Item 1. Financial Statements.
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
March 31,
2019
|
|
|
(Amounts in millions)
|
|
ASSETS
|
|
|
|
|
Cash and cash equivalents
|
$
|
232.6
|
|
|
$
|
184.3
|
|
|
Accounts receivable, net
|
664.2
|
|
|
647.2
|
|
|
Program rights
|
281.3
|
|
|
295.7
|
|
|
Other current assets
|
179.0
|
|
|
267.2
|
|
|
Total current assets
|
1,357.1
|
|
|
1,394.4
|
|
|
Investment in films and television programs and program rights, net
|
1,535.7
|
|
|
1,672.0
|
|
|
Property and equipment, net
|
149.0
|
|
|
155.3
|
|
|
Investments
|
30.3
|
|
|
26.2
|
|
|
Intangible assets
|
1,803.7
|
|
|
1,871.6
|
|
|
Goodwill
|
2,833.5
|
|
|
2,833.5
|
|
|
Other assets
|
517.1
|
|
|
436.1
|
|
|
Deferred tax assets
|
—
|
|
|
19.8
|
|
|
Total assets
|
$
|
8,226.4
|
|
|
$
|
8,408.9
|
|
|
LIABILITIES
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
514.5
|
|
|
$
|
531.2
|
|
|
Participations and residuals
|
457.9
|
|
|
408.5
|
|
|
Film obligations and production loans
|
343.9
|
|
|
512.6
|
|
|
Debt - short term portion
|
61.2
|
|
|
53.6
|
|
|
Deferred revenue
|
117.3
|
|
|
146.5
|
|
|
Total current liabilities
|
1,494.8
|
|
|
1,652.4
|
|
|
Debt
|
2,824.7
|
|
|
2,850.8
|
|
|
Participations and residuals
|
384.3
|
|
|
479.8
|
|
|
Film obligations and production loans
|
136.3
|
|
|
143.1
|
|
|
Other liabilities
|
297.0
|
|
|
114.0
|
|
|
Deferred revenue
|
67.3
|
|
|
62.8
|
|
|
Deferred tax liabilities
|
37.3
|
|
|
56.5
|
|
|
Redeemable noncontrolling interest
|
142.4
|
|
|
127.6
|
|
|
Commitments and contingencies (Note 16)
|
|
|
|
|
EQUITY
|
|
|
|
|
Class A voting common shares, no par value, 500.0 shares authorized, 82.7 shares issued (March 31, 2019 - 82.5 shares issued)
|
652.3
|
|
|
649.7
|
|
|
Class B non-voting common shares, no par value, 500.0 shares authorized, 135.2 shares issued (March 31, 2019 - 133.5 shares issued)
|
2,189.0
|
|
|
2,140.6
|
|
|
Retained earnings
|
143.7
|
|
|
208.7
|
|
|
Accumulated other comprehensive loss
|
(145.6
|
)
|
|
(80.3
|
)
|
|
Total Lions Gate Entertainment Corp. shareholders' equity
|
2,839.4
|
|
|
2,918.7
|
|
|
Noncontrolling interests
|
2.9
|
|
|
3.2
|
|
|
Total equity
|
2,842.3
|
|
|
2,921.9
|
|
|
Total liabilities and equity
|
$
|
8,226.4
|
|
|
$
|
8,408.9
|
|
See accompanying notes.
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(Amounts in millions, except per share amounts)
|
|
Revenues
|
$
|
983.5
|
|
|
$
|
901.0
|
|
|
$
|
1,947.1
|
|
|
$
|
1,833.6
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Direct operating
|
499.4
|
|
|
463.2
|
|
|
1,067.4
|
|
|
993.2
|
|
|
Distribution and marketing
|
262.1
|
|
|
227.9
|
|
|
512.6
|
|
|
431.4
|
|
|
General and administration
|
105.9
|
|
|
115.0
|
|
|
208.5
|
|
|
225.1
|
|
|
Depreciation and amortization
|
50.9
|
|
|
40.8
|
|
|
91.2
|
|
|
81.1
|
|
|
Restructuring and other
|
7.6
|
|
|
15.0
|
|
|
13.1
|
|
|
25.6
|
|
|
Total expenses
|
925.9
|
|
|
861.9
|
|
|
1,892.8
|
|
|
1,756.4
|
|
|
Operating income
|
57.6
|
|
|
39.1
|
|
|
54.3
|
|
|
77.2
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
Interest expense
|
(48.0
|
)
|
|
(38.8
|
)
|
|
(97.0
|
)
|
|
(74.2
|
)
|
|
Interest on dissenting shareholders' liability
|
—
|
|
|
(16.7
|
)
|
|
—
|
|
|
(32.6
|
)
|
|
Total interest expense
|
(48.0
|
)
|
|
(55.5
|
)
|
|
(97.0
|
)
|
|
(106.8
|
)
|
|
Shareholder litigation settlements
|
—
|
|
|
(114.1
|
)
|
|
—
|
|
|
(114.1
|
)
|
|
Interest and other income
|
2.2
|
|
|
3.0
|
|
|
5.0
|
|
|
6.1
|
|
|
Other expense
|
(3.8
|
)
|
|
—
|
|
|
(6.1
|
)
|
|
—
|
|
|
Loss on investments
|
(0.4
|
)
|
|
(36.1
|
)
|
|
(0.3
|
)
|
|
(37.0
|
)
|
|
Equity interests loss
|
(3.2
|
)
|
|
(11.7
|
)
|
|
(11.1
|
)
|
|
(17.8
|
)
|
|
Income (loss) before income taxes
|
4.4
|
|
|
(175.3
|
)
|
|
(55.2
|
)
|
|
(192.4
|
)
|
|
Income tax benefit (provision)
|
(5.6
|
)
|
|
26.0
|
|
|
(4.5
|
)
|
|
31.8
|
|
|
Net loss
|
(1.2
|
)
|
|
(149.3
|
)
|
|
(59.7
|
)
|
|
(160.6
|
)
|
|
Less: Net loss attributable to noncontrolling interests
|
3.0
|
|
|
5.2
|
|
|
7.5
|
|
|
8.7
|
|
|
Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders
|
$
|
1.8
|
|
|
$
|
(144.1
|
)
|
|
$
|
(52.2
|
)
|
|
$
|
(151.9
|
)
|
|
|
|
|
|
|
|
|
|
|
Per share information attributable to Lions Gate Entertainment Corp. shareholders:
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
$
|
0.01
|
|
|
$
|
(0.67
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.71
|
)
|
|
Diluted net income (loss) per common share
|
$
|
0.01
|
|
|
$
|
(0.67
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.71
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
217.5
|
|
|
213.6
|
|
|
216.8
|
|
|
212.7
|
|
|
Diluted
|
219.8
|
|
|
213.6
|
|
|
216.8
|
|
|
212.7
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
$
|
—
|
|
|
$
|
0.09
|
|
|
$
|
—
|
|
|
$
|
0.18
|
|
See accompanying notes.
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Net loss
|
$
|
(1.2
|
)
|
|
$
|
(149.3
|
)
|
|
$
|
(59.7
|
)
|
|
$
|
(160.6
|
)
|
|
Foreign currency translation adjustments, net of tax
|
0.5
|
|
|
(1.7
|
)
|
|
1.4
|
|
|
(7.8
|
)
|
|
Net unrealized gain (loss) on cash flow hedges, net of tax
|
(20.8
|
)
|
|
9.7
|
|
|
(66.7
|
)
|
|
4.5
|
|
|
Comprehensive loss
|
(21.5
|
)
|
|
(141.3
|
)
|
|
(125.0
|
)
|
|
(163.9
|
)
|
|
Less: Comprehensive loss attributable to noncontrolling interests
|
3.0
|
|
|
5.2
|
|
|
7.5
|
|
|
8.7
|
|
|
Comprehensive loss attributable to Lions Gate Entertainment Corp. shareholders
|
$
|
(18.5
|
)
|
|
$
|
(136.1
|
)
|
|
$
|
(117.5
|
)
|
|
$
|
(155.2
|
)
|
See accompanying notes.
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
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 June 30, 2019
|
82.6
|
|
|
$
|
651.2
|
|
|
135.0
|
|
|
$
|
2,176.9
|
|
|
$
|
149.2
|
|
|
$
|
(125.3
|
)
|
|
$
|
2,852.0
|
|
|
$
|
3.0
|
|
|
$
|
2,855.0
|
|
|
Share-based compensation, net
|
0.1
|
|
|
1.0
|
|
|
0.2
|
|
|
12.0
|
|
|
—
|
|
|
—
|
|
|
13.0
|
|
|
—
|
|
|
13.0
|
|
|
Issuance of common shares
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
Noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.8
|
|
|
—
|
|
|
1.8
|
|
|
(0.2
|
)
|
|
1.6
|
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20.3
|
)
|
|
(20.3
|
)
|
|
—
|
|
|
(20.3
|
)
|
|
Redeemable noncontrolling interests adjustments to redemption value
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7.3
|
)
|
|
—
|
|
|
(7.3
|
)
|
|
—
|
|
|
(7.3
|
)
|
|
Balance at September 30, 2019
|
82.7
|
|
|
$
|
652.3
|
|
|
135.2
|
|
|
$
|
2,189.0
|
|
|
$
|
143.7
|
|
|
$
|
(145.6
|
)
|
|
$
|
2,839.4
|
|
|
$
|
2.9
|
|
|
$
|
2,842.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2018
|
82.0
|
|
|
$
|
636.2
|
|
|
132.0
|
|
|
$
|
2,082.4
|
|
|
$
|
506.2
|
|
|
$
|
(23.5
|
)
|
|
$
|
3,201.3
|
|
|
$
|
1.4
|
|
|
$
|
3,202.7
|
|
|
Exercise of stock options
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
1.6
|
|
|
—
|
|
|
—
|
|
|
1.7
|
|
|
—
|
|
|
1.7
|
|
|
Share-based compensation, net
|
—
|
|
|
2.0
|
|
|
—
|
|
|
11.0
|
|
|
—
|
|
|
—
|
|
|
13.0
|
|
|
—
|
|
|
13.0
|
|
|
Noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.1
|
|
|
1.1
|
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19.5
|
)
|
|
—
|
|
|
(19.5
|
)
|
|
—
|
|
|
(19.5
|
)
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(144.0
|
)
|
|
—
|
|
|
(144.0
|
)
|
|
(0.3
|
)
|
|
(144.3
|
)
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7.9
|
|
|
7.9
|
|
|
—
|
|
|
7.9
|
|
|
Redeemable noncontrolling interests adjustments to redemption value
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10.4
|
)
|
|
—
|
|
|
(10.4
|
)
|
|
—
|
|
|
(10.4
|
)
|
|
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).
|
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
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, 2019
|
82.5
|
|
|
$
|
649.7
|
|
|
133.5
|
|
|
$
|
2,140.6
|
|
|
$
|
208.7
|
|
|
$
|
(80.3
|
)
|
|
$
|
2,918.7
|
|
|
$
|
3.2
|
|
|
$
|
2,921.9
|
|
|
Exercise of stock options
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.5
|
|
|
—
|
|
|
—
|
|
|
0.5
|
|
|
—
|
|
|
0.5
|
|
|
Share-based compensation, net
|
0.2
|
|
|
2.5
|
|
|
0.3
|
|
|
19.7
|
|
|
—
|
|
|
—
|
|
|
22.2
|
|
|
—
|
|
|
22.2
|
|
|
Issuance of common shares related to acquisitions and other
|
—
|
|
|
0.1
|
|
|
1.3
|
|
|
28.2
|
|
|
—
|
|
|
—
|
|
|
28.3
|
|
|
—
|
|
|
28.3
|
|
|
Noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
|
(0.2
|
)
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(52.2
|
)
|
|
—
|
|
|
(52.2
|
)
|
|
(0.1
|
)
|
|
(52.3
|
)
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(65.3
|
)
|
|
(65.3
|
)
|
|
—
|
|
|
(65.3
|
)
|
|
Redeemable noncontrolling interests adjustments to redemption value
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12.8
|
)
|
|
—
|
|
|
(12.8
|
)
|
|
—
|
|
|
(12.8
|
)
|
|
Balance at September 30, 2019
|
82.7
|
|
|
$
|
652.3
|
|
|
135.2
|
|
|
$
|
2,189.0
|
|
|
$
|
143.7
|
|
|
$
|
(145.6
|
)
|
|
$
|
2,839.4
|
|
|
$
|
2.9
|
|
|
$
|
2,842.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Operating Activities:
|
|
|
|
|
Net loss
|
$
|
(59.7
|
)
|
|
$
|
(160.6
|
)
|
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
Depreciation and amortization
|
91.2
|
|
|
81.1
|
|
|
Amortization of films and television programs and program rights
|
855.2
|
|
|
723.2
|
|
|
Interest on dissenting shareholders' liability
|
—
|
|
|
32.6
|
|
|
Amortization of debt financing costs
|
7.5
|
|
|
6.0
|
|
|
Non-cash share-based compensation
|
24.1
|
|
|
30.2
|
|
|
Other non-cash items
|
21.8
|
|
|
12.1
|
|
|
Shareholder litigation settlements
|
—
|
|
|
114.1
|
|
|
Equity interests loss
|
11.1
|
|
|
17.8
|
|
|
Loss on investments
|
0.3
|
|
|
37.0
|
|
|
Deferred income taxes (benefit)
|
0.6
|
|
|
(40.9
|
)
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Accounts receivable, net and other assets
|
123.7
|
|
|
172.7
|
|
|
Investment in films and television programs and program rights, net
|
(717.1
|
)
|
|
(697.1
|
)
|
|
Accounts payable and accrued liabilities
|
(22.4
|
)
|
|
(65.3
|
)
|
|
Participations and residuals
|
(45.8
|
)
|
|
(24.1
|
)
|
|
Film obligations
|
(47.4
|
)
|
|
(12.4
|
)
|
|
Deferred revenue
|
(24.6
|
)
|
|
43.5
|
|
|
Net Cash Flows Provided By Operating Activities
|
218.5
|
|
|
269.9
|
|
|
Investing Activities:
|
|
|
|
|
Investment in equity method investees
|
(4.9
|
)
|
|
(22.0
|
)
|
|
Business acquisitions, net of cash acquired of $5.5 (see Note 2)
|
—
|
|
|
(77.3
|
)
|
|
Capital expenditures
|
(16.9
|
)
|
|
(21.6
|
)
|
|
Net Cash Flows Used In Investing Activities
|
(21.8
|
)
|
|
(120.9
|
)
|
|
Financing Activities:
|
|
|
|
|
Debt - borrowings
|
302.0
|
|
|
2,069.5
|
|
|
Debt - repayments
|
(328.5
|
)
|
|
(2,144.8
|
)
|
|
Production loans - borrowings
|
51.8
|
|
|
154.5
|
|
|
Production loans - repayments
|
(168.2
|
)
|
|
(189.7
|
)
|
|
Dividends paid
|
—
|
|
|
(38.2
|
)
|
|
Distributions to noncontrolling interest
|
(3.6
|
)
|
|
(1.5
|
)
|
|
Exercise of stock options
|
0.5
|
|
|
1.8
|
|
|
Tax withholding required on equity awards
|
(1.8
|
)
|
|
(4.0
|
)
|
|
Net Cash Flows Used In Financing Activities
|
(147.8
|
)
|
|
(152.4
|
)
|
|
Net Change In Cash, Cash Equivalents and Restricted Cash
|
48.9
|
|
|
(3.4
|
)
|
|
Foreign Exchange Effects on Cash, Cash Equivalents and Restricted Cash
|
(0.6
|
)
|
|
(2.4
|
)
|
|
Cash, Cash Equivalents and Restricted Cash - Beginning Of Period
|
184.3
|
|
|
378.1
|
|
|
Cash, Cash Equivalents and Restricted Cash - End Of Period
|
$
|
232.6
|
|
|
$
|
372.3
|
|
See accompanying notes.
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General
Nature of Operations
Lions Gate Entertainment Corp. (“Lionsgate,” the “Company,” “we,” “us” or “our”) is a global content leader 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, video games, esports 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 sales and 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, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2020. The balance sheet at March 31, 2019 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, 2019.
Certain amounts presented in prior periods have been reclassified to conform 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; estimates of sales returns and other allowances and provisions for doubtful accounts; estimates related to the revenue 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.
Change in Estimate
The Company monitors its finite-lived intangible assets and changes in the underlying circumstances each reporting period for indicators of possible impairments or a change in the useful life or method of amortization of our finite-lived intangible assets. At June 30, 2019, the Company had $1.5 billion of finite live intangible assets related to customer relationships associated with U.S. MVPDs, including cable operators, satellite television providers and telecommunications companies ("Traditional Affiliate"). At September 30, 2019, the Company updated its undiscounted cash flows analysis for the Starz Traditional Affiliate customer relationships and concluded the undiscounted cash flows continue to exceed its carrying values and therefore the asset was recoverable. Due to changes in the industry related to the migration from linear to OTT and direct-to-consumer consumption, in the quarter ended September 30, 2019, the Company changed its pattern of amortization of its Traditional Affiliate customer relationship intangible assets from the straight line method over 17 years to an accelerated amortization method which reflects amortization in the proportion that current period revenues bear to management’s estimate of future revenue over the remaining estimated useful life of the asset. This method resulted in an increase to amortization expense of $11.3 million during the quarter ended September 30, 2019, with a corresponding reduction of income before income taxes, net income, net income attributable to Lions Gate Entertainment Corp. shareholders, and decreased basic and
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
diluted net income per share by $0.05 per share. There was no tax benefit from the change due to changes in the Company’s valuation allowance on deferred taxes.
Recent Accounting Pronouncements
Accounting Guidance Adopted in Fiscal 2020
Accounting for Leases: In February 2016, the Financial Accounting Standards Board ("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 Company adopted the new standard on April 1, 2019 utilizing the modified retrospective approach, and therefore, results for reporting periods beginning after April 1, 2019 are presented under the new guidance, while prior periods have not been adjusted. Additionally, the Company elected to apply practical expedients allowing it to not reassess (1) whether any expired or existing contracts previously assessed as not containing leases are, or contain, leases; (2) the lease classification for any expired or existing leases; and (3) initial direct costs for any existing leases. The Company also elected the practical expedient to not separate lease components from non-lease components for equipment. Instead, for this lease class, each separate lease component and non-lease component is accounted for as a single lease component.
Upon adoption of the new guidance, the Company recognized lease liabilities on the Company's consolidated balance sheet for its operating leases of approximately $187.2 million, with a corresponding right-of-use assets balance of $157.4 million, net of existing lease incentives of $29.8 million which were previously classified in accounts payable and accrued liabilities and other liabilities, with no material impact on its consolidated statement of operations. See Note 6 for further information regarding the impact of the adoption of the new guidance on accounting for leases on the Company's financial statements.
Accounting Guidance Not Yet Adopted
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.
Improvements to Accounting for Costs of Films and License Agreements for Program Materials: In March 2019, the FASB issued guidance that aligns the accounting for production costs of an episodic television series with the accounting for production costs of films by removing the content distinction for capitalization. Accordingly, the capitalization of production costs for episodic television series is no longer constrained until persuasive evidence of secondary market revenues exists. In addition, under the new guidance, a company will need to determine at the outset of production whether a film or television program is primarily monetized on its own or within a film group. A film group is defined as the lowest level at which identifiable cash flows are largely independent of the cash flows of other films and/or license agreements. In addition, under previous guidance, film and television programs accounted for under the broadcasting accounting standard were carried on the balance sheet at the lower of cost or net realizable value. The new guidance requires that an entity test a film or television program for impairment, when impairment indicators are present, at a film group level when the film or license agreement is predominantly monetized with other films and/or license agreements. The impairment would be measured as the difference between the carrying value of the film group and its fair value rather than its net realizable value. This guidance requires that an entity provide new disclosures about content that is either produced or licensed, and classify cash flows for licensed content as cash flows from operating activities in the statement of cash flows. This guidance is effective for the Company's fiscal year beginning April 1, 2020, 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.
Financial Instruments - Credit Losses: In June 2016, the FASB issued guidance that changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, from the incurred loss methodology under current U.S. GAAP to a new, forward-looking current expected credit loss model that would generally result in the earlier recognition of credit losses. This guidance is effective for the Company’s fiscal year beginning April 1, 2020, with early adoption permitted. Adoption of the standard will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align our credit
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
loss methodology with the new standard. The Company is currently evaluating the impact of this standard on its consolidated financial statements, including accounting policies, processes, and systems.
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% was paid in the Company's Class B non-voting common shares on the one-year anniversary of closing. The number of shares 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. 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, 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 was initially 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 the purchase price allocation, $92.7 million was allocated to goodwill, $47.0 million was allocated to the fair value of finite-lived intangible assets 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 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.
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
3. Investment in Films and Television Programs and Program Rights
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
March 31,
2019
|
|
|
(Amounts in millions)
|
|
Motion Picture Segment - Theatrical and Non-Theatrical Films
|
|
|
|
|
Released, net of accumulated amortization
|
$
|
383.5
|
|
|
$
|
376.7
|
|
|
Acquired libraries, net of accumulated amortization
|
1.6
|
|
|
1.8
|
|
|
Completed and not released
|
46.7
|
|
|
80.6
|
|
|
In progress
|
170.8
|
|
|
250.4
|
|
|
In development
|
49.6
|
|
|
45.0
|
|
|
|
652.2
|
|
|
754.5
|
|
|
Television Production Segment - Direct-to-Television Programs
|
|
|
|
|
Released, net of accumulated amortization
|
182.2
|
|
|
186.1
|
|
|
In progress
|
265.0
|
|
|
295.6
|
|
|
In development
|
14.6
|
|
|
17.6
|
|
|
|
461.8
|
|
|
499.3
|
|
|
Media Networks Segment
|
|
|
|
|
Released program rights, net of accumulated amortization
|
663.3
|
|
|
591.0
|
|
|
In progress
|
20.6
|
|
|
106.8
|
|
|
In development
|
40.6
|
|
|
56.2
|
|
|
|
724.5
|
|
|
754.0
|
|
|
|
|
|
|
|
Intersegment eliminations
|
(21.5
|
)
|
|
(40.1
|
)
|
|
|
|
|
|
|
Investment in films and television programs and program rights, net
|
1,817.0
|
|
|
1,967.7
|
|
|
Less current portion of program rights
|
(281.3
|
)
|
|
(295.7
|
)
|
|
Non-current portion
|
$
|
1,535.7
|
|
|
$
|
1,672.0
|
|
During the three and six months ended September 30, 2019 and 2018, 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, 2019, the Company recorded $0.1 million and $1.6 million, respectively, of fair value film write-downs (2018 - $2.5 million and $7.0 million, respectively).
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
4. Investments
The Company's investments consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
March 31,
2019
|
|
|
|
(Amounts in millions)
|
|
Investments in equity method investees
|
|
$
|
29.0
|
|
|
$
|
24.5
|
|
|
Other investments
|
|
1.3
|
|
|
1.7
|
|
|
|
|
$
|
30.3
|
|
|
$
|
26.2
|
|
Equity Method Investments:
The Company has investments in various equity method investees with ownership percentages ranging from approximately 12% to 49%. These investments include:
STARZPLAY Arabia. STARZPLAY Arabia (Playco Holdings Limited) offers a STARZ-branded online subscription video-on-demand service in the Middle East and North Africa.
Roadside Attractions. Roadside Attractions is an independent theatrical distribution company.
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.
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 equity method investees owned at September 30, 2019 and March 31, 2019, respectively, is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
March 31,
2019
|
|
|
(Amounts in millions)
|
|
Current assets
|
$
|
126.6
|
|
|
$
|
189.8
|
|
|
Non-current assets
|
$
|
66.1
|
|
|
$
|
55.7
|
|
|
Current liabilities
|
$
|
142.6
|
|
|
$
|
167.8
|
|
|
Non-current liabilities
|
$
|
44.6
|
|
|
$
|
46.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Revenues
|
$
|
47.0
|
|
|
$
|
30.7
|
|
|
$
|
77.2
|
|
|
$
|
53.4
|
|
|
Gross profit
|
$
|
16.2
|
|
|
$
|
15.3
|
|
|
$
|
24.3
|
|
|
$
|
19.6
|
|
|
Net loss
|
$
|
(8.6
|
)
|
|
$
|
(34.9
|
)
|
|
$
|
(31.0
|
)
|
|
$
|
(55.3
|
)
|
Pop. Pop was the Company's joint venture with CBS. On March 15, 2019, the Company sold its 50.0% interest in Pop to CBS. Prior to the sale of its interest in Pop, the Company had accounted for such interest as an equity method investment.
