10-Q 1 lgf201363010-q.htm FORM 10-Q LGF 2013.6.30 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________
Form 10-Q 
___________________________________________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File No.: 1-14880
___________________________________________________________
Lions Gate Entertainment Corp.
(Exact name of registrant as specified in its charter)
___________________________________________________________
British Columbia, Canada
 
N/A
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
 Identification No.)
1055 West Hastings Street, Suite 2200
Vancouver, British Columbia V6E 2E9
and
2700 Colorado Avenue, Suite 200
Santa Monica, California 90404
(Address of principal executive offices)
___________________________________________________________
(877) 848-3866
(Registrant’s telephone number, including area code)
___________________________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
 
Accelerated filer o
 
Non accelerated filer o
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨  No  ý
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Title of Each Class
 
Outstanding at August 1, 2013
Common Shares, no par value per share
 
137,110,443 shares





 


2


FORWARD-LOOKING STATEMENTS

This report includes statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “potential,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “forecasts,” “may,” “will,” “could,” “would” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those discussed under Part I, Item 1A. “Risk Factors” found in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on May 30, 2013, which risk factors are incorporated herein by reference, as updated by the risk factors found under Part II, Item 1A. "Risk Factors" herein. These factors should not be construed as exhaustive and should be read with the other cautionary statements and information in our Annual Report on Form 10-K, and this report.
We caution you that forward-looking statements made in this report or anywhere else are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially and adversely from those made in or suggested by the forward-looking statements contained in this report as a result of various important factors, including, but not limited to, the substantial investment of capital required to produce and market films and television series, increased costs for producing and marketing feature films and television series, budget overruns, limitations imposed by our credit facilities and notes, unpredictability of the commercial success of our motion pictures and television programming, risks related to our acquisition strategy and integration of acquired businesses, the effects of dispositions of businesses or assets, including individual films or libraries, the cost of defending our intellectual property, difficulties in integrating acquired businesses, technological changes and other trends affecting the entertainment industry, and the other risks and uncertainties discussed under Part I, Item 1A. “Risk Factors” found in our Annual Report on Form 10-K filed with the SEC on May 30, 2013, which risk factors are incorporated herein by reference, as updated by the risk factors found under Part II, Item 1A. "Risk Factors" herein. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods.
Any forward-looking statements, which we make in this report, speak only as of the date of such statement, and we undertake no obligation to update such statements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.
Unless otherwise indicated or the context requires, all references to the “Company,” “Lionsgate,” “we,” “us,” and “our” refer to Lions Gate Entertainment Corp., a corporation organized under the laws of the province of British Columbia, Canada, and its direct and indirect subsidiaries.


3


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
June 30,
2013
 
March 31,
2013
 
(Amounts in thousands,
except share amounts)
ASSETS
 
 
 
Cash and cash equivalents
$
51,019

 
$
62,363

Restricted cash
9,010

 
10,664

Accounts receivable, net of reserves for returns and allowances of $80,424 (March 31, 2013 - $103,418) and provision for doubtful accounts of $4,358 (March 31, 2013 - $4,494)
819,438

 
787,150

Investment in films and television programs, net
1,185,650

 
1,244,075

Property and equipment, net
9,266

 
8,530

Equity method investments
158,161

 
169,450

Goodwill
323,328

 
323,328

Other assets
72,594

 
72,619

Deferred tax assets
80,626

 
82,690

Total assets
$
2,709,092

 
$
2,760,869

LIABILITIES
 
 
 
Senior revolving credit facility
$
339,474

 
$
338,474

Senior secured second-priority notes
428,517

 
432,277

Accounts payable and accrued liabilities
277,534

 
313,620

Participations and residuals
392,239

 
409,763

Film obligations and production loans
509,015

 
569,019

Convertible senior subordinated notes
149,080

 
87,167

Deferred revenue
233,440

 
254,023

Total liabilities
2,329,299

 
2,404,343

Commitments and contingencies

 

SHAREHOLDERS’ EQUITY
 
 
 
Common shares, no par value, 500,000,000 shares authorized, 136,365,493 shares issued (March 31, 2013 - 135,882,899 shares)
682,352

 
672,915

Accumulated deficit
(296,295
)
 
(309,912
)
Accumulated other comprehensive loss
(6,264
)
 
(6,477
)
Total shareholders’ equity
379,793

 
356,526

Total liabilities and shareholders’ equity
$
2,709,092

 
$
2,760,869

See accompanying notes.

4


LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
Three Months Ended
 
Three Months Ended
 
June 30,
2013
 
June 30,
2012
 
(Amounts in thousands, except per share amounts)
Revenues
$
569,728

 
$
471,820

Expenses:
 
 
 
Direct operating
306,445

 
245,818

Distribution and marketing
171,460

 
178,709

General and administration
56,770

 
52,344

Depreciation and amortization
1,625

 
2,105

Total expenses
536,300

 
478,976

Operating income (loss)
33,428

 
(7,156
)
Other expenses (income):
 
 
 
Interest expense
 
 
 
Contractual cash based interest
16,273

 
22,728

Amortization of debt discount (premium) and deferred financing costs
4,541

 
4,762

Total interest expense
20,814

 
27,490

Interest and other income
(1,496
)
 
(950
)
Loss on extinguishment of debt
466

 
8,159

Total other expenses, net
19,784

 
34,699

Income (loss) before equity interests and income taxes
13,644

 
(41,855
)
Equity interests income (loss)
7,977

 
(145
)
Income (loss) before income taxes
21,621

 
(42,000
)
Income tax provision
8,004

 
2,200

Net income (loss)
$
13,617

 
$
(44,200
)
 
 
 
 
Basic net income (loss) per common share
$
0.10

 
$
(0.33
)
Diluted net income (loss) per common share
$
0.10

 
$
(0.33
)
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
Basic
136,189

 
133,234

Diluted
140,745

 
133,234

See accompanying notes.

5


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

 
Three Months Ended
 
Three Months Ended
 
June 30,
2013
 
June 30,
2012
 
(Amounts in thousands)
Net income (loss)
$
13,617

 
$
(44,200
)
Foreign currency translation adjustments
549

 
(1,921
)
Net unrealized gain (loss) on foreign exchange contracts
(336
)
 
495

Comprehensive income (loss)
$
13,830

 
$
(45,626
)
 
 
 
 
See accompanying notes.


6

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



 
Common Shares
 
Accumulated
Deficit
 
Accumulated
 Other
Comprehensive
Income (Loss)
 
 
 
Number
 
Amount
 
 
 
Total
 
(Amounts in thousands, except share amounts)
Balance at March 31, 2013
135,882,899

 
$
672,915

 
$
(309,912
)
 
$
(6,477
)
 
$
356,526

Exercise of stock options
42,420

 
543

 
 
 
 
 
543

Stock based compensation, net of withholding tax obligations of $9,019
418,123

 
8,521

 
 
 
 
 
8,521

Conversion of October 2004 2.9375% Notes, net of reacquisition of the equity component
14,173

 
163

 
 
 
 
 
163

Issuance of common shares to directors for services
7,878

 
210

 
 
 
 
 
210

Net income
 
 
 
 
13,617

 
 
 
13,617

Foreign currency translation adjustments
 
 
 
 
 
 
549

 
549

Net unrealized loss on foreign exchange contracts
 
 
 
 
 
 
(336
)
 
(336
)
Balance at June 30, 2013
136,365,493

 
$
682,352

 
$
(296,295
)
 
$
(6,264
)
 
$
379,793

See accompanying notes.

