessees to recognize most leases on their balance sheets for the rights and obligations created by those leases. The new guidance also requires additional qualitative and quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. The guidance is effective for the Company's fiscal year beginning April 1, 2019, with early adoption permitted, and is required to be implemented using a modified retrospective approach. The Company is currently evaluating the impact that the adoption of this new guidance will have on its consolidated financial statements; however, the Company currently believes the most significant change will be related to the increases in assets and liabilities for the recognition of right-of-use assets and lease liabilities on the Company's balance sheet for its operating leases.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income: In February 2018, the FASB issued guidance that permits a company to reclassify the income tax effects of the Tax Act on items in accumulated other comprehensive income to retained earnings, eliminating the stranded tax effects resulting from the Tax Act. The new guidance only applies to the tax effects resulting from the Tax Act, and does not change the underlying guidance to recognize the effect of a change in tax laws or rates in income from continuing operations. This guidance is effective for the Company's fiscal year beginning April 1, 2019, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this new guidance will have on its consolidated financial statements.

Disclosure Update and Simplification: In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of shareholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of shareholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. This final rule is effective for the first quarter of the Company's fiscal year beginning April 1, 2019.

Fair Value Measurement - Changes to Disclosure Requirements: In August 2018, the FASB issued guidance that eliminates, adds and modifies certain disclosure requirements for fair value measurements. This guidance eliminates the requirement that entities disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but requires public companies to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements, among other changes. This guidance is effective for the Company's fiscal year beginning April 1, 2020, with early adoption permitted. The Company does not expect that the adoption of this guidance will have a material effect on its consolidated financial statements.


2. Acquisitions

3 Arts Entertainment

On May 29, 2018, the Company purchased a 51% membership interest in 3 Arts Entertainment LLC, a talent management and television/film production company. The purchase price was approximately $166.6 million, of which 50% was paid in cash at closing, 32.5% was paid in the Company's Class B non-voting common shares at closing, and 17.5% will be paid in the Company's Class B non-voting common shares on the one-year anniversary of closing, subject to certain conditions. The number of shares issued and to be issued was determined by dividing the dollar value of the portion of the purchase price to be paid by the daily weighted average closing price of the Company's Class B non-voting common shares on the New York Stock Exchange for the twenty (20) consecutive trading days immediately preceding the closing date. The value of the shares issued or to be issued was based on the closing price of the Company's Class B non-voting common shares at closing. A portion of the purchase price, up to $38.3 million, may be recoupable for a five-year period commencing on the acquisition date of May 29,

11

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



2018, contingent upon the continued employment of certain employees, or the achievement of certain EBITDA targets, as defined in the 3 Arts Entertainment acquisition and related agreements. Accordingly, $38.3 million is recorded as a deferred compensation arrangement within other current and non-current assets and is being amortized in general and administrative expenses over a five-year period.

The acquisition was accounted for as a purchase, with the results of operations of 3 Arts Entertainment included in the Company's consolidated results from May 29, 2018. Based on a preliminary purchase price allocation, $92.7 million was allocated to goodwill, $47.0 million was allocated to the fair value of finite-lived intangible assets (including measurement period adjustments recorded, see Note 5) and $38.3 million was allocated to deferred compensation arrangements, as discussed above. The remainder of the purchase price was primarily allocated to cash and cash equivalents, accounts receivable, other assets, and accounts payable and accrued liabilities, and $15.8 million was recorded as a redeemable noncontrolling interest, representing the noncontrolling interest holders' 49% equity interest in 3 Arts Entertainment (see Note 9). The acquired finite-lived intangible assets primarily represent customer relationships and are being amortized over a weighted average estimated useful life of 12 years. The Company incurred approximately $1.3 million of acquisition-related costs that were expensed in restructuring and other expenses during the six months ended September 30, 2018.

The preliminary allocation of the estimated purchase price is based upon management's estimates and is subject to revision, as a more detailed analysis of intangible assets, certain tangible assets, and other assets and liabilities is completed and additional information on the fair value of assets and liabilities becomes available, including receipt of final appraisals of the net assets acquired. A change in the fair value of the net assets may change the amount of the purchase price allocable to goodwill, and could impact the amounts of amortization expense. The Company used discounted cash flows ("DCF") analyses, which represent Level 3 fair value measurements, to assess certain components of its purchase price allocation, including acquired intangible assets and the redeemable noncontrolling interest.

The acquisition goodwill arises from the opportunity for synergies of the combined companies to grow and strengthen the Company's television operations by expanding the Company's talent relationships, and improving the Company's television production capabilities. The goodwill recorded as part of this acquisition is included in the Television Production segment. The goodwill is not amortized for financial reporting purposes, but is deductible for federal tax purposes.

Good Universe
On October 11, 2017, the Company purchased all of the membership interests in True North Media, LLC ("Good Universe"), a motion picture production and global sales company. The purchase price consisted of $20.4 million in cash paid at closing, and an additional $1.4 million in cash and 119,751 of Class B non-voting common shares to be paid and issued after one-year of the closing date. In addition, the Company assumed $23.6 million of corporate debt and production loans, of which $14.9 million was paid off shortly following the acquisition during the fiscal year ended March 31, 2018. The acquisition was accounted for as a purchase, with the results of operations of Good Universe included in the Company's consolidated results from October 12, 2017. Based on the purchase price allocation, $29.0 million was allocated to goodwill, with the remainder primarily allocated to the fair values of investment in film and television programs, cash and cash equivalents, and other liabilities. The goodwill recorded as part of this acquisition arises from the executive management personnel and their extensive experience and key relationships in the entertainment industry, and is included in the Motion Picture segment (see Note 5). The goodwill is not amortized for financial reporting purposes, but is deductible for federal tax purposes.