Pop Financial Information:
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 for Pop and a reconciliation of the net loss reported by Pop to equity interest loss recorded by the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2018
|
|
|
|
|
|
|
Revenues
|
$
|
25.9
|
|
|
$
|
51.5
|
|
|
Expenses:
|
|
|
|
|
Cost of services
|
12.4
|
|
|
25.5
|
|
|
Selling, marketing, and general and administration
|
11.5
|
|
|
23.4
|
|
|
Depreciation and amortization
|
2.0
|
|
|
4.0
|
|
|
Operating loss
|
—
|
|
|
(1.4
|
)
|
|
Interest expense, net
|
0.5
|
|
|
0.9
|
|
|
Accretion of redeemable preferred stock units(1)
|
22.6
|
|
|
44.4
|
|
|
Total interest expense, net
|
23.1
|
|
|
45.3
|
|
|
Net loss
|
$
|
(23.1
|
)
|
|
$
|
(46.7
|
)
|
|
Reconciliation of net loss reported by Pop to equity interest loss:
|
|
|
|
|
Net loss reported by Pop
|
$
|
(23.1
|
)
|
|
$
|
(46.7
|
)
|
|
Ownership interest in Pop
|
50
|
%
|
|
50
|
%
|
|
The Company's share of net loss
|
(11.6
|
)
|
|
(23.4
|
)
|
|
Accretion of dividend and interest income on redeemable preferred stock units(1)
|
11.3
|
|
|
22.2
|
|
|
Elimination of the Company's share of profits on licensing sales to Pop
|
(0.1
|
)
|
|
(0.2
|
)
|
|
Realization of the Company’s share of profits on licensing sales to Pop
|
0.1
|
|
|
0.3
|
|
|
Total equity interest loss recorded
|
$
|
(0.3
|
)
|
|
$
|
(1.1
|
)
|
___________________
|
|
|
|
(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 previously 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.
|
Loss on Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Impairments of investments(1)
|
$
|
—
|
|
|
$
|
(34.2
|
)
|
|
$
|
—
|
|
|
$
|
(34.2
|
)
|
|
Unrealized losses on equity securities held as of September 30, 2019 and 2018, respectively
|
(0.4
|
)
|
|
(1.9
|
)
|
|
(0.3
|
)
|
|
(2.8
|
)
|
|
|
$
|
(0.4
|
)
|
|
$
|
(36.1
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
(37.0
|
)
|
___________________
|
|
|
|
(1)
|
In the three and six months ended September 30, 2018, amounts represent other-than-temporary impairments on investments in equity securities without readily determinable fair values and notes receivable (previously included in other assets), which were written down to their estimated fair value.
|
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
5. Debt
Total debt of the Company, excluding film obligations and production loans, was as follows as of September 30, 2019 and March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
March 31,
2019
|
|
|
(Amounts in millions)
|
|
Corporate debt:
|
|
|
|
|
Revolving Credit Facility
|
$
|
—
|
|
|
$
|
—
|
|
|
Term Loan A(1)
|
731.3
|
|
|
750.0
|
|
|
Term Loan B(1)
|
1,101.3
|
|
|
1,107.5
|
|
|
5.875% Senior Notes
|
520.0
|
|
|
520.0
|
|
|
6.375% Senior Notes
|
550.0
|
|
|
550.0
|
|
|
Total corporate debt
|
2,902.6
|
|
|
2,927.5
|
|
|
Finance lease obligations
|
43.9
|
|
|
45.4
|
|
|
Total debt
|
2,946.5
|
|
|
2,972.9
|
|
|
Unamortized debt issuance costs, net of fair value adjustment on finance lease obligations
|
(60.6
|
)
|
|
(68.5
|
)
|
|
Total debt, net
|
2,885.9
|
|
|
2,904.4
|
|
|
Less current portion
|
(61.2
|
)
|
|
(53.6
|
)
|
|
Non-current portion of debt
|
$
|
2,824.7
|
|
|
$
|
2,850.8
|
|
_____________________
|
|
|
|
(1)
|
To manage interest rate risk on certain of its LIBOR-based floating-rate corporate debt, as of September 30, 2019, the Company has entered into interest rate swaps to effectively convert the floating interest rates to fixed interest rates on a $1.7 billion notional amount, which as of September 30, 2019 converts the effective rate on our LIBOR-based corporate debt to 4.859% (see Note 17 for further information).
|
Senior Credit Facilities (Revolving Credit Facility, Term Loan A and Term Loan B)
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, 2019 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, 2019. 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 credit and guarantee agreement dated December 8, 2016, as amended (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.
Interest:
|
|
|
|
•
|
Revolving Credit Facility & Term Loan A: Initially bore 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 3.77% as of September 30, 2019, before the impact of interest rate swaps).
|
|
|
|
|
•
|
Term Loan B: As of March 22, 2018, pursuant to the Amended Credit Agreement, 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 4.27% as of September 30, 2019, before the impact of interest rate swaps).
|
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Required Principal Payments:
|
|
|
|
•
|
Term Loan A: Quarterly principal payments, at quarterly rates of 1.25% beginning June 30, 2019, 1.75% beginning June 30, 2020, and 2.50% beginning June 30, 2021 through December 31, 2022, with the balance payable at maturity.
|
|
|
|
|
•
|
Term Loan B: Quarterly principal payments 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. 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, 2019, 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 and 6.375% Senior Notes
Interest:
|
|
|
|
•
|
5.875% Senior Notes: Bears interest at 5.875% annually (payable semi-annually on May and November 1 of each year).
|
|
|
|
|
•
|
6.375% Senior Notes: Bears interest at 6.375% annually (payable semi-annually in arrears on February 1 and August 1 of each year, commencing on August 1, 2019).
|
Maturity Date:
|
|
|
|
•
|
5.875% Senior Notes: November 1, 2024.
|
|
|
|
|
•
|
6.375% Senior Notes: February 1, 2024.
|
Optional Redemption:
|
|
|
|
(i)
|
Prior to November 1, 2019, the 5.875% Senior Notes are redeemable by the Company 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 November 1, 2019 (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%.
|
|
|
|
|
(i)
|
Prior to February 1, 2021, the 6.375% Senior Notes are redeemable by the Company under certain circumstances (as defined in the indenture governing the 6.375% Senior Notes), in whole at any time, or in part
|
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
from time to time, at a price equal to 100% of the principal amount of the Notes to be redeemed plus the Applicable Premium (as defined in the indenture governing the 6.375% 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 February 1, 2021 (see below) of the notes redeemed plus interest through February 1, 2021 (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 February 1, 2021, 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 February 1, 2021 - 103.188%; (ii) on or after February 1, 2022 - 101.594%; (iii) on or after February 1, 2023 - 100%.
|
Security. The 5.875% Senior Notes and 6.375% Senior Notes are unsubordinated, unsecured obligations of the Company.
Covenants. The 5.875% Senior Notes and 6.375% 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, 2019, 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 and 6.375% 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 and 6.375% Senior Notes at 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.
Capacity to Pay Dividends
At September 30, 2019, the capacity to pay dividends under the Senior Credit Facilities and the 5.875% Senior Notes and the 6.375% Senior Notes significantly exceeded the amount of the Company's retained earnings or net loss, and therefore the Company's net loss of $59.7 million and retained earnings of $143.7 million were deemed free of restrictions at September 30, 2019.
Interest Expense
The table below sets forth the composition of the Company’s interest expense for the three and six months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Interest expense
|
|
|
|
|
|
|
|
|
Cash interest
|
$
|
44.3
|
|
|
$
|
35.8
|
|
|
$
|
89.5
|
|
|
$
|
68.2
|
|
|
Amortization of debt financing costs
|
3.7
|
|
|
3.0
|
|
|
7.5
|
|
|
6.0
|
|
|
|
48.0
|
|
|
38.8
|
|
|
97.0
|
|
|
74.2
|
|
|
Interest on dissenting shareholders' liability(1)
|
—
|
|
|
16.7
|
|
|
—
|
|
|
32.6
|
|
|
Total interest expense
|
$
|
48.0
|
|
|
$
|
55.5
|
|
|
$
|
97.0
|
|
|
$
|
106.8
|
|
___________________
|
|
|
|
(1)
|
Represents interest accrued in connection with the previously outstanding dissenting shareholders' liability associated with the Starz merger.
|
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6. Leases
The Company has operating leases primarily for office space, studio facilities, and other equipment. The Company also has finance leases for a satellite transponder and the Starz commercial building. The Company's leases have remaining lease terms of up to approximately 10 years, and the Starz commercial building lease includes four successive five-year renewal periods at the Company's option. Most leases are not cancelable prior to their expiration. The expected term of the lease used for computing the lease liability and right-of-use ("ROU") asset and determining the classification of the lease as operating or financing may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company determines if an arrangement is a lease at its inception.
Operating Leases. Operating lease ROU assets, representing the Company's right to use the underlying asset for the lease term, are included in the "Other assets - non-current" line item in the Company's September 30, 2019 unaudited condensed consolidated balance sheet. Operating lease liabilities, representing the present value of the Company's obligation to make payments over the lease term, are included in the “Accounts payable and accrued liabilities” and “Other liabilities - non-current” line items in the Company's September 30, 2019 unaudited condensed consolidated balance sheet. The Company has entered into various short-term operating leases which have an initial term of 12 months or less. These short-term leases are not recorded on the Company's unaudited condensed consolidated balance sheet. Lease expense for operating leases is recognized on a straight-line basis over the lease term.
Finance Leases. Finance lease ROU assets are included in "Property and equipment, net" and finance lease liabilities are included in the “Debt - short-term portion” and “Debt - non-current” line items in the Company's September 30, 2019 unaudited condensed consolidated balance sheet. For finance leases, the Company recognizes interest expense on lease liabilities using the effective interest method and amortization of ROU assets on a straight-line basis over the lease term.
The present value of the lease payments is calculated using a rate implicit in the lease, when readily determinable. However, as most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate to determine the present value of the lease payments for the majority of its leases.
Variable lease payments that are based on an index or rate are included in the measurement of ROU assets and lease liabilities at lease inception. All other variable lease payments are expensed as incurred and are not included in the measurement of ROU assets and lease liabilities.
The components of lease cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2019
|
|
|
(Amounts in millions)
|
|
Operating lease cost(1)
|
$
|
8.5
|
|
|
$
|
16.9
|
|
|
|
|
|
|
|
Finance lease cost
|
|
|
|
|
Amortization of right-of-use assets
|
0.8
|
|
|
1.5
|
|
|
Interest on lease liabilities
|
0.9
|
|
|
1.7
|
|
|
Total finance lease cost
|
1.7
|
|
|
3.2
|
|
|
|
|
|
|
|
Short-term lease cost(1)(2)
|
20.6
|
|
|
50.8
|
|
|
Total lease cost
|
$
|
30.8
|
|
|
$
|
70.9
|
|
___________________
|
|
|
|
(1)
|
Amounts include costs capitalized during the period for leased assets used in the production of film and television programs.
|
|
|
|
|
(2)
|
Short-term lease cost primarily consists of leases of facilities and equipment associated with film and television productions.
|
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
September 30,
|
|
|
2019
|
|
|
(Amounts in millions)
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
Operating cash flows from operating leases
|
$
|
18.1
|
|
|
Financing cash flows from financing leases
|
1.5
|
|
|
|
|
|
Right-of-use assets obtained in exchange for new lease obligations:
|
|
|
Operating leases
|
2.1
|
|
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
Category
|
|
Balance Sheet Location
|
|
September 30,
2019
|
|
Operating Leases
|
|
|
|
(Amounts in millions)
|
|
Right-of-use assets
|
|
Other assets - non-current
|
|
$
|
146.3
|
|
|
|
|
|
|
|
|
Lease liabilities (current)
|
|
Accounts payable and accrued liabilities
|
|
$
|
29.5
|
|
|
Lease liabilities (non-current)
|
|
Other liabilities - non-current
|
|
144.7
|
|
|
|
|
|
|
$
|
174.2
|
|
|
Finance Leases
|
|
|
|
|
|
Right-of-use assets
|
|
Property and equipment, net
|
|
$
|
48.7
|
|
|
|
|
|
|
|
|
Lease liabilities (current)
|
|
Debt - short-term portion
|
|
$
|
3.1
|
|
|
Lease liabilities (non-current)
|
|
Debt - non-current
|
|
40.8
|
|
|
|
|
|
|
$
|
43.9
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
Weighted average remaining lease term (in years):
|
|
|
Operating leases
|
6.5
|
|
|
Finance leases
|
21.6
|
|
|
|
|
|
Weighted average discount rate:
|
|
|
Operating leases
|
4.11
|
%
|
|
Finance leases
|
6.41
|
%
|
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The expected future payments relating to the Company's operating and finance lease liabilities at September 30, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance
Leases
|
|
|
(Amounts in millions)
|
|
Six months ending March 31, 2020
|
$
|
18.1
|
|
|
$
|
3.2
|
|
|
Year ending March 31,
|
|
|
|
|
2021
|
35.8
|
|
|
6.2
|
|
|
2022
|
33.1
|
|
|
3.9
|
|
|
2023
|
32.4
|
|
|
3.9
|
|
|
2024
|
20.3
|
|
|
3.9
|
|
|
Thereafter
|
59.9
|
|
|
73.5
|
|
|
Total lease payments
|
199.6
|
|
|
94.6
|
|
|
Less imputed interest
|
(25.4
|
)
|
|
(50.7
|
)
|
|
Total
|
$
|
174.2
|
|
|
$
|
43.9
|
|
7. Film Obligations and Production Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
March 31,
2019
|
|
|
(Amounts in millions)
|
|
Film obligations
|
$
|
211.2
|
|
|
$
|
270.3
|
|
|
Production loans
|
269.7
|
|
|
386.4
|
|
|
Total film obligations and production loans
|
480.9
|
|
|
656.7
|
|
|
Unamortized debt issuance costs
|
(0.7
|
)
|
|
(1.0
|
)
|
|
Total film obligations and production loans, net
|
480.2
|
|
|
655.7
|
|
|
Less current portion
|
(343.9
|
)
|
|
(512.6
|
)
|
|
Total non-current film obligations and production loans
|
$
|
136.3
|
|
|
$
|
143.1
|
|
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 4.16% to 4.85%.
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.
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, 2019 and March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
March 31, 2019
|
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
Assets:
|
(Amounts in millions)
|
|
Available-for-sale equity securities
|
$
|
0.8
|
|
|
$
|
—
|
|
|
$
|
0.8
|
|
|
$
|
1.2
|
|
|
$
|
—
|
|
|
$
|
1.2
|
|
|
Forward exchange contracts (see Note 17)
|
—
|
|
|
1.6
|
|
|
1.6
|
|
|
—
|
|
|
1.5
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts (see Note 17)
|
—
|
|
|
(0.7
|
)
|
|
(0.7
|
)
|
|
—
|
|
|
(0.6
|
)
|
|
(0.6
|
)
|
|
Interest rate swaps (see Note 17)
|
—
|
|
|
(130.3
|
)
|
|
(130.3
|
)
|
|
—
|
|
|
(63.6
|
)
|
|
(63.6
|
)
|
The following table sets forth the carrying values and fair values of the Company’s outstanding debt at September 30, 2019 and March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
March 31, 2019
|
|
|
(Amounts in millions)
|
|
|
Carrying
Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
|
|
|
(Level 2)
|
|
|
|
(Level 2)
|
|
Liabilities(1):
|
|
|
|
|
|
|
|
|
Term Loan A
|
$
|
716.6
|
|
|
$
|
724.9
|
|
|
$
|
733.3
|
|
|
$
|
742.5
|
|
|
Term Loan B
|
1,086.2
|
|
|
1,098.5
|
|
|
1,091.2
|
|
|
1,088.1
|
|
|
5.875% Senior Notes
|
504.0
|
|
|
534.3
|
|
|
502.8
|
|
|
534.3
|
|
|
6.375% Senior Notes
|
542.8
|
|
|
578.9
|
|
|
541.4
|
|
|
576.1
|
|
|
Production loans
|
269.0
|
|
|
269.7
|
|
|
385.4
|
|
|
386.4
|
|
________________
|
|
|
|
(1)
|
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, other liabilities, borrowings under the Revolving Credit Facility, if any, and finance lease obligations. The carrying values of these financial instruments approximated the fair values at September 30, 2019 and March 31, 2019.
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,
|
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Beginning balance
|
$
|
127.7
|
|
|
$
|
101.8
|
|
|
Initial fair value of redeemable noncontrolling interest of 3 Arts Entertainment
|
—
|
|
|
15.8
|
|
|
Net loss attributable to redeemable noncontrolling interests
|
(7.4
|
)
|
|
(7.4
|
)
|
|
Noncontrolling interests discount accretion
|
12.7
|
|
|
9.4
|
|
|
Adjustments to redemption value
|
12.8
|
|
|
15.0
|
|
|
Cash distributions
|
(3.4
|
)
|
|
(1.5
|
)
|
|
Ending balance
|
$
|
142.4
|
|
|
$
|
133.1
|
|
Redeemable noncontrolling interests (included in temporary equity on the unaudited condensed consolidated balance sheets) 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.
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 in which the Company owns a controlling interest.
10. Revenue
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 by Segment, Market or Product Line
The table below presents revenues by segment, market or product line for the three and six months ended September 30, 2019 and 2018:
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Revenue by Type:
|
|
|
|
|
|
|
|
|
Motion Picture
|
|
|
|
|
|
|
|
|
Theatrical
|
$
|
85.7
|
|
|
$
|
69.1
|
|
|
$
|
207.5
|
|
|
$
|
119.5
|
|
|
Home Entertainment
|
|
|
|
|
|
|
|
|
Digital Media
|
113.3
|
|
|
85.1
|
|
|
196.6
|
|
|
171.3
|
|
|
Packaged Media
|
65.2
|
|
|
64.5
|
|
|
121.6
|
|
|
141.0
|
|
|
Total Home Entertainment
|
178.5
|
|
|
149.6
|
|
|
318.2
|
|
|
312.3
|
|
|
Television
|
38.3
|
|
|
70.9
|
|
|
103.1
|
|
|
132.8
|
|
|
International
|
93.2
|
|
|
82.2
|
|
|
160.6
|
|
|
149.6
|
|
|
Other
|
10.1
|
|
|
7.2
|
|
|
14.2
|
|
|
30.1
|
|
|
Total Motion Picture revenues
|
$
|
405.8
|
|
|
$
|
379.0
|
|
|
803.6
|
|
|
744.3
|
|
|
|
|
|
|
|
|
|
|
|
Television Production
|
|
|
|
|
|
|
|
|
Television
|
185.5
|
|
|
85.1
|
|
|
382.3
|
|
|
302.9
|
|
|
International
|
39.0
|
|
|
21.8
|
|
|
95.8
|
|
|
58.8
|
|
|
Home Entertainment
|
|
|
|
|
|
|
|
|
Digital Media
|
31.7
|
|
|
27.0
|
|
|
37.5
|
|
|
43.3
|
|
|
Packaged Media
|
0.2
|
|
|
1.6
|
|
|
1.6
|
|
|
3.4
|
|
|
Total Home Entertainment
|
31.9
|
|
|
28.6
|
|
|
39.1
|
|
|
46.7
|
|
|
Other
|
17.6
|
|
|
16.6
|
|
|
36.6
|
|
|
23.1
|
|
|
Total Television Production revenues
|
274.0
|
|
|
152.1
|
|
|
553.8
|
|
|
431.5
|
|
|
|
|
|
|
|
|
|
|
|
Media Networks - Programming Revenues
|
|
|
|
|
|
|
|
|
Domestic(1)
|
369.6
|
|
|
377.0
|
|
|
738.9
|
|
|
731.8
|
|
|
International
|
4.4
|
|
|
0.3
|
|
|
7.5
|
|
|
0.4
|
|
|
|
374.0
|
|
|
377.3
|
|
|
746.4
|
|
|
732.2
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment eliminations
|
(70.3
|
)
|
|
(7.4
|
)
|
|
(156.7
|
)
|
|
(74.4
|
)
|
|
Total revenues
|
$
|
983.5
|
|
|
$
|
901.0
|
|
|
$
|
1,947.1
|
|
|
$
|
1,833.6
|
|
___________________
|
|
|
|
(1)
|
Media Networks domestic revenues include revenue from the Company's legacy Streaming Services product line of $7.7 million and $14.1 million in the three and six months ended September 30, 2019, respectively (2018 - $3.6 million and $7.3 million).
|
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, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of Year Ending March 31, 2020
|
|
Year Ending March 31,
|
|
|
|
|
|
|
|
|
2021
|
|
2022
|
|
Thereafter
|
|
Total
|
|
|
|
(Amounts in millions)
|
|
Remaining Performance Obligations
|
|
$
|
721.3
|
|
|
$
|
419.8
|
|
|
$
|
151.5
|
|
|
$
|
223.1
|
|
|
$
|
1,515.7
|
|
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
Revenues of $50.1 million and $115.0 million, including variable and fixed fee arrangements, were recognized during the three and six months ended September 30, 2019, respectively, from performance obligations satisfied prior to March 31, 2019. 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.
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, 2019 and March 31, 2019, accounts receivable, contract assets and deferred revenue are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item
|
|
Balance Sheet Location
|
|
September 30,
2019
|
|
March 31,
2019
|
|
Addition (Reduction)
|
|
|
|
|
|
(Amounts in millions)
|
|
|
|
Accounts receivable, net - current
|
|
Accounts receivable, net
|
|
$
|
664.2
|
|
|
$
|
647.2
|
|
|
$
|
17.0
|
|
|
Accounts receivable, net - non-current
|
|
Other assets - non-current
|
|
148.6
|
|
|
176.1
|
|
|
(27.5
|
)
|
|
Contract asset - current
|
|
Other assets - current(1)
|
|
16.6
|
|
|
97.3
|
|
|
(80.7
|
)
|
|
Contract asset - non-current
|
|
Other assets - non-current(1)
|
|
14.0
|
|
|
72.1
|
|
|
(58.1
|
)
|
|
Deferred revenue - current
|
|
Deferred revenue - current
|
|
117.3
|
|
|
146.5
|
|
|
(29.2
|
)
|
|
Deferred revenue - non-current
|
|
Deferred revenue - non-current
|
|
67.3
|
|
|
62.8
|
|
|
4.5
|
|
__________________
|
|
|
|
(1)
|
Included in prepaid expenses and other.
|
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 $32.4 million and $99.8 million were recognized during the three and six months ended September 30, 2019, respectively, related to the balance of deferred revenue at March 31, 2019.
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11. 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, 2019 and 2018 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(Amounts in millions, except per share amounts)
|
|
Basic Net Income (Loss) Per Common Share:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders
|
$
|
1.8
|
|
|
$
|
(144.1
|
)
|
|
$
|
(52.2
|
)
|
|
$
|
(151.9
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
217.5
|
|
|
213.6
|
|
|
216.8
|
|
|
212.7
|
|
|
Basic net income (loss) per common share
|
$
|
0.01
|
|
|
$
|
(0.67
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.71
|
)
|
Diluted net income (loss) per common share reflects share purchase options, including equity-settled share appreciation rights ("SARs"), restricted share units ("RSUs") and restricted stock 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, 2019 and 2018 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(Amounts in millions, except per share amounts)
|
|
Diluted Net Income (Loss) Per Common Share:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders
|
$
|
1.8
|
|
|
$
|
(144.1
|
)
|
|
$
|
(52.2
|
)
|
|
$
|
(151.9
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
217.5
|
|
|
213.6
|
|
|
216.8
|
|
|
212.7
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Share purchase options
|
0.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Restricted share units and restricted stock
|
0.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Contingently issuable shares
|
1.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Adjusted weighted average common shares outstanding
|
219.8
|
|
|
213.6
|
|
|
216.8
|
|
|
212.7
|
|
|
Diluted net income (loss) per common share
|
$
|
0.01
|
|
|
$
|
(0.67
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.71
|
)
|
As a result of the net loss in the six months ended September 30, 2019 and the three and six months ended September 30, 2018, the dilutive effect of the share purchase options, restricted share units and restricted stock, and contingently issuable shares were considered anti-dilutive and, therefore, excluded from diluted net loss per share. The weighted average anti-dilutive shares excluded from the calculation due to the net loss for the six months ended September 30, 2019 totaled 3.2 million (three and six months ended September 30, 2018 - 8.3 million and 8.2 million, respectively).