7



LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Three Months Ended
 
Three Months Ended
 
June 30,
2013
 
June 30,
2012
 
(Amounts in thousands)
Operating Activities:
 
 
 
Net income (loss)
$
13,617

 
$
(44,200
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation of property and equipment
693

 
758

Amortization of intangible assets
932

 
1,347

Amortization of films and television programs
219,364

 
167,097

Amortization of debt discount (premium) and deferred financing costs
4,541

 
4,762

Non-cash stock-based compensation
13,220

 
6,173

Dividend payment from equity method investee
9,849

 

Loss on extinguishment of debt
466

 
8,159

Equity interests (income) loss
(7,977
)
 
145

Deferred income taxes
2,063

 

Changes in operating assets and liabilities:
 
 
 
Restricted cash
1,662

 
2,956

Accounts receivable, net
(32,516
)
 
196,134

Investment in films and television programs
(160,933
)
 
(161,005
)
Other assets
(1,222
)
 
(616
)
Accounts payable and accrued liabilities
(33,584
)
 
(44,193
)
Participations and residuals
(17,512
)
 
(12,906
)
Film obligations
(21,370
)
 
(20,233
)
Deferred revenue
(20,582
)
 
46,637

Net Cash Flows Provided By (Used In) Operating Activities
(29,289
)
 
151,015

Investing Activities:
 
 
 
Proceeds from the sale of a portion of equity method investee
9,000

 

Investment in equity method investees
(3,750
)
 

Dividends from equity method investee in excess of earnings
4,169

 

Purchases of property and equipment
(1,428
)
 
(386
)
Net Cash Flows Provided By (Used In) Investing Activities
7,991

 
(386
)
Financing Activities:
 
 
 
Senior revolving credit facility - borrowings
173,000

 
274,700

Senior revolving credit facility - repayments
(172,000
)
 
(85,000
)
Senior secured second-priority notes - repurchases
(4,280
)
 

Term Loan - repayments

 
(185,504
)
Convertible senior subordinated notes - borrowings
60,000

 

Production loans - borrowings
108,605

 
36,969

Production loans - repayments
(82,292
)
 
(174,519
)
Pennsylvania Regional Center credit facility - repayments
(65,000
)
 

Change in restricted cash collateral associated with financing activities

 
(7,467
)
Exercise of stock options
543

 
52

Tax withholding required on equity awards
(9,019
)
 
(2,745
)
Other financing obligations - repayments

 
(3,710
)
Net Cash Flows Provided By (Used In) Financing Activities
9,557

 
(147,224
)
Net Change In Cash And Cash Equivalents
(11,741
)
 
3,405

Foreign Exchange Effects on Cash
397

 
(120
)
Cash and Cash Equivalents - Beginning Of Period
62,363

 
64,298

Cash and Cash Equivalents - End Of Period
$
51,019

 
$
67,583

See accompanying notes.

8



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

1. General
Nature of Operations
Lions Gate Entertainment Corp. (the “Company,” “Lionsgate,” “we,” “us” or “our”) is a leading global entertainment company with a strong and diversified presence in motion picture production and distribution, television programming and syndication, home entertainment, family entertainment, digital distribution and new channel platforms.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Lionsgate and all of its majority-owned and controlled subsidiaries.
The unaudited condensed consolidated financial statements have been prepared in accordance with United States (the “U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to quarterly report on Form 10-Q under the Exchange Act, 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 months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2014. The balance sheet at March 31, 2013 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, 2013.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The most significant estimates made by management in the preparation of the financial statements relate to ultimate revenue and costs for investment in films and television programs; estimates of sales returns and other allowances and provisions for doubtful accounts; fair value of assets and liabilities for allocation of the purchase price of companies acquired; income taxes and accruals for contingent liabilities; and impairment assessments for investment in films and television programs, property and equipment, equity investments, goodwill and intangible assets. Actual results could differ from such estimates.
Recent Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board ("FASB") issued an accounting standards update that requires companies to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amounts are required to be reclassified in their entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference to other required disclosures that provide additional detail about those amounts. This guidance is effective for the Company's fiscal year beginning April 1, 2013. The Company adopted the new guidance effective April 1, 2013. During the three months ended June 30, 2013, the Company did not have any significant amounts reclassified out of accumulated other comprehensive income. As of June 30, 2013, the Company's accumulated other comprehensive income represents currency translation adjustments.


9

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



2. Investment in Films and Television Programs
 
June 30,
2013
 
March 31,
2013
 
(Amounts in thousands)
Motion Picture Segment - Theatrical and Non-Theatrical Films
 
 
 
Released, net of accumulated amortization
$
483,383

 
$
501,893

Acquired libraries, net of accumulated amortization
20,643

 
22,408

Completed and not released
40,764

 
50,519

In progress
368,733

 
366,587

In development
28,581

 
25,094

Product inventory
39,704

 
36,299

 
981,808

 
1,002,800

Television Segment - Direct-to-Television Programs
 
 
 
Released, net of accumulated amortization
174,176

 
136,727

In progress
26,318

 
100,585

In development
3,348

 
3,963

 
203,842

 
241,275

 
$
1,185,650

 
$
1,244,075

The following table sets forth acquired libraries that represent titles released three years prior to the date of acquisition. These libraries are being amortized over their expected revenue stream from the acquisition date over a period up to 20 years:
 
 
 
 
Total
Amortization
Period
 
Remaining
Amortization
Period
 
Unamortized Costs
Acquired Library
 
Acquisition Date
 
 
 
June 30, 2013
 
March 31, 2013
 
 
 
 
(In years)
 
(Amounts in thousands)
Trimark Holdings
October 2000
 
20.00
 
7.25
 
$
194

 
$
345

Artisan Entertainment
December 2003
 
20.00
 
10.50
 
14,390

 
15,686

Lionsgate UK
October 2005
 
20.00
 
12.25
 
222

 
233

Summit Entertainment
January 2012
 
20.00
 
18.50
 
5,837

 
6,144

Total acquired libraries
 
 
 
 
 
 
$
20,643

 
$
22,408

The Company expects approximately 46% of completed films and television programs, net of accumulated amortization, will be amortized during the one-year period ending June 30, 2014. Additionally, the Company expects approximately 81% of completed and released films and television programs, net of accumulated amortization and excluding acquired libraries, will be amortized during the three-year period ending June 30, 2016.

3. Equity Method Investments
The carrying amount of significant equity method investments at June 30, 2013 and March 31, 2013 were as follows:
 
 
June 30,
2013
 
 
 
 
Equity Method Investee
Ownership
Percentage
 
June 30,
2013
 
March 31,
2013
 
 
 
(Amounts in thousands)
Horror Entertainment, LLC (“FEARnet”)
34.5%
 
$
3,485

 
$
3,343

NextPoint, Inc. (“Break Media”)
42.0%
 
3,675

 
4,630

Roadside Attractions, LLC (“Roadside Attractions”)
43.0%
 
3,307

 
3,372

Studio 3 Partners, LLC (“EPIX”)
31.2%
 
59,421

 
66,697

TV Guide Network ("TVGN")
50.0%
 
88,273

 
91,408

 
 
 
$
158,161

 
$
169,450


10

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



Equity interests in equity method investments in the consolidated statements of operations represent the Company's portion of the income or loss of its equity method investees based on its percentage ownership and the elimination of profits on sales to equity method investees. Equity interests in equity method investments for the three months ended June 30, 2013, and 2012 were as follows (income (loss)):
 
 
Three Months Ended
 
Three Months Ended
Equity Method Investee
June 30,
2013
 
June 30,
2012
 
(Amounts in thousands)
FEARnet
$
142

 
$
52

Break Media
(1,705
)
 
(1,655
)
Roadside Attractions
(65
)
 
(116
)
EPIX
6,741

 
6,587

TVGN
2,864

 
(5,013
)
 
$
7,977

 
$
(145
)
Horror Entertainment, LLC. Horror Entertainment, LLC (“FEARnet”), is a multiplatform programming and content service provider of horror genre films operating under the branding of “FEARnet.” The Company licenses content to FEARnet for video-on-demand and broadband exhibition. The Company is recording its share of the FEARnet results on a one quarter lag and, accordingly, during the three months ended June 30, 2013, the Company recorded its share of the income generated by FEARnet for the three months ended March 31, 2013.
NextPoint, Inc. NextPoint, Inc. (“Break Media”), is an online home entertainment service provider operating under the branding of “Break Media.” The Company is recording its share of the Break Media results on a one quarter lag and, accordingly, during the three months ended June 30, 2013, the Company recorded its share of losses incurred by Break Media for the three months ended March 31, 2013. During the three months ended June 30, 2013, the Company contributed $0.8 million to Break Media.
Roadside Attractions, LLC. Roadside Attractions, LLC (“Roadside Attractions”), is an independent theatrical releasing company. The Company is recording its share of the Roadside Attractions results on a one quarter lag and, accordingly, during the three months ended June 30, 2013, the Company recorded its share of the income generated by Roadside Attractions for the three months ended March 31, 2013.
Studio 3 Partners, LLC (“EPIX”). In April 2008, the Company formed a joint venture with Viacom Inc. (“Viacom”), its Paramount Pictures unit (“Paramount Pictures”) and Metro-Goldwyn-Mayer Studios Inc. (“MGM”) to create a premium television channel and subscription video-on-demand service named “EPIX”. The Company had invested $80.4 million through September 30, 2010, and no additional amounts have been funded since.
Transactions with EPIX:
The Company licenses certain of its theatrical releases and other films and television programs to EPIX. A portion of the profits of these licenses reflecting the Company’s ownership share in the venture are eliminated through an adjustment to the equity interest income of the venture. These profits are recognized as they are realized by EPIX through the amortization of the related asset, recorded on EPIX's balance sheet, over the license period. The table below sets forth the revenues and gross profits recognized by the Company and the calculation of the amounts eliminated in the equity interest line item on the statement of operations:

11

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



 
Three Months Ended
 
Three Months Ended
 
June 30,
2013
 
June 30,
2012
 
(Amounts in thousands)
Revenue recognized on sales to EPIX
$
14,804

 
$
16,516

 
 
 
 
Gross profit on sales to EPIX
$
11,304

 
$
6,982

Ownership interest in EPIX
31.15
%
 
31.15
%
Elimination of the Company's share of profits on sales to EPIX
$
3,521

 
$
2,175


The Company received a dividend of $14.0 million from EPIX during the three months ended June 30, 2013. The dividend is recorded as a reduction of the Company's investment in EPIX. Dividends from equity method investments up to the Company's interest in the investee's retained earnings are considered returns on investments and are classified within cash flows from operating activities in the statement of cash flows. Dividends from equity method investments in excess of the Company's interest in the investee's retained earnings are considered returns of investments and are classified within cash flows provided by investing activities in the statement of cash flows.
EPIX Financial Information:
The following table presents summarized balance sheet data as of June 30, 2013 and March 31, 2013 for EPIX:
 
 
June 30,
2013
 
March 31,
2013
 
(Amounts in thousands)
Current assets
$
189,044

 
$
213,508

Non-current assets
$
202,485

 
$
208,620

Current liabilities
$
141,182

 
$
144,897

Non-current liabilities
$
6,835

 
$
6,574


12

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



The following table presents the summarized statement of operations for the three months ended June 30, 2013 and 2012 for EPIX and a reconciliation of the net income reported by EPIX to equity interest income recorded by the Company:
 
Three Months Ended
 
Three Months Ended
 
June 30,
2013
 
June 30,
2012
 
(Amounts in thousands)
Revenues
$
85,197

 
$
87,764

Expenses:
 
 
 
Operating expenses
62,142

 
60,734

Selling, general and administrative expenses
5,630

 
5,742

Operating income
17,425

 
21,288

Interest income
430

 

Net income
$
17,855

 
$
21,288

Reconciliation of net income reported by EPIX to equity interest income:
 
 
 
Net income reported by EPIX
$
17,855

 
$
21,288

Ownership interest in EPIX
31.15
%
 
31.15
%
The Company's share of net income
5,562

 
6,631

Eliminations of the Company’s share of profits on sales to EPIX (1)
(3,521
)
 
(2,175
)
Realization of the Company’s share of profits on sales to EPIX (2)
4,700

 
2,131

Total equity interest income recorded
$
6,741

 
$
6,587

__________________
(1)
Represents the elimination of the gross profit recognized by the Company on sales to EPIX in proportion to the Company's ownership interest in EPIX. The amount of intra-entity profit is calculated as the total gross profit recognized on a title by title basis multiplied by the Company's percentage ownership of EPIX. The table above in the Transactions with EPIX section shows the calculation of the profit eliminated.
(2)
Represents the realization of a portion of the profits previously eliminated. This profit remains eliminated until realized by EPIX. EPIX initially records the license fee for the title as inventory on its balance sheet and amortizes the inventory over the license period. Accordingly, the profit is realized as the inventory on EPIX's books is amortized. The profit amount realized is calculated by multiplying the percentage of the EPIX inventory amortized in the period reported by EPIX, by the amount of profit initially eliminated, on a title by title basis.
TV Guide Network. The Company’s investment interest in TV Guide Network, TV Guide Network On Demand and TV Guide Online (through May 31, 2013, as discussed below) (collectively "TVGN") consists of an equity investment in its common stock units and mandatorily redeemable preferred stock units. On March 26, 2013, the Company's partner in the TVGN investment sold its 49% interest to CBS Corporation. Concurrent with this transaction, the Company sold 1% of its interest to CBS Corporation for nominal consideration resulting in the write-off of its carrying value of approximately $1.9 million. During the three months ended June 30, 2013, the Company contributed $3.0 million to TVGN.
The Company has determined it is not the primary beneficiary of TVGN because pursuant to the amended and restated operating agreement of the entity, the power to direct the activities that most significantly impact the economic performance of TVGN is shared with the other 50% owner of TVGN. Accordingly, the Company's interest in TVGN is being accounted for under the equity method of accounting.
On May 31, 2013, the Company sold its 50% interest in TVGuide.com, a wholly-owned subsidiary of TVGN, to a subsidiary of CBS Corporation. As a result of this transaction, the Company has recorded a gain of $4.0 million as reflected in the reconciliation of net loss reported by TVGN to equity interest loss recorded by the Company shown in the table below. Also as a result of this transaction, TVGN's summarized financial information for periods prior to the date of the transaction of May 31, 2013 has been revised to reflect the operating results of TVGuide.com as a discontinued operation. Accordingly, all revenues and expenses from TVGuide.com in all periods presented, are reflected net within the discontinued operations section of the summarized statement of operations shown below.

13

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



Investment in Mandatorily Redeemable Preferred Stock Units. The mandatorily redeemable preferred stock carries a dividend rate of 10% compounded annually and is mandatorily redeemable in May 2019 at the stated value plus the dividend return and any additional capital contributions less previous distributions. The mandatorily redeemable preferred stock units were initially recorded based on their estimated fair value, as determined using an option pricing model. The mandatorily redeemable preferred stock units and the 10% dividend are being accreted up to their redemption amount over the ten-year period to the redemption date, which is recorded as income within equity interest.

Transactions with TVGN:

The Company licenses certain films and/or television programs to TVGN. A portion of the profits of these licenses reflecting the Company’s ownership share in the venture are eliminated through an adjustment to the equity interest income (loss) of the venture. These profits are recognized as they are realized by TVGN through the amortization of the related asset, recorded on TVGN's balance sheet, over the license period. The table below sets forth the revenues and gross profits recognized by Lionsgate and the calculation of the amounts eliminated in the equity interest line item on the statement of operations:
 
Three Months Ended
 
Three Months Ended
 
June 30,
2013
 
June 30,
2012
 
(Amounts in thousands)
Revenue recognized on sales to TVGN
$

 
$
2,925

 
 
 
 
Gross profit on sales to TVGN
$

 
$
956

Ownership interest in TVGN
50
%
 
51
%
Elimination of the Company's share of profit on sales to TVGN (1)
$

 
$
488

 ___________________
(1)
On March 26, 2013, as discussed above, the Company's ownership interest in TVGN was reduced from 51% to 50% due to the Company's sale of 1% of its interest to CBS Corporation. Accordingly, the elimination of the Company's share of profit on sales to TVGN was calculated using 51% through March 26, 2013 and 50% thereafter.
TVGN Financial Information:
The following table presents summarized balance sheet data as of June 30, 2013 and March 31, 2013 for TVGN:
 
June 30,
2013
 
March 31,
2013
 
(Amounts in thousands)
Current assets
$
26,568

 
$
29,172

Non-current assets
$
202,212

 
$
211,922

Current liabilities
$
29,091

 
$
30,267

Non-current liabilities
$
22,264

 
$
24,818

Redeemable preferred stock
$
279,670

 
$
267,362

The following table presents the summarized statement of operations for the three months ended June 30, 2013 and 2012 for TVGN and a reconciliation of the net loss reported by TVGN to equity interest income (loss) recorded by the Company:
 

14

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



 
Three Months Ended
 
Three Months Ended
 
June 30,
2013
 
June 30,
2012
 
(Amounts in thousands)
Revenues
$
16,792

 
$
18,615

Expenses:
 
 
 
Cost of services
7,246

 
12,919

Selling, marketing, and general and administration
9,728

 
11,678

Depreciation and amortization
2,008

 
2,183

Operating loss
(2,190
)
 
(8,165
)
Other income
(1,376
)
 

Interest expense, net
347

 
442

Accretion of redeemable preferred stock units (1)
9,308

 
8,084

Total interest expense, net
8,279

 
8,526

Loss from continuing operations
$
(10,469
)
 
$
(16,691
)
Loss from discontinued operations (5)
(1,114
)
 
(1,394
)
Net loss
$
(11,583
)
 
$
(18,085
)
Reconciliation of net loss reported by TVGN to equity interest income (loss):
 
 
 
Net loss reported by TVGN
$
(11,583
)
 
$
(18,085
)
Ownership interest in TVGN (2)
50
%
 
51
%
The Company's share of net loss
(5,792
)
 
(9,223
)
Accretion of dividend and interest income on redeemable preferred stock units (1)
4,654