12

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



3. Investment in Films and Television Programs and Program Rights
 
September 30,
2018
 
March 31,
2018(1)
 
(Amounts in millions)
Motion Picture Segment - Theatrical and Non-Theatrical Films
 
 
 
Released, net of accumulated amortization
$
417.4

 
$
410.5

Acquired libraries, net of accumulated amortization
1.6

 
2.1

Completed and not released
93.3

 
55.0

In progress
268.4

 
347.2

In development
23.0

 
24.6

 
803.7

 
839.4

Television Production Segment - Direct-to-Television Programs
 
 
 
Released, net of accumulated amortization
188.8

 
238.9

In progress
239.2

 
186.6

In development
9.9

 
4.8

 
437.9

 
430.3

Media Networks Segment
 
 
 
Released program rights, net of accumulated amortization
530.7

 
616.9

In progress
114.2

 
45.6

In development
52.8

 
30.0

 
697.7

 
692.5

 
 
 
 
Intersegment eliminations
(42.2
)
 
(17.0
)
 
 
 
 
Investment in films and television programs and program rights, net
1,897.1

 
1,945.2

Less current portion of program rights
(234.2
)
 
(253.2
)
Non-current portion
$
1,662.9

 
$
1,692.0

__________________
(1)
As a result of the segment reorganization in the first quarter of fiscal 2019 (see Note 15), the Company has presented prior period segment data in a manner that conforms to the current period presentation.
During the three and six months ended September 30, 2018 and 2017, the Company performed fair value measurements related to films having indicators of impairment. In determining the fair value of its films, the Company employs a 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. As the primary determination of fair value is determined using a DCF model, the resulting fair value is considered a Level 3 measurement (see Note 8). During the three and six months ended September 30, 2018, the Company recorded $2.5 million and $7.0 million, respectively, of fair value film write-downs (2017 - $2.3 million and $2.6 million, respectively).

4. Investments
The carrying amounts of investments, by category, at September 30, 2018 and March 31, 2018 were as follows:
 
 
September 30,
2018
 
March 31,
2018
 
 
(Amounts in millions)
Equity method investments
 
$
124.7

 
$
127.0

Available-for-sale securities
 
4.6

 
7.3

Cost method investments
 
0.5

 
30.6

 
 
$
129.8

 
$
164.9


13

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, 2018 and March 31, 2018 were as follows:
 
 
September 30,
2018
 
 
 
 
Equity Method Investee
Ownership
Percentage
 
September 30,
2018
 
March 31,
2018
 
 
 
(Amounts in millions)
Pop
50.0%
 
$
95.3

 
$
91.3

Other
Various
 
29.4

 
35.7

 
 
 
$
124.7

 
$
127.0


Equity interests in equity method investments for the three and six months ended September 30, 2018 and 2017 were as follows (income (loss)):
 
 
Three Months Ended
 
Six Months Ended
 
September 30,
 
September 30,
Equity Method Investee
2018
 
2017
 
2018
 
2017
 
(Amounts in millions)
EPIX(1)
$

 
$

 
$

 
$
4.0

Pop
(0.3
)
 
0.5

 
(1.1
)
 
(2.5
)
Other
(11.4
)
 
(13.2
)
 
(16.7
)
 
(22.5
)
 
$
(11.7
)
 
$
(12.7
)
 
$
(17.8
)
 
$
(21.0
)
______________
(1)
In May 2017, the Company sold all of its 31.15% equity interest in EPIX. The Company recorded a gain before income taxes of approximately $201.0 million which is reflected in the gain (loss) on investments line item in the unaudited condensed consolidated statement of operations for the six months ended September 30, 2017. Prior to the sale of its interest in EPIX, the Company had accounted for such interest as an equity method investment.
Pop. Pop is the Company's joint venture with CBS. The Company’s investment interest in Pop consists of an equity investment in its common stock units and mandatorily redeemable preferred stock units. The mandatorily redeemable preferred stock units carry a dividend rate of 10% compounded annually and are mandatorily redeemable 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 loss. During the three and six months ended September 30, 2018, the Company made contributions to Pop of $5.0 million and $5.0 million, respectively.
Pop Financial Information:
The following table presents summarized balance sheet data as of September 30, 2018 and March 31, 2018 for Pop:
 
September 30,
2018
 
March 31,
2018
 
(Amounts in millions)
Current assets
$
73.5

 
$
48.2

Non-current assets
$
190.6

 
$
191.6

Current liabilities
$
46.5

 
$
37.2

Non-current liabilities(1)
$
716.5

 
$
654.9

Redeemable preferred stock(1)
$
692.7

 
$
638.4

_________________________
(1)
Non-current liabilities includes mandatorily redeemable preferred stock units.

14

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



The following table presents the summarized statements of operations for the three and six months ended September 30, 2018, and 2017 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,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
Revenues
$
25.9

 
$
28.3

 
$
51.5

 
$
53.0

Expenses:
 
 
 
 
 
 
 
Cost of services
12.4

 
13.8

 
25.5

 
30.8

Selling, marketing, and general and administration
11.5

 
11.1

 
23.4

 
23.2

Depreciation and amortization
2.0

 
2.0

 
4.0

 
4.0

Operating income (loss)

 
1.4

 
(1.4
)
 
(5.0
)
Interest expense, net
0.5

 
0.4

 
0.9

 
0.5

Accretion of redeemable preferred stock units(1)
22.6

 
19.3

 
44.4

 
37.9

Total interest expense, net
23.1

 
19.7

 
45.3

 
38.4

Net loss
$
(23.1
)
 
$
(18.3
)
 
$
(46.7
)
 
$
(43.4
)
Reconciliation of net loss reported by Pop to equity interest income (loss):
 
 
 
 
 
 
 
Net loss reported by Pop
$
(23.1
)
 
$
(18.3
)
 
$
(46.7
)
 
$
(43.4
)
Ownership interest in Pop
50
%
 
50
%
 
50
%
 
50
%
The Company's share of net loss
(11.6
)
 
(9.2
)
 
(23.4
)
 
(21.7
)
Accretion of dividend and interest income on redeemable preferred stock units(1)
11.3

 
9.7

 
22.2

 
19.0

Elimination of the Company's share of profits on licensing sales to Pop
(0.1
)
 
(0.1
)
 
(0.2
)
 
(0.2
)
Realization of the Company’s share of profits on licensing sales to Pop
0.1

 
0.1

 
0.3

 
0.4

Total equity interest income (loss) recorded
$
(0.3
)
 
$
0.5

 
$
(1.1
)
 
$
(2.5
)
 ___________________
(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.