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Additionally, for the three and six months ended September 30, 2019 and 2018, 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 regardless of net income or loss in the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Anti-dilutive shares issuable
|
|
|
|
|
|
|
|
|
Share purchase options
|
31.1
|
|
|
20.4
|
|
|
30.2
|
|
|
19.5
|
|
|
Restricted share units
|
3.3
|
|
|
0.9
|
|
|
2.4
|
|
|
0.7
|
|
|
Other issuable shares
|
3.9
|
|
|
1.3
|
|
|
3.0
|
|
|
1.2
|
|
|
Total weighted average anti-dilutive shares issuable excluded from diluted net income (loss) per common share
|
38.3
|
|
|
22.6
|
|
|
35.6
|
|
|
21.4
|
|
12. Capital Stock
(a) Common Shares
The Company had 500 million authorized Class A voting shares and 500 million authorized Class B non-voting shares at September 30, 2019 and March 31, 2019. The table below outlines common shares reserved for future issuance:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
March 31,
2019
|
|
|
(Amounts in millions)
|
|
Stock options and equity-settled SARs outstanding
|
38.9
|
|
|
34.6
|
|
|
Restricted stock and restricted share units — unvested
|
4.1
|
|
|
2.0
|
|
|
Common shares available for future issuance
|
8.2
|
|
|
6.7
|
|
|
Shares reserved for future issuance
|
51.2
|
|
|
43.3
|
|
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(b) Share-based Compensation
The Company recognized the following share-based compensation expense during the three and six months ended September 30, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Compensation Expense:
|
|
|
|
|
|
|
|
|
Stock options
|
$
|
5.2
|
|
|
$
|
6.7
|
|
|
$
|
8.8
|
|
|
$
|
13.5
|
|
|
Restricted share units and other share-based compensation
|
8.5
|
|
|
7.2
|
|
|
13.3
|
|
|
13.9
|
|
|
Share appreciation rights
|
0.8
|
|
|
1.2
|
|
|
1.7
|
|
|
2.8
|
|
|
|
14.5
|
|
|
15.1
|
|
|
23.8
|
|
|
30.2
|
|
|
Impact of accelerated vesting on equity awards(1)
|
—
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
Total share-based compensation expense
|
$
|
14.5
|
|
|
$
|
15.1
|
|
|
$
|
24.1
|
|
|
$
|
30.2
|
|
|
|
|
|
|
|
|
|
|
|
Tax impact(2)
|
(3.1
|
)
|
|
(3.4
|
)
|
|
(5.1
|
)
|
|
(6.9
|
)
|
|
Reduction in net income
|
$
|
11.4
|
|
|
$
|
11.7
|
|
|
$
|
19.0
|
|
|
$
|
23.3
|
|
___________________
|
|
|
|
(1)
|
Represents the impact of the acceleration of certain vesting schedules for equity awards pursuant to certain severance arrangements.
|
|
|
|
|
(2)
|
Represents the income tax benefit recognized in the statements of operations for share-based compensation arrangements.
|
Share-based compensation expense, by expense category, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Share-Based Compensation Expense:
|
|
|
|
|
|
|
|
|
Direct operating
|
$
|
0.3
|
|
|
$
|
0.3
|
|
|
$
|
0.4
|
|
|
$
|
0.5
|
|
|
Distribution and marketing
|
0.1
|
|
|
0.1
|
|
|
0.2
|
|
|
0.1
|
|
|
General and administration
|
14.1
|
|
|
14.7
|
|
|
23.2
|
|
|
29.6
|
|
|
Restructuring and other
|
—
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
|
$
|
14.5
|
|
|
$
|
15.1
|
|
|
$
|
24.1
|
|
|
$
|
30.2
|
|
The following table sets forth the stock option, equity-settled SARs, cash-settled SARs, restricted stock and restricted share unit activity during the six months ended September 30, 2019:
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options, Equity-settled and Cash-settled SARs
|
|
Restricted Stock and Restricted Share Units
|
|
|
Class A Voting Shares
|
|
Class B Non-Voting Shares
|
|
Class A Voting Shares
|
|
Class B Non-Voting Shares
|
|
|
Number of Shares
|
|
Weighted-Average Exercise Price
|
|
Number of Shares
|
|
Weighted-Average Exercise Price
|
|
Number of Shares
|
|
Weighted-Average Grant-Date Fair Value
|
|
Number of Shares
|
|
Weighted-Average Grant-Date Fair Value
|
|
|
(Number of shares in millions)
|
|
Outstanding at March 31, 2019
|
8.4
|
|
|
$26.70
|
|
26.2
|
|
|
$20.72
|
|
0.1
|
|
|
$25.68
|
|
1.9
|
|
|
$24.24
|
|
Granted
|
—
|
|
|
—
|
|
|
7.1
|
|
(2)
|
$12.44
|
|
—
|
|
(1)
|
$11.01
|
|
2.8
|
|
|
$12.45
|
|
Options exercised or restricted stock or RSUs vested
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
$10.50
|
|
(0.1
|
)
|
|
$26.24
|
|
(0.4
|
)
|
|
$23.34
|
|
Forfeited or expired
|
(0.9
|
)
|
|
$30.41
|
|
(1.8
|
)
|
|
$25.49
|
|
—
|
|
(1)
|
$19.58
|
|
(0.2
|
)
|
|
$22.44
|
|
Outstanding at September 30, 2019
|
7.5
|
|
|
$26.28
|
|
31.4
|
|
|
$18.57
|
|
—
|
|
(1)
|
$15.33
|
|
4.1
|
|
|
$16.51
|
__________________
|
|
|
|
(1)
|
Represents less than 0.1 million shares.
|
|
|
|
|
(2)
|
During the six months ended September 30, 2019, the Company granted 3.3 million cash-settled share-appreciation rights ("CSARs"). The CSARs are revalued each reporting period until settlement using a closed-form option pricing model (Black Scholes).
|
(c) Other
In connection with an amendment of an affiliation agreement with a customer and effective upon the close of the Starz merger (December 8, 2016), Lionsgate agreed to issue to the customer three $16.67 million annual installments of equity (or cash at the Company's election). The total value of the contract of $50 million was amortized as a reduction of revenue over the period from December 8, 2016 to August 31, 2019. During the year ended March 31, 2019, Lionsgate issued to the customer 0.4 million Class A voting shares valued at $8.3 million and 0.5 million Class B voting shares valued at $8.3 million (2018 - 0.3 million Class A voting shares valued at $8.3 million and 0.3 million Class B non-voting shares valued at $8.3 million).
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. Income Taxes
For the three and six months ended September 30, 2019 and 2018, the Company determined that a small change in its estimated pretax results for the years ending March 31, 2020 and 2019, respectively, would create a large change in its expected annual effective rate. Accordingly, it was determined that a reliable estimate of the expected annual effective tax rate could not be made. As a result, the Company computed its tax benefit (provision) using the cut-off method, which reflects the actual taxes attributable to year-to-date earnings or losses.
The Company's income tax benefit (provision) differs from the federal statutory rate multiplied by pre-tax income (loss) due to the mix of the Company's pre-tax income (loss) generated across the various jurisdictions in which the Company operates and changes in the valuation allowance against the Company's deferred tax assets. In addition, the Company's income tax expense was impacted by certain minimum taxes imposed by the Tax Cuts and Jobs Act (the "Tax Act").
The Company's income tax benefit (provision) can be affected by many factors, including the overall level of pre-tax income, the mix of pre-tax income generated across the various jurisdictions in which the Company operates, changes in tax laws and regulations in those jurisdictions, further interpretation and legislative guidance regarding the Tax Act, changes in valuation allowances against its deferred tax assets, tax planning strategies available to the Company, and other discrete items.
14. Restructuring and Other
Restructuring and other includes restructuring and severance costs, certain transaction and related costs, and certain unusual items, when applicable, and were as follows for the three and six months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Restructuring and other:
|
|
|
|
|
|
|
|
|
Severance(1)
|
|
|
|
|
|
|
|
|
Cash
|
$
|
2.2
|
|
|
$
|
2.9
|
|
|
$
|
5.9
|
|
|
$
|
3.7
|
|
|
Accelerated vesting on equity awards (see Note 12)
|
—
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
Total severance costs
|
2.2
|
|
|
2.9
|
|
|
6.2
|
|
|
3.7
|
|
|
Transaction and related costs(2)
|
5.4
|
|
|
12.1
|
|
|
6.9
|
|
|
21.9
|
|
|
|
$
|
7.6
|
|
|
$
|
15.0
|
|
|
$
|
13.1
|
|
|
$
|
25.6
|
|
_______________________
|
|
|
|
(1)
|
Severance costs in the three and six months ended September 30, 2019 and 2018 were primarily related to restructuring activities in connection with recent acquisitions, and other cost-saving initiatives.
|
|
|
|
|
(2)
|
Transaction and related costs in the three and six months ended September 30, 2019 and 2018 reflect transaction, integration and legal costs associated with certain strategic transactions, restructuring activities and legal matters. In the three and six months ended September 30, 2018, these costs were primarily related to the legal fees associated with the Starz class action lawsuits and other matters, and to a lesser extent, costs related to the acquisition of 3 Arts Entertainment and other strategic transactions.
|
Changes in the restructuring and other severance liability were as follows for the six months ended September 30, 2019 and 2018:
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Severance liability
|
|
|
|
|
Beginning balance
|
$
|
21.2
|
|
|
$
|
14.7
|
|
|
Accruals
|
5.9
|
|
|
3.7
|
|
|
Severance payments
|
(18.8
|
)
|
|
(11.4
|
)
|
|
Ending balance(1)
|
$
|
8.3
|
|
|
$
|
7.0
|
|
_______________________
|
|
|
|
(1)
|
As of September 30, 2019, the remaining severance liability of approximately $8.3 million is expected to be paid in the next 12 months.
|
15. Segment Information
The Company’s reportable segments have been determined based on the distinct nature of their operations, the Company's internal management structure, and the financial information that is evaluated regularly by the Company's chief operating decision maker.
The Company has three reportable business segments: (1) Motion Picture, (2) Television Production and (3) Media Networks.
Motion Picture. Motion Picture consists of the development and production of feature films, acquisition of North American and worldwide distribution rights, North American theatrical, home entertainment and television distribution of feature films produced and acquired, and worldwide licensing of distribution rights to feature films produced and acquired.
Television Production. Television Production consists of the development, production and worldwide distribution of television productions including television series, television movies and mini-series, and non-fiction programming. Television Production includes the licensing of Starz original series productions to Starz Networks and STARZPLAY International, and the ancillary market distribution of Starz original productions and licensed product. Additionally, the results of operations of 3 Arts Entertainment is included in the Television Production segment from the acquisition date of May 29, 2018 (see Note 2).
Media Networks. Media Networks consists of the following product lines (i) Starz Networks, which includes the domestic licensing of premium subscription video programming to distributors, and on a direct-to-consumer basis (ii) STARZPLAY International, which represents revenues primarily from the OTT distribution of the Company's STARZ branded premium subscription video services internationally and (iii) Streaming Services, which represents the Lionsgate legacy start-up direct to consumer streaming services on its SVOD platforms.
In the ordinary course of business, the Company's reportable segments enter into transactions with one another. The most common types of intersegment transactions include licensing motion pictures or television programming (including Starz original productions) from the Motion Picture and Television Production segments to the Media Networks segment. While intersegment transactions are treated like third-party transactions to determine segment performance, the revenues (and corresponding expenses, assets, or liabilities recognized by the segment that is the counterparty to the transaction) are eliminated in consolidation and, therefore, do not affect consolidated results.
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Segment information is presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Segment revenues
|
|
|
|
|
|
|
|
|
Motion Picture
|
$
|
405.8
|
|
|
$
|
379.0
|
|
|
$
|
803.6
|
|
|
$
|
744.3
|
|
|
Television Production
|
274.0
|
|
|
152.1
|
|
|
553.8
|
|
|
431.5
|
|
|
Media Networks
|
374.0
|
|
|
377.3
|
|
|
746.4
|
|
|
732.2
|
|
|
Intersegment eliminations
|
(70.3
|
)
|
|
(7.4
|
)
|
|
(156.7
|
)
|
|
(74.4
|
)
|
|
|
$
|
983.5
|
|
|
$
|
901.0
|
|
|
$
|
1,947.1
|
|
|
$
|
1,833.6
|
|
|
Intersegment revenues
|
|
|
|
|
|
|
|
|
Motion Picture
|
$
|
5.7
|
|
|
$
|
2.2
|
|
|
$
|
10.1
|
|
|
$
|
4.3
|
|
|
Television Production
|
64.0
|
|
|
5.2
|
|
|
145.4
|
|
|
70.0
|
|
|
Media Networks
|
0.6
|
|
|
—
|
|
|
1.2
|
|
|
0.1
|
|
|
|
$
|
70.3
|
|
|
$
|
7.4
|
|
|
$
|
156.7
|
|
|
$
|
74.4
|
|
|
Gross contribution
|
|
|
|
|
|
|
|
|
Motion Picture
|
$
|
76.8
|
|
|
$
|
38.9
|
|
|
$
|
109.7
|
|
|
$
|
117.7
|
|
|
Television Production
|
19.7
|
|
|
20.4
|
|
|
54.4
|
|
|
46.1
|
|
|
Media Networks
|
124.7
|
|
|
147.4
|
|
|
205.6
|
|
|
261.6
|
|
|
Intersegment eliminations
|
2.2
|
|
|
9.1
|
|
|
0.5
|
|
|
(2.3
|
)
|
|
|
$
|
223.4
|
|
|
$
|
215.8
|
|
|
$
|
370.2
|
|
|
$
|
423.1
|
|
|
Segment general and administration
|
|
|
|
|
|
|
|
|
Motion Picture
|
$
|
25.8
|
|
|
$
|
26.0
|
|
|
$
|
51.1
|
|
|
$
|
52.8
|
|
|
Television Production
|
7.1
|
|
|
11.0
|
|
|
16.8
|
|
|
21.5
|
|
|
Media Networks
|
20.1
|
|
|
24.7
|
|
|
40.4
|
|
|
50.3
|
|
|
|
$
|
53.0
|
|
|
$
|
61.7
|
|
|
$
|
108.3
|
|
|
$
|
124.6
|
|
|
Segment profit
|
|
|
|
|
|
|
|
|
Motion Picture
|
$
|
51.0
|
|
|
$
|
12.9
|
|
|
$
|
58.6
|
|
|
$
|
64.9
|
|
|
Television Production
|
12.6
|
|
|
9.4
|
|
|
37.6
|
|
|
24.6
|
|
|
Media Networks
|
104.6
|
|
|
122.7
|
|
|
165.2
|
|
|
211.3
|
|
|
Intersegment eliminations
|
2.2
|
|
|
9.1
|
|
|
0.5
|
|
|
(2.3
|
)
|
|
|
$
|
170.4
|
|
|
$
|
154.1
|
|
|
$
|
261.9
|
|
|
$
|
298.5
|
|
The Company's primary measure of segment performance is segment profit. Segment profit is defined as gross contribution (revenues, less direct operating and distribution and marketing expense) less segment general and administration expenses. Segment profit excludes corporate general and administrative expense, restructuring and other costs, share-based compensation other than annual bonuses granted in immediately vested stock awards when applicable, certain programming and content charges as a result of management changes and associated changes in strategy, when applicable, and purchase accounting and related adjustments, when applicable. The Company believes the presentation of segment profit is relevant and useful for investors because it allows investors to view segment performance in a manner similar to the primary method used by the Company's management and enables them to understand the fundamental performance of the Company's businesses. Media Networks gross contribution and segment profit for the three and six months ended September 30, 2019 includes a benefit of $43.7 million and $36.7 million, respectively, in direct operating expenses associated with the modification of a content licensing arrangement net of amortization for related changes in content availability and air dates.
The reconciliation of total segment profit to the Company’s income (loss) before income taxes is as follows:
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Company’s total segment profit
|
$
|
170.4
|
|
|
$
|
154.1
|
|
|
$
|
261.9
|
|
|
$
|
298.5
|
|
|
Corporate general and administrative expenses
|
(25.4
|
)
|
|
(25.3
|
)
|
|
(49.5
|
)
|
|
(52.8
|
)
|
|
Adjusted depreciation and amortization(1)
|
(10.2
|
)
|
|
(10.0
|
)
|
|
(21.1
|
)
|
|
(20.3
|
)
|
|
Restructuring and other(2)
|
(7.6
|
)
|
|
(15.0
|
)
|
|
(13.1
|
)
|
|
(25.6
|
)
|
|
Adjusted share-based compensation expense(3)
|
(14.5
|
)
|
|
(15.1
|
)
|
|
(23.8
|
)
|
|
(30.2
|
)
|
|
Purchase accounting and related adjustments(4)
|
(55.1
|
)
|
|
(49.6
|
)
|
|
(100.1
|
)
|
|
(92.4
|
)
|
|
Operating income
|
57.6
|
|
|
39.1
|
|
|
54.3
|
|
|
77.2
|
|
|
Interest expense
|
(48.0
|
)
|
|
(55.5
|
)
|
|
(97.0
|
)
|
|
(106.8
|
)
|
|
Shareholder litigation settlements(5)
|
—
|
|
|
(114.1
|
)
|
|
—
|
|
|
(114.1
|
)
|
|
Interest and other income
|
2.2
|
|
|
3.0
|
|
|
5.0
|
|
|
6.1
|
|
|
Other expense
|
(3.8
|
)
|
|
—
|
|
|
(6.1
|
)
|
|
—
|
|
|
Loss on investments
|
(0.4
|
)
|
|
(36.1
|
)
|
|
(0.3
|
)
|
|
(37.0
|
)
|
|
Equity interests loss
|
(3.2
|
)
|
|
(11.7
|
)
|
|
(11.1
|
)
|
|
(17.8
|
)
|
|
Income (loss) before income taxes
|
$
|
4.4
|
|
|
$
|
(175.3
|
)
|
|
$
|
(55.2
|
)
|
|
$
|
(192.4
|
)
|
___________________
|
|
|
|
(1)
|
Adjusted depreciation and amortization represents depreciation and amortization as presented on our unaudited condensed consolidated statements of operations less the depreciation and amortization related to the non-cash fair value adjustments to property and equipment and intangible assets acquired in recent acquisitions which are included in the purchase accounting and related adjustments line item above, as shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Depreciation and amortization
|
$
|
50.9
|
|
|
$
|
40.8
|
|
|
$
|
91.2
|
|
|
$
|
81.1
|
|
|
Less: Amount included in purchase accounting and related adjustments
|
(40.7
|
)
|
|
(30.8
|
)
|
|
(70.1
|
)
|
|
(60.8
|
)
|
|
Adjusted depreciation and amortization
|
$
|
10.2
|
|
|
$
|
10.0
|
|
|
$
|
21.1
|
|
|
$
|
20.3
|
|
|
|
|
|
(2)
|
Restructuring and other includes restructuring and severance costs, certain transaction and related costs, and certain unusual items, when applicable (see Note 14).
|
|
|
|
|
(3)
|
The following table reconciles total share-based compensation expense to adjusted share-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Total share-based compensation expense
|
$
|
14.5
|
|
|
$
|
15.1
|
|
|
$
|
24.1
|
|
|
$
|
30.2
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Amount included in restructuring and other(i)
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
Adjusted share-based compensation
|
$
|
14.5
|
|
|
$
|
15.1
|
|
|
$
|
23.8
|
|
|
$
|
30.2
|
|
|
|
|
|
(i)
|
Represents share-based compensation expense included in restructuring and other expenses reflecting the impact of the acceleration of certain vesting schedules for equity awards pursuant to certain severance arrangements.
|
|
|
|
|
(4)
|
Purchase accounting and related adjustments primarily represent the amortization of non-cash fair value adjustments to certain assets acquired in recent acquisitions. These adjustments include the accretion of the noncontrolling interest discount related to Pilgrim Media Group and 3 Arts Entertainment, the amortization of the recoupable portion of the purchase price and the expense associated with the earned distributions related to 3 Arts Entertainment, all of which are
|
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
accounted for as compensation and are included in general and administrative expense. The following sets forth the amounts included in each line item in the financial statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Purchase accounting and related adjustments:
|
|
|
|
|
|
|
|
|
Direct operating
|
$
|
1.0
|
|
|
$
|
5.6
|
|
|
$
|
2.5
|
|
|
$
|
13.6
|
|
|
General and administrative expense
|
13.4
|
|
|
13.2
|
|
|
27.5
|
|
|
18.0
|
|
|
Depreciation and amortization
|
40.7
|
|
|
30.8
|
|
|
70.1
|
|
|
60.8
|
|
|
|
$
|
55.1
|
|
|
$
|
49.6
|
|
|
$
|
100.1
|
|
|
$
|
92.4
|
|
|
|
|
|
(5)
|
Shareholder litigation settlements of $114.1 million in the three and six months ended September 30, 2018 includes the following: (i) $54.8 million for the net expense recorded for the settlement of the Fiduciary Litigation (representing the settlement amount of $92.5 million, net of aggregate insurance reimbursement of $37.8 million (see Note 16) and (ii) $59.3 million related to the Appraisal Litigation, representing the amount by which the settlement amount of approximately $964 million exceeded the previously accrued (at date of acquisition) dissenting shareholders' liability plus interest through the date agreed in the settlement.
|
See Note 10 for revenues by media or product line as broken down by segment for the three and six months ended September 30, 2019 and 2018.
The following table reconciles segment general and administration expense to the Company's total consolidated general and administration expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
General and administration
|
|
|
|
|
|
|
|
|
Segment general and administrative expenses
|
$
|
53.0
|
|
|
$
|
61.7
|
|
|
$
|
108.3
|
|
|
$
|
124.6
|
|
|
Corporate general and administrative expenses
|
25.4
|
|
|
25.3
|
|
|
49.5
|
|
|
52.8
|
|
|
Share-based compensation expense included in general and administrative expense
|
14.1
|
|
|
14.8
|
|
|
23.2
|
|
|
29.7
|
|
|
Purchase accounting and related adjustments
|
13.4
|
|
|
13.2
|
|
|
27.5
|
|
|
18.0
|
|
|
|
$
|
105.9
|
|
|
$
|
115.0
|
|
|
$
|
208.5
|
|
|
$
|
225.1
|
|
The reconciliation of total segment assets to the Company’s total consolidated assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
March 31,
2019
|
|
|
(Amounts in millions)
|
|
Assets
|
|
|
|
|
Motion Picture
|
$
|
1,596.6
|
|
|
$
|
1,694.5
|
|
|
Television Production
|
1,441.2
|
|
|
1,394.2
|
|
|
Media Networks
|
4,666.5
|
|
|
4,850.3
|
|
|
Other unallocated assets(1)
|
522.1
|
|
|
469.9
|
|
|
|
$
|
8,226.4
|
|
|
$
|
8,408.9
|
|
_____________________
|
|
|
|
(1)
|
Other unallocated assets primarily consist of cash, other assets and investments.
|
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
16. Contingencies
From time to time, the Company is involved in certain claims and legal proceedings arising in the normal course of business.
The Company establishes an accrued liability for claims and legal proceedings when the Company determines that a loss is both probable and the amount of the loss can be reasonably estimated. Once established, accruals are adjusted from time to time, as appropriate, in light of additional information. The amount of any loss ultimately incurred in relation to matters for which an accrual has been established may be higher or lower than the amounts accrued for such matters.
Due to the inherent difficulty of predicting the outcome of claims and legal proceedings, the Company often cannot predict what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, if any, related to each pending matter may be. Accordingly, at this time, the Company has determined a loss related to these matters in excess of accrued liabilities is reasonably possible, however a reasonable estimate of the possible loss or range of loss cannot be made at this time.
Insurance Litigation
Between July 19, 2016 and August 30, 2016, seven putative class action complaints were filed by purported Starz stockholders in the Court of Chancery of the State of Delaware (the "Fiduciary Litigation"). On August 22, 2018, the parties to the Fiduciary Litigation reached an agreement in principle providing for the settlement of the Fiduciary Litigation on the terms and conditions set forth in an executed term sheet. On October 9, 2018, the parties to the Litigation executed a stipulation of settlement, which was filed with the court (the "Stipulation"). The Stipulation provided for, among other things, the final dismissal of the Fiduciary Litigation in exchange for a settlement payment made in the amount of $92.5 million, of which $37.8 million was reimbursed by insurance. The Fiduciary Litigation settlement was approved by the Court of Chancery of the State of Delaware and the settlement amount and insurance reimbursement discussed above were paid during the quarter ended December 31, 2018. The Company is continuing to seek additional insurance reimbursement, including pursuant to a lawsuit submitted by the Company on November 7, 2018 against certain insurers.
On November 5, 2018, an insurer that entered into an agreement and contributed $10.0 million to the Company's aggregate insurance reimbursement filed a lawsuit seeking declaratory judgment for reimbursement of its agreed upon payment. The Company believes the lawsuit to be without merit and intends to vigorously defend it.
17. Derivative Instruments and Hedging Activities
Forward Foreign Exchange Contracts
The Company enters into forward foreign exchange contracts to hedge its foreign currency exposures on future production expenses and tax credit receivables denominated in various foreign currencies (i.e., cash flow hedges). The Company also enters into forward foreign exchange contracts that economically hedge certain of its foreign currency risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting. The Company monitors its positions with, and the credit quality of, the financial institutions that are party to its financial transactions. Changes in the fair value of the foreign exchange contracts that are designated as hedges are reflected in accumulated other comprehensive income (loss), and changes in the fair value of foreign exchange contracts that are not designated as hedges and do not qualify for hedge accounting are recorded in direct operating expense. Gains and losses realized upon settlement of the foreign exchange contracts that are designated as hedges are amortized to direct operating expense on the same basis as the production expenses being hedged.
As of September 30, 2019, the Company had the following outstanding forward foreign exchange contracts (all outstanding contracts have maturities of less than 22 months from September 30, 2019):
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
Foreign Currency
|
|
Foreign Currency Amount
|
|
US Dollar Amount
|
|
Weighted Average Exchange Rate Per $1 USD
|
|
|
|
(Amounts in millions)
|
|
(Amounts in millions)
|
|
|
|
British Pound Sterling
|
|
|
£6.7
|
|
in exchange for
|
|
$7.3
|
|
|
£0.92
|
|
Canadian Dollar
|
|
|
C$27.3
|
|
in exchange for
|
|
$21.3
|
|
|
C$1.28
|
|
Australian Dollar
|
|
|
A$3.5
|
|
in exchange for
|
|
$2.8
|
|
|
A$1.25
|
Interest Rate Swaps
The Company is exposed to the impact of interest rate changes primarily through its borrowing activities. The Company’s objective is to mitigate the impact of interest rate changes on earnings and cash flows. The Company primarily uses pay-fixed interest rate swaps to facilitate its interest rate risk management activities, which the Company designates as cash flow hedges of interest payments on floating-rate borrowings. Pay-fixed swaps effectively convert floating-rate borrowings to fixed-rate borrowings. The unrealized gains or losses from these cash flow hedges are deferred in accumulated other comprehensive income (loss) and recognized in interest expense as the interest payments occur.