 
4,123

Eliminations of the Company’s share of profit on sales to TVGN (3)

 
(488
)
Realization of the Company’s share of profits on sales to TVGN (4)
42

 
575

Gain on sale of the Company's 50% share of TVGuide.com (5)
3,960

 

Total equity interest income (loss) recorded
$
2,864

 
$
(5,013
)
 ___________________
(1)
Accretion of mandatorily redeemable preferred stock units represents TVGN’s 10% dividend and the amortization of discount on its mandatorily redeemable preferred stock units held by the Company and the other interest holder. The Company recorded 51% of this expense as income from the accretion of dividend and discount on mandatorily redeemable preferred stock units through March 26, 2013 and 50% thereafter within equity interest income (loss).
(2)
On March 26, 2013, as discussed above, the Company's ownership interest in TVGN was reduced from 51% to 50% due to the Company's sale of 1% of its interest to CBS Corporation.
(3)
Represents the elimination of the gross profit recognized by the Company on sales to TVGN in proportion to the Company's ownership interest in TVGN. The amount of intra-entity profit is calculated as the total gross profit recognized on a title by title basis multiplied by the Company's percentage ownership of TVGN. The table above in the Transactions with TVGN section shows the calculation of the profit eliminated.
(4)
Represents the realization of a portion of the profits previously eliminated. This profit remains eliminated until realized by TVGN. TVGN initially records the license fee for the title as inventory on its balance sheet and amortizes the inventory over the license period. Accordingly, the profit is realized as the inventory on TVGN's books is amortized. The profit amount realized is calculated by multiplying the percentage of the TVGN inventory amortized in the period reported by TVGN by the amount of profit initially eliminated, on a title by title basis.
(5)
On May 31, 2013, as discussed above, the Company sold its 50% interest in TVGuide.com, a wholly-owned subsidiary of TVGN. As a result of this transaction, the Company has recorded a gain of $4.0 million as reflected in the table above, and reflected the revenues and expenses of TVGuide.com prior to the transaction for all periods presented, net within the discontinued operations line item.



15

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



4. Other Assets
The composition of the Company’s other assets is as follows as of June 30, 2013 and March 31, 2013:
 
 
June 30,
2013
 
March 31,
2013
 
(Amounts in thousands)
Deferred financing costs, net of accumulated amortization
$
33,944

 
$
33,060

Loans receivable
23,650

 
22,916

Prepaid expenses and other
9,205

 
9,916

Finite-lived intangible assets
5,795

 
6,727

 
$
72,594

 
$
72,619

Deferred Financing Costs. Deferred financing costs primarily include costs incurred in connection with (1) the amended and restated senior revolving credit facility, (2) the issuance of the Senior Secured Second-Priority Notes, (3) the issuance of the 3.625% Convertible Senior Subordinated Notes issued in April 2009 (the "April 2009 3.625% Notes") and the 4.00% Convertible Senior Subordinated Notes issued in January 2012 (the "January 2012 4.00% Notes) (see Note 5) that are deferred and amortized to interest expense using the effective interest method. Deferred financing costs at June 30, 2013 also include costs incurred in connection with the issuances of the 5.25% Senior Secured Second-Priority Notes (the "5.25% Senior Notes") and the term loans entered into in July 2013 (the "July 2013 Term Loans") (see Note 18).
Loans Receivable. The following table sets forth the Company’s loans receivable at June 30, 2013 and March 31, 2013:
 
 
Interest Rate
 
June 30,
2013
 
March 31,
2013
 
 
 
(Amounts in thousands)
Third-party producer
2.8%
 
$
4,687

 
$
4,658

Break Media
5.27% - 20.0%
 
18,963

 
18,258

 
 
 
$
23,650

 
$
22,916


Prepaid Expenses and Other. Prepaid expenses and other primarily include prepaid expenses and security deposits.
Finite-lived Intangible Assets. Finite-lived intangibles consist primarily of sales agency relationships and trademarks. The composition of the Company's finite-lived intangible assets and the associated accumulated amortization is as follows as of June 30, 2013 and March 31, 2013:

 
 
 
 
 
June 30, 2013
 
March 31, 2013
 
Weighted Average Remaining Life
 
Range of Remaining Life
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
(in years)
 
(Amounts in thousands)
Finite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trademarks
4
 
4
 
$
8,200

 
$
4,655

 
$
3,545

 
$
8,200

 
$
4,073

 
$
4,127

Sales agency relationships
4
 
4
 
6,200

 
3,950

 
2,250

 
6,200

 
3,600

 
2,600

 
 
 
 
 
$
14,400

 
$
8,605

 
$
5,795

 
$
14,400

 
$
7,673

 
$
6,727


The aggregate amount of amortization expense associated with the Company's intangible assets for the three months ended June 30, 2013 and 2012 was approximately $0.9 million and $1.3 million, respectively. The estimated aggregate amortization expense for each of the years ending March 31, 2014 through 2018 is approximately $2.8 million, $1.8 million, $0.8 million, $0.4 million, and nil, respectively.


16

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



5. Corporate Debt

The total carrying values of corporate debt of the Company, excluding film obligations and production loans, were as follows as of June 30, 2013 and March 31, 2013:
 
June 30, 2013
 
March 31, 2013
 
(Amounts in thousands)
Senior revolving credit facility
$
339,474

 
$
338,474

Senior secured second-priority notes
428,517

 
432,277

Convertible senior subordinated notes
149,080

 
87,167

 
$
917,071

 
$
857,918

The following table sets forth future annual contractual principal payment commitments under corporate debt as of June 30, 2013:
 
 
Maturity Date or
 
Year Ended March 31,
Debt Type
Next Holder Redemption Date (1)
 
2014
 
2015
 
2016
 
2017
 
2018
 
Thereafter
 
Total
 
 
 
(Amounts in thousands)
Senior revolving credit facility
May 2016 (2)
 
$

 
$

 
$

 
$
339,474

 
$

 
$

 
$
339,474

Senior secured second-priority notes
November 2016 (3)
 

 

 

 
432,000

 

 

 
432,000

Principal amounts of convertible senior subordinated notes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
October 2004 2.9375% Notes (conversion price of $11.50 per share)
October 2014
 

 
185

 

 

 

 

 
185

April 2009 3.625% Notes (conversion price of $8.25 per share)
March 2015
 

 
64,505

 

 

 

 

 
64,505

January 2012 4.00% Notes (conversion price of $10.50 per share)
January 2017
 

 

 

 
45,000

 

 

 
45,000

April 2013 1.25% Notes (conversion price of $30.00 per share)
April 2018
 

 

 

 

 

 
60,000

 
60,000

 
 
 
$

 
$
64,690

 
$

 
$
816,474

 
$

 
$
60,000

 
941,164

Less aggregate unamortized (discount) premium, net
 
 
 
 
 
 
 
 
 
 
 
 
 
(24,093
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
917,071

(1)
The future repayment dates of the convertible senior subordinated notes represent the next redemption date by holders for each series of notes respectively, as described below.
(2)
Amended and restated senior revolving credit facility expires the earlier of (i) September 27, 2017 or (ii) six (6) months prior to the maturity of the senior secured second-priority notes.
(3)
The senior secured second-priority notes were redeemable, in whole but not in part, by the Company at any time prior to November 1, 2013, at a redemption price of 100% of the principal amount plus the Applicable Premium, as defined in the indenture, and accrued and unpaid interest to the date of redemption. The senior secured second-priority notes were redeemable, in whole or in part, by the Company at 105.125% of the principal amount if redeemed between November 1, 2013 and November 1, 2014, at 102.563% of the principal amount if redeemed between November 1, 2014 and November 1, 2015, and 100.0% of the principal amount if redeemed on or after November 1, 2015. Subsequent to June 30, 2013, in connection with new financing transactions, the Company called the senior secured second-priority notes for redemption. See Note 18 for further detail.