Other Equity Method Investments
The Company has investments in various other equity method investees with ownership percentages ranging from approximately 9% to 50%. These investments include:
Playco. Playco Holdings Limited ("Playco") offers a STARZ-branded online subscription video-on-demand service in the Middle East and North Africa.
Laugh Out Loud. In March 2016, the Company entered into a partnership with Kevin Hart and Hartbeat Digital to launch a new streaming video service, Laugh Out Loud. The streaming video service launched in August 2017. The new service will serve as the exclusive home for all content created by Kevin Hart outside his theatrical and live touring activities and will include original series starring Kevin Hart. Laugh Out Loud will also showcase content curated by Kevin Hart along with shows featuring social media stars and up and coming comedians.
Roadside Attractions. Roadside Attractions is an independent theatrical distribution company.

15

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



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.
Atom Tickets. Atom Tickets is the first-of-its-kind theatrical mobile ticketing platform and app. 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.
Other. In addition to the equity method investments discussed above, the Company holds ownership interests in other immaterial equity method investees.
Summarized Financial Information. Summarized financial information for the Company's "other equity method investees", on an aggregate basis, is set forth below:
 
September 30,
2018
 
March 31,
2018
 
(Amounts in millions)
Current assets
$
181.4

 
$
232.7

Non-current assets
$
59.5

 
$
130.0

Current liabilities
$
149.9

 
$
201.5

Non-current liabilities
$
10.2

 
$
45.0


 
Three Months Ended
 
Six Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
 
(Amounts in millions)
Revenues
$
30.7

 
$
49.3

 
$
53.4

 
$
88.1

Gross profit
$
15.3

 
$
9.3

 
$
19.6

 
$
18.0

Net loss
$
(34.9
)
 
$
(32.5
)
 
$
(55.3
)
 
$
(62.4
)

Available-for-Sale Securities:

Next Games. At September 30, 2018 and March 31, 2018, the Company's available-for-sale securities consisted of the Company's minority ownership interest in Next Games. Next Games is a mobile games development company headquartered in Helsinki, Finland, with a focus on crafting visually impressive, highly engaging games. Next Games is traded on the Nasdaq First North Finland marketplace maintained by Nasdaq Helsinki Ltd, and the Company classifies its investment in Next Games within Level 1 of the fair value hierarchy as the valuation inputs are based on quoted prices in active markets (see Note 8). 
As a result of the adoption of new accounting guidance for Recognition and Measurement of Financial Instruments (see Note 1), effective April 1, 2018 changes in the fair value of the Company's available-for-sale investments with a readily determinable fair market value are recognized in net income. Accordingly, during the three and six months ended September 30, 2018, the Company recognized $1.9 million and $2.8 million, respectively in unrealized losses on available-for-sale securities held as of September 30, 2018 which are reflected in the gain (loss) on investments line item on the unaudited condensed consolidated statement of operations.
 
Cost Method Investments:
At March 31, 2018, the Company's cost method investments primarily consisted of its minority economic interest in Telltale Games ("Telltale"). 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.

During the three and six months ended September 30, 2018, the Company recognized $34.2 million of other-than-temporary impairments on its cost method investments and notes receivable (previously included in other assets, see Note 18) related to Telltale, which were written down to their estimated fair value of zero. The impairment charges are included in the gain (loss) on investments line item in the unaudited condensed consolidated statements of operations.


16

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



Gain (Loss) on Investments:

The following table summarizes the components of the gain (loss) on investments, as previously described in the respective sections above:

 
Three Months Ended
 
Six Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
 
(Amounts in millions)
Impairments of long-term investments and other assets
$
(34.2
)
 
$

 
$
(34.2
)
 
$

Unrealized losses on available-for-sale securities held as of September 30, 2018
(1.9
)
 

 
(2.8
)
 

Gain on sale of EPIX

 

 

 
201.0

 
$
(36.1
)
 
$

 
$
(37.0
)
 
$
201.0




5. Goodwill
Changes in the carrying value of goodwill by reporting segment were as follows:
 
Motion Picture
 
Television Production
 
Media Networks
 
Total
 
(Amounts in millions)
Balance as of March 31, 2018
$
393.7

 
$
309.2

 
$
2,037.9

 
$
2,740.8

Business acquisitions(1)

 
92.0

 

 
92.0

Measurement period adjustments(1)

 
0.7

 

 
0.7

Balance as of September 30, 2018
$
393.7

 
$
401.9

 
$
2,037.9

 
$
2,833.5

______________________
(1)
Represents the goodwill and measurement period adjustments resulting from the acquisition of 3 Arts Entertainment (see Note 2). Measurement period adjustments represented a decrease to the fair value of finite-lived intangible assets and a corresponding increase to goodwill.





17

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



6. Debt

Total debt of the Company, excluding film obligations and production loans, was as follows as of September 30, 2018 and March 31, 2018:

 
September 30,
2018
 
March 31,
2018
 
(Amounts in millions)
Corporate debt:
 
 
 
Revolving Credit Facility
$

 
$

Term Loan A(1)
750.0

 
750.0

Term Loan B(1)
1,243.8

 
1,250.0

5.875% Senior Notes
520.0

 
520.0

Total corporate debt
2,513.8

 
2,520.0

Convertible senior subordinated notes(2)

 
60.0

Capital lease obligations
47.0

 
50.5

Total debt
2,560.8

 
2,630.5

Unamortized discount and debt issuance costs, net of fair value adjustment on capital lease obligations
(67.5
)
 
(73.1
)
Total debt, net
2,493.3

 
2,557.4

Less current portion
(35.3
)
 
(79.1
)
Non-current portion of debt
$
2,458.0

 
$
2,478.3

_____________________
(1)
To manage interest rate risk on certain of its LIBOR-based floating-rate corporate debt, as of September 30, 2018. the Company has entered into three interest rate swaps to effectively convert the floating interest rates to fixed interest rates on a $1.5 billion notional amount (see Note 17 for further information).
(2)
On April 15, 2018, the 1.25% convertible senior subordinated notes due April 2018 (the "April 2013 1.25% Notes") matured, and upon maturity, the Company repaid the outstanding principal amount, together with accrued and unpaid interest.