As of September 30, 2019 and March 31, 2019, the total notional amount of the Company’s pay-fixed interest rate swaps was $1.7 billion and $1.7 billion, respectively.
The major terms of the Company's interest rate swap agreements as of September 30, 2019 are as follows (all related to the Company's LIBOR-based debt, see Note 5):
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Date
|
|
Notional Amount (in millions)
|
|
Fixed Rate Paid
|
|
Maturity Date
|
|
May 23, 2018
|
|
|
$1,000.0
|
|
|
2.915%
|
|
March 24, 2025
|
|
June 25, 2018
|
|
|
$200.0
|
|
|
2.723%
|
|
March 23, 2025
|
|
July 31, 2018
|
|
|
$300.0
|
|
|
2.885%
|
|
March 23, 2025
|
|
December 24, 2018
|
|
|
$50.0
|
|
|
2.744%
|
|
March 23, 2025
|
|
December 24, 2018
|
|
|
$100.0
|
|
|
2.808%
|
|
March 23, 2025
|
|
December 24, 2018
|
|
|
$50.0
|
|
|
2.728%
|
|
March 23, 2025
|
The following table presents the effect, net of tax, of the Company's derivatives on the accompanying consolidated statements of operations and comprehensive loss for the three and six months ended September 30, 2019 and 2018:
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
|
|
|
|
|
|
|
Gain recognized in accumulated other comprehensive income (loss)
|
$
|
—
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
0.4
|
|
|
Gain reclassified from accumulated other comprehensive income (loss) into direct operating expense
|
$
|
0.4
|
|
|
$
|
0.1
|
|
|
$
|
1.6
|
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in accumulated other comprehensive income (loss)
|
$
|
(20.9
|
)
|
|
$
|
12.2
|
|
|
$
|
(66.7
|
)
|
|
$
|
5.4
|
|
|
Loss reclassified from accumulated other comprehensive income (loss) into interest expense
|
(2.7
|
)
|
|
(2.9
|
)
|
|
(4.4
|
)
|
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
|
|
|
|
|
|
|
Loss recognized in direct operating expense
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
Total direct operating expense on consolidated statements of operations
|
$
|
499.4
|
|
|
$
|
463.2
|
|
|
$
|
1,067.4
|
|
|
$
|
993.2
|
|
|
Total interest expense on consolidated statements of operations(1)
|
$
|
48.0
|
|
|
$
|
38.8
|
|
|
$
|
97.0
|
|
|
$
|
74.2
|
|
________________
(1)Represents interest expense before interest on dissenting shareholders' liability.
The Company classifies its forward foreign exchange contracts and interest rate swap agreements within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments (see Note 8). As of September 30, 2019 and March 31, 2019, the Company had the following amounts recorded in the accompanying consolidated balance sheets related to the Company's use of derivatives:
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
Other Current Assets
|
|
Accounts Payable and Accrued Liabilities
|
|
Other Non-Current Liabilities
|
|
|
|
(Amounts in millions)
|
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
$
|
1.6
|
|
|
$
|
0.7
|
|
|
$
|
—
|
|
|
Interest rate swap agreements
|
|
—
|
|
|
—
|
|
|
130.3
|
|
|
Fair value of derivatives
|
|
$
|
1.6
|
|
|
$
|
0.7
|
|
|
$
|
130.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
|
Other Current Assets
|
|
Accounts Payable and Accrued Liabilities
|
|
Other Non-Current Liabilities
|
|
|
|
(Amounts in millions)
|
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
$
|
1.5
|
|
|
$
|
0.6
|
|
|
$
|
—
|
|
|
Interest rate swap agreements
|
|
—
|
|
|
—
|
|
|
63.6
|
|
|
Fair value of derivatives
|
|
$
|
1.5
|
|
|
$
|
0.6
|
|
|
63.6
|
|
As of September 30, 2019, based on the current release schedule, the Company estimates approximately $0.7 million of gains associated with forward foreign exchange contract cash flow hedges in accumulated other comprehensive loss will be reclassified into earnings during the one-year period ending September 30, 2020.
As of September 30, 2019, the Company estimates approximately $20.8 million of losses recorded in accumulated other comprehensive loss associated with interest rate swap agreement cash flow hedges will be reclassified into interest expense during the one-year period ending September 30, 2020.
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
18. Additional Financial Information
The following tables present supplemental information related to the unaudited condensed consolidated financial statements.
Other Assets
The composition of the Company’s other assets is as follows as of September 30, 2019 and March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
March 31,
2019
|
|
|
(Amounts in millions)
|
|
Other current assets
|
|
|
|
|
Prepaid expenses and other
|
$
|
69.7
|
|
|
$
|
150.6
|
|
|
Product inventory
|
19.0
|
|
|
19.9
|
|
|
Tax credits receivable
|
90.3
|
|
|
96.7
|
|
|
|
$
|
179.0
|
|
|
$
|
267.2
|
|
|
Other non-current assets
|
|
|
|
|
Prepaid expenses and other
|
$
|
45.6
|
|
|
$
|
109.2
|
|
|
Accounts receivable
|
148.6
|
|
|
176.1
|
|
|
Tax credits receivable
|
176.6
|
|
|
150.8
|
|
|
Operating lease right-of-use assets
|
146.3
|
|
|
—
|
|
|
|
$
|
517.1
|
|
|
$
|
436.1
|
|
Accounts Receivable Monetization
The Company has entered into agreements to monetize certain of its trade accounts receivable directly with third-party purchasers. The third-party purchasers have no recourse to other assets of the Company in the event of non-payment by the customers. Upon transfer of the receivables, the Company receives cash proceeds from the third-party purchaser, and the Company continues to service the receivables for the purchasers. The Company accounts for the transfers of these receivables as a sale, and classifies the proceeds as cash flows from operating activities in the statement of cash flows. During the three and six months ended September 30, 2019, the Company monetized trade accounts receivable with a carrying value of $455.9 million and $830.4 million, respectively, with third-party purchasers, which were derecognized from the Company's unaudited condensed consolidated balance sheet, in exchange for net cash proceeds of $452.1 million and $824.3 million, respectively. The amount of proceeds received is based on the present value of the timing of the payment of the underlying trade accounts receivable transferred discounted at an average rate which is lower than the Company’s average borrowing rate under its revolving credit facility. The Company recorded a loss of $3.8 million and $6.1 million in the three and six months ended September 30, 2019, respectively, which is included in the "other expense" line item on the unaudited condensed consolidated statement of operations. The Company receives fees for servicing the accounts receivable for the purchasers, which represent the fair value of the services and were immaterial for the three and six months ended September 30, 2019. At September 30, 2019, the outstanding amount of receivables derecognized from the Company's unaudited condensed consolidated balance sheets, but which the Company continues to service, was $511.9 million (March 31, 2019 - $350.6 million).
LIONS GATE ENTERTAINMENT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accumulated Other Comprehensive Loss
The following table summarizes the changes in the components of accumulated other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
Net unrealized loss on cash flow hedges
|
|
Total
|
|
|
(Amounts in millions)
|
|
March 31, 2019
|
$
|
(18.2
|
)
|
|
$
|
(62.1
|
)
|
|
$
|
(80.3
|
)
|
|
Other comprehensive income (loss)
|
1.4
|
|
|
(66.7
|
)
|
|
(65.3
|
)
|
|
September 30, 2019
|
$
|
(16.8
|
)
|
|
$
|
(128.8
|
)
|
|
$
|
(145.6
|
)
|
Cash, Cash Equivalents and Restricted Cash
There was no restricted cash in the unaudited condensed consolidated balance sheets as of September 30, 2019 or March 31, 2019.
Supplemental Cash Flow Information
The supplemental schedule of non-cash investing and financing activities is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
September 30,
|
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Non-cash investing activities:
|
|
|
|
|
Common shares related to business acquisitions (see Note 2)
|
$
|
28.1
|
|
|
$
|
83.7
|
|
|
|
|
|
|
|
Non-cash financing activities:
|
|
|
|
|
Accrued dividends
|
$
|
—
|
|
|
$
|
19.4
|
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview
Lions Gate Entertainment Corp. (the “Company,” “Lionsgate,” “Lions Gate,” “we,” “us” or “our”) is a global content leader 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, video games, esports 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 sales and licensing infrastructure. We classify our operations through three reporting segments: Motion Picture, Television Production, and Media Networks (see further discussion below).
Revenues
Our revenues are derived from the Motion Picture, Television Production and Media Networks segments, as described below. Our revenues are derived from the U.S., Canada, the United Kingdom and other foreign countries. None of the non-U.S. countries individually comprised greater than 10% of total revenues for the three and six months ended September 30, 2019 and 2018.
Motion Picture
Our Motion Picture segment includes revenues derived from the following:
|
|
|
|
•
|
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 us directly in the U.S. and through a sub-distributor in Canada). The revenues from Canada are reported net of distribution fees and release expenses of the Canadian sub-distributor. The financial terms that we negotiate with our theatrical exhibitors in the U.S. generally provide that we receive a percentage of the box office results.
|
|
|
|
|
•
|
Home Entertainment. Home entertainment revenues are derived from the sale or rental of our film productions and acquired or licensed films and certain television programs (including theatrical and direct-to-video releases) on packaged media and through digital media platforms (pay-per-view and video-on-demand platforms, electronic sell through, and digital rental). In addition, we have revenue sharing arrangements with certain digital media platforms which generally provide that, in exchange for a nominal or no upfront sales price, we share in the rental or sales revenues generated by the platform on a title-by-title basis.
|
|
|
|
|
•
|
Television. Television revenues are primarily derived from the licensing of our theatrical productions and acquired films to the linear pay, basic cable and free television markets.
|
|
|
|
|
•
|
International. International revenues are derived from (1) licensing of our productions, acquired films, our catalog product and libraries of acquired titles to international distributors, on a territory-by-territory basis; and (2) the direct distribution of our productions, acquired films, and our catalog product and libraries of acquired titles in the United Kingdom.
|
|
|
|
|
•
|
Other. Other revenues are derived from, among others, the licensing of our film and television and related content (games, music, location-based entertainment royalties, etc.) to other ancillary markets.
|
Television Production
Our Television Production segment includes revenues derived from the following.
|
|
|
|
•
|
Television. Television revenues are derived from the licensing to domestic markets (linear pay, basic cable, free television markets, syndication) of scripted and unscripted 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 revenues also include revenue from licenses to subscription-video-on-demand ("SVOD") platforms in which the initial license of a television series is to an SVOD platform.
|
|
|
|
|
•
|
International. International revenues are derived from the licensing and syndication to international markets of scripted and unscripted series, television movies, mini-series and non-fiction programming.
|
|
|
|
|
•
|
Home Entertainment. Home entertainment revenues are derived from the sale or rental of television production movies or series on packaged media and through digital media platforms.
|
|
|
|
|
•
|
Other. Other revenues are derived from, among others, the licensing of our television programs to other ancillary markets, the sales and licensing of music from the television broadcasts of our productions, and from commissions earned and executive producer fees related to talent management.
|
Media Networks
Our Media Networks segment includes revenues derived from the following:
|
|
|
|
•
|
Starz Networks. Starz Networks’ revenues are derived from the domestic distribution of our 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.
|
|
|
|
|
•
|
STARZPLAY International. STARZPLAY International revenues are primarily derived from OTT distribution of the Company's STARZ branded premium subscription video services internationally.
|
|
|
|
|
•
|
Streaming Services. Streaming services revenues are derived from the Lionsgate legacy start-up direct to consumer streaming services on SVOD platforms.
|
Expenses
Our primary operating expenses include direct operating expenses, distribution and marketing expenses and general and administration expenses.
Direct operating expenses include amortization of film and television production or acquisition costs, amortization of programming production or acquisition costs and programming related salaries, participation and residual expenses, provision for doubtful accounts, and foreign exchange gains and losses.
Participation costs represent contingent consideration payable based on the performance of the film or television program to parties associated with the film or television program, including producers, writers, directors or actors. Residuals represent amounts payable to various unions or “guilds” such as the Screen Actors Guild - American Federation of Television and Radio Artists, Directors Guild of America, and Writers Guild of America, based on the performance of the film or television program in certain ancillary markets or based on the individual’s (i.e., actor, director, writer) salary level in the television market.
Distribution and marketing expenses primarily include the costs of theatrical prints and advertising (“P&A”) and of DVD/Blu-ray duplication and marketing. Theatrical P&A includes the costs of the theatrical prints delivered to theatrical exhibitors and the advertising and marketing cost associated with the theatrical release of the picture. DVD/Blu-ray duplication represents the cost of the DVD/Blu-ray product and the manufacturing costs associated with creating the physical products. DVD/Blu-ray marketing costs represent the cost of advertising the product at or near the time of its release or special promotional advertising. Marketing costs for Media Networks includes advertising, consumer marketing, distributor marketing support and other marketing costs. In addition, distribution and marketing costs includes our Media Networks segment operating costs for the direct-to-consumer service, transponder expenses and maintenance and repairs.
General and administration expenses include salaries and other overhead.
CRITICAL ACCOUNTING POLICIES
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The application of the following accounting policies, which are important to our financial position and results of operations, requires significant judgments and estimates on the part of management. As described more fully below, these estimates bear the risk of change due to the inherent uncertainty of the estimate. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. For a summary of all of our accounting policies, including the accounting policies discussed below, see Note
1 to our audited consolidated financial statements in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on May 23, 2019.
Accounting for Films and Television Programs and Program Rights. We capitalize costs of production and acquisition, including financing costs and production overhead, to investment in films and television programs. These costs for an individual film or television program are amortized and participation and residual costs are accrued to direct operating expenses in the proportion that current year’s revenues bear to management’s estimates of the ultimate revenue at the beginning of the current year expected to be recognized from the exploitation, exhibition or sale of such film or television program. Ultimate revenue includes estimates over a period not to exceed ten years following the date of initial release of the motion picture. For an episodic television series, the period over which ultimate revenues are estimated cannot exceed ten years following the date of delivery of the first episode, or, if still in production, five years from the date of delivery of the most recent episode, if later. For previously released film or television programs acquired as part of a library, ultimate revenue includes estimates over a period not to exceed twenty years from the date of acquisition.
Due to the inherent uncertainties involved in making such estimates of ultimate revenues and expenses, these estimates have differed in the past from actual results and are likely to differ to some extent in the future from actual results. In addition, in the normal course of our business, some films and titles are more successful or less successful than anticipated. Management regularly reviews and revises when necessary its ultimate revenue and cost estimates, which may result in a change in the rate of amortization of film costs and participations and residuals and/or a write-down of all or a portion of the unamortized costs of the film or television program to its estimated fair value. Management estimates the ultimate revenue based on experience with similar titles or title genre, the general public appeal of the cast, audience test results when available, actual performance (when available) at the box office or in markets currently being exploited, and other factors such as the quality and acceptance of motion pictures or programs that our competitors release into the marketplace at or near the same time, critical reviews, general economic conditions and other tangible and intangible factors, many of which we do not control and which may change.
An increase in the estimate of ultimate revenue will generally result in a lower amortization rate and, therefore, less film and television program amortization expense, while a decrease in the estimate of ultimate revenue will generally result in a higher amortization rate and, therefore, higher film and television program amortization expense, and also periodically results in an impairment requiring a write-down of the film cost to the title’s fair value. These write-downs are included in amortization expense within direct operating expenses in our consolidated statements of operations. Investment in films and television programs is stated at the lower of amortized cost or estimated fair value. The valuation of investment in films and television programs, whether released or unreleased, is reviewed on a title-by-title basis, when an event or change in circumstances indicates that the fair value of a film or television program is less than its unamortized cost. In determining the fair value of our films and television programs, we employ a DCF methodology with assumptions for cash flows. Key inputs employed in the DCF methodology include estimates of a film's ultimate revenue as discussed above, and costs as well as a discount rate. The discount rate utilized in the DCF analysis is based on our weighted average cost of capital plus a risk premium representing the risk associated with producing a particular film or television program. The fair value of any film costs associated with a film or television program that we plan to abandon is zero. As the primary determination of fair value is determined using a DCF model, the resulting fair value is considered a Level 3 measurement (as defined in Note 8 to our unaudited condensed consolidated financial statements). Additional amortization is recorded in the amount by which the unamortized costs exceed the estimated fair value of the film or television program. Estimates of future revenue involve measurement uncertainty and it is therefore possible that reductions in the carrying value of investment in films and television programs may be required as a consequence of changes in our future revenue estimates.
Program rights for films and television programs (including original series) exhibited by the Media Networks segment are generally amortized on a title-by-title or episode-by-episode basis over the anticipated number of exhibitions or license period. We estimate the number of exhibitions based on the number of exhibitions allowed in the agreement and the expected usage of the content. Certain other program rights are amortized to expense on a straight-line basis over the respective lives of the agreements. Programming rights may include rights to more than one exploitation window under output and library agreements. For films with multiple windows, the license fee is allocated between the windows based upon the proportionate estimated fair value of each window which generally results in the majority of the cost allocated to the first window on newer releases. Programming costs vary due to the number of airings and cost of our original series, the number of films licensed and the cost per film paid under our output and library programming agreements.
The cost of the Media Networks' segments produced original content generally represents the license fees charged from the Television Production segment which are eliminated in consolidation. The amount associated with the pay television market is reclassified to program rights when the program is aired and the portion attributable to the ancillary markets remains in investment in films and television programs. The cost of the Media Networks’ third-party licensed content is allocated between the pay television market distributed by the Media Networks’ segment and the ancillary revenue markets (e.g., home video, digital platforms, international television, etc.) distributed by the Television Production segment based on the estimated relative
fair values of these markets. Estimates of fair value for the pay television and ancillary markets involve uncertainty as well as estimates of ultimate revenue. All the costs of programming produced by the Television Production segment are included in investment in films and television programs and program rights, net and are classified as long term. Amounts included in program rights, other than internally produced programming, that are expected to be amortized within a year from the balance sheet date are classified as short-term.
Changes in management’s estimate of the anticipated exhibitions of films and original series on our networks could result in the earlier recognition of our programming costs than anticipated. Conversely, scheduled exhibitions may not capture the appropriate usage of the program rights in current periods which would lead to the write-off of additional program rights in future periods and may have a significant impact on our future results of operations and our financial position.
Revenue Recognition. Our 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. Our Media Networks segment generates revenue primarily from the distribution of our STARZ branded premium subscription video services and, to a lesser extent, direct-to-consumer content streaming services.
Our content licensing arrangements include fixed fee and minimum guarantee arrangements, and sales or usage based royalties. Our fixed fee or minimum guarantee licensing arrangements in the television, digital media and international markets 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 represent amounts due to us based on the “sale” or “usage” of our 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 we license completed content (with standalone functionality, such as a movie, or television show), our performance obligation will be satisfied prior to the sale or usage. When we license intellectual property that does not have stand-alone functionality (e.g., brands, themes, logos, etc.), our performance obligation is generally satisfied in the same period as the sale or usage. The actual amounts due to us under these arrangements are generally not reported to us until after the close of the reporting period. We record revenue under these arrangements for the amounts due and not yet reported to us 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 our customers, historical experience with similar titles in that market or territory, the performance of the title in other markets and/or available data in the industry. While we believe these estimates are reasonable estimates of the amounts due under these arrangements, such estimated amounts could differ from the actual amounts to be subsequently reported by the customer, which could be higher or lower than our estimates, and could result in an adjustment to revenues in future periods.
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 our participation in box office receipts of the theatrical exhibitor.
Digital media revenue sharing arrangements are recognized as sales or usage based royalties.
Revenue from the sale of physical discs (DVDs, Blu-ray or 4K Ultra HD), referred to as "Packaged Media", in the retail market, net of an allowance for estimated returns and other allowances, is recognized on the later of receipt by the customer or “street date” (when it is available for sale by the customer).
Revenue from commissions are recognized as such services are provided.
Media Networks 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 our networks or other factors). Media Networks 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. Payments to distributors for marketing support costs for which Starz receives a discrete benefit are recorded as distribution and marketing costs.
Sales Returns Allowance. Revenues are recorded net of estimated returns and other allowances. We estimate reserves for Packaged Media returns based on previous returns experience, point-of-sale data available from certain retailers, current economic trends, and projected future sales of the title to the consumer based on the actual performance of similar titles on a
title-by-title basis in each of the Packaged Media businesses. Factors affecting actual returns include, among other factors, limited retail shelf space at various times of the year, success of advertising or other sales promotions, and the near term release of competing titles. We believe that our estimates have been materially accurate in the past; however, due to the judgment involved in establishing reserves, we may have adjustments to our historical estimates in the future. Our estimate of future returns affects reported revenue and operating income. If we underestimate the impact of future returns in a particular period, then we may record less revenue in later periods when returns exceed the estimated amounts. If we overestimate the impact of future returns in a particular period, then we may record additional revenue in later periods when returns are less than estimated. An incremental change of 1% in our estimated sales returns rate (i.e., provisions for returns divided by gross sales of related product) for home entertainment products would have had an impact of approximately $0.9 million and $1.7 million on our total revenue in the three and six months ended September 30, 2019, respectively (2018 - $1.0 million and $2.1 million, respectively).
Provisions for Accounts Receivable. We estimate provisions for accounts receivable based on historical experience and relevant facts and information regarding the collectability of the accounts receivable. In performing this evaluation, significant judgments and estimates are involved, including an analysis of specific risks on a customer-by-customer basis for our larger customers and an analysis of the length of time receivables have been past due. The financial condition of a given customer and its ability to pay may change over time or could be better or worse than anticipated and could result in an increase or decrease to our allowance for doubtful accounts, which is recorded in direct operating expenses.
Income Taxes. We are subject to federal and state income taxes in the U.S., and in several foreign jurisdictions. We record deferred tax assets related to net operating loss carryforwards and certain temporary differences, net of applicable reserves in these jurisdictions. We recognize a future tax benefit to the extent that realization of such benefit is more likely than not on a jurisdiction by jurisdiction basis; otherwise a valuation allowance is applied. In order to realize the benefit of our deferred tax assets, we will need to generate sufficient taxable income in the future in each of the jurisdictions which have these deferred tax assets. However, the assessment as to whether there will be sufficient taxable income in a jurisdiction to realize our net deferred tax assets in that jurisdiction is an estimate which could change in the future depending primarily upon the actual performance of our Company. We will be required to continually evaluate the more likely than not assessment that our net deferred tax assets will be realized, and if operating results deteriorate in a particular jurisdiction, we may need to record a valuation allowance for all or a portion of our deferred tax assets through a charge to our income tax provision. As of September 30, 2019, we have a valuation allowance of $404.8 million against certain U.S. and foreign deferred tax assets that may not be realized on a more likely than not basis.
Our quarterly income tax benefit (provision) and our corresponding annual effective tax rate are based on expected income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate. For interim financial reporting, except in circumstances as described in the following paragraph, we estimate the annual effective tax rate based on projected taxable income for the full year and record a quarterly tax benefit (provision) in accordance with the expected annual effective tax rate. As the year progresses, we refine the estimates of the year’s taxable income as new information becomes available, including year-to-date financial results. This continual estimation process often results in a change to our expected annual effective tax rate for the year. When this occurs, we adjust our income tax benefit (provision) during the quarter in which the change in estimate occurs so that the year-to-date income tax benefit (provision) reflects the expected annual effective tax rate. Significant judgment is required in determining our expected annual effective tax rate and in evaluating our tax positions.
When a small change in our estimated pretax results would create a large change in our expected annual effective rate such that a reliable estimate of the expected annual effective tax rate cannot be made, as was the case for the quarters ended September 30, 2019 and 2018, we calculate the income tax benefit (provision) using the cut-off method.
On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Act") was signed into law, making significant changes to the taxation of U.S. business entities. The Tax Act reduced the U.S. corporate income tax rate from 35% to 21%, imposed a one-time transition tax in connection with the move from a worldwide tax system to a territorial tax system, provided for accelerated deductions for certain U.S. film production costs, imposed limitations on certain tax deductions such as executive compensation in future periods, and included numerous other provisions.
Our effective tax rates differ from the federal statutory rate and are affected by many factors, including the overall level of pre-tax income (loss), mix of our pre-tax income (loss) generated across the various jurisdictions in which we operate, changes in tax laws and regulations in those jurisdictions, further interpretation and legislative guidance regarding the new Tax Act, changes in valuation allowances against our deferred tax assets, tax planning strategies available to us, and other discrete items.
Goodwill and Indefinite-Lived Intangibles. At September 30, 2019, the carrying value of goodwill and indefinite-lived intangible assets was $2.8 billion and $250.0 million, respectively. Our indefinite-lived intangible assets consist of trade names
primarily representing the estimated fair value of the Starz brand name determined in connection with the acquisition of Starz as of December 8, 2016. Goodwill is allocated to our reporting units, which are our operating segments or one level below our operating segments (component level). Reporting units are determined by the discrete financial information available for the component and whether that information is regularly reviewed by segment management. Components are aggregated into a single reporting unit if they share similar economic characteristics. Our reporting units for purposes of goodwill impairment testing, along with their respective goodwill balances at September 30, 2019 and March 31, 2019, were Motion Picture (goodwill of $394 million), Media Networks (goodwill of $2.04 billion), and each of our Television (goodwill of $309 million) and talent management (goodwill of $93 million) businesses, both of which are part of our Television Production segment.
Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment each fiscal year or between the annual tests if an event occurs or circumstances change that indicates it is more-likely-than-not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying value. We perform our annual impairment test as of January 1 in each fiscal year. A goodwill or indefinite-lived intangible asset impairment loss would be recognized for the amount that the carrying amount of a reporting unit, including goodwill or an indefinite-lived intangible asset, exceeds its fair value. An entity may perform a qualitative assessment of the likelihood of the existence of a goodwill or indefinite-lived intangible asset impairment. The qualitative assessment is an evaluation, based on all identified events and circumstances which impact the fair value of the reporting unit or indefinite-lived intangible asset, of whether or not it is more-likely-than-not that the fair value is less than the carrying value of the reporting unit or indefinite-lived intangible asset. If we believe that as a result of our qualitative assessment it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is greater than its carrying amount, a quantitative impairment test is not required but may be performed at the option of the Company. A quantitative assessment requires determining the fair value of our reporting units or indefinite-lived intangible assets. The determination of fair value requires considerable judgment and requires assumptions and estimates of many factors, including revenue and market growth, operating margins and cash flows, market multiples and discount rates.
For fiscal 2019, we performed a qualitative impairment assessment of our indefinite-lived trade names, and due primarily to the decline in the market price of our common shares, we performed a quantitative goodwill impairment assessment for all of our reporting units. Based on the qualitative impairment assessment of our trade names, we concluded that it is more-likely-than-not that the fair value of our trade names was more than its carrying amount, and therefore our trade names were not considered at risk of impairment. This qualitative analysis considered the relative impact of market-specific and macroeconomic factors. The market-specific factors considered included recent projections of revenues and growth in OTT subscribers, both domestic and internationally, associated with the STARZ brand name. The Company also considered the macroeconomic impact on discount rates and growth rates, as well as the impact from recent tax law changes. For fiscal 2019, our quantitative goodwill impairment analysis of our reporting units indicated that the goodwill for three of our reporting units exceeded their respective carrying values by more than 20%, and the fair value of our Television business reporting unit exceeded its carrying value by just under 20%.
For the quarter ended September 30, 2019, due primarily to the sustained decline in the market price of our common shares, we updated our quantitative impairment assessment for three (Television, Media Networks and Motion Picture) of our reporting units.
In performing the quantitative assessments, the Company determined the fair value of its reporting units by using a combination of discounted cash flow ("DCF") analyses and market-based valuation methodologies. The models relied on significant judgments and assumptions surrounding general market and economic conditions, short-term and long-term growth rates, discount rates, income tax rates, and detailed management forecasts of future cash flow and operating margin projections, and other assumptions, all of which were based on our internal forecasts of future performance as well as historical trends. The DCF analysis of fair values were determined primarily by discounting estimated future cash flows, which included perpetual nominal growth rates ranging from 1.5% to 4.0%, at a weighted average cost of capital (discount rate) ranging from 10% to 14%, which considered the risk of achieving the projected cash flows, including the risk applicable to the reporting unit, industry and market as a whole. The market-based valuation method utilized EBITDA multiples from guideline public companies operating in similar industries and a control premium. The results of these valuation methodologies were weighted as to their relative importance and a single fair value was determined. The fair value of our reporting units were reconciled to the market value of our equity, determined based on the average prices of our common shares just prior to September 30, 2019. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill impairment test will prove to be an accurate prediction of the future.
Based on our quantitative impairment assessment for the quarter ended September 30, 2019, we determined that two of our reporting units (Television and Media Networks) were at risk for impairment since their estimated fair values exceeded their respective carrying values by less than 20%. We evaluated the sensitivity of our most critical assumptions used in the fair value analysis of our Television and Media Networks reporting units, including the discount rate and perpetual nominal growth rate.
Based on the sensitivity analysis on the fair value of our Television business reporting unit, we determined that an increase in the discount rate of up to 1.29% or a reduction of the perpetual nominal growth rate of up to 2.77% would not have impacted the test results, assuming no changes to other factors. Based on the sensitivity analysis on the fair value of our Media Networks reporting unit, we determined that an increase in the discount rate of up to 1.22% or a reduction of the perpetual nominal growth rate of up to 2.87% would not have impacted the test results, assuming no changes to other factors.
Management will continue to monitor all of its reporting units for changes in the business environment that could impact recoverability in future periods. The recoverability of goodwill is dependent upon the continued growth of revenue and cash flows from our business activities. Examples of events or circumstances that could result in changes to the underlying key assumptions and judgments used in our goodwill impairment tests, and ultimately impact the estimated fair value of our reporting units may include adverse macroeconomic conditions; volatility in the equity and debt markets which could result in higher weighted-average cost of capital; the commercial success of our television programming and our motion pictures; our continual contractual relationships with our customers including our affiliate agreements of our Media Networks business; our subscriber growth rates domestically and internationally across our traditional and OTT platforms and changes in consumer behavior. While historical performance and current expectations have resulted in fair values of our reporting units in excess of carrying values, if our assumptions are not realized, it is possible that an impairment charge may need to be recorded in the future.
Finite-Lived Intangible Assets. At September 30, 2019, the carrying value of our finite-lived intangible assets was approximately $1.55 billion. Our finite-lived intangible assets primarily relate to customer relationships associated with U.S. MVPDs, including cable operators, satellite television providers and telecommunications companies ("Traditional Affiliate"), which amounted to $1.54 billion. The amount of our customer relationship asset related to these Traditional Affiliate relationships reflects the estimated fair value of these customer relationships determined in connection with the acquisition of Starz on December 8, 2016, net of amortization recorded since the date of the Starz acquisition. Identifiable intangible assets with finite lives are amortized to depreciation and amortization expense over their estimated useful lives, ranging from 5 to 17 years. Through June 30, 2019, we have amortized the Starz Traditional Affiliate customer relationships discussed above on a straight-line basis over 17 years.
Amortizable intangible assets are tested for impairment whenever events or changes in circumstances (triggering events) indicate that the carrying amount of the asset may not be recoverable. If a triggering event has occurred, an impairment analysis is required. The impairment test first requires a comparison of undiscounted future cash flows expected to be generated over the useful life of an asset to the carrying value of the asset. The impairment test is performed at the lowest level of cash flows associated with the asset. If the carrying value of the asset exceeds the undiscounted future cash flows, the asset would not be deemed to be recoverable. Impairment would then be measured as the excess of the asset’s carrying value over its fair value.
The Company monitors its finite-lived intangible assets and changes in the underlying circumstances each reporting period for indicators of possible impairments or a change in the useful life or method of amortization of our finite-lived intangible assets. At September 30, 2019, the Company updated its undiscounted cash flows analysis for the Starz Traditional Affiliate customer relationships and concluded the undiscounted cash flows continue to exceed its carrying values and therefore the asset was recoverable.
Due to changes in the industry related to the migration from linear to OTT and direct-to-consumer consumption, in the quarter ended September 30, 2019, the Company determined it was appropriate to change the pattern of amortization of its Traditional Affiliate customer relationship intangible asset. Accordingly, the Company has adopted an amortization method that reflects amortization in the proportion that current period revenues bear to management’s estimate of future revenue over the remaining estimated useful life of the asset. This method results in greater amortization in the earlier years of the estimated useful life of the asset than the latter years. See Note 1 to our unaudited condensed consolidated financial statements under the Change In Estimate section for further details.
Determining whether an intangible asset is recoverable or impaired requires various estimates and assumptions, including whether events or circumstances indicate that the carrying amount of the asset may not be recoverable, determining estimates of future cash flows for the assets involved and, when applicable, the assumptions applied in determining fair value, including discount rates, growth rates, market risk premiums and other assumptions about the economic environment. Should the revenues from our Traditional Affiliate relationships decline more than the assumed attrition rates used in our current estimates, either as a result of decreases in subscriber rates or changes of the terms of our renewals of our Traditional Affiliate contracts, we may have indicators of impairment which could result in an impairment of our customer relationships intangible assets, or we may need to further shorten the useful life or adopt a more accelerated method of amortization both of which would increase the amount of amortization expense we record.
Consolidation and Other Investments. We consolidate entities in which we own more than 50% of the voting common stock and control operations and also variable interest entities for which we are the primary beneficiary. Investments in nonconsolidated affiliates in which we own more than 20% of the voting common stock or otherwise exercise significant influence over operating and financial policies, but not control of the nonconsolidated affiliate, are accounted for using the equity method of accounting. Investments in nonconsolidated affiliates in which we own less than 20% of the voting common stock, or do not exercise significant influence over operating and financial policies, are recorded at fair value using quoted market prices if the investment has a readily determinable fair value. If an equity investment's fair value is not readily determinable, we will recognize it at cost less any impairment, adjusted for observable price changes in orderly transactions in the investees' securities that are identical or similar to our investments in the investee. The unrealized gains and losses and the adjustments related to the observable price changes are recognized in net income (loss).
We regularly review our investments for impairment, including when the carrying value of an investment exceeds its market value and whether the decline in value is other-than-temporary. For investments accounted for using the equity method of accounting or equity investments without a readily determinable fair value, we evaluate information available (e.g., budgets, business plans, financial statements, etc.) in addition to quoted market prices, if any, in determining whether an other-than-temporary decline in value exists. Factors indicative of an other-than-temporary decline include recurring operating losses, credit defaults and subsequent rounds of financing at an amount below the cost basis of our investment. The estimation of fair value and whether an other-than-temporary impairment has occurred requires the application of significant judgment and future results may vary from current assumptions.
If we determine that an investment has sustained an other-than-temporary decline in its value, the investment is written down to its fair value by a charge to earnings. Factors that are considered by us in determining whether an other-than-temporary decline in value has occurred include (i) the market value of the security in relation to its cost basis, (ii) the financial condition of the investee, and (iii) our intent and ability to retain the investment for a sufficient period of time to allow for recovery in the market value of the investment.
Business Combinations. We account for our business combinations under the acquisition method of accounting. Identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree are recognized and measured as of the acquisition date at fair value. Goodwill is recognized to the extent by which the aggregate of the acquisition-date fair value of the consideration transferred and any noncontrolling interest in the acquiree exceeds the recognized basis of the identifiable assets acquired, net of assumed liabilities. Determining the fair value of assets acquired, liabilities assumed and noncontrolling interest requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash flows, discount rates and asset lives among other items.
Recent Accounting Pronouncements
See Note 1 to the accompanying unaudited condensed consolidated financial statements for a discussion of recent accounting guidance.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018
Consolidated Results of Operations
The following table sets forth our consolidated results of operations for the three months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30,
|
|
Increase (Decrease)
|
|
|
2019
|
|
2018
|
|
Amount
|
|
Percent
|
|
|
(Amounts in millions)
|
|
Revenues
|
|
|
|
|
|
|
|
|
Motion Picture
|
$
|
405.8
|
|
|
$
|
379.0
|
|
|
$
|
26.8
|
|
|
7.1
|
%
|
|
Television Production
|
274.0
|
|
|
152.1
|
|
|
121.9
|
|
|
80.1
|
%
|
|
Media Networks
|
374.0
|
|
|
377.3
|
|
|
(3.3
|
)
|
|
(0.9
|
)%
|
|
Intersegment eliminations
|
(70.3
|
)
|
|
(7.4
|
)
|
|
(62.9
|
)
|
|
850.0
|
%
|
|
Total revenues
|
983.5
|
|
|
901.0
|
|
|
82.5
|
|
|
9.2
|
%
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Direct operating
|
499.4
|
|
|
463.2
|
|
|
36.2
|
|
|
7.8
|
%
|
|
Distribution and marketing
|
262.1
|
|
|
227.9
|
|
|
34.2
|
|
|
15.0
|
%
|
|
General and administration
|
105.9
|
|
|
115.0
|
|
|
(9.1
|
)
|
|
(7.9
|
)%
|
|
Depreciation and amortization
|
50.9
|
|
|
40.8
|
|
|
10.1
|
|
|
24.8
|
%
|
|
Restructuring and other
|
7.6
|
|
|
15.0
|
|
|
(7.4
|
)
|
|
(49.3
|
)%
|
|
Total expenses
|
925.9
|
|
|
861.9
|
|
|
64.0
|
|
|
7.4
|
%
|
|
Operating income
|
57.6
|
|
|
39.1
|
|
|
18.5
|
|
|
47.3
|
%
|
|
Interest expense
|
(48.0
|
)
|
|
(55.5
|
)
|
|
7.5
|
|
|
(13.5
|
)%
|
|
Shareholder litigation settlements
|
—
|
|
|
(114.1
|
)
|
|
114.1
|
|
|
n/a
|
|
|
Interest and other income
|
2.2
|
|
|
3.0
|
|
|
(0.8
|
)
|
|
(26.7
|
)%
|
|
Other expense
|
(3.8
|
)
|
|
—
|
|
|
(3.8
|
)
|
|
n/a
|
|
|
Loss on investments
|
(0.4
|
)
|
|
(36.1
|
)
|
|
35.7
|
|
|
(98.9
|
)%
|
|
Equity interests loss
|
(3.2
|
)
|
|
(11.7
|
)
|
|
8.5
|
|
|
(72.6
|
)%
|
|
Income (loss) before income taxes
|
4.4
|
|
|
(175.3
|
)
|
|
179.7
|
|
|
(102.5
|
)%
|
|
Income tax benefit (provision)
|
(5.6
|
)
|
|
26.0
|
|
|
(31.6
|
)
|
|
(121.5
|
)%
|
|
Net loss
|
(1.2
|
)
|
|
(149.3
|
)
|
|
148.1
|
|
|
(99.2
|
)%
|
|
Less: Net loss attributable to noncontrolling interest
|
3.0
|
|
|
5.2
|
|
|
(2.2
|
)
|
|
(42.3
|
)%
|
|
Net income (loss) attributable to Lions Gate Entertainment Corp. shareholders
|
$
|
1.8
|
|
|
$
|
(144.1
|
)
|
|
$
|
145.9
|
|
|
(101.2
|
)%
|
|
|
|
|
|
|
|
|
|
Revenues. Consolidated revenues increased in the three months ended September 30, 2019, due to an increase in Television Production revenues, and to a lesser extent, Motion Picture revenues, partially offset by higher intersegment eliminations principally related to higher intersegment revenues in the Television Production segment and a slight decline in Media Networks revenues. The increase in Television Production revenue was driven by increased domestic television and international revenue, due to an increase in revenue from television episodes delivered and higher intersegment revenue from the licensing of Starz original series. The increase in Motion Picture revenue was primarily due to higher theatrical, home entertainment and international revenues driven by the performance of our Fiscal 2020 Theatrical Slate, and in particular, John Wick: Chapter 3 - Parabellum, offset partially by lower television revenue. See further discussion in the Segment Results of Operations section below. We are currently in discussions with a certain distributor as to its carriage arrangement for our programming networks. The outcome of these discussions could have a material adverse effect on our Media Networks' revenues, segment profit and consolidated net income. Any decline in revenue and profit is expected to be mitigated by growth in OTT revenue, however, there can be no assurance as to the timing or extent of such mitigation.
Direct Operating Expenses. Direct operating expenses by segment were as follows for the three months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30,
|
|
|
|
|
2019
|
|
2018
|
|
Increase (Decrease)
|
|
|
Amount
|
|
% of Segment Revenues
|
|
Amount
|
|
% of Segment Revenues
|
|
Amount
|
|
Percent
|
|
|
(Amounts in millions)
|
|
|
|
Direct operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Picture
|
$
|
182.7
|
|
|
45.0
|
%
|
|
$
|
199.4
|
|
|
52.6
|
%
|
|
$
|
(16.7
|
)
|
|
(8.4
|
)%
|
|
Television Production
|
245.5
|
|
|
89.6
|
|
|
120.9
|
|
|
79.5
|
|
|
124.6
|
|
|
103.1
|
%
|
|
Media Networks
|
142.4
|
|
|
38.1
|
|
|
153.6
|
|
|
40.7
|
|
|
(11.2
|
)
|
|
(7.3
|
)%
|
|
Other
|
1.3
|
|
|
nm
|
|
|
5.8
|
|
|
nm
|
|
|
(4.5
|
)
|
|
(77.6
|
)%
|
|
Intersegment eliminations
|
(72.5
|
)
|
|
nm
|
|
|
(16.5
|
)
|
|
nm
|
|
|
(56.0
|
)
|
|
339.4
|
%
|
|
|
$
|
499.4
|
|
|
50.8
|
%
|
|
$
|
463.2
|
|
|
51.4
|
%
|
|
$
|
36.2
|
|
|
7.8
|
%
|
_______________________
nm - Percentage not meaningful.
Direct operating expenses increased in the three months ended September 30, 2019, primarily due to increased Television Production direct operating expense due to higher Television Production revenue. This increase was partially offset by higher intersegment eliminations, lower Motion Picture direct operating expense and lower Media Networks direct operating expense. Media Networks direct operating expense for the three months ended September 30, 2019 includes a benefit of $43.7 million associated with the modification of a content licensing arrangement net of amortization for related changes in content availability and air dates. This benefit was partially offset by higher programming amortization at Starz Networks and STARZPLAY International. See further discussion in the Segment Results of Operations section below.
Other primarily consists of the amortization of the non-cash fair value adjustments on film and television assets associated with the application of purchase accounting related to recent acquisitions.
Distribution and Marketing Expenses. Distribution and marketing expenses by segment were as follows for the three months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30,
|
|
Increase (Decrease)
|
|
|
2019
|
|
2018
|
|
Amount
|
|
Percent
|
|
|
(Amounts in millions)
|
|
|
|
Distribution and marketing expenses
|
|
|
|
|
|
|
|
|
Motion Picture
|
$
|
146.3
|
|
|
$
|
140.7
|
|
|
$
|
5.6
|
|
|
4.0
|
%
|
|
Television Production
|
8.8
|
|
|
10.8
|
|
|
(2.0
|
)
|
|
(18.5
|
)%
|
|
Media Networks
|
106.9
|
|
|
76.3
|
|
|
30.6
|
|
|
40.1
|
%
|
|
Other
|
0.1
|
|
|
0.1
|
|
|
—
|
|
|
—
|
%
|
|
|
$
|
262.1
|
|
|
$
|
227.9
|
|
|
$
|
34.2
|
|
|
15.0
|
%
|
|
|
|
|
|
|
|
|
|
|
U.S. theatrical P&A expense included in Motion Picture distribution and marketing expense
|
$
|
95.2
|
|
|
$
|
97.5
|
|
|
$
|
(2.3
|
)
|
|
(2.4
|
)%
|
Distribution and marketing expenses increased in the three months ended September 30, 2019, due to increased Media Networks distribution and marketing expense primarily attributable to Starz Networks' OTT related advertising and marketing costs, and slightly increased Motion Picture distribution and marketing expense, partially offset by a slight decrease in Television Production distribution and marketing expense. See further discussion in the Segment Results of Operations section below.
General and Administrative Expenses. General and administrative expenses by segment were as follows for the three months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
September 30,
|
|
Increase (Decrease)
|
|
|
2019
|
|
% of Revenues
|
|
2018
|
|
% of Revenues
|
|
Amount
|
|
Percent
|
|
|
(Amounts in millions)
|
|
General and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Picture
|
$
|
25.8
|
|
|
|
|
$
|
26.0
|
|
|
|
|
$
|
(0.2
|
)
|
|
(0.8
|
)%
|
|
Television Production
|
7.1
|
|
|
|
|
11.0
|
|
|
|
|
(3.9
|
)
|
|
(35.5
|
)%
|
|
Media Networks
|
20.1
|
|
|
|
|
24.7
|
|
|
|
|
(4.6
|
)
|
|
(18.6
|
)%
|
|
Corporate
|
25.4
|
|
|
|
|
25.3
|
|
|
|
|
0.1
|
|
|
0.4
|
%
|
|
|
78.4
|
|
|
8.0%
|
|
87.0
|
|
|
9.7%
|
|
(8.6
|
)
|
|
(9.9
|
)%
|
|
Share-based compensation expense
|
14.1
|
|
|
|
|
14.8
|
|
|
|
|
(0.7
|
)
|
|
(4.7
|
)%
|
|
Purchase accounting and related adjustments
|
13.4
|
|
|
|
|
13.2
|
|
|
|
|
0.2
|
|
|
nm
|
|
|
Total general and administrative expenses
|
$
|
105.9
|
|
|
10.8%
|
|
$
|
115.0
|
|
|
13.0%
|
|
$
|
(9.1
|
)
|
|
(7.9
|
)%
|
_______________________
nm - Percentage not meaningful.
General and administrative expenses decreased in the three months ended September 30, 2019, resulting from decreases in Media Networks, Television Production and Motion Picture general and administrative expenses and lower share-based compensation expense, partially offset by increased purchase accounting and related adjustments. See further discussion in the Segment Results of Operations section below.
The decrease in share-based compensation expense included in general and administrative expense in the three months ended September 30, 2019, as compared to the three months ended September 30, 2018 is primarily due to lower compensation expense associated with the replacement of Starz share-based payment awards. The following table reconciles this amount to total share-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Share-based compensation expense by expense category
|
|
|
|
|
Other general and administrative expense
|
$
|
14.1
|
|
|
$
|
14.7
|
|
|
Direct operating expense
|
0.3
|
|
|
0.3
|
|
|
Distribution and marketing expense
|
0.1
|
|
|
0.1
|
|
|
Total share-based compensation expense
|
$
|
14.5
|
|
|
$
|
15.1
|
|
Purchase accounting and related adjustments represent the charge for the accretion of the noncontrolling interest discount related to Pilgrim Media Group and 3 Arts Entertainment, the amortization of the recoupable portion of the purchase price and the expense associated with earned distributions related to 3 Arts Entertainment, all of which are accounted for as compensation and are included in general and administrative expense.
Depreciation and Amortization Expense. Depreciation and amortization of $50.9 million in the three months ended September 30, 2019 increased $10.1 million, from $40.8 million in the three months ended September 30, 2018, due to a change in the amortization method for the Starz Traditional Affiliate customer relationships in the current quarter, which resulted in an increase to amortization expense of $11.3 million. See Note 1 to our unaudited condensed consolidated financial statements under the Change In Estimate section for further details.
Restructuring and Other. Restructuring and other decreased $7.4 million in the three months ended September 30, 2019 as compared to the three months ended September 30, 2018, and includes restructuring and severance costs, certain transaction and related costs, and certain unusual items, when applicable. Restructuring and other costs were as follows for the three months ended September 30, 2019 and 2018 (see Note 14 to our unaudited condensed consolidated financial statements):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30,
|
|
Increase (Decrease)
|
|
|
2019
|
|
2018
|
|
Amount
|
|
Percent
|
|
|
(Amounts in millions)
|
|
|
|
Restructuring and other:
|
|
|
|
|
|
|
|
|
Severance(1)
|
2.2
|
|
|
2.9
|
|
|
(0.7
|
)
|
|
(24.1
|
)%
|
|
Transaction and related costs(2)
|
5.4
|
|
|
12.1
|
|
|
(6.7
|
)
|
|
(55.4
|
)%
|
|
|
$
|
7.6
|
|
|
$
|
15.0
|
|
|
$
|
(7.4
|
)
|
|
(49.3
|
)%
|
_______________________
|
|
|
|
(1)
|
Severance costs in the three months ended September 30, 2019 were primarily related to restructuring activities in connection with recent acquisitions, and other cost-saving initiatives.
|
|
|
|
|
(2)
|
Transaction and related costs in the three months ended September 30, 2019 and 2018 reflect transaction, integration and legal costs associated with certain strategic transactions, restructuring activities and legal matters. In the three months ended September 30, 2018, these costs were primarily related to the legal fees associated with the Starz class action lawsuits and other matters, and to a lesser extent, costs related to the acquisition of 3 Arts Entertainment and other strategic transactions.
|
Interest Expense. Interest expense of $48.0 million for the three months ended September 30, 2019 decreased $7.5 million, from $55.5 million in the three months ended September 30, 2018. The following table sets forth the components of interest expense for the three months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Interest Expense
|
|
|
|
|
Cash Based:
|
|
|
|
|
Revolving credit facilities
|
$
|
1.6
|
|
|
$
|
1.0
|
|
|
Term loans
|
20.2
|
|
|
21.1
|
|
|
5.875% Senior Notes
|
7.6
|
|
|
7.6
|
|
|
6.375% Senior Notes
|
8.7
|
|
|
—
|
|
|
Other(1)
|
6.2
|
|
|
6.1
|
|
|
|
44.3
|
|
|
35.8
|
|
|
Amortization of debt discount and financing costs
|
3.7
|
|
|
3.0
|
|
|
|
48.0
|
|
|
38.8
|
|
|
|
|
|
|
|
Interest on dissenting shareholders' liability(2)
|
—
|
|
|
16.7
|
|
|
Total interest expense
|
$
|
48.0
|
|
|
$
|
55.5
|
|
_______________________
|
|
|
|
(1)
|
Amounts include interest expense related to the Company's interest rate swap agreements (see Note 17 to our unaudited condensed consolidated financial statements).
|
|
|
|
|
(2)
|
Represents interest accrued in connection with the previously outstanding dissenting shareholders' liability associated with the Starz merger.
|
Shareholder Litigation Settlements. Shareholder litigation settlements of $114.1 million in the three months ended September 30, 2018 includes the following: (i) $54.8 million for the net expense recorded for the settlement of the Fiduciary Litigation (representing the settlement amount of $92.5 million, net of aggregate insurance reimbursement of $37.8 million, and (ii) $59.3 million related to the Appraisal Litigation, representing the amount by which the settlement amount of approximately $964 million exceeded the previously accrued (at date of acquisition) dissenting shareholders' liability plus interest through the date agreed in the settlement. There were no comparable charges in the three months ended September 30, 2019. See Note 16 to our unaudited condensed consolidated financial statements.