17

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



Senior Revolving Credit Facility
Outstanding Amount. At June 30, 2013, the Company had borrowings of $339.5 million outstanding (March 31, 2013$338.5 million).
Availability of Funds. At June 30, 2013, there was $302.0 million available (March 31, 2013$303.0 million). On September 27, 2012, the Company amended and restated its senior revolving credit facility, which previously provided for borrowings and letters of credit up to an aggregate of $340 million. The amended and restated senior revolving credit facility provides for borrowings and letters of credit up to an aggregate of $800 million, subject to a borrowing base and other restrictions. Prior to July 19, 2013, due to restrictions in the Company's senior secured second-priority notes indenture, as amended on October 15, 2012, the maximum borrowing allowed under the senior revolving credit facility was $650 million (previously $340 million), unless certain financial ratios were met. See Note 18 for a discussion of the July 19, 2013 issuance of new 5.25% senior secured second-priority notes and the July 2013 Term Loans, the net proceeds of which, together with cash on hand and borrowings under our senior revolving credit facility, were used to fund the discharge of the existing 10.25% Senior Notes, which were called for redemption on July 19, 2013. With the discharge of the 10.25% Senior Notes, the Company is able to access the full amount of $800 million on its senior revolving credit facility, beginning July 19, 2013. The availability of funds is limited by a borrowing base and also reduced by outstanding letters of credit which amounted to $8.5 million at June 30, 2013 (March 31, 2013$8.5 million).
Maturity Date. The senior revolving credit facility expires the earlier of (i) September 27, 2017 or (ii) six (6) months prior to the maturity of the Company’s senior secured second-priority notes.
Interest. Interest is payable at an alternative base rate, as defined, plus 1.5%, or LIBOR plus 2.5% as designated by the Company. As of June 30, 2013, the senior revolving credit facility bore interest of 2.5% over the LIBOR rate (effective interest rate of 2.70% and 2.70% on borrowings outstanding as of June 30, 2013 and March 31, 2013, respectively).
Commitment Fee. The Company is required to pay a quarterly commitment fee of 0.375% to 0.5% per annum, depending on the average balance of borrowings outstanding during the quarter, on the total senior revolving credit facility of $800 million less the amount drawn.
Security. Obligations under the senior revolving credit facility are secured by collateral (as defined in the credit agreement) granted by the Company and certain subsidiaries of the Company, as well as a pledge of equity interests in certain of the Company’s subsidiaries.
Covenants. The senior revolving credit facility contains a number of affirmative and negative covenants that, among other things, require the Company to satisfy certain financial covenants and restrict the ability of the Company to incur additional debt, pay dividends and make distributions, make certain investments and acquisitions, repurchase its stock and prepay certain indebtedness, create liens, enter into agreements with affiliates, modify the nature of its business, enter into sale-leaseback transactions, transfer and sell material assets and merge or consolidate. As of June 30, 2013, the Company was in compliance with all applicable covenants.

Change in Control. Under the senior revolving credit facility, the Company may also be subject to an event of default upon a change in control (as defined in the 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.

Senior Secured Second-Priority Notes
Transactions. On October 15, 2012, the Company amended the indenture governing its senior secured second-priority notes (the "Senior Notes") to, among other things, enable the Company to incur additional secured indebtedness under its amended and restated senior revolving credit facility, in an aggregate principal amount not to exceed $650 million (an increase from the previous limit of $340 million).
In June 2013, Lions Gate Entertainment, Inc. ("LGEI"), the Company's wholly-owned subsidiary, paid $4.3 million to repurchase $4.0 million of aggregate principal amount (carrying value - $4.0 million of the Senior Notes. The Company recorded a loss on extinguishment in the quarter ended June 30, 2013 of $0.5 million, which included $0.2 million of deferred financing costs written off.
See Note 18 for a discussion of the July 19, 2013 issuance of new 5.25% Senior Notes and the July 2013 Term Loans, the net proceeds of which, together with cash on hand and borrowings under our senior revolving credit facility, were used to fund the discharge of our existing 10.25% Senior Notes, which were called for redemption on July 19, 2013.

18

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



Outstanding Amount. The outstanding amount is set forth in the table below:
 
June 30,
2013
 
March 31,
2013
 
(Amounts in thousands)
Principal amount of Senior Secured Second-Priority Notes (1)
$
432,000

 
$
436,000

Unamortized aggregate premium/ (discount), net
(3,483
)
 
(3,723
)
Net carrying amount of Senior Secured Second-Priority Notes
$
428,517

 
$
432,277

_________________
(1)
Subsequent to June 30, 2013, on July 19, 2013, the Company called the senior secured second-priority notes for redemption. See Note 18 for further detail.
Maturity Date. The Senior Notes were due November 1, 2016. However, as noted above, and in further detail in Note 18, on July 19, 2013, the Company called the Senior Notes for redemption.
Original Issue Discount/Premium. The Senior Notes issued in October 2009 were issued by LGEI at an initial price of 95.222% (original issue discount — 4.778%) of the principal amount. The Senior Notes issued in May 2011 were issued by LGEI at an initial price of 102.219% (original issue premium — 2.219%) of the principal amount. The original issue discount/premium, interest and deferred financing costs are being amortized through November 1, 2016 using the effective interest method. As of June 30, 2013, the remaining amortization period was 3.3 years.
Interest. The Senior Notes paid interest semi-annually on May 1 and November 1 of each year at a rate of 10.25% per year.
Redemption Features. The Senior Notes were redeemable, in whole but not in part, by the Company at any time prior to November 1, 2013, at a redemption price of 100% of the principal amount plus the Applicable Premium, as defined in the indenture, and accrued and unpaid interest to the date of redemption. The Senior Notes were redeemable, in whole or in part, by the Company at 105.125% of the principal amount if redeemed between November 1, 2013 and November 1, 2014, at 102.563% of the principal amount if redeemed between November 1, 2014 and November 1, 2015, and 100.0% of the principal amount if redeemed on or after November 1, 2015.
Security Interest and Ranking. The Senior Notes were guaranteed on a senior secured basis by the Company, and certain wholly-owned subsidiaries of both the Company and LGEI. The Senior Notes ranked junior in right of payment to the Company’s senior revolving credit facility, ranked equally in right of payment to the Company’s convertible senior subordinated notes, and ranked senior to any of the Company’s unsecured debt.

Covenants. The Senior Notes contained certain restrictions and covenants that, subject to certain exceptions, limited 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 June 30, 2013, the Company was in compliance with all applicable covenants.

Term Loan
In connection with the acquisition of Summit Entertainment, LLC ("Summit"), the Company entered into a new $500.0 million principal amount term loan agreement (the "Term Loan") and received net proceeds of $476.2 million, after original issue discount and offering fees and expenses. The net proceeds were used in connection with the acquisition of Summit to pay off Summit's existing term loan. The Term Loan was to mature on September 7, 2016, and was secured by collateral consisting of the assets of Summit. the Term Loan carried interest at a reference to a base rate, as defined, or the LIBOR rate (subject to a LIBOR floor of 1.25%), in either case plus an applicable margin of 4.50% in the case of base rate loans and 5.50% in the case of LIBOR loans. The Term Loan was repayable in quarterly installments equal to $13.75 million, with the balance payable on the final maturity date. During the year ended March 31, 2013, the Company made accelerated payments on the Term Loan and paid off all amounts outstanding under the Term Loan, as well as accrued but unpaid interest. As a result of the accelerated pay-off, the Company wrote off a proportionate amount of the related unamortized deferred financing costs and debt discount in the aggregate of $22.7 million in the year ended March 31, 2013.

In connection with the payoff of the Term Loan, the Company arranged for Summit and certain of its affiliates to become guarantors of the Company's senior credit facility and the Company's Senior Notes due 2016, and pledge their assets in support of such guaranties, in accordance with their respective terms.


19

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



Convertible Senior Subordinated Notes
Outstanding Amount. The following table sets forth the convertible senior subordinated notes outstanding at June 30, 2013 and March 31, 2013:
 
 
June 30, 2013
 
March 31, 2013
 
Principal
 
Unamortized
Discount
 
Net Carrying
Amount
 
Principal
 
Unamortized
Discount
 
Net Carrying
Amount
 
(Amounts in thousands)
Convertible Senior Subordinated Notes
 
 
 
 
 
 
 
 
 
 
 
October 2004 2.9375% Notes (conversion price of $11.50 per share) (1)
$
185

 
$

 
$
185

 
$
348

 
$

 
$
348

April 2009 3.625% Notes (conversion price of $8.25 per share) (1)
64,505

 
(12,971
)
 
51,534

 
64,505

 
(14,598
)
 
49,907

January 2012 4.00% Notes (conversion price of $10.50 per share) (1)
45,000

 
(7,639
)
 
37,361

 
45,000

 
(8,088
)
 
36,912

April 2013 1.25% Notes (conversion price of $30.00 per share) (2)
60,000

 

 
60,000

 

 

 

 
$
169,690

 
$
(20,610
)
 
$
149,080

 
$
109,853

 
$
(22,686
)
 
$
87,167

________________
(1)
The 2.9375% Convertible Senior Subordinated Notes issued in October 2004 (the "October 2004 2.9375% Notes"), the April 2009 3.625% Notes, and the January 2012 4.00% Notes provide, at the Company's option, that the conversion of the notes may be settled in cash rather than in common shares, or a combination of cash and common shares, as described in the terms below. Accounting rules require that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are recorded by separately accounting for the liability and equity component (i.e, conversion feature), thereby reducing the principal amount with a debt discount that is amortized as interest expense over the expected life of the note using the effective interest method.
(2)
The 1.25% Convertible Senior Subordinated Notes issued in April 2013 (the "April 2013 1.25% Notes") are convertible only into common shares, and do not carry an option to be settled in cash upon conversion, as described in the terms below. Accordingly, the April 2013 1.25% Notes have been recorded at their principal amount and are not reduced by a debt discount for the equity component.
Interest Expense. The effective interest rate on the liability component and the amount of interest expense, which includes both the contractual interest coupon and amortization of the discount on the liability component, for the three months ended June 30, 2013 and 2012 are presented below.
 