Senior Credit Facilities (Revolving Credit Facility, Term Loan A and Term Loan B)

Issuance. On March 22, 2018, the Company amended its credit and guarantee agreement issued December 8, 2016 (the "Amended Credit Agreement"), and in connection with the amendment and repayment of amounts previously outstanding under the credit and guarantee agreement, obtained a new $1.5 billion five-year revolving credit facility (the "Revolving Credit Facility"), incurred a new five-year term loan A in aggregate principal amount of $750.0 million (the "Term Loan A") and incurred a new seven-year term loan B in aggregate principal amount of $1,250.0 million (the "Term Loan B", and together with the Revolving Credit Facility and the Term Loan A, the "Senior Credit Facilities").
Revolving Credit Facility Availability of Funds & Commitment Fee. The Revolving Credit Facility provides for borrowings and letters of credit up to an aggregate of $1.5 billion, and at September 30, 2018 there was $1.5 billion available. However, borrowing levels are subject to certain financial covenants as discussed below. There were no letters of credit outstanding at September 30, 2018. The Company is required to pay a quarterly commitment fee on the Revolving Credit Facility of 0.250% to 0.375% per annum, depending on the achievement of certain leverage ratios, as defined in the Amended Credit Agreement, on the total Revolving Credit Facility of $1.5 billion less the amount drawn.
Maturity Date:
Revolving Credit Facility & Term Loan A: March 22, 2023.
Term Loan B: March 24, 2025.

18

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



Interest:
Revolving Credit Facility & Term Loan A: Initially bear interest at a rate per annum equal to LIBOR plus 1.75% (or an alternative base rate plus 0.75%) margin, with a LIBOR floor of zero. The margin is subject to potential increases of up to 50 basis points (two (2) increases of 25 basis points each) upon certain increases to net first lien leverage ratios, as defined in the Amended Credit Agreement (effective interest rate of 4.01% as of September 30, 2018).
Term Loan B: As of March 22, 2018, pursuant to the Amended Credit Agreement described above, the Term Loan B bears interest at a rate per annum equal to LIBOR plus 2.25% margin, with a LIBOR floor of zero (or an alternative base rate plus 1.25% margin) (effective interest rate of 4.51% as of September 30, 2018).
Required Principal Payments:
Term Loan A: Quarterly principal payments which began on June 30, 2018 (the last day of the first full fiscal quarter ending after March 22, 2018), at quarterly rates of 0.00% for the first year, 1.25% for the second year, 1.75% for the third year, and 2.50% for the fourth and fifth years, with the balance payable at maturity.
Term Loan B: Quarterly principal payments which began on June 30, 2018 (the last day of the first full fiscal quarter ending after March 22, 2018), at a quarterly rate of 0.25%, with the balance payable at maturity.
The Term Loan A and Term Loan B also require mandatory prepayments in connection with certain asset sales, subject to certain significant exceptions, and the Term Loan B is subject to additional mandatory repayment from specified percentages of excess cash flow, as defined in the Amended Credit Agreement.
Optional Prepayment:
Revolving Credit Facility & Term Loan A: The Company may voluntarily prepay the Revolving Credit Facility and Term Loan A at any time without premium or penalty.
Term Loan B: The Company may voluntarily prepay the Term Loan B at any time.
Security. The Senior Credit Facilities are guaranteed by the Guarantors (as defined in the Amended Credit Agreement) and are secured by a security interest in substantially all of the assets of Lionsgate and the Guarantors (as defined in the Amended Credit Agreement), subject to certain exceptions.
Covenants. The Senior Credit Facilities contain representations and warranties, events of default and affirmative and negative covenants that are customary for similar financings and which include, among other things and subject to certain significant exceptions, restrictions on the ability to declare or pay dividends, create liens, incur additional indebtedness, make investments, dispose of assets and merge or consolidate with any other person. At September 30, 2018, the capacity to pay dividends under the Senior Credit Facilities significantly exceeded the amount of the Company's retained earnings or net loss, and therefore the Company's net loss of $160.6 million and retained earnings of $332.3 million were deemed free of restrictions at September 30, 2018.
In addition, a net first lien leverage maintenance covenant and an interest coverage ratio maintenance covenant apply to the Revolving Credit Facility and the Term Loan A and are tested quarterly. As of September 30, 2018, 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 Amended 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.

5.875% Senior Notes

Issuance. On October 27, 2016, Lions Gate Entertainment Corp. issued $520.0 million aggregate principal amount of 5.875% senior notes due 2024 (the "2016 5.875% Senior Notes"). On March 28, 2018, in connection with a private exchange offer of the $520.0 million aggregate principal amount of its 2016 5.875% Senior Notes, an indirect, wholly owned subsidiary of the Company issued $512.3 million aggregate principal amount of new 5.875% senior notes due 2024 (the "2018 5.875% Senior Notes", and collectively with the 2016 5.875% Senior Notes, the "5.875% Senior Notes"). The new 2018 5.875% Senior Notes were exchanged by the Company for $512.3 million of the 2016 5.875% Senior Notes.

Interest. Bears interest at 5.875% annually.

Maturity Date. November 1, 2024.


19

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



Optional Redemption:
(i)
Prior to November 1, 2019, the 5.875% Senior Notes are redeemable under certain circumstances (as defined in the indenture governing the 5.875% Senior Notes), in whole at any time or in part from time to time, at a price equal to 100% of the principal amount, plus the Applicable Premium (as defined in the indenture governing the 5.875% Senior Notes). The Applicable Premium is the greater of (i) 1.0% of the principal amount redeemed and (ii) the excess of the present value of the redemption amount at November 1, 2019 (see below) of the notes redeemed plus interest through the redemption date (discounted at the treasury rate on the redemption date plus 50 basis points) over the principal amount of the notes redeemed on the redemption date.
(ii)
On and after November 1, 2019, redeemable by the Company, in whole or in part, at the redemption prices set forth as follows (as a percentage of the principal amount redeemed), plus accrued and unpaid interest to the redemption date: (i) on or after November 1, 2019 - 104.406%; (ii) on or after November 1, 2020 - 102.938%; (iii) on or after November 1, 2021 - 101.439%; and (iv) on or after November 1, 2022 - 100%.