Other Expense. Other expense of $3.8 million for the three months ended September 30, 2019 represented the loss recorded related to our monetization of accounts receivable to third-party purchasers (see Note 18 to our unaudited condensed consolidated financial statements). There was no comparable charge in the three months ended September 30, 2018.
Loss on Investments. Loss on investments of $0.4 million for the three months ended September 30, 2019 compared to loss on investments of $36.1 million for the three months ended September 30, 2018, which was primarily due to other-than-temporary impairments on investments in equity securities without readily determinable fair values and notes receivable which were written down to their estimated fair value in the prior year's quarter.
Equity Interests Loss. Equity interests loss of $3.2 million in the three months ended September 30, 2019 compared to equity interests loss of $11.7 million in the three months ended September 30, 2018.
Income Tax (Provision) Benefit. We had an income tax provision of $5.6 million in the three months ended September 30, 2019, compared to an income tax benefit of $26.0 million in the three months ended September 30, 2018. Our income tax provision differs from the federal statutory rate multiplied by pre-tax income (loss) due to the mix of our pre-tax income (loss) generated across the various jurisdictions in which we operate, changes in the valuation allowance against our deferred tax assets, and certain minimum taxes imposed by the Tax Act. Our income tax benefit for the three months ended September 30, 2018 was also impacted by the tax deductions generated by our capital structure, which included certain foreign affiliate dividends in our Canadian jurisdiction that could be received without being subject to tax under Canadian tax law.
Net Income (Loss) Attributable to Lions Gate Entertainment Corp. Shareholders. Net income attributable to our shareholders for the three months ended September 30, 2019 was $1.8 million, or basic net income per common share of $0.01 on 217.5 million weighted average common shares outstanding and diluted net income per common share of $0.01 on 219.8 million weighted average common shares outstanding. This compares to net loss attributable to our shareholders for the three
months ended September 30, 2018 of $144.1 million, or basic and diluted net loss per common share of $0.67 on 213.6 million weighted average common shares outstanding.
Segment Results of Operations
The segment results of operations presented below do not include the elimination of intersegment transactions which are eliminated when presenting consolidated results, and exclude items separately identified in the restructuring and other line item in the unaudited condensed consolidated statements of operations.
The Company's primary measure of segment performance is segment profit. Segment profit is defined as gross contribution (revenues, less direct operating and distribution and marketing expense) less segment general and administration expenses. Segment profit excludes corporate general and administrative expense, restructuring and other costs, share-based compensation other than annual bonuses granted in immediately vested stock awards when applicable, certain programming and content charges as a result of management changes and associated strategy, when applicable, and purchase accounting and related adjustments, when applicable. The Company believes the presentation of segment profit is relevant and useful for investors because it allows investors to view segment performance in a manner similar to the primary method used by the Company's management and enables them to understand the fundamental performance of the Company's businesses. The reconciliation of segment profit to the Company's consolidated income (loss) before income taxes is presented in Note 15 to the unaudited condensed consolidated financial statements.
Motion Picture
The table below sets forth Motion Picture gross contribution and segment profit for the three months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30,
|
|
Increase (Decrease)
|
|
|
2019
|
|
2018
|
|
Amount
|
|
Percent
|
|
|
(Amounts in millions)
|
|
|
|
|
|
Motion Picture Segment:
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
405.8
|
|
|
$
|
379.0
|
|
|
$
|
26.8
|
|
|
7.1
|
%
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Direct operating expense
|
182.7
|
|
|
199.4
|
|
|
(16.7
|
)
|
|
(8.4
|
)%
|
|
Distribution & marketing expense
|
146.3
|
|
|
140.7
|
|
|
5.6
|
|
|
4.0
|
%
|
|
Gross contribution
|
76.8
|
|
|
38.9
|
|
|
37.9
|
|
|
97.4
|
%
|
|
General and administrative expenses
|
25.8
|
|
|
26.0
|
|
|
(0.2
|
)
|
|
(0.8
|
)%
|
|
Segment profit
|
$
|
51.0
|
|
|
$
|
12.9
|
|
|
$
|
38.1
|
|
|
295.3
|
%
|
|
|
|
|
|
|
|
|
|
|
U.S. theatrical P&A expense included in distribution and marketing expense
|
$
|
95.2
|
|
|
$
|
97.5
|
|
|
$
|
(2.3
|
)
|
|
(2.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
Direct operating expense as a percentage of revenue
|
45.0
|
%
|
|
52.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross contribution as a percentage of revenue
|
18.9
|
%
|
|
10.3
|
%
|
|
|
|
|
Revenue. The table below sets forth Motion Picture revenue by media and product category for the three months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
2019
|
|
2018
|
|
Total Increase (Decrease)
|
|
|
Feature Film(1)
|
|
Other Film(2)
|
|
Total
|
|
Feature Film(1)
|
|
Other Film(2)
|
|
Total
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
|
|
|
|
|
|
Motion Picture Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical
|
$
|
79.7
|
|
|
$
|
6.0
|
|
|
$
|
85.7
|
|
|
$
|
54.0
|
|
|
$
|
15.1
|
|
|
$
|
69.1
|
|
|
$
|
16.6
|
|
|
Home Entertainment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital Media
|
72.9
|
|
|
40.4
|
|
|
113.3
|
|
|
30.8
|
|
|
54.3
|
|
|
85.1
|
|
|
28.2
|
|
|
Packaged Media
|
43.5
|
|
|
21.7
|
|
|
65.2
|
|
|
15.6
|
|
|
48.9
|
|
|
64.5
|
|
|
0.7
|
|
|
Total Home Entertainment
|
116.4
|
|
|
62.1
|
|
|
178.5
|
|
|
46.4
|
|
|
103.2
|
|
|
149.6
|
|
|
28.9
|
|
|
Television
|
29.7
|
|
|
8.6
|
|
|
38.3
|
|
|
57.0
|
|
|
13.9
|
|
|
70.9
|
|
|
(32.6
|
)
|
|
International
|
73.1
|
|
|
20.1
|
|
|
93.2
|
|
|
62.5
|
|
|
19.7
|
|
|
82.2
|
|
|
11.0
|
|
|
Other
|
9.5
|
|
|
0.6
|
|
|
10.1
|
|
|
6.0
|
|
|
1.2
|
|
|
7.2
|
|
|
2.9
|
|
|
|
$
|
308.4
|
|
|
$
|
97.4
|
|
|
$
|
405.8
|
|
|
$
|
225.9
|
|
|
$
|
153.1
|
|
|
$
|
379.0
|
|
|
$
|
26.8
|
|
____________________
|
|
|
|
(1)
|
Feature Film: Includes theatrical releases through our Lionsgate and Summit Entertainment film labels, which includes films developed and produced in-house, films co-developed and co-produced and films acquired from third parties.
|
|
|
|
|
(2)
|
Other Film: Includes direct-to-DVD motion pictures, acquired and licensed brands, third-party library product and ancillary-driven platform theatrical releases through our specialty films distribution labels including Lionsgate Premiere, through Good Universe, and with our equity method investees, Roadside Attractions and Pantelion Films, and other titles.
|
Theatrical revenue increased $16.6 million, or 24.0%, in the three months ended September 30, 2019 as compared to the three months ended September 30, 2018, driven by the performance of the Feature Films released in the current quarter, which included Scary Stories to Tell in the Dark, Angel Has Fallen and Rambo: Last Blood, partially offset by a decrease from our Other Film product categories due to theatrical revenue in the prior year's quarter from Extinction.
Home entertainment revenue increased $28.9 million, or 19.3%, in the three months ended September 30, 2019, as compared to the three months ended September 30, 2018, driven by an increase of $70.0 million from our Feature Films, partially offset by a decrease of $41.1 million from Other Film. The increase in Feature Film home entertainment revenue was due to the performance of our Fiscal 2020 Theatrical Slate, and in particular, significant digital and packaged media revenues from John Wick: Chapter 3 - Parabellum. The increase was also, to a lesser extent, due to higher digital media revenue from a greater number of Feature Films released as compared to the prior year's quarter. The decrease in revenue from Other Film was primarily due to home entertainment revenue in the prior year's quarter from I Can Only Imagine and Pantelion Films' Overboard.
Television revenue decreased $32.6 million, or 46.0%, in the three months ended September 30, 2019, as compared to the three months ended September 30, 2018, due to fewer Feature Films from our Fiscal 2019 Theatrical Slate with television windows opening in the current quarter as compared to the number of Feature Films from our Fiscal 2018 Theatrical Slate in the prior year's quarter.
International revenue increased $11.0 million, or 13.4%, in the three months ended September 30, 2019, as compared to the three months ended September 30, 2018 due to higher revenue from our Feature Films, and in particular, John Wick: Chapter 3 - Parabellum.
Direct Operating Expense. The decrease in direct operating expenses is due to lower direct operating expense as a percentage of Motion Picture revenues, driven by the change in the mix of titles and product categories generating revenue in the current quarter as compared to the prior year's quarter, and in particular, the lower amortization rate of the Fiscal 2020 Theatrical Slate in the current quarter as compared to the Fiscal 2019 & Fiscal 2018 Theatrical Slates in the prior year's quarter. Investment in film write-downs were approximately $0.1 million in the three months ended September 30, 2019, as compared to approximately $2.5 million in the three months ended September 30, 2018.
Distribution and Marketing Expense. The slight increase in distribution and marketing expense in the three months ended September 30, 2019 is due to increased home entertainment distribution and marketing costs associated with higher revenue, partially offset by slightly lower theatrical P&A. The decrease in theatrical P&A was driven by fewer theatrical releases, partially offset by higher P&A incurred in advance for films to be released in subsequent quarters. In the three months ended September 30, 2019, approximately $20.4 million of P&A was incurred in advance for films to be released in subsequent quarters, such as Knives Out, Jexi, Midway, I Still Believe and Bombshell. In the three months ended September 30, 2018, approximately $5.3 million of P&A was incurred in advance for films to be released in subsequent quarters, such as Hunter Killer and Robin Hood.
Gross Contribution. Gross contribution of the Motion Picture segment for the three months ended September 30, 2019 increased as compared to the three months ended September 30, 2018, primarily due to increased Motion Picture revenue and decreased Motion Picture direct operating expense as a percentage of Motion Picture revenue.
General and Administrative Expense. General and administrative expenses of the Motion Picture segment decreased $0.2 million, or 0.8%.
Television Production
The table below sets forth Television Production gross contribution and segment profit for the three months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30,
|
|
Increase (Decrease)
|
|
|
2019
|
|
2018
|
|
Amount
|
|
Percent
|
|
|
(Amounts in millions)
|
|
|
|
|
|
Television Production Segment:
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
274.0
|
|
|
$
|
152.1
|
|
|
$
|
121.9
|
|
|
80.1
|
%
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Direct operating expense
|
245.5
|
|
|
120.9
|
|
|
124.6
|
|
|
103.1
|
%
|
|
Distribution & marketing expense
|
8.8
|
|
|
10.8
|
|
|
(2.0
|
)
|
|
(18.5
|
)%
|
|
Gross contribution
|
19.7
|
|
|
20.4
|
|
|
(0.7
|
)
|
|
(3.4
|
)%
|
|
General and administrative expenses
|
7.1
|
|
|
11.0
|
|
|
(3.9
|
)
|
|
(35.5
|
)%
|
|
Segment profit
|
$
|
12.6
|
|
|
$
|
9.4
|
|
|
$
|
3.2
|
|
|
34.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Direct operating expense as a percentage of revenue
|
89.6
|
%
|
|
79.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross contribution as a percentage of revenue
|
7.2
|
%
|
|
13.4
|
%
|
|
|
|
|
Revenue. The table below sets forth Television Production revenue and changes in revenue by media for the three months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
September 30,
|
|
Increase (Decrease)
|
|
|
2019
|
|
2018
|
Amount
|
|
Percent
|
|
|
(Amounts in millions)
|
|
|
|
|
|
Television Production Revenue
|
|
|
|
|
|
|
|
|
Television
|
$
|
185.5
|
|
|
$
|
85.1
|
|
|
$
|
100.4
|
|
|
118.0
|
%
|
|
International
|
39.0
|
|
|
21.8
|
|
|
17.2
|
|
|
78.9
|
%
|
|
Home Entertainment
|
|
|
|
|
|
|
|
|
Digital
|
31.7
|
|
|
27.0
|
|
|
4.7
|
|
|
17.4
|
%
|
|
Packaged Media
|
0.2
|
|
|
1.6
|
|
|
(1.4
|
)
|
|
(87.5
|
)%
|
|
Total Home Entertainment
|
31.9
|
|
|
28.6
|
|
|
3.3
|
|
|
11.5
|
%
|
|
Other
|
17.6
|
|
|
16.6
|
|
|
1.0
|
|
|
nm
|
|
|
|
$
|
274.0
|
|
|
$
|
152.1
|
|
|
$
|
121.9
|
|
|
80.1
|
%
|
________________________
nm - Percentage not meaningful.
The primary component of Television Production revenue is domestic television revenue. Domestic television revenue increased in the three months ended September 30, 2019 as compared to the three months ended September 30, 2018 primarily due to an increase in revenue from television episodes delivered and increased intersegment revenues from the licensing of Starz original series (Power Season 6).
International revenue in the three months ended September 30, 2019 increased $17.2 million, or 78.9%, primarily due to revenue from Mythic Quest Season 1 and intersegment revenue from STARZPLAY International from the Starz original series The Rook Season 1 and Sweetbitter Season 2 in the current quarter.
Direct Operating Expense. Direct operating expense of the Television Production segment in the three months ended September 30, 2019 increased $124.6 million, or 103.1%. The increase in direct operating expenses as a percentage of television production revenue is primarily due to the mix of titles generating revenue in the current quarter as compared to the prior year's quarter, and in particular, the revenue generated from new television programs in the current quarter, which typically result in higher amortization expenses in relation to revenues initially, until there are a sufficient number of subsequent seasons ordered and episodes produced, such that revenue can be generated from syndication in domestic and international markets.
Gross Contribution. Gross contribution of the Television Production segment for the three months ended September 30, 2019 decreased slightly as compared to the three months ended September 30, 2018, primarily due to higher direct operating expenses as a percentage of television production revenue, partially offset by higher television production revenue.
General and Administrative Expense. General and administrative expenses of the Television Production segment decreased $3.9 million, or 35.5%, primarily due to decreases in salaries and related expenses and incentive compensation.
Media Networks
The table below sets forth Media Networks gross contribution and segment profit for the three months ended September 30, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30,
|
|
Increase (Decrease)
|
|
|
2019
|
|
2018
|
|
Amount
|
|
Percent
|
|
|
(Amounts in millions)
|
|
|
|
|
|
Media Networks Segment:
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
374.0
|
|
|
$
|
377.3
|
|
|
$
|
(3.3
|
)
|
|
(0.9
|
)%
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Direct operating expense
|
142.4
|
|
|
153.6
|
|
|
(11.2
|
)
|
|
(7.3
|
)%
|
|
Distribution & marketing expense
|
106.9
|
|
|
76.3
|
|
|
30.6
|
|
|
40.1
|
%
|
|
Gross contribution
|
124.7
|
|
|
147.4
|
|
|
(22.7
|
)
|
|
(15.4
|
)%
|
|
General and administrative expenses
|
20.1
|
|
|
24.7
|
|
|
(4.6
|
)
|
|
(18.6
|
)%
|
|
Segment profit
|
$
|
104.6
|
|
|
$
|
122.7
|
|
|
$
|
(18.1
|
)
|
|
(14.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
Direct operating expense as a percentage of revenue
|
38.1
|
%
|
|
40.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross contribution as a percentage of revenue
|
33.3
|
%
|
|
39.1
|
%
|
|
|
|
|
The following table sets forth the Media Networks segment profit by product line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
September 30, 2019
|
|
September 30, 2018
|
|
|
Starz Networks
|
|
STARZPLAY International
|
|
Streaming Services
|
|
Total Media Networks
|
|
Starz Networks
|
|
STARZPLAY International
|
|
Streaming Services
|
|
Total Media Networks
|
|
|
(Amounts in millions)
|
|
Media Networks Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
361.9
|
|
|
$
|
4.4
|
|
|
$
|
7.7
|
|
|
$
|
374.0
|
|
|
$
|
373.4
|
|
|
$
|
0.3
|
|
|
$
|
3.6
|
|
|
$
|
377.3
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expense
|
115.3
|
|
|
25.9
|
|
|
1.2
|
|
|
142.4
|
|
|
140.1
|
|
|
11.9
|
|
|
1.6
|
|
|
153.6
|
|
|
Distribution & marketing expense
|
91.5
|
|
|
6.4
|
|
|
9.0
|
|
|
106.9
|
|
|
72.3
|
|
|
0.8
|
|
|
3.2
|
|
|
76.3
|
|
|
Gross contribution
|
155.1
|
|
|
(27.9
|
)
|
|
(2.5
|
)
|
|
124.7
|
|
|
161.0
|
|
|
(12.4
|
)
|
|
(1.2
|
)
|
|
147.4
|
|
|
General and administrative expenses
|
14.8
|
|
|
3.8
|
|
|
1.5
|
|
|
20.1
|
|
|
22.1
|
|
|
1.6
|
|
|
1.0
|
|
|
24.7
|
|
|
Segment profit
|
$
|
140.3
|
|
|
$
|
(31.7
|
)
|
|
$
|
(4.0
|
)
|
|
$
|
104.6
|
|
|
$
|
138.9
|
|
|
$
|
(14.0
|
)
|
|
$
|
(2.2
|
)
|
|
$
|
122.7
|
|
Revenue. The table below sets forth, for the periods presented, subscriptions to our STARZ and STARZPLAY services:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Domestic Subscribers
|
|
|
|
|
Subscription units - STARZ
|
24.7
|
|
|
25.1
|
|
|
|
|
|
|
|
International Subscribers
|
|
|
|
|
Subscription units - STARZPLAY International(1)
|
2.3
|
|
|
—
|
|
___________________
|
|
|
|
(1)
|
International subscription units at September 30, 2019 and 2018 do not include approximately 1.2 million and 1.0 million, subscribers, respectively, of STARZPLAY Arabia, a non-consolidated equity method investee.
|
The slight decrease in Media Networks revenue was driven by lower Starz Networks' revenue of $11.5 million primarily as a result of declines in revenues from traditional linear services, which were partially offset by higher OTT revenue resulting from increased subscriptions. Revenue from STARZPLAY International increased as a result of subscriber and revenue growth in the international territories launched in the prior year's quarter, and additional territories launched since September 30, 2018. We are currently in discussions with a certain distributor as to its carriage arrangement for our programming networks. The outcome of these discussions could have a material adverse effect on our Media Networks' revenues, segment profit and consolidated net income. Any decline in revenue and profit is expected to be mitigated by growth in OTT revenue, however, there can be no assurance as to the timing or extent of such mitigation.
During the three months ended September 30, 2019 and 2018, the following original series premiered on STARZ:
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Three Months Ended September 30, 2018
|
|
Sweetbitter Season 2
|
|
Power Season 5
|
|
Power Season 6
|
|
America to Me
|
|
Power Confidential Season 1
|
|
Warriors of Liberty City
|
Direct Operating and Distribution and Marketing Expenses. Starz Networks' and STARZPLAY International's direct operating and distribution and marketing expenses primarily represent programming cost amortization and advertising and marketing costs, respectively. The level of programing cost amortization and advertising and marketing costs and thus the gross contribution margin for the Media Networks segment can fluctuate from period to period depending on the number of new original series premiering on the network during the period. Programming cost amortization and advertising and marketing costs generally increase in periods where new original series premiere. In addition, the launch of the STARZPLAY international service has and will continue to result in an increase in expenses as the service expands to other international territories.
The decrease in Media Networks direct operating expenses is due to lower Starz Networks' direct operating expenses, which were partially offset by higher direct operating expenses at STARZPLAY International during the three months ended September 30, 2019. The decrease in Starz Networks' direct operating expense reflected a benefit of $43.7 million in the current quarter associated with the modification of a content licensing arrangement net of amortization for related changes in content availability and air dates. This benefit was partially offset by higher programming amortization related to theatrical releases under our programming output agreement and higher programming amortization related to our Starz Originals. Direct operating expenses at STARZPLAY International increased as a result of higher programming cost amortization related to the launch of STARZPLAY in additional international territories during the three months ended September 30, 2019 as compared to the three months ended September 30, 2018.
The increase in Media Networks distribution and marketing expense is primarily related to Starz Networks as a result of increased spend associated with our Starz Originals. Additionally, distribution and marketing expense for STARZPLAY International and Streaming Services increased in the current quarter as compared to the prior year's quarter.
Gross Contribution. Gross contribution of the Media Networks segment for the three months ended September 30, 2019 was primarily from Starz Networks, offset partially by negative contributions from STARZPLAY International, which has continued to expand in additional territories. The decrease in gross contribution compared to the prior year's quarter was primarily due to higher negative contributions from STARZPLAY International.
General and Administrative Expense. General and administrative expenses of the Media Networks segment in the three months ended September 30, 2019 decreased slightly from the prior year's quarter, driven by a decrease in Starz Networks, offset by increased general and administrative expenses for STARZPLAY International. The decrease in Starz Networks resulted from a decrease in payroll and related costs.
Six Months Ended September 30, 2019 Compared to Six Months Ended September 30, 2018
Consolidated Results of Operations
The following table sets forth our consolidated results of operations for the six months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
September 30,
|
|
Increase (Decrease)
|
|
|
2019
|
|
2018
|
|
Amount
|
|
Percent
|
|
|
(Amounts in millions)
|
|
Revenues
|
|
|
|
|
|
|
|
|
Motion Picture
|
$
|
803.6
|
|
|
$
|
744.3
|
|
|
$
|
59.3
|
|
|
8.0
|
%
|
|
Television Production
|
553.8
|
|
|
431.5
|
|
|
122.3
|
|
|
28.3
|
%
|
|
Media Networks
|
746.4
|
|
|
732.2
|
|
|
14.2
|
|
|
1.9
|
%
|
|
Intersegment eliminations
|
(156.7
|
)
|
|
(74.4
|
)
|
|
(82.3
|
)
|
|
110.6
|
%
|
|
Total revenues
|
1,947.1
|
|
|
1,833.6
|
|
|
113.5
|
|
|
6.2
|
%
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Direct operating
|
1,067.4
|
|
|
993.2
|
|
|
74.2
|
|
|
7.5
|
%
|
|
Distribution and marketing
|
512.6
|
|
|
431.4
|
|
|
81.2
|
|
|
18.8
|
%
|
|
General and administration
|
208.5
|
|
|
225.1
|
|
|
(16.6
|
)
|
|
(7.4
|
)%
|
|
Depreciation and amortization
|
91.2
|
|
|
81.1
|
|
|
10.1
|
|
|
12.5
|
%
|
|
Restructuring and other
|
13.1
|
|
|
25.6
|
|
|
(12.5
|
)
|
|
(48.8
|
)%
|
|
Total expenses
|
1,892.8
|
|
|
1,756.4
|
|
|
136.4
|
|
|
7.8
|
%
|
|
Operating income
|
54.3
|
|
|
77.2
|
|
|
(22.9
|
)
|
|
(29.7
|
)%
|
|
Interest expense
|
(97.0
|
)
|
|
(106.8
|
)
|
|
9.8
|
|
|
(9.2
|
)%
|
|
Shareholder litigation settlements
|
—
|
|
|
(114.1
|
)
|
|
114.1
|
|
|
n/a
|
|
|
Interest and other income
|
5.0
|
|
|
6.1
|
|
|
(1.1
|
)
|
|
(18.0
|
)%
|
|
Other expense
|
(6.1
|
)
|
|
—
|
|
|
(6.1
|
)
|
|
n/a
|
|
|
Loss on investments
|
(0.3
|
)
|
|
(37.0
|
)
|
|
36.7
|
|
|
(99.2
|
)%
|
|
Equity interests loss
|
(11.1
|
)
|
|
(17.8
|
)
|
|
6.7
|
|
|
(37.6
|
)%
|
|
Loss before income taxes
|
(55.2
|
)
|
|
(192.4
|
)
|
|
137.2
|
|
|
(71.3
|
)%
|
|
Income tax benefit (provision)
|
(4.5
|
)
|
|
31.8
|
|
|
(36.3
|
)
|
|
(114.2
|
)%
|
|
Net loss
|
(59.7
|
)
|
|
(160.6
|
)
|
|
100.9
|
|
|
(62.8
|
)%
|
|
Less: Net loss attributable to noncontrolling interest
|
7.5
|
|
|
8.7
|
|
|
(1.2
|
)
|
|
(13.8
|
)%
|
|
Net loss attributable to Lions Gate Entertainment Corp. shareholders
|
$
|
(52.2
|
)
|
|
$
|
(151.9
|
)
|
|
$
|
99.7
|
|
|
(65.6
|
)%
|
|
|
|
|
|
|
|
|
|
Revenues. Consolidated revenues increased in the six months ended September 30, 2019, due to an increase in Television Production revenues and Motion Picture revenues, and to a lesser extent, Media Networks revenues, partially offset by higher intersegment eliminations principally related to higher intersegment revenues in the Television Production segment. The increase in Television Production revenue was driven by increased domestic television and international revenue, due to an increase in revenue from television episodes delivered and higher intersegment revenue from the licensing of Starz original series. The increase in Motion Picture revenue was primarily due to higher theatrical revenue, and to a lesser extent, home entertainment and international revenue driven by the performance of our Fiscal 2020 Theatrical Slate, and in particular, John Wick: Chapter 3 - Parabellum, offset partially by lower television and other revenue. The increase in Media Networks revenue was primarily driven by higher STARZPLAY International and Streaming Services revenue. See further discussion in the Segment Results of Operations section below. We are currently in discussions with a certain distributor as to its carriage arrangement for our programming networks. The outcome of these discussions could have a material adverse effect on our Media Networks' revenues, segment profit and consolidated net income. Any decline in revenue and profit is expected to be mitigated by growth in OTT revenue, however, there can be no assurance as to the timing or extent of such mitigation.