20

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



 
Three Months Ended
 
Three Months Ended
 
June 30,
2013
 
June 30,
2012
 
(Amounts in thousands)
October 2004 2.9375% Convertible Senior Subordinated Notes:
 
 
 
Effective interest rate of liability component (9.65%)
 
 
 
Interest expense
 
 
 
Contractual interest coupon
$
5

 
$
5

 
5

 
5

February 2005 3.625% Convertible Senior Subordinated Notes:
 
 
 
Effective interest rate of liability component (10.03%)
 
 
 
Interest expense
 
 
 
Contractual interest coupon

 
248

Amortization of discount on liability component and debt issuance costs

 
6

 

 
254

April 2009 3.625% Convertible Senior Subordinated Notes:
 
 
 
Effective interest rate of liability component (17.26%)
 
 
 
Interest expense
 
 
 
Contractual interest coupon
585

 
603

Amortization of discount on liability component and debt issuance costs
1,636

 
1,398

 
2,221

 
2,001

January 2012 4.00% Convertible Senior Subordinated Notes:
 
 
 
Effective interest rate of liability component (9.56%)
 
 
 
Interest expense
 
 
 
Contractual interest coupon
450

 
450

Amortization of discount on liability component and debt issuance costs
460

 
420

 
910

 
870

April 2013 1.25% Convertible Senior Subordinated Notes:
 
 
 
Interest expense
 
 
 
Contractual interest coupon
156

 

 
156

 

Total
 
 
 
Contractual interest coupon
1,196

 
1,306

Amortization of discount on liability component and debt issuance costs
2,096

 
1,824

 
$
3,292

 
$
3,130


Fiscal 2014 Convertible Senior Subordinated Notes Transactions

April 2013 1.25% Notes. On April 15, 2013, LGEI issued $60.0 million, in aggregate principal amount, of 1.25% Convertible Senior Subordinated Notes with a maturity date of April 15, 2018. See below for key terms of the April 2013 1.25% Notes.
Convertible Senior Subordinated Notes Terms
October 2004 2.9375% Notes. In October 2004, LGEI sold $150.0 million of the October 2004 2.9375% Notes, of which $50.1 million was allocated to the equity component.
Outstanding Amount: As of June 30, 2013, $0.2 million of aggregate principal amount (carrying value —$0.2 million) of the October 2004 2.9375% Notes remains outstanding.

21

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



Interest: Interest on the October 2004 2.9375% Notes is payable semi-annually on April 15 and October 15.
Maturity Date: The October 2004 2.9375% Notes mature on October 15, 2024.
Redeemable by LGEI: LGEI may redeem the October 2004 2.9375% Notes at 100%.
Repurchase Events: The holder may require LGEI to repurchase the October 2004 2.9375% Notes on October 15, 2014 and 2019 or upon a change in control at a price equal to 100% of the principal amount, together with accrued and unpaid interest through the date of repurchase.
Conversion Features: The holder may convert the October 2004 2.9375% Notes into the Company’s common shares prior to maturity only if the price of the Company’s common shares issuable upon conversion of a note reaches or falls below a certain specific threshold over a specified period, the notes have been called for redemption, a change in control occurs or certain other corporate transactions occur. Before the close of business on or prior to the trading day immediately before the maturity date, the holder may convert the notes into the Company’s common shares at a conversion rate equal to 86.9565 shares per $1,000 principal amount of the October 2004 2.9375% Notes, subject to adjustment in certain circumstances, which represents a conversion price of approximately $11.50 per share. Upon conversion of the October 2004 2.9375% Notes, the Company has the option to deliver, in lieu of common shares, cash or a combination of cash and common shares of the Company.
Make Whole Premium: Under certain circumstances, if the holder requires LGEI to repurchase all or a portion of their notes or the holder converts the notes upon a change in control, they will be entitled to receive a make whole premium. The amount of the make whole premium, if any, will be based on the price of the Company’s common shares on the effective date of the change in control. No make whole premium will be paid if the price of the Company’s common shares at such time is less than $8.79 per share or exceeds $50.00 per share.
April 2009 3.625% Notes. In April 2009, LGEI issued approximately $66.6 million of 3.625% Convertible Senior Subordinated Notes, of which $16.2 million was allocated to the equity component.
Outstanding Amount: As of June 30, 2013, $64.5 million of aggregate principal amount (carrying value — $51.5 million) of the April 2009 3.625% Notes remains outstanding.
Interest: Interest on the April 2009 3.625% Notes is payable at 3.625% per annum semi-annually on March 15 and September 15 of each year.
Maturity Date: The April 2009 3.625% Notes will mature on March 15, 2025.
Redeemable by LGEI: On or after March 15, 2015, the Company may redeem the April 2009 3.625% Notes, in whole or in part, at a price equal to 100% of the principal amount of the April 2009 3.625% Notes to be redeemed, plus accrued and unpaid interest through the date of redemption.

Repurchase Events: The holder may require LGEI to repurchase the April 2009 3.625% Notes on March 15, 2015, 2018 and 2023 or upon a “designated event,” (as defined in the governing indenture), including a change in control, at a price equal to 100% of the principal amount of the April 2009 3.625% Notes to be repurchased plus accrued and unpaid interest.
Conversion Features: The April 2009 3.625% Notes may be converted into common shares of the Company at any time before maturity, redemption or repurchase. The initial conversion rate of the April 2009 3.625% Notes is 121.2121 common shares per $1,000 principal amount of the April 2009 3.625% Notes, subject to adjustment in certain circumstances, which represents a conversion price of approximately $8.25 per share. Upon conversion of the April 2009 3.625% Notes, the Company has the option to deliver, in lieu of common shares, cash or a combination of cash and common shares of the Company.
Make Whole Premium: Under certain circumstances, if the holder requires LGEI to repurchase all or a portion of their notes upon a change in control, they will be entitled to receive a make whole premium. The amount of the make whole premium, if any, will be based on the price of the Company’s common shares on the effective date of the change in control. No make whole premium will be paid if the price of the Company’s common shares at such time is less than $5.36 per share or exceeds $50.00 per share.
January 2012 4.00% Notes. In January 2012, LGEI issued approximately $45.0 million of January 2012 4.00% Notes, of which $10.1 million was allocated to the equity component.
Outstanding Amount: As of June 30, 2013, $45.0 million of aggregate principal amount (carrying value — $37.4 million) of the January 2012 4.00% Notes remains outstanding.
Interest: Interest on the January 2012 4.00% Notes is payable at 4.00% per annum semi-annually on January 15 and July 15 of each year, commencing on July 15, 2012.

22

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



Maturity Date: The January 2012 4.00% Notes will mature on January 11, 2017.
Conversion Features: The January 2012 4.00% Notes are convertible into common shares of the Company at any time prior to maturity or repurchase by the Company, at an initial conversion price of approximately $10.50 per share, subject to adjustment in certain circumstances as specified in the governing indenture. Upon conversion of the January 2012 4.00% Notes, the Company has the option to deliver, in lieu of common shares, cash or a combination of cash and common shares of the Company.
April 2013 1.25% Notes. In April 2013, LGEI issued approximately $60.0 million in aggregate principal amount of April 2013 1.25% Notes.
Outstanding Amount: As of June 30, 2013, $60.0 million of aggregate principal amount (carrying value - $60.0 million) of the April 2013 1.25% Notes remains outstanding.
Interest: Interest on the April 2013 1.25% Notes is payable semi-annually on April 15 and October 15 of each year, commencing on October 15, 2013.
Maturity Date: The April 2013 1.25% Notes will mature on April 15, 2018.
Conversion Features: The April 2013 1.25% Notes are convertible into common shares only of the Company at any time prior to maturity or repurchase by the Company, at an initial conversion price of approximately $30.00 per share, subject to adjustment in certain circumstances as specified in its Indenture.