Security. The 5.875% Senior Notes are guaranteed on an unsubordinated, unsecured basis.

Covenants. The 5.875% 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. At September 30, 2018, the capacity to pay dividends under the 5.875% Senior Notes significantly exceeded the amount of the Company's retained earnings or net loss, and therefore the Company's net loss of $160.6 million and retained earnings of $332.3 million were deemed free of restrictions at September 30, 2018. As of September 30, 2018, the Company was in compliance with all applicable covenants.
Change in Control. The occurrence of a change of control will be a triggering event requiring the Company to offer to purchase from holders all of the 5.875% Senior Notes, at a price equal to 101% of the principal amount, plus accrued and unpaid interest, if any, to the date of purchase. In addition, certain asset dispositions will be triggering events that may require the Company to use the excess proceeds from such dispositions to make an offer to purchase the 5.875% Senior Notes at 100% of their principal amount, plus accrued and unpaid interest, if any to the date of purchase.

Interest Expense
The table below sets forth the composition of the Company’s interest expense for the three and six months September 30, 2018 and 2017:

 
Three Months Ended
 
Six Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
 
(Amounts in millions)
Interest expense
 
 
 
 
 
 
 
Cash interest
$
35.8

 
$
31.8

 
$
68.2

 
$
66.3

Amortization of debt discount and financing costs
3.0

 
3.0

 
6.0

 
7.5

 
38.8

 
34.8

 
74.2

 
73.8

Interest on dissenting shareholders' liability (see Note 16)
16.7

 
13.9

 
32.6

 
27.2

Total interest expense
$
55.5

 
$
48.7

 
$
106.8

 
$
101.0




20

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




7. Film Obligations and Production Loans
 
 
September 30,
2018
 
March 31,
2018
 
(Amounts in millions)
Film obligations
$
150.7

 
$
146.7

Production loans
318.1

 
352.9

Total film obligations and production loans
468.8

 
499.6

Unamortized debt issuance costs
(0.5
)
 
(0.4
)
Total film obligations and production loans, net
468.3

 
499.2

Less current portion
(318.7
)
 
(327.9
)
Total non-current film obligations and production loans
$
149.6

 
$
171.3

Film Obligations
Film obligations include minimum guarantees and accrued licensed program rights obligations, 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.
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 4.43% to 5.30%.


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 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 assets and liabilities required to be carried at fair value on a recurring basis as of September 30, 2018 and March 31, 2018:

21

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



 
September 30, 2018
 
March 31, 2018
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
Assets:
(Amounts in millions)
Available-for-sale securities (see Note 4)
$
4.6

 
$

 
$
4.6

 
$
7.3

 
$

 
$
7.3

Forward exchange contracts (see Note 17)

 
0.8

 
0.8

 

 
0.3

 
0.3

Interest rate swaps (see Note 17)

 
5.4

 
5.4

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Forward exchange contracts (see Note 17)

 
(0.5
)
 
(0.5
)
 

 
(0.6
)
 
(0.6
)
 
$
4.6

 
$
5.7

 
$
10.3

 
$
7.3

 
$
(0.3
)
 
$
7.0


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, 2018 and March 31, 2018:
 
 
September 30, 2018
 
March 31, 2018
 
(Amounts in millions)
 
Carrying
Value
 
Fair Value
 
Carrying Value
 
Fair Value
 
 
 
(Level 3)
 
 
 
(Level 3)
Assets:
 
 
 
 
 
 
 
Investment in Pop's mandatorily redeemable preferred stock units(1)
$
95.3

 
$
125.0

 
$
91.3

 
$
125.0

 
 
 
 
 
 
 
 
 
Carrying
Value
 
Fair Value
 
Carrying Value
 
Fair Value
 
 
 
(Level 2)
 
 
 
(Level 2)
Liabilities(2):
 
 
 
 
 
 
 
Term Loan A
731.6

 
747.2

 
729.7

 
750.9

Term Loan B
1,224.3

 
1,253.1

 
1,229.3

 
1,251.6

5.875% Senior Notes
501.6

 
534.3

 
500.4

 
539.5

April 2013 1.25% Notes

 

 
60.0

 
60.3

Production loans
317.6

 
318.1

 
352.6

 
352.9

 
$
2,775.1

 
$
2,852.7

 
$
2,872.0

 
$
2,955.2

________________
(1)
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 (a Level 3 measurement). 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.
(2)
The Company measures the fair value of its outstanding debt using discounted cash flow techniques that use observable market inputs, such as LIBOR-based yield curves, swap rates, and credit ratings (Level 2 measurements).

The Company’s financial instruments also include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, borrowings under the Revolving Credit Facility, if any, capital lease obligations and dissenting shareholders' liability. The carrying values of these financial instruments approximated the fair values at September 30, 2018 and March 31, 2018.




22

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



9. Noncontrolling Interests
Redeemable Noncontrolling Interests

The table below presents the reconciliation of changes in redeemable noncontrolling interests:

 
Six Months Ended
 
September 30,
 
2018
 
2017
 
(Amounts in millions)
Beginning balance
$
101.8

 
$
93.8

Initial fair value of redeemable noncontrolling interest of 3 Arts Entertainment
15.8

 

Net income (loss) attributable to redeemable noncontrolling interests
(7.4
)
 

Noncontrolling interests discount accretion
9.4

 
2.9

Adjustments to redemption value
15.0

 
5.1

Cash distributions
(1.5
)
 
(4.6
)
Ending balance
$
133.1

 
$
97.2


Redeemable noncontrolling interests relate to the November 12, 2015 acquisition of a controlling interest in Pilgrim Media Group and the May 29, 2018 acquisition of a controlling interest in 3 Arts Entertainment.