Direct Operating Expenses. Direct operating expenses by segment were as follows for the six months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
September 30,
|
|
|
|
|
2019
|
|
2018
|
|
Increase (Decrease)
|
|
|
Amount
|
|
% of Segment Revenues
|
|
Amount
|
|
% of Segment Revenues
|
|
Amount
|
|
Percent
|
|
|
(Amounts in millions)
|
|
|
|
Direct operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Picture
|
$
|
402.1
|
|
|
50.0
|
%
|
|
$
|
383.1
|
|
|
51.5
|
%
|
|
$
|
19.0
|
|
|
5.0
|
%
|
|
Television Production
|
482.6
|
|
|
87.1
|
|
|
365.9
|
|
|
84.8
|
|
|
116.7
|
|
|
31.9
|
%
|
|
Media Networks
|
337.0
|
|
|
45.2
|
|
|
302.3
|
|
|
41.3
|
|
|
34.7
|
|
|
11.5
|
%
|
|
Other
|
2.9
|
|
|
nm
|
|
|
14.0
|
|
|
nm
|
|
|
(11.1
|
)
|
|
(79.3
|
)%
|
|
Intersegment eliminations
|
(157.2
|
)
|
|
nm
|
|
|
(72.1
|
)
|
|
nm
|
|
|
(85.1
|
)
|
|
118.0
|
%
|
|
|
$
|
1,067.4
|
|
|
54.8
|
%
|
|
$
|
993.2
|
|
|
54.2
|
%
|
|
$
|
74.2
|
|
|
7.5
|
%
|
_______________________
nm - Percentage not meaningful.
Direct operating expenses increased in the six months ended September 30, 2019, primarily due to increased Television Production direct operating expense due to higher Television Production revenue, and to a lesser extent, increased Media Networks direct operating expense, and increased Motion Picture direct operating expense, partially offset by higher intersegment eliminations and lower other direct operating expense. The increase in Media Networks direct operating expense for the six months ended September 30, 2019 was primarily due to higher programming amortization at STARZPLAY International and Starz Networks, partially offset by a benefit of $36.7 million associated with the modification of a content licensing arrangement net of amortization for related changes in content availability and air dates. See further discussion in the Segment Results of Operations section below.
Other primarily consists of the amortization of the non-cash fair value adjustments on film and television assets associated with the application of purchase accounting related to recent acquisitions.
Distribution and Marketing Expenses. Distribution and marketing expenses by segment were as follows for the six months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
September 30,
|
|
Increase (Decrease)
|
|
|
2019
|
|
2018
|
|
Amount
|
|
Percent
|
|
|
(Amounts in millions)
|
|
|
|
Distribution and marketing expenses
|
|
|
|
|
|
|
|
|
Motion Picture
|
$
|
291.8
|
|
|
$
|
243.5
|
|
|
$
|
48.3
|
|
|
19.8
|
%
|
|
Television Production
|
16.8
|
|
|
19.5
|
|
|
(2.7
|
)
|
|
(13.8
|
)%
|
|
Media Networks
|
203.8
|
|
|
168.3
|
|
|
35.5
|
|
|
21.1
|
%
|
|
Other
|
0.2
|
|
|
0.1
|
|
|
0.1
|
|
|
n/a
|
|
|
|
$
|
512.6
|
|
|
$
|
431.4
|
|
|
$
|
81.2
|
|
|
18.8
|
%
|
|
|
|
|
|
|
|
|
|
|
U.S. theatrical P&A expense included in Motion Picture distribution and marketing expense
|
$
|
197.2
|
|
|
$
|
149.0
|
|
|
$
|
48.2
|
|
|
32.3
|
%
|
Distribution and marketing expenses increased in the six months ended September 30, 2019, due to increased Motion Picture theatrical P&A, and to a lesser extent, increased Media Networks distribution and marketing expense primarily attributable to Starz Networks' OTT related advertising and marketing costs. See further discussion in the Segment Results of Operations section below.
General and Administrative Expenses. General and administrative expenses by segment were as follows for the six months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
September 30,
|
|
Increase (Decrease)
|
|
|
2019
|
|
% of Revenues
|
|
2018
|
|
% of Revenues
|
|
Amount
|
|
Percent
|
|
|
(Amounts in millions)
|
|
General and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Picture
|
$
|
51.1
|
|
|
|
|
$
|
52.8
|
|
|
|
|
$
|
(1.7
|
)
|
|
(3.2
|
)%
|
|
Television Production
|
16.8
|
|
|
|
|
21.5
|
|
|
|
|
(4.7
|
)
|
|
(21.9
|
)%
|
|
Media Networks
|
40.4
|
|
|
|
|
50.3
|
|
|
|
|
(9.9
|
)
|
|
(19.7
|
)%
|
|
Corporate
|
49.5
|
|
|
|
|
52.8
|
|
|
|
|
(3.3
|
)
|
|
(6.3
|
)%
|
|
|
157.8
|
|
|
8.1%
|
|
177.4
|
|
|
9.7%
|
|
(19.6
|
)
|
|
(11.0
|
)%
|
|
Share-based compensation expense
|
23.2
|
|
|
|
|
29.7
|
|
|
|
|
(6.5
|
)
|
|
(21.9
|
)%
|
|
Purchase accounting and related adjustments
|
27.5
|
|
|
|
|
18.0
|
|
|
|
|
9.5
|
|
|
52.8
|
%
|
|
Total general and administrative expenses
|
$
|
208.5
|
|
|
10.7%
|
|
$
|
225.1
|
|
|
12.3%
|
|
$
|
(16.6
|
)
|
|
(7.4
|
)%
|
General and administrative expenses decreased in the six months ended September 30, 2019, resulting from lower share-based compensation expense and decreases in Media Networks, Television Production, Corporate and Motion Picture general and administrative expenses, partially offset by increased purchase accounting and related adjustments. See further discussion in the Segment Results of Operations section below.
Corporate general and administrative expenses decreased $3.3 million, or 6.3%, primarily due to decreases in professional fees and salaries and related expenses.
The decrease in share-based compensation expense included in general and administrative expense in the six months ended September 30, 2019, as compared to the six months ended September 30, 2018 is primarily due to lower fair values associated with performance-based stock option and other equity awards that are revalued at each reporting period until the stock option or equity award vests and the applicable performance goals are achieved. Additionally, the decrease in share-based compensation expense is due to lower compensation expense associated with the replacement of Starz share-based payment awards. The following table reconciles this amount to total share-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Share-based compensation expense by expense category
|
|
|
|
|
Other general and administrative expense
|
$
|
23.2
|
|
|
$
|
29.6
|
|
|
Restructuring and other(1)
|
0.3
|
|
|
—
|
|
|
Direct operating expense
|
0.4
|
|
|
0.5
|
|
|
Distribution and marketing expense
|
0.2
|
|
|
0.1
|
|
|
Total share-based compensation expense
|
$
|
24.1
|
|
|
$
|
30.2
|
|
_______________________
(1)Represents share-based compensation expense included in restructuring and other expenses reflecting the impact of the acceleration of certain vesting schedules for equity awards pursuant to certain severance arrangements.
Purchase accounting and related adjustments represent the charge for the accretion of the noncontrolling interest discount related to Pilgrim Media Group and 3 Arts Entertainment, the amortization of the recoupable portion of the purchase price and the expense associated with earned distributions related to 3 Arts Entertainment, all of which are accounted for as compensation and are included in general and administrative expense.
Depreciation and Amortization Expense. Depreciation and amortization of $91.2 million for the six months ended September 30, 2019 increased $10.1 million, from $81.1 million in the six months ended September 30, 2018 due to a change in the amortization method for the Starz Traditional Affiliate customer relationships in the current quarter, which resulted in an increase to amortization expense of $11.3 million in the current period. See Note 1 to our unaudited condensed consolidated financial statements under the Change In Estimate section for further details.
Restructuring and Other. Restructuring and other decreased $12.5 million in the six months ended September 30, 2019 as compared to the six months ended September 30, 2018, and includes restructuring and severance costs, certain transaction and related costs, and certain unusual items, when applicable. Restructuring and other costs were as follows for the six months ended September 30, 2019 and 2018 (see Note 14 to our unaudited condensed consolidated financial statements):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
September 30,
|
|
Increase (Decrease)
|
|
|
2019
|
|
2018
|
|
Amount
|
|
Percent
|
|
|
(Amounts in millions)
|
|
|
|
Restructuring and other:
|
|
|
|
|
|
|
|
|
Severance(1)
|
|
|
|
|
|
|
|
|
Cash
|
$
|
5.9
|
|
|
$
|
3.7
|
|
|
$
|
2.2
|
|
|
59.5
|
%
|
|
Accelerated vesting on equity awards (see Note 12)
|
0.3
|
|
|
—
|
|
|
0.3
|
|
|
n/a
|
|
|
Total severance costs
|
6.2
|
|
|
3.7
|
|
|
2.5
|
|
|
67.6
|
%
|
|
Transaction and related costs(2)
|
6.9
|
|
|
21.9
|
|
|
(15.0
|
)
|
|
(68.5
|
)%
|
|
|
$
|
13.1
|
|
|
$
|
25.6
|
|
|
$
|
(12.5
|
)
|
|
(48.8
|
)%
|
_______________________
|
|
|
|
(1)
|
Severance costs in the six months ended September 30, 2019 and 2018 were primarily related to restructuring activities in connection with recent acquisitions, and other cost-saving initiatives.
|
|
|
|
|
(2)
|
Transaction and related costs in the six months ended September 30, 2019 and 2018 reflect transaction, integration and legal costs associated with certain strategic transactions, restructuring activities and legal matters. In the six months ended September 30, 2018, these costs were primarily related to the legal fees associated with the Starz class action lawsuits and other matters, and to a lesser extent, costs related to the acquisition of 3 Arts Entertainment and other strategic transactions.
|
Interest Expense. Interest expense of $97.0 million in the six months ended September 30, 2019 decreased $9.8 million from the six months ended September 30, 2018. The following table sets forth the components of interest expense for the six months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Interest Expense
|
|
|
|
|
Cash Based:
|
|
|
|
|
Revolving credit facility
|
$
|
3.3
|
|
|
$
|
1.9
|
|
|
Term loans
|
41.7
|
|
|
41.3
|
|
|
5.875% Senior Notes
|
15.2
|
|
|
15.2
|
|
|
6.375% Senior Notes
|
17.3
|
|
|
—
|
|
|
Other(1)
|
12.0
|
|
|
9.8
|
|
|
|
89.5
|
|
|
68.2
|
|
|
Amortization of debt discount and financing costs
|
7.5
|
|
|
6.0
|
|
|
|
97.0
|
|
|
74.2
|
|
|
Interest on dissenting shareholders' liability(2)
|
—
|
|
|
32.6
|
|
|
Total interest expense
|
$
|
97.0
|
|
|
$
|
106.8
|
|
______________________
|
|
|
|
(1)
|
Amounts include interest expense related to the Company's interest rate swap agreements (see Note 17 to our unaudited condensed consolidated financial statements).
|
|
|
|
|
(2)
|
Represents interest accrued in connection with the previously outstanding dissenting shareholders' liability associated with the Starz merger.
|
Shareholder Litigation Settlements. Shareholder litigation settlements of $114.1 million in the six months ended September 30, 2018 includes the following: (i) $54.8 million for the net expense recorded for the settlement of the Fiduciary Litigation (representing the settlement amount of $92.5 million, net of aggregate insurance reimbursement of $37.8 million, and (ii) $59.3 million related to the Appraisal Litigation, representing the amount by which the settlement amount of approximately $964 million exceeded the previously accrued (at date of acquisition) dissenting shareholders' liability plus interest through the date agreed in the settlement. There were no comparable charges in the six months ended September 30, 2019. See Note 16 to our unaudited condensed consolidated financial statements.
Other Expense. Other expense of $6.1 million for the six months ended September 30, 2019 represented the loss recorded related to our monetization of accounts receivable to third-party purchasers (see Note 18 to our unaudited condensed consolidated financial statements). There was no comparable charge in the six months ended September 30, 2018.
Loss on Investments. Loss on investments of $0.3 million for the six months ended September 30, 2019 compared to loss on investments of $37.0 million for the six months ended September 30, 2018, which was primarily due to other-than-temporary impairments on investments in equity securities without readily determinable fair values and notes receivable which were written down to their estimated fair value in the prior year's period.
Equity Interests Loss. Equity interests loss of $11.1 million in the six months ended September 30, 2019 compared to equity interests loss of $17.8 million in the six months ended September 30, 2018.
Income Tax (Provision) Benefit. We had an income tax provision of $4.5 million in the six months ended September 30, 2019, compared to an income tax benefit of $31.8 million in the six months ended September 30, 2018. Our income tax provision differs from the federal statutory rate multiplied by pre-tax income (loss) due to the mix of our pre-tax income (loss) generated across the various jurisdictions in which we operate, changes in the valuation allowance against our deferred tax assets, and certain minimum taxes imposed by the Tax Act. Our income tax benefit for the six months ended September 30, 2018 was also impacted by the tax deductions generated by our capital structure, which included certain foreign affiliate dividends in our Canadian jurisdiction that could be received without being subject to tax under Canadian tax law.
Net Loss Attributable to Lions Gate Entertainment Corp. Shareholders. Net loss attributable to our shareholders for the six months ended September 30, 2019 was $52.2 million, or basic and diluted net loss per common share of $0.24 on 216.8 million weighted average common shares outstanding. This compares to net loss attributable to our shareholders for the six months ended September 30, 2018 of $151.9 million, or basic and diluted net loss per common share of $0.71 on 212.7 million weighted average common shares outstanding.
Segment Results of Operations
The segment results of operations presented below do not include the elimination of intersegment transactions which are eliminated when presenting consolidated results, and exclude items separately identified in the restructuring and other line item in the unaudited condensed consolidated statements of operations.
The Company's primary measure of segment performance is segment profit. Segment profit is defined as gross contribution (revenues, less direct operating and distribution and marketing expense) less segment general and administration expenses. Segment profit excludes corporate general and administrative expense, restructuring and other costs, share-based compensation other than annual bonuses granted in immediately vested stock awards when applicable, certain programming and content charges as a result of management changes and associated strategy, when applicable, and purchase accounting and related adjustments, when applicable. The Company believes the presentation of segment profit is relevant and useful for investors because it allows investors to view segment performance in a manner similar to the primary method used by the Company's management and enables them to understand the fundamental performance of the Company's businesses. The reconciliation of segment profit to the Company's consolidated loss before income taxes is presented in Note 15 to the unaudited condensed consolidated financial statements.
Motion Picture
The table below sets forth Motion Picture gross contribution and segment profit for the six months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
September 30,
|
|
Increase (Decrease)
|
|
|
2019
|
|
2018
|
|
Amount
|
|
Percent
|
|
|
(Amounts in millions)
|
|
|
|
|
|
Motion Picture Segment:
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
803.6
|
|
|
$
|
744.3
|
|
|
$
|
59.3
|
|
|
8.0
|
%
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Direct operating expense
|
402.1
|
|
|
383.1
|
|
|
19.0
|
|
|
5.0
|
%
|
|
Distribution & marketing expense
|
291.8
|
|
|
243.5
|
|
|
48.3
|
|
|
19.8
|
%
|
|
Gross contribution
|
109.7
|
|
|
117.7
|
|
|
(8.0
|
)
|
|
(6.8
|
)%
|
|
General and administrative expenses
|
51.1
|
|
|
52.8
|
|
|
(1.7
|
)
|
|
(3.2
|
)%
|
|
Segment profit
|
$
|
58.6
|
|
|
$
|
64.9
|
|
|
$
|
(6.3
|
)
|
|
(9.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
U.S. theatrical P&A expense included in distribution and marketing expense
|
$
|
197.2
|
|
|
$
|
149.0
|
|
|
$
|
48.2
|
|
|
32.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Direct operating expense as a percentage of revenue
|
50.0
|
%
|
|
51.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross contribution as a percentage of revenue
|
13.7
|
%
|
|
15.8
|
%
|
|
|
|
|
Revenue. The table below sets forth Motion Picture revenue by media and product category for the six months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended September 30,
|
|
|
|
|
2019
|
|
2018
|
|
Total Increase (Decrease)
|
|
|
Feature Film(1)
|
|
Other Film(2)
|
|
Total
|
|
Feature Film(1)
|
|
Other Film(2)
|
|
Total
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
|
|
|
|
|
|
Motion Picture Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical
|
$
|
188.3
|
|
|
$
|
19.2
|
|
|
$
|
207.5
|
|
|
$
|
74.2
|
|
|
$
|
45.3
|
|
|
$
|
119.5
|
|
|
$
|
88.0
|
|
|
Home Entertainment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital Media
|
118.4
|
|
|
78.2
|
|
|
196.6
|
|
|
69.2
|
|
|
102.1
|
|
|
171.3
|
|
|
25.3
|
|
|
Packaged Media
|
71.8
|
|
|
49.8
|
|
|
121.6
|
|
|
44.9
|
|
|
96.1
|
|
|
141.0
|
|
|
(19.4
|
)
|
|
Total Home Entertainment
|
190.2
|
|
|
128.0
|
|
|
318.2
|
|
|
114.1
|
|
|
198.2
|
|
|
312.3
|
|
|
5.9
|
|
|
Television
|
77.6
|
|
|
25.5
|
|
|
103.1
|
|
|
113.6
|
|
|
19.2
|
|
|
132.8
|
|
|
(29.7
|
)
|
|
International
|
125.0
|
|
|
35.6
|
|
|
160.6
|
|
|
111.5
|
|
|
38.1
|
|
|
149.6
|
|
|
11.0
|
|
|
Other
|
13.6
|
|
|
0.6
|
|
|
14.2
|
|
|
28.0
|
|
|
2.1
|
|
|
30.1
|
|
|
(15.9
|
)
|
|
|
$
|
594.7
|
|
|
$
|
208.9
|
|
|
$
|
803.6
|
|
|
$
|
441.4
|
|
|
$
|
302.9
|
|
|
$
|
744.3
|
|
|
$
|
59.3
|
|
____________________
|
|
|
|
(1)
|
Feature Film: Includes theatrical releases through our Lionsgate and Summit Entertainment film labels, which includes films developed and produced in-house, films co-developed and co-produced and films acquired from third parties.
|
|
|
|
|
(2)
|
Other Film: Includes direct-to-DVD motion pictures, acquired and licensed brands, third-party library product and ancillary-driven platform theatrical releases through our specialty films distribution labels including Lionsgate Premiere, through Good Universe, and with our equity method investees, Roadside Attractions and Pantelion Films, and other titles.
|
Theatrical revenue increased $88 million, or 73.6%, in the six months ended September 30, 2019 as compared to the six months ended September 30, 2018, primarily driven by the performance of the Feature Films released in the current period as compared to the prior year's period, and in particular, the successful performance of John Wick: Chapter 3 - Parabellum. This increase was partially offset by a decrease from Other Film due to theatrical revenue in the prior year's period from Pantelion Films' Overboard and Extinction.
Home entertainment revenue increased $5.9 million, or 1.9%, in the six months ended September 30, 2019, as compared to the six months ended September 30, 2018, driven by by an increase of $76.1 million from our Feature Films, mostly offset by a decrease of $70.2 million from Other Film. The increase in Feature Film home entertainment revenue was due to the performance of our Fiscal 2020 Theatrical Slate, and in particular, significant digital and packaged media revenues from John Wick: Chapter 3 - Parabellum. The increase was also, to a lesser extent, due to higher digital media revenue from a greater number of Feature Films released as compared to the prior year's period. The decrease in revenue from Other Film was primarily due to home entertainment revenue in the prior year's period from I Can Only Imagine, Hostiles and Pantelion Films' Overboard.
Television revenue decreased $29.7 million, or 22.4%, in the six months ended September 30, 2019, as compared to the six months ended September 30, 2018 due to fewer Feature Films from our Fiscal 2019 Theatrical Slate with television windows opening in the current period as compared to the number of Feature Films from our Fiscal 2018 Theatrical Slate in the prior year's period. This decrease was offset partially by higher revenue from Other Film.
International revenue increased $11.0 million, or 7.4%, in the six months ended September 30, 2019, as compared to the six months ended September 30, 2018 due to higher revenue from our Feature Films, and in particular, John Wick: Chapter 3 - Parabellum.
Other revenue decreased $15.9 million, or 52.8%, in the six months ended September 30, 2019 as compared to the six months ended September 30, 2018 due to Feature Film revenues from an other ancillary market licensing arrangement in the prior year's period.
Direct Operating Expense. The increase in direct operating expenses is due to the increase in Motion Picture revenues. The slight decrease in direct operating expenses as a percentage of motion picture revenue was driven by the change in the mix of titles and product categories generating revenue in the current period as compared to the prior year's period. Investment in film write-downs were approximately $1.6 million in the six months ended September 30, 2019, as compared to approximately $7.0 million in the six months ended September 30, 2018.
Distribution and Marketing Expense. The increase in distribution and marketing expense in the six months ended September 30, 2019 is primarily due to higher theatrical P&A spending on a greater number of Feature Film theatrical releases, and increased theatrical P&A incurred in advance for films to be released in subsequent periods, partially offset by lower theatrical P&A on Other Film. In the six months ended September 30, 2019, approximately $23.5 million of P&A was incurred in advance for films to be released in subsequent quarters, such as Knives Out, Jexi, Midway, I Still Believe and Bombshell. In the six months ended September 30, 2018, approximately $6.7 million of P&A was incurred in advance for films to be released in subsequent periods, such as Hunter Killer and Robin Hood.
Gross Contribution. Gross contribution of the Motion Picture segment for the six months ended September 30, 2019 decreased as compared to the six months ended September 30, 2018, primarily due to increased Motion Picture revenue which was more than offset by increased Motion Picture distribution and marketing expense as a percentage of Motion Picture revenue.
General and Administrative Expense. General and administrative expenses of the Motion Picture segment in the six months ended September 30, 2019 decreased $1.7 million, or 3.2%, primarily due to decreases in salaries and related expenses.
Television Production
The table below sets forth Television Production gross contribution and segment profit for the six months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
September 30,
|
|
Increase (Decrease)
|
|
|
2019
|
|
2018
|
|
Amount
|
|
Percent
|
|
|
(Amounts in millions)
|
|
|
|
|
|
Television Production Segment:
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
553.8
|
|
|
$
|
431.5
|
|
|
$
|
122.3
|
|
|
28.3
|
%
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Direct operating expense
|
482.6
|
|
|
365.9
|
|
|
116.7
|
|
|
31.9
|
%
|
|
Distribution & marketing expense
|
16.8
|
|
|
19.5
|
|
|
(2.7
|
)
|
|
(13.8
|
)%
|
|
Gross contribution
|
54.4
|
|
|
46.1
|
|
|
8.3
|
|
|
18.0
|
%
|
|
General and administrative expenses
|
16.8
|
|
|
21.5
|
|
|
(4.7
|
)
|
|
(21.9
|
)%
|
|
Segment profit
|
$
|
37.6
|
|
|
$
|
24.6
|
|
|
$
|
13.0
|
|
|
52.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Direct operating expense as a percentage of revenue
|
87.1
|
%
|
|
84.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross contribution as a percentage of revenue
|
9.8
|
%
|
|
10.7
|
%
|
|
|
|
|
Revenue. The table below sets forth Television Production revenue and changes in revenue by media for the six months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
September 30,
|
|
Increase (Decrease)
|
|
|
2019
|
|
2018
|
Amount
|
|
Percent
|
|
Television Production
|
(Amounts in millions)
|
|
|
|
|
|
Television
|
$
|
382.3
|
|
|
$
|
302.9
|
|
|
$
|
79.4
|
|
|
26.2
|
%
|
|
International
|
95.8
|
|
|
58.8
|
|
|
37.0
|
|
|
62.9
|
%
|
|
Home Entertainment
|
|
|
|
|
|
|
|
|
Digital
|
37.5
|
|
|
43.3
|
|
|
(5.8
|
)
|
|
(13.4
|
)%
|
|
Packaged Media
|
1.6
|
|
|
3.4
|
|
|
(1.8
|
)
|
|
(52.9
|
)%
|
|
Total Home Entertainment
|
39.1
|
|
|
46.7
|
|
|
(7.6
|
)
|
|
(16.3
|
)%
|
|
Other
|
36.6
|
|
|
23.1
|
|
|
13.5
|
|
|
58.4
|
%
|
|
|
$
|
553.8
|
|
|
$
|
431.5
|
|
|
$
|
122.3
|
|
|
28.3
|
%
|
The primary component of Television Production revenue is domestic television revenue. Domestic television revenue increased in the six months ended September 30, 2019, as compared to the six months ended September 30, 2018 due to an increase in revenue from television episodes delivered, and to a lesser extent, increased intersegment revenues from the licensing of Starz original series. These increases were offset slightly by decreased license fees from unscripted television programs in the current period as compared to the prior year's period.