6. Participations and Residuals
The Company expects approximately 64% of accrued participations and residuals will be paid during the one-year period ending June 30, 2014.

7. Film Obligations and Production Loans
 
 
June 30,
2013
 
March 31,
2013
 
(Amounts in thousands)
Film obligations
$
78,361

 
$
99,678

Production loans
 
 
 
Individual production loans
430,654

 
404,341

Pennsylvania Regional Center production loans

 
65,000

Total film obligations and production loans
$
509,015

 
$
569,019


The following table sets forth future annual repayment of film obligations and production loans as of June 30, 2013:
 
 
Nine Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31,
 
Year Ended March 31,
 
2014
 
2015
 
2016
 
2017
 
2018
 
Thereafter
 
Total
 
(Amounts in thousands)
Film obligations
$
30,184

 
$
22,020

 
$
16,680

 
$
6,000

 
$
6,000

 
$
1,000

 
$
81,884

Individual production loans
321,592

 
109,062

 

 

 

 

 
430,654

 
$
351,776

 
$
131,082

 
$
16,680

 
$
6,000

 
$
6,000

 
$
1,000

 
512,538

Less imputed interest on film obligations
 
 
 
 
 
 
 
 
 
 
 
 
(3,523
)
 
 
 
 
 
 
 
 
 
 
 
 
 
$
509,015

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

23


Individual Production Loans
Production loans represent individual loans for the production of film and television programs that the Company produces. Individual 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. Individual production loans of $415.7 million incur interest at rates ranging from 2.78% to 4.03%, and approximately $15.0 million of production loans are non-interest bearing.
Pennsylvania Regional Center
In April 2008, the Company entered into a loan agreement with the Pennsylvania Regional Center, which provided for the availability of production loans up to $65.5 million on a five-year term for use in film and television productions in the State of Pennsylvania. Amounts borrowed under the agreement carried an interest rate of 1.5%, which was payable semi-annually. The Pennsylvania Regional Center facility matured on April 11, 2013, and was fully repaid at that time. Accordingly, at June 30, 2013, the Company had no borrowings outstanding (March 31, 2013$65.0 million).

Film Credit Facility
On October 6, 2009, the Company entered into a revolving film credit facility agreement, as amended effective December 31, 2009 and June 22, 2010 (the “Film Credit Facility”), which provided for borrowings for the acquisition or production of motion pictures. The Film Credit Facility expired on April 6, 2013, and accordingly, at June 30, 2013, the Company had no borrowings outstanding (March 31, 2013nil).


8. Fair Value Measurements
Fair Value
Accounting guidance and standards about fair value define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair Value Hierarchy
Accounting guidance and standards about fair value establish a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The accounting guidance and standards establish three levels of inputs that may be used to measure fair value:

Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 liabilities that are not required to be measured at fair value on a recurring basis include the Company’s convertible senior subordinated notes, individual production loans, Pennsylvania Regional Center Loan (outstanding at March 31, 2013 only) and Senior Notes, which are priced using discounted cash flow techniques that use observable market inputs, such as LIBOR-based yield curves, three- and seven-year swap rates, and credit ratings.
Level 3 — Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities. The Company measures the fair value of its investment in TVGN's Mandatorily Redeemable Preferred Stock Units using primarily a discounted cash flow analysis based on the expected cash flows of the investment. The analysis reflects the contractual terms of the investment, including the period to maturity, and uses a discount rate commensurate with the risk associated with the investment.
The following table sets forth the carrying values and fair values of the Company’s investment in TVGN's mandatorily redeemable preferred stock units and outstanding debt at June 30, 2013 and March 31, 2013:
 

24

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



 
June 30, 2013
 
March 31, 2013
 
(Amounts in thousands)
 
Carrying
Value
 
Fair Value
 
Carrying Value
 
Fair Value
 
 
 
(Level 3)
 
 
 
(Level 3)
Assets:
 
 
 
 
 
 
 
Investment in TVGN's Mandatorily Redeemable Preferred Stock Units
$
88,273

 
$
146,265

 
$
91,408

 
$
140,312

 
 
 
 
 
 
 
 
 
Carrying
Value
 
Fair Value
 
Carrying Value
 
Fair Value
 
 
 
(Level 2)
 
 
 
(Level 2)
Liabilities:
 
 
 
 
 
 
 
October 2004 2.9375% convertible senior subordinated notes
$
185

 
$
167

 
$
348

 
$
276

April 2009 3.625% convertible senior subordinated notes
51,534

 
62,697

 
49,907

 
66,939

January 2012 4.00% convertible senior subordinated notes
37,361

 
42,267

 
36,912

 
48,878

April 2013 1.25% convertible senior subordinated notes
60,000

 
46,208

 

 

Individual production loans
430,654

 
430,369

 
404,341

 
403,883

Pennsylvania Regional Center production loans

 

 
65,000

 
65,000

Senior secured second-priority notes
428,517

 
461,160

 
432,277

 
477,965

 
$
1,008,251

 
$
1,042,868

 
$
988,785

 
$
1,062,941


9. Direct Operating Expenses
 
 
Three Months Ended
 
Three Months Ended
 
June 30,
2013
 
June 30,
2012
 
(Amounts in thousands)
Amortization of films and television programs
$
219,364

 
$
167,097

Participations and residual expense
85,826

 
78,603

Other expenses:
 
 
 
Provision for doubtful accounts
(88
)
 
(687
)
Foreign exchange losses
1,343

 
805

 
$
306,445

 
$
245,818



25

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



10. 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 months ended June 30, 2013 and 2012 is presented below:
 
 
Three Months Ended
 
Three Months Ended
 
June 30,
2013
 
June 30,
2012
 
(Amounts in thousands, except per share amounts)
Basic Net Income (Loss) Per Common Share:
 
 
 
Numerator:
 
 
 
Net income (loss)
$
13,617

 
$
(44,200
)
Denominator:
 
 
 
Weighted average common shares outstanding
136,189

 
133,234

Basic Net Income (Loss) Per Common Share
$
0.10

 
$
(0.33
)

Diluted net income (loss) per common share reflects the potential dilutive effect, if any, of the conversion of the October 2004 2.9375% Notes, the February 2005 3.625% Notes, the April 2009 3.625% Notes, the January 2012 4.00% Notes, and the April 2013 1.25% Notes under the "if converted" method. Diluted net income (loss) per common share also reflects share purchase options, including equity-settled SARs, and restricted share units using the treasury stock method when dilutive, and any contingently issuable shares when dilutive. Diluted net income (loss) per common share for the three months ended June 30, 2013 and 2012 is presented below:

 
Three Months Ended
 
Three Months Ended
 
June 30,
2013
 
June 30,
2012
 
(Amounts in thousands, except per share amounts)
Diluted Net Income (Loss) Per Common Share:
 
 
 
Numerator:
 
 
 
Net income (loss)
$
13,617

 
$
(44,200
)
Add:
 
 
 
Interest on convertible notes, net of tax
99

 

Numerator for Diluted Net Income (Loss) Per Common Share
$
13,716

 
$
(44,200
)
 
 
 
 
Denominator:
 
 
 
Weighted average common shares outstanding
136,189

 
133,234

Effect of dilutive securities:
 
 
 
Conversion of notes
1,692

 

Share purchase options
2,207

 

Restricted share units
657

 

Adjusted weighted average common shares outstanding
140,745

 
133,234

Diluted Net Income (Loss) Per Common Share
$
0.10

 
$
(0.33
)

26

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



As of June 30, 2012, the outstanding common shares issuable presented below were excluded from diluted net loss per common share because their inclusion would have had an anti-dilutive effect due to the net loss incurred in the period.

 
June 30,
2012
 
(Amounts in thousands)
Anti-dilutive shares issuable
 
Conversion of notes
14,029

Share purchase options
3,519

Restricted share units
1,539

Contingently issuable restricted share units
593

Total weighted average anti-dilutive shares issuable excluded from Diluted Net Loss Per Common Share
19,680




11. Capital Stock

(a) Common Shares
The Company had 500 million authorized common shares at June 30, 2013 and March 31, 2013. The table below outlines common shares reserved for future issuance:
 
 
June 30,
2013
 
March 31,
2013
 
(Amounts in thousands)
Stock options outstanding, average exercise price $16.92 (March 31, 2013 - $13.72)
8,484

 
6,421

Restricted share units — unvested
2,135

 
2,077

Share purchase options and restricted share units available for future issuance
5,837

 
12,341

Shares issuable upon conversion of October 2004 2.9375% Notes at conversion price of $11.50 per share
16

 
30

Shares issuable upon conversion of April 2009 3.625% Notes at conversion price of $8.25 per share
7,819

 
7,819

Shares issuable upon conversion of January 2012 4.00% Notes at conversion price of $10.50 per share
4,286

 
4,286

Shares issuable upon conversion of April 2013 1.25% Notes at conversion price of $30.00 per share
2,000

 

Shares reserved for future issuance
30,577

 
32,974


In September 2012, the Company adopted the 2012 Performance Incentive Plan (the "2012 Plan"). The 2012 Plan provides for the issuance of up to an additional 18.3 million shares of common shares of the Company, stock options, share appreciation rights, restricted stock, stock bonuses and other forms of awards granted or denominated in common shares or units of common shares, as well as certain cash bonus awards to eligible directors of the Company, officers or employees of the Company or any of its subsidiaries, and certain consultants and advisors to the Company or any of its subsidiaries.