Redeemable noncontrolling interests are measured at the greater of (i) the redemption amount that would be paid if settlement occurred at the balance sheet date less the amount attributed to unamortized noncontrolling interest discount if applicable, or (ii) the historical value resulting from the original acquisition date value plus or minus any earnings or loss attribution, plus the amount of amortized noncontrolling interest discount, less the amount of cash distributions that are not accounted for as compensation, if any. The amount of the redemption value in excess of the historical values of the noncontrolling interest, if any, is recognized as an increase to redeemable noncontrolling interest and a charge to retained earnings.

In connection with the acquisition of a controlling interest in 3 Arts Entertainment on May 29, 2018, the Company recorded a non-compensatory (see below) redeemable noncontrolling interest of $15.8 million, representing the noncontrolling interest holders 49% equity interest in 3 Arts Entertainment (see Note 2). The noncontrolling interest holders have a right to put the noncontrolling interest of 3 Arts Entertainment, at fair value, exercisable at five years after the acquisition date of May 29, 2018, for a 60 day period. Beginning 30 days after the expiration of the exercise period for the put rights held by the noncontrolling interest holders, the Company has a right to call the noncontrolling interest of 3 Arts Entertainment, at fair value, for a 60 day period. The put and call options have been determined to be embedded in the noncontrolling interest, and because the put rights are outside the control of the Company, the noncontrolling interest holder's interest is presented as redeemable noncontrolling interest outside of shareholders' equity on the Company's consolidated balance sheets.

In addition, the noncontrolling interest holders have continued as employees of 3 Arts Entertainment. Pursuant to the various 3 Arts Entertainment acquisition and related agreements, a portion of the noncontrolling interest holders' participation in the put and call proceeds is based on the noncontrolling interest holders' performance during the period. Further, if the employment of a noncontrolling interest holder is terminated, under certain circumstances, their participations in distributions cease and the put and call value is discounted from the fair value of their equity ownership percentage. Accordingly, earned distributions are accounted for as compensation and are being expensed within general and administrative expense as incurred. Additionally, the amount of the put and call proceeds subject to the discount is also accounted for as compensation, and is being amortized over the vesting period within general and administrative expense and reflected as an addition to redeemable noncontrolling interest.
Other Noncontrolling Interests

The Company has other noncontrolling interests that are not redeemable. These noncontrolling interests primarily relate to Pantaya (a joint venture between the Company and Hemisphere Media Group), a premium Spanish-language streaming service

23

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



in which the Company owns a controlling interest. The Pantaya service was launched in the three months ended September 30, 2017.



10. Revenue

General. The Company's Motion Picture and Television Production segments generate revenue principally from the licensing of content in domestic theatrical exhibition, home entertainment (e.g., digital media and packaged media), television, and international market places. The Company's Media Networks segment generates revenue primarily from the distribution of the Company's STARZ branded premium subscription video services and, to a lesser extent, direct-to-consumer content streaming services.

Revenue is recognized upon transfer of control of promised services or goods to customers in an amount that reflects the consideration the Company expects to receive in exchange for those services or goods. Revenues do not include taxes collected from customers on behalf of taxing authorities such as sales tax and value-added tax.
Licensing Arrangements. The Company's content licensing arrangements include fixed fee and minimum guarantee arrangements, and sales or usage based royalties.
Fixed Fee or Minimum Guarantees: The Company's fixed fee or minimum guarantee arrangements may, in some cases, include multiple titles, multiple license periods (windows) with a substantive period in between the windows, rights to exploitation in different media, or rights to exploitation in multiple territories, which may be considered distinct performance obligations. When these performance obligations are considered distinct, the fixed fee or minimum guarantee in the arrangement is allocated to the title, window, media right or territory as applicable, based on estimates of relative standalone selling prices. The amounts related to each performance obligation (i.e., title, window, media or territory) are recognized when the content has been delivered, and the window for the exploitation right in that territory has begun, which is the point in time at which the customer is able to begin to use and benefit from the content.
Sales or Usage Based Royalties: Sales or usage based royalties represent amounts due to the Company based on the “sale” or “usage” of the Company's content by the customer, and revenues are recognized at the later of when the subsequent sale or usage occurs, or the performance obligation to which some or all the sales or usage-based royalty has been allocated has been satisfied (or partially satisfied). Generally when the Company licenses completed content (with standalone functionality, such as a movie, or television show), its performance obligation will be satisfied prior to the sale or usage. When the Company licenses intellectual property that does not have stand-alone functionality (e.g., brands, themes, logos, etc.), its performance obligation is generally satisfied in the same period as the sale or usage. The actual amounts due to the Company under these arrangements are generally not reported to the Company until after the close of the reporting period. The Company records revenue under these arrangements for the amounts due and not yet reported to the Company based on estimates of the sales or usage of these customers and pursuant to the terms of the contracts. Such estimates are based on information from the Company's customers, historical experience with similar titles in that market or territory, the performance of the title in other markets, and/or data available in the industry.
Revenues by Market or Product Line. The following describes the revenues generated by market or product line. Theatrical revenues are included in the Motion Picture segment; home entertainment, television, international and other revenues are applicable to both the Motion Picture and Television Production segments; Media Networks programming revenues are included in the Media Networks segment.

Theatrical. Theatrical revenues are derived from the domestic theatrical release of motion pictures licensed to theatrical exhibitors on a picture-by-picture basis (distributed by the Company directly in the United States and through a sub-distributor in Canada). Revenue from the theatrical release of feature films are treated as sales or usage- based royalties and recognized starting at the exhibition date and based on the Company's participation in box office receipts of the theatrical exhibitor.

Home Entertainment. Home entertainment consists of Digital Media and Packaged Media.

24

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



Digital Media. Digital media includes digital transaction revenue sharing arrangements (pay-per-view and video-on-demand platforms, electronic sell through ("EST"), and digital rental) and licenses of content to digital platforms for a fixed fee.