International revenue in the six months ended September 30, 2019 increased $37.0 million, or 62.9% as compared to the six months ended September 30, 2018, primarily due to revenue from Mythic Quest Season 1, Dear White People Season 3 and intersegment revenue from STARZPLAY International from the Starz original series The Rook Season 1, Vida Season 2, and The Spanish Princess Season 1 in the current period.
Home entertainment revenue in the six months ended September 30, 2019 decreased $7.6 million, or 16.3%, primarily driven by digital media revenue in the prior year's period for the Starz original series, The Missing Season 2 and Black Sails Season 4.
Other revenue increased in the six months ended September 30, 2019 as compared to the six months ended September 30, 2018 due to revenue in the current period from 3 Arts Entertainment, which compared to revenue in the prior year's period from the acquisition date of May 29, 2018 to September 30, 2018.
Direct Operating Expense. Direct operating expense of the Television Production segment in the six months ended September 30, 2019 increased $116.7 million, or 31.9%. The increase in direct operating expenses as a percentage of television production revenue is primarily due to the mix of titles generating revenue in the current period as compared to the prior year's period.
Gross Contribution. Gross contribution of the Television Production segment for the six months ended September 30, 2019 increased as compared to the six months ended September 30, 2018 primarily due to higher television production revenue which was partially offset by higher direct operating expenses as a percentage of television production revenue.
General and Administrative Expense. General and administrative expenses of the Television Production segment decreased $4.7 million, or 21.9%, primarily due to decreases in salaries and related expenses and incentive compensation. The six months ended September 30, 2018 included general and administrative expenses of 3 Arts Entertainment from the acquisition date of May 29, 2018.
Media Networks
The table below sets forth Media Networks gross contribution and segment profit for the six months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
September 30,
|
|
Increase (Decrease)
|
|
|
2019
|
|
2018
|
|
Amount
|
|
Percent
|
|
|
(Amounts in millions)
|
|
|
|
|
|
Media Networks Segment:
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
746.4
|
|
|
$
|
732.2
|
|
|
$
|
14.2
|
|
|
1.9
|
%
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Direct operating expense
|
337.0
|
|
|
302.3
|
|
|
34.7
|
|
|
11.5
|
%
|
|
Distribution & marketing expense
|
203.8
|
|
|
168.3
|
|
|
35.5
|
|
|
21.1
|
%
|
|
Gross contribution
|
205.6
|
|
|
261.6
|
|
|
(56.0
|
)
|
|
(21.4
|
)%
|
|
General and administrative expenses
|
40.4
|
|
|
50.3
|
|
|
(9.9
|
)
|
|
(19.7
|
)%
|
|
Segment profit
|
$
|
165.2
|
|
|
$
|
211.3
|
|
|
$
|
(46.1
|
)
|
|
(21.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
Direct operating expense as a percentage of revenue
|
45.2
|
%
|
|
41.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross contribution as a percentage of revenue
|
27.5
|
%
|
|
35.7
|
%
|
|
|
|
|
The following table sets forth the Media Networks segment profit by product line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Six Months Ended
|
|
|
September 30, 2019
|
|
September 30, 2018
|
|
|
Starz Networks
|
|
STARZPLAY International
|
|
Streaming Services
|
|
Total Media Networks
|
|
Starz Networks
|
|
STARZPLAY International
|
|
Streaming Services
|
|
Total Media Networks
|
|
|
(Amounts in millions)
|
|
Media Networks Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
724.8
|
|
|
$
|
7.5
|
|
|
$
|
14.1
|
|
|
$
|
746.4
|
|
|
$
|
724.5
|
|
|
$
|
0.4
|
|
|
$
|
7.3
|
|
|
$
|
732.2
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expense
|
272.4
|
|
|
62.5
|
|
|
2.1
|
|
|
337.0
|
|
|
280.0
|
|
|
16.7
|
|
|
5.6
|
|
|
302.3
|
|
|
Distribution & marketing expense
|
178.0
|
|
|
12.0
|
|
|
13.8
|
|
|
203.8
|
|
|
159.9
|
|
|
1.1
|
|
|
7.3
|
|
|
168.3
|
|
|
Gross contribution
|
274.4
|
|
|
(67.0
|
)
|
|
(1.8
|
)
|
|
205.6
|
|
|
284.6
|
|
|
(17.4
|
)
|
|
(5.6
|
)
|
|
261.6
|
|
|
General and administrative expenses
|
30.5
|
|
|
6.9
|
|
|
3.0
|
|
|
40.4
|
|
|
45.2
|
|
|
2.7
|
|
|
2.4
|
|
|
50.3
|
|
|
Segment profit
|
$
|
243.9
|
|
|
$
|
(73.9
|
)
|
|
$
|
(4.8
|
)
|
|
$
|
165.2
|
|
|
$
|
239.4
|
|
|
$
|
(20.1
|
)
|
|
$
|
(8.0
|
)
|
|
$
|
211.3
|
|
Revenue. The table below sets forth, for the periods presented, subscriptions to our STARZ and STARZPLAY services:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
|
(Amounts in millions)
|
|
Domestic Subscribers
|
|
|
|
|
Subscription units - STARZ
|
24.7
|
|
|
25.1
|
|
|
|
|
|
|
|
International Subscribers
|
|
|
|
|
Subscription units - STARZPLAY International(1)
|
2.3
|
|
|
—
|
|
___________________
|
|
|
|
(1)
|
International subscription units at September 30, 2019 and 2018 do not include approximately 1.2 million and 1.0 million, subscribers, respectively, of STARZPLAY Arabia, a non-consolidated equity method investee.
|
The increase in Media Networks revenue was primarily driven by higher STARZPLAY International revenue as a result of subscriber and revenue growth in the international territories launched in the prior year's period, and additional territories launched since September 30, 2018, and higher Streaming Services revenue. Additionally, Starz Networks' revenue increased slightly a result of higher OTT revenue resulting from increased subscriptions, which were mostly offset by declines in revenues from traditional linear services. We are currently in discussions with a certain distributor as to its carriage arrangement for our programming networks. The outcome of these discussions could have a material adverse effect on our Media Networks' revenues, segment profit and consolidated net income. Any decline in revenue and profit is expected to be mitigated by growth in OTT revenue, however, there can be no assurance as to the timing or extent of such mitigation.
During the six months ended September 30, 2019 and 2018, the following original series premiered on STARZ:
|
|
|
|
|
|
|
Six Months Ended September 30, 2019
|
|
Six Months Ended September 30, 2018
|
|
First Quarter:
|
|
First Quarter:
|
|
The Spanish Princess
|
|
Howard's End
|
|
Vida Season 2
|
|
Sweetbitter Season 1
|
|
The Rook Season 1
|
|
Vida Season 1
|
|
|
|
Wrong Man Season 1
|
|
Second Quarter:
|
|
Second Quarter:
|
|
Sweetbitter Season 2
|
|
Power Season 5
|
|
Power Season 6
|
|
America to Me
|
|
Power Confidential Season 1
|
|
Warriors of Liberty City
|
Direct Operating and Distribution and Marketing Expenses. Starz Networks' and STARZPLAY International direct operating and distribution and marketing expenses primarily represent programming cost amortization and advertising and marketing costs, respectively. The level of programing cost amortization and advertising and marketing costs and thus the gross contribution margin for the Media Networks segment can fluctuate from period to period depending on the number of new original series premiering on the network during the period. Programming cost amortization and advertising and marketing costs generally increase in periods where new original series premiere. In addition, the launch of the STARZPLAY international service has and will continue to result in an increase in expenses as the service expands to other international territories.
The increase in Media Networks direct operating expenses is primarily related to STARZPLAY International during the six months ended September 30, 2019, as a result of higher programming cost amortization related to the launch of STARZPLAY in additional international territories during the six months ended September 30, 2019 as compared to the six months ended September 30, 2018. This increase was partially offset by lower Starz Networks' direct operating expense. Starz Networks direct operating expense reflected a benefit of $36.7 million associated with the modification of a content licensing arrangement net of amortization for related changes in content availability and air dates. This benefit was partially offset by higher programming amortization related to theatrical releases under our programming output agreement, and higher programming amortization and development expense related to our Starz Originals.
The increase in Media Networks distribution and marketing expense is primarily related to Starz Networks as a result of increased spend on OTT related advertising and marketing costs associated with our Starz Originals. Additionally, distribution and marketing expense for STARZPLAY International and Streaming Services increased in the current period as compared to the prior year's period.
Gross Contribution. Gross contribution of the Media Networks segment for the six months ended September 30, 2019 was primarily from Starz Networks, offset partially by negative contributions from STARZPLAY International which has continued to expand in additional territories. The decrease in gross contribution compared to the prior year's period was primarily due to higher negative contributions from STARZPLAY International.
General and Administrative Expense. General and administrative expenses of the Media Networks segment in the six months ended September 30, 2019 decreased slightly from the prior year's period, driven by a decrease in Starz Networks, offset by increased general and administrative expenses for STARZPLAY International. The decrease in Starz Networks resulted from a decrease in payroll and related costs.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
Our liquidity and capital resources have been provided principally through cash generated from operations, debt, and our production loans. Our debt at September 30, 2019 primarily consisted of a $1.5 billion five-year revolving credit facility (with no amounts outstanding at September 30, 2019) entered into on March 22, 2018 (the "Revolving Credit Facility"), a five-year term loan A facility issued March 22, 2018 (the "Term Loan A"), a seven-year term loan B facility issued March 22, 2018 (the "Term Loan B", and, together with the Revolving Credit Facility and the Term Loan A, the "Senior Credit Facilities"), 5.875% senior notes due 2024 (the "5.875% Senior Notes"), and 6.375% senior notes due 2024 (the "6.375% Senior Notes").
Our principal uses of cash in operations include the funding of film and television productions, film and programming rights acquisitions, and the distribution and marketing of films and television programs. We also use cash for debt service (i.e. principal and interest payments) requirements, equity method or other equity investments, quarterly cash dividends, the purchase of common shares under our share repurchase program, capital expenditures, and acquisitions of businesses.
In addition, the Company has a redeemable noncontrolling interest balance of $142.4 million as of September 30, 2019 related to its acquisition of a controlling interest in Pilgrim Media Group and 3 Arts Entertainment, which may require the use of cash in the event the holders of the noncontrolling interests require the Company to repurchase their interests.
We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Anticipated Cash Requirements. The nature of our business is such that significant initial expenditures are required to produce, acquire, distribute and market films and television programs, while revenues from these films and television programs are earned over an extended period of time after their completion or acquisition. In addition, the launch of the Company's STARZPLAY international service has and will require capital investment as the service expands to other international territories. We believe that cash flow from operations, cash on hand, revolving credit facility availability, the monetization of trade accounts receivable, tax-efficient financing, and available production financing will be adequate to meet known operational cash and debt service (i.e. principal and interest payments) requirements for the foreseeable future, including the funding of future film and television production, film and programming rights acquisitions and theatrical and home entertainment release schedules, and future equity or cost method investment funding requirements, and international expansion. However, we may seek alternative sources of capital in connection with the STARZPLAY international expansion. We monitor our cash flow liquidity, availability, fixed charge coverage, capital base, film spending and leverage ratios with the long-term goal of maintaining our credit worthiness.
Our current financing strategy is to fund operations and to leverage investment in films and television programs through our cash flow from operations, our revolving credit facility, single-purpose production financing, government incentive programs, film funds, distribution commitments, and the monetization of trade accounts receivable. In addition, we continue to expand our STARZPLAY international service and may acquire businesses or assets, including individual films or libraries that are complementary to our business. Any such transaction could be financed through our cash flow from operations, credit facilities, equity or debt financing. If additional financing beyond our existing cash flows from operations and credit facilities cannot fund such transactions, there is no assurance that such financing will be available on terms acceptable to us. We may also dispose of businesses or assets, including individual films or libraries, and use the net proceeds from such dispositions to fund operations or such acquisitions, or to repay debt.
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. 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, 2019, the Company was in compliance with all applicable covenants.
The 5.875% Senior Notes and 6.375% 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, 2019, the Company was in compliance with all applicable covenants.
Share Repurchase Plan. On February 2, 2016, our Board of Directors authorized to increase our previously announced share repurchase plan from $300 million to $468 million. To date, approximately $283.2 million of our common shares have been purchased under the plan, leaving approximately $184.7 million of authorized potential purchases. The remaining $184.7 million of our common shares authorized under the plan may be purchased from time to time at our discretion, including quantity, timing and price thereof, and will be subject to market conditions. Such purchases will be structured as permitted by securities laws and other legal requirements. We did not repurchase any shares during the three months ended September 30, 2019.
Dividends. The amount of dividends, if any, that we pay to our shareholders is determined by our Board of Directors, at its discretion, and is dependent on a number of factors, including our financial position, results of operations, cash flows, capital requirements and restrictions under our credit agreements, and shall be in compliance with applicable law. In November 2018, our Board of Directors suspended our quarterly cash dividend to focus on driving long-term shareholder value by investing in global growth opportunities for Starz, while also strengthening the Company's balance sheet.
Capacity to Pay Dividends. At September 30, 2019, the capacity to pay dividends under the Senior Credit Facilities and the 5.875% Senior Notes and 6.375% Senior Notes significantly exceeded the amount of the Company's retained earnings or net loss, and therefore the Company's net loss of $59.7 million and retained earnings of $143.7 million were deemed free of restrictions at September 30, 2019.
Discussion of Operating, Investing, Financing Cash Flows
Cash and cash equivalents increased by $48.9 million for the six months ended September 30, 2019 and decreased by $3.4 million for the six months ended September 30, 2018, before foreign exchange effects on cash. Components of these changes are discussed below in more detail.
Operating Activities. Cash flows provided by operating activities for the six months ended September 30, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
2019
|
|
2018
|
|
Net Change
|
|
|
|
(Amounts in millions)
|
|
Operating income
|
|
$
|
54.3
|
|
|
$
|
77.2
|
|
|
$
|
(22.9
|
)
|
|
Amortization of films and television programs and program rights
|
|
855.2
|
|
|
723.2
|
|
|
132.0
|
|
|
Non-cash share-based compensation
|
|
24.1
|
|
|
30.2
|
|
|
(6.1
|
)
|
|
Cash interest
|
|
(89.5
|
)
|
|
(68.2
|
)
|
|
(21.3
|
)
|
|
Current income tax provision
|
|
(3.9
|
)
|
|
(9.1
|
)
|
|
5.2
|
|
|
Other non-cash charges included in operating activities
|
|
111.9
|
|
|
99.3
|
|
|
12.6
|
|
|
Cash flows from operations before changes in operating assets and liabilities
|
|
952.1
|
|
|
852.6
|
|
|
99.5
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable, net and other assets
|
|
123.7
|
|
|
172.7
|
|
|
(49.0
|
)
|
|
Investment in films and television programs and program rights
|
|
(717.1
|
)
|
|
(697.1
|
)
|
|
(20.0
|
)
|
|
Other changes in operating assets and liabilities
|
|
(140.2
|
)
|
|
(58.3
|
)
|
|
(81.9
|
)
|
|
Changes in operating assets and liabilities
|
|
(733.6
|
)
|
|
(582.7
|
)
|
|
(150.9
|
)
|
|
Net Cash Flows Provided By Operating Activities
|
|
$
|
218.5
|
|
|
$
|
269.9
|
|
|
$
|
(51.4
|
)
|
Cash flows provided by operating activities for the six months ended September 30, 2019 were $218.5 million compared to cash flows provided by operating activities of $269.9 million for the six months ended September 30, 2018. The decrease in cash provided by operating activities for the six months ended September 30, 2019 as compared to the six months ended September 30, 2018 is due to increased cash used from changes in operating assets and liabilities driven by lower decreases in accounts receivable and other assets, higher investment in films and television programs and program rights spend, and other changes in operating assets and liabilities reflecting higher decreases in participations and residuals, film obligations and deferred revenue, partially offset by lower decreases in accounts payable and accrued liabilities. These changes were partially offset by higher cash flows from operations before changes in operating assets and liabilities. In addition, cash flows provided
by operating activities for the six months ended September 30, 2019 benefited by approximately $147.3 million from the monetization of accounts receivables program (see Note 18 to our unaudited condensed consolidated financial statements).
Investing Activities. Cash flows used in investing activities for the six months ended September 30, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
|
2019
|
|
2018
|
|
|
|
(Amounts in millions)
|
|
Investment in equity method investees
|
|
$
|
(4.9
|
)
|
|
$
|
(22.0
|
)
|
|
Business acquisitions, net of cash acquired of $5.5
|
|
—
|
|
|
(77.3
|
)
|
|
Capital expenditures
|
|
(16.9
|
)
|
|
(21.6
|
)
|
|
Net Cash Flows Used In Investing Activities
|
|
$
|
(21.8
|
)
|
|
$
|
(120.9
|
)
|
Cash used in investing activities of $21.8 million for the six months ended September 30, 2019 compared to cash used in investing activities of $120.9 million for the six months ended September 30, 2018, as reflected above. The change was primarily due to cash used for the purchase of 3 Arts Entertainment, net of cash acquired, in the six months ended September 30, 2018 (see Note 2 to our unaudited condensed consolidated financial statements).
Financing Activities. Cash flows used in financing activities for the six months ended September 30, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
|
2019
|
|
2018
|
|
|
|
(Amounts in millions)
|
|
Debt - borrowings
|
|
$
|
302.0
|
|
|
$
|
2,069.5
|
|
|
Debt - repayments
|
|
(328.5
|
)
|
|
(2,144.8
|
)
|
|
Net repayments of debt
|
|
(26.5
|
)
|
|
(75.3
|
)
|
|
|
|
|
|
|
|
Production loans - borrowings
|
|
51.8
|
|
|
154.5
|
|
|
Production loans - repayments
|
|
(168.2
|
)
|
|
(189.7
|
)
|
|
Net proceeds from (repayments of) production loans
|
|
(116.4
|
)
|
|
(35.2
|
)
|
|
|
|
|
|
|
|
Other financing activities
|
|
(4.9
|
)
|
|
(41.9
|
)
|
|
Net Cash Flows Used In Financing Activities
|
|
$
|
(147.8
|
)
|
|
$
|
(152.4
|
)
|
Cash flows used in financing activities of $147.8 million for the six months ended September 30, 2019 compared to cash flows used in financing activities of $152.4 million for the six months ended September 30, 2018. Cash flows used in financing activities for the six months ended September 30, 2019 primarily reflects net debt repayments of $26.5 million and net production loan repayments of $116.4 million.
Cash flows used in financing activities for the six months ended September 30, 2018 primarily reflects the repayment of the April 2013 1.25% Notes in the amount of $60.0 million. The debt borrowings and repayments above reflect an intercompany refinancing transaction during the six months ended September 30, 2018. In addition, cash flows used in financing activities in the six months ended September 30, 2018 reflects net repayments of production loans of $35.2 million, and cash paid for dividends of $38.2 million.
Debt
See Note 5 to our unaudited condensed consolidated financial statements for a discussion of our debt.
Production Loans
See Note 7 to our unaudited condensed consolidated financial statements for a discussion of our production loans.
Table of Debt and Contractual Commitments
The following table sets forth our future annual repayment of debt, and our contractual commitments as of September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ending March 31,
|
|
Year Ending March 31,
|
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Thereafter
|
|
Total
|
|
|
|
|
|
|
(Amounts in millions)
|
|
|
|
|
|
Future annual repayment of debt recorded as of September 30, 2019 (on-balance sheet arrangements)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Term Loan A
|
18.8
|
|
|
52.5
|
|
|
75.0
|
|
|
585.0
|
|
|
—
|
|
|
—
|
|
|
731.3
|
|
|
Term Loan B
|
6.3
|
|
|
12.5
|
|
|
12.5
|
|
|
12.5
|
|
|
12.5
|
|
|
1,045.0
|
|
|
1,101.3
|
|
|
5.875% Senior Notes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
520.0
|
|
|
520.0
|
|
|
6.375% Senior Notes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
550.0
|
|
|
—
|
|
|
550.0
|
|
|
Film obligations and production loans(1)
|
187.9
|
|
|
232.6
|
|
|
25.7
|
|
|
29.5
|
|
|
4.4
|
|
|
0.8
|
|
|
480.9
|
|
|
Finance lease obligations principal payments
|
1.5
|
|
|
3.0
|
|
|
0.9
|
|
|
0.9
|
|
|
1.0
|
|
|
36.6
|
|
|
43.9
|
|
|
|
214.5
|
|
|
300.6
|
|
|
114.1
|
|
|
627.9
|
|
|
567.9
|
|
|
1,602.4
|
|
|
3,427.4
|
|
|
Contractual commitments by expected repayment date (off-balance sheet arrangements)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film obligation and production loan commitments(2)
|
421.9
|
|
|
553.1
|
|
|
172.6
|
|
|
75.5
|
|
|
42.9
|
|
|
6.9
|
|
|
1,272.9
|
|
|
Interest payments(3)
|
81.5
|
|
|
168.0
|
|
|
167.3
|
|
|
163.6
|
|
|
134.6
|
|
|
127.2
|
|
|
842.2
|
|
|
Other contractual obligations
|
82.9
|
|
|
66.9
|
|
|
43.1
|
|
|
21.7
|
|
|
1.5
|
|
|
—
|
|
|
216.1
|
|
|
|
586.3
|
|
|
788.0
|
|
|
383.0
|
|
|
260.8
|
|
|
179.0
|
|
|
134.1
|
|
|
2,331.2
|
|
|
Total future repayment of debt and other commitments under contractual obligations (4)
|
$
|
800.8
|
|
|
$
|
1,088.6
|
|
|
$
|
497.1
|
|
|
$
|
888.7
|
|
|
$
|
746.9
|
|
|
$
|
1,736.5
|
|
|
$
|
5,758.6
|
|
___________________
|
|
|
|
(1)
|
Film obligations include minimum guarantees, theatrical marketing obligations, and accrued licensed program rights obligations. Production loans represent loans for the production of film and television programs that we produce. Repayment dates are based on anticipated delivery or release date of the related film or contractual due dates of the obligation.
|
|
|
|
|
(2)
|
Film obligation commitments include distribution and marketing commitments, minimum guarantee commitments, and program rights commitments. Distribution and marketing commitments represent contractual commitments for future expenditures associated with distribution and marketing of films which we will distribute. The payment dates of these amounts are primarily based on the anticipated release date of the film. Minimum guarantee commitments represent contractual commitments related to the purchase of film rights for pictures to be delivered in the future. Program rights commitments represent contractual commitments under programming license agreements related to films that are not available for exhibition until some future date (see below for further details). Production loan commitments represent amounts committed for future film production and development to be funded through production financing and recorded as a production loan liability when incurred. Future payments under these commitments are based on anticipated delivery or release dates of the related film or contractual due dates of the commitment. The amounts include estimated future interest payments associated with the commitment.
|
|
|
|
|
(3)
|
Includes cash interest payments on our debt (including interest on finance lease obligations), excluding the interest payments on the revolving credit facility as future amounts are not fixed or determinable due to fluctuating balances and interest rates.
|
|
|
|
|
(4)
|
Not included in the amounts above are $142.4 million of redeemable noncontrolling interests, as future amounts and timing are subject to a number of uncertainties such that we are unable to make sufficiently reliable estimations of future payments (see Note 9 to our unaudited condensed consolidated financial statements).
|
We are obligated to pay programming fees for all qualifying films that are released theatrically in the U.S. by Sony’s Columbia Pictures, Screen Gems, Sony Pictures Classics and TriStar labels through 2021. We do not license films produced by
Sony Pictures Animation. The programming fees to be paid by us to Sony are based on the quantity and domestic theatrical exhibition receipts of qualifying films. Since the term of the output programming agreement with Sony applies to all films released theatrically through December 31, 2021, the Company is obligated to pay fees for films that have not yet been released in theaters. We are unable to estimate the amounts to be paid under these agreements for films that have not yet been released in theaters, however, such amounts are expected to be significant. We have also entered into agreements with a number of other motion picture producers and are obligated to pay fees for the rights to exhibit certain films that are released by these producers.
Remaining Performance Obligations and Backlog
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). As disclosed in Note 10 to our unaudited condensed consolidated financial statements, remaining performance obligations were $1.5 billion at September 30, 2019. The backlog portion of remaining performance obligations (excluding deferred revenue) related to our Motion Picture and Television Production segments was $1.0 billion at September 30, 2019 (March 31, 2019 - $1.2 billion).
Off-Balance Sheet Arrangements
We do not have any transactions, arrangements and other relationships with unconsolidated entities that will affect our liquidity or capital resources. We have no special purpose entities that provided off-balance sheet financing, liquidity or market or credit risk support, nor do we engage in leasing, hedging or research and development services that could expose us to liability that is not reflected on the face of our unaudited condensed consolidated financial statements. Our commitments to fund operating leases, minimum guarantees, production loans, equity method investment funding requirements and all other contractual commitments not reflected on the face of our unaudited condensed consolidated financial statements are presented in the table above.