27

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 months ended June 30, 2013, and 2012:
 
 
Three Months Ended
 
Three Months Ended
 
June 30,
2013
 
June 30,
2012
 
(Amounts in thousands)
Compensation Expense:
 
 
 
Stock Options
$
3,767

 
$
299

Restricted Share Units and Other Share-based Compensation
7,403

 
7,224

Stock Appreciation Rights
6,577

 
2,226

Total share-based compensation expense
$
17,747

 
$
9,749

 
 
 
 
Tax impact (1)
(6,566
)
 

Reduction in net income
$
11,181

 
$
9,749

____________________________
(1)
Represents the income tax benefit recognized in the statements of operations for share-based compensation arrangements.
During the three months ended June 30, 2013, the Company granted 2,113,756 and 782,072 stock options and restricted share units, respectively, at a weighted-average grant-date fair value of $12.17 and $25.34, respectively.
The total intrinsic value of options exercised as of each exercise date during the three months ended June 30, 2013 and 2012 was $0.7 million and $0.1 million, respectively.
Total unrecognized compensation cost related to unvested stock options and restricted share unit awards at June 30, 2013 are $53.6 million and $42.7 million, respectively, and are expected to be recognized over a weighted average period of 2.9 and 1.9 years, respectively.
12. Income Taxes
The Company had an income tax expense of $8.0 million, or 37.0%, of income before income taxes in the three months ended June 30, 2013, compared to an expense of $2.2 million, or (5.2)%, of loss before income taxes in the three months ended June 30, 2012. The income tax provision for the three months ended June 30, 2013 is calculated by estimating the Company's annual effective tax rate (estimated annual tax provision divided by estimated annual income before income taxes) and then applying the effective tax rate to income before income taxes for the quarter, along with any items that relate discretely to the quarter. The tax provision in the three months ended June 30, 2012 was significantly impacted by changes in the Company's valuation allowance on its net deferred tax asset, and the provision primarily represents deferred U.S. income taxes and foreign withholding taxes. The Company reversed a substantial portion of its valuation allowance in fiscal 2013. The Company expects that with the utilization of its net operating loss carryforwards and other tax attributes, that its cash tax requirements will not increase significantly in fiscal 2014 compared to fiscal 2013.

13. Segment Information
Accounting guidance requires the Company to make certain disclosures about each reportable segment. The Company’s reportable segments are determined based on the distinct nature of their operations and each segment is a strategic business unit that offers different products and services and is managed separately. The Company has two reportable business segments as of June 30, 2013: Motion Pictures and Television Production.
Motion Pictures 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 consists of the development, production and worldwide distribution of television productions including television series, television movies and mini-series and non-fiction programming.


28

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



Segmented information by business unit is as follows:
 
 
Three Months Ended
 
Three Months Ended
 
June 30,
2013
 
June 30,
2012
 
(Amounts in thousands)
Segment revenues
 
 
 
Motion Pictures
$
438,646

 
$
406,534

Television Production
131,082

 
65,286

 
$
569,728

 
$
471,820

Direct operating expenses
 
 
 
Motion Pictures
$
203,450

 
$
193,682

Television Production
102,995

 
52,136

 
$
306,445

 
$
245,818

Distribution and marketing
 
 
 
Motion Pictures
$
165,100

 
$
172,900

Television Production
6,360

 
5,809

 
$
171,460

 
$
178,709

Segment contribution before general and administration expenses
 
 
 
Motion Pictures
$
70,096

 
$
39,952

Television Production
21,727

 
7,341

 
$
91,823

 
$
47,293

General and administration
 
 
 
Motion Pictures
$
16,425

 
$
16,835

Television Production
3,007

 
2,713

 
$
19,432

 
$
19,548

Segment profit
 
 
 
Motion Pictures
$
53,671

 
$
23,117

Television Production
18,720

 
4,628

 
$
72,391

 
$
27,745

Acquisition of investment in films and television programs
 
 
 
Motion Pictures
$
122,239

 
$
81,051

Television Production
38,694

 
79,954

 
$
160,933

 
$
161,005


Segment contribution before general and administration expenses is defined as segment revenue less segment direct operating and distribution and marketing expenses.

29

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



Segment profit is defined as segment revenue less segment direct operating, distribution and marketing, and general and administration expenses. The reconciliation of total segment profit to the Company’s income (loss) before income taxes is as follows:
 
 
Three Months Ended
 
Three Months Ended
 
June 30,
2013
 
June 30,
2012
 
(Amounts in thousands)
Company’s total segment profit
$
72,391

 
$
27,745

Less:
 
 
 
Shared services and corporate expenses (1)
(37,338
)
 
(32,796
)
Depreciation and amortization
(1,625
)
 
(2,105
)
Interest expense
(20,814
)
 
(27,490
)
Interest and other income
1,496

 
950

Loss on extinguishment of debt
(466
)
 
(8,159
)
Equity interests income (loss)
7,977

 
(145
)
Income (loss) before income taxes
$
21,621

 
$
(42,000
)
________________________
(1)
The following table presents certain charges included in shared services and corporate expenses:
 
Three Months Ended
 
Three Months Ended
 
June 30,
2013
 
June 30,
2012
 
(Amounts in thousands)
Share-based compensation expense
$
17,747

 
$
9,749

Severance and transaction costs related to the
acquisition of Summit

 
1,727

Other shared services and corporate expenses
19,591

 
21,320

 
$
37,338

 
$
32,796

The following table sets forth significant assets as broken down by segment and other unallocated assets as of June 30, 2013 and March 31, 2013:
 
 
June 30, 2013
 
March 31, 2013
 
Motion
Pictures
 
Television
Production
 
Total
 
Motion
Pictures
 
Television
Production
 
Total
 
(Amounts in thousands)
Significant assets by segment
 
 
 
 
 
 
 
 
 
 
 
Accounts receivable
$
572,486

 
$
246,952

 
$
819,438

 
$
551,400

 
$
235,750

 
$
787,150

Investment in films and television programs, net
981,808

 
203,842

 
1,185,650

 
1,002,800

 
241,275

 
1,244,075

Goodwill
294,367

 
28,961

 
323,328

 
294,367

 
28,961

 
323,328

 
$
1,848,661

 
$
479,755

 
$
2,328,416

 
$
1,848,567

 
$
505,986

 
$
2,354,553

Other unallocated assets (primarily cash, other assets, and equity method investments)
 
 
 
 
380,676

 
 
 
 
 
406,316

Total assets
 
 
 
 
$
2,709,092

 
 
 
 
 
$
2,760,869



30

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



Purchases of property and equipment amounted to $1.4 million and $0.4 million for the three months ended June 30, 2013 and 2012, respectively.


14. Contingencies
From time to time, the Company is involved in certain claims and legal proceedings arising in the normal course of business. While the resolution of these matters cannot be predicted with certainty, the Company does not believe, based on current knowledge, that the outcome of any currently pending claims or legal proceedings in which the Company is currently involved will have a material adverse effect on the Company’s financial statements.

15. Consolidating Financial Information — Convertible Senior Subordinated Notes

The October 2004 2.9375% Notes, the April 2009 3.625% Notes, the January 2012 4.00% Notes, and the April 2013 1.25% Notes by their terms, are fully and unconditionally guaranteed by the Company.

The following tables present condensed consolidating financial information as of June 30, 2013 and March 31, 2013, and for the three months ended June 30, 2013 and 2012 for (1) the Company, on a stand-alone basis, (2) LGEI, on a stand-alone basis, (3) the non-guarantor subsidiaries of the Company (including the subsidiaries of LGEI), on a combined basis (collectively, the “Non-guarantor Subsidiaries”) and (4) the Company, on a consolidated basis.
 
 
As of
 
June 30, 2013