Digital Transaction Revenue Sharing Arrangements: Primarily represents revenue sharing arrangements with certain digital media platforms which generally provide that, in exchange for a nominal or no upfront sales price, the Company shares in the rental or sales revenues generated by the platform on a title-by-title basis. These digital media platforms generate revenue from rental and EST arrangements, such as download-to-own, download-to-rent, and video-on-demand. These revenue sharing arrangements are recognized as sales or usage based royalties based on the performance of these platforms and pursuant to the terms of the contract, as discussed above.

Licenses of Content to Digital Platforms: Primarily represents the licensing of content to subscription-video-on-demand ("SVOD") or other digital platforms for a fixed fee. As discussed above, revenues are recognized when the content has been delivered and the window for the exploitation right in that territory has begun.

Packaged Media. Packaged media revenues represent the sale of motion pictures and television shows (produced or acquired) on physical discs (DVD’s, Blu-Ray, 4K Ultra HD) in the retail market. Revenues are recognized, net of an allowance for estimated returns and other allowances, on the later of receipt by the customer or “street date” (when it is available for sale by the customer).

Television. Television revenues are derived from the licensing to domestic markets (linear pay, basic cable, free television markets, syndication) of motion pictures (including theatrical productions and acquired films) and scripted and unscripted television series, television movies, mini-series, and non-fiction programming. Television revenues include fixed fee arrangements as well as arrangements in which the Company earns advertising revenue from the exploitation of certain content on television networks. Television also includes revenue from licenses to SVOD platforms in which the initial license of a television series is to an SVOD platform. Revenues associated with a title, right, or window from television licensing arrangements are recognized when the feature film or television program is delivered (on an episodic basis for television product) and the window for the exploitation right has begun.

International. International revenues are derived from (1) licensing of the Company's productions, acquired films, catalog product and libraries of acquired titles to international distributors, on a territory-by-territory basis; (2) the direct distribution of our productions, acquired films, and our catalog product and libraries of acquired titles in the United Kingdom; and (3) licensing to international markets of scripted and unscripted series, television movies, mini-series and non-fiction programming. License fees and minimum guarantee amounts associated with title, window, media or territory, are recognized when access to the feature film or television program has been granted or delivery has occurred, as required under the contract, and the right to exploit the feature film or television program in that window, media or territory has commenced. Revenues are also generated from sales or usage based royalties received from international distributors based on their distribution performance pursuant to the terms of the contracts after the recoupment of certain costs in some cases, and the initial minimum guarantee, if any, and are recognized when the sale by our customer generating a royalty due to us has occurred.

Other. Other revenues are derived from, among others, the following:

the licensing of our film and television content to other ancillary markets;
the Company's interactive ventures and games division, its global franchise management division (including location-based entertainment) and merchandising rights, all of which may include licenses of motion picture or television characters, brands, storylines, themes or logos (i.e., symbolic intellectual property);
the sales and licensing of music from the theatrical exhibition of our films and the television broadcast of our productions; and
commissions due to 3 Arts Entertainment related to talent management.

Revenues from the licensing of film and television content and the sales and licensing of music are recognized when the content has been delivered and the license period has begun, as discussed above. Revenues from the licensing of symbolic intellectual property is recognized over the corresponding license term. Commissions are recognized as such services are provided.


25

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



Media Networks - Programming Revenues. Media Networks’ revenues are primarily derived from the distribution of the Company's STARZ branded premium subscription video services pursuant to affiliation agreements with U.S. multichannel video programming distributors (“MVPDs”), including cable operators, satellite television providers and telecommunications companies, and over-the-top (“OTT”) (collectively, “Distributors”) and on a direct-to-consumer basis. Media Networks revenues also include international revenues from the OTT distribution of the Company's STARZ branded premium subscription video services.

Pursuant to the Company’s distribution agreements, revenues may be based on a fixed fee, subject to nominal annual escalations, or a variable fee (i.e., a fee based on number of subscribers who receive the Company's networks or other factors). Programming revenue is recognized over the contract term based on the continuous delivery of the content to the distributor. The variable distribution fee arrangements represent sales or usage based royalties and are recognized over the period of such sales or usage by the Company's distributor, which is the same period that the content is provided to the distributor. Revenue for direct-to-consumer streaming services represent subscription fees for the STARZ app (included in Starz Networks), or other streaming services (e.g., Pantaya) (included in Streaming Services), and is recognized over the subscription period as the content is made available and streamed to the end consumer.
The table below presents revenues by segment, market or product line for the three and six months ended September 30, 2018 and 2017. As a result of the segment reorganization described in Note 15, the Company has presented prior period segment data in a manner that conforms to the current period presentation. The prior year information in the below table has not been adjusted under the modified retrospective method of adoption of the new revenue recognition guidance.

26

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



 
Three Months Ended
 
Six Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
 
(Amounts in millions)
Revenue by Type:
 
 
 
 
 
 
 
Motion Picture
 
 
 
 
 
 
 
Theatrical
$
69.1

 
$
57.9

 
$
119.5

 
$
108.7

Home Entertainment
 
 
 
 
 
 
 
Digital Media
85.1

 
90.4

 
171.3

 
192.0

Packaged Media
64.5

 
75.3

 
141.0

 
207.7

Total Home Entertainment
149.6

 
165.7

 
312.3

 
399.7

Television
70.9

 
74.2

 
132.8

 
131.8

International
82.2

 
79.9

 
149.6

 
202.3

Other
7.2

 
8.0

 
30.1

 
15.5

Total Motion Picture revenues
$
379.0

 
$
385.7

 
744.3

 
858.0

Television Production
 
 
 
 
 
 
 
Television
$
85.1

 
$
143.3

 
302.9

 
330.7

International
21.8

 
36.8

 
58.8

 
68.1

Home Entertainment
 
 
 
 
 
 
 
Digital Media
27.0

 
25.1

 
43.3

 
66.7

Packaged Media
1.6

 
4.8

 
3.4

 
5.8

Total Home Entertainment
28.6

 
29.9

 
46.7

 
72.5

Other
16.6

 
1.2

 
23.1

 
1.1

Total Television Production revenues
$
152.1

 
$
211.2

 
431.5

 
472.4

Media Networks
 
 
 
 
 
 
 
Starz Networks - programming revenues
$
373.7

 
$
358.6

 
724.9

 
701.8

Streaming Services - programming revenues
3.6

 
1.1

 
7.3

 
2.5

Total Media Networks revenues
$
377.3

 
$
359.7

 
732.2

 
704.3

Intersegment eliminations
(7.4
)
 
(15.8
)
 
(74.4
)
 
(88.6
)
Total revenues
$
901.0

 
$
940.8

 
$
1,833.6

 
$
1,946.1

Remaining Performance Obligations
Remaining performance obligations represent deferred revenue on the balance sheet plus fixed fee or minimum guarantee contracts where the revenue will be recognized and the cash received in the future (i.e., backlog). Revenues expected to be recognized in the future related to performance obligations that are unsatisfied at September 30, 2018 are as follows:
 
 
Rest of Year Ending March 31, 2019
 
Year Ended March 31,
 
 
 
 
 
 
 
2020
 
2021
 
Thereafter
 
Total
 
 
(Amounts in millions)
Remaining Performance Obligations
 
$
950.7

 
$
717.0

 
$
241.7

 
$
333.0

 
$
2,242.4

The above table does not include estimates of variable consideration for transactions involving sales or usage-based royalties in exchange for licenses of intellectual property. The revenues included in the above table include all fixed fee contracts regardless of duration.


27

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



Revenues of $33.7 million and $122.2 million, including variable and fixed fee arrangements, were recognized during the three and six months ended September 30, 2018, respectively, from performance obligations satisfied prior to March 31, 2018. These revenues were primarily associated with the distribution of television and theatrical product in electronic sell-through and video-on-demand formats, and to a lesser extent, the distribution of theatrical product in the domestic and international markets related to films initially released in prior periods.

Payment Terms, Contract Assets and Deferred Revenue

The timing of revenue recognition, billings and cash collections affects the recognition of accounts receivable, contract assets and deferred revenue. At September 30, 2018 and April 1, 2018, accounts receivable, contract assets and deferred revenue are as follows:
 
September 30,
2018
 
April 1,
2018
 
Addition (Reduction)
 
(Amounts in millions)
 
 
Accounts receivable, net - current
$
1,059.0

 
$
1,042.2

 
$
16.8

Accounts receivable, net - non-current(1)
266.4

 
257.7

 
8.7

Contract asset - current(2)
19.9

 
78.3

 
(58.4
)
Contract asset - non-current(3)
12.1

 
71.5

 
(59.4
)
Deferred revenue - current
238.0

 
183.8

 
54.2

Deferred revenue - non-current
59.3

 
70.5

 
(11.2
)
__________________
(1)
Included in accounts receivable within non-current other assets in the unaudited condensed consolidated balance sheets.
(2)
Included in prepaid expenses and other within other current assets in the unaudited condensed consolidated balance sheets.
(3)
Included in prepaid expenses and other within non-current other assets in the unaudited condensed consolidated balance sheets.

Contract assets relate to the Company’s conditional right to consideration for completed performance under the contract (e.g., unbilled receivables). Amounts relate primarily to contractual payment holdbacks in cases in which the Company is required to deliver additional episodes or seasons of television content in order to receive payment, complete certain administrative activities, such as guild filings, or allow the Company's customers' audit rights to expire. The change in balance of contract assets is primarily due to the satisfaction of the condition related to payment holdbacks.

Deferred revenue relates primarily to customer cash advances or deposits received prior to when the Company satisfies the corresponding performance obligation. Revenues of $33.0 million and $105.2 million were recognized during the three and six months ended September 30, 2018, respectively, related to the balance of deferred revenue at April 1, 2018.

Payment terms vary by location and type of customer and the nature of the licensing arrangement, however, other than certain multi-year license arrangements, generally payment is due within 60 days after revenue is recognized. For certain multi-year licensing arrangements, primarily in the television, digital media, and international markets, payments may be due over a longer period. When we expect the period between fulfillment of our performance obligation and the receipt of payment to be greater than a year, a significant financing component is present. In these cases, such payments are discounted to present value based on a discount rate reflective of a separate financing transaction between the customer and the Company, at contract inception. The significant financing component is recorded as a reduction to revenue and accounts receivable initially, with such accounts receivable discount amortized to interest income over the period to receipt of payment. The Company does not assess contracts with deferred payments for significant financing components if, at contract inception, we expect the period between fulfillment of the performance obligation and subsequent payment to be one year or less.

In other cases, customer payments are made in advance of when the Company fulfills its performance obligation and recognizes revenue. This primarily occurs under television production contracts, in which payments may be received as the production progresses, international motion picture contracts, where a portion of the payments are received prior to the completion of the movie and prior to license rights start dates, and pay television contracts with multiple windows with a portion of the revenues deferred until the subsequent exploitation windows commence. These arrangements do not contain significant financing components because the reason for the payment structure is not for the provision of financing to the

28

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



Company, but rather to mitigate the Company's risk of customer non-performance and incentivize the customer to exploit the Company's content.
Summarized Balance Sheet and Income Statement Comparison of New and Prior Revenue Recognition Guidance

The following table presents the line items impacted by the adoption of the new revenue recognition guidance (described in Note 1) on the unaudited condensed consolidated balance sheet and statement of operations:

 
 
September 30, 2018
 
 
As Reported
 
Impact of Adoption
 
Without Adoption of New Revenue Guidance
Balance Sheet Information:
 
(Amounts in millions)
Assets
 
 
 
 
 
 
Accounts receivable, net - current
 
$
1,059.0

 
$
(129.2
)
 
$
929.8

Other assets - current
 
191.0

 
(19.8
)
 
171.2

Other assets - non-current
 
439.6

 
(3.9
)
 
435.7

Investment in films and television programs and program rights, net
 
1,662.9

 
35.2

 
1,698.1

 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
585.9

 
(76.3
)
 
509.6

Participations and residuals - current
 
494.3